UNIVERSAL FOREST PRODUCTS INC, 10-K, 2000-03-24

UNIVERSAL FOREST PRODUCTS INC
10-K, 2000-03-24
SAWMILLS & PLANTING MILLS, GENERAL

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<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. FOR FISCAL YEAR ENDED DECEMBER 25, 1999.

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the transition period from to .
------------ -------------

Commission File No.: 0-22684

UNIVERSAL FOREST PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1465835
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2801 E. BELTLINE, N.E., GRAND RAPIDS, MICHIGAN 49525
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class Name of each exchange on which registered
NONE
-----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, NO PAR VALUE
(Title of Class)

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

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of March 1, 2000, 20,127,181 shares of the registrant's common stock, no par
value, were outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant (i.e., excluding shares held by executive
officers, directors, and control persons as defined in Rule 405, 17 CFR 230.405)
on that date was $144,581,957 computed at the closing price of $12.0625 on that
date.

Documents incorporated by reference:

(1) Certain portions of the Company's Annual Report to Shareholders for the
fiscal year ended December 25, 1999 are incorporated by reference into Part
I and II of this Report.

(2) Certain portions of the Company's Proxy Statement for its 2000 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
Report.

Exhibit Index located on page E-1.
Page 1 of 16

<PAGE> 2

ANNUAL REPORT ON FORM 10-K

DECEMBER 25, 1999

TABLE OF CONTENTS

PAGE
PART I

Item 1. Business. 3
Item 2. Properties. 9
Item 3. Legal Proceedings. 9
Item 4. Submission of Matters to a Vote of Security Holders. 10

PART II

Item 5. Market for the Registrant's Common Equity and Related 12
Shareholder Matters.
Item 6. Selected Financial Data. 12
Item 7. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 12
Item 8. Financial Statements and Supplemental Data. 13
Item 9. Changes in and Disagreements with Accountants on 13
Accounting and Financial Disclosure.

PART III

Item 10. Directors and Executive Officers of the Registrant. 13
Item 11. Executive Compensation. 13
Item 12. Security Ownership of Certain Beneficial Owners 14
and Management.
Item 13. Certain Relationships and Related Transactions. 14

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports 14
on Form 8-K.

<PAGE> 3

PART I

ITEM 1. BUSINESS.

(A) GENERAL DEVELOPMENT OF THE BUSINESS.

Universal Forest Products(R), Inc. ("the Company") engineers, manufactures,
treats and distributes lumber products for the do-it-yourself (DIY),
manufactured housing, industrial, wholesale and site-built construction markets.
The Company currently operates 75 facilities throughout the United States,
Canada and Mexico.

Universal Forest Products(R), Inc. was organized as a Michigan corporation in
1955. The Company's business originally consisted of purchasing lumber in
carload lots from primary producers and reselling those carloads mostly to
manufacturers of mobile and modular homes, without any intermediate handling. In
the early 1970's, producers of manufactured housing were experiencing supply and
inventory difficulties as a result of the deterioration of railroad service and
rapidly increasing interest rates. The Company's management recognized these
customer-experienced problems as an opportunity. As a result, the Company
developed a "component yard" concept that featured distribution facilities with
manufacturing capabilities located on major rail routes in close proximity to
its clustered manufactured housing customers. Carload shipments of lumber were
received at these facilities where the material was either broken down and
shipped to customers without further processing, or manufactured to the
customer's specifications before shipment to the customer by truck. The
component yard concept helped the Company's customers reduce materials
management problems, control their inventory and labor costs and conserve
capital. As the component yard concept evolved, the Company began to manufacture
roof trusses for its manufactured housing customers. The Company believes it was
the first truss supplier to employ a full-time staff of engineers who assist
customers with truss designs, help obtain various building code approvals for
these designs and facilitate the development of new products and manufacturing
techniques. Consequently, the Company's sales to the manufactured housing
industry grew rapidly through the 1970's and 1980's. Today, the Company is the
largest manufacturer of roof trusses for manufactured homes in the nation.

In order to enhance growth opportunities, the Company entered the wood
preservation business in 1979. The Company utilizes a pressure-treatment process
for protecting wood from damage by insects and fungi in outdoor applications.
The expansion into this product line led to the manufacture of a variety of
products, primarily for landscaping, deck and fence construction. These products
were originally sold to conventional lumberyards and small lumberyard chains.
When the warehouse-format mass merchandisers such as The Home Depot became
strong retail outlets for the DIY market in the late 1980's, the Company was
well positioned to capture the business of these retailers. By virtue of the
geographic dispersal of its facilities in the regions containing the DIY market
and its prior experience with the flexibility required for the delivery of mixed
truckloads of products on a just-in-time basis, the Company possessed the
abilities demanded by the DIY retailers. The Company has grown to become the
largest supplier of treated lumber products to the DIY market.

<PAGE> 4

In the mid-1980's, management began to recognize opportunities in the industrial
market. The Company manufactures pallets, crating stock and specialty packaging
for large industrial manufacturers and agricultural customers. These products
may be manufactured from the by- product of other manufactured products,
providing the Company with a profitable way of expanding its business while
increasing its raw material yields. In 1998, the Company expanded its industrial
market presence through certain acquisitions.

Beginning in December of 1997, the Company added the site-built construction
market to its business, through five strategic business acquisitions. The
Company acquired manufacturers of engineered wood products, which include roof
trusses, wall panels and engineered floor systems. The customer base of these
manufacturers consists of large-volume, multi-tract builders, small- volume
custom builders, national home center customers and retail lumberyards. As a
result of these business acquisitions, the Company has become one of the largest
manufacturers of engineered trusses and wall panels in the nation.

(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.

The information required by this item is incorporated by reference from Footnote
O of the Consolidated Financial Statements presented under Item 8 herein.

The Company presently engineers, manufactures, treats and distributes lumber
products for the DIY, manufactured housing, industrial and site-built
construction markets. Each of these markets is discussed in the paragraphs which
follow. The Company also sells lumber products to the wholesale market, but
management is not emphasizing this business in its growth objectives.

DIY MARKET. The customers comprising this market are primarily national home
center retailers, chain lumberyards and contractor oriented lumberyards. The
Company is currently selling to over 1,800 customers in this market. One
customer, The Home Depot, accounted for approximately 26%, 20% and 18% of the
Company's total net sales for fiscal 1999, 1998 and 1997, respectively.

National customers in this market are serviced by the Company's sales staff in
each region and are assisted by personnel from the Company's headquarters.
Generally, terms of sale are established for annual periods, and orders are
placed with the Company's regional facilities in accordance with established
terms.

The Company currently supplies customers in this market from over 50 of its
locations. These regional facilities are able to supply customers with mixed
truckloads of products which can be delivered to customers with rapid turnaround
from receipt of an order. Freight costs are a factor in the ability to
competitively service this market, especially with treated wood products because
of their heavier weight. The close proximity of the Company's regional
facilities to the various outlets of these customers is a significant advantage
when negotiating annual sales programs.

The products offered to customers in this market include dimension lumber (both
preserved and unpreserved) and various "value-added products," some of which are
sold under the Company's

<PAGE> 5

trademarks. Lumber treated with preservatives is sold under the Company's
PRO-WOOD(R) trademark.

Value-added products may be preserved by pressure-treatment or unpreserved, and
include the following:

- - Products in the Deck Necessities(R) group consist of decking, balusters,
spindles, decorative posts, handrails, stair risers, stringers and treads.
- - The Fence Fundamentals(TM) group of products includes various styles of
fences, such as solid, picket and shadowbox, as well as gates, posts and
other components.
- - Products in the Outdoor Essentials(R) group consist of various home and
garden and landscaping items.
- - Large volumes of lattice are sold by the Company under its Lattice Basics(TM)
trademark for use as skirting on decks, trellises and various outdoor home
improvement projects.
- - The Storage Solutions(TM) product line consists primarily of storage building
frames and trusses.

The Company also sells engineered wood products to this market as a result of
its 1998 business acquisitions. These products include roof trusses, wall panels
and engineered floor systems. Depending upon regional practices and builder
preferences, the Company may sell these products through retailers or directly
to builders (see "Site-Built Construction Market" below).

The Company is not aware of any competitor that currently manufactures, treats
and distributes a full line of both value-added and commodity products on a
national basis. The Company faces competition on individual products from
several different producers, but the majority of these competitors tend to be
regional in their efforts and/or do not offer a full line of outdoor lumber
products. The Company also faces increased competition in this market from
certain national vendor mills with wood preservation facilities in certain
regions. The Company believes the breadth of its product offering, its
geographic dispersion and close proximity of its plants to core customers, its
purchasing expertise and its service capabilities provide significant
competitive advantages in this market. As this industry continues to
consolidate, the Company believes it is well-positioned to capture additional
market share.

MANUFACTURED HOUSING MARKET. The customers comprising the manufactured housing
market are producers of mobile, modular and prefabricated homes and recreational
vehicles. The Company is currently selling to over 200 customers in this market.

Products sold to customers in this market consist primarily of roof trusses,
lumber cut and shaped to the customer's specification, plywood, particle board
and dimension lumber, all intended for use in the construction of manufactured
housing. Sales are made by personnel located at each regional facility based on
customer orders. The Company's engineering and support staff acts as a sales
support resource to assist the customer with truss designs, obtaining various
building code approvals for the designs and aiding in the development of new
products and manufacturing processes.

While no competitor operates in as widely-dispersed geographic areas as the
Company, it does face vigorous competition from suppliers in many geographic
regions. The Company estimates that it produces over 65% of the HUD Code roof
trusses supplied to this market based on data published

<PAGE> 6

by the Manufactured Housing Institute. The Company's principal competitive
advantages include its product knowledge, the capacity to supply all of the
customer's lumber requirements, the ability to deliver engineering support
services, the close proximity of its regional facilities to core customers and
its ability to provide national sales programs to certain customers.

INDUSTRIAL MARKET. The Company defines its industrial market as industrial
manufacturers and agricultural customers who use pallets, crates and wooden
boxes for packaging, shipping and material handling purposes. The Company has
increased its emphasis on this market in recent years and currently sells to
over 1,500 customers in this market. Many of the products sold to this market
may be produced from the by-product of other manufactured products, thereby
allowing the Company to increase its raw material yields while expanding its
business. Competition is fragmented and includes virtually every supplier of
lumber convenient to the customer. The Company services this market with its
regional sales personnel supported by a centralized national sales and marketing
department and emphasizes service and reliability as competitive strengths.

SITE-BUILT CONSTRUCTION MARKET. The Company entered the site-built construction
market through five strategic business acquisitions completed from December,
1997 through December, 1998. The businesses acquired are discussed herein under
the section "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

The customers comprising this market are primarily large-volume, multi-tract
builders and smaller volume custom builders. The Company currently sells to over
1,700 customers in this market. Customers are serviced by the Company's sales,
engineering and design personnel in each region. Generally, terms of sale and
pricing are determined based on quotes for each specific job order.

The Company currently supplies customers in this market from 31 facilities
located in 16 different states. These facilities manufacture various engineered
wood products used to frame a residential or commercial project, including roof
and floor trusses, wall panels, Open Joist 2000 and I-joists. Freight costs are
a factor in the ability to competitively service this market due to the space
requirements of these products on each truckload.

The Company is not aware of any competitor that manufactures and distributes a
complete line of engineered wood products on a national basis. Competition in
this market is fragmented as local regulatory requirements and product
preferences have resulted in a regional operating focus. The Company's objective
is to continue to increase its manufacturing capacity for this market while
developing a national presence. Management expects to face competition from
various companies, primarily consisting of contractor-oriented retailer lumber
yards, attempting to complete the same strategy. The Company believes its
primary competitive advantages relate to the engineering and design capabilities
of its regional staff, its product quality and timeliness of delivery.

WOOD PRESERVATION TREATMENT. The Company is the largest producer of
preservative-treated lumber in the nation based on data published by the
Building Products Digest. The Company operates 19 treatment facilities in 12
different states, with capacity to process over one billion board feet annually.

<PAGE> 7

The process for preserving wood utilized by the Company involves the application
of a Chromated Copper Arsenate (CCA) solution under pressure. This process
originated in India over sixty years ago as a means for protecting timbers
utilized in the construction of mine shafts and tunnels. The basic process is no
longer protected by any U.S. patent, and is widely used by numerous producers of
treated lumber. The process consists of mixing the chemicals with water and
impregnating the wood by alternating vacuum and pressure in specially designed
pressure chambers. Thereafter, the CCA becomes a permanent component of the
wood. The preservative in the wood acts as both an insecticide and a fungicide,
thereby effectively eliminating the two principal causes of wood deterioration
that exist in North America. The Company has developed and implemented numerous
refinements to the basic CCA treatment process, and considers its process to be
"state of the art."

In order to alleviate environmental concerns, in the mid-1980's the Company
began installing monitoring wells at all of its treating facilities where
groundwater contamination was a potential problem. Quality assurance personnel
from the Company's headquarters perform audits, including soil and groundwater
sampling at least semi-annually to assure that the treating process is being
performed in accordance with the Company's stringent standards for both
environmental safety and product quality.

At the time the monitoring wells were installed at the Company's Granger, IN
facility in 1986, chromium was discovered in the groundwater in excess of the
EPA limit for drinking water at one end of the Company's property. The Company
initiated a voluntary remediation program. The extent of contamination was
defined and a remediation plan was designed and implemented. This contamination
was successfully remediated, and the Company has obtained final written
confirmation of this from the State of Indiana.

In 1999, the Company identified arsenic contamination in a shallow aquifer at
its plant in Auburndale, Fl. Storm water best management practices implemented
in 1999 eliminated the contamination. The Company continues to work proactively
with the State of Florida to ensure that water quality is not impacted at the
facility.

The Company acquired several facilities from Chesapeake Corporation in October
1993. Based on the agreements between the Company and Chesapeake Corporation,
the environmental conditions existing at the Elizabeth City, NC, Stockertown, PA
and North East, MD sites are the responsibility of the Company. Environmental
conditions consist of limited soil and/or groundwater contamination of CCA
components. Similarly, the Company purchased a treating facility in Schertz, TX
with limited soil contamination in December 1998. The nature and extent of each
of these conditions does not require immediate action. If these sites are
closed, some remedial action such as soil treatment and/or removal may be
required. Estimates of probable costs have been prepared and accrued for each of
these sites.

The Company has accrued for costs of remediation of all of its sites totaling
approximately $2.4 million at December 25, 1999. Except for the situations
described above, the Company is not aware of any material environmental problems
affecting its properties.

<PAGE> 8

SEASONAL INFLUENCES. The Company's manufactured housing and site-built
construction markets are affected by seasonal influences in the northern states
during the winter months when installation and construction is more difficult.

