What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-03-03 · 196 added, 180 removed, 190 unchanged (66% of the section changed)

5 unchanged sentences

Discussion and analysis of fiscal 2019 and year-to-year comparisons between fiscal 2020 and fiscal 2019 not included in this Form 10-K can be found in “Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

Executive Level Overview

Company Background

BlueLinx is a leading U.S.

wholesale distributor of residential and commercial building products with both branded and private-label SKUs across product categories such as lumber, panels, engineered wood, siding, millwork, metal building products, and other construction materials.

With a strong market position, broad geographic coverage footprint servicing 40 states, and the strength of a locally focused sales force, we distribute our comprehensive range of products to over 15,000 national, regional, and local dealers, specialty distributors, national home centers, and manufactured housing customers.

BlueLinx is able to provide a wide range of value added services and solutions to our customers and suppliers.

We are headquartered in Georgia, with executive offices located at 1950 Spectrum Circle, Marietta, Georgia, and we operate our distribution business through a broad network of distribution centers.

As a “two-step” wholesale distributor of building products, BlueLinx stocks products from leading manufacturers, such as Huber Engineered Woods, James Hardie, Georgia Pacific, Weyerhaeuser, and Oldcastle, and supplies these products to a broad range of customers, including lumber yards, dealers, home centers, and hardware stores.

These customers then serve residential and commercial builders and contractors in their respective geographic areas.

BlueLinx plays a critical role in enabling its lumber yard, dealer, and home center customers to offer a broad range of products and brands, as most of BlueLinx’s customers do not have the capability to purchase and warehouse directly from the manufacturers for such a large set of SKUs.

Similarly, BlueLinx provides value to its manufacturer partners by enabling access to the fragmented network of lumber yards and dealers that the manufacturers could not adequately serve directly.

Our place in this distribution model of building products provides easy access to the marketplace for our suppliers and the value proposition of rapid delivery on an as-needed basis to our customers from our network of warehouse facilities.

In addition to its broad portfolio of building products, BlueLinx also offers a wide array of custom cutting and fabrication services for the wood products industry.

Recent Developments

BlueLinx is a leading wholesale distributor of residential and commercial building products in the United States.

We are a “two-step” distributor.

Two-step distributors purchase products from manufacturers and distribute those products to dealers and other suppliers in local markets, who then sell those products to end users.

We carry a broad portfolio of both branded and private-label stock keeping units (“SKUs”) across two principal product categories:

specialty products and structural products.

Specialty products include items such as engineered wood, industrial products, cedar, moulding, siding, metal products, and insulation.

Structural products include items such as lumber, plywood, oriented strand board, rebar, and remesh.

We also provide a wide range of value-added services and solutions aimed at relieving distribution and logistics challenges for our customers and suppliers, while enhancing their marketing and inventory management capabilities.

We sell products through three main distribution channels, consisting of warehouse sales, reload sales, and direct sales.

Warehouse sales, which generate the majority of our sales, are delivered from our warehouses to our customers.

Reload sales are similar to warehouse sales but are shipped from warehouses, most of which are operated by third-parties, where we store owned products to enhance operating efficiencies.

This channel is employed primarily to service strategic customers that would be less economical to service from our warehouses, and to distribute large volumes of imported products from port facilities.

Direct sales are shipped from the manufacturer to the customer without our taking physical possession of the inventory and, as a result, typically generate lower margins than our warehouse and reload distribution channels.

This distribution channel, however, requires the lowest amount of committed capital and fixed costs.

With a strong market position, broad geographic coverage footprint servicing over 40 states, and the strength of a locally focused sales force, as a two-step wholesale distributor, we distribute a comprehensive range of products from over 750 suppliers, including some of the leading manufacturers in the industry, such as Ply Gem, Huber Engineered Woods, Georgia-Pacific, Allura, James Hardie, Fiberon, Royal, Oldcastle APG, Louisiana-Pacific, and Weyerhaeuser.

We supply products to a broad base of over 15,000 national, regional, and local dealers, specialty distributors, national home centers, and manufactured housing customers, many of whom then serve residential and commercial builders and contractors in their respective geographic areas and local markets.

As a value-added partner in a complex and demanding building products supply chain, we play a critical role in enabling our customers to offer a broad range of products and brands, as most of our customers do not have the capability to purchase and warehouse products directly from manufacturers for such a large set of SKUs.

The depth of our geographic footprint supports meaningful customer proximity across all the markets in which we operate, enabling faster and more efficient service.

Similarly, we provide value to our supplier partners by enabling access to the large and fragmented network of lumber yards and dealers that those suppliers could not adequately serve directly.

Our position in this distribution model for building products provides easy access to the marketplace for our suppliers and the value proposition of rapid delivery on an as-needed basis to our customers from our network of warehouse facilities.

Significant Recent Transactions and Developments

Term Loan Facility

As of January 2, 2021, we had outstanding borrowings of $43.2 million under our senior secured term loan facility.

On April 2, 2021, we repaid the remaining outstanding principal balance under the facility and the facility was terminated.

As a result, as of January 1, 2022, we had no outstanding borrowings under the term loan facility.

In connection with our repayment of the

facility, we expensed $5.8 million of debt issuance costs during the first quarter of fiscal 2021 that we had been amortizing in connection with the facility.

These costs are included within interest expense, net, on the Consolidated Statements of Operations and reported separately as an adjustment to net income in our Consolidated Statements of Cash Flows.

While the facility was paid in full as of April 2, 2021, our average interest rate under the facility, exclusive of fees and prepayment premiums, was 8.2 percent and 8.0 percent for the years ended January 2, 2021 and January 1, 2022, respectively.

Amendment of our Revolving Credit Facility

On August 2, 2021, we amended our revolving credit facility to, among other things, (i) extend the maturity date of the facility from October 10, 2022, to August 2, 2026, (ii) amend the Borrowing Base (as such term is defined under the facility) to include a certain portion of the assets of acquired companies prior to the conduct of a field exam or appraisals thereof by the agent, (iii) modify certain definitions and various affirmative and negative covenants to provide additional flexibility for the Company, and (iv) add customary LIBOR replacement language.

