What changed in this filing

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Item 1A. Risk Factors

2021-03-03 compared with 2020-03-11 · 260 added, 261 removed, 136 unchanged (79% of the section changed)

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Additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.

We may be unable to successfully manage the effects of operational disruption caused by the integration of Cedar Creek or future acquisitions.

The integration of acquisitions, such as the Cedar Creek acquisition, can involve significant anticipated and unanticipated operational challenges, including integrating different computer, enterprise resource planning, and accounting systems, integrating physical facilities and inventories, and integrating acquired personnel and corporate cultures into our business.

Addressing these challenges requires the attention of management and the diversion of resources from existing operations.

Our failure to manage these operational challenges effectively and at anticipated costs could result in disruptions in overall operating performance and deficiencies in customer service of the combined business.

These disruptions and deficiencies could, and in certain cases with respect to the Cedar Creek integration did, lead to increased costs, order and delivery errors, inventory and billing errors, the loss of employees, or the loss of customers, suppliers, or products either overall or in certain markets, which could adversely affect our financial condition, operating results, and cash flows.

As part of our overall strategy, we may make additional acquisitions or investments in the future.

These acquisitions or investments would be subject to the same risks and uncertainties described above.

If we do not effectively manage those risks and uncertainties, our financial condition, operating results, and cash flows may be negatively affected.

Our level of indebtedness could limit our financial and operating activities and adversely affect our ability to incur additional debt to fund future needs.

At December 28, 2019 , we had approximately $327 million of debt outstanding under our revolving credit facility, and approximately $147 million of debt outstanding under our term loan facility.

While we significantly reduced the debt outstanding under our term loan facility following the end of fiscal 2019, our level of indebtedness could still have considerable consequences for us.

For example, our substantial indebtedness could:

make us more vulnerable to general adverse economic and industry conditions;

limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, and other general corporate requirements;

expose us to interest rate fluctuations because the interest rate on the debt under our revolving credit facility is variable;

require us to dedicate a substantial portion of our cash flows to payments on our debt, thereby reducing the availability of our cash flows for operations and other purposes;

limit our flexibility in planning for, or reacting to, changes in our business, and the industry in which we operate;

place us at a competitive disadvantage compared to competitors that may have proportionately less debt, and therefore may be in a better position to obtain more favorable credit terms.

If compliance with our debt obligations materially limits our financial or operating activities, or hinders our ability to adapt to changing industry conditions, we may lose market share, our revenue may decline and our operating results may be negatively affected.

Our cash flows and capital resources may be insufficient to make required payments on our indebtedness or future indebtedness .

Our ability to make scheduled payments under our revolving credit facility and term loan facility depends on our successful financial and operating performance, cash flows, and capital resources, which in turn depend upon prevailing economic conditions and certain financial, business, and other factors, many of which are beyond our control.

These factors include, among others:

economic and demand factors affecting the building products distribution industry;

external factors affecting availability of credit;

pricing pressures;

increased operating costs;

competitive conditions;

operational disruption associated with the Cedar Creek integration;

other operating difficulties.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital, or restructure our debt.

There is no assurance that we could obtain additional capital or refinance our debt on terms acceptable to us, or at all.

If we are required to dispose of material assets or operations to meet our debt service and other obligations, the value realized on the disposition of such assets or operations will depend on market conditions and the availability of buyers.

Accordingly, any such sale may not, among other things, be for a sufficient dollar amount to repay our indebtedness.

If we do not make scheduled payments on our debt, we will be in default and the outstanding principal and interest on our debt could be declared to be due and payable, in which case we could be forced into bankruptcy or liquidation or required to substantially restructure or alter our business operations or debt obligations.

The instruments governing our indebtedness contain various covenants limiting the discretion of our management in operating our business, including requiring us to maintain a minimum level of excess liquidity .

Our revolving credit facility and term loan facility contain various restrictive covenants and restrictions, including customary financial covenants that limit management’s discretion in operating our business.

In particular, these instruments limit our ability to, among other things:

incur additional debt;

grant liens on assets;

make investments;

sell or acquire assets, including certain real estate assets, outside the ordinary course of business;

engage in transactions with affiliates;

make fundamental business changes.

The term loan facility also contains certain affirmative covenants, and requires us to comply with a total net leverage ratio regarding our debt relative to our Consolidated EBITDA (as defined in the term loan facility) as long as the principal balance of the facility exceeds $45.0 million.

Borrowings under the revolving credit facility are subject to availability under the Borrowing Base (as defined in the Credit Agreement).

We are required to repay revolving loans thereunder to the extent that they exceed the Borrowing Base then in effect.

In addition, if availability above the Borrowing Base (i.e., excess availability) falls below the greater of (i) $50.0 million and (ii) 10% of the lesser of (a) the Borrowing Base, and (b) the maximum permitted credit at such time, the revolving credit facility requires us to maintain a fixed charge coverage ratio of 1.0 to 1.0 until such time as our excess availability has been at least (i) $50.0 million and (ii) 10% of the lesser of (a) the Borrowing Base, and (b) the maximum permitted credit at such time for a period of 30 days.

These covenants and restrictions could affect our ability to operate our business, and may limit our ability to react to market conditions or take advantage of potential business opportunities as they arise.

Additionally, our ability to comply with these covenants may be affected by events beyond our control, including general economic and credit conditions and industry downturns.

If we fail to comply with these covenants and restrictions, a default may allow the creditors under the relevant instruments to accelerate the related debts and to exercise their remedies under these agreements, which typically will include the right to declare the principal amount of that debt, together with accrued and unpaid interest, and other related amounts, immediately due and payable, to exercise any remedies the creditors may have to foreclose on assets that are subject to liens securing that debt, and to terminate any commitments they had made to supply further funds.

Borrowings under our revolving credit facility and term loan facility bear interest at a variable rate, which subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our revolving credit facility and term loan facility are at variable rates of interest and expose us to interest rate risk.

If interest rates increase, our debt service obligations on this variable rate indebtedness would increase even though the amount borrowed remained the same.

Although we may elect in the future to take certain actions to reduce interest rate

volatility in connection with our variable rate borrowings, we cannot provide assurances that we will be able to do so or that those actions will be effective.

Despite our current levels of debt, we may still incur more debt, which would increase the risks described in these risk factors relating to indebtedness .

The agreements relating to our debt significantly limit, but do not prohibit, our ability to incur additional debt.

In addition, certain types of liabilities are not considered “Indebtedness” under the agreements relating to our debt.

Accordingly, we could incur additional debt or similar liabilities in the future.

If new debt or similar liabilities are added to our current debt levels, the related risks that we now face could increase.

