UFP INDUSTRIES INC - Quarter Report: 2021 September (Form 10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 25, 2021


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

Commission File Number 0-22684

UFP INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)


	Michigan		38-1465835
	(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification Number)
	organization)

	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 ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ⌧ No ◻

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


Large Accelerated Filer ⌧	Accelerated Filer ◻	Non-Accelerated Filer ◻	Smaller Reporting Company ☐
			Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with a new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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 25, 2021
	Common stock, $1 par value		61,887,770


Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock, no par value	UFPI	The Nasdaq Stock Market, LLC

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UFP INDUSTRIES, INC.

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION.	Page No.

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets at September 25, 2021, December 26, 2020 and September 26, 2020	3

		Condensed Consolidated Statements of Earnings and Comprehensive Income for the Three and Nine Months Ended September 25, 2021 and September 26, 2020	4

		Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 25, 2021 and September 26, 2020	5

		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 25, 2021 and September 26, 2020	7

		Notes to Unaudited Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34

	Item 4.	Controls and Procedures	34

PART II.		OTHER INFORMATION

	Item 1.	Legal Proceedings – NONE

	Item 1A.	Risk Factors - NONE	35

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

	Item 3.	Defaults upon Senior Securities – NONE

	Item 4.	Mine Safety Disclosures – NONE

	Item 5.	Other Information – NONE	35

	Item 6.	Exhibits	35

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UFP INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands, except share data)
	September 25,		December 26,		September 26,
	2021		2020		2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	138,637	$	436,507	$	346,154
Restricted cash		17,592		101		724
Investments		33,723		24,308		20,530
Accounts receivable, net		783,959		470,504		583,079
Inventories:
Raw materials		368,185		316,481		286,418
Finished goods		532,480		250,813		242,316
Total inventories		900,665		567,294		528,734
Refundable income taxes		14,134		5,836		—
Other current assets		34,040		33,812		32,888
TOTAL CURRENT ASSETS		1,922,750		1,538,362		1,512,109
DEFERRED INCOME TAXES		2,330		2,413		2,070
RESTRICTED INVESTMENTS		18,925		17,565		17,327
RIGHT OF USE ASSETS		94,481		77,245		77,412
OTHER ASSETS		29,168		20,298		24,216
GOODWILL		292,318		252,193		245,925
INDEFINITE-LIVED INTANGIBLE ASSETS		7,380		7,401		7,361
OTHER INTANGIBLE ASSETS, NET		93,984		72,252		58,205
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment		1,156,070		974,497		935,639
Less accumulated depreciation and amortization		(603,159)		(557,335)		(529,644)
PROPERTY, PLANT AND EQUIPMENT, NET		552,911		417,162		405,995
TOTAL ASSETS		3,014,247		2,404,891		2,350,620
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Cash overdraft	$	10,812	$	—	$	—
Accounts payable		292,933		211,518		231,111
Accrued liabilities:
Compensation and benefits		249,242		166,478		171,472
Income taxes		—		—		3,024
Other		90,348		69,104		69,888
Current portion of lease liability		22,242		16,549		15,349
Current portion of long-term debt		93		100		2,760
TOTAL CURRENT LIABILITIES		665,670		463,749		493,604
LONG-TERM DEBT		310,119		311,607		311,267
LEASE LIABILITY		75,548		61,509		62,100
DEFERRED INCOME TAXES		39,198		25,266		22,478
OTHER LIABILITIES		46,238		59,608		47,367
TOTAL LIABILITIES		1,136,773		921,739		936,816
SHAREHOLDERS’ EQUITY:
Controlling interest shareholders’ equity:
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none	$	—	$	—	$	—
Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,887,770, 61,205,780 and 61,186,636		61,888		61,206		61,187
Additional paid-in capital		239,563		218,224		216,002
Retained earnings		1,552,593		1,182,680		1,127,375
Accumulated other comprehensive loss		(3,278)		(1,794)		(6,974)
Total controlling interest shareholders’ equity		1,850,766		1,460,316		1,397,590
Noncontrolling interest		26,708		22,836		16,214
TOTAL SHAREHOLDERS’ EQUITY		1,877,474		1,483,152		1,413,804
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	3,014,247	$	2,404,891	$	2,350,620

See notes to consolidated condensed financial statements.

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UFP INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

(Unaudited)


(in thousands, except per share data)
	Three Months Ended				Nine Months Ended
	September 25,		September 26,		September 25,		September 26,
	2021		2020		2021		2020
NET SALES	$	2,093,784	$	1,486,227	$	6,619,329	$	3,760,290
COST OF GOODS SOLD		1,766,229		1,245,153		5,583,926		3,147,049
GROSS PROFIT		327,555		241,074		1,035,403		613,241
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		169,467		134,649		504,104		357,770
OTHER GAINS, NET		(10,037)		(176)		(11,248)		(2,120)
EARNINGS FROM OPERATIONS		168,125		106,601		542,547		257,591
INTEREST EXPENSE		3,433		2,486		10,483		6,291
INTEREST AND INVESTMENT LOSS (INCOME)		371		(1,565)		(3,614)		(1,623)
EQUITY IN EARNINGS OF INVESTEE		946		—		2,411		—
		4,750		921		9,280		4,668
EARNINGS BEFORE INCOME TAXES		163,375		105,680		533,267		252,923
INCOME TAXES		37,628		26,819		127,909		63,798
NET EARNINGS		125,747		78,861		405,358		189,125
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(4,706)		(1,657)		(7,624)		(5,299)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST	$	121,041	$	77,204	$	397,734	$	183,826

EARNINGS PER SHARE – BASIC	$	1.94	$	1.25	$	6.40	$	2.98
EARNINGS PER SHARE – DILUTED	$	1.94	$	1.25	$	6.38	$	2.98

OTHER COMPREHENSIVE INCOME:
NET EARNINGS		125,747		78,861		405,358		189,125
OTHER COMPREHENSIVE GAIN (LOSS)		(2,024)		1,687		(1,500)		(4,030)
COMPREHENSIVE INCOME		123,723		80,548		403,858		185,095
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(4,496)		(1,922)		(7,608)		(3,354)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	119,227	$	78,626	$	396,250	$	181,741

See notes to consolidated condensed financial statements.

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UFP INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


(in thousands, except share and per share data)
	Controlling Interest Shareholders’ Equity
							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive		Noncontrolling
	Stock		Capital		Earnings		Earnings		Interest		Total
Balance on December 26, 2020	$	61,206	$	218,224	$	1,182,680	$	(1,794)	$	22,836	$	1,483,152
Net earnings						103,311				940		104,251
Foreign currency translation adjustment								(374)		(526)		(900)
Unrealized loss on debt securities								(1,296)				(1,296)
Distributions to noncontrolling interest										(2,914)		(2,914)
Cash dividends - $0.15 per share - quarterly						(9,274)						(9,274)
Issuance of 5,816 shares under employee stock purchase plan		6		357								363
Net issuance of 536,970 shares under stock grant programs		537		3,888		5						4,430
Issuance of 89,690 shares under deferred compensation plans		89		(89)								—
Expense associated with share-based compensation arrangements				2,936								2,936
Accrued expense under deferred compensation plans				5,795								5,795
Balance on March 27, 2021	$	61,838	$	231,111	$	1,276,722	$	(3,464)	$	20,336	$	1,586,543
Net earnings						173,382				1,978		175,360
Foreign currency translation adjustment								1,759		720		2,479
Unrealized gain on debt securities								241				241
Cash dividends - $0.15 per share - quarterly						(9,276)						(9,276)
Issuance of 9,282 shares under employee stock plans		9		564								573
Net forfeitures of 5,718 shares under stock grant programs		(6)		(224)		5						(225)
Issuance of 8,913 shares under deferred compensation plans		10		(10)								—
Expense associated with share-based compensation arrangements				2,728								2,728
Accrued expense under deferred compensation plans				1,140								1,140
Balance on June 26, 2021	$	61,851	$	235,309	$	1,440,833	$	(1,464)	$	23,034	$	1,759,563
Net earnings						121,041				4,706		125,747
Foreign currency translation adjustment								(1,897)		(210)		(2,107)
Unrealized gain on debt securities								83				83
Distributions to noncontrolling interest												—
Additional purchase and adjustment of noncontrolling interest										(822)		(822)
Cash dividends - $0.15 per share - quarterly						(9,281)						(9,281)
Issuance of 10,008 shares under employee stock plans		10		573								583
Net issuance of 17,165 shares under stock grant programs		17		(115)								(98)
Issuance of 9,864 shares under deferred compensation plans		10		(10)								—
Expense associated with share-based compensation arrangements				2,657								2,657
Accrued expense under deferred compensation plans				1,149								1,149
Balance on September 25, 2021	$	61,888	$	239,563	$	1,552,593	$	(3,278)	$	26,708	$	1,877,474

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UFP INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED

(Unaudited)