The activities in the DIY market have substantial seasonal impacts. The demand
for many of the Company's DIY products is highest during the period of April to
August. Accordingly, its sales to the DIY market tend to be greater during the
second and third quarters. The Company builds its inventory of finished goods
throughout the winter and spring to support this sales peak. Restraints on
production capacity make this a necessary practice which potentially exposes the
Company to adverse effects of changes in economic and industry trends. Since
1995, inventory management initiatives, supply programs with vendors and
programs with customers have been used to reduce the Company's exposure to
adverse changes in the commodity lumber market and decrease demands on cash
resources.

SUPPLIERS. The Company is one of the largest domestic buyers of solid sawn
lumber from primary producers (lumber mills). It uses primarily southern yellow
pine in its pressure-treating operations, which it obtains from mills located
throughout the states comprising the sun belt. Other species used by the Company
include "spruce-pine-fir," from Ontario, Quebec, British Columbia and Alberta,
Canada; hemlock, Douglas fir and cedar from the Pacific Northwest; inland
species of Ponderosa pine; and Brazilian pine. There are numerous primary
producers for all varieties used by the Company, and the Company is not
dependent on any particular source of supply. The Company's financial resources,
in combination with its strong sales network and ability to remanufacture
lumber, enable it to purchase a large percentage of a primary producer's output
(as opposed to only those dimensions or grades in immediate need), thereby
lowering its average cost of raw materials. Management believes this represents
a significant competitive advantage.

INTELLECTUAL PROPERTY. The Company owns a patent relating to automated equipment
for the manufacture of lattice, a tie-down strap patent related to truss
components, and a patent on machinery used in the recycling of drywall and the
production of joint compound and wall texture. In addition, it owns five
registered trademarks: PRO-WOOD(R) relating to preservative-treated wood
products; Deck Necessities(R) relating to deck component products; Outdoor
Essentials(R) related to lawn and garden items such as planter boxes, fencing
products and lattice products; the name Universal Forest Products(R); and a pine
tree logo. The Company has applied for an additional registered trademark
related to its ProFence(TM) products. In addition, it claims common law
trademark rights to several other trademarks of lesser importance. While it
believes its patent and trademark rights are valuable, the loss of its patent or
any trademark would not have a material adverse impact on the competitive
position of the Company.

RESEARCH AND DEVELOPMENT. Research and development efforts by the Company
generally fall into four categories: engineering and testing of new truss
designs; design and development of wood treatment systems and manufacturing
processes; design and development of machinery and tooling of various wood
shaping devices; and development of new products. Although important to the
Company's competitive strengths and growth, the dollar amount of research and
development expenditures has not typically been material to the Company.

<PAGE> 9

EMPLOYEES. At March 1, 2000, the Company had approximately 4,800 employees. No
Company employees are represented by a labor union. The Company has never
experienced a work stoppage due to a labor dispute, and believes its relations
with employees are good.

BACKLOG. Due to the nature of the Company's DIY, manufactured housing and
industrial businesses, backlog information is not meaningful. The maximum time
between receipt of a firm order and shipment does not usually exceed a few days.
Therefore, the Company would not normally have a backlog of unfilled orders in a
material amount. The relationships with its major customers are such that it is
either the exclusive supplier of certain products and/or certain geographic
areas, or the designated source for a specified portion of the customer's
requirements. In such cases, either the Company is able to forecast the
customer's requirements or the customer may provide an estimate of its future
needs. In neither case, however, will the Company receive firm orders until just
prior to the anticipated delivery dates for the products in question.

At March 1, 2000, backlog orders associated with the site-built construction
business approximated $17.5 million, representing approximately five weeks
production. The Company believes the relatively short time period associated
with its backlog, in certain regions, provides a significant competitive
advantage.

(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.

The dominant portion of the Company's operations and sales occur in the United
States. Separate financial information about foreign and domestic operations and
export sales is incorporated by reference from Footnote O of the Consolidated
Financial Statements presented under Item 8 herein.

ITEM 2. PROPERTIES.

The Company's headquarters are located on a ten acre site adjacent to a main
thoroughfare in suburban Grand Rapids, Michigan. The headquarters building
consists of several one and two story structures of wood construction containing
approximately 49,000 square feet of office space.

The Company currently has 75 facilities at 66 locations. These facilities are
located in 25 U.S. states, two Canadian provinces, and one Mexican state, and
are involved in either the engineer, manufacture, preservative treatment or
distribution of lumber products, or a combination of these activities. These
facilities are generally of steel frame and aluminum construction and situated
on fenced sites ranging in size from 7 acres to 48 acres. Depending upon
function and location, these facilities typically utilize office space between
1,500 and 5,000 square feet, manufacturing space between 10,000 and 105,000
square feet, treating space between 25,000 and 300,000 square feet, and covered
storage ranging from 10,000 to 100,000 square feet.

The Company owns all of its properties, free from any significant mortgage or
other encumbrance, except for 10 regional facilities which are leased. The
Company believes that all of these operating facilities are adequate in capacity
and condition to service existing customer locations.

ITEM 3. LEGAL PROCEEDINGS.

<PAGE> 10

The Company is not involved in any pending legal proceedings other than routine
litigation incidental to the ordinary conduct of its business, none of which
would result in a material adverse effect on the consolidated financial
position, operating results or liquidity of the Company, individually or in the
aggregate, in the event of an adverse outcome.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.

ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table lists the names, ages and positions of all of the Company's
executive officers as of March 1, 2000. Executive officers are elected annually
by the Board of Directors at the first meeting of the Board following the annual
meeting of shareholders.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Name Age Position
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter F. Secchia 62 Chairman of the Board, Universal Forest Products, Inc.
William G. Currie 52 Chief Exec. Officer and Vice Chair. of the Board, Universal Forest Products, Inc.
Michael B. Glenn 48 President and Chief Operating Officer, Universal Forest Products, Inc.
James H. Ward 56 President, Universal Forest Products Eastern Division, Inc.
Robert K. Hill 52 President, Universal Forest Products Western Division, Inc.
Gary A. Wright 52 President, Shoffner Industries, L.L.C.
C. Scott Greene 44 President Elect, Universal Forest Products Eastern Division, Inc.
Robert D. Coleman 45 Exec. Vice President Manufacturing, Universal Forest Products, Inc.
Philip E. Rogers 49 Exec. Vice Pres. National Sales and Marketing, Universal Forest Products, Inc.
Matthew J. Missad 39 Executive Vice President and Secretary, Universal Forest Products, Inc.
Michael R. Cole 33 Vice Pres. Finance and Acting Chief Financial Officer, Universal Forest
Products, Inc.
Carroll M. Shoffner 67 Chairman of the Board, Shoffner Industries, L.L.C.
Eric S. Maxey 41 Vice President of Administration, Universal Forest Products, Inc.
Jeff A. Higgs 45 Vice President, Universal Forest Products Western Division, Inc.
- -----------------------------------------------------------------------------------------------------------
</TABLE>

Peter F. Secchia, Chairman of the Board, began his service with the Company in
1962 and has been a director since 1967. Mr. Secchia served as President, Chief
Executive Officer and Chairman of the Company from 1971 until 1989, when he was
appointed U.S. Ambassador to Italy. Mr. Secchia completed his tenure as
Ambassador on January 20, 1993, when he rejoined the Company as Chairman of the
Board.

William G. Currie joined the Company in 1971. From 1983 to 1990, Mr. Currie was
President of Universal Forest Products, Inc., and he was the President and Chief
Executive Officer of The Universal Companies, Inc. from 1989 until the merger to
form the Company in 1993. On January 1, 2000, Mr. Currie also became Vice
Chairman of the Board of the Company.

Michael B. Glenn has been employed by the Company since 1974. In June of 1989,
Mr. Glenn was elected Senior Vice President of the Company's Southwest
operations, and on December 1, 1997,

<PAGE> 11

became President of the Universal Forest Products Western Division, Inc.
Effective January 1, 2000, Mr. Glenn was promoted to President and Chief
Operating Officer of the Company.

James H. Ward joined the Company in 1972 as a regional salesman. From 1979 to
1987, he served as Vice President of the Company's Southern operations and was
elected to Senior Vice President in June of 1987. Effective December 1, 1997,
Mr. Ward was promoted to President of the Universal Forest Products Eastern
Division, Inc.

Robert K. Hill has been with the Company since 1986. From 1989 to 1993, he
served as Vice President of the Company's Far West operations, and in March of
1993 was elected Senior Vice President of those operations. On December 1, 1997,
Mr. Hill became the Executive Vice President of Operations of the Universal
Forest Products Western Division, Inc., and on January 1, 2000, became President
of that Division.

Gary A. Wright, has been affiliated with the Company since March 30, 1998 at
which time the Company acquired Shoffner Industries, Inc., with whom he had been
employed since 1978. Mr. Wright currently serves as President of Shoffner
Industries, L.L.C.

C. Scott Greene joined the Company in February of 1991 as Marketing Manager for
the Universal Forest Products Southern Company. In November of 1996 he became
General Manager of Operations for the Company's Florida Region, and in January
of 1999 became Vice President of Marketing for the Company. Effective January 1,
2000, Mr. Greene was promoted to President Elect for the Universal Forest
Products Eastern Division, Inc.

Robert D. Coleman, has been an employee of the Company since 1979. From 1986 to
1993, he served as Vice President of the Company's Atlantic Division, and was
promoted to Senior Vice President of the Company's Midwest operations in
September 1993. On December 1, 1997, Mr. Coleman became the Executive Vice
President of Manufacturing of the Universal Forest Products Eastern Division,
Inc. On January 1, 1999, Mr. Coleman was named the Executive Vice President of
Manufacturing for the Company.

Philip E. Rogers, an employee of the Company since 1989, served as Vice
President of Operations for the Universal Forest Products Southwest Company
until November of 1997. At that time, Mr. Rogers became the Vice President of
Sales, National Accounts Retail. Effective January 1, 1999, Mr. Rogers was
promoted to Executive Vice President of National Sales and Marketing for the
Company.

Matthew J. Missad has been employed by the Company since 1985. Mr. Missad has
served as General Counsel and Secretary since December 1, 1987, and Vice
President Corporate Compliance since August 1989. In February 1996, Mr. Missad
was promoted to Executive Vice President of the Company.

Michael R. Cole, CPA, CMA, joined the Company in November of 1993. From 1988 to
1993, Mr. Cole served in various capacities with the international accounting
firm of Deloitte & Touche, LLP. In January of 1997, Mr. Cole was promoted to
Director of Finance for the Company, and on January 1, 2000 was made Vice
President of Finance and Acting Chief Financial Officer of the Company.

<PAGE> 12

Carroll M. Shoffner, has been affiliated with the Company since March 30, 1998,
at which time the Company acquired Shoffner Industries, Inc., with whom he had
been employed since 1964. Mr. Shoffner serves as Chairman of Shoffner
Industries, L.L.C., and is a member of the Board of Directors of Universal
Forest Products, Inc.

Eric S. Maxey, an employee of the Company since 1981, has served as Vice
President of Administration since 1992. Prior to that time and since 1984, he
served as Controller.

Jeff A. Higgs, has been an employee of the Company since April 20, 1998, at
which time the Company acquired the assets of Advanced Component Systems, Inc.
Mr. Higgs serves as a Vice President of Operations for the Universal Forest
Products Western Division, Inc.

PART II

The following information items in this Part II, which are contained in the
Registrant's Annual Report to Shareholders for the fiscal year ended December
25, 1999, are specifically incorporated by reference into this Form 10-K Report.
Selected portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 25, 1999 are filed as Exhibit 13 with this Form 10-K
Report.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

The information required by this Item is incorporated by reference from the
Company's Annual Report to Shareholders for the fiscal year ended December 25,
1999, under the caption "Price Range of Common Stock and Dividends."

ITEM 6. SELECTED FINANCIAL DATA.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

<PAGE> 13

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

On December 25, 1999, the estimated fair value of the Company's long-term debt,
including the current portion, was $147,383,000, which was $6,915,000 less than
the carrying value. The estimated fair value is based on rates anticipated to be
available to the Company for debt with similar terms and maturities. The
estimated fair value of notes payable included in current liabilities and the
revolving credit facility approximated the carrying values.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information required by this Item is incorporated by reference to the
Company's Annual Report to Shareholders for the fiscal year ended December 25,
1999, under the following captions:

"Independent Auditors' Report"
"Consolidated Balance Sheets"
"Consolidated Statements of Earnings"
"Consolidated Statements of Shareholders' Equity"
"Consolidated Statements of Cash Flows"
"Notes to Consolidated Financial Statements"

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information relating to executive officers is included in this report in the
last Section of Part I under the caption "Additional Item: Executive Officers of
the Registrant." Information relating to directors and compliance with Section
16(a) of the Securities and Exchange Act of 1934 is incorporated by reference to
the Company's definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders, as filed with the Commission, under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance."

ITEM 11. EXECUTIVE COMPENSATION.

Information relating to executive compensation is incorporated by reference to
the Company's definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders under the caption "Executive Compensation."

<PAGE> 14

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information relating to security ownership of certain beneficial owners and
management is incorporated by reference to the Company's definitive Proxy
Statement for the 2000 Annual Meeting of Shareholders under the captions
"Ownership of Common Stock" and "Securities Ownership of Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

Information relating to certain relationships and related party transactions is
incorporated by reference to the Company's definitive Proxy Statement for the
2000 Annual Meeting of Shareholders under the caption "Election of Directors."

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) 1. Financial Statements. The following Independent Auditors' Report and
Consolidated Financial Statements are incorporated by reference, under Item 8 of
this report, from the Company's Annual Report to Shareholders for the fiscal
year ended December 25, 1999:

Independent Auditors' Report
Consolidated Balance Sheets as of December 25, 1999 and December 26, 1998
Consolidated Statements of Earnings for the Years Ended December 25, 1999,
December 26, 1998 and December 27, 1997
Consolidated Statements of Shareholders' Equity for the Years Ended
December 25, 1999, December 26, 1998 and December 27, 1997
Consolidated Statements of Cash Flows for the Years Ended December 25,
1999, December 26, 1998 and December 27, 1997
Notes to Consolidated Financial Statements

2. Financial Statement Schedules. All schedules required by this Form
10-K Report have been omitted because they were inapplicable, included in the
Consolidated Financial Statements or Notes to Consolidated Financial Statements,
or otherwise not required under instructions contained in Regulation S-X.

3. Exhibits. Reference is made to the Exhibit Index which is found on
pages E-1 through E-3 of this Form 10-K Report.

(b) No reports on Form 8-K were filed in the fourth quarter of 1999.

