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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 March 29, 2014

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)

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

NONE

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(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:

 

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UNIVERSAL FOREST PRODUCTS, INC.

TABLE OF CONTENTS

 

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		March 29,				December 28,				March 30,
		2014				2013				2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	-			$	-			$	-
Restricted cash			720				720				653
Accounts receivable, net			242,433				180,452				232,954
Inventories:
Raw materials			168,310				161,226				158,742
Finished goods			143,700				126,079				132,010
Total inventories			312,010				287,305				290,752
Refundable income taxes			-				2,235				-
Deferred income taxes			6,850				6,866				9,222
Other current assets			20,339				18,820				16,494
TOTAL CURRENT ASSETS			582,352				496,398				550,075
DEFERRED INCOME TAXES			1,307				1,365				1,721
OTHER ASSETS			11,757				12,087				15,868
GOODWILL			160,945				160,146				161,266
INDEFINITE-LIVED INTANGIBLE ASSETS			2,340				2,340				2,340
OTHER INTANGIBLE ASSETS, NET			6,664				7,241				7,597
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment			587,159				578,702				556,559
Less accumulated depreciation and amortization			(345,740	)			(341,292	)			(328,476	)
PROPERTY, PLANT AND EQUIPMENT, NET			241,419				237,410				228,083
TOTAL ASSETS		$	1,006,784			$	916,987			$	966,950
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft		$	12,151			$	1,079			$	7,665
Accounts payable			91,015				72,918				93,597
Accrued liabilities:
Compensation and benefits			35,596				45,018				32,819
Income taxes			458				-				930
Other			21,000				20,084				18,817
TOTAL CURRENT LIABILITIES			160,220				139,099				153,828
LONG-TERM DEBT, less current portion			143,471				84,700				155,181
DEFERRED INCOME TAXES			26,627				26,788				25,004
OTHER LIABILITIES			16,044				16,666				17,280
TOTAL LIABILITIES			346,362				267,253				351,293
SHAREHOLDERS' 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, 20,048,764, 19,948,270, and 19,868,615.		$	20,049			$	19,948			$	19,869
Additional paid-in capital			159,278				156,129				151,889
Retained earnings			469,028				461,812				432,116
Accumulated other comprehensive income			2,864				3,466				4,377
Employee stock notes receivable			(540	)			(732	)			(849	)
Total controlling interest shareholders' equity			650,679				640,623				607,402
Noncontrolling interest			9,743				9,111				8,255
TOTAL SHAREHOLDERS' EQUITY			660,422				649,734				615,657
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	1,006,784			$	916,987			$	966,950

		Three Months Ended
		March 29,				March 30,
		2014				2013
NET SALES		$	553,998			$	554,494
COST OF GOODS SOLD			487,986				496,676
GROSS PROFIT			66,012				57,818
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			53,908				48,228
ANTI-DUMPING DUTY ASSESSMENT			-				639
NET GAIN ON DISPOSITION OF ASSETS			(524	)			(106	)
EARNINGS FROM OPERATIONS			12,628				9,057
INTEREST EXPENSE			1,066				1,245
INTEREST INCOME			(290	)			(147	)
EQUITY IN EARNINGS (LOSS) OF INVESTEE			(51	)			(42	)
			725				1,056
EARNINGS BEFORE INCOME TAXES			11,903				8,001
INCOME TAXES			4,235				2,245
NET EARNINGS			7,668				5,756
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST			(452	)			(532	)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST		$	7,216			$	5,224
EARNINGS PER SHARE - BASIC		$	0.36			$	0.26
EARNINGS PER SHARE - DILUTED		$	0.36			$	0.26
NET EARNINGS			7,668				5,756
FOREIGN CURRENCY TRANSLATION ADJUSTMENT			(696	)			415
COMPREHENSIVE INCOME			6,972				6,171
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST			(358	)			(828	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTERST		$	6,614			$	5,343

