Attached files

file filename
EX-99.A - EXHIBIT 99(A) - UNIVERSAL FOREST PRODUCTS INCex99_a.htm
EX-32.A - EXHIBIT 32(A) - UNIVERSAL FOREST PRODUCTS INCex32_a.htm
EX-31.B - EXHIBIT 31(B) - UNIVERSAL FOREST PRODUCTS INCex31_b.htm
EX-32.B - EXHIBIT 32(B) - UNIVERSAL FOREST PRODUCTS INCex32_b.htm
EX-31.A - EXHIBIT 31(A) - UNIVERSAL FOREST PRODUCTS INCex31_a.htm
EXCEL - IDEA: XBRL DOCUMENT - UNIVERSAL FOREST PRODUCTS INCFinancial_Report.xls


UNIVERSAL FOREST PRODUCTS, INC.
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 24, 2011

OR

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

Commission File Number 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 Number)

2801 East Beltline NE, Grand Rapids, Michigan
 
49525
(Address of principal executive offices)
 
(Zip Code)

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

NONE
(Former name or former address, if changed since last report.)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer x
Accelerated Filer o
Non-Accelerated Filer o
Smaller reporting company o

Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Class
 
Outstanding as of September 24, 2011
Common stock, no par value
 
19,556,008
 


 
 

 

TABLE OF CONTENTS

       
Page No.
PART I.  
FINANCIAL INFORMATION.
 
         
 
Item 1.
 
Financial Statements.
 
         
     
3
         
     
4
         
     
5
         
     
6
         
     
7 - 16
         
 
Item 2.
 
17 - 30
         
 
Item 3.
 
31
         
 
Item 4.
 
31
         
PART II.  
OTHER INFORMATION.
 
         
 
Item 1.
 
Legal Proceedings - NONE.
 
         
 
Item 1A.
 
Risk Factors - NONE.
 
         
 
Item 2.
 
32
         
 
Item 3.
 
Defaults upon Senior Securities - NONE.
 
         
 
Item 4.
 
(Removed and Reserved).
 
         
 
Item 5.
 
32
         
 
Item 6.
 
33
 

UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)

(in thousands, except share data)

   
September 24,
   
December 25,
   
September 25,
 
   
2011
   
2010
   
2010
 
ASSETS
                 
CURRENT ASSETS:
                 
Cash and cash equivalents
  $ 18,649     $ 43,363     $ 41,936  
Accounts receivable, net
    173,965       126,780       166,369  
Inventories:
                       
Raw materials
    106,769       113,049       104,736  
Finished goods
    74,113       77,341       67,721  
      180,882       190,390       172,457  
Assets held for sale
    5,082       2,446       -  
Refundable income taxes
    1,779       816       -  
Other current assets
    19,714       19,020       18,759  
TOTAL CURRENT ASSETS
    400,071       382,815       399,521  
                         
OTHER ASSETS
    11,470       11,455       6,069  
GOODWILL
    154,702       154,702       156,992  
INDEFINITE-LIVED INTANGIBLE ASSETS
    2,340       2,340       2,340  
OTHER INTANGIBLE ASSETS, net
    11,920       15,933       15,719  
PROPERTY, PLANT AND EQUIPMENT:
                       
Property, plant and equipment
    531,431       517,793       516,337  
Accumulated depreciation and amortization
    (313,511 )     (295,642 )     (294,498 )
PROPERTY, PLANT AND EQUIPMENT, NET
    217,920       222,151       221,839  
TOTAL ASSETS
  $ 798,423     $ 789,396     $ 802,480  
                         
LIABILITIES AND EQUITY
                       
CURRENT LIABILITIES:
                       
Accounts payable
  $ 65,315     $ 59,481     $ 62,621  
Accrued liabilities:
                       
Compensation and benefits
    39,269       43,909       46,949  
Income taxes
    -       -       543  
Other
    17,554       15,135       21,485  
Current portion of long-term debt and capital lease obligations
    266       712       702  
TOTAL CURRENT LIABILITIES
    122,404       119,237       132,300  
                         
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion
    52,200       54,579       52,465  
DEFERRED INCOME TAXES
    20,354       20,631       21,492  
OTHER LIABILITIES
    17,496       13,773       14,134  
TOTAL LIABILITIES
    212,454       208,220       220,391  
                         
EQUITY:
                       
Controlling interest shareholders' equity:
                       
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none
                       
Common stock, no par value; shares authorized 40,000,000; issued and outstanding 19,556,008, 19,333,122 and 19,291,486
  $ 19,556     $ 19,333     $ 19,291  
Additional paid-in capital
    141,849       138,573       136,400  
Retained earnings
    416,433       414,108       417,842  
Accumulated other comprehensive earnings
    3,844       4,165       3,998  
Employee stock notes receivable
    (1,439 )     (1,670 )     (1,721 )
      580,243       574,509       575,810  
Noncontrolling interest
    5,726       6,667       6,279  
TOTAL EQUITY
    585,969       581,176       582,089  
TOTAL LIABILITIES AND EQUITY
  $ 798,423     $ 789,396     $ 802,480  

See notes to unaudited consolidated condensed financial statements.


UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)

(in thousands, except per share data)

   
Three Months Ended
   
Nine Months Ended
 
   
September 24,
   
September 25,
   
September 24,
   
September 25,
 
   
2011
   
2010
   
2011
   
2010
 
                         
NET SALES
  $ 468,941     $ 480,574     $ 1,400,313     $ 1,512,166  
                                 
COST OF GOODS SOLD
    414,583       426,159       1,247,954       1,328,232  
                                 
GROSS PROFIT
    54,358       54,415       152,359       183,934  
                                 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    44,013       47,286       135,829       149,815  
NET LOSS ON DISPOSITION OF ASSETS, EARLY RETIREMENT, AND OTHER IMPAIRMENT AND EXIT CHARGES
    207       1,137       3,696       1,521  
                                 
EARNINGS FROM OPERATIONS
    10,138       5,992       12,834       32,598  
                                 
INTEREST EXPENSE
    926       888       2,738       2,677  
INTEREST INCOME
    (69 )     (111 )     (449 )     (301 )
      857       777       2,289       2,376  
                                 
EARNINGS BEFORE INCOME TAXES
    9,281       5,215       10,545       30,222  
                                 
INCOME TAXES
    3,293       2,017       3,508       10,836  
                                 
NET EARNINGS
    5,988       3,198       7,037       19,386  
                                 
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST
    (372 )     (614 )     (814 )     (2,099 )
                                 
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST
  $ 5,616     $ 2,584     $ 6,223     $ 17,287  
                                 
EARNINGS PER SHARE - BASIC
  $ 0.29     $ 0.13     $ 0.32     $ 0.90  
                                 
EARNINGS PER SHARE - DILUTED
  $ 0.29     $ 0.13     $ 0.32     $ 0.89  
                                 
                                 
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING
    19,441       19,201       19,387       19,239  
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON STOCK EQUIVALENTS
    19,546       19,416       19,524       19,488  

See notes to unaudited consolidated condensed financial statements.


UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
(Unaudited)

(in thousands, except share and per share data)

   
Controlling Interest Shareholders' Equity
             
   
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other Comprehensive Earnings
   
Employees Stock Notes Receivable
   
Noncontrolling Interest
   
Total
 
Balance at December 26, 2009
  $ 19,285     $ 132,765     $ 409,278     $ 3,633     $ (1,743 )   $ 5,728     $ 568,946  
Comprehensive income:
                                                       
Net earnings
                    17,287                       2,099          
Foreign currency translation adjustment
                            365               78          
Total comprehensive earnings
                                                    19,829  
Purchase of additional noncontrolling interest
            (295 )                             (932 )     (1,227 )
Capital contribution from noncontrolling interest
                                            250       250  
Distributions to noncontrolling interest
                                            (944 )     (944 )
Cash dividends - $0.200 per share
                    (3,869 )                             (3,869 )
Issuance of  66,384 shares under employee stock plans
    66       1,373                                       1,439  
Issuance of 76,710 shares under stock grant programs
    77       57                                       134  
Issuance of 7,911 shares under deferred compensation plans
    8       (8 )                                     -  
Repurchase of 144,900 shares
    (145 )             (4,854 )                             (4,999 )
Tax benefits from non-qualified stock options exercised
            379                                       379  
Expense associated with share-based compensation arrangements
            1,495                                       1,495  
Accrued expense under deferred compensation plans
            627                                       627  
Issuance of 1,298 shares in exchange for employees' stock notes receivable
    1       49                       (50 )             -  
Notes receivable adjustment
    (1 )     (42 )                     (9 )             (52 )
Payments received on employee stock notes receivable
                                    81               81  
Balance at September 25, 2010
  $ 19,291     $ 136,400     $ 417,842     $ 3,998     $ (1,721 )   $ 6,279     $ 582,089  
                                                         
Balance at December 25, 2010
  $ 19,333     $ 138,573     $ 414,108     $ 4,165     $ (1,670 )   $ 6,667     $ 581,176  
Comprehensive income:
                                                       
Net earnings
                    6,223                       814          
Foreign currency translation adjustment
                            (321 )             (220 )        
Total comprehensive earnings
                                                    6,496  
Purchase of additional noncontrolling interest
                                            (402 )     (402 )
Capital contribution from noncontrolling interest
                                            80       80  
Distributions to noncontrolling interest
                                            (1,213 )     (1,213 )
Cash dividends - $0.200 per share
                    (3,905 )                             (3,905 )
Issuance of 64,989 shares under employee stock plans
    65       1,241                                       1,306  
Issuance of 153,999 shares under stock grant programs
    154       1       7                               162  
Issuance of 5,781 shares under deferred compensation plans
    5       (5 )                                     -  
Tax benefits from non-qualified stock options exercised
            240                                       240  
Expense associated with share-based compensation arrangements
            1,281                                       1,281  
Accrued expense under deferred compensation plans
            579                                       579  
Notes receivable adjustment
    (1 )     (61 )                     62               -  
Payments received on employee stock notes receivable
                                    169               169  
Balance at September 24, 2011
  $ 19,556     $ 141,849     $ 416,433     $ 3,844     $ (1,439 )   $ 5,726     $ 585,969  

See notes to unaudited consolidated condensed financial statements.


CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

(in thousands)

   
Nine Months Ended
 
   
September 24,
   
September 25,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net earnings attributable to controlling interest
  $ 6,223     $ 17,287  
Adjustments to reconcile net earnings attributable to controlling interest to net cash from operating activities:
               
Depreciation
    22,260       22,305  
Amortization of intangibles
    4,129       5,243  
Expense associated with share-based compensation arrangements
    1,443       1,629  
Excess tax benefits from share-based compensation arrangements
    (138 )     (265 )
Deferred income tax credit
    (222 )     (228 )
Net earnings attributable to noncontrolling interest
    814       2,099  
Net (gain) loss on sale or impairment of property, plant and equipment
    (183 )     1,053  
Changes in:
               
Accounts receivable
    (47,438 )     (58,151 )
Inventories
    9,497       (7,103 )
Accounts payable
    5,849       12,829  
Accrued liabilities and other
    (109 )     14,711  
NET CASH FROM OPERATING ACTIVITIES
    2,125       11,409  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property, plant and equipment
    (21,774 )     (15,679 )
Acquisitions, net of cash received
    -       (6,529 )
Proceeds from sale of property, plant and equipment
    1,485       540  
Purchase of patents
    (116 )     (4,589 )
Advances of notes receivable
    -       (1,000 )
Collections of notes receivable
    308       143  
Other, net
    100       17  
NET CASH FROM INVESTING ACTIVITIES
    (19,997 )     (27,097 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net repayments under revolving credit facilities
    (2,109 )     -  
Repayment of long-term debt
    (745 )     (719 )
Proceeds from issuance of common stock
    1,306       1,439  
Purchase of additional noncontrolling interest
    (402 )     (1,227 )
Distributions to noncontrolling interest
    (1,213 )     (944 )
Capital contribution from noncontrolling interest
    80       250  
Dividends paid to shareholders
    (3,905 )     (3,869 )
Repurchase of common stock
    -       (4,999 )
Excess tax benefits from share-based compensation arrangements
    138       265  
Other, net
    8       18  
NET CASH FROM FINANCING ACTIVITIES
    (6,842 )     (9,786 )
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
    (24,714 )     (25,474 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    43,363       67,410  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 18,649     $ 41,936  
                 
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
               
Cash paid (refunded) during the period for:
               
Interest
  $ 2,162     $ 2,058  
Income taxes
    3,483       (1,488 )
                 
NON-CASH FINANCING ACTIVITIES:
               
Common stock issued under deferred compensation plans
  $ 185     $ 337  

See notes to unaudited consolidated condensed financial statements

 
UNIVERSAL FOREST PRODUCTS, INC.

NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

A.
BASIS OF PRESENTATION

The accompanying unaudited interim consolidated condensed financial statements (the "Financial Statements") include our accounts and those of our wholly-owned and majority-owned subsidiaries and partnerships, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, the Financial Statements do not include all of the information and footnotes normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States.  All intercompany transactions and balances have been eliminated.

In our opinion, the Financial Statements contain all material adjustments necessary to present fairly our consolidated financial position, results of operations and cash flows for the interim periods presented.  All such adjustments are of a normal recurring nature.  These Financial Statements should be read in conjunction with the annual consolidated financial statements, and footnotes thereto, included in our Annual Report to Shareholders on Form 10-K for the fiscal year ended December 25, 2010.

Certain prior year information has been reclassified to conform to the current year presentation.

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”).  ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  Under ASU 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a continuous statement of comprehensive income or in two separate consecutive statements.  The amended guidance is effective for financial periods beginning after December 15, 2011.  ASU 2011-05 is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

B.
FAIR VALUE

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

 
UNIVERSAL FOREST PRODUCTS, INC.
 
   
September 24, 2011
   
September 25, 2010
 
(in thousands)
 
Quoted Prices in Active Markets
(Level 1)
   
Prices with Other Observable Inputs
(Level 2)
   
Total
   
Quoted Prices in Active Markets
(Level 1)
   
Prices with Other Observable Inputs
(Level 2)
   
Total
 
Recurring:
                                   
Money market funds
  $ 83             $ 83     $ 66             $ 66  
Mutual funds:
                                               
Domestic stock funds
    587               587       397               397  
International stock funds
    546               546       353               353  
Target funds
    142               142       105               105  
Bond funds
    107               107       51               51  
Total mutual funds
    1,382               1,382       906               906  
Non-Recurring:
                                               
Property, plant and equipment
                                  $ 165       165  
    $ 1,465             $ 1,465     $ 972     $ 165     $ 1,137  

Mutual funds are valued at prices quoted in an active exchange market and are included in “Other Assets”.  Property, plant and equipment are valued based on active market prices and other relevant information for sales of similar assets.  We have elected not to apply the fair value option under ASC 825, Financial Instruments, to any of our financial instruments except for those expressly required by U.S. GAAP.

We do not maintain any Level 3 assets or liabilities that would be based on significant unobservable inputs.

C.
REVENUE RECOGNITION

Earnings on construction contracts are reflected in operations using either percentage-of-completion accounting, which includes the cost to cost and units of delivery methods, or completed contract accounting, depending on the nature of the business at individual operations.  Under percentage-of-completion using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs.  Under percentage-of-completion using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units.  Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known.  Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent.  Under the completed contract method, revenues and related earnings are recorded when the contracted work is complete and losses are charged to operations in their entirety when such losses become apparent.


