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

Table of Contents

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

OR

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

Table of Contents

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

2

Table of Contents

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.

3

Table of Contents

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.

4

Table of Contents

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

5

Table of Contents

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.

6

Table of Contents

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.

7

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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.

8

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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 3rd party. Installation revenue is recognized upon completion. If the Company uses a 3rd 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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UFP INDUSTRIES, INC.

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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UFP INDUSTRIES, INC.

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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UFP INDUSTRIES, INC.

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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UFP INDUSTRIES, INC.

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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UFP INDUSTRIES, INC.

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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UFP INDUSTRIES, INC.

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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UFP INDUSTRIES, INC.

    

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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UFP INDUSTRIES, INC.

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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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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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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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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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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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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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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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

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.

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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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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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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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

37