		Controlling Interest Shareholders' Equity
		Common Stock				Additional Paid-In Capital				Retained Earnings				Accumulat- ed Other Comprehen- sive Earnings				Employees Stock Notes Receivable				Noncontrolling Interest				Total
Balance at December 29, 2012		$	19,800			$	149,805			$	426,887			$	4,258			$	(982	)		$	7,757			$	607,525
Net earnings											5,224												532				5,756
Foreign currency translation adjustment															119								296				415
Distributions to noncontrolling interest																							(330	)			(330	)
Issuance of 3,409 shares under employee stock plans			3				77																				80
Issuance of 32,810 shares under stock grant programs			33				(19	)			5																19
Issuance of 33,005 shares under deferred compensation plans			33				(33	)																			-
Tax benefits from non-qualified stock options exercised							7																				7
Expense associated with share-based compensation arrangements							642																				642
Accrued expense under deferred compensation plans							1,410																				1,410
Payments received on employee stock notes receivable																			133								133
Balance at March 30, 2013		$	19,869			$	151,889			$	432,116			$	4,377			$	(849	)		$	8,255			$	615,657
Balance at December 28, 2013		$	19,948			$	156,129			$	461,812			$	3,466			$	(732	)		$	9,111			$	649,734
Net earnings											7,216												452				7,668
Foreign currency translation adjustment															(602	)							(94	)			(696	)
Noncontrolling interest associated with business acquisitions																							975				975
Distributions to noncontrolling interest																							(701	)			(701	)
Issuance of 2,172 shares under employee stock plans			2				97																				99
Issuance of 63,019 shares under stock grant programs			63				523																				586
Issuance of 35,303 shares under deferred compensation plans			36				(35	)																			1
Expense associated with share-based compensation arrangements							495																				495
Accrued expense under deferred compensation plans							2,069																				2,069
Payments received on employee stock notes receivable																			192								192
Balance at March 29, 2014		$	20,049			$	159,278			$	469,028			$	2,864			$	(540	)		$	9,743			$	660,422

		March 29, 2014				March 30, 2013
(in thousands)		Quoted Prices in Active Markets (Level 1)				Quoted Prices in Active Markets (Level 1)
Money market funds		$	162			$	62
Mutual funds:
Domestic stock funds			833				653
International stock funds			577				537
Target funds			198				151
Bond funds			152				140
Total mutual funds			1,760				1,481
		$	1,922			$	1,543

		March 29, 2014				December 28, 2013				March 30, 2013
Cost and Earnings in Excess of Billings		$	7,296			$	6,903			$	6,660
Billings in Excess of Cost and Earnings			1,307				2,858				4,189

		Three Months Ended
		March 29, 2014				March 30, 2013
Numerator:
Net earnings attributable to controlling interest		$	7,216			$	5,224
Adjustment for earnings allocated to non-vested restricted common stock			(63	)			(48	)
Net earnings for calculating EPS		$	7,153			$	5,176
Denominator:
Weighted average shares outstanding			20,058				19,886
Adjustment for non-vested restricted common stock			(176	)			(184	)
Shares for calculating basic EPS			19,882				19,702
Effect of dilutive stock options			23				34
Shares for calculating diluted EPS			19,905				19,736
Net earnings per share:
Basic		$	0.36			$	0.26
Diluted		$	0.36			$	0.26

Company Name

Acquisition Date

Purchase Price

Intangible Assets

Net Tangible Assets

Operating Segment

Business Description

Upshur Forest Products, LLC (“Upshur”)

March 27, 2014

$1,774 (50% asset purchase; 51% voting majority)

$

799

$

975

Western Division

A business of remanufacturing, packaging, and selling lumber products from its facility located in Gilmer, TX.  Upshur had annual sales of $8.9 million.

Container Systems, Inc. (“CSI”)

March 14, 2014

$2,417 (asset purchase)

$

-

$

2,417

Eastern Division

A manufacturer of crates and containers for industrial applications and the moving-and-storage industry, located in Franklinton, NC.  CSI had annual sales of $3.0 million.

