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## 2014 coMPared to 2013 

## Sales 

net sales increased 0.1% to $139.3 million for the year ended December 31, 2014, from net sales of $139.2 million in 2013, primarily due to increases in sales in the aerospace and defense and medical markets of approximately 10% and 2%, respectively, partially offset by sales decline in the automotive market of approximately 6%. the increase in sales to the aerospace and defense market was largely due to an increase in sales of approximately $2.1 million for a low-margin contract manufacturing program. Absent this increase, sales to the aerospace and defense market declined approximately 6% due primarily to cuts in government spending. the decline in sales to the automotive market was primarily due to the phase-out of an interior trim program coupled with soft demand for parts for a specific model of car that has had weak demand from consumers. 

## Gross Profit 

Gross profit as a percentage of sales (“Gross Margin”) declined to 26.5% for the year ended December 31, 2014, from 29.5% in 2013. As a percentage of sales, material and direct labor collectively increased approximately 1.5% and overhead as a percentage of sales increased approximately 1.5% or approximately $2 million in 2014. the increase in material and direct labor was a result of manufacturing inefficiencies incurred as a result of plant moves in the Midwest, California and texas as well as an increase in sales for a low-margin contract manufacturing military program. the increase in overhead was primarily due to increased employee health care costs of approximately $600,000 due to a higher than typical frequency of large claims, increased compensation and benefits of approximately $450,000 due to normal inflationary increases as well as higher overtime incurred as a result of the plant moves, increased plant and equipment maintenance costs of approximately $290,000 due to the various plant moves and higher depreciation of approximately $220,000 due largely to new molded fiber equipment. 

## Selling, General and Administrative Expenses 

selling, General, and Administrative expenses (“sG&A”) increased 1.0% to $23.8 million for the year ended December 31, 2014 from $23.6 million in 2013. the increase in sG&A for the year ended December 31, 2014, is primarily due to higher depreciation costs of $160,000, largely associated with the Company’s new enterprise Resource planning (“eRp”) software system, increased bad debt expense of approximately $140,000 due largely to a one-time write-off and increased employee health care costs of approximately $184,000 due largely to a higher than typical frequency of large claims, partially offset by lower sales commissions of approximately $100,000 due to soft sales compared to the Company’s budgeted sales, lower advertising costs incurred of approximately $70,000 and lower intangibles amortization of approximately $85,000. 

## Restructuring Costs 

On January 7, 2014, the Company committed to move forward with a plan to cease operations at its Glendale Heights, Illinois plant and consolidate operations into its Grand Rapids, Michigan, facility. the Company’s decision was in response to a pending significant increase in lease cost, declining sales at the Illinois facility, and significant anticipated savings as a result of the consolidation. the consolidation into the Michigan facility is complete and the actual costs incurred are included in the table below. 

On July 16, 2014, the Company committed to move forward with a plan to cease operations at its Costa Mesa, California, plant and consolidate operations into its Rancho Dominguez, California, facility and other UFp facilities. the Company’s decision was in response to the upcoming December 31, 2014, expiration of the lease on the Costa Mesa facility as well as the close proximity of the two properties. this consolidation is substantially complete and the actual costs incurred through December 31, 2014 are included in the table below. 

the Company has recorded the following restructuring costs associated with the plant consolidations discussed above for the year ended December 31, 2014 (in thousands): 

<img src='content_image/163516.jpg'>

these costs were reclassified in the 2014 Consolidated statement of Operations as “Restructuring Costs” as follows: $1,385,000 from Cost of sales, $82,000 from selling, General and Administrative expenses and $89,000 from Gain on sales of property, plant and equipment. the Company also incurred approximately $373,000 and $38,000, in related capital improvements at its Michigan and California facilities, respectively, for the year ended December 31, 2014. 