In addition, the amended revolving credit facility now provides for interest on borrowings at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.25 percent to 1.75 percent, with the amount of such margin determined based upon the average of our excess availability for the immediately preceding fiscal quarter as calculated by the agent, for loans based on LIBOR, or (ii) the base rate plus a margin ranging from 0.25 percent to 0.75 percent, with the amount of such margin determined based upon the average of our excess availability for the immediately preceding fiscal quarter as calculated by the agent, for loans based on the base rate, reflecting a decrease of 0.50 percent to the upper limit of each respective margin tier.

As of January 1, 2022, we had zero outstanding borrowings on our revolving credit facility.

Share Repurchase Program

On August 23, 2021, we announced our Board of Directors approved a stock repurchase program pursuant to which we may repurchase up to $25 million of our common stock.

Under the program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to prevailing market conditions and other considerations.

Our repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1.

As of the date of this filing, we have repurchased no shares under this program.

Senior Secured Notes Transaction

During the fourth quarter of 2021, we completed a private offering of $300 million of our six percent senior secured notes due 2029 (the “2029 Notes”).

The 2029 Notes were issued to investors at 98.625 percent of their principal amount and will mature on November 15, 2029.

The majority of net proceeds from the offering of the 2029 Notes were used to repay borrowings under our revolving credit facility.

In conjunction with this offering, we also amended the revolving credit facility to reduce the credit limit from $600 million to $350 million.

In conjunction with the reduction of the credit limit of our revolving credit facility, we expensed approximately $1.6 million of debt issuance costs during the fourth quarter of 2021.

Real Estate Transactions

During the first quarter of fiscal 2020, we completed real estate financing transactions through sale-leaseback arrangements on fourteen of our distribution facilities.

Gross proceeds for these transactions were $78.3 million.

Net proceeds from these transactions were used to repay indebtedness under our Term Loan Facility.

Upon completion of the transactions, we entered into long-term leases with multiple renewal options on the properties.

These real estate financing transactions were accounted for as finance leases, in accordance with generally accepted accounting principles in the United States (“U.S.

Additionally, during the third quarter of fiscal 2020, we completed a real estate financing transaction through a sale-leaseback arrangement on one distribution facility.

Gross proceeds for this transaction were $11.0 million and we recognized a gain of $8.7 million on the sale of this facility.

Net proceeds from this transaction were used to repay indebtedness under our Term Loan Facility.

Upon completion of the transaction, we entered into a long-term lease with multiple renewal options on the property.

The real estate financing transaction was accounted for as a sale and the lease was accounted for as an operating lease, in accordance with U.S.

These transactions are described in further detail in Note 12, Lease Commitments, in the Notes to the Consolidated Financial Statements.

During fiscal 2021, we sold two non-operating facilities that were previously identified as “held for sale”.

During the first quarter, we sold our non-operating facility located in Birmingham, Alabama, and recognized a gain of $1.3 million in the Consolidated Statement of Operations and Comprehensive Income, as a result of this sale.

Proceeds from this transaction was used to pay down our term loan facility.

Additionally, during the fourth quarter, we sold our non-operating facility located in Houston, Texas.

We recognized a gain of $7.1 million in the Consolidated Statement of Operations and Comprehensive Income as a result of this sale.

Factors That Affect Our Operating Results and Trends

1 unchanged sentence

(i) the commodity nature of the products we manufacture and distribute;

(ii) general economic and industry conditions affecting demand in the housing market;

(ii) general economic and industry conditions affecting demand in the housing

and (iii) cost and availability of the products we distribute.

7 unchanged sentences

Composite structural panel and lumber prices have been historically volatile.

The following table represents the percentage price changes on a year over year basis of the average composite panel, including certain panel subcategories, and average composite lumber prices as reflected by Random Lengths, an industry publication, for the periods noted below.

In addition to the year-over-year average price changes, 2020 was a year of exceptional price volatility when compared to historical results over the last eight years as both composite panel and composite lumber prices experienced the largest difference between high and low price levels within a calendar year.

Pricing for these products declined starting in March, but rebounded during the remaining portion of the second quarter, significantly increasing during most of the third quarter.

A two-month decline began in the final weeks of the third quarter and lasted until December.

In December 2020, pricing began to rapidly increase towards all-time highs.

These market trends resulted in substantial favorable revenue and gross margin comparisons for fiscal 2020 for our structural products and our business as a whole.

Wood-based commodity index prices began January at record or near-record highs and remain at elevated levels.

There is much uncertainty regarding future trends in lumber and panel index prices.

We continue to closely monitor these pricing trends, and work to manage our business, inventory levels, and costs accordingly.

The following table represents the percentage price changes on a year-over-year basis of the average monthly composite prices for lumber, including certain lumber subcategories, and average monthly composite prices for panels, including certain panel subcategories, as reflected by Random Lengths, an industry publication, for the periods noted below.

In addition to the year-over-year average monthly price changes, 2020 and 2021 were years of exceptional price volatility when compared to historical prices over the last seven years.

During 2021, both composite lumber and composite panel prices experienced the largest difference between high and low price levels within a calendar year than any year in the last seven years.

Calendar Year Ended

7 unchanged sentences

Increase (decrease) in OSB prices 94% 99%

During 2020, pricing for these products declined starting in March 2020, but rebounded during the remaining portion of the second quarter, significantly increasing during most of the third quarter.

A two-month decline began in the final weeks of the third quarter and lasted until December 2020.

In December 2020, pricing began to rapidly increase towards all-time highs.

These market trends resulted in substantial favorable revenue and gross margin comparisons for fiscal 2020 for our structural products and our business as a whole.

In 2021, wood-based commodity index prices began January at record or near-record highs and remained at elevated levels through the first quarter and in to the second quarter.

Prices continued to increase to a historical peak in May 2021 and then began to decline through the end of the second quarter and throughout the third quarter of 2021.

During the fourth quarter, prices began to rise again ending 2021, and beginning 2022, at historically elevated levels.

There is much uncertainty regarding future trends in lumber and panel index prices.

We continue to closely monitor these pricing trends, and work to manage our business, inventory levels, and costs accordingly.

General Economic and Industry Conditions Affecting Demand

2 unchanged sentences

The demand for new homes is dependent on a variety of factors, including job growth, changes in population and demographics, the availability and cost of mortgage financing, the supply of new and existing homes, and consumer confidence.

The COVID-19 pandemic had a significant negative effect on single family housing starts in April and May.

However, housing starts rebounded during the second half of the year.

Low interest rates, shortages in existing home inventory, and a potential growing trend toward relocating away from populated metropolitan areas to areas with single-family homes may help sustain the improvement in

single-family housing starts.