(in thousands, except share and per share data)
	Controlling Interest Shareholders’ Equity
							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive		Noncontrolling
	Stock		Capital		Earnings		Earnings		Interest		Total
Balance on December 28, 2019	$	61,409	$	192,173	$	995,022	$	(4,889)	$	14,018	$	1,257,733
Net earnings						40,159				411		40,570
Foreign currency translation adjustment								(5,951)		(2,335)		(8,286)
Unrealized loss on debt securities								(270)				(270)
Distributions to noncontrolling interest										(299)		(299)
Additional purchase of noncontrolling interest				130						(225)		(95)
Cash dividends - $0.125 per share - quarterly						(7,730)						(7,730)
Issuance of 10,549 shares under employee stock purchase plan		10		309								319
Net issuance of 350,124 shares under stock grant programs		350		12,454		1						12,805
Issuance of 89,616 shares under deferred compensation plans		89		(89)								—
Repurchase of 756,397 shares		(756)				(28,456)						(29,212)
Expense associated with share-based compensation arrangements				1,404								1,404
Accrued expense under deferred compensation plans				5,343								5,343
Balance on March 28, 2020	$	61,102	$	211,724	$	998,996	$	(11,110)	$	11,570	$	1,272,282
Net earnings						66,463				3,231		69,694
Foreign currency translation adjustment								2,026		125		2,151
Unrealized gain on debt securities								688				688
Cash dividends - $0.125 per share - quarterly						(7,644)						(7,644)
Issuance of 9,714 shares under employee stock plans		10		367								377
Net issuance of 42,880 shares under stock grant programs		43		(174)		2						(129)
Issuance of 14,106 shares under deferred compensation plans		14		(14)								—
Expense associated with share-based compensation arrangements				824								824
Accrued expense under deferred compensation plans				1,082								1,082
Balance on June 27, 2020	$	61,169	$	213,809	$	1,057,817	$	(8,396)	$	14,926	$	1,339,325
Net earnings						77,204				1,657		78,861
Foreign currency translation adjustment								1,319		265		1,584
Unrealized loss on debt securities								103				103
Distributions to noncontrolling interest										(634)		(634)
Cash dividends - $0.125 per share - quarterly						(7,646)						(7,646)
Issuance of 7,511 shares under employee stock plans		7		338								345
Net forfeiture of 1,382 shares under stock grant programs		(1)		(56)								(57)
Issuance of 11,326 shares under deferred compensation plans		12		(12)								—
Expense associated with share-based compensation arrangements				826								826
Accrued expense under deferred compensation plans				1,097								1,097
Balance on September 26, 2020	$	61,187	$	216,002	$	1,127,375	$	(6,974)	$	16,214	$	1,413,804

See notes to consolidated condensed financial statements.

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UFP INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(in thousands)	Nine Months Ended
	September 25,		September 26,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	405,358	$	189,125
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		61,741		47,226
Amortization of intangibles		9,369		5,863
Expense associated with share-based and grant compensation arrangements		8,444		3,152
Deferred income taxes		(594)		110
Unrealized gain on investments and other		(1,756)		(81)
Equity in earnings of investee		2,411		—
Net gain on sale and disposition of assets		(10,482)		(662)
Changes in:
Accounts receivable		(141,088)		(211,238)
Inventories		(204,144)		(39,167)
Accounts payable and cash overdraft		53,437		85,354
Accrued liabilities and other		99,067		105,401
NET CASH PROVIDED BY OPERATING ACTIVITIES		281,763		185,083
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(110,092)		(67,024)
Proceeds from sale of property, plant and equipment		26,597		2,588
Acquisitions and purchases of non-controlling interest, net of cash received		(433,275)		(34,820)
Purchases of investments		(17,866)		(24,266)
Proceeds from sale of investments		9,857		22,281
Other		(3,478)		314
NET CASH USED IN INVESTING ACTIVITIES		(528,257)		(100,927)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities		886,966		6,862
Repayments under revolving credit facilities		(888,335)		(6,498)
Contingent consideration payments and other		(2,664)		(3,087)
Issuance of long-term debt		—		150,000
Proceeds from issuance of common stock		1,519		1,042
Dividends paid to shareholders		(27,831)		(23,020)
Distributions to noncontrolling interest		(2,914)		(932)
Repurchase of common stock		—		(29,212)
Other		(334)		23
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(33,593)		95,178
Effect of exchange rate changes on cash		(292)		(1,122)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(280,379)		178,212
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR		436,608		168,666
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	156,229	$	346,878

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents, beginning of period	$	436,507	$	168,336
Restricted cash, beginning of period		101		330
Cash, cash equivalents, and restricted cash, beginning of period	$	436,608	$	168,666

Cash and cash equivalents, end of period	$	138,637	$	346,154
Restricted cash, end of period		17,592		724
Cash, cash equivalents, and restricted cash, end of period	$	156,229	$	346,878

SUPPLEMENTAL INFORMATION:
Interest paid	$	10,360	$	4,112
Income taxes paid		136,893		47,301
NON-CASH INVESTING ACTIVITIES
Capital expenditures included in accounts payable		2,366		—
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans		6,778		6,195

See notes to consolidated condensed financial statements.

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UFP INDUSTRIES, INC.

NOTES TO UNAUDITED

CONDENSED CONSOLIDATED 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 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. Certain prior year amounts have been reclassified to conform to the current year presentation.

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 26, 2020.

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 September 26, 2020 balances in the accompanying unaudited condensed consolidated balance sheets.

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UFP INDUSTRIES, INC.

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 (in thousands):


	September 25, 2021								September 26, 2020
	Quoted		Prices with						Quoted		Prices with
	Prices in		Other			Prices with			Prices in		Other			Prices with
	Active		Observable			Unobservable			Active		Observable			Unobservable
	Markets		Inputs			Inputs			Markets		Inputs			Inputs
	(Level 1)		(Level 2)			(Level 3)	Total		(Level 1)		(Level 2)			(Level 3)	Total
Money market funds	$	19	$	2,631	$	—	$	2,650	$	64	$	3,133	$	—	$	3,197
Fixed income funds		962		17,021		—		17,983		248		16,522		—		16,770
Treasury securities		310		—		—		310		—		—		—		—
Equity securities		18,543		—		—		18,543		10,524		—		—		10,524
Alternative investments		—		—		3,536		3,536		—		—		1,926		1,926
Mutual funds:
Domestic stock funds		9,968		—		—		9,968		6,826		—		—		6,826
International stock funds		1,675		—		—		1,675		1,243		—		—		1,243
Target funds		23		—		—		23		260		—		—		260
Bond funds		146		—		—		146		208		—		—		208
Alternative funds		497		—		—		497		433		—		—		433
Total mutual funds		12,309		—		—		12,309		8,970		—		—		8,970
Total	$	32,143	$	19,652	$	3,536	$	55,331	$	19,806	$	19,655	$	1,926	$	41,387
Assets at fair value	$	32,143	$	19,652	$	3,536	$	55,331	$	19,806	$	19,655	$	1,926	$	41,387

From the assets measured at fair value as of September 25, 2021, listed in the table above, $33.6 million of mutual funds, equity securities, and alternative investments are held in Investments, $0.1 million of money market funds are held in Cash and Cash Equivalents, $0.7 million of money market and mutual funds are held in Other Assets for our deferred compensation plan, and $18.3 million of fixed income funds and $2.6 million of money markets funds are held in Restricted Investments.

We maintain money market, mutual funds, bonds, and/or equity securities in our non-qualified deferred compensation plan, our wholly owned licensed captive insurance company, and assets held in financial institutions. These funds are valued at prices quoted in an active exchange market and are included in “Cash and Cash Equivalents”, “Investments”, “Other Assets”, and “Restricted Investments”. 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.

In accordance with our investment policy, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”), maintains an investment portfolio, totaling $52.0 million as of September 25, 2021, which has been included in the aforementioned table of total investments. This portfolio consists of domestic and international equity securities, alternative investments, and fixed income bonds.

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UFP INDUSTRIES, INC.

Ardellis’ available for sale investment portfolio, including funds held with the State of Michigan, consists of the following (in thousands):


	September 25, 2021						September 26, 2020
			Unrealized						Unrealized
	Cost		Gain		Fair Value		Cost		Gain		Fair Value
Fixed Income	$	17,293	$	690	$	17,983	$	15,750	$	1,020	$	16,770
Treasury Securities		310		—		310		—		—		—
Equity		14,392		4,151		18,543		9,121		1,403		10,524
Mutual Funds		9,210		2,435		11,645		7,228		852		8,080
Alternative Investments		3,370		166		3,536		1,881		45		1,926
Total	$	44,575	$	7,442	$	52,017	$	33,980	$	3,320	$	37,300

Our fixed income investments consist of a blend of US Government and Agency bonds and investment grade corporate bonds with varying maturities. Our equity investments consist of small, mid, and large cap growth and value funds, as well as international equity. Our mutual fund investments consist of domestic and international stock. Our alternative investments consist of a private real estate income trust which is valued as a Level 3 asset. The net unrealized gain of the portfolio was $7.4 million. Carrying amounts above are recorded in the investments and restricted investments line items within the balance sheet as of September 25, 2021 and September 26, 2020.