<PAGE> 15

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated: March 24, 2000 UNIVERSAL FOREST PRODUCTS, INC.

By:/s/ PETER F. SECCHIA
----------------------------------------------
PETER F. SECCHIA, CHAIRMAN OF THE BOARD

and

/s/ WILLIAM G. CURRIE
----------------------------------------------
WILLIAM G. CURRIE, CHIEF EXECUTIVE OFFICER AND
VICE CHAIRMAN OF THE BOARD

and

/s/ MICHAEL R. COLE
----------------------------------------------
MICHAEL R. COLE, VICE PRESIDENT OF FINANCE AND
ACTING CHIEF FINANCIAL OFFICER (PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER)

<PAGE> 16

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on this 24th day of March, 2000, by the following
persons on behalf of the Company and in the capacities indicated.

Each Director of the Company whose signature appears below hereby
appoints Matthew J. Missad and Michael R. Cole, and each of them individually,
as his attorney-in-fact to sign in his name and on his behalf as a Director of
the Company, and to file with the Commission any and all amendments to this
report on Form 10-K to the same extent and with the same effect as if done
personally.

/s/ PETER F. SECCHIA /s/ JOHN W. GARSIDE
- ----------------------------------- -----------------------------------
PETER F. SECCHIA, DIRECTOR JOHN W. GARSIDE, DIRECTOR

/s/ WILLIAM G. CURRIE /s/ PHILIP M. NOVELL
- ----------------------------------- -----------------------------------
WILLIAM G. CURRIE, DIRECTOR PHILIP M. NOVELL, DIRECTOR

/s/ RICHARD M. DEVOS /s/ LOUIS A. SMITH
- ----------------------------------- -----------------------------------
RICHARD M. DEVOS, DIRECTOR LOUIS A. SMITH, DIRECTOR

/s/ JOHN C. CANEPA /s/ CARROLL M. SHOFFNER
- ----------------------------------- -----------------------------------
JOHN C. CANEPA, DIRECTOR CARROLL M. SHOFFNER, DIRECTOR

<PAGE> 17

EXHIBIT NO. DESCRIPTION

2(b) Agreement and Plan of Reorganization dated as of March 30, 1998,
by and among Universal Forest Products, Inc., UFP Acquisition
Corp. II, Shoffner Industries, Inc. and the Shareholders of
Shoffner Industries, Inc., together with the Annexes thereto, was
filed as Exhibit 2.1 to a Form 8-K Report dated March 30, 1998,
and the same is incorporated herein by reference.

2(c) Purchase Agreement dated as of February 18, 1998, by and among
Universal Forest Products Southwest Company, Inc., Advanced
Component Systems, Inc., T.F. Investments, L.L.C., and F.T.G.
Leasing, Inc., was filed as Exhibit 2.1 to a Form 8-K Report dated
April 20, 1998, and the same is incorporated herein by reference.

3(a) Registrant's Articles of Incorporation were filed as Exhibit 3(a)
to a Registration Statement on Form S-1 (No. 33-69474) and the
same is incorporated herein by reference.

3(b) Registrant's Bylaws were filed as Exhibit 3(b) to a Registration
Statement on Form S-1 (No. 33-69474) and the same is incorporated
herein by reference.

4(a) Specimen form of Stock Certificate for Common Stock was filed as
Exhibit 4(a) to a Registration Statement on Form S-1 (No.
33-69474) and the same is incorporated herein by reference.

4(b)(1) Loan Agreement with Old Kent Bank and Trust Company dated April
18, 1988 was filed as Exhibit 4(b)(1) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is incorporated herein by
reference.

4(b)(2) Business Loan Agreement with Michigan National Bank dated August
17, 1988, as amended was filed as Exhibit 4(b)(2) to a
Registration Statement on Form S-1 (No. 33- 69474) and the same is
incorporated herein by reference.

4(b)(3) Series A, Senior Unsecured Note Agreement dated May 5, 1994, was
filed as Exhibit 4(b)(3) to a Form 10-Q Quarterly Report for the
quarter period ended March 26, 1994, and the same is incorporated
herein by reference.

4(b)(4) First Amendment to Note Agreement dated November 13, 1998,
relating to Series A, Senior Unsecured Note Agreement dated May 5,
1994.

10(a) Redemption Agreement with Peter F. Secchia, dated August 26, 1993,
was filed as Exhibit 10(a) to a Registration Statement on Form S-1
(No. 33-69474) and the same is incorporated herein by reference.

10(b) Form of Indemnity Agreement entered into between the Registrant
and each of its directors was filed as Exhibit 10(b) to a
Registration Statement on Form S-1 (No. 33- 69474) and the same is
incorporated herein by reference.

E-1

<PAGE> 18

EXHIBIT NO. DESCRIPTION

10(c)(2) Lease guarantee, dated March 10, 1978, given by Registrant on
behalf of Universal Restaurants, Inc. to Jackson Properties was
filed as Exhibit 10(c)(2) to a Registration Statement on Form S-1
(No. 33-69474) and the same is incorporated herein by reference.

10(c)(3) Lease guarantee, dated November 15, 1977, by Registrant on behalf
of Great Lakes Steak Company of Ann Arbor, Inc. to William C. and
Sally A. Martin was filed as Exhibit 10(c)(3) to a Registration
Statement on Form S-1 (No. 33-69474) and the same is incorporated
herein by reference.

10(c)(4) Lease guarantee, dated March 10, 1978, by Registrant on behalf of
Universal Restaurants, Inc. to Forbes/Cohen Properties was filed
as Exhibit 10(c)(4) to a Registration Statement on Form S-1 (No.
33-69474) and the same is incorporated herein by reference.

10(c)(5) Lease guarantee, dated April 26, 1978, by Registrant on behalf of
Universal Restaurants, Inc. to Dorr D. and Nettie R. Granger was
filed as Exhibit 10(c)(5) to a Registration Statement on Form S-1
(No. 33-69474) and the same is incorporated herein by reference.

10(d)(1) Lease between Registrant and its Employee Profit Sharing and
Retirement Trust Fund as lessor regarding Registrant's Shakopee,
Minnesota facility was filed as Exhibit 10(d)(1) to a Registration
Statement on Form S-1 (No. 33-69474) and the same is incorporated
herein by reference.

10(d)(2) Lease between Registrant and McIntosh Lumber Co. as lessor
regarding Registrant's Huntington Beach, California facility was
filed as Exhibit 10(d)(2) to a Registration Statement on Form S-1
(No. 33-69474) and the same is incorporated herein by reference.

*10(e)(1) Form of Executive Stock Option Agreement was filed as Exhibit
10(e)(1) to a Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.

*10(e)(2) Form of Officers' Stock Option Agreement was filed as Exhibit
10(e)(2) to a Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.

*10(f) Salaried Employee Bonus Plan was filed as Exhibit 10(f) to a
Registration Statement on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.

10(g)(1) Term Loan Agreement between Registrant and NBD Bank, N.A. dated
December 1, 1992, was filed as Exhibit 10(g)(1) to a Registration
Statement on Form S-1 (No. 33- 69474) and the same is incorporated
herein by reference.

10(g)(2) Promissory Note with Old Kent Bank and Trust Company, dated
September 1, 1993, was filed as Exhibit 10(g)(2) to a Registration
Statement on Form S-1 (No. 33-69474) and the same is incorporated
herein by reference.

E-2

<PAGE> 19

EXHIBIT NO. DESCRIPTION

10(g)(3) Installment Business Loan Note with NBD Bank, N.A. dated December
1, 1992, was filed as Exhibit 10(g)(3) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is incorporated herein by
reference.

10(g)(4) Business Loan Agreement with Michigan National Bank executed April
14, 1987, was filed as Exhibit 10(g)(4) to a Registration
Statement on Form S-1 (No. 33-69474) and the same is incorporated
herein by reference.

10(g)(5) Promissory Note with NBD Bank, N.A., dated January 20, 1994, was
filed as Exhibit 10(g)(5) to a Form 10-K Annual Report for the
year ended December 25, 1993, and the same is incorporated herein
by reference.

10(g)(6) Promissory Note with Old Kent Bank and Trust Company, dated
January 24, 1994, was filed as Exhibit 10(g)(6) to a Form 10-K
Annual Report for the year ended December 25, 1993, and the same
is incorporated herein by reference.

10(g)(7) Promissory Note with Michigan National Bank, dated January 27,
1994, was filed as Exhibit 10(g)(7) to a Form 10-K Annual Report
for the year ended December 25, 1993, and the same is incorporated
herein by reference.

10(g)(8) Promissory Note with Comerica Bank, dated February 14, 1994, was
filed as Exhibit 10(g)(8) to a Form 10-K Annual Report for the
year ended December 25, 1993, and the same is incorporated herein
by reference.

10(h)(1) Land Contract Agreement dated May 26, 1994, was filed as Exhibit
10(h)(1) to a Form 10-Q Quarterly Report for the quarter period
ended June 25, 1994, and the same is incorporated herein by
reference.

10(i)(1) Revolving Credit Agreement dated November 13, 1998 was filed as
Exhibit 10(i)(1) to a Form 10-K Annual Report for the year ended
December 26, 1998, and the same is incorporated herein by
reference.

10(j)(1) Series 1998-A, Senior Note Agreement dated December 21, 1998 was
filed as Exhibit 10(j)(1) to a Form 10-K Annual Report for the
year ended December 26, 1998, and the same is incorporated herein
by reference.

13 Selected portions of the Company's Annual Report to Shareholders
for the fiscal year ended December 25, 1999.

21 List of Registrant's subsidiaries.

23 Consent of Deloitte & Touche LLP.

27 Financial Data Schedule.

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

*Indicates a compensatory arrangement.

E-3

<PAGE> 1
EXHIBIT 13

UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
----
<S> <C>
Selected Financial Data......................................................................... 1

Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................. 2-17

Independent Auditors' Report.................................................................... 18

Consolidated Balance Sheets as of December 25, 1999
and December 26, 1998...................................................................... 19

Consolidated Statements of Earnings for the Years Ended
December 25, 1999, December 26, 1998, and December 27, 1997................................ 20

Consolidated Statements of Shareholders' Equity for the Years Ended
December 25, 1999, December 26, 1998, and December 27, 1997................................ 21

Consolidated Statements of Cash Flows for the Years Ended
December 25, 1999, December 26, 1998, and December 27, 1997................................ 22-23

Notes to Consolidated Financial Statements...................................................... 24-39

Price Range of Common Stock and Dividends....................................................... 40

</TABLE>

<PAGE> 2

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

1999 1998 1997 1996 1995
---- ---- ---- ---- ----
CONSOLIDATED STATEMENT OF EARNINGS
<S> <C> <C> <C> <C> <C>
DATA
Net sales................................... $ 1,435,055 $1,238,907 $1,066,300 $891,230 $754,466
Gross profit1............................... 182,471 149,214 95,478 89,714 75,502
Earnings before income taxes,
minority interest and equity in
earnings of investee...................... 51,537 43,034 25,982 29,803 23,951
Net earnings................................ 31,448 26,419 16,957 17,832 14,388
Diluted earnings per share.................. $1.480 $1.280 $0.930 $0.980 $0.800
Dividends per share......................... $0.075 $0.070 $0.065 $0.060 $0.105
Weighted average shares
outstanding with common
stock equivalents......................... 21,186 20,613 18,234 18,121 18,047

CONSOLIDATED BALANCE SHEET DATA
Working capital............................. $ 124,324 $ 99,559 $89,783 $90,639 $83,533
Total assets................................ 468,638 419,795 229,383 198,866 180,791
Long-term debt and capital lease
obligations............................... 154,298 141,880 49,977 55,854 59,209
Shareholders' equity........................ 214,562 191,583 115,898 100,815 84,597

STATISTICS
Gross profit as a percentage of
net sales................................. 12.7% 12.0% 9.0% 10.1% 10.0%
Net earnings as a percentage of
net sales.................................. 2.2% 2.1% 1.6% 2.0% 1.9%
Return on beginning equity.................. 16.4% 22.8% 16.8% 21.0% 19.7%

Current ratio............................... 2.36 2.21 2.32 3.30 3.38
Debt to equity ratio........................ 0.72 0.74 0.43 0.55 0.70

Book value per common share................. $10.65 $9.29 $6.65 $5.82 $4.89
</TABLE>

(1) In 1995, the Company reclassified delivery expense to include it as a
component of cost of goods sold and gross profit.

1
<PAGE> 3

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

RISK FACTORS

In considering whether to buy or sell Universal Forest Products, Inc. (the
"Company") securities, carefully consider all the information included in this
report and the risk factors described below. In addition, read the discussion
under the caption "Forward Outlook," where additional uncertainties associated
with the Company's business and certain forward-looking statements are
described.

LUMBER MARKET VOLATILITY:

The Company experiences significant fluctuations in the cost of commodity lumber
products from primary producers. A variety of factors over which the Company has
no control, including government regulations, environmental regulations, weather
conditions, economic conditions and natural disasters, impact the cost of lumber
products and the Company's selling prices. While the Company attempts to
minimize its risk from severe price fluctuations, substantial, prolonged trends
in lumber prices can affect the Company's financial results. The Company
anticipates that these fluctuations will continue in the future. The Company
relies on the Random Lengths composite price (see "Fluctuations in Lumber
Prices"), which is a weighted average of nine key framing lumber prices chosen
from major producing areas and species, as a broad measure of price movement in
the commodity lumber market ("Lumber Market").

COMPETITION:

The Company is subject to competitive selling and pricing pressures in its major
markets. While the Company is generally aware of its existing competitors'
capabilities, it is subject to entry in its markets by new competitors, which
could negatively impact financial results.

MARKET GROWTH:

The Company's sales growth is dependent, in part, upon growth of the markets it
serves. If the Company's markets do not achieve anticipated growth, or if the
Company fails to maintain its market share, financial results could be impaired.
Certain segments of the manufactured housing industry served by the Company have
an oversupply of product. The Company expects these segments to reduce
production for the first two to three quarters of calendar year 2000. The
Company has planned for this modest reduction, but if the manufactured housing
industry enters into a prolonged downturn, it could adversely affect the
Company's operating results.

ECONOMIC TRENDS:

As a result of its 1998 business combinations in the site-built construction
market, management believes the Company's ability to achieve growth in sales and
margins has become somewhat more dependent on housing starts. To the extent that
housing starts decline significantly in the future, the Company's financial
results could be impacted.

<PAGE> 4

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

BUSINESS COMBINATIONS:

A key component of the Company's growth strategy is to complete business
combinations. Business combinations involve inherent risks, including
assimilation and successfully managing growth. While the Company conducts
extensive due diligence and has taken steps to ensure successful assimilation,
factors beyond the Company's control could influence the results of these
acquisitions.