Favorable interest rates, shortages in existing home inventory, expanding use of telework and a potential growing trend toward relocating away from populated

metropolitan areas to areas with single-family homes may help sustain the improvement in single-family housing starts.

We believe the housing market improvement trend will continue in the long term, and that we are well-positioned to support our customers.

1 unchanged sentence

Cost and Availability of the Products We Distribute

The structural products we distribute are available from variety of suppliers.

The specialty products we distribute are available from select suppliers from which we have established and cultivated relationships in the specific markets we serve.

As a result of the COVID-19 pandemic, manufacturing output was impacted on both the structural and specialty sides of our business.

The structural products we distribute are available from a variety of suppliers.

As a result of the COVID-19 pandemic, manufacturing output was impacted on both the specialty and structural sides of our business.

Supply constraints which arose from reduced mill output as a result of the pandemic had an impact on both the availability and pricing of our structural products which contributed to increased market prices throughout the year.

Reduced manufacturing capacity combined with increased demand for our specialty products also had an impact on the products we distribute in this category, namely vinyl siding.

The continued availability of both structural and specialty products may have an impact on our operating results and are discussed in more detail in Part I, Item 1A, Risk Factors .

The continued availability of both specialty and structural products may have an impact on our operating results and are discussed in more detail in Part I, Item 1A, Risk Factors .

COVID-19 Pandemic

1 unchanged sentence

We also moved quickly to develop and execute plans and take actions designed to give financial and operating flexibility during the pandemic.

To date, our business has been designated as “essential” in all states in which we operate, and we have continued to operate and provide service to our customers and suppliers.

During fiscal 2020, and into 2021, we have continued to practice safety and hygiene protocols consistent with the Centers for Disease Control and Prevention (“CDC”) and local guidance.

During fiscal 2021, we continued to practice safety and hygiene protocols consistent with the Centers for Disease Control and Prevention (“CDC”) and local guidance.

We also continued our efforts to reduce operating costs and optimize liquidity and took actions designed to sustain many of our first and second quarter cost reduction actions long-term.

Cost structure and liquidity will remain areas of acute focus for us as the pandemic continues.

While the pandemic impacted many aspects of our business and operations during fiscal 2020, that impact was offset by the recovery in single-family residential housing starts and the escalation in wood-based commodity pricing.

Our net sales and gross margin increased, largely driven by the significant increase in wood-based pricing.

For fiscal 2020, net sales increased $460.1 million compared to fiscal 2019 and net income improved $98.5 million as we moved from a net loss for fiscal 2019 to net income for fiscal 2020.

The extent of the impact of the pandemic on our business for fiscal 2021 will depend on future developments, including, among others, the duration of the pandemic, the success of actions taken by governmental authorities to contain the pandemic and address its impact, the success of local return to work and business reopening plans, and the impact the COVID-19 pandemic has on the supply chain, pricing, and demand in the markets we service.

Our cost structure and liquidity have and will remain areas of acute focus for us as the pandemic continues.

While the pandemic impacted many aspects of our business and operations during fiscal 2021, that impact was offset by the recovery in single-family residential housing starts, supply and demand imbalances for the products we distribute, and the escalation in wood-based commodity pricing.

The extent of the impact of the pandemic on our business for fiscal 2021 will depend on future developments, including, among others, the duration of the pandemic, the success of actions taken by governmental authorities to contain the pandemic and address its impact, the success of local return to work and business continuity plans, stabilizing in the labor markets and the impact the COVID-19 pandemic has on the supply chain, pricing, and demand in the markets we service.

The trajectory of the pandemic continues to evolve rapidly, and we cannot predict the extent to which our financial condition, results of operation, or cash flows will ultimately be impacted.

We are closely monitoring the impact of the pandemic on industry conditions, the progress of local return to work and reopening plans, and any pandemic related restrictions that may have an impact on our business.

We are closely monitoring the impact of the pandemic on industry conditions, the labor markets, and any pandemic related restrictions that may have an impact on our business.

In an attempt to assist businesses during the COVID-19 pandemic, Congress enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act on March 27, 2020.

1 unchanged sentence

After review of the many provisions, we took advantage of several of the provisions, including the deferral of our defined benefit plan pension contribution, deferral of the payment of employer payroll taxes, and the increase in the percentage of allowable percentage of interest expense under Section 163(j) of the Internal Revenue Code (“IRC”).

During fiscal 2020, as a result of the CARES Act, we were able to recognize discrete tax benefits during the year of $4.8 million resulting from the release of the valuation allowance associated with nondeductible interest expense as the CARES Act increased the allowable percentage from 30 percent to 50 percent of adjusted taxable income.

We also elected to defer the payment of employer payroll taxes that would normally be paid during fiscal 2020.

During fiscal 2020, as a result of the CARES Act, we elected to defer the payment of employer payroll taxes that would normally be paid during fiscal 2020.

The total amount of our payroll tax deferral under the CARES Act was approximately $7.3 million.

These taxes are required to be paid in two tranches, with 50 percent due by the end of 2021 and 50 percent due by the end of 2022.

We expect to make payments of $3.2 million by December 2021 and the remaining $3.1 million by December 2022.

Finally, we elected to defer defined benefit plan pension contributions totaling $0.6 million required during fiscal 2020 until December 31, 2020.

We were required to pay

interest on the contributions in accordance with the provision included in the CARES Act.

We made the contributions, including interest, of $0.6 million, on December 15, 2020.

We made payments of approximately $3.2 million in December 2021 and will make payments for the remaining $3.1 million by December 2022.

Results of Operations

Fiscal 2021 Compared to Fiscal 2020

The following table sets forth our results of operations for fiscal 2020 and fiscal 2019, which were comprised of 53 and 52 weeks, respectively.

The following table sets forth our results of operations for fiscal 2021 and fiscal 2020, which were comprised of 52 weeks and 53 weeks, respectively.

Fiscal 2021 % of

11 unchanged sentences

Other (income) expense, net (1,306) 0.0% (254) 0.0%

Income (loss) before provision for (benefit from) income taxes 95,081 3.1% (21,608) (0.8)%

Provision for (benefit from) income taxes 14,199 0.5% (3,952) (0.1)%

Net income (loss) $ 80,882 2.6% $ (17,656) (0.7)%

Income before provision for income taxes 393,876 9.2% 95,081 3.1%

Provision for income taxes 97,743 2.3% 14,199 0.5%

Net income $ 296,133 6.9% $ 80,882 2.6%

The following table sets forth changes in net sales by product category.