Certain of our products are commodities and fluctuations in prices of these commodities could affect our operating results .

Industry Risks

We may experience pricing and product cost variability.

Our business has experienced, and is likely to continue experiencing, cycles relating to industry capacity and general economic conditions.

During 2020, availability of certain building products we distribute was impacted by supply constraints driven by the COVID-19 pandemic and affected the market price of the commodity and commodity-based specialty products we buy and distribute.

The length and magnitude of these cycles can vary over time and by product.

Prices for our products are driven by many factors, including general economic conditions, demand for our products and competitive conditions in the industries within which we compete, and we have little influence over the timing and extent of price changes, which may be unpredictable and volatile.

If supply exceeds demand, prices for our products could decline, and our results of operations, cash flows, and financial condition could be adversely affected.

Certain published indices (including those published by Random Lengths (“RL”)) contribute to the setting of selling prices for some of our products.

Although RL is a widely circulated source of information for the wood products industry, it may not accurately reflect changes in market conditions for our products.

Changes in how RL is maintained, or other indices are established or maintained, could adversely impact the selling prices for these products.

Many of the building products that we distribute, including oriented strand board, plywood, lumber, and rebar, are commodities that are widely available from other distributors or manufacturers, with prices and volumes determined frequently in an auction market based on participants’ perceptions of short-term supply and demand factors.

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Commodity price volatility affects our distribution business, with falling price environments generally causing reduced revenues and margins, potentially resulting in substantial declines in profitability and possible net losses.

Large customers have historically been able to exert pressure on their outside suppliers and distributors to keep prices low in the highly fragmented building materials distribution industry.

In addition, continued consolidation among our customers, particularly dealers, and their customers (i.e., home builders), and changes in their respective purchasing policies and payment practices, could result in even further pricing pressure.

A decline in the prices of the products we distribute could adversely impact our operating results.

When the prices of the products we distribute decline, customer demand for lower prices could result in lower sales prices and, to the extent that our inventory at the time was purchased at higher costs, lower margins.

Alternatively, in a rising price environment, our suppliers may increase prices or reduce discounts on the products we distribute, and we may be unable to pass on any cost increase to our customers, thereby resulting in reduced margins and profits.

Furthermore, continued consolidation among our suppliers makes it more difficult for us to negotiate favorable pricing, consignment arrangements, and discount programs with our suppliers, thereby resulting in reduced margins and profits.

Overall, these pricing pressures may adversely affect our operating results and cash flows.

Our earnings are highly dependent on volumes.

Our earnings are highly dependent on volumes, which fluctuate.

Commodity price inflation can increase our gross margins on relatively consistent or even lower year over year sales volumes, depending on the degree of commodity price inflation.

Fluctuations in commodity prices make it difficult to predict our financial results with any degree of certainty.

Volumes for certain of the products that we distribute were significantly impacted in fiscal 2020 by COVID-19.

The pandemic has affected

our operational and financial performance and the extent of its effect on our operational and financial performance will continue to depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope, and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic efforts of the pandemic and related containment measures, among others.

Any failure to maintain, or increase volumes, combined with fluctuations, such as commodity price inflation or deflation, which would impact the purchase and/or selling price of our products, could adversely affect our results of operations, cash flows, and financial condition.

Our industry is highly fragmented and competitive.

If we are unable to compete effectively, our net sales and operating results may be reduced .

The building and industrial products distribution industry is highly fragmented and competitive, and the barriers to entry for local competitors are relatively low.

Competitive factors in our industry include pricing, availability of product, service, delivery capabilities, customer relationships, geographic coverage, and breadth of product offerings.

Also, financial stability is important to suppliers and customers in choosing distributors for their products, and affects the favorability of the terms on which we are able to obtain our products from our suppliers and sell our products to our customers.

Some of our competitors have less financial leverage or are part of larger companies, and, therefore, may have access to greater financial and other resources than those to which we have access.

Finally, we may not be able to maintain our costs at a level sufficiently low for us to compete effectively.

If we are unable to compete effectively, our net sales and net income may be reduced.

Our industry is highly cyclical, and prolonged periods of weak demand or excess supply may reduce our net sales and/or margins, which may cause us to incur losses or reduce our net income .

The building products distribution industry is subject to cyclical market pressures.

Prices of building products are determined by overall supply and demand in the market.

Market prices of building products historically have been volatile and cyclical, and we have limited ability to control the timing and amount of pricing changes.

Demand for building products is driven mainly by factors outside of our control, such as general economic and political conditions, interest rates, availability of mortgage financing, the construction, repair and remodeling markets, industrial markets, weather, and population growth.

The supply of building products fluctuates based on available manufacturing capacity, and excess capacity in the industry can result in significant declines in market prices for those products.

To the extent that prices and volumes experience a sustained or sharp decline, our net sales and margins likely would decline as well.

Because we have substantial fixed costs, a decrease in sales and margin generally may have a significant adverse impact on our financial condition, operating results, and cash flows.

Adverse housing market conditions may negatively impact our business, liquidity, and results of operations, and increase the credit risk from our customers .

Our business depends to a significant degree on the new residential construction market and, in particular, single family home construction.

The homebuilding industry peaked in 2005, and then underwent a significant decline.

Although the homebuilding industry has improved and continues to improve, it is still far below its historical averages.

The home building industry peaked in 2005, and then underwent a significant decline.

Although the home building industry has improved and continues to improve, it is still far below its historical averages.

According to the U.S.

Census Bureau, actual single-family housing starts in the United States during 2019 increased 1.5% from 2018 levels, but remain 41% below their peak in 2005.

The multi-year downturn in the homebuilding industry resulted in a substantial reduction in demand for the products we provide.

Census Bureau, actual single-family housing starts in the United States during 2020 increased 11.5 percent from 2019 levels, but remain 42.2 percent below their peak in 2005.

The multi-year downturn in the home building industry resulted in a substantial reduction in demand for the products we provide.

We cannot predict the duration of the current housing industry market conditions or the timing or strength of any continued recovery of housing activity in our markets.

The homebuilding industry also may not recover to historical levels.

The home building industry also may not recover to historical levels.

Continued weakness in the new residential construction market would have a material adverse effect on our business, financial condition, and operating results.

Factors impacting the level of activity in the residential new construction markets include changes in interest rates, unemployment rates, high foreclosure rates and unsold/foreclosure inventory, availability of financing, labor costs and availability, vacancy rates, local, state and federal government regulation (including mortgage interest deductibility and other tax laws), weakening in the U.S.

economy or of any regional or local economy in which we operate, availability of supplies, and shifts in populations away from the markets that we serve.

economy or of any regional or local economy in which we operate, availability of supplies, the COVID-19 pandemic’s impact on the economy and consumer demand and preferences, and shifts in populations away from the markets that we serve.