CONSOLIDATION:

The Company, like most companies, is witnessing consolidation by its customers.
These consolidations will result in a larger portion of the Company's sales
being made to some customers. This consolidation may limit the customer base the
Company is able to serve.

GOVERNMENT REGULATIONS:

The Company is subject to a variety of government regulations which create a
burden on the Company. Should the Company become subject to additional laws and
regulations enacted in the future, or changes in interpretation of existing
laws, it could result in increased expenses for the Company.

WEATHER CONDITIONS:

The majority of the Company's products are used in outdoor construction
activities, therefore its sales volume and profits can be negatively affected by
adverse weather conditions in certain geographic markets. In addition, adverse
weather conditions in certain regions can negatively impact the Company's
operations and consequently its productivity and costs per unit.

SEASONALITY:

Some aspects of the Company's business are seasonal in nature and results of
operations vary from quarter to quarter. The Company's 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.
Treated lumber sales are generally at their highest levels between the months of
April through August. This sales peak, combined with capacity constraints in the
wood treatment process, requires the Company to build its inventory of treated
lumber throughout the winter and spring. Since sales prices of treated lumber
products are generally indexed to the Lumber Market at the time they are
shipped, the Company's profits can be negatively affected by prolonged declines
in the Lumber Market during its primary selling season. To mitigate this risk,
supply programs are maintained with vendors that are intended to decrease the
Company's exposure. These programs include those materials which are most
susceptible to adverse changes in the Lumber Market, and also allow the Company
to carry a lower investment in inventories.

<PAGE> 5

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

E-BUSINESS / E-COMMERCE:

While the Company has invested heavily in technology and established electronic
business-to-business efficiencies with certain customers and vendors, the
willingness of customers and vendors to modify existing distribution strategies
poses a potential risk. The Company believes the nature of its products,
together with the value-added services the Company provides, ensure that it has
a solid position in the supply chain.

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

FLUCTUATIONS IN LUMBER PRICES

The following table presents the Random Lengths framing lumber composite price
for the years ended December 25, 1999, December 26, 1998 and December 27, 1997:
<TABLE>
<CAPTION>

Random Lengths Composite
Average $/MBF
------------------------

1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
January............................ $370 $360 $436
February........................... 386 375 444
March.............................. 394 369 433
April.............................. 393 369 457
May................................ 421 331 444
June............................... 454 332 430
July............................... 480 345 429
August............................. 404 355 413
September.......................... 392 328 393
October............................ 360 329 378
November........................... 385 340 379
December........................... 384 349 370
Annual average..................... $402 $349 $417
Annual percentage change........... 15.2% (16.3%) 3.7%
</TABLE>

In addition, a SYP composite price, prepared and used by the Company is
presented below. Sales of products produced using this species comprise up to
fifty percent of the Company's sales volume.
<TABLE>
<CAPTION>

SYP Composite
Average $/MBF
-------------

1999 1998 1997
---- ---- ----

<S> <C> <C> <C>
January............................ $471 $499 $488
February........................... 497 525 540
</TABLE>

<PAGE> 6

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

<TABLE>

<S> <C> <C> <C>
March.............................. 513 550 545
April.............................. 496 536 572
May................................ 523 474 575
June............................... 563 450 553
July............................... 590 471 577
August............................. 492 439 562
September.......................... 473 409 502
October............................ 456 429 464
November........................... 456 422 487
December........................... 484 443 503
Annual average..................... $501 $471 $531
Annual percentage change........... 6.4% (11.3%) 16.2%
</TABLE>

BUSINESS COMBINATIONS

The Company completed the following business combinations in 1997 and 1998 (see
Note B to the Financial Statements for further details). The fiscal year 1997
business combination was accounted for as a pooling of interests, and the fiscal
year 1998 business combinations were accounted for using the purchase method:

Company Name Acquisition Date Business Description
- ------------ ---------------- --------------------
<S> <C> <C>
Consolidated Building December 22, 1997 Two facilities in Northwest Pennsylvania. Manufacturer
Components, Inc. ("CBC") of engineered trusses, wall panels and other products for
commercial and residential construction and producers of
manufactured homes.

Structural Lumber Products, December 29, 1997 Three facilities in Texas. Manufacturer of engineered
Inc. ("SLP") trusses and wall panels for residential construction.

Shoffner Industries, Inc. March 30, 1998 Fourteen facilities in seven states at the time of
("Shoffner") acquisition, with headquarters in Burlington, North
Carolina. Manufacturer of engineered trusses for
commercial and residential construction.

Atlantic General Packaging, April 14, 1998 One facility in North Carolina. Manufacturer of specialty
Inc. ("AGP") wood packaging and industrial products.

Advanced Component April 20, 1998 One facility in Colorado at the time of acquisition.
Systems, Inc. ("ACS") Manufacturer of engineered trusses and distributor of
lumber packages to commercial and residential
construction.

Industrial Lumber Company, June 4, 1998 One facility in California at the time of acquisition.
Inc. ("ILC") Distributor of cut lumber for packaging and industrial
applications.

</TABLE>

<PAGE> 7

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

<TABLE>

<S> <C> <C>
Nascor Incorporated November 4, 1998 One facility in Calgary, Alberta, Canada. Manufacturer
("Nascor") - Purchased 59% of engineered trusses, pre-insulated wall panels and I
ownership interest. -joists for commercial and residential construction.
Licensor of certain I-joist technology.

Pinelli Universal S. de R.L. de December 18, 1998 One facility in Durango, Durango, Mexico. Manufacturer
C.V. ("Pinelli") - Purchased of mouldings and millwork products.
45% ownership interest.
</TABLE>

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the components of the
Company's Consolidated Statements of Earnings as a percentage of net sales.
<TABLE>
<CAPTION>

Years Ended
-----------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
-------------- ------------- ------------

<S> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0%
Cost of goods sold........................................ 87.3 88.0 91.0
--------- --------- --------

Gross profit.............................................. 12.7 12.0 9.0
Selling, general, and administrative expenses(1).......... 8.3 7.8 6.2
--------- --------- --------

Earnings from operations.................................. 4.4 4.2 2.8
Interest, net............................................. 0.8 0.7 0.4
--------- --------- --------

Earnings before income taxes, minority
interest and equity in earnings of investee............. 3.6 3.5 2.4
Income taxes.............................................. 1.4 1.4 0.8
--------- --------- --------

Earnings before minority interest and
equity in earnings of investee.......................... 2.2 2.1 1.6
Minority interest......................................... 0.0 0.0 0.0
Equity in earnings of investee............................ 0.0 0.0 0.0
--------- --------- --------

Net earnings.............................................. 2.2% 2.1% 1.6%
========= ========= ========
</TABLE>

(1) 1997 selling, general and administrative expenses include reorganization
costs.

<PAGE> 8

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

NET SALES

The Company engineers, manufactures, treats and distributes lumber and other
building products to the do-it-yourself ("DIY"), manufactured housing, wholesale
lumber, industrial and conventional site-built construction markets. The
Company's strategic sales objectives include:

- - Diversifying the Company's end market sales mix by increasing its sales of
specialty wood packaging to industrial users and engineered wood products to
the site-built construction market. Engineered wood products include roof
trusses, wall panels and engineered 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
market; roof trusses sold to producers of manufactured homes; specialty wood
packaging; and engineered wood products. A long-term goal of the Company is
to achieve a ratio of value-added sales to total sales of at least 50%.
Although the Company considers the treatment of dimensional lumber with
certain chemical preservatives a value-added process, treated lumber is not
presently considered a component of value-added sales.

- - Maximizing profitable top-line sales growth while increasing DIY market
share.

- - Maintaining manufactured housing market share.

In order to measure its progress toward attaining these objectives, management
analyzes the following financial data:

- - Sales by market classification.

- - The percentage change in sales attributable to changes in overall selling
prices versus changes in the quantity of units shipped.

- - The ratio of value-added product sales to total sales.

This information is presented in the tables and narrative that follow.

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

<PAGE> 9

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
<TABLE>
<CAPTION>

Years Ended
---------------------------------------------------------------------------
December 25, December 26, December 27,
Market Classification 1999 % 1998 % 1997 %
- --------------------- ------------ ----- ------------ ----- ------------- -----

<S> <C> <C> <C> <C> <C> <C>
DIY................................... $ 650,859 45.4 $ 562,622 45.4 $ 499,195 46.8
Manufactured Housing.................. 398,237 27.8 401,679 32.4 406,986 38.2
Site-Built Construction............... 212,479 14.8 127,550 10.3 20,629 1.9
Industrial............................ 95,468 6.6 76,817 6.2 64,562 6.1
Wholesale Lumber...................... 78,012 5.4 70,239 5.7 74,928 7.0
---------- ----- ---------- ----- ---------- -----
Total................................. $1,435,055 100.0 $1,238,907 100.0 $1,066,300 100.0
========== ===== ========== ===== ========== =====
</TABLE>
The following table estimates, for the periods indicated, the Company's
percentage change in net sales which were attributable to changes in overall
selling prices versus changes in units shipped.

<TABLE>
<CAPTION>
% Change
------------------------------------------------
in Sales in Selling Prices in Units
--------- ----------------- ---------

<C> <C> <C> <C>
1999 versus 1998...................... +16% +4% +12%
1998 versus 1997 ..................... +16% -8% +24%
1997 versus 1996...................... +20% +6% +14%
</TABLE>

The Company estimates that only 4% of its net sales increase was attributable to
overall selling price increases in 1999 compared to 1998, despite an overall
Lumber Market that was 16% higher on average during the same period. This was
primarily due to the fact that approximately 50% of the Company's sales are
comprised of SYP, which was 6% higher on average in 1999 compared to 1998. In
addition, selling prices of the Company's value-added products do not
necessarily correlate with the Lumber Market.

The following table presents, for the periods indicated, the Company's
percentage of value-added and commodity-based sales to total sales.
<TABLE>
<CAPTION>

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

The decrease in the Company's ratio of value-added sales to total sales in 1999
compared to 1998 is primarily due to a significant increase in sales of treated
lumber in 1999, which exceeded increases in sales of engineered wood products
and specialty wood packaging.

DIY Market:

Do-It-Yourself Retailing, in its November 1999 edition, estimated a 9.9%
increase in total retail sales by home improvement retailers comparing 1999 with
1998. The magazine also estimated a

<PAGE> 10

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

compounded annual growth rate ("CAGR") from 1997 to 1999 of 7.7%, while the
Company realized a 15.8% CAGR in sales to this market during the period. The
Company has strong relationships with several national retail customers, the
most significant of which is its long standing relationship with The Home Depot.
The Company has developed these relationships due to its ability to provide
quality products and a high level of service at competitive prices. As this
market segment has continued to consolidate, certain national retail customers
have captured additional market share and the Company has in turn increased its
market share.

Net sales to the DIY market increased $88 million, or 15.7%, in 1999 compared to
1998, primarily due to an increase in unit sales of treated lumber combined with
an overall increase in selling prices due to the level of the Lumber Market. The
increase in treated lumber sales was primarily due to additional treating
facilities which commenced operations during the first quarter of 1999. These
sales increases were offset somewhat by a reduction in sales to three national
customers. The decrease in sales to two of these customers was due to a decline
in their financial positions, and the decrease in business with the third
customer was due to competitive factors. Sales to the Company's largest customer
increased 55.1% in 1999 compared to 1998 as the consolidation within the DIY
market continues.

Net sales to the DIY market increased $63 million, or 12.7%, in 1998 compared to
1997. Over $51 million of this increase was due to sales generated by business
acquisitions completed throughout 1998. At the end of 1997 and throughout 1998,
the Company acquired manufacturers of engineered wood products used in
site-built construction. A portion of these products are sold through certain
retail customers and are considered DIY sales by the Company. In addition, the
Company's existing plants increased their unit sales to the DIY market despite a
16% decrease in the Lumber Market.

Manufactured Housing Market:

Net sales to the manufactured housing market decreased $3 million, or 0.9%, in
1999 compared to 1998, primarily due to a decrease in sales to the Company's two
largest customers in this market. These customers had an oversupply of finished
homes at the retail level in the last six months of 1999, and as a result,
dramatically curtailed their production of new homes. The decrease in sales to
these accounts was partially offset by increased sales to several accounts and
an increase in overall selling prices due to the effect of the higher Lumber
Market. Management expects the oversupply of inventory in certain segments of
the industry to negatively impact its sales to this market for the first two to
three quarters of calendar year 2000.

Net sales to the manufactured housing market decreased $5 million, or 1.3%, in
1998 compared to 1997, due to a decline in overall selling prices, partially
offset by an increase in unit sales. Overall selling prices to this market
decreased as a result of the lower level of the Lumber Market in 1998 compared
to 1997. The increase in unit sales resulted from CBC, which merged with the
Company at the end of 1997, and which increased its sales to this market in
1998.

9
<PAGE> 11

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

Site-Built Construction Market:

Net sales to the site-built construction market increased approximately $85
million, or 66.6%, in 1999 compared to 1998, due to the effect of operating
businesses acquired in 1998 (see "Business Combinations") for a complete year in
1999. In addition, these businesses, which include Nascor, Shoffner, ACS and
SLP, experienced an increase in same period sales due to a combination of strong
housing markets, increased market share in their respective regions, and an
increase in selling prices due to the effect of the higher Lumber Market.

Sales to the site-built construction market increased $107 million in 1998
compared to 1997, due to the Company's acquisitions of SLP, Shoffner and ACS.
Sales to this market in 1997 represent those of CBC, whose results were pooled
with the Company.

Industrial Market:

Net sales to the industrial market increased $19 million, or 24.3%, in 1999
compared to 1998, primarily due to the acquisition of ILC and increased market
share by several existing plants in the Company's Far West Region. The Company
continues to pursue market share growth in this fragmented industry through an
internal growth strategy. The Company has organized a national sales and
marketing group, established a sales incentive program to motivate employees and
continues to increase production capacity to take advantage of market
opportunities.

Net sales to the industrial market increased $12 million, or 19.0%, in 1998
compared to 1997, primarily due to the acquisitions of AGP and ILC in 1998.

Wholesale Market:

Net sales to the wholesale market increased $8 million, or 11.1%, in 1999
compared to 1998, due to increased unit sales combined with an increase in
selling prices due to the effect of the higher Lumber Market. Although
increasing sales to the wholesale market is not a strategic objective, the
Company continues to supply its existing customers and take advantage of
opportunities for profitable new business.