Prior year amounts have been reclassified to conform to the current year mix of structural and specialty products.

Fiscal 2021 Fiscal 2020

1 unchanged sentence

Net sales by category

Structural products $ 1,232,203 39.8 % $ 861,687 32.7 %

Specialty products $ 2,520,305 58.9 % $ 1,865,125 60.2 %

Structural products 1,756,873 41.1 % 1,232,203 39.8 %

Total net sales $ 4,277,178 100.0 % $ 3,097,328 100.0 %

The following table sets forth gross margin dollars and percentages by product category versus comparable prior periods.

Prior year amounts have been reclassified to conform to the current year product mix of structural and specialty products.

Fiscal 2021 Fiscal 2020

1 unchanged sentence

Gross profit $ by category:

Structural products $ 158,157 $ 74,957

Specialty products $ 561,520 $ 319,577

Structural products 216,907 158,157

Total gross profit $ 778,427 $ 477,734

Gross margin % by category

Structural products 12.8 % 8.7 %

Specialty products 22.3 % 17.1 %

Structural products 12.3 % 12.8 %

Total gross margin % 18.2 % 15.4 %

Discussion of Results of Operations

Net sales of $3.1 billion in fiscal 2020 increased by 17.4 percent, or $0.5 billion, from fiscal 2019.

The sales increase was primarily a result of wood-based commodity price inflation, partially offset by a slight decline in sales volume attributable to supply outages in structural products occurring during the second half of fiscal 2020.

The COVID-19 pandemic created unprecedented market conditions on the supply and demand of our products.

As the severity of the COVID-19 pandemic initially became apparent, manufacturers ran fewer shifts out of an abundance of caution creating supply bottlenecks.

In addition, productivity was negatively impacted by COVID-19 employee illnesses from our supply partners.

At the same time, after an initial decline in single family housing starts and repair and remodeling activities, the housing market became more robust during fiscal year 2020 and the growth rate for single family housing starts was 11.5 percent, while housing repair and remodeling activity was estimated to have grown by 3.5 percent.

The impact of the reduced supply coupled with increasing demand led to a historically high increase in wood-based commodity prices after the pandemic began.

Full year structural product net sales, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, were $1.2 billion and the impact of the record wood-based commodity price inflation occurring in the second half of the year is estimated to have increased net sales by approximately $210 million to $230 million.

Gross profit.

Total gross profit for fiscal 2020 was $477.7 million, compared to $356.9 million in fiscal 2019.

Gross margin increased to 15.4 percent in fiscal 2020, compared to 13.5 percent in fiscal 2019.

Gross margin percentage increased primarily due to wood-based commodity price inflation in our structural product category as we were selling lower costed inventory during a period of rapidly increasing commodity prices.

This was largely a result of the extension of lead times during the increase in the second half of the year and tightened supply due to the pandemic, paired with strong demand.

Specialty products margins benefited from mix shifts to higher margin categories, paired with pricing strategies focused in key products categories such as engineered wood and millwork products.

Selling, general, and administrative expenses.

Selling, general, and administrative (“SG&A”) expenses for fiscal 2020 were $314.2 million, compared to $291.5 million, for fiscal 2019.

The increase was primarily due to higher variable incentive compensation of approximately $13.1 million, higher sales commissions of approximately $10.0 million, and increased operational expenses related to higher than anticipated sales volume.

Our cost reduction actions taken in the second quarter, focused primarily on labor, realized approximately $10.5 million of savings for the Company, annualized to $13.9 million.

These savings were offset by additional payroll and other operating expenses attributable to the additional fiscal week in fiscal 2020.

Depreciation and amortization expense.

Depreciation and amortization expense for fiscal 2020 was $28.9 million, compared to $30.2 million, for fiscal 2019, a decrease of $1.3 million.

This decrease was primarily due to certain assets becoming fully depreciated during 2020.

Gains from sales of property.

Total gains from sales of property in fiscal 2020 were $10.5 million compared to $13.1 million in fiscal 2019, a decrease of 19.5 percent.

In fiscal 2020, the majority of our real estate transactions were sale leaseback transactions where we were not allowed to recognize a gain under U.S.

GAAP, with the exception of the sale leaseback of our Denver facility.

In fiscal 2019, the majority of our real estate transactions were largely typical sale transactions where we were allowed to recognize a gain under U.S.

Other operating expenses.

Other operating expenses were $6.9 million in fiscal 2020 compared to $17.0 million in fiscal 2019, a decrease of 59.5 percent.

The decrease is primarily due to a decrease in spending related to the integration of the Cedar Creek acquisition, partially offset by severance expense incurred in relation to headcount reductions that occurred throughout the period.

Interest expense, net.

Interest expense for fiscal 2020 was $47.4 million, compared to $54.2 million for fiscal 2019.

The decrease of $6.8 million was largely attributable to a decrease in the bank debt balance of $141.8 million, comprised of decreases in our Term Loan Facility of $103.5 million and Revolving Credit Facility of $38.3 million, respectively, as well as a reduction in the variable LIBOR rate that is a component of the interest rate on our bank debt instruments.

Other expense (income), net.

Other expense (income), net was $(0.3) million in fiscal 2020 compared to $2.5 million in fiscal 2019, a decrease of $2.8 million.

The decrease was due to expenses related to the lump sum payout offer made in fiscal 2019 to certain eligible retirees in the BlueLinx Hourly Retirement plan instead of receiving their typical payment streams.

Provision for (benefit from) income taxes.

Our effective tax rate was 14.9 percent and 18.3 percent for fiscal 2020 and fiscal 2019, respectively.

Primary drivers of the decline in our effective tax rate in fiscal 2020 versus fiscal 2019 included the

release of valuation allowances associated with state net operating losses and our previously nondeductible interest expense, both of which we believe we will be able to realize based on our positive taxable income for fiscal 2020.

Our effective tax rate for fiscal 2020 was impacted by the effect of the release of our valuation allowance for disallowed interest expense stemming from federal tax reforms, and the CARES Act , the partial release of our valuation allowance for state net operating losses that we anticipate being able to utilize, the tax benefit related to the lapse of statutes of limitations from uncertain tax positions (FIN 48), changes in the state effective tax rate used to value deferred tax assets, and the permanent addback of certain nondeductible expenses including executive compensation and nondeductible meals and entertainment.