UNIVERSAL FOREST PRODUCTS, INC.

The following table presents the balances of percentage-of-completion accounts which are included in “Other current assets” and “Accrued liabilities: Other”, respectively (in thousands):

 
 
September 24, 2011
   
December 25, 2010
   
September 25, 2010
 
                   
Cost and Earnings in Excess of Billings
  $ 6,151     $ 3,604     $ 4,602  
Billings in Excess of Cost and Earnings
    3,592       2,126       3,275  

D.
EARNINGS PER SHARE

A reconciliation of the changes in the numerator and the denominator from the calculation of basic EPS to the calculation of diluted EPS follows (in thousands, except per share data):

   
Three Months Ended September 24, 2011
   
Three Months Ended September 25, 2010
 
   
Income
(Numerator)
   
Shares
(Denominator)
   
Per Share Amount
   
Income
(Numerator)
   
Shares
(Denominator)
   
Per Share Amount
 
                                     
Net Earnings Attributable to Controlling Interest
  $ 5,616                 $ 2,584              
                                         
EPS – Basic
Income available to common stockholders
    5,616       19,441     $ 0.29       2,584       19,201     $ 0.13  
                                                 
Effect of dilutive securities
Options
            105                       215          
                                                 
EPS - Diluted
Income available to common  stockholders and assumed options exercised
  $ 5,616       19,546     $ 0.29     $ 2,584       19,416     $ 0.13  



UNIVERSAL FOREST PRODUCTS, INC.

   
Nine Months Ended September 24, 2011
   
Nine Months Ended September 25, 2010
 
   
Income
(Numerator)
   
Shares
(Denominator)
   
Per Share Amount
   
Income
(Numerator)
   
Shares
(Denominator)
   
Per Share Amount
 
                                     
Net Earnings Attributable to Controlling Interest
  $ 6,223                 $ 17,287              
                                         
EPS – Basic
Income available to common stockholders
    6,223       19,387     $ 0.32       17,287       19,239     $ 0.90  
                                                 
Effect of dilutive securities
Options
            137                       249          
                                                 
EPS - Diluted
Income available to common  stockholders and assumed options exercised
  $ 6,223       19,524     $ 0.32     $ 17,287       19,488     $ 0.89  

Options to purchase 110,000 and 10,000 shares were not included in the computation of diluted EPS for the quarter and nine months ended September 24, 2011 because the options’ exercise price was greater than the average market price of the common stock during the period and, therefore would be antidilutive.

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

E.
ASSETS HELD FOR SALE AND NET LOSS ON DISPOSITION OF ASSETS, EARLY RETIRMENT AND OTHER IMPAIRMENTS AND EXIT CHARGES

Included in “Assets held for sale” on our Consolidated Condensed Balance Sheets are certain property, plant and equipment totaling $5.1 million on September 24, 2011. The assets held for sale consist of certain vacant land and facilities we previously closed to better align manufacturing capacity with the current business environment.  The fair values were determined based on appraisals or recent offers to acquire assets.  These and other idle assets were evaluated based on the requirements of ASC 360, which resulted in impairment and other exit charges included in “Net loss on disposition of assets, early retirement and other impairment and exit charges” for the periods presented below. These amounts include the following, separated by reporting segment (in thousands):


UNIVERSAL FOREST PRODUCTS, INC.

   
Three Months Ended September 24, 2011
   
Three Months Ended September 25, 2010
 
   
Eastern and
Western
Divisions
   
Atlantic
Division
   
Corporate
   
All
Other
   
Eastern and
Western
Divisions
   
Atlantic
Division
   
Corporate
   
All
Other
 
Severances and early retirement
  $ -     $ -     $ 411     $ -     $ 197     $ 12     $ -     $ (7 )
Property, plant and equipment
    (199 )     (26 )     21               84       (6 )     153          
Other intangibles
                                    645                          
Lease termination
                                    59                          


   
Nine Months Ended September 24, 2011
   
Nine Months Ended September 25, 2010
 
   
Eastern and
Western
Divisions
   
Atlantic
Division
   
Corporate
   
All
Other
   
Eastern and
Western
Divisions
   
Atlantic
Division
   
Corporate
   
All
Other
 
Severances and early retirement
  $ 118     $ 16     $ 3,745     $ -     $ 333     $ 98     $ 21     $ 16  
Property, plant and equipment
    (305 )     (59 )     179       2       (61 )     (17 )     431       (4 )
Other intangibles
                                    645                          
Lease termination
                                    59                          

Our chief executive officer resigned on June 20, 2011; on that same date we entered into a consulting and non-competition agreement with him.  Therefore, we accrued for the present value of the future payments to him totaling $2.6 million at the end of June 2011. This amount is included in “severances and early retirement” expenses under Corporate in the table above.


UNIVERSAL FOREST PRODUCTS, INC.

The changes in assets held for sale are as follows (in thousands):

Description
 
Net Book Value
 
Date of Sale
Net Sales Price
Assets held for sale as of December 25, 2010
  $ 2,446      
Additions
    5,082      
Transfers to held for use
    (1,619 )    
Sale of certain real estate in Indianapolis, Indiana
    (827 )
May 17, 2011
$0.7 million
Assets held for sale as of September 24, 2011
  $ 5,082      

F.
COMMITMENTS, CONTINGENCIES, AND GUARANTEES

We are self-insured for environmental impairment liability, including certain liabilities which are insured through a wholly owned subsidiary, Ardellis Insurance Ltd., (f/k/a UFP Insurance Ltd.), a licensed captive insurance company.