Net sales to the wholesale market decreased $5 million, or 6.3%, in 1998
compared to 1997, primarily due to a decrease in selling prices attributable to
the lower level of the Lumber Market in 1998 compared to 1997.

COST OF GOODS SOLD AND GROSS PROFIT

Gross profit as a percentage of net sales increased to 12.7% in 1999, compared
to 12.0% in 1998. This increase was primarily due to the following factors:

- - An increase in sales of engineered wood products, primarily due to operating
businesses acquired in 1998 for a complete year combined with an increase in
same period sales by these businesses.

<PAGE> 12

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

- - An increase in sales and improved gross margins on sales of specialty
wood packaging and components to the industrial market.

- - These increases were offset partially by a decrease in sales of fencing and
lattice products in certain regions of the country due to competitive
factors.

Gross profit as a percentage of net sales increased to 12.0% in 1998 compared to
9.0% in 1997. This increase was primarily due to the following factors:

- - An increase in sales of engineered wood products, fencing, specialty wood
packaging and components.

- - An improvement in results from sales of trusses to the manufactured housing
industry over historically low levels recognized in 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") increased $23 million, or
23.3%, comparing 1999 with 1998. This increase was primarily due to:

- - Expenses added through business acquisitions and other new operations
totaling $12.2 million in 1999.

- - An increase in selling and administrative headcount and travel costs to
support the growth of the business and to pursue strategic initiatives.

- - Continuing to form its national Sales, Marketing, and Manufacturing
Departments to execute strategic growth and profitability initiatives.

- - A one-time charge to write-off a cumulative translation adjustment related to
the permanent shutdown of a wholly-owned Mexican subsidiary.

- - An increase in incentive compensation expenses tied to profitability and
return on investment objectives.

- - Increases in certain variable selling and marketing expenses tied to sales.

SG&A increased $33 million, or 51.8%, comparing 1998 with 1997. This increase
was primarily due to:

- - Expenses added through business acquisitions and other new operations. The
SG&A of these operations totaled $24 million in 1998.

- - An increase in selling and administrative headcount to support the growth of
the business.

<PAGE> 13

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

- - An increase in incentive compensation expenses tied to profitability and
return on investment objectives.

- - Increases in certain variable selling and marketing expenses tied to sales.

INTEREST, NET

Net interest costs increased approximately $2 million in 1999 compared to 1998,
due to a higher average debt balance attributable to having acquisition related
debt for a complete year in 1999 and increased working capital requirements in
1999. In addition, the Company recognized a higher borrowing rate on debt in
1999 compared to 1998 as a result of extending its maturities on acquisition
related debt. Acquisitions were initially financed using one-year uncommitted
credit lines in 1998. This debt was refinanced with senior notes having bullet
maturities ranging from seven to ten years at the end of 1998.

Net interest costs increased approximately $5 million in 1998 compared to 1997,
primarily due to acquisition related debt which totaled approximately $98
million in 1998.

INCOME TAXES

The Company's effective tax rate was 38.7% in 1999 compared to 38.6% in 1998.
Effective tax rates differ from statutory federal income tax rates, primarily
due to:

- - Provisions for state and local income taxes.

- - Permanent tax differences.

The Company recognized a slightly higher effective tax rate in 1999 due to an
increase in state and local income taxes offset by a reduction in a valuation
allowance related to a deferred tax asset of Nascor.

The Company's effective tax rate was 38.6% in 1998 compared to 34.7% in 1997.
The Company recognized a comparatively higher effective tax rate in 1998 due to
an increase in state and local income taxes combined with a permanent tax
difference related to an acquisition. The Company's 1997 effective tax rate was
unusually low due to the effect of pooling the pre-tax earnings of CBC (a former
S-Corporation) in 1997.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities totaled $33 million in 1999 compared to $67
million in 1998. The effect of changes in inventory levels resulted in a $43
million decrease in operating cash flow comparing 1999 with 1998. Inventory
increased $23 million from December 1998 to December 1999 due to a higher Lumber
Market at the end of 1999 compared to 1998, and increased inventory

<PAGE> 14

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

associated with new business with the Company's largest customer. Conversely,
inventory decreased $20 million from December 1997 to December 1998 due to a
significant decline in the Lumber Market. This decrease was offset by increases
in net earnings, depreciation expense and accounts payable at the end of 1999
versus 1998.

Due to the seasonality of its business and the effects of the Lumber Market,
management believes the Company's cash cycle (days sales outstanding plus days
supply of inventory less days payables outstanding) is a good indicator of its
working capital management. The Company's cash cycle decreased to 42.6 days in
1999 from 46.0 days in 1998. This decrease is primarily due to extended payment
terms with several vendors and improved inventory management in 1999. These
positive factors were offset somewhat by a slight increase in days sales
outstanding, primarily due to the payment terms within the site-built
construction industry.

Capital expenditures totaled $35.4 million in 1999 compared to $28.4 million in
1998. This increase was primarily due to expenditures related to new facilities
acquired during 1999. Investments associated with new facilities totaled $23.8
million in 1999 compared to $12.0 million in 1998. On December 25, 1999,
outstanding purchase commitments on capital projects totaled $9.2 million. The
Company intends to satisfy these commitments utilizing its revolving credit
facility. Although the Company increased its capital expenditures for new
facilities as part of its internal growth strategy, it did not complete any
business acquisitions during 1999. Management continues to focus on assimilating
the acquisitions it completed in 1998, while also investigating other potential
targets.

Cash flows from financing activities totaled less than $1.0 million in 1999
compared to $59.3 million in 1998. The decrease was due to the absence of
business acquisitions in 1999, offset by greater working capital requirements
and an increase in capital expenditures. In addition, the Company repurchased
677,801 shares of common stock at a total cost of approximately $10.5 million in
1999.

On December 25, 1999, the Company had $11.8 million outstanding on its $175
million revolving credit facility. Financial covenants on the Company's
revolving credit facility and senior unsecured notes include a minimum net worth
requirement, a minimum interest coverage test and a maximum leverage ratio. The
Company is well within its requirements at December 25, 1999.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

The Company is self-insured for environmental impairment liability, and accrues
for the estimated cost of monitoring or remediation activities. The Company owns
and/or operates 20 wood preserving facilities throughout the United States that
treat lumber products with a chemical preservative. In accordance with
applicable federal, state and local environmental laws, ordinances and
regulations, the Company may be potentially liable for costs and expenses
related to the environmental condition of the Company's real property. The
Company has established reserves for remediation activities at its North East,
MD; Union City, GA; Stockertown, PA; Elizabeth City, NC; Auburndale, FL; and
Schertz, TX facilities. Remediation activities at the Granger, IN facility were

<PAGE> 15

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

completed in the second quarter of 1999. Other than minimal costs to dismantle
the remediation network, no other costs are expected at the Granger, IN facility
in the future.

The Company has accrued, in other long-term liabilities, amounts totaling $2.4
million and $2.3 million on December 25, 1999 and December 26, 1998,
respectively, for the activities described above. The Company has increased its
accrual due to monitoring and testing which will be required at the Company's
Auburndale, FL facility. Management believes the potential future costs of known
remediation efforts will not have a material adverse effect on its future
financial position, results of operations or liquidity.

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 of the Company together with
information available to the Company 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 the control of the Company. Investors are cautioned that all
forward-looking statements involve risks and uncertainty.

PERFORMANCE 2002

In 1997, the Company concluded its annual planning efforts and announced its
goals for growth and diversification entitled Performance 2002. The goals called
for the Company to double its sales by the fiscal year ending 2002 while
maintaining or achieving a leadership position in the four markets that consume
the vast majority of wood fiber in the United States. The Company's sales goals
by market and a summary of the Company's progress towards achieving these goals
are as follows (in millions):

Targeted Actual Targeted
Sales in Sales in 3-Year
2002 1999 CAGR
--------- -------- --------

<S> <C> <C> <C>
DIY.................................. $1,000 $651 15%
Manufactured Housing................. 500 398 8%
Site-Built Construction.............. 250 213 5%
Industrial and Other................. 250 173 13%
------ ------
Total................................ $2,000 $1,435 12%
====== ======
</TABLE>

<PAGE> 16

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

DIY MARKET

Do-It-Yourself Retailing, in its November 1999 edition, forecasted the following
total retail sales for home improvement retailers for 2000 through 2002 (in
billions), which result in a CAGR of 3% from 1999 sales of $159.7 billion. The
Company has no means of ascertaining the accuracy of this industry-wide
projection, and actual results could vary significantly.

2000.................. $165.0
2001.................. $171.0
2002.................. $175.0

The consolidation within the DIY industry continued in 1999 as top performers
obtained additional market share. The Company feels it is in a position to
continue to capitalize on these industry conditions as a result of its national
presence, service capabilities that meet stringent customer requirements and
diversified product offerings. The Company's goal is to continue to increase
market share with an emphasis on new value-added products, including engineered
wood products.

MANUFACTURED HOUSING MARKET

Manufactured Home Merchandiser, in its January 2000 edition, forecasted a
decrease of industry shipments to retailers of over 4% in 2000 due to an
oversupply of finished homes at the retail level. The Company has no means of
ascertaining the accuracy of this industry-wide projection, and actual results
could vary significantly. The Company has positioned itself to handle a
short-term reduction in volume, but should the manufactured housing industry
enter into a prolonged downturn, it could adversely affect the Company's
operating results.

Management believes the manufactured housing industry's oversupply of inventory
will continue to negatively impact the Company's sales for the next two or three
quarters. However, it also believes this situation is temporary and the industry
will return to its moderate long term growth as manufactured homes continue to
be an attractive alternative to conventional homes as a result of their
affordability, quality and the availability of conventional long-term financing.
Management believes the Company may also have market share growth opportunities
involving the sale of new value-added products to these customers.

SITE-BUILT CONSTRUCTION MARKET

The Company entered into this market primarily through acquisition and has
continued its growth initiatives in this market by opening several new
facilities in 1999. As a result of these actions, the Company has become one of
the largest manufacturers of engineered wood products in the United States while
operating 29 facilities in 13 states. Management plans to continue to grow its
market share by adding production capacity to existing facilities, opening new
plants and continuing to pursue business acquisitions in order to enter key
geographic markets.

<PAGE> 17

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

The National Association of Home Builders published forecasted annual housing
starts of 1,660,000, 1,535,000 and 1,540,000 for 2000, 2001 and 2002,
respectively.

Housing starts are expected to have reached peak levels in 1999 while having
increased 2.2% from 1998. Despite a forecasted decrease in housing starts from
this peak level, management believes the sale of engineered wood products will
continue to grow. The Freedonia Group, in its Industry Study 979, forecasted a
7% CAGR in the sale of engineered wood components through the year 2002 because
of the benefits these products provide builders over traditional carpentry
methods employed on the job site. Some of these benefits include cost advantages
through more efficient labor and better material utilization, faster home
construction and improved product quality. In addition, this market is
consolidating as large production-oriented builders continue to take more market
share. Management believes the Company's geographic presence and national sales
efforts will allow it to increase market share as well.

INDUSTRIAL MARKET

A key strategic objective of the Company is to increase its sales of wood
packaging products to industrial users. A majority of these sales are
value-added products which are often produced from the offal of the Company's
other products, providing better overall utilization of wood fiber. In addition,
this market is typically less seasonal and requires the use of a lower quality
range of wood fiber grades which, coupled with the Company's purchase of higher
grades for the other markets described above, makes the Company a more valued
customer to its mill suppliers. The Company plans to continue to obtain market
share through an internal growth strategy utilizing its current manufacturing
capabilities while continuing to look for strategic acquisitions in this market
which meet the Company's criteria. In addition, the Company has positioned
itself to utilize its available sales force and production capacity to grow its
business in this market while mitigating the expected affect of the temporary
downturn in the manufactured housing market.

GROSS PROFIT

Management believes the following factors may impact the Company's future gross
profits:

- - The Company has a long-term goal of increasing its ratio of value-added sales
to total sales to 50%, which in turn should increase gross margins.
Management believes its acquisition and internal sales growth strategies will
help it continue to make progress toward this objective. Achievement of this
goal is dependent, in part, upon certain factors that are beyond the control
of management.

- - Decreased demand in the manufactured housing market due to an oversupply of
homes at the retail level may have a negative effect on the Company's gross
profit in the year 2000.

<PAGE> 18

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

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A costs have increased as a percentage of sales in recent years primarily due
to acquisitions of engineered wood product manufacturers which have extensive
engineering and design costs and costs associated with creating new national
sales, marketing and manufacturing departments to execute key strategic
initiatives. SG&A costs as a percentage of sales may continue to increase in the
future as engineered wood products and specialty wood packaging become a greater
percentage of the Company's total business. However, management strives to
achieve economies of scale in other administrative departments as sales growth
objectives are met.

LIQUIDITY AND CAPITAL RESOURCES

Management expects to spend between $28 million and $32 million on capital
expenditures in 2000. Besides "maintenance" capital expenditures totaling
approximately $10 million, the Company plans to spend approximately $12 million
to upgrade or expand the production capacity of its existing plants, and
approximately $8 million on new operations in key markets. In addition, the
Company plans to continue to execute its acquisition strategy in 2000, and will
consider issuing additional long-term debt and/or common stock as part of a
transaction.

In 2000, the Company has no present intention to change its current, semi-annual
dividend policy of $0.040 per share. The Company also has the ability to
repurchase approximately 1.1 million shares of its common stock under a share
repurchase program approved by the Board of Directors. While it is the Company's
primary objective to invest in the profitable growth of the business, it may
repurchase shares of its common stock from time to time. In addition, the
Company is obligated to pay amounts due on long-term debt totaling approximately
$7.4 million.

The Company has a $175 million revolving credit facility used to fund seasonal
working capital requirements and growth. Management believes its peak seasonal
working capital requirements are expected to consume $65 million to $75 million
of this availability during the period from April through May. The Company will
finance its remaining capital requirements to support its Performance 2002
growth objectives by using its revolving credit facility, issuing additional
long-term debt or common stock or by using a combination of these methods.

17
<PAGE> 19

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheets of Universal Forest
Products, Inc. and subsidiaries as of December 25, 1999 and December 26, 1998,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended December 25,
1999. 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Universal Forest Products, Inc. and
subsidiaries as of December 25, 1999 and December 26, 1998, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 25, 1999, in conformity with generally accepted accounting
principles.