C. REVENUE RECOGNITION

Within the three primary segments (Retail, Industrial, and Construction) that the Company operates, there are a variety of written agreements governing the sale of our products and services. The transaction price is stated at the purchase order level, which includes shipping and/or freight costs and any applicable governmental authority taxes. The majority of our contracts have a single performance obligation concentrated around the delivery of goods to the carrier, Free On Board (FOB) shipping point. Therefore, revenue is recognized when this performance obligation is satisfied. Generally, title and control passes at the time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day.

Certain customer products that we provide require installation by the Company or a 3^rd party. Installation revenue is recognized upon completion. If the Company uses a 3^rd party for installation, the party will act as an agent to the Company until completion of the installation. Installation revenue represents an immaterial share of the Company’s total sales.

The Company utilizes rebates, credits, discounts and/or cash-based incentives with certain customers which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration. The allocation of these costs are applied at the invoice level and recognized in conjunction with revenue. Additionally, returns and refunds are estimated on a historical and expected basis which is a reduction of revenue recognized.

Earnings on construction contracts are reflected in operations using over time accounting, under either cost to cost or units of delivery methods, depending on the nature of the business at individual operations, which is in accordance with ASC 606 as revenue is recognized when certain performance obligations are performed. Under over time accounting using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred relative to the total estimated costs. Under over time accounting using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced relative 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.

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Our construction contracts are generally entered into with a fixed price, and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist.

The following table presents our net sales disaggregated by revenue source (in thousands):


	Three Months Ended					Nine Months Ended
	September 25,		September 26,			September 25,		September 26,
	2021		2020		% Change	2021		2020		% Change
FOB Shipping Point Revenue	$	2,063,647	$	1,454,220	41.9%	$	6,530,204	$	3,663,140	78.3%
Construction Contract Revenue		30,137		32,007	(5.8)%		89,125		97,150	(8.3)%
Total Net Sales		2,093,784		1,486,227	40.9%	$	6,619,329	$	3,760,290	76.0%

The Construction segment comprises the construction contract revenue shown above. Construction contract revenue is primarily made up of site-built and framing customers.

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


	September 25,		December 26,		September 26,
	2021		2020		2020
Cost and Earnings in Excess of Billings	$	3,776	$	4,169	$	4,130
Billings in Excess of Cost and Earnings		10,373		11,530		11,264

D. EARNINGS PER SHARE

The computation of earnings per share (“EPS”) is as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 25,		September 26,		September 25,		September 26,
	2021		2020		2021		2020
Numerator:
Net earnings attributable to controlling interest	$	121,041	$	77,204	$	397,734	$	183,826
Adjustment for earnings allocated to non-vested restricted common stock		(3,952)		(2,195)		(12,800)		(5,110)
Net earnings for calculating EPS	$	117,089	$	75,009	$	384,934	$	178,716
Denominator:
Weighted average shares outstanding		62,266		61,548		62,162		61,642
Adjustment for non-vested restricted common stock		(2,033)		(1,750)		(2,001)		(1,713)
Shares for calculating basic EPS		60,233		59,798		60,161		59,929
Effect of dilutive restricted common stock		168		20		137		19
Shares for calculating diluted EPS		60,401		59,818		60,298		59,948
Net earnings per share:
Basic	$	1.94	$	1.25	$	6.40	$	2.98
Diluted	$	1.94	$	1.25	$	6.38	$	2.98

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E. 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., a licensed captive insurance company.

In addition, on September 25, 2021, 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 25, 2021, we had outstanding purchase commitments on commenced capital projects of approximately $44.1 million.

We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material. We also 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 effect on our consolidated financial statements.

As part of our operations, 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 ensure the products and installation services are completed in accordance with our contractual obligations. We have agreed to indemnify the surety for claims properly made against these bonds. As of September 25, 2021, we had approximately $39.6 million outstanding payment and performance bonds for open projects. We had approximately $2.1 million in payment and performance bonds outstanding for completed projects which are still under warranty.

On September 25, 2021, we had outstanding letters of credit totaling $52.6 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. As of September 25, 2021, we have irrevocable letters of credit outstanding totaling approximately $45.5 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.

We are required to provide irrevocable letters of credit in favor of the bond trustees for all industrial development revenue bonds that have been issued. These letters of credit guarantee principal and interest payments to the bondholders. We currently have irrevocable letters of credit outstanding totaling approximately $7.1 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 UFP Industries, Inc. in certain debt agreements, including the Series 2012, 2018 and 2020 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.

We did not enter into any new guarantee arrangements during the third quarter of 2021 which would require us to recognize a liability on our balance sheet.

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F. BUSINESS COMBINATIONS

We completed the following acquisitions in 2021 and since the end of September 2020, which were accounted for using the purchase method in thousands unless otherwise noted:


					Net
Company	Acquisition		Intangible		Tangible		Operating
Name	Date	Purchase Price	Assets		Assets		Segment
	April 29, 2021	$10,108 cash paid for 100% asset purchase	$	7,099	$	3,009	Construction
Endurable Building Products, LLC (Endurable)	Based near Minneapolis, Minnesota, Endurable is a leading manufacturer of customized structural aluminum systems and products for exterior purposes, such as deck framing, balconies, sunshades, railings and stairs. The company’s trademarked alumiLAST aluminum deck and balcony systems are known for their low-maintenance design and ease of installation. Endurable serves general contractors in the multifamily market throughout the U.S. and had sales of approximately $15 million in 2020.
	April 19, 2021	$8,549 cash paid for 100% asset purchase	$	1,526	$	7,023	Retail
Walnut Hollow Farm, Inc.	Walnut Hollow Farm, located in Wisconsin, is engaged in the business of designing, manufacturing, selling, and distributing wood products, tools, and accessories for the craft and hobby, outdoor sportsman art, personalized home décor, and hardware categories, with sales of approximately $11.6 million in 2020.
	April 12, 2021	$153,462 cash paid for 100% asset purchase	$	—	$	153,462	Retail
Spartanburg Forest Products, Inc.	Headquartered in Greer, South Carolina, Spartanburg Forest Products and its affiliates are a premier wood treating operation in the U.S., with approximately 150 employees and operations in five states. Its affiliates include Appalachian Forest Products, Innovative Design Industries, Blue Ridge Wood Preserving, Blue Ridge Wood Products, and Tidewater Wood Products and had combined sales of approximately $543.0 million in 2020.
	March 1, 2021	$4,724 cash paid for 100% asset purchase and estimated contingent consideration	$	4,264	$	460	Other
J.C. Gilmore Pty Ltd (Gilmores)	Founded in 1988 and operating from its distribution facility in Port Melbourne, Australia, Gilmores is a leading distributor in the industrial and construction industries of packaging tapes, stretch films, packaging equipment, strapping, construction protection products and other items, with 2020 sales of $15 million AUD ($10 million USD).
	December 28, 2020	$259,011 cash paid for 100% stock purchase	$	66,899	$	192,112	Retail/Industrial
PalletOne, Inc. (PalletOne)	Based in Bartow, Florida, PalletOne is a leading manufacturer of new pallets in the U.S., with 17 pallet manufacturing facilities in the southern and eastern regions of the country. The company also supplies other specialized industrial packaging, including custom bins and crates, and its Sunbelt Forest Products (Sunbelt) subsidiary operates five pressure-treating facilities in the Southeastern U.S. PalletOne and its affiliates had 2019 and 2020 sales of $525 million and $698 million, respectively.

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					Net
Company	Acquisition		Intangible		Tangible		Operating
Name	Date	Purchase Price	Assets		Assets		Segment
	November 10, 2020	$21,268 cash paid for 100% asset purchase	$	11,923	$	9,345	Construction
Atlantic Prefab, Inc.; Exterior Designs, LLC; and Patriot Building Systems, LLC	Based in Wilton, New Hampshire, Atlantic Prefab produces prefabricated steel wall panels and light gauge metal trusses. The company’s steel component and prefinished wall panel lines are new, value-added product additions for UFP Construction that help shorten project timelines. Exterior Designs is a leading installer of siding and exterior cladding such as fiber cement, ACM (aluminum composite material) panels, phenolic panels, and EIFS (exterior insulation and finish systems). The company is based in Londonderry, New Hampshire, and serves commercial and multi-family clients throughout the Northeast. Also based in Londonderry, Patriot Building Systems provides commercial and multi-family framing services in the Northeast and will focus on markets not currently served by companies of UFP Industries. The companies had combined annual sales of approximately $28 million.
	October 1, 2020	$5,936 cash paid for 100% asset purchase	$	5,222	$	714	Retail
Fire Retardant Chemical Technologies, LLC (FRCT)	Founded in 2014 and based in Matthews, North Carolina, FRCT’s business includes a research and development laboratory specializing in developing and testing a wide range of high-performance chemicals, including fire retardants and water repellants. The company had annual sales of approximately $6.4 million.
	September 30, 2020	$3,475 cash paid for 50% stock purchase and estimated contingent consideration	$	7,267	$	(1,369)	Other
Enwrap Logistic & Packaging S.r.l. (Enwrap)	Enwrap is a newly formed company dedicated to the logistics and packaging business of its predecessor, Job Service S.p.A. Headquartered in Milan, Italy, Enwrap provides high-value, mixed material industrial packaging and logistics services through eight locations in Italy. These locations generated annual sales of approximately $14 million.