We own and operate a number of facilities throughout the United States that chemically treat lumber products.  In connection with the ownership and operation of these and other real properties, and the disposal or treatment of hazardous or toxic substances, we may, under various federal, state, and local environmental laws, ordinances, and regulations, be potentially liable for removal and remediation costs, as well as other potential costs, damages, and expenses.  Environmental reserves, calculated with no discount rate, have been established to cover remediation activities at our affiliates’ wood preservation facilities in Stockertown, PA; Elizabeth City, NC; Auburndale, FL; Janesville, WI; and Medley, FL. In addition, a reserve was established for our affiliate’s facility in Thornton, CA to remove certain lead containing materials which existed on the property at the time of purchase.  During 2009, a subsidiary entered into a consent order with the State of Florida to conduct additional testing at the Auburndale, FL facility. We admitted no liability and the costs are not expected to be material.
 
On a consolidated basis, we have reserved approximately $3.2 million on September 24, 2011 and $4.2 million on September 25, 2010, representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an insurance receivable.

From time to time, various special interest environmental groups have petitioned certain states requesting restrictions on the use or disposal of CCA treated products.  The wood preservation industry trade groups are working with the individual states and their regulatory agencies to provide an accurate, factual background which demonstrates that the present method of uses and disposal is scientifically supported.  Our affiliates market a modest amount of CCA treated products for permitted, non-residential applications.

We have not accrued for any potential loss related to the contingencies above.  However, potential liabilities of this nature are not conducive to precise estimates and are subject to change.


UNIVERSAL FOREST PRODUCTS, INC.

In addition, on September 24, 2011, we were parties either as plaintiff or defendant to a number of lawsuits and claims arising through the normal course of our business.  In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims.

On September 24, 2011, we had outstanding purchase commitments on capital projects of approximately $11.9 million.

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

In certain cases we supply building materials and labor to site-built construction projects or we jointly bid on contracts with framing companies for such projects. In some instances we are required to post payment and performance bonds to insure the owner that the products and installation services are completed in accordance with our contractual obligations.  We have agreed to indemnify the surety for claims made against the bonds.  As of September 24, 2011, we had approximately $14.6 million in outstanding payment and performance bonds, which expire during the next two years.  In addition, approximately $29.0 million in payment and performance bonds are outstanding for completed projects which are still under warranty.

We have entered into operating leases for certain assets that include a guarantee of a portion of the residual value of the leased assets.  If, at the expiration of the initial lease term we do not exercise our option to purchase the leased assets and these assets are sold by the lessor for a price below a predetermined amount, we will reimburse the lessor for a certain portion of the shortfall.  These operating leases will expire periodically over the next three years.  The estimated maximum aggregate exposure of these guarantees is approximately $0.5 million.

On September 24, 2011, we had outstanding letters of credit totaling $31.3 million, primarily related to certain insurance contracts and industrial development revenue bonds described further below.

In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to guarantee our performance under certain insurance contracts.  We currently have irrevocable letters of credit outstanding totaling approximately $18.9 million for these types of insurance arrangements.  We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements.


UNIVERSAL FOREST PRODUCTS, INC.

We are required to provide irrevocable letters of credit in favor of the bond trustees for all of the industrial development revenue bonds that we have issued.  These letters of credit guarantee principal and interest payments to the bondholders.  We currently have irrevocable letters of credit outstanding totaling approximately $12.4 million related to our outstanding industrial development revenue bonds.  These letters of credit have varying terms but may be renewed at the option of the issuing banks.

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

Many of our wood treating operations utilize "Subpart W" drip pads, defined as hazardous waste management units by the EPA.  The rules regulating drip pads require that the pad be “closed” at the point that it is no longer intended to be used for wood treating operations or to manage hazardous waste.  Closure involves identification and disposal of contaminants which are required to be removed from the facility.  The cost of closure is dependent upon a number of factors including, but not limited to, identification and removal of contaminants, cleanup standards that vary from state to state, and the time period over which the cleanup would be completed.  Based on our present knowledge of existing circumstances, it is considered probable that these costs will approximate $0.7 million.  As a result, this amount is recorded in other long-term liabilities on September 24, 2011.

We did not enter into any new guarantee arrangements during the third quarter of 2011 which would require us to recognize a liability on our balance sheet.

G.
BUSINESS COMBINATIONS

No business combinations were completed in fiscal 2011.  We completed the following business combinations in fiscal 2010 which were accounted for using the purchase method (in millions):

Company Name
Acquisition Date
Purchase Price
 
Intangible Assets
   
Net Tangible Assets
 
Operating
Segment
Business Description
Shepherd Distribution Co.
(“Shepherd”)
April 29, 2010
$5.9 (asset purchase)
 
  $ 2.2     $ 3.7  
Distribution Division
Distributes shingle underlayment, bottom board, house wrap, siding, poly film and other products to manufactured housing and RV customers.  Headquartered in Elkhart, Indiana, it has distribution capabilities throughout the United States.
Service Supply Distribution, Inc.
(“Service Supply”)
March 8, 2010
$0.6 (asset purchase)
  $ 0.0     $ 0.6  
Distribution Division
Distributes certain plumbing, electrical, adhesives, flooring, paint and other products to manufactured housing and RV customers.  Headquartered in Cordele, Georgia, it has distribution capabilities throughout the United States.