Grand Rapids, Michigan
January 24, 2000

<PAGE> 20

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data.)
<TABLE>
<CAPTION>

ASSETS December 25, December 26,
Note 1999 1998
---- ------------- -------------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents B $ 4,106 $ 920
Accounts receivable (net of allowance for doubtful accounts
of $1,379 and $3,540) B 70,012 62,711
Inventories:
Raw materials B 44,722 36,856
Finished goods B 86,813 71,543
--------- ---------
131,535 108,399
Other current assets B 1,354 2,911
Prepaid income taxes L 3,416 2,625
Deferred income taxes B, L 5,083 4,011
--------- ---------
TOTAL CURRENT ASSETS 215,506 181,577

OTHER ASSETS B, F, J 10,836 10,680
GOODWILL AND NON-COMPETE AGREEMENTS, NET B 93,183 96,222

PROPERTY, PLANT AND EQUIPMENT:
Land and improvements B, E 28,320 24,363
Buildings and improvements B, E 78,926 70,091
Machinery, equipment and office furniture B, E 102,282 83,722
Construction in progress 13,214 14,529
--------- ---------
222,742 192,705
Less accumulated depreciation and amortization B, E (73,629) (61,389)
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET 149,113 131,316
--------- ---------
TOTAL ASSETS $ 468,638 $ 419,795
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt B, D $ 1,520 $ 1,997
Accounts payable B 46,621 38,751
Accrued liabilities:
Compensation and benefits B, K 32,491 28,025
Other B, C 3,148 3,485
Current portion of long-term debt and capital lease obligations B, D, E 7,402 9,760
--------- ---------
TOTAL CURRENT LIABILITIES 91,182 82,018

LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion B, D, E 146,896 132,120
DEFERRED INCOME TAXES B, L 8,398 8,100
OTHER LIABILITIES F, M 7,600 5,974
COMMITMENTS AND CONTINGENCIES M
--------- ---------
TOTAL LIABILITIES 254,076 228,212

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, 20,212,385 and 20,710,263 B, G, H 20,212 20,710
Additional paid-in capital B, G 78,625 77,526
Retained earnings B 115,327 95,221
Accumulated other comprehensive earnings 1,033 (1,072)
--------- ---------
215,197 192,385
Officers' stock notes receivable I (635) (802)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 214,562 191,583
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 468,638 $ 419,795
========= =========
</TABLE>

See notes to consolidated financial statements.

<PAGE> 21

CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data.)
<TABLE>
<CAPTION>

Year Ended
------------------------------------------------
December 25, December 26, December 27,
Note 1999 1998 1997
---- ------------ ------------ ------------

<S> <C> <C> <C> <C>
NET SALES ........................... B $ 1,435,055 $ 1,238,907 $ 1,066,300

COST OF GOODS SOLD .................. B, E, K 1,252,584 1,089,693 970,822
----------- ----------- -----------

GROSS PROFIT ........................ 182,471 149,214 95,478

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ......................... B, E, J, K 119,673 97,065 63,925

REORGANIZATION COSTS ................ C 1,698
----------- ----------- -----------

EARNINGS FROM OPERATIONS ............ 62,798 52,149 29,855

INTEREST, NET:
Interest expense ................. B, D 11,853 9,506 4,305
Interest income .................. I (592) (391) (432)
----------- ----------- -----------
11,261 9,115 3,873

EARNINGS BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY IN
EARNINGS OF INVESTEE ............. 51,537 43,034 25,982

INCOME TAXES ........................ B, L 19,955 16,615 9,025
----------- ----------- -----------

EARNINGS BEFORE MINORITY INTEREST AND
EQUITY IN EARNINGS OF INVESTEE ... 31,582 26,419 16,957

MINORITY INTEREST ................... B (701)

EQUITY IN EARNINGS OF INVESTEE ...... B 567
----------- ----------- -----------

NET EARNINGS ........................ $ 31,448 $ 26,419 $ 16,957
=========== =========== ===========

EARNINGS PER SHARE - BASIC .......... $ 1.52 $ 1.33 $ 0.97

EARNINGS PER SHARE - DILUTED ........ $ 1.48 $ 1.28 $ 0.93

WEIGHTED AVERAGE SHARES
OUTSTANDING ...................... B 20,637 19,917 17,528

WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK EQUIVALENTS .... B 21,186 20,613 18,234
</TABLE>

See notes to consolidated financial statements.

<PAGE> 22

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data.)
<TABLE>
<CAPTION>

Accumulated
Additional Other Officers'
Paid-In Retained Comprehensive Stock Notes
Common Stock Capital Earnings Earnings Receivable Total
------------ ---------- -------- ------------- ----------- -------

<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1996............ $ 17,438 $ 28,446 $56,426 $(830) $ (665) $ 100,815

Comprehensive earnings:
Net earnings........................ 16,957
Foreign currency translation
adjustment........................ (52)
Total comprehensive earnings.......... 16,905

Cash dividends - $.065 per share...... (1,116) (1,116)

CBC shareholder distributions......... (978) (978)

Issuance of 186,452 shares............ 187 426 613

Repurchase of 82,502 shares........... (83) (1,036) (1,119)

Tax benefits from non-qualified
stock options exercised............. 613 613

Issuance of officers' stock
notes receivable.................... 30 370 (400) 0

Payments received on officers' stock
notes receivable.................... 165 165
-------- --------- --------- -------- ------- ---------
BALANCE AT DECEMBER 27, 1997............ $ 17,572 $ 29,855 $ 70,253 $ (882) $ (900) $ 115,898

Comprehensive earnings:
Net earnings........................ 26,419
Foreign currency translation
adjustment........................ (190)
Total comprehensive earnings.......... 26,229

Cash dividends - $.070 per share...... (1,451) (1,451)

Final settlement of CBC acquisition... (17) (218) (235)

Issuance of 3,154,866 shares.......... 3,155 47,889 51,044

Payments received on officers' stock
notes receivable.................... 98 98
--------- --------- --------- -------- ------- ---------
BALANCE AT DECEMBER 26, 1998............ $ 20,710 $ 77,526 $ 95,221 $ (1,072) $ (802) $ 191,583

Comprehensive earnings:
Net earnings........................ 31,448
Foreign currency translation
adjustment........................ 2,105
Total comprehensive earnings.......... 33,553

Cash dividends - $.075 per share...... (1,539) (1,539)

Issuance of 179,923 shares............ 180 802 982

Repurchase of 677,801 shares.......... (678) (9,803) (10,481)

Tax benefits from non-qualified
stock options exercised............. 297 297

Payments received on officers' stock
notes receivable.................... 167 167
-------- --------- --------- ------- -------- ---------
BALANCE AT DECEMBER 25, 1999............ $ 20,212 $ 78,625 $ 115,327 $ 1,033 $ (635) $ 214,562
======== ========= ========= ======= ======== =========

</TABLE>

See notes to consolidated financial statements.

<PAGE> 23

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands.)

Year Ended
----------------------------------------------
December 25, December 26, December 27,
Note 1999 1998 1997
---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings......................................... B $ 31,448 $ 26,419 $ 16,957
Adjustments to reconcile net earnings to net
cash from operating activities:
Depreciation....................................... E 14,885 12,584 9,515
Amortization of non-compete agreements
and goodwill...................................... B 3,270 2,464 527
Deferred income taxes.............................. B, L (774) 1,292 (578)
Loss on sale of property, plant and equipment...... 489 422 683
Changes in:
Accounts receivable............................... B (7,300) (5,698) (1,974)
Inventories....................................... B (23,136) 20,093 (20,767)
Other............................................. B 1,647 213 25
Accounts payable.................................. B 7,870 (1,504) 18,851
Accrued liabilities............................... B 4,129 10,294 (4,157)
---------- ----------- ----------
NET CASH FROM OPERATING ACTIVITIES.............. 32,528 66,579 19,082

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.............. B (35,418) (28,433) (13,631)
Acquisitions, net of cash received..................... B (98,167)
Proceeds from sale of property, plant and equipment.... B 2,247 1,688 380
Advances on notes receivable........................... B (139) (3,200)
Collection of notes receivable......................... I 3,431 377 618
Purchases of other assets.............................. (87) (370) (205)
---------- ----------- ----------
NET CASH FROM INVESTING ACTIVITIES.................. (29,966) (128,105) (12,838)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of notes payable
and revolving credit facilities...................... B, D (5,056) 11,880 4,500
Proceeds from issuance of long-term debt, net.......... B, D 27,502 80,304
Repayment of long-term debt............................ B, D (10,744) (31,952) (6,312)
Proceeds from issuance of common stock................. G, H 942 508 608
Dividends paid to shareholders......................... (1,539) (1,451) (1,116)
Repurchase of common stock............................. G (10,481) (1,119)
CBC shareholder distributions.......................... B (978)
---------- ----------- ----------
NET CASH FROM FINANCING ACTIVITIES................... 624 59,289 (4,417)
---------- ----------- ----------

NET CHANGE IN CASH AND CASH
EQUIVALENTS............................................ 3,186 (2,237) 1,827

CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR...................................... 920 3,157 1,330
---------- ----------- ----------

CASH AND CASH EQUIVALENTS,
END OF YEAR............................................ $ 4,106 $ 920 $ 3,157
========== =========== ==========

</TABLE>

<PAGE> 24

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

Years Ended
----------------------------------------------
December 25, December 26, December 27,
Note 1999 1998 1997
---- ------------ ------------ -----------

<S> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest............................................ D $ 11,760 $ 9,407 $ 4,347
Income taxes........................................ L 20,746 14,815 12,934

NON-CASH INVESTING ACTIVITIES:
Note payable issued in exchange for non-compete
agreements......................................... B 2,462
Note payable issued in business combination......... B 857
Property, plant and equipment acquired through
capital leases.................................... E 255 181
Fair market value of common stock issued in
business combinations............................. B 50,509
Officers' stock notes receivable.................... I 400

NON-CASH FINANCING ACTIVITIES:
Inventory exchanged for a note receivable............. 1,040

</TABLE>

See notes to consolidated financial statements.

<PAGE> 25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OPERATIONS

Universal Forest Products, Inc. (the "Company") engineers, manufactures,
treats and distributes lumber products for the do-it-yourself,
manufactured housing, industrial, wholesale and site-built construction
markets. The Company's principal products are preservative-treated wood,
remanufactured lumber, lattice, fence panels, deck components, specialty
packaging, engineered trusses, wall panels, I-joists and other building
products.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries and partnerships.
All significant intercompany transactions and balances have been
eliminated. The equity method of accounting is used for the Company's 50%
or less owned affiliates over which the Company has the ability to
exercise significant influence.

FISCAL YEAR

The Company's fiscal year is a 52 or 53 week period, ending on the last
Saturday of December. Unless otherwise stated, references to 1999, 1998
and 1997 relate to the fiscal years ended December 25, 1999, December 26,
1998 and December 27, 1997, respectively. Each of these fiscal years were
comprised of 52 weeks.

FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 107, "Disclosures about Fair Value of Financial Instruments," the
estimated fair values of financial instruments have been determined by
the Company; 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 the Company 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 25, 1999. Although
management is 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.

<PAGE> 26

USE OF ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management 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. Management believes its estimates
to be reasonable, however, actual results could differ from these
estimates.

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.

INVENTORIES

Inventories are stated at the lower of average cost or market. 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. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the assets as
follows:

<TABLE>

<S> <C>
Buildings and improvements.................................. 15 to 31.5 years
Land improvements........................................... 5 to 15 years
Machinery and equipment..................................... 3 to 8 years
Office furniture............................................ 5 to 8 years
</TABLE>

FOREIGN CURRENCY TRANSLATION

With the exception of its operations in Mexico, the financial statements
of the Company's foreign operations are translated into U.S. dollars at
current rates of exchange, with gains or losses included as a separate
component of shareholders' equity. Prior to January 1999, due to the
hyper-inflationary state of the Mexican economy, the financial statements
of the Mexican operations were translated at either current or historical
exchange rates, as appropriate. These adjustments, along with gains or
losses resulting from foreign currency transactions were not material in
1999, 1998 or 1997, and are reflected in earnings from operations.

Effective January 1999, Mexico was no longer considered a highly
inflationary economy, and the Company began translating the financial
statements of its Mexican operations using current rates of exchange.

<PAGE> 27

INCOME TAXES

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

REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Revenue is recognized at the time the product is shipped to the customer.
The Company accrues for bad debt expense based on its history of accounts
receivable write-offs to sales. Individual accounts receivable balances
are evaluated on a monthly basis, and those balances considered to be
uncollectible are charged to the allowance. Collections of amounts
previously written off are recorded as an increase to the allowance. Bad
debt expense amounted to approximately $858,000, $515,000 and $728,000,
for 1999, 1998 and 1997, respectively.

EARNINGS PER COMMON 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 in 1993, 1998 and 1999 (see Note
H) 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):

1999 1998 1997
------------------------- -------------------------- -------------------------
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
------- ------- ------ ------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

NET EARNINGS........ $31,448 $26,419 $16,957

EPS - BASIC
Income available
to common
stockholders...... 31,448 20,637 $1.52 26,419 19,917 $1.33 16,957 17,528 $0.97
===== ===== =====

EFFECT OF DILUTIVE
SECURITIES
Options............. 549 696 706
------ ------ ------

DILUTED EPS
Income available
to common
stockholders
and assumed
options exercised. $31,448 21,186 $1.48 $26,419 20,613 $1.28 $16,957 18,234 $0.93
======= ====== ===== ======= ====== ===== ======= ====== =====
</TABLE>

<PAGE> 28

Options to purchase 509,600 shares of common stock at exercise prices
ranging from $18.25 to $36.01 were outstanding at December 25, 1999, 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 and, therefore, would be antidilutive.

STOCK-BASED COMPENSATION

Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation," and as permitted by this Standard,
continues to apply the recognition and measurement principles of
Accounting Principles Board Opinion No. 25 to its stock-based
compensation (see Note H).

RECLASSIFICATIONS

Certain reclassifications have been made in the 1997 and 1998
consolidated financial statements to conform to the classifications used
in 1999.

B. BUSINESS COMBINATIONS

On December 22, 1997, a subsidiary of the Company completed a merger with
Consolidated Building Components, Inc. ("CBC"), a manufacturer of
engineered trusses, wall panels and other products for commercial and
residential builders and producers of manufactured homes. CBC operates
two plants in Northwest Pennsylvania. The Company issued 398,000 shares
of its common stock in exchange for all of the stock of CBC. This
transaction was accounted for as a pooling of interests. CBC's
shareholders had elected to be taxed as an S-Corporation; therefore, no
provision for federal or state income taxes was included in CBC's
financial statements for 1997. A provision for deferred taxes was
recorded by the Company on December 27, 1997 for differences between
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future.

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 and liabilities assumed 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 and assumed liabilities was
recorded as goodwill in each transaction. The Company has amortized
goodwill on a straight-line basis over 40 years. Non-compete agreements
are amortized on a straight-line basis over the term of the agreements.
The results of operations of each acquisition is included in the
Company's consolidated financial statements since the date it was
acquired.