SE Panel and Lumber Supply, LLC (“SE Panel”)

November 8, 2013

$2,181 (asset purchase)

$

-

$

2,181

Eastern Division

A distributor of Olympic Panel overlay concrete forming panels and commodity lumber products to the concrete forming and construction industries.  Facility is located in South Daytona, FL.  SE Panel had annual sales of $5.4 million.

Premier Laminating Services, Inc. (“Premier Laminating”)

May 31, 2013

$696 (asset purchase)

$

250

$

446

Western Division

A business specialized in environmentally sustainable laminated wooden products. Facility is located in Perris, CA. Premier Laminating had annual sales of $6.2 million.

Millry Mill Company, Inc. (“Millry”)

February 28, 2013

$2,323 (asset purchase)

$

50

$

2,273

Eastern Division

A highly specialized export mill that produces rough dimension boards and lumber.  Facility is located in Millry, AL.  Millry had annual sales of $4.7 million.

Custom Caseworks, Inc. (“Custom Caseworks”)

December 31, 2012

$6,278 (asset purchase)

$

2,000

$

4,278

Western Division

A high-precision business-to-business manufacturer of engineered wood products in many commercial markets. Facility is located in Sauk Rapids, MN. Custom Caseworks had annual sales of $7 million.

		Three Months Ended March 29, 2014
		Eastern and Western				Site-Built				All Other				Corporate				Total
Net sales to outside customers		$	456,396			$	52,121			$	45,481			$	-			$	553,998
Intersegment net sales			22,580				2,818				3,845				-				29,243
Segment earnings from operations			14,906				1,598				(1,253	)			(2,623	)			12,628

		Three Months Ended March 30, 2013
		Eastern and Western				Site-Built				All Other				Corporate				Total
Net sales to outside customers		$	445,524			$	58,150			$	50,820			$	-			$	554,494
Intersegment net sales			18,792				4,293				2,612				-				25,697
Segment earnings from operations			14,074				(4,055	)			(346	)			(616	)			9,057

UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Universal Forest Products, Inc. is a holding company that provides capital, management and administrative resources to subsidiaries that supply wood, wood composite and other products to three robust markets: retail, construction and industrial.  Founded in 1955, the Company is headquartered in Grand Rapids, Mich., with affiliates throughout North America. For more about Universal Forest Products, go to www.ufpi.com.

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. The Company does not undertake to update forward-looking statements to reflect facts, circumstances, events, or assumptions 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: fluctuations in the price of lumber; adverse or unusual weather conditions; adverse economic conditions in the markets we serve; government regulations, particularly involving environmental and safety regulations; and our ability to make successful business acquisitions. Certain of these risk factors as well as other 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 2014.

OVERVIEW

Our results for the first quarter of 2014 were impacted by the following:

Our overall sales were flat compared to the first quarter of 2013 as a 3% increase in our unit sales was offset by a decline in selling prices due to the commodity lumber market (see Historical Lumber Prices).  Our 3% increase in unit sales was driven by sales growth to our industrial and commercial construction and concrete forming markets, offset by a decline in unit sales to our residential construction market.  Unit sales to our retail and manufactured housing markets were flat.  Our ability to grow sales to the retail and construction markets was  temporarily hampered by inclement weather in most of the United States in the first quarter of 2014.

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UNIVERSAL FOREST PRODUCTS, INC.

·

National housing starts increased approximately 1.6% in the period from December 2013 through February 2014 (our sales trail housing starts by about a month), compared to the same period of 2013.  Although national housing starts increased, our unit sales to the residential construction market decreased 6%, primarily due to being more selective in the business that we take, particularly in our framing operations within our Site-Built segment.

·

Production of HUD code manufactured homes increased 3.8% in the first quarter of 2014, compared to the same period of 2013, which helped drive our 1% increase in unit sales to this market.  Our unit sales growth trails the market primarily due to a vertical integration strategy being employed by one of our customers.  We expect this trend to continue for the balance of the year.

·	Our operating profit percentage increased to 2.3% from 1.6% comparing 2014 to 2013 primarily due to the improved profitability of our framing and other operations that primarily serve residential construction customers.