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


UNIVERSAL FOREST PRODUCTS, INC.

H.
SEGMENT REPORTING

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

Our operating segments consist of Eastern, Western, Atlantic, Consumer Products and Distribution divisions.  In accordance with ASC 280, due to similar economic characteristics, nature of products, distribution methods, and customers, we have aggregated our Eastern and Western operating segments into one reportable segment.  The Atlantic division is considered a separate reportable segment.  Our other divisions do not collectively form a reportable segment because their respective operations are dissimilar and they do not meet the applicable quantitative requirements.  These operations have been included in the “All Other” column of the table below. As a result of returning to two geographical divisions, we are in the process of evaluating changes to our operating segments that will be effective in the fourth quarter.
 
   
Nine Months Ended September 24, 2011
 
   
Eastern and
Western
Divisions
   
Atlantic Division
   
Corporate
   
All Other
   
 
 
Total
 
Net sales to outside customers
  $ 946,779     $ 338,165     $ -     $ 115,369     $ 1,400,313  
Intersegment net sales
    48,999       32,378       -       26,491       107,868  
Segment operating profit (loss)
    13,144       (2,138 )     6,429       (4,601 )     12,834  


UNIVERSAL FOREST PRODUCTS, INC.

   
Nine Months Ended September 25, 2010
 
   
Eastern and
Western
Divisions
   
Atlantic Division
   
Corporate
   
All Other
   
 
 
Total
 
Net sales to outside customers
  $ 1,020,118     $ 373,776     $ -     $ 118,272     $ 1,512,166  
Intersegment net sales
    68,247       26,955       -       41,715       136,917  
Segment operating profit
    19,680       4,317       3,758       4,843       32,598  

I.
SUBSEQUENT EVENT

On October 12, 2011, our Board approved a semi-annual dividend of $0.20 per share, payable on December 15, 2011 to shareholders of record on December 1, 2011. 

 
UNIVERSAL FOREST PRODUCTS, INC.

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

Universal Forest Products, Inc. ("the Company") is a holding company that provides capital, management and administrative resources to subsidiaries that design, manufacture and market wood and wood-alternative products for DIY/retail home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for the site-built construction market, and specialty wood packaging and components and packing materials for various industries. The Company’s subsidiaries also provide framing services for the site-built market and forming products for concrete construction. The Company's consumer products subsidiary offers a large portfolio of outdoor living products, including wood composite decking, decorative balusters, post caps and plastic lattice. Its lawn and garden group offers an array of products, such as trellises and arches, to retailers nationwide. The Company is headquartered in Grand Rapids, Michigan, and its subsidiaries operate facilities throughout North America. For more about Universal Forest Products, Inc., go to www.ufpi.com.

Please be aware that: Any statements included in this report that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on the beliefs of the Company's management as well as on assumptions made by, and information currently available to, the Company at the time such statements were made. The Company does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. Among the factors that could cause actual results to differ materially from forward-looking statements are the following: adverse lumber market trends, competitive activity, negative economic trends, government regulations and weather. Certain of these risk factors and additional information are included in the Company's reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission.  We are pleased to present this overview of 2011.

OVERVIEW

Our results for the third quarter of 2011 were impacted by the following:

Ÿ
Our overall unit sales remained flat compared to the third quarter of 2010 due to a decline in sales to our residential construction and retail building materials markets, offset by increases in unit sales to our commercial construction and concrete forming, industrial and manufactured housing markets.  We believe we gained additional share of the concrete forming and industrial markets we serve.  Share gains in our industrial market were achieved by adding many new customers.  We believe we have maintained our share of the retail building materials market based on the number of stores we serve of our customers compared to last year.  We have also maintained our share of the manufactured housing market in the product lines we offer.  Finally, within the last year we closed several plants that supply the site-built construction market in order to achieve profitability and cash flow goals.  Consequently, we believe that these actions may temporarily cause us to lose some market share.


UNIVERSAL FOREST PRODUCTS, INC.

Ÿ
The overall Lumber Market was up 6.4%, while the composite price for Southern Yellow Pine (SYP) declined 1.2% in the quarter compared to the same period of 2010.  We estimate that lower SYP prices (which comprises up to 50% of our sales volume) among other factors, including competitive price pressure, reduced our overall selling prices by approximately 2% comparing the third quarter of 2011 and 2010.

Ÿ
The retail building materials market has been adversely impacted by a decline in consumer demand attributed to several factors, including high unemployment rates, tighter credit availability, and home values which continue to decline in many parts of the country.  The primary products we sell to this market include decking, fencing and other outdoor specialty products used in higher cost home improvement projects.

Ÿ
National housing starts increased approximately 5% in the period from June through August of 2011 (our sales trail housing starts by about a month), compared to the same period of 2010.

Ÿ
Shipments of HUD code manufactured homes were down 3% in July and August of 2011, compared to the same period of 2010.