The intangible assets for the above acquisitions have not been finalized and allocated to their respective identifiable asset and goodwill accounts. In aggregate, acquisitions completed since the end of September 2020 and not consolidated with other operations contributed approximately $903.0 million in net sales and $26.0 million in operating profits during the first nine months of 2021.

G. SEGMENT REPORTING

The Company operates manufacturing, treating and distribution facilities internationally, but primarily in the United States. The business segments align with the following markets: UFP Retail Solutions, UFP Construction and UFP Industrial. The Company manages the operations of its individual locations primarily through a market-centered reporting structure under which each location is included in a business unit and business units are included in our Retail, Industrial, and Construction segments. In the case of locations which serve multiple segments, results are allocated and accounted for by segment. The exception to this market-centered reporting and management structure is the Company’s International segment, which comprises our Mexico, Canada, and Australia operations and sales and buying offices in other parts of the world.

Our International segment and Ardellis (our insurance captive) have been included in the “All Other” column of the table below.

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The “Corporate” column includes purchasing, transportation and administrative functions that serve our operating segments. Operating results of Corporate primarily consists of over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns and leases transportation equipment, are also included in the Corporate column. An inter-company lease charge is assessed to our operating segments for the use of these assets at fair market value rates. Total assets of the Corporate column include unallocated cash and cash equivalents, certain prepaid assets, certain property, equipment and other assets pertaining to the centralized activities of Corporate, UFP Real Estate, Inc., and UFP Transportation Ltd. The tables below are presented in thousands:


	Three Months Ended September 25, 2021
	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales to outside customers	$	696,201	$	573,234	$	722,872	$	98,689	$	2,788	$	2,093,784
Intersegment net sales		50,546		23,148		27,574		122,470		(223,738)		—
Segment operating profit		(26,153)		70,408		84,205		20,283		19,382		168,125


	Three Months Ended September 26, 2020
	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales to outside customers	$	700,522	$	282,124	$	447,103	$	56,700	$	(222)	$	1,486,227
Intersegment net sales		45,416		11,773		17,909		76,029		(151,127)		—
Segment operating profit		62,181		22,037		16,513		7,449		(1,579)		106,601


	Nine Months Ended September 25, 2021
	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales to outside customers	$	2,714,440	$	1,633,289	$	2,021,106	$	243,736	$	6,758	$	6,619,329
Intersegment net sales		163,279		66,039		62,069		345,920		(637,307)		—
Segment operating profit		89,443		190,344		184,330		44,565		33,865		542,547


	Nine Months Ended September 26, 2020
	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales to outside customers	$	1,661,873	$	763,046	$	1,187,429	$	148,503	$	(561)	$	3,760,290
Intersegment net sales		109,378		32,788		49,685		196,908		(388,759)		—
Segment operating profit		122,082		53,837		50,544		20,573		10,555		257,591

The following table presents goodwill by segment as of September 25, 2021, and December 26, 2020 (in thousands):


	Retail		Industrial		Construction		All Other		Corporate		Total
Balance as of December 26, 2020	$	61,943	$	87,827	$	90,729	$	11,694	$	—	$	252,193
2021 Acquisitions		18,441		43,844		2,427		4,176		—		68,888
2021 Purchase Accounting Adjustments		(1,682)		(17,937)		(6,227)		(2,575)		—		(28,421)
Foreign Exchange, Net		—		—		101		(443)		—		(342)
Balance as of September 25, 2021	$	78,702	$	113,734	$	87,030	$	12,852	$	—	$	292,318

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The following table presents total assets by segment as of September 25, 2021, and December 26, 2020 (in thousands).


	Total Assets by Segment
	September 25,		December 26,
Segment Classification	2021		2020		% Change
Retail	$	829,745	$	510,464	62.5	%
Industrial		740,206		416,487	77.7
Construction		725,419		510,972	42.0
All Other		284,626		196,856	44.6
Corporate		434,251		770,112	(43.6)
Total Assets	$	3,014,247	$	2,404,891	25.3	%

H. INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for foreign, state and local income taxes and permanent tax differences. Our effective tax rate was 23.0% in the third quarter of 2021 compared to 25.4% for same period in 2020 and was 24.0% in the first nine months of 2021 compared to 25.2% for the same period in 2020. The decrease was primarily due to a decrease in permanent tax differences in 2021 compared to the prior year, none of which are individually significant.

I. COMMON STOCK

Below is a summary of common stock issuances for the first nine months of 2021 and 2020 (in thousands, except average share price):


	September 25, 2021
Share Issuance Activity	Common Stock		Average Share Price
Shares issued under the employee stock purchase plan	25	$	71.18

Shares issued under the employee stock gift program	2		76.80
Shares issued under the director retainer stock program	4		69.80
Shares issued under the bonus plan	487		57.06
Shares issued under the executive stock match grants plan	77		60.24
Forfeitures	(21)
Total shares issued under stock grant programs	549	$	57.64

Shares issued under the deferred compensation plans	108	$	62.48

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	September 26, 2020
Share Issuance Activity	Common Stock		Average Share Price
Shares issued under the employee stock purchase plan	28	$	44.14

Shares issued under the employee stock gift program	2		45.93
Shares issued under the director retainer stock program	46		24.80
Shares issued under the bonus plan	271		47.51
Shares issued under the executive stock match grants plan	79		47.60
Forfeitures	(7)
Total shares issued under stock grant programs	391	$	44.92

Shares issued under the deferred compensation plans	115	$	53.85

During the first nine months of 2021, we did not repurchase any of our shares of common stock.

During the first nine months of 2020, we repurchased approximately 756,000 shares of our common stock at an average share price of $38.62.

J. INVENTORIES

Inventories are stated at the lower of cost or net realizable value. The cost of inventories includes raw materials, direct labor, and manufacturing overhead. Cost is determined on a weighted average FIFO basis. Raw materials consist primarily of unfinished wood products and other materials expected to be manufactured or treated prior to sale, while finished goods represent various manufactured and treated wood products ready for sale.

The Company writes down the value of inventory, the impact of which is reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income, if the cost of specific inventory items on hand exceeds the amount the Company expects to realize from the ultimate sale or disposal of the inventory. These estimates are based on management's judgment regarding future demand and market conditions and analysis of historical experience. The lower of cost or net realizable value adjustment to inventory as of September 25, 2021 and September 26, 2020 was $1.3 million and $0, respectively.

K. SUBSEQUENT EVENTS

On September 27, 2027, we acquired the equity of Shelter Products, Inc., for $6.5 million. Based in Haleyville, Alabama, Shelter Products provides distribution and logistics support to factory-built manufacturers through nine warehouses across the U.S.

On October 29, 2021, we acquired the assets of The Box Pack Trust, operating as Boxpack Packaging (Boxpack) for $5.2 million. Based near Melbourne, Australia, Boxpack specializes in flexographic and lithographic cardboard packaging, using the latest CAD design and finishing techniques.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UFP Industries, Inc. is a holding company with subsidiaries throughout North America, Europe, Asia, and Australia that supply wood, wood composite and other products to three markets: retail, industrial, and construction. We are headquartered in Grand Rapids, Michigan. For more information about UFP Industries, Inc., or our affiliated operations, 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, government imposed “stay at home” orders and directives to cease or curtail operations; 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 the third quarter of 2021.

OVERVIEW

Our results for the third quarter of 2021 include the following highlights:

●

Our net sales were up 41% compared to the third quarter of 2020, which was comprised of a 28% increase in selling prices primarily due to the commodity lumber market (see Historical Lumber Prices below), a 16% increase in unit sales due to acquisitions completed since September of last year, and a 3% decline in organic unit sales. Organic unit growth of 16% in our construction segment was offset an organic unit decline of 19% in our retail segment, while industrial units were flat.

●

Our operating profits increased $61.5 million, or 58%, compared to the third quarter of 2020. This increase resulted from a variety of factors including strong demand from our industrial and construction segments, leveraging our fixed costs, and increased sales of value-added and new products that have higher margins. These favorable factors more than offset the impact that falling lumber prices had on the gross profits of commodity-based products sold on a variable price that are not purchased through a vendor managed inventory program, particularly our pressure-treated lumber products sold in the retail segment. Acquisitions contributed approximately $2.6 million to our increase in operating profits. Excluding the impact of acquisitions, we estimate that value-added products contributed $93 million to our quarter over quarter increase in gross profits, which was offset by a decrease of approximately $23 million in commodity-based products.