HISTORICAL LUMBER PRICES

We experience significant fluctuations in the cost of commodity lumber products from primary producers ("Lumber Market"). The following table presents the Random Lengths framing lumber composite price:

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 approximately 50% of our sales volume.

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UNIVERSAL FOREST PRODUCTS, INC.

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 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.

Our gross margins are impacted by (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 retail building materials customers, as well as trusses, wall panels and other components sold to the residential 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 with our suppliers for these sales commitments.  Also, the time period and quantity limitations generally allow us to re-price our products for changes in lumber costs from our suppliers.

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UNIVERSAL FOREST PRODUCTS, INC.

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 we 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 15% 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.)

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.

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.

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UNIVERSAL FOREST PRODUCTS, INC.

BUSINESS COMBINATIONS

We completed two business acquisitions through March 2014 and four during all of 2013.  Each of the acquisitions was accounted for using the purchase method.  The annual revenue of these acquisitions is approximately $35 million.  These business combinations were not significant to our operating results individually or in aggregate, and thus pro forma results for 2014 and 2013 are not presented.

See Notes to the Unaudited Condensed Consolidated Financial Statements, Note C, "Business Combinations" for additional information.

RESULTS OF OPERATIONS

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

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:

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UNIVERSAL FOREST PRODUCTS, INC.

Ÿ

Diversifying our end market sales mix by increasing sales of specialty wood packaging to industrial users, increasing our penetration of the concrete forming 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, which 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.

Ÿ	Developing new products and expanding our product offering for existing customers.  New product sales were $21.2 million in the first quarter of 2014 compared to $18.8 million  during the first quarter of 2013.

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

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

 

During 2014, certain customers were reclassified to a different market.  Prior year information has been restated to reflect these changes.

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UNIVERSAL FOREST PRODUCTS, INC.

Gross sales in the first quarter of 2014 increased 0.3% compared to the same period of 2013, due to a 3% increase in unit sales, offset by a 3% decline in selling prices due to the lower level of the Lumber Market.

Changes in our gross sales by market are discussed below.

Retail Building Materials:

Gross sales to the retail building materials market decreased almost 2% in the first quarter of 2014 compared to the same period of 2013, due to a reduction in selling prices due to the Lumber Market.  Overall unit sales remained flat.  Within this market, sales to our big box customers increased 7% while our sales to other retailers decreased 11%.  The decline in sales to our independent retail customers was due to inclement weather in the first quarter of 2014 as these customers are more apt to order product on a just-in-time basis.

Industrial:

Gross sales to the industrial market increased nearly 7% in the first quarter of 2014 compared to the same period of 2013, resulting from a 10% increase in unit sales, offset by a 3% reduction in selling prices due to the Lumber Market.  Our growth was due to a combination of new customers and an increase in sales to existing customers.

Manufactured Housing:

Gross sales to the manufactured housing market decreased over 7% in the first quarter of 2014 compared to 2013.  The decrease was due to an 8% decrease in selling prices, offset by a 1% increase in unit sales.  By comparison, production of HUD-code homes in January and February 2014 were up 4% compared to 2013.  Our unit sales increase generally trailed industry production primarily due to a vertical integration strategy being employed by one of our customers.  We expect this trend to continue for the balance of the year.

Residential Construction:

Gross sales to the residential construction market decreased approximately 2% in the first quarter of 2014 compared to the same period of 2013, due to a 6% decrease in our unit sales, offset by a 4% increase in selling prices.   By comparison, national housing starts increased approximately 1.6% in the period from December 2013 through February 2014 (our sales trail housing starts by about a month), compared to the same period of 2013, and were impacted by inclement weather in the first quarter of 2014.  The decrease in our unit sales and increase in our selling prices reflects efforts to be more selective in the business that we take, particularly in our framing operations within our Site-Built segment.

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UNIVERSAL FOREST PRODUCTS, INC.

Commercial Construction and Concrete Forming:

Gross sales to the commercial construction and concrete forming market increased nearly 11% in the first quarter of 2014 compared to the same period of 2013.  A shift in sales mix towards higher margin products generated a 3% increase in selling prices, despite a decrease in lumber prices.  Additionally, unit sales increased 8%.