Our effective tax rate for fiscal 2019 was impacted by the effect of the valuation allowance for disallowed interest expense stemming from federal tax reforms and certain state net operating losses, the tax benefit related to the lapse of statutes of limitations from uncertain tax positions (FIN 48), changes in the state effective tax rate used to value deferred tax assets, and the permanent addback of certain nondeductible expenses including executive compensation and nondeductible meals and entertainment.

Our effective tax rate moving forward will continue to be subject to fluctuations in quarters throughout the year because of various factors.

These factors include the impact of permanent items combined with the timing of discrete items such as equity compensation windfalls and/or shortfalls, which occur as our equity compensation grants become vested throughout the year, any potential releases of our valuation allowance against net operating loss carryforwards, and the annual impact of the expiration of the statute of limitations associated with our uncertain tax positions (FIN 48).

The magnitude of the impact to our effective tax rate in any given quarter resulting from the vesting of our equity compensation grants can vary depending in our stock price at the time of vesting.

The impact to our effective rate tax rate resulting from the expiration of the statute of limitations associated with our uncertain tax positions (FIN 48) occurred in the fourth quarter of both fiscal 2020 and 2019, the timing of which we expect to continue into future periods.

Net sales of $4.3 billion in fiscal 2021, an increase of 38.1 percent, or $1.2 billion, from fiscal 2020.

When normalized for the additional week in our fiscal year 2020, our fiscal year 2021 sales increased 40.7 percent.

This increase was driven by robust demand for home building products amid broad-based supply constraints across the U.S.

home building products industry, significant year-over-year inflation in the average price of wood-based commodity products, and disciplined pricing strategies.

Total volume decreased modestly year-over-year reflecting the impact of supply constraints offset by strategic actions we implemented to emphasize growth in higher value specialty product categories.

Our fiscal 2021 results also reflect a more disciplined approach to structural inventory purchases in order to manage risk associated with fluctuations in wood-based commodity prices.

This approach resulted in less on-hand market-sensitive inventory for our structural products category which impacted the volume of structural products we had available to sell throughout the year.

Net sales of specialty products, which includes engineered wood, industrial products, cedar, moulding, siding, metal products and insulation, increased $655.2 million to $2.5 billion in fiscal year 2021.

This increase was primarily driven by favorable

demand and strategic pricing actions.

Gross profit within our specialty products, increased $241.9 million to $561.5 million, with a year-over-year improvement of approximately 75.7 percent.

The increase in our specialty products gross margin percentages during fiscal 2021 was the result of substantial increases in pricing, driven by an increased demand paired with the supply constrained environment, although overall volume was down compared to fiscal year 2020.

Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, increased $524.7 million to $1.8 billion during fiscal 2021 due to commodity wood products price inflation.

Structural sales volumes declined overall versus the prior-year period given our reduction in purchases in response to historic fluctuations in the wood-based commodity markets.

Our structural gross margin percentage for fiscal 2021 was 12.3%, slightly down from 12.8% in the prior year period.

Fiscal 2021, selling, general, and administrative expenses increased 2.5 percent, or $8.0 million, compared to fiscal 2020.

The increase in sales, general, and administrative expenses is due to net increases in our variable compensation, such as sales commissions and incentives of approximately $5.9 million, general and administration cost of approximately $4.5 million.

These increases were partially offset by a decrease in payroll and related cost of approximately $1.4 million and logistics decrease of approximately $1.0 million.

When normalized for the additional operating week in fiscal 2020, our fiscal 2021 selling, general and administrative expenses increased $13.9 million.

Depreciation and amortization expense decreased 2.5 percent, or $0.7 million, compared to 2020.

The decrease in depreciation and amortization expense is due to a lower base of amortizable and depreciable assets throughout fiscal 2021 when compared to the prior year period.

During the fourth quarter of fiscal 2020, we completed the sale leaseback of one of our Denver facilities which resulted in a gain from the sale of property of $10.5 million during the fourth quarter.

During fiscal year 2021, we completed the sale of two non-operational properties resulting in a gain of $8.4 million.

Our Birmingham property, which we sold in the first quarter of fiscal year 2021, resulted in a gain of $1.3 million, and our Houston property, which we sold in the fourth quarter, resulted in a gain from the sale of $7.1 million.

Other operating expenses decreased 66.5 percent, or $4.6 million, compared to fiscal 2020 primarily due to a decrease in spending related to integration and restructuring related costs reported during fiscal 2021.

Our interest expense, net, for fiscal 2021, decreased by 4.0 percent, or $1.9 million, compared to the prior year period.

The decrease is primarily due to the repayment in full of our former term loan facility at the end of the first quarter of fiscal 2021, under which borrowings bore a higher interest rate than under either our revolving credit facility or our senior secured notes.

Interest savings were further driven by lower interest costs resulting from the renegotiation of our revolving credit facility in the third quarter of fiscal 2021.

This was offset by the $7.4 million in debt issuance costs expensed during the first and third quarters of fiscal 2021 related to the extinguishment of our former term loan facility and credit limit reduction of our revolving credit facility.

Our effective tax rate was 24.8 percent and 14.9 percent for fiscal 2021 and 2020, respectively.

Our effective tax rate for both periods was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of our partial release of our valuation allowance for separate company state income tax losses.

Our effective tax rate for fiscal 2020 was additionally impacted by a tax benefit resulting from the effect of the partial release of our valuation allowance for previously nondeductible interest resulting from changes allowed under Section 163(j) of the Internal Revenue Code (“IRC”) as a result of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act that was enacted on March 27, 2020 which raised the allowable percentage of deductible interest from 30 percent to 50 percent of adjusted taxable income.

Our net income for fiscal 2021 increased $215.3 million from the prior year period primarily due to the increase in gross profit resulting from substantial price increases benefiting our specialty products combined with benefits from commodity price inflation when compared to prior year.

Increases in gross profit were further supported by gains from the sales of non-operational property, our former Birmingham and Houston properties, during the fiscal year 2021 offset by an increase in our selling, general and administrative expense resulting primarily from higher commissions arising from our higher gross profit during the year.

Additionally, net income benefited from slightly lower interest expense offset by higher income tax expense resulting from our higher effective tax rate.