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●

Our cash flows provided by operations for the first nine months of 2021 was $282 million compared to $185 million during the first nine months of 2020 in spite of an increase in our net working capital, which increased $133 million compared to the prior year. The increase in our net working capital during 2021 is due to a combination of unusually high lumber prices and strong market demand in our industrial and construction segments. In addition, our investment in net working capital at the end of the third quarter of 2020 was unusually low due to unexpectedly strong demand in our retail segment and difficulty maintaining an adequate supply of inventory due to supply chain constraints. As lumber prices and demand in the retail segment began to normalize in the second and third quarters of 2021, our investment in net working capital has decreased, and we now have a cash surplus of $139 million. We anticipate our net working capital will continue to decrease for the balance of the year, assuming lumber prices remain at current levels, as the fourth quarter typically represents a seasonally slower quarter for most of our business units.

●

Our net debt (debt and cash overdraft less cash) at the end of September 2021 was $182 million compared to net cash of $32 million at the end of September 2020. Our unused borrowing capacity under revolving credit facilities and cash surplus resulted in total liquidity of approximately $668 million at the end of the third quarter of 2021.

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:


	Random Lengths Composite
	Average $/MBF
	2021			2020
January	$	890		$	377
February		954			402
March		1,035			420
April		1,080			358
May		1,428			394
June		1,344			455
July		690			530
August		443			716
September		412			934

Third quarter average	$	515		$	727
Year-to-date average	$	920		$	510

Third quarter percentage change		(29.2)	%
Year-to-date percentage change		80.4	%

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In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprise almost two-thirds of our total lumber purchases.


	Random Lengths SYP
	Average $/MBF
	2021			2020
January	$	858		$	346
February		903			345
March		938			360
April		922			333
May		1,150			412
June		1,052			494
July		564			552
August		448			729
September		438			886

Third quarter average	$	483		$	722
Year-to-date average	$	808		$	495

Third quarter percentage change		(33.1)	%
Year-to-date percentage change		63.2	%

The sequential increase in overall lumber prices for the first half of the year was primarily due to strong market demand as well as certain constraints in the supply chain of lumber. Prices began to fall in June 2021 as pandemic related restrictions were lifted, the economy re-opened, and consumers shifted their spending to other areas. We believe prices in the third quarter of 2021 reflect normalized levels. A decline in lumber prices impacts our profitability of products sold with fixed and variable prices, as discussed below.

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

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 were 58.0% and 48.7% of our sales in the first nine months of 2021 and 2020, respectively. The increase from the prior year ratio reflects the impact of higher lumber prices and the results of PalletOne’s subsidiaries, Sunbelt and Spartanburg Forest Products.

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.

●

Products with fixed selling prices. These products include value-added products, such as manufactured items, sold within all segments. Prices for these products are generally fixed at the time of the sales quotation for a specified period of time. In order to reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs with our suppliers or purchase necessary inventory for these sales commitments. The time period limitation eventually allows us to periodically re-price our products for changes in lumber costs from our suppliers. We believe our percentage of sales of fixed price items is usually greatest in our third and fourth quarters.

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●

Products with selling prices indexed to the reported Lumber Market with a fixed dollar “adder” to cover conversion costs and profit. These products primarily include treated lumber, panel goods, other commodity-type items, 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. We believe our sales of these products are at their highest relative level in our second quarter, primarily due to pressure-treated lumber sold in our retail segment.

For each of the product pricing categories above, our margins are exposed to changes in the trend of lumber prices.

The greatest risk associated with changes in the trend of lumber prices is 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 comprised approximately 20% of our total annual sales in 2020. This exposure is less significant with remanufactured lumber, panel goods, other commodity-type items, and trusses sold to the manufactured housing market due to the higher rate of inventory turnover. We attempt to mitigate the risk associated with treated lumber through inventory consignment programs with our vendors. Our annual purchases of inventory through these consignment programs totaled approximately 19% of our total lumber purchases in 2020. Our new Sunbelt and Spartanburg Forest Products plants operated with limited amounts of vendor consignment inventory and were more exposed to the impact of falling lumber prices during the second and third quarters of 2021. We anticipate increasing their use of these programs in future periods in a manner consistent with our ProWood pressure-treating operations. (Please refer to the “Risk Factors” section of our annual report on form 10-K, filed with the United States Securities and Exchange Commission.)

●

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 and longer vendor commitments.

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 and operating 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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UFP INDUSTRIES, INC.

BUSINESS COMBINATIONS

We completed five business acquisitions during the first nine months of fiscal 2021 and five during all of fiscal 2020. The annual historical sales attributable to acquisitions completed in the first nine months of fiscal 2021 is approximately $1.3 billion, while acquisitions completed during the last quarter of 2020 have annual sales of approximately $48 million. These business combinations were not significant to our quarterly results individually or in aggregate and thus pro forma results for 2021 and 2020 are not presented.

See Notes to the Unaudited Condensed Consolidated Financial Statements, Note F, “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.


	Three Months Ended				Nine Months Ended
	September 25,		September 26,		September 25,		September 26,
	2021		2020		2021		2020
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	84.4		83.8		84.4		83.7
Gross profit	15.6		16.2		15.6		16.3
Selling, general, and administrative expenses	8.1		9.1		7.6		9.5
Other gains, net	(0.5)		—		(0.2)		(0.1)
Earnings from operations	8.0		7.2		8.2		6.9
Other expense, net	0.2		0.1		0.1		0.1
Earnings before income taxes	7.8		7.1		8.1		6.7
Income taxes	1.8		1.8		1.9		1.7
Net earnings	6.0		5.3		6.1		5.0
Less net earnings attributable to noncontrolling interest	(0.2)		(0.1)		(0.1)		(0.1)
Net earnings attributable to controlling interest	5.8	%	5.2	%	6.0	%	4.9	%

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

As a result of the impact of the level of lumber prices on the percentages displayed in the table above (see Impact of the Lumber Market on Our Operating Results), we believe it is useful to compare our change in units sold with our change in gross profits, selling, general, and administrative expenses, and operating profits as presented in the following table. The percentages displayed below represent the percentage change from the prior year comparable period.


	Percentage Change
	Three Months Ended				Nine Months Ended
	September 25,		September 26,		September 25,		September 26,
	2021		2020		2021		2020
Units sold	13.0	%	8.0	%	30.0	%	3.0	%
Gross profit	35.9		28.7		68.8		16.1
Selling, general, and administrative expenses	25.9		16.1		40.9		7.1
Earnings from operations	57.7		51.3		110.6		33.4

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UFP INDUSTRIES, INC.

The following table presents, for the periods indicated, our selling, general, and administrative (SG&A) costs as a percentage of gross profit. Given our strategies to enhance our capabilities and improve our value-added product offering, and recognizing the higher relative level of SG&A costs these strategies require, we believe this ratio provides an enhanced view of our effectiveness in managing these costs and mitigates the impact of changing lumber prices.



	Three Months Ended				Nine Months Ended
		September 25,		September 26,		September 25,		September 26,
		2021		2020		2021		2020
Gross profit	$	327,555	$	241,074	$	1,035,403	$	613,241
Selling, general, and administrative expenses	$	169,467	$	134,649	$	504,104	$	357,770
SG&A as percentage of gross profit		51.7%		55.9%		48.7%		58.3%

Operating Results by Segment:

Our business segments align with the following markets: UFP Retail Solutions, UFP Construction and UFP Industrial. The Company manages the operations of its individual locations primarily through a market-centered reporting structure under which each location is included in a business unit and business units are included in our retail, industrial, and construction segments. In the case of locations which serve multiple segments, results are allocated and accounted for by segment. The exception to this market-centered reporting and management structure is the Company’s International segment, which comprises our Mexico, Canada, Australia, and Italy operations and sales and purchasing offices in other parts of the world. Our International segment and Ardellis (our insurance captive) have been included in the “All Other” column of the table below. The “Corporate” column includes purchasing, transportation and administrative functions that serve our operating segments. Operating results of corporate primarily consists of over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns and leases transportation equipment, are also included in the corporate column. An inter-company lease charge is assessed to our operating segments for the use of these assets at fair market value rates.

The following tables present our operating results, for the periods indicated, by segment (in thousands).


	Three Months Ended September 25, 2021

	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales	$	696,201	$	573,234	$	722,872	$	98,689	$	2,788	$	2,093,784
Cost of goods sold		685,369		446,822		568,809		63,082		2,147		1,766,229
Gross profit		10,832		126,412		154,063		35,607		641		327,555
Selling, general, administrative expenses		36,899		55,723		70,663		15,996		(9,814)		169,467
Other		86		281		(805)		(672)		(8,927)		(10,037)
Earnings from operations	$	(26,153)	$	70,408	$	84,205	$	20,283	$	19,382	$	168,125

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UFP INDUSTRIES, INC.