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.

COST OF GOODS SOLD AND GROSS PROFIT

Our gross profit percentage increased to 11.9% from 10.4% comparing the first quarter of 2014 to the same period of 2013.  Our gross profit dollars increased by 14.2%, which compares favorably with our 3% increase in unit sales.  The improvement in our profitability in 2014 reflects efforts to be more selective in the business that we take on sales to the residential construction market, particularly in our framing entities, as well as operational improvements we made to those entities.  Our growth in sales to the industrial market also contributed to our gross margin and gross profit increases.  These improvements were offset to some extent by adverse cost variances resulting from a decline in productivity due to inclement weather.  We experienced many lost production days at our plants  during the first quarter in 2014.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses increased by approximately $5.7 million, or 11.8%, in the first quarter of 2014 compared to the same period of 2013, while we reported a 3% increase in unit sales.  The increase in SG&A was primarily due to increases in compensation and benefit costs tied to an increased headcount, incentive compensation resulting from an increase in our profitability, and an increase in bad debt expense.

INTEREST, NET

Net interest costs were lower in the first quarter of 2014 compared to the same period of 2013, due to lower interest expense resulting from lower debt levels in 2014, and an increase in interest income resulting from certain notes receivables.

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UNIVERSAL FOREST PRODUCTS, INC.

INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and permanent tax differences.  Our effective tax rate was 35.6% in the first quarter of 2014 compared to 28.1% for the same period of 2013.  The increase is primarily due to recognizing a tax benefit for research and development and certain other tax credits totaling approximately $700,000 in the first quarter of 2013 related to 2012. These tax credits were enacted in the first quarter of 2013, retroactive to the beginning of 2012.

SEGMENT REPORTING

The following table presents, for the periods indicated, our net sales and earnings from operations by reportable segment.

¹ Corporate earnings from operations represents unallocated administrative costs and certain incentive compensation expense.

Net sales to the Eastern and Western reportable segment increased in the first quarter of 2014 compared to 2013 due to an increase in sales to industrial and concrete forming customers, offset by a decline in sales to retail and manufactured housing customers due to the Lumber Market.

Earnings from operations for the Eastern and Western reportable segment increased in the first quarter of 2014 compared to 2013, primarily due to an increase in overall unit sales and improvement in product mix, offset by unfavorable cost variances due to lost production days resulting from inclement weather.

Net sales to the Site-Built reportable segment decreased in the first quarter of 2014 compared to 2013 primarily due to a decrease in sales to the commercial construction market and due to a decline in sales of our framing operations as we were more selective in the business that we pursued.

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UNIVERSAL FOREST PRODUCTS, INC.

Earnings from operations for the Site-Built reportable segment increased in the first quarter of 2014 compared to 2013 primarily due to improvements in our framing operations, as well as improved profitability of our component plants.  These results were offset somewhat by unfavorable cost variances resulting from lost production days due to inclement weather.

Net sales to all other segments decreased in the first quarter of 2014 compared to 2013, primarily due to a decline in commodity lumber sales executed by our centralized purchasing department.

Earnings from operations for all other segments decreased in the first quarter of 2014 compared to 2013, primarily due to our Universal Consumer Products operations.

OFF-BALANCE SHEET TRANSACTIONS

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

LIQUIDITY AND CAPITAL RESOURCES

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

In general, we financed our growth in the past through a combination of operating cash flows, our revolving credit facility, industrial development bonds (when circumstances permit), and issuance of long-term notes payable at times when interest rates are favorable.  We have not issued equity to finance growth except in the case of a large acquisition.  We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization.  We believe this is one of many important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed.  We are currently below our internal targets and plan to manage our capital structure conservatively in light of current economic conditions.

Seasonality has a significant impact on our working capital from March to August which historically results in negative or modest cash flows from operations in our first and second quarters. Conversely, we experience a substantial decrease in working capital from September to February which typically results in significant cash flow from operations in our third and fourth quarters.  For comparative purposes, we have included the March 30, 2013 balances in the accompanying unaudited consolidated condensed balance sheets.