Liquidity and Capital Resources

We expect our primary sources of liquidity to be cash flows from sales in the normal course of our operations and availability from our Revolving Credit Facility.

We expect our material cash requirements for the next twelve months will be for our:

• Periodic estimated income tax payments, as required;

• Periodic interest payments associated with our senior secured notes, as discussed in Note 6;

• Lease agreements which have fixed lease payment obligations, as discussed in Note 11.

We expect our primary sources of liquidity to be cash flows from sales and operating activities in the normal course of our operations and availability from our revolving credit facility, as needed.

We expect that these sources will be sufficient to fund our ongoing cash requirements for the foreseeable future, including at least the next twelve months.

2 unchanged sentences

Fiscal 2021 cash flows provided by operating activities totaled $145.0 million.

This cash activity was primarily driven by net income of $80.9 million, which included a non-cash gain on sale of property of $10.5 million and changes in working capital components.

The changes in working capital components included an increase in cash due to a decrease in inventory of $3.7 million and an increase in accounts payable of $32.8 million and a decrease in cash due to an increase in accounts receivable of $100.8 million.

This cash activity was primarily driven by net income of $296.1 million, which included a non-cash charge for debt-issuance costs expensed during the period for our extinguished term loan facility and reduced revolving credit facility of $7.4 million in addition to a non-cash adjustment for our gains on sales of property of $8.4 million combined with changes in our working capital components.

The changes in working capital components resulted in a decrease in cash due to an increase in accounts receivables of $46.0 million and an increase inventory of $146.4 million offset by an increase in cash due to an increase in accounts payable of $14.8 million.

Fiscal 2020 cash flows used in operating activities totaled $55.0 million.

This cash activity was primarily driven by a net loss of $17.7 million, which included a non-cash gain on sale of property of $13.1 million and changes in working capital components.

The changes in working capital components included an increase in cash due to a decrease in accounts receivable of $15.6 million and a decrease in cash due to an increase in inventory of $4.0 million and a decrease in accounts payable of $16.8 million.

This cash activity was primarily driven by net income of $80.9 million, which included a non-cash adjustment for our gains on sale of properties of $10.5 million and changes in working capital components.

The changes in working capital components included a decrease in cash due to an increase in accounts receivable of $100.8 million offset by an increase in cash due to a decrease in inventory of $3.7 million and an increase in accounts payable of $32.8 million.

Investing Activities

During fiscal 2021, our net cash used by investing activities was $4.1 million, which was substantially driven by cash received from the sale of real estate of $10.3 million, offset by cash paid for investments in property and equipment of $14.4 million.

In 2021, $9.0 million in cash was invested in the fourth quarter and of that $9.0 million, approximately $6.4 million was for new curtain side trailers for our delivery fleet.

During fiscal 2020, our net cash provided by investing activities was $9.2 million, which was substantially driven by cash received from the sale of real estate of $12.8 million, offset by cash paid for investments in equipment of $3.7 million.

During fiscal 2019, our net cash provided by investing activities was $21.1 million, which was substantially driven by cash received from the sale of real estate of $19.9 million, in addition to $6.0 million of cash returned from escrow related to the acquisition of Cedar Creek, offset by cash paid for investments in equipment of $4.8 million.

Financing Activities

Net cash used in financing activities was $75.7 million during fiscal 2020, which primarily reflected repayments on our term loan of $103.5 million and net repayments on our Revolving Credit Facility of $38.3 million, in addition to payments on

finance leases of $8.7 million and debt financing costs of $3.4 million, all of which were partially offset by proceeds from real estate financing transactions of $78.3 million.

Net cash used in financing activities was $55.8 million during fiscal 2021, which primarily reflected the repayments of the remaining $43.2 million balance on our term loan and net repayments on our revolving credit facility of $286.6 million, in addition to payments on finance leases of $11.2 million, debt financing costs of $5.5 million and repurchase of shares to satisfy employee tax withholdings on the vesting of restricted stock units of $5.2 million, all of which were offset by proceeds from the sale of our senior secured notes, net of discount, of $295.9 million.

Net cash used in financing activities was $75.7 million during fiscal 2020, which primarily reflected repayments on our term loan of $103.5 million and net repayments on our revolving credit facility of $38.3 million, in addition to payments on our finance leases of $8.7 million and debt financing costs of $3.4 million, all of which were partially offset by proceeds from real estate financing transactions of $78.3 million.

4 unchanged sentences

Selected financial information

January 2, 2021 December 28, 2019

January 1, 2022 January 2, 2021

(In thousands)

Current assets:

Cash $ 82 $ 11,643

Receivables, less allowance for doubtful accounts 293,643 192,872

Cash and cash equivalents $ 85,203 $ 82

Accounts receivable, less allowance for doubtful accounts 339,637 293,643

Inventories, net 488,458 342,108

4 unchanged sentences

Operating working capital $ 733,298 $ 470,670

Operating working capital increased to $470.7 million as of January 2, 2021, from $418.0 million as of December 28, 2019.

The increase in operating working capital is primarily due to an increase in accounts receivable of $100.8 million, offset by a decrease in cash of $11.6 million and an increase in accounts payable of $32.8 million.

The increases in accounts receivable and accounts payable are due primarily to wood-based commodity price inflation, which impacted sales dollars and the cost of inventory as reflected in accounts receivable and accounts payable balances.

Operating working capital increased to $733.3 million as of January 1, 2022, from $470.7 million as of January 2, 2021.

The increase in operating working capital is primarily due to an increase in cash of $85.1 million, accounts receivable of $46.0 million, and inventory of $146.4 million, offset by an increase in accounts payable of $14.8 million.

The increases in cash resulted from primarily from the issuance of our senior secured notes in October 2021.

Accounts receivable increases were attributable to our higher sales.

Inventory and accounts payable increases were driven largely by increases in the cost of our inventory in addition to year-end inventory build-up activities in preparation for 2022.

Debt and Credit Sources

As of January 2, 2021 and December 28, 2019, long-term debt consisted of the following:

January 2, 2021 December 28, 2019

As of January 1, 2022, and January 2, 2021, long-term debt consisted of the following:

January 1, 2022

January 2, 2021

(In thousands)

Senior secured notes (1)

$ 300,000 $ —

Revolving credit facility (2)

2 unchanged sentences

274,717 273,118

574,717 604,569

Unamortized debt issuance costs (4,701) (9,010)

Unamortized bond discount costs (4,028) —

565,988 595,559

1 unchanged sentence

Long-term debt, net of current maturities $ 558,124 $ 588,713

Revolving Credit Facility

In April 2018 we amended and restated our Revolving Credit Facility, which is secured by substantially all of our assets, to provide for a senior secured revolving loan and letter of credit facility of up to $600 million and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $150 million.