	Three Months Ended September 26, 2020

	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales	$	700,522	$	282,124	$	447,103	$	56,700	$	(222)	$	1,486,227
Cost of goods sold		594,896		233,971		385,028		38,543		(7,285)		1,245,153
Gross profit		105,626		48,153		62,075		18,157		7,063		241,074
Selling, general, administrative expenses		43,515		26,080		45,411		10,499		9,144		134,649
Other		(70)		36		151		209		(502)		(176)
Earnings from operations	$	62,181	$	22,037	$	16,513	$	7,449	$	(1,579)	$	106,601


	Nine Months Ended September 25, 2021

	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales	$	2,714,440	$	1,633,289	$	2,021,106	$	243,736	$	6,758	$	6,619,329
Cost of goods sold		2,480,804		1,292,102		1,644,069		160,853		6,098		5,583,926
Gross profit		233,636		341,187		377,037		82,883		660		1,035,403
Selling, general, administrative expenses		144,375		150,739		193,144		40,021		(24,175)		504,104
Other		(182)		104		(437)		(1,703)		(9,030)		(11,248)
Earnings from operations	$	89,443	$	190,344	$	184,330	$	44,565	$	33,865	$	542,547


	Nine Months Ended September 26, 2020

	Retail		Industrial		Construction		All Other		Corporate		Total
Net sales	$	1,661,873	$	763,046	$	1,187,429	$	148,503	$	(561)	$	3,760,290
Cost of goods sold		1,429,229		635,424		1,002,932		101,240		(21,776)		3,147,049
Gross profit		232,644		127,622		184,497		47,263		21,215		613,241
Selling, general, administrative expenses		110,596		73,662		134,098		28,228		11,186		357,770
Other		(34)		123		(145)		(1,538)		(526)		(2,120)
Earnings from operations	$	122,082	$	53,837	$	50,544	$	20,573	$	10,555	$	257,591

The following tables present the components of our operating results, for the periods indicated, as a percentage of net sales by segment.


	Three Months Ended September 25, 2021

	Retail		Industrial		Construction		All Other		Corporate	Total
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	N/A	100.0	%
Cost of goods sold	98.4		77.9		78.7		63.9		—	84.4
Gross profit	1.6		22.1		21.3		36.1		—	15.6
Selling, general, administrative expenses	5.3		9.7		9.8		16.2		—	8.1
Other	—		—		(0.1)		(0.7)		—	(0.5)
Earnings from operations	(3.8)	%	12.3	%	11.6	%	20.6	%	—	8.0	%

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

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UFP INDUSTRIES, INC.


	Three Months Ended September 26, 2020

	Retail		Industrial		Construction		All Other		Corporate	Total
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	N/A	100.0	%
Cost of goods sold	84.9		82.9		86.1		68.0		—	83.8
Gross profit	15.1		17.1		13.9		32.0		—	16.2
Selling, general, administrative expenses	6.2		9.2		10.2		18.5		—	9.1
Other	—		—		—		0.4		—	—
Earnings from operations	8.9	%	7.8	%	3.7	%	13.1	%	—	7.2	%

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



	Nine Months Ended September 25, 2021

	Retail		Industrial		Construction		All Other		Corporate	Total
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	N/A	100.0	%
Cost of goods sold	91.4		79.1		81.3		66.0		—	84.4
Gross profit	8.6		20.9		18.7		34.0		—	15.6
Selling, general, administrative expenses	5.3		9.2		9.6		16.4		—	7.6
Other	—		—		—		(0.7)		—	(0.2)
Earnings from operations	3.3	%	11.7	%	9.1	%	18.3	%	—	8.2	%

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



	Nine Months Ended September 26, 2020

	Retail		Industrial		Construction		All Other		Corporate	Total
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	N/A	100.0	%
Cost of goods sold	86.0		83.3		84.5		68.2		—	83.7
Gross profit	14.0		16.7		15.5		31.8		—	16.3
Selling, general, administrative expenses	6.7		9.7		11.3		19.0		—	9.5
Other	—		—		—		(1.0)		—	(0.1)
Earnings from operations	7.3	%	7.1	%	4.3	%	13.9	%	—	6.9	%

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

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UFP INDUSTRIES, INC.

NET SALES

We design, manufacture and market wood and wood-alternative products, primarily used to enhance outdoor living environments, 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, customized interior fixtures used in a variety of retail stores, commercial, and other structures, and specialty wood packaging, components and packing materials for various industries. Our strategic long-term sales objectives include:

●	Maximizing unit sales growth while achieving return on investment goals. The following table presents estimates, for the periods indicated, of our percentage change in net sales which were attributable to changes in overall selling prices versus changes in units shipped.


	% Change
	in Sales		in Selling Prices		in Units		Acquisition Unit Change		Organic Unit Change
Third quarter 2021 versus Third quarter 2020	40.9	%	27.9	%	13.0	%	16.0	%	(3.0)	%
Year-to-date 2021 versus Year-to-date 2020	76.0	%	46.0	%	30.0	%	25.0	%	5.0	%

●

Diversifying our end market sales mix by increasing sales of specialty wood and protective 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, increasing our market share with independent retailers, and increasing our sales of customized interior fixtures, casework and millwork used in a variety of commercial markets.

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

●

Increasing our sales of "value-added" products and enhancing our product offering with new or improved products. Value-added products generally consist of fencing, decking, lattice, and other specialty products sold to the retail market, specialty wood packaging, engineered wood components, customized interior fixtures, manufactured and assembled concrete forms, and "wood alternative" products. Engineered wood components include roof trusses, wall panels, and floor systems. Wood alternative products consist of products manufactured with wood and non-wood composites, metal, and plastics. Although we consider the treatment of dimensional lumber and panels with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals. Remanufactured lumber and panels that are components of finished goods are also generally categorized as “commodity-based” products. The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales by our segments (retail, industrial, construction, all other and corporate).


	Three Months Ended September 25, 2021				Three Months Ended September 26, 2020
	Value-Added		Commodity-Based		Value-Added		Commodity-Based
Retail	48.6	%	51.4	%	49.7	%	50.3	%
Industrial	69.2	%	30.8	%	63.7	%	36.3	%
Construction	74.5	%	25.5	%	74.3	%	25.7	%
All Other and Corporate	70.7	%	29.3	%	74.1	%	25.9	%
Total Sales	64.1	%	35.9	%	60.5	%	39.5	%

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UFP INDUSTRIES, INC.

	Nine Months Ended September 25, 2021				Nine Months Ended September 26, 2020
	Value-Added		Commodity-Based		Value-Added		Commodity-Based
Retail	43.3	%	56.7	%	54.4	%	45.6	%
Industrial	66.6	%	33.4	%	65.5	%	34.5	%
Construction	70.5	%	29.5	%	77.4	%	22.6	%
All Other and Corporate	71.6	%	28.4	%	75.0	%	25.0	%
Total Sales	58.2	%	41.8	%	64.6	%	35.4	%

Note: Certain prior year product reclassifications and the change in designation of certain products as "value-added" resulted in a change in prior year's sales.

The increase in our ratio of commodity-based sales to total sales during the first nine months of 2021 reflected in the table above is primarily due to the impact of dramatically higher lumber prices in the first half of 2021, which have normalized during the third quarter. This is due to the fact that the selling prices of these products are generally indexed to the current Lumber Market at the time they are shipped and lumber costs comprise a much higher percentage of the selling price than they do for value-added products. The acquisition of Sunbelt and Spartanburg also contributed to the increase in commodity-based sales of treated lumber in our retail segment, while PalletOne contributed to the increase in value-added sales in the industrial segment. Our unit sales of value-added products increased approximately 17% in the third quarter of 2021 compared to 2020, including a 15% contribution from acquisitions and 2% organic growth. Our unit sales of commodity-based products increased approximately 7%, including a 19% contribution from acquisitions and an organic unit decline of 12%.

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UFP INDUSTRIES, INC.

●

Developing new products. We define new products as those that will generate sales of at least a $1 million per year within 4 years of launch and are still growing and gaining market penetration. New product sales in the third quarter of 2021 increased 24%. Approximately $10 million of new product sales for the first nine months of 2020, while still sold, were sunset in 2021 and excluded from the table below because they no longer meet the definition above. Our goal is to achieve annual new product sales of at least $575 million in 2021, which we have already attained. The table below presents new product sales in thousands:


	New Product Sales by Segment						New Product Sales by Segment
	Three Months Ended						Nine Months Ended
	September 25,		September 26,		%		September 25,		September 26,		%
	2021		2020		Change		2021		2020		Change
Retail	$	111,795		118,731	(5.8)	%	$	375,798	$	301,602	24.6	%
Industrial		41,436		21,468	93.0	%		115,542		51,582	124.0	%
Construction		37,524		16,229	131.2	%		95,414		42,038	127.0	%
All Other and Corporate		5,998		2,495	140.4	%		13,419		8,082	66.0	%
Total New Product Sales		196,753		158,923	23.8	%		600,173		403,304	48.8	%

Note: Certain prior year product reclassifications and the change in designation of certain products as "new" resulted in a change in prior year's sales.