On December 29, 1997, a partnership of the Company acquired substantially
all of the assets of Structural Lumber Products, Inc. ("SLP"), a
manufacturer of engineered trusses and wall panels for residential
builders. SLP operated plants in San Antonio, Austin and Dallas, Texas at
the time of acquisition. The total purchase price of the transaction was
$18.5 million, initially funded through the Company's lines of credit.
The excess of the purchase price over the estimated fair value of the
acquired assets was $12.7 million.

<PAGE> 29

On March 30, 1998, a subsidiary of the Company acquired 100% of the
outstanding shares of Shoffner Industries, Inc. ("Shoffner") in exchange
for $41.1 million in cash, initially funded through the Company's lines
of credit, and 3 million shares of the Company's common stock. Shoffner
is a manufacturer of engineered roof and floor trusses for commercial and
residential builders with 14 facilities in 7 states at the time of
acquisition. The excess of the purchase price over the estimated fair
value of the acquired assets and liabilities assumed was $66.6 million.

On April 14, 1998, a subsidiary of the Company acquired substantially all
of the assets and assumed certain liabilities of Atlantic General
Packaging, Inc. ("AGP"), a manufacturer of specialty wood packaging
products. AGP operates one facility in Warrenton, North Carolina. The
total purchase price for the net assets of AGP consisted of cash of $1.0
million, a note payable of $857,000, and 57,950 shares of the Company's
common stock.

On April 20, 1998, a subsidiary of the Company acquired substantially all
of the assets and assumed certain liabilities of Advanced Component
Systems, Inc. ("ACS"), a manufacturer of engineered trusses for
commercial and residential builders. ACS operated one facility in
Lafayette, Colorado at the time of acquisition. The total purchase price
for the net assets of ACS was $27.0 million of cash, initially funded
through the Company's lines of credit. The excess of the purchase price
over the estimated fair value of the acquired assets and liabilities
assumed was $10.6 million.

On June 4, 1998, a subsidiary of the Company acquired substantially all
of the assets of Industrial Lumber Company, Inc. ("ILC"), a distributor
of low grade cut lumber for packaging. The total purchase price for the
net assets of ILC consisted of $3.0 million in cash, initially funded
through the Company's lines of credit. The Company also exchanged notes
payable totaling $2.2 million for non-compete agreements.

On November 4, 1998, a subsidiary of the Company acquired 59% of the
outstanding shares of Nascor Incorporated ("Nascor"), a manufacturer of
engineered trusses, pre-insulated wall panels and I-joists, and a
licensor of certain I-joist technology. Nascor operates out of a single
facility in Calgary, Alberta. The Company exchanged $2.8 million for
5,552,500 shares of Nascor's outstanding common stock. The transaction
was initially funded through the Company's revolving credit facility. The
excess of the purchase price over the estimated fair value of the
acquired assets, assumed liabilities and minority interest liability was
$1.4 million.

On December 18, 1998, a subsidiary of the Company acquired a 45% interest
in Pino Exporta, renamed to Pinelli Universal S. de R.L. de C.V.
("Pinelli"), a manufacturer of mouldings and related products. Pinelli
operates out of one facility in Durango, Mexico. The Company exchanged
$3.0 million for its share of the outstanding common stock of Pinelli,
and accounts for its investment utilizing the equity method of
accounting. The Company retains an option to acquire an additional 5%
interest for $1 million. The option expires after December 1, 2001. In
conjunction with this investment, the Company advanced $3.2 million in
cash to Pinelli in exchange for a note receivable.

<PAGE> 30

C. REORGANIZATION COSTS

In the fourth quarter of 1997, the Company announced a plan of
reorganization. In accordance with that plan, in 1998 it consolidated its
operating companies into two integrated divisions, consolidated its
regional purchasing from five offices down to two, consolidated or closed
certain manufacturing facilities and discontinued manufacturing and/or
selling certain products and product lines. In connection with this plan
of reorganization, the Company recorded a charge of $1.6 million in 1997
that consisted of termination benefits of $448,000, write-downs of fixed
assets of $260,000, abandoned lease costs of $216,000 and plant
remediation costs of $695,000. During 1999 and 1998, the Company made
payments related to the reorganization of $349,000 and $379,000,
respectively, and in 1998 reclassified other amounts against the related
fixed assets.

D. DEBT

Effective November 13, 1998, the Company obtained a five-year, $175
million revolving credit facility which includes amounts reserved for
letters of credit. The facility expires in November 2003, and replaced
the Company's unsecured lines of credit which had short-term borrowings
of $4,500,000 on December 27, 1997. Borrowings under the revolver are
charged interest at a rate of 50 basis points over the applicable
Eurodollar rate, while borrowings under the short-term credit lines were
at negotiated rates below each respective bank's prime rate. The average
rates on these borrowings in 1999, 1998 and 1997 were 5.9%, 5.6% and
6.0%, respectively. The amounts outstanding under the revolving credit
facility are included in the long-term debt summary below. Outstanding
letters of credit extended on the Company's behalf aggregated $9.8
million on December 25, 1999.

A majority-owned subsidiary of the Company has an operating line of
credit with a bank totaling approximately $2.1 million, which bears
interest at the bank's prime lending rate (6.5% on December 25, 1999)
plus 2.00% per annum. The line is secured by inventory and accounts
receivable. There was approximately $1.5 million and $2.0 million
outstanding on this line on December 25, 1999 and December 26, 1998,
respectively. In addition, this subsidiary has outstanding letters of
credit totaling approximately $1.0 million on December 25, 1999.

On December 21, 1998, the Company completed a $100 million private
placement of senior unsecured notes payable. The notes were issued in two
installments. The Company received the first two tranches aggregating $81
million on December 21, 1998, and the remaining tranche of $19 million
was received on February 4, 1999. The notes have an average life of nine
years and an average interest rate of 6.9%.

During 1999, the Company issued $7.0 million in variable rate Industrial
Development Revenue Bonds. These bonds have bullet maturities ranging
from 20 to 30 years.

<PAGE> 31

Long-term debt and capital lease obligations are summarized as follows on
December 25, 1999 and December 26, 1998 (amounts in thousands):

<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Senior unsecured notes, $5,714 due annually commencing May 1998 through
May 2004, interest due semi-annually at
7.15%........................................................................ $ 28,571 $ 34,286
Series 1998-A Senior Notes Tranche C, due on December 21,
2008, interest payable semi-annually at 6.98%................................ 19,000
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 A, due on December 21,
2005, interest payable semi-annually at 6.69%................................ 21,500 21,500
Revolving credit facility totaling $175,000,000, due on
November 13, 2003, interest due monthly at a floating rate
(6.03% on December 25, 1999)................................................. 11,800 16,380
Series 1998 Industrial Development Revenue Bonds, due on
December 1, 2018, interest payable monthly at a floating rate
(3.52% on December 25, 1999)................................................. 1,300
Series 1999 Industrial Development Revenue Bonds, due on
July 1, 2029, interest payable monthly at a floating rate
(3.74% on December 25, 1999)................................................. 2,400
Series 1999 Industrial Development Revenue Bonds, due on
August 1, 2029, interest payable monthly at a floating rate
(3.62% on December 25, 1999)................................................. 3,300
Capital lease obligations, interest imputed at rates ranging
from 7.25% to 8.00%.......................................................... 3,080 3,430
Notes payable under non-compete agreements, interest imputed
at a rate of 7.0%............................................................ 1,121 2,014
Other.......................................................................... 2,726 4,770
-------- --------
154,298 141,880
Less current portion........................................................... 7,402 9,760
-------- --------
Long-term portion.............................................................. $146,896 $132,120
======== ========
</TABLE>

The terms of the revolving credit facility and senior unsecured note
agreements (collectively the "agreements") require, in part, the Company
to maintain a minimum net worth and comply with certain financial ratios.
The agreements also restrict the amount of additional indebtedness the
Company may incur and the amount of assets which may be sold.

On December 25, 1999, the principal maturities of long-term debt and
capital lease obligations are as follows (in thousands):

<PAGE> 32

<TABLE>
<S> <C>
2000............................................... $ 7,402
2001............................................... 6,674
2002............................................... 8,445
2003............................................... 17,977
2004............................................... 5,899
Thereafter......................................... 107,901
--------
$154,298
========
</TABLE>

On December 25, 1999, the estimated fair value of the Company's long-term
debt, including the current portion, was $147,383,000, which was
$6,915,000 less than the carrying value. The estimated fair value is
based on rates anticipated to be available to the Company for debt with
similar terms and maturities. The estimated fair values of notes payable
included in current liabilities and the revolving credit facility
approximated the carrying values.

E. LEASES

Leased property included in the balance sheet on December 25, 1999 and
December 26, 1998 is as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land and improvements........................... $ 295 $ 295
Buildings and improvements...................... 481 481
Machinery and equipment......................... 3,366 3,111
------ ------
4,142 3,887
Less accumulated amortization.............. (600) (369)
------ ------
$3,542 $3,518
====== ======
</TABLE>

The Company leases certain real estate under operating lease agreements
with original terms ranging from one to ten years. The Company is
required to pay real estate taxes and other occupancy costs under these
leases. Certain leases carry renewal options of five to fifteen years.
The Company also leases motor vehicles and equipment under operating
lease agreements, for periods of one to seven years. Future minimum
payments under noncancellable leases on December 25, 1999 are as follows
(in thousands):

<TABLE>
<CAPTION>
Capital Operating
Leases Leases Total
------ ------- -------
<S> <C> <C> <C>
2000............................................... $ 339 $ 4,907 $ 5,246
2001............................................... 379 4,101 4,480
2002............................................... 2,867 3,086 5,953
2003............................................... 116 1,908 2,024
2004............................................... 5 1,008 1,013
Subsequent......................................... 482 482
------ ------- -------
Total minimum lease payments....................... 3,706 $15,492 $19,198
(626) ======= =======
------
$3,080
======
</TABLE>

<PAGE> 33

Rent expense was approximately $6,939,000, $5,766,000 and $4,816,000 in
1999, 1998 and 1997, respectively.

F. DEFERRED COMPENSATION

The Company established 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 from the Company. The Company has purchased life
insurance on such executives, payable to the Company in amounts which, if
assumptions made as to mortality experience, policy dividends and other
factors are realized, will accumulate cash values adequate to reimburse
the Company for all payments for insurance and deferred compensation
obligations. In the event cash values are not sufficient to fund such
obligations, the program allows the Company to reduce benefit payments to
such amounts as may be funded by accumulated cash values.

The Company also maintains 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 the 401(k) plan, including the Company's
stock. Investments in shares of the Company's stock are made on a
"phantom stock" basis. Assets for the Plan totaled approximately
$1,665,000 and $1,241,000 on December 25, 1999 and December 26, 1998,
respectively, and are included in "Other Assets." Related liabilities
totaled $2,406,000 and $1,655,000 on December 25, 1999 and December 26,
1998, respectively, and are included in "Other Liabilities." The assets
and related liabilities are recorded at fair market value.

G. COMMON STOCK

In January 1994, the Employee Stock Gift Program was approved by the
Board of Directors which allows management to gift shares of stock to
eligible employees based on length of service. The Company gifted 275,
400 and 275 shares of stock under this Plan in 1999, 1998 and 1997,
respectively, and recognized the market value of the shares at the date
of issuance as an expense.

In April 1994, shareholders approved the Employee Stock Purchase Plan
("Stock Purchase Plan") and Director Retainer Stock Plan ("Stock Retainer
Plan"). The Stock Purchase Plan allows eligible employees to purchase
shares of Company stock at a share price equal to 90% of fair market
value on the purchase date. In 1999, 1998 and 1997, 17,789, 15,016 and
8,677 shares, respectively, were issued under this Plan for amounts
totaling approximately $301,000, $208,000 and $113,000, respectively. The
Stock Retainer Plan allows eligible members of the Board of Directors to
defer their retainer fees and receive shares of Company 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 Company stock at
the time of deferral, and is increased for dividends declared. The
Company has accrued, in "Accrued Liabilities - Other," approximately
$204,000 and $163,000 on December 25, 1999 and December 26, 1998,
respectively, for amounts incurred under this Plan.

<PAGE> 34
In January 1997, the Company 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 1999 and 1998, the Company issued
1,800 and 1,500 shares, respectively, and recognized the market value of
the shares on the date of issuance as an expense.

On April 22, 1997, the shareholders approved the Long Term Stock
Incentive Plan to succeed the Company's 1994 Employee Stock Option Plan.
The Plan reserved a maximum of 1,100,000 shares, and provided for the
granting of incentive stock options, reload options, stock appreciation
rights, restricted stock, performance shares and other stock-based
awards. The term of the Plan was ten years. In 1999 and 1998, the Company
granted incentive stock options for 231,161 and 471,002 shares,
respectively.

On April 28, 1999, the shareholders approved the Long Term Stock
Incentive Plan to succeed the Company's 1997 Long Term Stock Incentive
Plan. The 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 Plan provides for the granting of
incentive stock options, reload options, stock appreciation rights,
restricted stock, performance shares and other stock-based awards. The
term of the Plan is ten years. In 1999, the Company granted incentive
stock options for 25,000 shares.

On October 25, 1997, the Board of Directors approved a share repurchase
program for up to 1,000,000 shares of the Company's common stock. In
1997, the Company repurchased 85,502 shares of its common stock for
$1,119,000. On October 21, 1998, the Board of Directors approved a new
share repurchase program to succeed the 1997 program. This program allows
the Company to repurchase up to 1,800,000 shares of its common stock. In
1999, the Company repurchased 677,801 shares of its common stock for
$10,481,000.

On December 25, 1999, a total of 2,991,166 shares are reserved for
issuance under the Plans mentioned above and under Note H below.

H. 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 the Company at the date of exercise.

As permitted under Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," the Company
continues to apply the provisions of APB Opinion No. 25 which recognizes
compensation expense under the intrinsic value method. Had compensation
cost for the stock options granted in 1999 and 1998 been determined under
the fair value based method defined in SFAS 123, the Company's net
earnings and earnings per share would have been reduced to the following
pro forma amounts (in thousands, except per share data):

33
<PAGE> 35

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Earnings:
As Reported.................. $31,448 $26,419
Pro Forma.................... $30,897 $26,098

EPS - Basic:
As Reported.................. $1.52 $1.33
Pro Forma.................... $1.50 $1.31

EPS - Diluted:
As Reported.................. $1.48 $1.28
Pro Forma.................... $1.46 $1.27
</TABLE>

Options to purchase 80,000 and 285,000 shares with a weighted average
exercise price of $29.25 and $21.77 per share were granted in 1999 and
1998, respectively, at exercise prices which exceeded the market prices
on the date of grant.