In addition, the mortgage markets periodically experience disruption and reduced availability of mortgages for potential homebuyers due to more restrictive standards to qualify for mortgages, including with respect to new home construction loans.

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Historically, residential repair and remodeling activity has decreased in slow economic periods.

General economic weakness, elevated unemployment levels, mortgage delinquency and foreclosure rates, limitations in the availability of mortgage and home improvement financing, and lower housing turnover all limit consumers’ spending, particularly on discretionary items, and affect their confidence level leading to reduced spending on home improvement projects.

limit consumers’ spending, particularly on discretionary items, and affect their confidence level leading to reduced spending on home improvement projects.

Depressed activity levels in consumer spending for home improvement construction would adversely affect our business, liquidity, results of operations, and financial position.

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Furthermore, we may not necessarily be aware of any deterioration in our customers’ financial position.

If our larger customers’ financial positions were to become impaired, our ability to fully collect receivables from such customers could be impaired and negatively affect our operating results, cash flow and liquidity.

Consolidation among competitors, suppliers, and customers could negatively impact our business .

Our competitors continue to consolidate.

Among other things, this consolidation is being driven by customer needs and supplier capabilities, which could cause markets to become more competitive as greater economies of scale are achieved by distributors.

Customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations.

We believe these customer needs could result in fewer distributors as the remaining distributors become larger and capable of being consistent sources of supply.

There can be no assurance that we will be able to take advantage effectively of this trend toward consolidation.

The trend in our industry toward consolidation could make it more difficult for us to maintain operating margins.

Our customers and suppliers also continue to consolidate, and this consolidation could result in the loss of existing customers and suppliers to our competitors.

We typically do not enter into minimum purchase contracts with our customers or suppliers.

The loss of one or more of our significant customers or suppliers, or their decision to purchase or sell our products in significantly lower quantities than they have in the past, could significantly affect our financial condition, operating results, and cash flows.

We are subject to disintermediation risk.

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As a result, continued disintermediation could have a negative impact on our financial condition and operating results.

Our industry is highly cyclical, and prolonged periods of weak demand or excess supply may reduce our net sales and/or margins, which may cause us to incur losses or reduce our net income .

The building products distribution industry is subject to cyclical market pressures.

Prices of building products are determined by overall supply and demand in the market.

Market prices of building products historically have been volatile and cyclical, and we have limited ability to control the timing and amount of pricing changes.

The supply of building products fluctuates based on available manufacturing capacity, and excess capacity in the industry can result in significant declines in market prices for those products.

To the extent that prices and volumes experience a sustained or sharp decline, our net sales and margins likely would decline as well.

Because we have substantial fixed costs, a decrease in sales and margin generally may have a significant adverse impact on our financial condition, operating results, and cash flows.

We may be unable to effectively manage our inventory relative to our sales volume or as the prices of the products we distribute fluctuate, which could affect our business, financial condition, and operating results .

We purchase many of our products directly from manufacturers, which are then sold and distributed to customers.

We must maintain, and have adequate working capital to purchase, sufficient inventory to meet customer demand.

Due to the lead times required by our suppliers, we order products in advance of expected sales.

As a result, we are required to forecast our sales and purchase accordingly.

In periods characterized by significant changes in the overall economy and activity in the residential and commercial building and home repair and remodel industries, it can be especially difficult to forecast our sales accurately.

We must also manage our working capital to fund our inventory purchases.

Such issues and risks can be magnified by the diversity of product mix our business units carry, with over 50,000 SKUs across multiple major product categories.

Excessive increases in the market prices of certain building products can put negative pressure on our operating cash flows by requiring us to invest more in inventory.

In the future, if we are unable to effectively manage our inventory, our cash flows may be negatively affected, which could have a material adverse effect on our business, financial condition, and operating results.

Loss of key products or key suppliers and manufacturers could affect our financial health .

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Thus, import taxes or costs, including new or increased tariffs, anti-dumping duties, countervailing duties, or similar duties, some of which could be applied retroactively, could increase the cost of the products that we distribute.

In addition, quotas, embargoes, sanctions, safeguards, and customs

restrictions, as well as foreign labor strikes, work stoppages, or boycotts, could reduce the supply of the products available to us.

In addition, quotas, embargoes, sanctions, safeguards, and customs restrictions, as well as foreign labor strikes, work stoppages, or boycotts, could reduce the supply of the products available to us.

If we become subject to a reduction in available supply of imported products and we are unable to mitigate that reduction through alternative sources, or if the costs of our imported products increase and we are not able to pass along those increased costs to our customers, then our business, financial condition, and results of operations could be adversely affected.

The rapid spread of contagious illness could have a material adverse effect on our business and results of operations .

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China.

This virus may cause disruption to the global supply chain and financial markets.

Disruptions to the global supply chain could impact our ability to source products from our suppliers, many of whom are located outside of the United States, including China.

Any disruptions to our supply chain as a result of the recent coronavirus outbreak cannot be reasonably estimated at this time but could, if we are unable to mitigate critical shortages by securing inventory from other sources, have an adverse impact on our financial condition and results of operations in future periods.

In addition, a significant outbreak of epidemic, pandemic, or contagious diseases such as the coronavirus in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect the supply or demand for our products.

The extent to which the coronavirus or or any other epidemic, pandemic, or contagious disease may have an impact on our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Our industry is highly fragmented and competitive.

If we are unable to compete effectively, our net sales and operating results may be reduced .

The building and industrial products distribution industry is highly fragmented and competitive, and the barriers to entry for local competitors are relatively low.

Competitive factors in our industry include pricing, availability of product, service, delivery capabilities, customer relationships, geographic coverage, and breadth of product offerings.

Some of our competitors have less financial leverage or are part of larger companies, and, therefore, may have access to greater financial and other resources than those to which we have access.

Finally, we may not be able to maintain our costs at a level sufficiently low for us to compete effectively.

If we are unable to compete effectively, our net sales and net income may be reduced.

Consolidation among competitors and customers could negatively impact our business .

Our competitors continue to consolidate.

Customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations.

We believe these customer needs could result in fewer distributors as the remaining distributors become larger and capable of being consistent sources of supply.

There can be no assurance that we will be able to take advantage effectively of this trend toward consolidation.

The trend in our industry toward consolidation could make it more difficult for us to maintain operating margins.

Our customers also continue to consolidate, and this consolidation could result in the loss of existing customers to our competitors.

We typically do not enter into minimum purchase contracts with our customers.