Retail Segment

Net sales in the third quarter of 2021 decreased by 1% compared to the same period of 2020, due to acquisition unit growth of 18%, which was offset by an organic unit decline of 19%. The price variance for this period was flat as the impact of lower prices on commodity-based products was offset by higher prices on value-added products which are generally sold at a fixed price. Organic unit decreases of 29% in our Handprint Home & Décor products, 28% in our ProWood pressure-treated products, 14% in our Deckorators composite decking and railing products, and 8% in our Outdoor Essentials Fence, Lawn & Garden products were offset by organic unit growth of 12% in our UFP Edge siding, pattern, and trim products. The decline in our unit sales is primarily due to a shift in consumer spending as a result of the end of pandemic-related restrictions on certain activities. The increase in unit sales of UFP Edge was largely due to investments made to increase our capacity to produce these products as well as market share gains. Lastly, approximately $13 million of sales to customers that distribute products for concrete forming were transferred from the construction segment to the retail segment. Sales to big box customers were down 8%, while sales to independent retailers increased 14%.

Gross profits decreased by $94.8 million, or 89.7% to $10.8 million for the third quarter of 2021 compared to the same period last year. Our decrease in gross profit was attributable to the following:

●

The gross profits of our ProWood business unit decreased by $68.7 million, primarily due to the impact that declining lumber prices had on ProWood’s pressure treated products that are sold at a variable price. Decreased unit sales also contributed to the reduction in gross profit.

●

Acquired operations reported a loss in gross profits and contributed $7.2 million to the decrease due to the drop in lumber prices.

●

Unit sales decreases contributed $13.2 million to the decline in gross profit for our Deckorators, Retail Building Products, Handprint, and Outdoor Essentials Fence, Lawn & Garden business units. UFP Edge experienced organic unit growth of 12% due to an increase in capacity, but had a reduction in gross profit of $5.7 million due to the fluctuation of lumber prices.

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UFP INDUSTRIES, INC.

Selling, general and administrative (“SG&A”) expenses decreased by approximately $6.6 million, or 15.2%, in the third quarter of 2021 compared to the same period of 2020. The SG&A of recently acquired businesses contributed $4.8 million to the change in SG&A. This was offset by accrued bonus expense, which varies with our overall profitability and return on investment, which decreased by $12.0 million and totaled approximately $3.0 million for the quarter. The remaining change was primarily due to increases in salaries and wages and travel related expenses, offset by decreases in sales incentive compensation and bad debt expense.

Earnings from operations for the Retail reportable segment decreased in the third quarter of 2021 compared to 2020 by $88.3 million, or 142%, as a result of the factors mentioned above.

Net sales in the first nine months of 2021 increased 63% compared to the same period of 2020, due to a 33% increase in selling prices and a 36% increase in unit sales from acquired operations, offset by a 6% decrease in organic unit sales. Organic unit increases of 21% of UFP Edge, 13% of Deckorators, and 7% of Outdoor Essentials, were offset by organic unit declines of 19% of ProWood and 11% of Handprint. The transfer of approximately $29 million in sales to the retail segment from the construction segment discussed above contributed to unit growth in the retail segment. Sales to big box customers were up 55% (12% organic), while sales to independent retailers decreased 5% (6% organic).

Gross profits increased 0.4% to $233.6 million in the first nine months of 2021 compared to the same period of 2020. Our change in gross profit was attributable to the following:

●

Our Retail Building Materials business unit contributed $26.3 million to the increase. This increase is primarily due to unit sales growth and rising lumber and panel prices combined with effective inventory positioning.

●

Our Deckorators, Outdoor Essentials, Handprint, E-Commerce, and UFP Edge business units contributed $0.2 million of additional gross profit.

●

Acquisitions contributed $6.7 million to the increase.

●

The gross profit of our ProWood business unit decreased by $31.8 million, primarily due to the impact that fluctuating lumber prices during the first nine months of the year had on ProWood’s pressure-treated products that are sold at a variable price.

Selling, general and administrative (“SG&A”) expenses increased by approximately $33.8 million, or 30.5%, in the first nine months of 2021 compared to the same period of 2020. The SG&A of recently acquired businesses contributed approximately $12.7 million to this increase. Accrued bonus expense, which varies with our overall profitability and return on investment, increased approximately $11.0 million and totaled approximately $37.9 for the first nine months of 2021. The remaining increase was primarily due to increases in salaries and wages, sales incentive compensation, and travel related expenses.

Earnings from operations for the Retail reportable segment decreased in the first nine months of 2021 compared to 2020 by $32.6 million, or 26.7% as a result of the factors mentioned above.

Industrial Segment

Net sales in the third quarter of 2021 increased 103% compared to the same period of 2020, due to a 34% increase in unit sales from recent acquisitions and a 69% increase in selling prices attributable to favorable sales mix changes as well as the Lumber Market.

Gross profits increased by $78.3 million, or 162.5%, for the third quarter of 2021 compared to the same period last year. Acquisitions contributed $21.5 million to the increase in gross profit. The remaining increase was primarily due to favorable changes in sales mix and the decline in lumber costs. We estimate that value-added and commodity-based products contributed $36.5 million and $20.2 million, respectively, to the increase in gross profit.

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UFP INDUSTRIES, INC.

Selling, general and administrative (“SG&A”) expenses increased by approximately $29.6 million, or 113.7%, in the third quarter of 2021 compared to the same period of 2020. Acquired operations since the third quarter of 2020 contributed approximately $7.4 million to our increase in costs. Accrued bonus expense, which varies with our overall profitability and return on investment, increased approximately $12.6 million, and totaled $18.7 million for the quarter. The remaining increase was primarily due to increases in salaries and wages, sales incentive compensation, and travel related expenses.

Earnings from operations for the Industrial reportable segment increased in the third quarter of 2021 compared to 2020 by $48.4 million, or 219.5%, due to the factors discussed above.

Net sales in the first nine months of 2021 increased 114% compared to the same period of 2020, due to a 67% increase in selling prices attributable to the Lumber Market and favorable sales mix changes, a 10% increase in organic unit sales, and a 37% increase in unit sales from recent acquisitions.

Gross profits in the first nine months of 2021 increased 167.3% to $213.6 million compared to the same period of 2020. Acquisitions contributed $57.9 million to the increase in gross profit. The remaining increase was primarily due to organic unit sales growth and leveraging fixed costs as well as favorable changes in sales mix. In addition, in the first six months of the year we were able to maintain our profit per unit by more effectively passing on commodity lumber and other cost increases in our selling prices.

Selling, general and administrative (“SG&A”) expenses increased by approximately $77.1 million, or 104.6%, in the first nine months of 2021 compared to the same period of 2020. Acquired operations since the third quarter of 2020 contributed approximately $21.3 million to total SG&A expenses. Accrued bonus expense increased approximately $37.9 million compared to the same period of 2020 and totaled approximately $50.4 for the first nine months of 2021. The remaining increase was primarily due to increases in salaries and wages and sales incentive compensation.

Earnings from operations for the Industrial reportable segment increased in the first nine months of 2021 compared to 2020 by $136.5 million, or 253.6%, due to the factors mentioned above.

Construction Segment

Net sales in the third quarter of 2021 increased 62% compared to the same period of 2020, due to a 43% increase in selling prices attributable to the Lumber Market and unit sales growth of 19%, including 3% from recent acquisitions. Organic unit changes within this segment consisted of increases of 26% in commercial construction, 23% in site-built construction, and 17% in factory-built housing, offset by a 37% decrease in concrete forming. The transfer of approximately $13 million in sales to the retail segment from the construction segment discussed above contributed to the unit decline in the concrete forming business unit.

Gross profits increased by $92.0 million, or 148.2%, for the third quarter of 2021 compared to the same period of 2020. The increase in our gross profit was comprised of the following factors:

●

Gross profits in our factory-built housing business unit increased $20.6 million as a result of increased unit sales and leveraging fixed costs.

●

Gross profits in our site-built construction business unit increased by $63.2 million due to unit sales growth and leveraging fixed costs and as a result of a decrease in lumber costs.

●

The gross profit of our commercial construction business unit increased $7.1 million as a result of increased unit sales, better productivity, and other operational improvements.

●

The gross profit of our concrete forming business unit decreased by $0.3 million.

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UFP INDUSTRIES, INC.

●

Acquired businesses contributed $1.3 million.

Selling, general and administrative (“SG&A”) expenses increased by approximately $25.2 million, or 55.6%, in the third quarter of 2021 compared to the same period of 2020. Acquired operations since the third quarter of 2020 contributed approximately $1.1 million to total SG&A expenses for the quarter. Accrued bonus expense, which varies with our overall profitability and return on investment, increased approximately $14.8 million, and totaled $19.5 million for the quarter. The remaining increase was primarily due to increases in salaries and wages, sales incentive compensation, medical expenses, and travel related expenses.

Earnings from operations for the Construction reportable segment increased in the third quarter of 2021 compared to 2020 by $67.7 million, or 409.9%, due to the factors mentioned above.

Net sales in the first nine months of 2021 increased 70% compared to the same period of 2020, due to a 52% increase in selling prices primarily due to the Lumber Market and unit sales growth of 18%, including 3% from acquisitions. Organic unit changes within this segment consisted of increases of 27% in factory-built housing, 21% in site-built construction, and 8% in commercial construction. These increases were offset by a unit decline of 37% in concrete forming. The transfer of approximately $29 million in sales to the retail segment from the construction segment discussed above contributed to the unit decline in the concrete forming business unit.