Because the fair value based method of accounting has not been applied to
options granted prior to fiscal year 1996, the resulting pro forma
compensation cost may not be indicative of future amounts.

The fair value of each option granted in 1999 and 1998 is estimated on
the date of the grant using the Black-Scholes option pricing model with
the following weighted average assumptions.

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Risk Free Interest Rate................... 6.20% 6.20%
Expected Life............................. 9.0 years 8.0 years
Expected Volatility....................... 27.75% 28.35%
Expected Dividend Yield................... 0.40% 0.41%
</TABLE>

On June 1, 1993, shareholders approved the Incentive Stock Option Plan
(the "Plan") for officers of the Company. Options for the purchase of all
1,200,000 shares of the Company's common stock authorized under the Plan
have been granted. The Plan provides that the options are exercisable
only if the officer is employed by the Company 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 2000
through 2008.

Stock option activity since the end of 1996 is summarized as follows:

<PAGE> 36

<TABLE>
<CAPTION>
Shares of Weighted
Common Stock Average
Attributable to Exercise Price
Options of Options
--------------- --------------
<S> <C> <C>
Outstanding on December 28, 1996 1,215,000 $4.64
Granted 0 n/a
Exercised (177,500) $2.79
Forfeited 0 n/a
------------------------------------------ --------------
Outstanding on December 27, 1997 1,037,500 $4.95
Granted 471,002 $18.60
Exercised (80,000) $3.75
Forfeited (45,964) $7.20
------------------------------------------ --------------
Outstanding on December 26, 1998 1,382,538 $9.59
Granted 256,161 $22.74
Exercised (160,000) $4.00
Forfeited (161,184) $10.97
------------------------------------------ --------------
Outstanding on December 25, 1999 1,317,515 $12.66
==============
</TABLE>

The following table summarizes information concerning options on December
25, 1999 (there are no options exercisable on December 25, 1999):

<TABLE>
<CAPTION>
Weighted-Average Remaining
Range of Exercise Prices Number Outstanding Contractual Life
------------------------ ------------------ --------------------------
<S> <C> <C>
$4.25 - $10.00 662,500 4.30
$10.01 - $25.00 555,015 5.91
$25.00 - $36.01 100,000 11.90
---------
1,317,515
=========
</TABLE>

I. OFFICERS' STOCK NOTES RECEIVABLE

Officers' stock notes receivable represent notes obtained by the Company
from certain officers for the purchase of the Company's common stock. On
January 1, 1997, the Company sold 30,188 shares of common stock to four
officers in exchange for additional notes receivable totaling $399,991.
Interest on the notes ranges from fixed rates of seven to eleven percent
per annum and a variable rate of the prime rate less 10% (minimum 6%,
maximum 12%). On December 25, 1999, payments on the notes are due as
follows (in thousands):

<TABLE>
<S> <C>
2000......................................... $ 74
2001......................................... 79
2002......................................... 43
2003......................................... 115
2004......................................... 75
Thereafter................................... 249
----
$635
====
</TABLE>

35
<PAGE> 37

J. LIFE INSURANCE

In September 1995, the Company acquired a second-to-die life insurance
policy on its Chairman of the Board and his spouse, the Company's largest
shareholders. The death benefit on the policy totals $8,700,000 and the
Company is the beneficiary. The Company also maintains an officer's life
insurance policy on the Chairman with a death benefit of $1,300,000. The
cash surrender value on these policies on December 25, 1999 and December
26, 1998 is included in "Other Assets."

K. RETIREMENT PLANS

The Company has a profit sharing and 401(k) plan for the benefit of
substantially all of its employees excluding the employees of certain
subsidiaries. Amounts contributed to the plan are made at the discretion
of the Board of Directors. The Company contributed approximately
$1,548,000, $1,462,000 and $1,135,000 in 1999, 1998 and 1997,
respectively. In addition, the Company matched 25% of employee
contributions, on a discretionary basis, totaling $717,000, $597,000 and
$521,000 in 1999, 1998 and 1997, respectively. The basis for matching
contributions may not exceed the lesser of 6% of the employee's annual
compensation or $10,000.

In addition, a wholly-owned subsidiary acquired in 1998 has a 401(k) plan
for the benefit of substantially all of its employees. This subsidiary
matched 50% of employee contributions, on a discretionary basis, totaling
$521,713 and $328,090 in 1999 and 1998, respectively.

L. INCOME TAXES

Income tax provisions for the years ended December 25, 1999, December 26,
1998, and December 27, 1997 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- -----------
<S> <C> <C> <C>
Currently payable:
Federal................................... $18,049 $13,049 $9,047
State and local........................... 2,455 1,659 356
Foreign................................... 225 615 200
------- ------- ------
20,729 15,323 9,603
Net Deferred:
Federal................................... 301 1,048 (674)
State and local........................... 115 244 96
Foreign................................... (1,190)
------- ------- -------
(774) 1,292 (578)
------- ------- -------
$19,955 $16,615 $9,025
======= ======= ======
</TABLE>

<PAGE> 38

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

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------

<S> <C> <C> <C>
Statutory federal income tax rate............ 35.0% 35.0% 35.0%
State and local taxes........................ 3.2 2.9 1.4
Effect of pooling CBC........................ (1.5)
Foreign subsidiary adjustments............... (1.6)
Goodwill..................................... 1.1 1.0 0.3
Other........................................ 1.0 (0.3) (0.5)
---- ---- ----
Effective income tax rate.................... 38.7% 38.6% 34.7%
==== ==== ====
</TABLE>

The Company has no present intention of remitting undistributed earnings
of its wholly-owned Canadian subsidiary aggregating $4,070,000 on
December 25, 1999 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 $218,000 would have been required.

Temporary differences which give rise to deferred tax assets and
liabilities on December 25, 1999 and December 26, 1998 are as follows (in
thousands):

<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Assets Liabilities Tax Assets Liabilities
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Employee benefits.......... $1,836 ($1,070) $1,609 ($ 827)
Foreign subsidiary
net operating loss....... (2,188) (1,904)
Depreciation............... 11,126 9,536
Inventory.................. 401 556
Accrued expenses........... 2,173 (601) 1,820 (531)
All other.................. 673 323 26 (78)
------ ------ ------ ------
$5,083 $7,590 $4,011 $6,196
Valuation allowance........ 808 1,904
------ ------ ------ ------
$5,083 $8,398 $4,011 $8,100
====== ====== ====== ======
</TABLE>

M. COMMITMENTS AND CONTINGENCIES

The Company is self-insured for environmental impairment liability and
accrues an expense for the estimated cost of required remediation actions
when situations requiring such action arise. The Company owns and
operates 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, the Company 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

<PAGE> 39

costs, damages and expenses. Remediation activities are currently being
conducted or planned at the Company's North East, Maryland; Union City,
Georgia; Stockertown, Pennsylvania; Elizabeth City, North Carolina;
Auburndale, Florida; and Schertz, Texas wood preservation facilities.
Remediation activities at the Granger, Indiana facility were completed in
the second quarter of 1999. Other than minimal costs to dismantle the
remediation network, no other costs are expected at this facility in the
future.

The Company has accrued, in "Other Liabilities," amounts totaling
approximately $2,354,000 and $2,324,000 on December 25, 1999 and December
26, 1998, respectively, representing the estimated costs to complete
remediation efforts currently in process and those expected to occur in
the future. The accrued costs include operating ground water reclamation
wells, estimated costs of chemical treatments and consultant fees.

Various lawsuits and claims, including those involving ordinary routine
litigation incidental to its business, to which the Company is a party,
are pending, or have been asserted, against the Company. Although the
outcome of these matters cannot be predicted with certainty, and some of
them may be disposed of unfavorably to the Company, management has no
reason to believe that their disposition will have a material adverse
effect on the consolidated financial position, operating results or
liquidity of the Company.

On December 25, 1999, the Company had outstanding purchase commitments on
capital projects totaling $9.2 million.

N. DERIVATIVE AND HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities, effective for the
Company's fiscal year ending December 29, 2001. SFAS 133 expands the
definition of the types of contracts considered to be derivatives,
requires all derivatives to be recognized in the balance sheet as either
assets or liabilities measured at their fair value and sets forth
conditions in which a derivative instrument may be designated as a hedge.
SFAS 133 further requires that changes in the fair value of derivatives
be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to be recorded to other comprehensive
income or to offset related results on the hedged item in earnings. The
Company has undertaken a review of the implications and effects of SFAS
133. The Company has from time to time entered into contracts considered
to be derivatives but the amount of such financial instrument has not
been significant. The ultimate effect on the Company's financial position
at adoption (approximately January 1, 2001) will depend on the level of
such contracts at that time, but the Company does not expect that the
effect will be material.

O. SEGMENT REPORTING

The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1998. This statement revised the
standards for reporting information about operating segments in financial
statements and for related disclosures about products and

<PAGE> 40

services, geographic areas, and major customers. Operating segments are
defined 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, each of the
Company's manufacturing, treating and distribution facilities may be
considered a segment of its business. Under SFAS No. 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. The Company has chosen to aggregate
its facilities into one reporting segment. The Company operates
manufacturing, treating and distribution facilities throughout North
America.

In 1999, 1998 and 1997, 26%, 20% and 18% of net sales, respectively, were
to a single customer.

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

<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ------------------------- ------------------------
Long-Lived Long-Lived Long-Lived
Net Sales Assets Net Sales Assets Net Sales Assets
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States....... $1,394,454 $237,366 $1,205,178 $223,772 $1,040,321 $69,788
Canada.............. 39,756 11,461 33,080 10,968 25,046 1,958
Mexico.............. 845 4,305 649 3,478 933
---------- -------- ---------- -------- ---------- -------
Total............... $1,435,055 $253,132 $1,238,907 $238,218 $1,066,300 $71,746
========== ======== ========== ======== ========== =======
</TABLE>

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

In the fourth quarter of 1999, the Company closed the operations of its
wholly-owned Mexican subsidiary, Universal Forest Products de Mexico. As
a result of this action, a cumulative foreign currency translation
adjustment totaling $1.0 million was written off and recorded as a loss
in 1999.

P. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table sets forth selected financial information for all of
the quarters during the years ended December 25, 1999 and December 26,
1998 (in thousands, except per share data):

<TABLE>
<CAPTION>
First Second Third Fourth
-------------------- -------------------- -------------------- --------------------
1999 1998 1999 1998 1999 1998 1999 1998
---------- --------- --------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $300,180 $238,197 $446,751 $388,677 $388,402 $341,071 $299,722 $270,962
Gross profit............ 41,217 24,492 55,738 46,315 47,142 42,879 38,374 35,527
Net earnings............ 5,361 3,577 12,748 11,123 9,557 8,498 3,782 3,221
Diluted earnings
per share............. 0.25 0.20 0.60 0.52 0.45 0.40 0.18 0.15
</TABLE>

<PAGE> 41

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

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

<TABLE>
<CAPTION>
Fiscal 1999 High Low Fiscal 1998 High Low
----------- ---- --- ----------- ---- ---
<S> <C> <C> <C> <C> <C>
Fourth Quarter......... 16.875 11.937 Fourth Quarter........ 20.500 12.668
Third Quarter.......... 22.125 15.125 Third Quarter......... 18.750 14.125
Second Quarter......... 21.562 18.000 Second Quarter........ 18.500 15.500
First Quarter.......... 24.125 17.437 First Quarter......... 17.000 12.250
</TABLE>

There were approximately 5,600 shareholders of record as of March 1, 2000.

In 1999, the Company paid dividends on its common stock of $.035 per share in
June and $.040 per share in December. The Company intends to continue with its
current dividend policy for the foreseeable future.

<PAGE> 1
EXHIBIT 21

LIST OF REGISTRANT'S SUBSIDIARIES

1. Universal Forest Products Eastern Division, Inc., a Michigan Corporation.

2. Universal Forest Products Western Division, Inc., a Michigan Corporation.

3. Shoffner Holding Company, Inc., a Michigan Corporation.

4. Shoffner Industries, L.L.C., a Limited Liability Company

5. Consolidated Building Components, Inc., a Pennsylvania Corporation.

6. Euro-Pacific Building Materials, Inc., an Oregon Corporation.

7. Universal Forest Products of Canada, Inc., a Canadian Corporation.

8. Nascor, Inc., a Canadian Corporation (59% owned).

9. Universal Forest Products de Mexico, S.A. de C.V., a Mexican Corporation.

10. Universal Forest Products Mexico Holdings, S. de R.L. de C.V., a Mexican
Corporation.

11. Universal Forest Products - FSC, Inc., a Barbados Corporation.

12. Universal Forest Products Holding Company, Inc., a Michigan Corporation.

13. Universal Forest Products Reclamation Center, Inc., a Michigan Corporation.

14. Universal Truss, Inc., a Michigan Corporation.

15. Universal Consumer Products, Inc., a Michigan Corporation

16. Pinelli Universal, S. de R.L. de C.V., a Mexican Corporation.

17. Nascor Structures Inc., a Nevada Corporation.

<PAGE> 1
EXHIBIT 23
----------
INDEPENDENT AUDITORS' CONSENT
-----------------------------

We consent to the incorporation by reference in Registration Statement Nos.
33-81128, 33-81116, and 33-81450 of Universal Forest Product, Inc. on Form S-8
of our report dated January 24, 2000, appearing in and incorporated by reference
in this Annual Report on Form 10-K of Universal Forest Products, Inc. for the
fiscal year ended December 25, 1999.

DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
March 24, 2000

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> DEC-25-1999
<EXCHANGE-RATE> 1
<CASH> 4,106
<SECURITIES> 0
<RECEIVABLES> 71,391
<ALLOWANCES> 1,379
<INVENTORY> 131,535
<CURRENT-ASSETS> 215,506
<PP&E> 222,742
<DEPRECIATION> 73,629
<TOTAL-ASSETS> 468,638
<CURRENT-LIABILITIES> 91,182
<BONDS> 0
0
0
<COMMON> 20,212
<OTHER-SE> 194,350
<TOTAL-LIABILITY-AND-EQUITY> 468,638
<SALES> 1,435,055
<TOTAL-REVENUES> 1,435,647
<CGS> 1,252,584
<TOTAL-COSTS> 1,252,584
<OTHER-EXPENSES> 119,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,853
<INCOME-PRETAX> 51,537
<INCOME-TAX> 19,955
<INCOME-CONTINUING> 31,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,448
<EPS-BASIC> 1.52
<EPS-DILUTED> 1.48

</TABLE>