The loss of one or more of our significant customers, or their decision to purchase our products in significantly lower quantities than they have in the past, could significantly affect our financial condition, operating results, and cash flows.

We are subject to pricing pressures .

Large customers have historically been able to exert pressure on their outside suppliers and distributors to keep prices low in the highly fragmented building materials distribution industry.

In addition, continued consolidation among our customers, particularly dealers, and their customers (i.e., homebuilders), and changes in their respective purchasing policies and payment practices, could result in even further pricing pressure.

A decline in the prices of the products we distribute could adversely impact our operating results.

Overall, these pricing pressures may adversely affect our operating results and cash flows.

Operating Risks

The full effect of the COVID-19 pandemic on our business is currently unknown, and it may adversely affect our business and results from operations.

The global impact of COVID-19 continues to evolve.

COVID-19 has impacted our operations and financial performance and the extent of its effect on our operational and financial performance in future periods will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic effects of the pandemic and related containment measures, among others.

In response to the spread of COVID-19, governmental authorities implemented numerous measures to try to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place and work from home orders, and shutdowns of “non-essential” businesses.

While we were deemed an “essential” business, this status may not continue, which could adversely impact our ability to operate in the markets we serve.

Governmental measures have impacted, and may further impact, our workforce and operations, as well as those of our customers, vendors and suppliers.

We have distribution operations across the United States, and each state in which we operate has been affected by the outbreak of COVID-19 and taken various measures to try to contain it.

Varying levels of measures to contain the COVID-19 outbreak, and associated variants, in states across the United States could impact our operations in varying degrees, the impact of which we cannot reasonably predict.

Among other impacts to our business from the outbreak of COVID-19:

• We have experienced higher overall demand for our products due to economic conditions and changing consumer

behaviors driven by COVID-19, which may or may not continue;

• Our supply chain may be disrupted due to government restrictions or if our suppliers or vendors have raw material and/or labor disruptions as a result of the pandemic that cause us to experience disruptions in product availability;

• Our distribution capabilities may be disrupted if we are unable to secure sufficient supplies of products, if significant portions of our workforce are unable to work effectively, including because of illness, government actions or other restrictions, or if we have periods of disruptions due to deep cleaning and sanitizing our facilities.

In addition, we have incurred additional expense for cleaning, safety supplies and equipment, screening resources and other items and expect these costs to continue to some degree in the future although we may choose not to report them separately;

• We may experience an increase or decrease in commodity and other input costs due to market volatility and product availability;

• We may experience an increase in our working capital needs or an increase in our trade accounts receivable write-offs as a result of increased financial pressures on our suppliers and customers;

• We may experience changes to our internal controls over financial reporting as a result of changes in working environments, such as shelter-in-place and similar orders, as well as the potential for staffing limitations.

Our strategy includes pursuing acquisitions.

We may be unsuccessful in making and integrating mergers, acquisitions and investments, and completing divestitures.

The integration of acquisitions can involve significant anticipated and unanticipated operational challenges, including integrating different computer, enterprise resource planning, and accounting systems, integrating physical facilities and inventories, and integrating acquired personnel and corporate cultures into our business.

Addressing these challenges requires the attention of management and the diversion of resources from existing operations.

These disruptions and deficiencies could lead to increased costs, order and delivery errors, inventory and billing errors, the loss of employees, or the loss of customers, suppliers, or products either overall or in certain markets, which could adversely affect our financial condition, operating results, and cash flows.

As part of our overall strategy, we may make additional acquisitions or investments in the future.

These acquisitions or investments would be subject to the same risks and uncertainties described above.

If we do not effectively manage those risks and uncertainties, our financial condition, operating results, and cash flows may be negatively affected.

We may incur business disruptions.

The operations at our distribution facilities may be interrupted or impaired by various operating risks, including, but not limited to, risks associated with catastrophic events, such as fires, floods, earthquakes, explosions, natural disasters, severe weather, including hurricanes, tornados and droughts, and pandemics, including COVID-19, or other similar occurrences;

interruptions

in the delivery of products via railroad or other inbound transportation means;

adverse government regulations;

equipment breakdowns or failures;

prolonged power failures;

unscheduled maintenance outages;

information system disruptions or failures due to any number of causes, including cyber-attacks;

violations of our permit requirements or revocation of permits;

releases of pollutants and hazardous substances to air, soil, surface water or ground water;

disruptions in transportation infrastructure, including roads, bridges, railroad tracks and tunnels;

shortages of equipment or spare parts;

and labor disputes and shortages.

We purchase many of our products directly from manufacturers, which are then sold and distributed to customers.

We must maintain, and have adequate working capital to purchase, sufficient inventory to meet customer demand.

Due to the lead times required by our suppliers, we order products in advance of expected sales.

As a result, we are required to forecast our sales and purchases accordingly.

We must also manage our working capital to fund our inventory purchases.

Such issues and risks can be magnified by the diversity of product mix our business units carry across multiple major product categories.

Excessive increases in the market prices of certain building products can put negative pressure on our operating cash flows by requiring us to invest more in inventory.

We are subject to information technology security risks and business interruption risks and may incur increasing costs in an effort to minimize and/or respond to those risks .

Our business employs information technology systems to secure confidential information, such as employee data, including social security numbers and personal health data.

We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks.

Any compromise of our security could result in a loss or misuse of our confidential information, violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, interruption of our business operations, and a loss of confidence in our security measures;

any of which could harm our business.

We may also be subject to phishing attacks, wherein individuals may fraudulently purport to be an agent of a reputable company in order to induce our employees to reveal information or obtain resources.

We are also susceptible to malware, ransomware, denial of service, and other attacks that could adversely affect our information technology systems.

Although we utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent security threats from materializing.

As cyber-attacks become more sophisticated generally, we may incur significant costs to strengthen our systems from outside intrusions, and/or obtain insurance coverage related to the threat of such attacks.

Additionally, our business is reliant upon information technology systems to, among other things, manage and route our sales calls, manage inventories and accounts receivable, make purchasing decisions, monitor our results of operations, and place orders with our vendors and process orders from our customers.

These systems may be vulnerable to natural disasters, telecommunications failures and similar events, employee errors or to intentional acts of misconduct, such as security breaches or attacks.

The occurrence of any of these events or acts, or any other unanticipated problems, could result in damage to or the unavailability of these systems.

Such damage or unavailability could, despite any existing disaster recovery and business continuity arrangements, interrupt the availability of one or more of our information technology systems.

We have from time to time experienced such disruptions and they may occur in the future.

Disruptions in these systems could materially impact our ability to buy and sell our products, as well as generally operate our business, which could reduce our revenue.