Gross profits increased by $192.5 million, or 104.4% for the first nine months of 2021 compared to the same period of 2020. The increase in our gross profits was comprised of the following factors:

●

Gross profits in our factory-built housing business unit increased by $68.8 million as a result of increased unit sales and leveraging fixed costs.

●

Gross profits in our site-built construction business unit increased by $105.6 million due to unit sales growth and leveraging fixed costs. In addition, we were able to maintain our profit per unit by more effectively passing on commodity lumber and other cost increases in our selling prices in the first six months of the year.

●

The gross profit of our commercial construction business unit increased $8.2 million as a result of increased unit sales, better productivity, and other operational improvements.

●

The gross profit of our concrete forming business unit increased $5.0 million due to the factors discussed above.

●

Acquired businesses contributed $5.0 million.

Selling, general and administrative (“SG&A”) expenses increased by approximately $59.0 million, or 44.0%, in the first nine months of 2021 compared to the same period of 2020. Acquired operations since the third quarter of 2020 contributed approximately $3.8 million to total SG&A expenses. Accrued bonus expense increased approximately $34.8 million compared to the same period of 2020 and totaled approximately $46.2 million for the first nine months of 2021. The remaining increase was primarily due to increases in salaries and wages, sales incentive compensation, medical expenses, and professional design fees.

Earnings from operations for the Construction reportable segment increased in the first nine months of 2021 compared to 2020 by $133.8 million, or 264.7%, due to the factors mentioned above.

All Other Segment

Our All Other reportable segment consists of our International and Ardellis (our insurance captive) segments that are not significant.

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UFP INDUSTRIES, INC.

Corporate

The corporate segment consists of over (under) allocated costs that are not significant and gains on the sale of certain real estate.

INCOME TAXES

OFF-BALANCE SHEET TRANSACTIONS

We have no significant off-balance sheet transactions.

LIQUIDITY AND CAPITAL RESOURCES

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


	Nine Months Ended
	September 25,		September 26,
	2021		2020
Cash from operating activities	$	281,763	$	185,083
Cash used in investing activities		(528,257)		(100,927)
Cash (used in) from financing activities		(33,593)		95,178
Effect of exchange rate changes on cash		(292)		(1,122)
Net change in all cash and cash equivalents		(280,379)		178,212
Cash, cash equivalents, and restricted cash, beginning of period		436,608		168,666
Cash, cash equivalents, and restricted cash, end of period	$	156,229	$	346,878

In general, we fund our growth 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.

Seasonality has a significant impact on our working capital due to our primary selling season which occurs during the period from March to September. Consequently, our working capital increases during our first and second quarters which typically results in negative or modest cash flows from operations during those periods. Conversely, we typically experience a substantial decrease in working capital once we move beyond our peak selling season which typically results in significant cash flows from operations in our third and fourth quarters. As explained in more detail below, the unusually large increase in lumber prices this year, as well as the significant increase in sales, resulted in a more significant increase in net working capital this year relative to prior years.

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UFP INDUSTRIES, 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. As indicated in the table below, our cash cycle increased to 57 days from 43 days during the third quarter and to 52 days from 49 days during the first nine months of 2021 compared to the respective prior periods.


	Three Months Ended				Nine Months Ended
	September 25,		September 26,		September 25,		September 26,
	2021		2020		2021		2020
Days of sales outstanding		35		31		34		32
Days supply of inventory		43		31		38		37
Days payables outstanding		(21)		(19)		(20)		(20)
Days in cash cycle		57		43		52		49

The increase in our days supply of inventory in the first nine months of 2021 compared to the same period of 2020 was primarily due to lower retail demand than our customers anticipated for our inventory planning. The four day increase in our receivables cycle was primarily due to longer payment terms for new customers attributable to recent acquisitions.

In the first nine months of 2021, our cash provided by operating activities was $281.8 million, which was comprised of net earnings of $405.4 million and $69.1 million of non-cash expenses, offset by a $192.7 million increase in working capital since the end of December 2020. Our operating cash flow this year increased by $96.7 million compared to the same period of last year primarily due to an increase in our net earnings and non-cash expenses of $229.8 million, offset by an increase in our investment in net working capital of $133.1 million compared to the prior year period. This increase was due to unusually high lumber prices and increased demand in our industrial and construction segments. PalletOne and other acquisitions also contributed to the increase in our seasonal investment in net working capital.

Acquisitions and purchases of property, plant, and equipment comprised most of our cash used in investing activities during the first nine months of 2021 and totaled $433.3 million and $110.1 million, respectively. Total proceeds from the sales of property, plant, and equipment were $26.6 million. Outstanding purchase commitments on existing capital projects totaled approximately $44.1 million on September 25, 2021. Capital spending primarily consists of several projects to expand capacity to manufacture new and value-added products, achieve efficiencies through automation, make improvements to a number of facilities, and increase our transportation capacity (tractors, trailers) in order to meet higher volumes and replace old rolling stock. We intend to fund capital expenditures and purchase commitments through our operating cash flows for the balance of the year. We currently plan to spend approximately $147 million on capital projects for the year. Notable areas of capital spending include projects to increase the capacity and efficiency of our plants that produce our Deckorators mineral-based composite and wood-plastic composite decking and our UFP Edge siding, pattern and trim products, expand our machine-built pallet capacity, and take advantage of automation opportunities.

Cash flows from financing activities primarily consisted of net repayments of debt of approximately $1.4 million, the payment of quarterly dividends totaling $27.8 million ($0.15 per share), and distributions to noncontrolling interests of $2.9 million. On October 20, 2021, our board of directors approved an increase in our fourth quarter dividend to $0.20 per share, payable on December 15, 2021, to shareholders of record on December 1, 2021.

On September 25, 2021, we had $3.2 million outstanding on our $550 million revolving credit facility, and we had approximately $539.7 million in remaining availability after considering $7.1 million in outstanding letters of credit. 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 September 25, 2021.

At the end of the third quarter of 2021, we have approximately $667.5 million in total liquidity, consisting of our net cash surplus and remaining availability under our revolving credit facility. We anticipate our liquidity will continue to increase in the last three months of 2021 as lumber prices and demand continue to normalize and we convert our seasonal increase in net working capital to cash.

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UFP INDUSTRIES, INC.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

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

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 26, 2020.

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.”)

Our international operations have exposure to foreign currency rate risks, primarily due to fluctuations in their local currency, which is their functional currency, compared to the U.S. Dollar. Additionally, certain of our operations enter into transactions that will be settled in a currency other than the U.S. Dollar. We may enter into forward foreign exchange rate contracts in the future to mitigate foreign currency exchange risk. Historically, our hedge contracts are deemed immaterial to the financial statements, however any material hedge contract in the future will be disclosed.

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 September 25, 2021 (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 September 25, 2021, 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, except for the implementation of a control to address the material weakness in control over our share-based bonus awards disclosed in our 2020 Form 10-K, which was remediated in the first quarter of 2021.

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UFP INDUSTRIES, INC.

PART II. OTHER INFORMATION

Item 1A. Risk Factors.

None

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

(a)

None.

(b)

None.

(c)

Issuer purchases of equity securities.


Fiscal Month	(a)	(b)	(c)	(d)
June 27 – July 31, 2021	—	—	—	1,103,957
August 1 – 28, 2021	—	—	—	1,103,957
August 29 – September 25, 2021	—	—	—	1,103,957

(a)	Total number of shares purchased.

(b)	Average price paid per share.

(c)	Total number of shares purchased as part of publicly announced plans or programs.

(d)	Maximum number of shares that may yet be purchased under the plans or programs.

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, 2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of remaining shares that may be repurchased under the program is approximately 1.1 million.

Item 5. Other Information.

None.

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:


31	Certifications.

	(a)	Certificate of the Chief Executive Officer of UFP Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

	(b)	Certificate of the Chief Financial Officer of UFP Industries, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32	Certifications.

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UFP INDUSTRIES, INC.

	(a)	Certificate of the Chief Executive Officer of UFP Industries, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

	(b)	Certificate of the Chief Financial Officer of UFP Industries, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

101	Interactive Data File formatted in iXBRL (Inline eXtensible Business Reporting Language).

	(INS)	iXBRL Instance Document.

	(SCH)	iXBRL Schema Document.

	(CAL)	iXBRL Taxonomy Extension Calculation Linkbase Document.

	(LAB)	iXBRL Taxonomy Extension Label Linkbase Document.

	(PRE)	iXBRL Taxonomy Extension Presentation Linkbase Document.

	(DEF)	iXBRL Taxonomy Extension Definition Linkbase Document.

104	Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document).

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UFP INDUSTRIES, 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.

	UFP INDUSTRIES, INC.

Date: November 3, 2021	By:	/s/ Matthew J. Missad
	Matthew J. Missad,
	Chief Executive Officer and Principal Executive Officer


Date: November 3, 2021	By:	/s/ Michael R. Cole
	Michael R. Cole,
	Chief Financial Officer,
	Principal Financial Officer and
	Principal Accounting Officer