HISTORICAL LUMBER PRICES

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

   
Random Lengths Composite
 
   
Average $/MBF
 
   
2011
   
2010
 
             
January
  $ 301     $ 264  
February
    296       312  
March
    294       310  
April
    275       351  
May
    259       333  
June
    262       267  
July
    269       251  
August
    265       245  
September
    262       250  
                 
Third quarter average
  $ 265     $ 249  
Year-to-date average
  $ 276     $ 287  
                 
Third quarter percentage change from 2010
    6.4 %        
Year-to-date percentage change from 2010
    (3.8 %)        



UNIVERSAL FOREST PRODUCTS, INC.

In addition, a Southern Yellow Pine ("SYP") composite price, which we prepare and use, is presented below.  Sales of products produced using this species, which primarily consists of our preservative-treated products, may comprise up to 50% of our sales volume.

   
Random Lengths SYP
 
 
 
Average $/MBF
 
   
2011
   
2010
 
             
January
  $ 282     $ 269  
February
    289       331  
March
    290       337  
April
    266       382  
May
    254       374  
June
    246       293  
July
    253       264  
August
    263       249  
September
    239       252  
                 
                 
Third quarter average
  $ 252     $ 255  
Year-to-date average
  $ 265     $ 306  
                 
Third quarter percentage change from 2010
    (1.2 %)        
Year-to-date percentage change from 2010
    (13.4 %)        

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

We experience significant fluctuations in the cost of commodity lumber products from primary producers ("Lumber Market").  We generally try to price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide.  As a result, our sales levels (and working capital requirements) are impacted by the lumber costs of our products.  Lumber costs are a significant percentage of our cost of goods sold.


UNIVERSAL FOREST PRODUCTS, INC.

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

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

Ÿ
Products with fixed selling prices.  These products include value-added products such as decking and fencing sold to DIY/retail customers, as well as trusses, wall panels and other components sold to the site-built construction market, and most industrial packaging products.  Prices for these products are generally fixed at the time of the sales quotation for a specified period of time or are based upon a specific quantity.  In order to maintain margins and reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs for these sales commitments with our suppliers.  Also, the time period and quantity limitations generally allow us to re-price our products for changes in lumber costs from our suppliers.

Ÿ
Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder" to cover conversion costs and profits.  These products primarily include treated lumber, remanufactured lumber, and trusses sold to the manufactured housing industry.  For these products, we estimate the customers' needs and carry anticipated levels of inventory.  Because lumber costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins.  For these products, our margins are exposed to changes in the trend of lumber prices.  As a result of the decline in the housing market and our sales to residential and commercial builders, a greater percentage of our sales fall into this general pricing category.  Consequently, we believe our profitability may be impacted to a much greater extent to changes in the trend of lumber prices.

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

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


UNIVERSAL FOREST PRODUCTS, INC.

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

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

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

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

BUSINESS COMBINATIONS

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


UNIVERSAL FOREST PRODUCTS, INC.

RESULTS OF OPERATIONS

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

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 24, 2011
   
September 25, 2010
   
September 24, 2011
   
September 25, 2010
 
                         
Net sales
    100.0 %     100.0 %     100.0 %     100.0 %
Cost of goods sold
    88.4       88.7       89.1       87.8  
Gross profit
    11.6       11.3       10.9       12.2  
Selling, general, and administrative expenses
    9.4       9.8       9.7       9.9  
Net loss on disposition of assets, early retirement, and other impairment and exit charges
    0.0       0.2       0.3       0.1  
Earnings from operations
    2.2       1.3       0.9       2.2  
Interest, net
    0.2       0.2       0.2       0.2  
Earnings before income taxes
    2.0       1.1       0.8       2.0  
Income taxes
    0.7       0.5       0.3       0.7  
Net earnings
    1.3       0.7       0.5       1.3  
Less net earnings attributable to noncontrolling interest
    (0.1 )     (0.1 )     (0.1 )     (0.1 )
Net earnings attributable to controlling interest
    1.2 %     0.5 %     0.4 %     1.1 %

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

GROSS SALES

We design, manufacture and market wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for residential and commercial construction, and specialty wood packaging, components and packing materials for various industries.  Our strategic long-term sales objectives include:

Ÿ
Diversifying our end market sales mix by increasing sales of specialty wood packaging to industrial users, increasing our penetration of the concrete forms market, increasing our sales of engineered wood components for custom home, multi-family, military and light commercial construction, and increasing our market share with independent retailers.

Ÿ
Expanding geographically in our core businesses, domestically and internationally.

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


UNIVERSAL FOREST PRODUCTS, INC.

Ÿ
Developing new products and expanding our product offering for existing customers.

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

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

   
For the Three Months Ended
   
For the Nine Months Ended
 
Market Classification
 
September 24, 2011
   
September 25, 2010
   
% Change
   
September 24, 2011
   
September 25, 2010
   
% Change
 
Retail Building Materials
  $ 210,912     $ 222,842       (5.4 )   $ 673,720     $ 762,929       (11.7 )
Residential Construction
    52,174       62,857       (17.0 )     156,660       183,596       (14.7 )
Commercial Construction and Concrete Forming
    21,220       19,003       11.7       56,490       50,305       12.3  
Industrial
    128,267       120,613       6.3       364,453       345,277       5.6  
Manufactured Housing
    65,718       64,175       2.4       177,351       195,941       (9.5 )
Total Gross Sales
    478,291       489,490       (2.3 )     1,428,674       1,538,048       (7.1 )
Sales Allowances
    (9,350 )     (8,916 )             (28,361 )     (25,882 )        
Total Net Sales
  $ 468,941     $ 480,574       (2.4 )   $ 1,400,313     $ 1,512,166       (7.4 )

Note:
In the second quarter of 2011, we made changes to our customer market classifications to improve our reporting by better aligning our customer market designations with available industry reporting and end market research.  Prior year information has been restated to reflect these reclassifications. See also Exhibit 99(a).

Gross sales in the third quarter of 2011 decreased 2% compared to the same period of 2010, primarily due to an estimated 2% decrease in overall selling prices.

Gross sales in the first nine months of 2011 decreased 7% compared to the same period of 2010, primarily due to an estimated 2% decrease in overall unit sales and an estimated 5% decrease in overall selling prices due to the Lumber Market.

Changes in our sales by market are discussed below.

Retail Building Materials:

Gross sales to the retail building materials market decreased 5% in the third quarter of 2011 compared to the same period of 2010, primarily due to an estimated 2% decrease in our overall unit sales and an estimated 3% decrease in our overall selling prices.  Unit sales declined primarily due to a decrease in consumer spending for “big ticket” building materials products such as decking and fencing.  As unemployment remains high and housing prices have decreased, we believe many homeowners have delayed plans for these projects.  In the long-term, we believe this business will rebound as the economy improves and housing prices stabilize.  In addition, our sales of composite decking have decreased as we are preparing to launch a new product in 2012. Selling prices have been impacted by lower prices for SYP and competitive factors.


UNIVERSAL FOREST PRODUCTS, INC.

Gross sales to the retail building materials market decreased 12% in the first nine months of 2011 compared to the same period of 2010, primarily due to an estimated 5% decrease in our overall unit sales and an estimated 7% decrease in our overall selling prices.  Unit sales declined due to the same factors mentioned in the paragraph above.
 
Residential Construction:

Gross sales to the residential construction market decreased 17% in the third quarter of 2011 compared to the same period of 2010 due to a 16% decrease in unit sales as a result of operations we have recently closed and an estimated 1% decrease in selling prices.  Unit sales of plants that were operating in both comparative periods were flat.  By comparison, national housing starts increased approximately 5% in the period from June through August of 2011 (our sales trail housing starts by about a month), compared to the same period of 2010.  We have taken several recent plant closure actions in order to achieve profitability and cash flow objectives, which may temporarily result in a loss of market share.

Gross sales to the residential construction market decreased 15% in the first nine months of 2011 compared to the same period of 2010 due to a combination of a 15% decrease in unit sales as a result of operations we have recently closed and an estimated 4% decrease in selling prices, offset by an estimated 4% increase in unit sales out of plants that were operating in both periods.  By comparison, national housing starts decreased approximately 4% in the period from December through August of 2011 (our sales trail housing starts by about a month), compared to the same period of 2010.  We have taken several recent plant closure actions in order to achieve profitability and cash flow objectives, which may temporarily result in a loss of market share.

Commercial Construction and Concrete Forming:

Gross sales to the commercial construction and concrete forming market increased 12% in the third quarter of 2011 compared to the same period of 2010.  Volume has increased as a result of adding a few large commercial accounts this quarter and continuing to gain share of the concrete forming market.

Gross sales to the commercial construction and concrete forming market increased 12% in the first nine months of 2011 compared to the same period of 2010, primarily due to continuing to gain share of the concrete forming market.


UNIVERSAL FOREST PRODUCTS, INC.

Industrial:

Gross sales to the industrial market increased 6% in the third quarter of 2011 compared to the same period of 2010, primarily due to an estimated 6% increase in unit sales.  Our rate of growth slowed this quarter primarily due to a decline in demand of existing customers, which we believe is a reflection of a slowdown in manufacturing output in the U.S. In addition, we had a decline in sales of our Mexican partnership as changes in exchange rates have made their pricing in the U.S. less competitive resulting in a loss of volume.  We added almost 150 new customers again this quarter which allowed us to continue to add market share and grow unit sales this quarter.

Gross sales to the industrial market increased 6% in the first nine months of 2011 compared to the same period of 2010, primarily due to an estimated 9% increase in unit sales, offset by an estimated 3% decrease in overall selling prices.  Unit sales increased due to the same factors mentioned in the paragraph above.
 
 
Manufactured Housing and Recreation Vehicles:

Gross sales to the manufactured housing market increased 2% in the third quarter of 2011 compared to 2010, primarily due to a combination of a 3% increase in unit sales and an estimated 1% decrease in overall selling prices.  By comparison, shipments of HUD code manufactured homes were down 3% in July and August of 2011, compared to the same period of 2010.

Gross sales to the manufactured housing market decreased 9% in the first nine months of 2011 compared to 2010, primarily due to a combination of a 7% decrease in unit sales out of existing operations and an estimated 5% decrease in overall selling prices, offset by a 3% increase in unit sales of new operations we acquired in 2010.  By comparison, shipments of HUD code manufactured homes were down 10% in January through August of 2011, compared to the same period of 2010.

Value-Added and Commodity-Based Sales:

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

<
   
Three Months Ended