We are exposed to product liability and other claims and legal proceedings related to our business and the products we distribute, which may exceed the coverage of our insurance .

The building products industry has been subject to personal injury and property damage claims arising from alleged exposure to raw materials contained in building products as well as claims for incidents of catastrophic loss, such as building fires.

As a distributor of building materials, we face an inherent risk of exposure to product liability claims in the event that the use of the products we have distributed in the past or may in the future distribute is alleged to have resulted in economic loss, personal injury or property damage, or violated environmental, health or safety, or other laws.

Such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, or a breach of warranties.

We are also from time to time subject to casualty, contract, tort, and other claims relating to our business, the products we have distributed in the past or may in the future distribute, and the services we have provided in the past or may in the future provide, either directly or through third parties.

We rely on manufacturers and other suppliers, including manufacturers and suppliers located outside of the United States, to provide us with the products we sell or distribute.

Since we do not have direct control over the quality of products that are manufactured or supplied to us by third parties, we are particularly vulnerable to risks relating to the quality of such products.

In addition, operating hazards, such as unloading heavy products, operating large machinery and driving hazards, which are inherent in our business and some of which may be outside of our control, can cause personal injury and loss of life, damage to or destruction of property, plant, and equipment and environmental damage.

We cannot predict or, in some cases, control the costs to defend or resolve such claims.

We cannot assure you that we will be able to maintain suitable and adequate insurance on acceptable terms or that such insurance will provide adequate protection against potential liabilities, and the cost of any product liability or other proceeding, even if resolved in our favor, could be substantial.

Additionally, we do not carry insurance for all categories of risk that our business may encounter.

Any significant uninsured liability may require us to pay substantial amounts.

There can be no assurance that any current or future claims will not adversely affect our financial position, cash flows, or results of operations.

Our business operations could suffer significant losses from natural disasters, catastrophes, fire, or other unexpected events .

While we maintain insurance covering our facilities, including business interruption insurance, our warehouse facilities could be materially damaged by natural disasters, such as floods, tornadoes, hurricanes, and earthquakes, or by fire, adverse weather conditions, civil unrest, condemnation, or other unexpected events or disruptions to our facilities.

We could incur uninsured losses and liabilities arising from such events, including damage to our reputation, and/or suffer material losses in operational capacity, which could have a material adverse impact on our business, financial condition, and results of operations.

In addition, war, terrorism, geopolitical uncertainties, and public health issues could cause damage or disruption to the global economy, and thus could have a material adverse effect on us, our suppliers and our customers.

Our operating results depend on the successful implementation of our strategy.

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If we are unable to realize the benefits of our strategic initiatives, our business, financial condition, cash flows, or results of operations could be adversely affected.

A significant percentage of our employees are unionized.

Wage increases or work stoppages by our unionized employees may reduce our results of operations .

As of January 2, 2021, we employed approximately 2,100 employees and less than one percent of our employees are employed on a part-time basis.

Approximately 22 percent of our employees were represented by various local labor union with terms and conditions of employment governed by CBAs.

Six CBAs covering approximately six percent of our employees are up for renewal in fiscal 2021.

Although we have generally had good relations with our unionized employees, and expect to renew collective bargaining agreements as they expire, no assurances can be provided that we will be able to reach a timely agreement as to the renewal of the agreements, and their expiration or continued work under an expired agreement, as applicable, could result in a work stoppage.

In addition, we may become subject to material wage increases, or additional work rules imposed by agreements with labor unions.

The foregoing could increase our selling, general, and administrative expenses in absolute terms and/or as a percentage of net sales.

In addition, work stoppages or other labor disturbances may occur in the future, which could adversely impact our net sales and/or selling, general, and administrative expenses.

Wage increases could also be significant in an inflationary environment even in our non-unionized locations.

All of these factors could negatively impact our operating results and cash flows.

Federal, state, local, and other regulations could impose substantial costs and restrictions on our operations that would reduce our net income .

We are subject to various federal, state, local, and other laws and regulations, including, among other things, transportation regulations promulgated by the DOT, work safety regulations promulgated by OSHA, employment regulations promulgated by the U.S.

Equal Employment Opportunity Commission, regulations of the U.S.

Department of Labor, regulations issued by the SEC, accounting standards issued by the Financial Accounting Standards Board (the “FASB”) or similar entities, and state and local zoning restrictions, building codes and contractors’ licensing regulations.

More burdensome regulatory requirements in these or other areas may increase our general and administrative costs and adversely affect our financial condition, operating

results, and cash flows.

Moreover, failure to comply with the regulatory requirements applicable to our business could expose us to litigation and substantial fines and penalties that could adversely affect our financial condition, operating results, and cash flows.

Our transportation operations, upon which we depend to distribute products from our distribution centers, are subject to the regulatory jurisdiction of the DOT and the FMCSA, which have broad administrative powers with respect to our transportation operations.

Vehicle dimensions and driver hours of service also are subject to both federal and state regulation.

More restrictive limitations, including those on vehicle weight and size, trailer length and configuration, or driver hours of service would increase our costs, which, if we are unable to pass these cost increases on to our customers, may increase our selling, general and administrative expenses and adversely affect our financial condition, operating results, and cash flows.

If we fail to comply adequately with the DOT and FMCSA regulations or such regulations become more stringent, we could experience increased inspections, regulatory authorities could take remedial action, including imposing fines or shutting down our operations, or we could be subject to increased audit and compliance costs.

If any of these events were to occur, our financial condition, operating results, and cash flows could be adversely affected.

In addition, the residential and commercial construction industries are subject to various local, state and federal statutes, ordinances, codes, rules and regulations concerning zoning, building design and safety, construction, contractor licensing, energy conservation, and similar matters, including regulations that impose restrictive zoning and density requirements on the residential new construction industry or that limit the number of homes or other buildings that can be built within the boundaries of a particular area.

Regulatory restrictions may increase our operating expenses and limit the availability of suitable building lots for our customers, any of which could negatively affect our business, financial condition and results of operations.

We are subject to federal, state, and local environmental protection laws and may have to incur significant costs to comply with these laws and regulations in the future .

Environmental liabilities could arise on the land that we have owned, own or lease, including as a result of the use of underground fuel storage tanks, and these liabilities could have a material adverse effect on our financial condition and performance.

Federal, state, and local laws and regulations relating to the protection of the environment, including those regulating the use and maintenance of underground storage tanks, may require a current or previous owner or operator of real estate to investigate and remediate hazardous materials, substances and waste releases at or from the property.

They may also impose liability for property damage and personal injury stemming from the presence of, or exposure to, hazardous substances.

In addition, we could incur costs to comply with such environmental laws and regulations, the violation of which could lead to substantial fines and penalties.