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UNIVERSAL FOREST PRODUCTS, INC.

Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital management.  Our cash cycle increased to 62 days in the first three months of 2014 from 55 days in the first three months of 2013, due to a 5 day increase in our days supply of inventory, combined with a 2 day increase in our days sales outstanding. In 2014, inclement weather resulted in weaker than expected unit sales and lower inventory turnover.  In addition, we carried higher levels of safety stock inventory in 2014 due to industry transportation challenges.

Cash used in operating activities was $54.7 million in the first three months of 2014, which was comprised of net earnings of $7.7 million and $8.0 million of non-cash expenses, offset by a $70.4 million increase in working capital since the end of 2013 due to the seasonality of our business.

Capital expenditures were $9.0 million in the first three months of 2014.  We currently plan to spend up to $40 million in 2014.  Outstanding purchase commitments on existing capital projects totaled approximately $5.0 million on March 29, 2014.  We intend to fund capital expenditures and purchase commitments through our operating cash flows for the balance of the year.

Cash flows used in investing activities also included $4.2 million spent to acquire assets of Upshur Forest Products, LLC and Container Systems, Inc. See Notes to Unaudited Consolidated Condensed Financial Statements, Note F “Business Combinations”.

On March 29, 2014, we had $58.8 million outstanding on our $265 million revolving credit facility. The revolving credit facility also supports letters of credit totaling approximately $9.8 million on March 29, 2014.  Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold.  We were in compliance with all our covenant requirements on March 29, 2014.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

See Notes to Unaudited Consolidated Condensed Financial Statements, Note E, "Commitments, Contingencies, and Guarantees."

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UNIVERSAL FOREST PRODUCTS, INC.

CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States.  These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures.  There have been no material changes in our policies or estimates since December 28, 2013.

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UNIVERSAL FOREST PRODUCTS, INC.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

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

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

We are subject to fluctuations in the price of lumber.  We experience significant fluctuations in the cost of commodity lumber products from primary producers (the "Lumber Market").  A variety of factors over which we have no control, including government regulations, transportation, environmental regulations, weather conditions, economic conditions, and natural disasters, impact the cost of lumber products and our selling prices.  While we attempt to minimize our risk from severe price fluctuations, substantial, prolonged trends in lumber prices can affect our sales volume, our gross margins, and our profitability.  We anticipate that these fluctuations will continue in the future.  (See “Impact of the Lumber Market on Our Operating Results.”)

Item 4.  Controls and Procedures.

(a)

Evaluation of Disclosure Controls and Procedures.  With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15e and 15d – 15e) as of the quarter ended March 29, 2014 (the “Evaluation Date”), have concluded that, as of such date, our disclosure controls and procedures were effective.

(b)	Changes in Internal Controls.  During the quarter ended March 29, 2014, there were no changes in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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UNIVERSAL FOREST PRODUCTS, INC.

PART II.  OTHER INFORMATION

Item 1A.  Risk Factors.

CCA Treated Lumber Products.  In connection with the chemical treatment of lumber products, certain of our affiliates market a modest amount of CCA (Chromated Copper Arsenate) treated products for permitted, non-residential applications.  From time to time, various special interests and environmental groups have petitioned certain states requesting restrictions on the use or disposal of CCA treated products.   The wood preservation industry trade groups have been and are working with individual states and the regulatory agencies to provide an accurate, factual background that demonstrates that the present method of uses and disposal is scientifically supported.  While the level of activity in this area has diminished over time, our inability to market CCA treated products could impact our operations adversely.

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

(1)

On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5 million shares of our common stock.  On October 14, 2011, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program.  The total number of shares that may be repurchased under the program is approximately 3 million shares.

Item 5.  Other Information.

None.

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UNIVERSAL FOREST PRODUCTS, INC.

PART II.  OTHER INFORMATION

Item 6.  Exhibits.

The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:

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*  Indicates a compensatory arrangement.

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UNIVERSAL FOREST PRODUCTS, INC.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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EXHIBIT INDEX

Exhibit No.

Description