Edgar Filing: UNIVERSAL FOREST PRODUCTS INC

form10q.htm

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

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.

		Consolidated Condensed Balance Sheets at September 24, 2011, December 25, 2010 and September 25, 2010.	3

		Consolidated Condensed Statements of Earnings for the Three and Nine Months Ended September 24, 2011 and September 25, 2010.	4

		Consolidated Condensed Statements of Equity for the Nine Months Ended September 24, 2011 and September 25, 2010.	5

		Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 24, 2011 and September 25, 2010.	6

		Notes to Consolidated Condensed Financial Statements.	7 - 16

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	17 - 30

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	31

	Item 4.	Controls and Procedures.	31

PART II.		OTHER INFORMATION.

	Item 1.	Legal Proceedings - NONE.

	Item 1A.	Risk Factors - NONE.

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	32

	Item 3.	Defaults upon Senior Securities - NONE.

	Item 4.	(Removed and Reserved).

	Item 5.	Other Information.	32

	Item 6.	Exhibits.	33

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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.

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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.

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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.

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UNIVERSAL FOREST PRODUCTS, INC.

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

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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:

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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.

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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

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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):

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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.

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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.

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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.

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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.

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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

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	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.

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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:

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.

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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.

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	%)

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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.

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

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

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

Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder" to cover conversion costs and profits. These products primarily include treated lumber, remanufactured lumber, and trusses sold to the manufactured housing industry. For these products, we estimate the customers' needs and carry anticipated levels of inventory. Because lumber costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins. For these products, our margins are exposed to changes in the trend of lumber prices. 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:

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.)

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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."

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RESULTS OF OPERATIONS

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

	For the Three Months Ended						For the Nine Months Ended
	September 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:

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.

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.

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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.

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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.

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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						Nine Months Ended
	September 24, 2011			September 25, 2010			September 24, 2011			September 25, 2010

Value-Added		59.0	%		59.0	%		59.0	%		58.7	%
Commodity-Based		41.0	%		41.0	%		41.0	%		41.3	%

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COST OF GOODS SOLD AND GROSS PROFIT

Our gross profit percentage increased to 11.6% from 11.3% comparing the third quarter of 2011 with the same period of 2010. Additionally, our gross profit dollars and overall unit sales were flat comparing the two periods. Our gross profit percentage was impacted by several factors.

Material costs as a percentage of sales decreased 1.2% points as our inventory costs for most of the quarter were more in line with the current Lumber Market in 2011 than they were in 2010. As previously mentioned, the selling prices of the majority of our products are indexed to the current Lumber Market.

Labor and overhead costs as a percentage of sales increased 0.2% points due in part to our decline in sales volume to the retail building materials and residential construction markets.

Freight costs as a percentage of sales increased 0.7% points due in part to higher fuel costs and transportation rates from carriers.

Our gross profit percentage decreased to 10.9% from 12.2% comparing the first nine months of 2011 with the same period of 2010. In addition, our gross profit dollars decreased by 17% comparing the first nine months of 2011 with the same period of 2010, which compares unfavorably to our 2% decrease in unit sales. The decline in our gross margin and profitability for the first nine months of 2011 was due to several factors.

Most notably, gross margins on sales to the retail building materials market declined primarily due to an increase in material costs as a percentage of sales to this market. This was primarily due to the Lumber Market, which decreased 11 consecutive weeks from the end of March 2011 through the end of May 2011. As a result, this adversely impacted our gross margins on products whose prices were indexed to the current Lumber Market at the time they are sold. Conversely, we were selling into a rising Lumber Market from January through most of May of 2010, which increased our gross margins on these products.

A decline in sales to our retail building materials, residential construction, and manufactured housing markets adversely impacted our margins due to fixed manufacturing costs. In addition, as these markets have contracted, competitive pricing pressure has become greater and adversely impacted 2011 margins.

Freight costs as a percentage of sales increased primarily due to higher year over year fuel prices.

We recorded a $2 million loss during the second quarter of 2011 on a construction project, which represents the entire loss we believe we will incur on the project.

Finally, inclement weather in the first quarter resulted in many lost production days and adversely impacted our efficiencies and profitability.

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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses decreased by approximately $3.3 million, or 6.9%, in the third quarter of 2011 compared to the same period of 2010, while we reported flat unit sales. The decline in SG&A was primarily due to a decrease in compensation and related expenses, executive retirement plan expenses, advertising, merchandising and promotional costs, and depreciation and amortization expense as a result of our continuing cost-cutting initiatives. These decreases were offset by increases in accrued bonus and bad debt expense.

Selling, general and administrative ("SG&A") expenses decreased by approximately $14.0 million, or 9.3%, in the first nine of 2011 compared to the same period of 2010, while we reported a 2% decrease in unit sales. The decline in SG&A was primarily due to a decrease in accrued bonus expense and compensation and related expenses.

NET LOSS ON DISPOSITION OF ASSETS, EARLY RETIREMENT AND OTHER IMPAIRMENT AND EXIT CHARGES

We incurred approximately $1.3 million of charges in the first nine months of 2011 and $1.5 million in the first nine months of 2010 relating to asset impairments and other costs associated with idled facilities and down-sizing efforts combined with early retirement expenses. These costs were offset by gains on disposition of property, plant and equipment totaling approximately $0.2 million in the first nine months of 2011.

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

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

Ÿ	Current and projected market demand

Ÿ	Market share

Ÿ	Competitive factors

Ÿ	Future growth opportunities