If we obtain the full amount of the additional increases in commitments, the Revolving Credit Facility will allow borrowings of up to $750 million.

Borrowings under the Revolving Credit Facility are subject to availability under the “Borrowing Base” (as that term is defined in the Revolving Credit Facility).

The Borrowing Base is calculated based upon our outstanding accounts receivable, subject to certain adjustments.

Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit Facility, which would reduce the amount of the revolving loans available under the facility.

The Revolving Credit Agreement provides for interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.75 percent to 2.25 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the administrative agent’s base rate plus a margin ranging from 0.75 percent to 1.25 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.

If excess availability under the Revolving Credit Facility falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time, we will be required to maintain a fixed charge coverage ratio of 1.0 to 1.0 until excess availability has been at least the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time for a period of 30 consecutive days.

In January 2020, we amended the Revolving Credit Facility to (i) modify the “Seasonal Period” to run from November 15, 2019, through July 15, 2020, for the calendar year 2019, and to run from December 15 of each calendar year through April 15 of each immediately succeeding calendar year for the calendar year 2020 and thereafter, and (ii) extend the measurement period in the definition of “Cash Dominion Event” from three consecutive business days to five consecutive business days.

The amendment better aligns advance rates under the facility with the seasonality associated with our business.

As of January 2, 2021, we had outstanding borrowings of $288.2 million and excess availability of $184.3 million under our Revolving Credit Facility.

As of December 28, 2019, we had outstanding borrowings of $326.5 million and excess availability of $80.0 million under our Revolving Credit Facility.

Our average effective interest rate under the facility was approximately 3.3 percent and 4.8 percent for the years ended January 2, 2021 and December 28, 2019, respectively.

We were in compliance with all covenants under the Revolving Credit Facility as of January 2, 2021.

(1) For the twelve months ended January 1, 2022, our long-term debt was comprised of $300 million of senior secured notes issued in October 2021.

These notes are presented under the long-term debt caption of our balance sheet at $291.3 million which is net of their discount of $4.0 million and the combined carrying value of our debt issuance costs of $4.7 million.

Our senior secured notes are presented in this table at their face value .

(2) The average effective interest rate was 2.5 percent and 3.3 percent for the years ended January 1, 2022 and January 2, 2021, respectively.

(3) The average interest rate, exclusive of fees and prepayment penalties, was 8.0 percent and 8.2 percent for the years ended January 1, 2022 and January 2, 2021, respectively.

(4) Refer to Note 11, Lease Commitments, for interest rates associated with finance lease obligations.

Term Loan Facility

In April 2018, we entered into a Credit and Guaranty Agreement with HPS Investment Partners, LLC, and other financial institutions as party thereto.

The agreement provides for a Term Loan Facility of $180.0 million secured by substantially all of our assets.

Borrowings under the Term Loan Facility may be made as Base Rate Loans or Eurodollar Rate Loans.

The Base Rate Loans will bear interest at the rate per annum equal to (i) the greatest of the (a) U.S.

prime lending rate published in The Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum;

and (ii) plus the Applicable Margin, as described below.

Eurodollar Rate Loans will bear interest at the rate per annum equal to (i) the ICE Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent per annum;

plus (ii) the Applicable Margin.

The Applicable Margin will be 6.00 percent with respect to Base Rate Loans and 7.00 percent with respect to Eurodollar Rate Loans.

In October 2019, we amended the Term Loan Facility to, among other things, permit real estate sale leaseback transactions.

During fiscal 2020, in December 2019, we amended the Term Loan Facility to extend the period for satisfying the designated outstanding principal balance level, and the principal balance level was satisfied on January 31, 2020, through repayments from real estate financing transactions.

On February 28, 2020, we further amended our Term Loan Facility to provide that we will not be subject to the facility’s quarterly “Total Net Leverage Ratio” covenant from and after the time, and then for so long as, the principal balance outstanding under the facility is less than $45 million.

During the fourth quarter of 2020, we reduced the principal balance outstanding under the Term Loan Facility below $45 million and were no longer subject to this covenant.

We do not anticipate future borrowings under the Term Loan Facility and expect to not be subject to the Total Net Leverage ratio covenant in the future.

The Term Loan Facility permits us to enter into real estate sale leaseback transactions with the net proceeds therefrom to be used for repayment of indebtedness under the facility, subject to payment of an applicable prepayment premium.

proceeds from the sale of “Specified Properties” will be used for the repayment of indebtedness under the Term Loan Facility, subject to payment of an applicable prepayment premium, or, under certain circumstances, repayment of indebtedness under our Revolving Credit Facility.

Prepayment premiums associated with the repayment of indebtedness were $3.0 million and $0.5 million for fiscal 2020 and 2019, respectively.

We had outstanding borrowings of $43.2 million and $146.7 million under our Term Loan Facility as of January 2, 2021 and December 28, 2019, respectively.

Our average interest rate under the facility, exclusive of fees and prepayment premiums, was approximately 8.2 percent and 9.3 percent for the years ended January 2, 2021 and December 28, 2019, respectively.

We were in compliance with all covenants under the Term Loan Facility as of January 2, 2021.

As of January 2, 2021, we had outstanding borrowings of $43.2 million under our senior secured term loan facility.

On April 2, 2021, we repaid the remaining outstanding principal balance under the facility and the facility was terminated.

As a result, as of January 1, 2022, we had no outstanding borrowings under the term loan facility.

In connection with our repayment of the facility, we expensed $5.8 million of debt issuance costs during the first quarter of fiscal 2021 that we had been amortizing in connection with the facility.

Amendment of our Revolving Credit Facility

As of January 1, 2022, we had zero outstanding borrowings on our revolving credit facility.

Senior Secured Notes Transaction

During the fourth quarter of 2021, we completed a private offering of $300 million of our six percent senior secured notes due 2029 (the “2029 Notes”).

The 2029 Notes were issued to investors at 98.625 percent of their principal amount and will mature on November 15, 2029.

The majority of net proceeds from the offering of the 2029 Notes were used to repay borrowings under our revolving credit facility.