Financial Risks

Our future operating results may fluctuate significantly, and our current operating results may not be a good indication of our future performance.

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• general economic conditions, including but not limited to housing starts, construction labor shortages, repair and remodel activity and commercial construction, foreclosure rates, interest rates, unemployment rates, and mortgage availability and pricing, as well as other consumer financing mechanisms, that ultimately affect demand for our products;

operational disruption associated with the integration of the Cedar Creek business;

• supply chain disruptions, including those caused by the spread of contagious illness;

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• labor disruptions, shortages of skilled and technical labor, or increased labor costs;

• the impact of cost inflation, which may arise from changes in the economic environment, such as potential litigation;

• increased healthcare costs;

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Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our quarterly financial and other operating results, including fluctuations in our key metrics.

The variability and unpredictability could result in our failing to meet our internal operating plan or the expectations of securities analysts or

investors for any period.

The variability and unpredictability could result in our failing to meet our internal operating plan or the expectations of securities analysts or investors for any period.

If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits.

Our level of indebtedness could limit our financial and operating activities and adversely affect our ability to incur additional debt to fund future needs.

At January 2, 2021, we had approximately $288 million of debt outstanding under our revolving credit facility, and approximately $43 million of debt outstanding under our term loan facility.

Additionally, as of January 2, 2021, outstanding commitments under finance leases were $273 million.

Our level of indebtedness could still have considerable consequences for us.

For example, our substantial indebtedness could:

• make us more vulnerable to general adverse economic and industry conditions;

• limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, and other general corporate requirements;

• expose us to interest rate fluctuations because the interest rate on the debt under our revolving credit facility is variable;

• require us to dedicate a substantial portion of our cash flows to payments on our debt, thereby reducing the availability of our cash flows for operations and other purposes;

• limit our flexibility in planning for, or reacting to, changes in our business, and the industry in which we operate;

• place us at a competitive disadvantage compared to competitors that may have proportionately less debt, and therefore may be in a better position to obtain more favorable credit terms.

Our cash flows and capital resources may be insufficient to make required payments on our indebtedness or future indebtedness .

These factors include, among others:

• economic and demand factors affecting the building products distribution industry;

• external factors affecting availability of credit;

• pricing pressures;

• increased operating costs;

• competitive conditions;

• operational disruption associated with the Cedar Creek integration;

• other operating difficulties.

There is no assurance that we could obtain additional capital or refinance our debt on terms acceptable to us, or at all.

Accordingly, any such sale may not, among other things, be for a sufficient dollar amount to repay our indebtedness.

Our revolving credit facility and term loan facility contain various covenants and restrictions, including customary financial covenants that limit management’s discretion in operating our business.

In particular, these instruments limit our ability to, among other things:

• incur additional debt;

• grant liens on assets;

• make investments;

• sell or acquire assets, including certain real estate assets, outside the ordinary course of business;

• engage in transactions with affiliates;

• make fundamental business changes.

Additionally, our ability to comply with these covenants may be affected by events beyond our control, including general economic and credit conditions and industry downturns.

Refer to Note 6, Long-Term Debt , for further details.

Borrowings under our revolving credit facility and term loan facility are at variable rates of interest and expose us to interest rate risk.

If interest rates increase, our debt service obligations on this variable rate indebtedness would increase even though the amount borrowed remained the same.

Although we may elect in the future to take certain actions to reduce interest rate volatility in connection with our variable rate borrowings, we cannot provide assurances that we will be able to do so or that those actions will be effective.

Our revolving credit facility and our term loan facility include available interest rate options based on the London Inter-bank Offered Rate (“LIBOR”).

It is widely expected that LIBOR will be discontinued after 2021, and the U.S.

and other countries are currently working to replace LIBOR with alternative reference rates.

The consequences of these developments with respect to LIBOR cannot be entirely predicted;

however, we do not believe that the discontinuation of LIBOR as a reference rate in our loan agreements will have a material adverse effect on our financial position or materially affect our interest expense.

Despite our current levels of debt, we may still incur more debt, which would increase the risks described in these risk factors relating to indebtedness .

The agreements relating to our debt significantly limit, but do not prohibit, our ability to incur additional debt.

In addition, certain types of liabilities are not considered “Indebtedness” under the agreements relating to our debt.

Accordingly, we could incur additional debt or similar liabilities in the future.

If new debt or similar liabilities are added to our current debt levels, the related risks that we now face could increase.

We have sold and leased back certain of our distribution centers under long-term non-cancelable leases, and may enter into similar transactions in the future.

Many of these leases are (or will be) finance leases, and our debt and interest expense may increase as a result.

As a result of real estate financing transactions through sale-leaseback arrangements, certain of our distribution centers are leased under non-cancelable leases.

As a result of real estate financing transactions through sale-leaseback arrangements, a substantial number of our distribution centers are leased under non-cancelable leases.

These leases typically have initial terms of approximately fifteen years, and most provide options to renew for specified periods of time.

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Additionally, the revenue and profit generated at a relocated distribution center may not equal the revenue and profit generated at the previous location.

We may not be able to monetize remaining real estate assets if we experience adverse market conditions .

We monetized a substantial amount of our real estate assets during fiscal 2019 and the first fiscal quarter of 2020, and we have designated certain non-operating properties as held for sale, which we currently are actively marketing.

We believe there will be future opportunities to monetize our remaining real estate portfolio’s equity value for debt reduction and investment purposes via sale leaseback and other strategic real estate transactions.

However, real estate investments are relatively illiquid.

We may not be able to sell the properties we have targeted for disposition or that we may decide to monetize in the future, due to adverse market conditions.

We are exposed to product liability and other claims and legal proceedings related to our business and the products we distribute, which may exceed the coverage of our insurance .

We are also from time to time subject to casualty, contract, tort, and other claims relating to our business, the products we have distributed in the past or may in the future distribute and the services we have provided in the past or may in the future provide, either directly or through third parties.

We rely on manufacturers and other suppliers, including manufacturers and suppliers located outside of the United States, to provide us with the products we sell or distribute.

We cannot predict or, in some cases, control the costs to defend or resolve such claims.

Additionally, we do not carry insurance for all categories of risk that our business may encounter.

Any significant uninsured liability may require us to pay substantial amounts.

There can be no assurance that any current or future claims will not adversely affect our financial position, cash flows, or results of operations.

A change in our product mix could adversely affect our results of operations .

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If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers or otherwise protect ourselves by entering into forward purchase contracts, then our results of operations would be adversely affected.

We are subject to information technology security risks and business interruption risks, and may incur increasing costs in an effort to minimize those risks .