In conjunction with this offering, we also amended the revolving credit facility to reduce the credit limit from $600 million to $350 million.

In conjunction with the reduction of the credit limit of our revolving credit facility, we expensed approximately $1.6 million of debt issuance costs during the fourth quarter of 2021.

Finance Lease Commitments

Our finance lease liabilities consist of leases related to equipment and vehicles, and to real estate, with the majority of those finance lease commitments relating to the real estate financing transactions that we have completed in recent years.

During fiscal 2017 and 2018, we completed real estate financing transactions on six warehouse facilities, during fiscal 2019, we completed real estate financing transactions on two warehouse facilities;

During fiscal 2020, we completed real estate financing transactions on two warehouse facilities;

and during fiscal 2021, we completed real estate financing transactions on fourteen warehouse facilities.

We recognized financing lease assets and obligations as a result of each of these transactions.

Our total finance lease commitments, including the properties associated with these transactions, totaled $273.1 million and $198.0 million as of January 2, 2021 and December 28, 2019, respectively.

We recognized financing lease assets and obligations as a result of each of these real estate transactions.

We also entered into new finance lease agreements for new tractors for our fleet totaling $3.8 million and $10.5 million during fiscal 2020 and 2021, respectively.

Our total finance lease commitments, including the properties associated with these transactions, totaled $274.7 million and $273.1 million as of January 1, 2022 and January 2, 2021, respectively.

Of the $274.7 million of finance lease commitments as of January 1, 2022, $244.0 million related to real estate and $30.7 million related to equipment.

Of the $198.0 million of finance lease commitments as of December 28, 2019, $165.5 million related to real estate and $32.5 million related to equipment.

Investments in Capital Assets

Our investments in capital assets consist of cash paid for owned assets and the inception of financing lease arrangements for long-lived assets to support our distribution infrastructure.

Of the $273.1 million of finance lease commitments as of January 2, 2021, $243.7 million related to real estate and $29.4 million related to equipment.

Investments in Property and Equipment

Our investments in property and equipment consist of cash paid for owned assets and the inception of financing lease arrangements for long-lived assets to support our distribution infrastructure.

The gross value of these assets are included in their respective category in the “Property and equipment, at cost” section on our consolidated balance sheet.

2 unchanged sentences

Pension Funding Obligations

We were required to make cash contributions of during 2020 and 2021 totaling approximately $0.9 million, relating to our fiscal 2020 funding year pension contributions.

We were required to make cash contributions during 2021 and 2020 totaling approximately $0.3 million and $0.8 million, respectively, relating to our fiscal 2021 and also fiscal 2020 funding year pension contributions.

We continue to evaluate pension funding obligations and requirements in order to meet our obligations while maintaining flexibility for working capital requirements.

1 unchanged sentence

Interest Rates

Our Revolving Credit Facility and our Term Loan Facility include available interest rate options based on LIBOR.

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

Our revolving credit facility includes available interest rate options based on LIBOR.

It is widely expected that LIBOR will be discontinued after June 30, 2023, and the U.S.

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

2 unchanged sentences

Off-Balance Sheet Arrangements

As of January 2, 2021, we did not have any material off-balance sheet arrangements.

As of January 1, 2022, we did not have any off-balance sheet arrangements.

Critical Accounting Policies

1 unchanged sentence

We believe that our most critical accounting policies and estimates relate to:

(1) pension benefit obligation;

(2) revenue recognition;

2 unchanged sentences

Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties.

All of these estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their potential

effects based on information available as of the date of these financial statements.

All of these estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their potential effects based on information available as of the date of these financial statements.

If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in our recording additional pension liabilities, or increased tax liabilities, among other effects.

2 unchanged sentences

For a discussion of the Company’s significant accounting policies, see Note 1, Summary of Significant Accounting Policies , in the Notes to Consolidated Financial Statements.

Pension Benefit Obligation

As discussed in Note 8 of the consolidated financial statements, our pension benefit obligation was $105.9 million and exceeded the fair value of pension plan assets of $94.3 million, resulting in an unfunded obligation of $11.6 million.

The estimation of the pension benefit obligation is dependent on actuarial methods and the selection of assumptions, such as the applicable discount rate and mortality rates.

These assumptions have a significant effect on the projected benefit obligation.

Revenue Recognition

7 unchanged sentences

Title usually transfers upon shipment to, or receipt at, our customers’ locations, as determined by the specific sales terms of each transaction.

Our customers can earn certain incentives including, but not limited to, cash discounts and rebates.

Our customers

can earn certain incentives including, but not limited to, cash discounts and rebates.

These incentives are deducted from revenue recognized.

26 unchanged sentences

On March 27, 2020, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which contained a tax provision that increased the allowable deductible percentage of interest expense from 30 percent to 50

This resulted in the company being able to immediately recognize a $3.9 million benefit in the first quarter of 2020.

As a result of our income in 2020, we were able to release the remaining valuation allowance at year end.

During fiscal year 2021, we had no impact to our income tax provision resulting from the CARES Act.

Tax law requires items to be included in the tax return at different times than when these items are reflected in the consolidated financial statements.

4 unchanged sentences

The tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effect for the year and manner in which the differences are expected to reverse.

Based on the evaluation of all available information, we recognize future tax benefits, such as net operating loss carryforwards, to the extent that realizing these benefits is considered more likely than not.

We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using both historical and projected future operating results, the reversal of existing taxable temporary differences, taxable income in prior carryback years (if permitted), and the availability of tax planning strategies.

Based on the evaluation of available information, we recognize future tax benefits, such as net operating loss carryforwards, to the extent that realizing these benefits is considered more likely than not.

income in prior carryback years (if permitted), and the availability of tax planning strategies.

A valuation allowance is required to be established unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset.

As of January 2, 2021, positive evidence continued to outweigh negative evidence, so no valuation allowance was deemed necessary except to the extent of certain state NOLs.

The valuation allowances related to our NOLs approximate $7.3 million.

As of January 1, 2022, positive evidence continued to outweigh negative evidence, as such no valuation allowance was deemed necessary except to the extent of certain state net operating losses.

The valuation allowances related to our net operating losses as of January 1, 2022 was approximately $4.3 million.

See Note 5, Income Taxes , in the Notes to Consolidated Financial Statements.

4 unchanged sentences

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 7. Management’s Discussion and Analysis