Our business employs information technology systems to secure confidential information, such as employee data, including social security numbers and personal health data.

We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks.

any of which could harm our business.

We are also susceptible to malware, ransomware, denial of service, and other attacks that could adversely affect our information technology systems.

These systems may be vulnerable to natural disasters, telecommunications failures and similar events, employee errors or to intentional acts of misconduct, such as security breaches or attacks.

The occurrence of any of these events or acts, or any other unanticipated problems, could result in damage to or the unavailability of these systems.

Such damage or unavailability could, despite any existing disaster recovery and business continuity arrangements, interrupt the availability of one or more of our information technology systems.

We have from time to time experienced such disruptions and they may occur in the future.

Disruptions in these systems could materially impact our ability to buy and sell our products, as well as generally operate our business, which could reduce our revenue.

We establish insurance-related deductible/retention reserves based on historical loss development factors, which could lead to adjustments in the future based on actual development experience.

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The actual cost of claims can be different than the historical selected loss development factors because of safety performance, payment patterns, and settlement patterns.

Our business operations could suffer significant losses from natural disasters, catastrophes, fire, or other unexpected events .

We could be the subject of securities class action litigation due to stock price volatility, which could divert management’s attention and adversely affect our results of operations .

The stock market in general, and market prices for the securities of companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies.

These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.

In certain situations in which the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock.

If any of our stockholders were to bring a similar lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

The activities of activist stockholders could have a negative impact on our business and results of operations .

While we seek to actively engage with stockholders and consider their views on business and strategy, we could be subject to actions or proposals from stockholders or others that do not align with our business strategies or the interests of our other stockholders.

Responding to these stockholders could be costly and time-consuming, disrupt our business and operations, and divert the attention of our Board of Directors and senior management.

Uncertainties associated with such activities could interfere with our ability to effectively execute our strategic plan, impact long-term growth, and limit our ability to hire and retain personnel.

In addition, actions of these stockholders may cause periods of fluctuation in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

A significant percentage of our employees are unionized.

Wage increases or work stoppages by our unionized employees may reduce our results of operations .

As of December 28, 2019, we employed approximately 2,200 people.

Approximately 20% of our employees were covered by collective bargaining agreements (“CBAs”) negotiated between the company and various local unions.

Three of those CBAs covering approximately 30 employees are up for renewal in fiscal 2020.

In addition, we may become subject to material cost increases, or additional work rules imposed by agreements with labor unions.

The foregoing could increase our selling, general, and administrative expenses in absolute terms and/or as a percentage of net sales.

In addition, work stoppages or other labor disturbances may occur in the future, which could adversely impact our net sales and/or selling, general, and administrative expenses.

All of these factors could negatively impact our operating results and cash flows.

Our ability to utilize our net operating loss carryovers may be limited .

At December 28, 2019, we had federal net operating loss (“NOL”) carryforwards of approximately $61.8 million.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited.

In general, an “ownership change” will be deemed to have occurred if there is a cumulative change in our ownership by “5-percent stockholders” that exceeds 50 percentage points over a rolling three-year period.

Similar rules may apply under state tax laws.

Sales in the underwritten public offering of 4,443,428 shares of our common stock by our former majority shareholder that closed on October 23, 2017 (the “Resale Offering”) caused an ownership change limitation under Section 382 to be triggered.

That limitation could restrict our ability to use our NOL carryforwards.

In general, the annual use limitation under Section 382 is determined by multiplying the aggregate value of our stock at the time of the ownership change by a specified tax-exempt interest rate.

However, we determined that at the date of the 2017 deemed ownership change, we had a net unrealized built-in gain (“NUBIG”) based primarily on the built-in gains in our owned real estate.

The NUBIG was determined based on the difference between the fair market value of our assets and their tax basis as of the ownership change date.

Under Section 382(h), the Section 382 limitation will be increased if and to the extent that the NUBIG that existed at the time of the ownership change is recognized for tax purposes after the ownership change during the recognition period ending on October 23, 2022.

Limitations on our ability to use NOL carryforwards to offset future taxable income, including gains on sales of real estate, could require us to pay U.S.

federal income taxes earlier than would be required if such limitations were not in effect.

Similar rules and limitations may apply for state income tax purposes.

The value of our deferred tax assets could become impaired, which could materially and adversely affect our operating results.

As of January 2, 2021, we had approximately $63 million in net deferred tax assets.

These deferred tax assets include temporary differences arising from such items as property, plant and equipment, accrued compensation, and accounting reserves related to inventory and other items in conjunction with net state operating loss carryovers that can be used to offset taxable income in future periods and reduce income taxes payable in those future periods.

Each quarter, we determine the probability of the realization of deferred tax assets, using significant judgments and estimates with respect to, among other things, historical operating results, expectations of future earnings, and tax planning strategies.

For example, we were required to evaluate and maintain reasonable valuation allowances against our remaining state net operating loss carryforwards against our U.S.

deferred tax assets as of January 2, 2021.

These valuation allowances are calculated based on the probability that we will not realize taxable income in the states in which we carry net operating loss carryforwards in a time suitable to take advantage of them.

If we determine in the future that there is not sufficient positive evidence to support the remaining valuation of our deferred tax assets, either due to the risk factors described herein or other factors which may impact our net operating carryforwards or other components of our deferred tax assets such as our temporary differences which may arise from tax legislation which we cannot foresee, we may be required to further adjust the valuation allowance to reduce our deferred tax assets, in specific areas or in total.

Such a reduction could result in material non-cash expenses in the period in which the valuation allowance is adjusted and could have a material adverse effect on our results of operations .

Our expected annual effective tax rate could be volatile and materially change as a result of changes in mix of earnings and other factors.

Our overall effective tax rate is equal to our total tax expense as a percentage of our total profit or loss before tax.

However, tax expenses and benefits are determined separately for each tax paying entity or group of entities that is consolidated for tax purposes in each jurisdiction.

Losses in certain jurisdictions may provide no current financial statement tax benefit.

As a result, changes in the mix of profits and losses between jurisdictions, among other factors, could have a significant impact on our overall effective tax rate.

New and unforeseen changes in tax legislation may impact our effective tax rate in future periods, both on a federal and state level, which may have an impact on our net income and result in material non-cash expenses in the relevant period.

Changes in actuarial assumptions for our pension plan could impact our financial results, and funding requirements are mandated by the Federal government .

We sponsor a defined benefit pension plan.

Most of the participants in our pension plan are inactive, with all remaining active participants no longer accruing benefits;

and the pension plan is closed to new entrants.

Most of the participants in our pension plan are inactive, with all remaining active participants no longer accruing benefits, and the pension plan is closed to new entrants.

However, unfavorable changes in various assumptions underlying the pension benefit obligation could adversely impact our financial results.

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The amount of any increase or decrease in our required contributions to these multi-employer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plan, governmental regulations, the actual return on assets held in the plan, the continued viability and contributions of other employers which contribute to the plan, and the potential payment of a withdrawal liability, among other factors.

Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules.

We have withdrawn, or partially withdrawn, from certain multi-employer plans in the past.

We may withdraw or partially withdraw from other multi-employer plans in the future.

If, in the future, we do choose to withdraw from any additional multi-employer plans or trigger a partial withdrawal, we likely would need to record a withdrawal liability, which may be material to our financial results.

Additionally, a mass withdrawal would require us to record a withdrawal liability, which may be material to our financial results, and would generally obligate us to make payments in perpetuity to the particular plan.

One of the plans to which we are obligated to contribute is the Central States, Southeast and Southwest Areas Pension Fund (the “Central States Plan”).

As of January 1, 2017, the plan’s actuary certified that the plan was in critical and declining status, which, among other things, means the funded percentage of the plan was less than 65%.

Furthermore, the plan is projected to become insolvent in 2025.

It is unclear what will happen to this plan in the future.

Our required contributions to the plan may increase, due to potential rehabilitation increases.

In addition, if we experience a withdrawal from this plan, we may need to record a significant withdrawal liability.

Our estimated withdrawal liability is $51.1 million if we experience a complete

withdrawal from the plan during fiscal 2020.

This number would likely increase if a complete withdrawal occurs in fiscal 2021 or later, and could be significantly higher if a mass withdrawal were to occur in the future.

In the case of a complete withdrawal or a mass withdrawal, our payments to the Central States Plan would include yearly payments of approximately $1.0 million , which do not include payments for the partial withdrawal liability of approximately $0.6 million annually.

In a complete withdrawal, the payments would not amortize the liability fully;

however, payments for a complete withdrawal are limited to a 20-year period.

In the case of a mass withdrawal, the liability would never amortize, and payments would continue indefinitely.

Our success depends on our ability to attract, train, and retain highly qualified associates and other key personnel while controlling related labor costs .

To be successful, we must attract, train, and retain a large number of highly qualified associates while controlling related labor costs.

Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and health and other insurance costs.

In many of our markets, highly qualified associates are in high demand and we compete with other businesses for these associates and invest resources in training and incentivizing them.

In particular, there is significant competition for qualified drivers in the transportation industry.

And interventions and enforcement under the FMCSA Compliance, Safety, and Accountability program may shrink the industry’s pool of drivers as those drivers with unfavorable scores may no longer be eligible to drive.

There can be no assurance that we will be able to attract or retain highly qualified associates in the future, including those employed by companies we may acquire.

As a result of labor shortages, particularly among our drivers and material handlers, we could be required to utilize temporary or contract labor.

Using temporary or contract labor typically requires higher cost, and temporary or contract labor may be less productive than full-time associates.

In addition, a shortage of qualified drivers could require us to increase driver compensation, let trucks sit idle, utilize common carriers, utilize less experienced drivers, or face difficulty meeting customer demands, all of which could adversely affect our growth and profitability.

Furthermore, our success is highly dependent on the continued services of our management team.

The loss of services of one or more key members of our senior management team could have a material adverse effect on us.

Federal, state, local, and other regulations could impose substantial costs and restrictions on our operations that would reduce our net income .

We are subject to various federal, state, local, and other laws and regulations, including, among other things, transportation regulations promulgated by the U.S.

Department of Transportation (the “DOT”), work safety regulations promulgated by the Occupational Safety and Health Administration, employment regulations promulgated by the U.S.

Equal Employment Opportunity Commission, regulations of the U.S.

Department of Labor, accounting standards issued by the Financial Accounting Standards Board (the “FASB”) or similar entities, and state and local zoning restrictions, building codes and contractors’ licensing regulations.

More burdensome regulatory requirements in these or other areas may increase our general and administrative costs and adversely affect our financial condition, operating results, and cash flows.

Vehicle dimensions and driver hours of service also are subject to both federal and state regulation.

If any of these events were to occur, our financial condition, operating results, and cash flows could be adversely affected.

residential new construction industry or that limit the number of homes or other buildings that can be built within the boundaries of a particular area.

We are subject to federal, state, and local environmental protection laws and may have to incur significant costs to comply with these laws and regulations in the future .

They may also impose liability for property damage and personal injury stemming from the presence of, or exposure to, hazardous substances.

In addition, we could incur costs to comply with such environmental laws and regulations, the violation of which could lead to substantial fines and penalties.

Risks Relating to Our Common Stock

We could be the subject of securities class action litigation due to stock price volatility, which could divert management’s attention and adversely affect our results of operations .

These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.

In certain situations in which the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock.

The activities of activist stockholders could have a negative impact on our business and results of operations .

Responding to these stockholders could be costly and time-consuming, disrupt our business and operations, and divert the attention of our Board of Directors and senior management.

Uncertainties associated with such activities could interfere with our ability to effectively execute our strategic plan, impact long-term growth, and limit our ability to hire and retain personnel.

We do not expect to pay dividends on our common stock, and the terms of our loan agreements place restrictions on our ability to pay dividends on our common stock, so any returns to stockholders will be limited to the value of their stock .

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Therefore, we do not expect to pay cash dividends in the foreseeable future, so any return to stockholders will be limited to the appreciation in their stock.

General Risk Factors

Changes in, or interpretation of, accounting principles could result in unfavorable accounting changes .

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Changes resulting from the adoption of new or revised accounting principles may result in materially different financial results and may require that we make changes to our systems, processes, and controls.

Transfers of our common stock may constitute a change of control under the instruments governing our indebtedness, which may trigger an event of default .

The agreements governing our debt provide that if at any time any person or group of persons acquires 35% or more of our common stock, whether inadvertently or not, then a change of control would be triggered that would result in an event of default under the facilities.

In the event of an event of default as a result of such transfers, we may be required to repay any outstanding amounts earlier than anticipated, and the lenders may foreclose on their security interests in our assets or otherwise exercise their remedies with respect to such interests.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us .

Our second amended and restated certificate of incorporation, as amended, provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our second amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine.

The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees.

If a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action,

we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.

Any issuance of preferred stock could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could adversely affect the price of our common stock .

Our board of directors has the authority to issue preferred stock and to determine the preferences, limitations, and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders.

Our preferred stock could be issued with voting, liquidation, dividend, and other rights superior to the rights of our common stock.

The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium over the market price, and adversely affect the market price and the voting and other rights of the holders of our common stock.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors