What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-21 compared with 2022-02-22 · 265 added, 209 removed, 177 unchanged (73% of the section changed)

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Our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under “Risk Factors,” “Cautionary Statement Concerning Forward-Looking Statements,” and elsewhere in this Form 10-K.

This section of this Form 10-K does not address certain items regarding the fiscal year ended December 28, 2019 (“fiscal 2019”).

This section of this Form 10-K does not address certain items regarding the fiscal year ended January 2, 2021 (“fiscal 2020”).

Discussion and analysis of fiscal 2020 and year-to-year comparisons between fiscal 2021 and fiscal 2020 not included in this Form 10-K can be found in “Item 7.

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specialty products and structural products.

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

Specialty products include items such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products.

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

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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.

We have a strong market position and a broad geographic coverage footprint servicing all 50 states, where we maintain locations that serve 75 percent of the highest growth metropolitan statistical areas as it relates to forecasted housing starts and repair and remodel spend.

With the strength of a locally focused sales force, we distribute a comprehensive range of products from over 750 suppliers.

Our suppliers include some of the leading manufacturers in the industry, such as Allura, Arauco, Fiberon, Georgia-Pacific, Huber Engineered Woods, James Hardie, Louisiana-Pacific, Oldcastle APG, Ply Gem, Roseburg, Royal and Weyerhaeuser.

We supply products to a broad base of customers including national home centers, pro dealers, cooperatives, specialty distributors, regional and local dealers and industrial manufacturers.

Many of our customers serve residential and commercial builders, contractors and remodelers 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.

Similarly, we provide value to our supplier partners by enabling access to the large and fragmented network of lumber yards and dealers these 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 a 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 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.

On August 23, 2021, our Board of Directors approved a stock repurchase program pursuant to which authorized us to repurchase up to $25.0 million of our common stock.

During the first quarter of fiscal 2022, we repurchased 81,331 shares of our common stock under this program at an average price of $79.03 per share.

On May 3, 2022, our Board of Directors

increased our share repurchase authorization to $100.0 million and we entered into an Accelerated Share Repurchase Agreement (“ASR Agreement”) with Jefferies LLC to repurchase $60.0 million of our common stock.

Under the ASR Agreement, we received initial delivery of 553,584 shares of common stock on May 3, 2022 representing approximately 65 percent of the total number of shares of common stock initially underlying the ASR Agreement, based on our closing stock price of $70.45 on May 2, 2022.

Final settlement of the shares of common stock repurchased under the ASR Agreement occurred on September 15, 2022 based on the average of the daily volume-weighted average price of our common stock during the repurchase period under the ASR Agreement, less a discount and other adjustments pursuant to the terms and conditions of the ASR Agreement.

At settlement, we received an additional 247,431 shares of common stock.

Under our ASR Agreement, we repurchased a total of 801,015 shares of our common stock at an average price of $74.90 per share.

As of December 31, 2022, we have repurchased a total of 882,346 shares for $66.4 million under our $100.0 million share repurchase program, including 801,015 shares purchased through the ASR Agreement, at an average price of $75.28 per share and we have a remaining authorization amount of $33.6 million.

Acquisition of Vandermeer

On October 3, 2022, we announced that we entered into and closed on a Stock Purchase Agreement (the “Purchase Agreement”) with Vandermeer Forest Products, Inc.

(“Vandermeer”), resulting in our acquisition of Vandermeer.

Vandermeer is a premier wholesale distributor of building products.

Vandermeer was founded in 1972 and serves more than 250 customers across the Pacific Northwest, Alaska, Hawaii, British Columbia and Alberta from distribution facilities in Kent, Spokane, and Marysville, Washington.

The acquisition of Vandermeer adds three distribution facilities in Washington state and provides direct access to Seattle and Portland, two of the top 15 highest growth repair and remodel and new construction markets in the United States.

Additionally, we now have coast-to-coast reach and serve all 50 states.

Vandermeer’s product offering and sales mix are similar to ours, with specialty products contributing to the majority of its revenue and gross profit.

We believe this acquisition aligns to our specialty products strategy, establishes a meaningful growth platform in the Pacific Northwest, increases our market penetration in key specialty product categories, such as siding and engineered wood, and strengthens strategic supplier relationships.

Under the Purchase Agreement, we acquired all of the outstanding capital stock of Vandermeer for an aggregate purchase price of approximately $63.4 million, on a debt-free, cash-free basis, subject to customary post-closing adjustments in respect of net working capital, cash, transaction expenses and indebtedness.

In addition, we acquired Vandermeer’s Spokane, Washington distribution facility and related real estate from the sole shareholder of Vandermeer for approximately $3.6 million, resulting in an aggregate purchase price of $67.0 million for the business and real property, which we funded with cash on hand.

For further information about this acquisition, see Note 2, Business Combination .

Purchase of Real Estate Properties Previously Contributed to the BlueLinx Defined Benefit Pension Plan

In October of 2022, we notified participants of the BlueLinx Corporation Hourly Retirement Plan (the “plan”) that, after careful consideration, we intended to terminate the plan and transfer the management and delivery of continuing benefits associated with the plan to a highly rated and qualified insurance company with pension termination experience.

The process for terminating a pension plan involves several regulatory steps and approvals, and typically takes 12 to 18 months to complete.

During fiscal 2013, and as previously disclosed, we contributed two properties to the plan in lieu of a cash contribution and entered into a lease for each of these properties.

As a component of our plan to terminate the plan, we repurchased these two real estate properties that were held by the plan for $11.1 million, which terminated the associated leases.

The repurchase in 2022 included certain land and buildings, located in Charleston, S.C.

and Buffalo, N.Y., valued at approximately $11.1 million by independent appraisals prior to the purchase.

At the time of repurchase, we were leasing the contributed properties from the plan for an initial term of 20 years with two five-year extension options and had continued to use the properties in our distribution operations since their contribution in fiscal 2013.

Each lease provided us a right of first refusal on any subsequent sale by the plan and a repurchase option.

At the time of our initial contribution of the properties, the plan engaged an independent fiduciary who managed the properties on behalf of the plan.

The plan’s independent fiduciary evaluated the property purchase on behalf of the plan and negotiated the terms of the sale.

The repurchase amount is included in pension contributions within the operating activities section of our consolidated statements of cash flow for the year ended December 31, 2022.

At the time of our initial contribution of the properties in fiscal 2013, we determined that the contribution of the properties did not meet the accounting definition of a plan asset within the scope of relevant accounting guidance.

Accordingly, the contributed properties were not considered a contribution for financial reporting purposes at that time and, as a result, have not been included in plan assets and have had no impact on the net pension liability recorded on our consolidated balance sheets prior to fiscal 2022.

We have continued to depreciate the carrying value of the properties in our financial statements, and no gain or loss was recognized at the initial contribution date for financial reporting purposes.

As of December 31, 2022, the cash

purchase price of the properties of $11.1 million is considered both a plan asset and a pension contribution and is reflected as such within our consolidated balance sheets and consolidated statements of cash flows.

This transaction is discussed in more detail in Note 11, Employee Benefits .

Factors That Affect Our Operating Results and Trends

Our results of operations and financial performance are influenced by a variety of factors, including:

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

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

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

(ii) the commoditized nature of the products we manufacture and distribute;

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

These factors have historically produced cyclicality in our results of operations, and we expect this cyclicality to continue in future periods .

General Economic Conditions Affecting Demand

Many of the factors that cause our operations to fluctuate are seasonal or cyclical in nature.

Historically, our operating results have also been correlated with the level of single-family residential housing starts in the U.S.

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.

Certain developments have led to a more challenging macro-economic environment, such as broad-based inflation, the rapid rise in mortgage rates, and home price appreciation.

These developments have impacted the U.S.

housing market, including the residential repair and remodel and residential new construction end markets, and have contributed to a recent slowdown in the U.S.

housing industry.

However, we believe that several factors, including the current high levels of home equity, the fundamental undersupply of housing in the U.S., repair and remodel activity, and demographic shifts, among others, will support demand for our products.

For additional information regarding the risk factors impacting our business, refer to Part I, Item 1A, Risk Factors.

Industry Conditions Affecting Demand

Residential Repair and Remodel

We estimate that demand from the residential Repair and Remodel market (“R&R”) accounts for approximately 45 percent of our annual sales.

Historically, R&R demand conditions have tended to be less cyclical when compared to the residential new construction market, particularly for exterior products that are exposed to the elements and where maintenance is less likely to be deferred for long periods of time.

We believe R&R demand is driven by a myriad of factors including, but not limited to:

home prices and affordability;

raw materials prices;

the pace of new household formation;

savings rates;

employment conditions;

and emerging trends, such as the increased popularity of home-based remote working environments.

With mortgage rates having risen to multi-year highs, we believe many homeowners who secured a lower interest mortgage will be inclined to stay longer in existing homes, which could benefit R&R demand over the near-to-medium term.

According to the Joint Center For Housing Studies’ LIRA Index, R&R demand is expected to return to more normalized levels, following two consecutive years (2020 and 2021) of elevated R&R activity fueled by pandemic-induced changes in housing and lifestyle decisions.

At the same time, the total market size of the U.S.

R&R market remains significant, with total U.S.

homeowner improvements and repairs spending expected to be approximately $485.0 billion by the end of 2023, up from $363.0 billion at the end of 2020.

Further, as the median age of U.S.

housing stock increases over time, we anticipate domestic R&R spending will also increase.

According to the U.S.

Census Bureau and Department of Housing and Urban Development, the median age of a home in the U.S.

increased from 23 years in 1985 to 39 years in 2019.

Moreover, approximately 80 percent of the current housing stock was built prior to 1999.

We believe the increasing average age of the nation’s approximate 142 million existing homes will continue to drive demand for repair and remodel projects.

Residential New Construction

We estimate that demand from the residential new construction market, including single-family and multi-family units, accounts for approximately 40 percent of our annual sales.

We believe demand for residential new construction is driven by a myriad of factors including, but not limited to:

mortgage rates, which recently reached multi-year highs;

lending standards;

home affordability;

employment conditions;

savings rates;

the rate of population growth and new household formation;

builder activity levels;

the level of existing home inventory on the market;

and consumer sentiment.

According to the U.S.

Census Bureau and the U.S.

Department of Housing and Urban Development, during the fourth quarter of fiscal 2022, single family housing starts in the United States were approximately 19 percent lower compared to the third quarter of fiscal 2022 and approximately 8 percent lower than that of the first quarter of fiscal 2020, prior to the COVID-19

pandemic, indicating a market slow down following two years of favorable market conditions.

As of the end of fiscal 2022, the month’s supply of inventory of new homes was nine months, above the 20-year average of six months.

For most of the last decade, housing production has lagged population growth and household formation.

We believe our scale, national footprint, strategic supplier relationships, key national customer relationships, and breadth of market leading products and brands position us to serve the residential new construction end market and navigate the changes in the macro-economic environment.

Commodity Nature of Our Products

Many of the building products we distribute, including OSB, plywood, and lumber, are commodities that are widely available from various suppliers with prices and volumes determined frequently in a market based on participants' perceptions and expectations of short-term supply and demand factors.

Many of the building products we distribute, including lumber, as well as panels, such as OSB and plywood, are commodities that are widely available from various suppliers with prices and volumes determined frequently in a market based on participants' perceptions and expectations of short-term supply and demand factors.

The selling price of our commodity products is based on the current market purchase price to replace those products in our inventory, plus adders for our shipping, handling, overhead costs, and our profit margin.

At certain times, the selling price for any one or more of the products we distribute, especially those of a commodity nature, may well exceed our purchase price because our prices are based on current replacement cost which, in a dynamic inflationary commodity market, may at times well exceed our purchase price.

At certain other times, the selling price for any one or more of the products we distribute, especially those of a commodity nature, may fall below our purchase costs for the same reasons, requiring us to incur short-term losses on specific sales transactions.

Therefore, our profitability with respect to these commodity products depends, in significant part, on commodity prices in addition to managing our cost structure, particularly shipping and handling costs, which represent significant components of our operating costs.

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 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.

At certain times, particularly in a dynamic inflationary commodity market, the selling price for any one or more of the products we distribute, especially those of a commodity nature, may well exceed our purchase price because our prices are based on current replacement cost.

At certain other times, the selling price may fall below our purchase price for the same reasons, requiring us to incur short-term losses on specific sales transactions and/or recognize a reserve for the lower of cost or net realizable value respective to our inventory of products of a commodity nature.

Therefore, our profitability depends, in significant part, on the impact of commodity prices along with inventory levels.

In addition to prices, it is also dependent on managing our cost structure, particularly shipping and handling costs, which represent significant components of our operating costs.

Composite lumber and panel prices have been historically volatile.

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

In addition to the year-over-year average monthly price changes, composite lumber and composite panel prices for the past three years were exceptionally volatile 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

2021 versus 2020 2020 versus 2019

2022 versus 2021 2021 versus 2020 2020 versus 2019

Increase (decrease) in composite lumber prices (10)% 50% 59%

Increase (decrease) in Western SPF lumber prices 57% 53%

Increase (decrease) in Southern pine lumber prices 43% 45%

Increase (decrease) in composite panel prices (18)% 85% 56%

Increase (decrease) in Western fir plywood prices 83% 22%

Increase (decrease) in Southern pine plywood prices 73% 29%

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.

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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.

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 into 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.

During 2022, prices remained at elevated levels through the end of the first quarter, then began to sharply decline over the course of the second quarter.

Prices rebounded slightly at the beginning of the third quarter and leveled off closer to the five-year average for the remainder of the year, ending the year below the five-year average.

There is significant 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

Many of the factors that cause our operations to fluctuate are seasonal or cyclical in nature.

Historically, our operating results have also been correlated with the level of single-family residential housing starts in the U.S.

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.

For additional information regarding the risk factors impacting our business, please refer to Part I, Item 1A, Risk Factors.

Cost and Availability of the Products We Distribute

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

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 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 .

The structural products we distribute are available from a variety of suppliers in both the U.S.

As a result of lagging effects of the COVID-19 pandemic, manufacturing output was impacted on the specialty side, and to a lesser extent, the structural side, of our business during the first half of fiscal 2022.

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 first half of 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, during the first half of 2022.

During the back half of fiscal 2022, we saw easing supply constraints, which resulted in increased availability and decreased market prices.

We expect supply for our products to be more readily available in fiscal 2023.

COVID-19 Pandemic

We began preparations for the COVID-19 pandemic in late February 2020, and in early March 2020 we implemented policies and procedures to protect our associates, serve our customers, and support our suppliers.

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

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.

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 labor markets, and any pandemic related restrictions that may have an impact on our business.

The global impact of the COVID-19 pandemic has affected our operational and financial performance to varying degrees.

The extent of the effects of future public health crises, including a resurgence of COVID, or related containment measures and government responses are highly uncertain and cannot be predicted.

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.

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The total amount of our payroll tax deferral under the CARES Act was approximately $6.3 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 made payments of approximately $3.2 million in December 2021 and will make payments for the remaining $3.1 million by December 2022.

These taxes were 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 made payments of approximately $3.2 million in December 2021 and $3.1 million in December 2022.

Results of Operations

Fiscal 2022 Compared to Fiscal 2021

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.

The following table sets forth our results of operations for fiscal 2022 and fiscal 2021, both of which were comprised of 52 weeks.

Fiscal 2022 % of

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Interest expense, net 42,272 0.9% 45,507 1.1%

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

Other expense (income), net 2,054 0.0% (1,306) 0.0%

Income before provision for income taxes 394,761 8.9% 393,876 9.2%

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($ in thousands)

Net sales by category

Net sales by product category

Specialty products $ 2,871,628 64.5 % $ 2,520,305 58.9 %

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($ in thousands)

Gross profit $ by category:

Gross profit by product category:

Specialty products $ 640,370 $ 561,520

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Total gross profit $ 832,984 $ 778,427

Gross margin % by category

Gross margin % by product category

Specialty products 22.3 % 22.3 %

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Total gross margin % 18.7 % 18.2 %

Discussion of Results of Operations

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.

Discussion of Results of Operations for Fiscal 2022 Compared to Fiscal 2021

For fiscal 2022, we generated net sales of $4.5 billion, an increase of $173.0 million when compared to fiscal 2021.

We generated $833.0 million in gross profit in fiscal 2022, an increase of $54.6 million compared to the prior-year period, and overall gross margin percentage increased from 18.2 percent to 18.7 percent year over year.

Strategic pricing of our specialty products is the primary contributor to the increase in our overall sales and profitability year over year.

Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, increased $351.3 million to $2.9 billion in fiscal 2022.

Strategic pricing of our specialty products during fiscal 2022 resulted in improved revenue and gross profit growth, partially offset by lower volume when compared to the prior-year period, where we saw historically strong demand.

Specialty products gross profit increased $78.9 million to $640.4 million, with specialty gross margin remaining flat at 22.3 percent for fiscal 2022 compared to fiscal 2021.

Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased $178.3 million to $1.6 billion in fiscal 2022.

The decrease in wood-based commodity prices of our structural products and modestly lower volume are the primary contributors to the decrease in net sales for fiscal 2022.

Our structural gross profit decreased $24.3 million to $192.6 million and our structural gross margin percentage for fiscal 2022 decreased to 12.2 percent from 12.3 percent in the prior-year period, primarily attributable to the decrease in wood-based commodity prices of our structural products, partially offset by strategic structural product inventory management.

Our selling, general, and administrative expenses increased 13.7 percent, or $44.1 million, compared to fiscal 2021.

The increase in sales, general, and administrative expenses is due primarily to increases in logistics expenses of $17.4 million related to increased delivery costs, primarily resulting from increases in fuel prices, $22.3 million related to key growth and productivity initiatives, and $4.5 million related to higher variable incentive compensation, such as sales commissions and stock compensation.

The decrease in gains from sales of property in fiscal 2022 from fiscal 2021 in the amount of $8.3 million is due to the sale of two non-operational properties during fiscal 2021, which resulted in a larger gain as compared to the sale of assets previously held for sale during the same period in 2022.

Other operating expenses increased $1.7 million compared to fiscal 2021 primarily due to higher restructuring related costs, including severance payments, incurred in fiscal 2022.

Interest expense, net, decreased by 7.1 percent, or $3.2 million, compared to fiscal 2021.

The decrease is primarily due to $7.4 million in debt issuance costs expensed in fiscal 2021 related to the extinguishment of our former term loan facility and credit limit reduction of our revolving credit facility, partially offset by an increase due to capital structure mix changes, as our senior secured notes carry a higher interest rate than our former revolving credit facility.

Other expense (income), net, increased $3.4 million compared to fiscal 2021 primarily due to an increase in other non-operating expenses.

Our effective tax rate was 25.0 percent and 24.8 percent for fiscal 2022 and fiscal 2021, 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.

Each period also includes a benefit from the vesting of restricted stock units during fiscal 2022 and fiscal 2021.

Our effective tax rate for fiscal 2021 also benefited from the partial release of our valuation allowance for state net operating loss carryforwards as compared to fiscal 2022.

Our net income for fiscal 2022 was $296.2 million, or $31.51 per diluted share, versus $296.1 million, or $29.99 per diluted share, in the prior-year period due primarily to an increase in gross profit driven by strategic pricing related to our specialty products, in conjunction with lower interest expense.

This was offset by increases in our operating expenses and income tax expense.

Liquidity and Capital Resources

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

We expect our material cash requirements for the foreseeable future, including the next 12 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.

• Periodic interest payments associated with our senior secured notes, as discussed in Note 9, Long-Term Debt ;

• Lease agreements which have fixed lease payment obligations, as discussed in Note 14, Lease Commitments .

We expect our primary sources of liquidity for the next 12 months 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, and we expect that these sources will be sufficient to fund our ongoing cash requirements for the foreseeable future, including at least the next 12 months.

We expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.

Sources and Uses of Cash

Operating Activities

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

Net cash provided by operating activities totaled $400.3 million during fiscal 2022.

This cash activity was primarily driven by net income of $296.2 million combined with changes in our working capital components after adjusting for the impact of working capital related to our acquisition of Vandermeer.

See Note 2, Business Combination for more information about our acquisition and related working capital amounts acquired.

The changes in working capital components resulted in an increase in cash due to a decrease in accounts receivables of $101.3 million and a decrease inventory of $20.8 million, partially offset by a decrease in accounts payable of $31.8 million.

During fiscal 2022, we completed the repurchase of properties previously contributed to the BlueLinx Corporation Hourly Retirement Plan for $11.1 million.

The cash outflow associated with the purchase of these properties is included in pension contributions within the operating activities section of our consolidated statement of cash flows for fiscal 2022.

Net cash provided by operating activities totaled $145.0 million during fiscal 2021.

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 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.

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

Net cash used in investing activities was $98.7 million during fiscal 2022, which was primarily driven by $63.8 million in cash, net of cash acquired, used to fund our acquisition of Vandermeer in the fourth quarter of fiscal 2022, as well as $35.9 million in cash paid for investments in our business to improve operational performance and productivity throughout fiscal 2022.

Net cash used in investing activities was $4.1 million during fiscal 2021, which was primarily driven by cash paid for investments in equipment of $14.4 million throughout fiscal 2021, partially offset by cash received from the sale of real estate of $10.3 million.

Financing Activities

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.

Net cash used in financing activities was $87.9 million during fiscal 2022, which was primarily driven by $66.4 million spent repurchasing our common stock under our announced share repurchase program, including the ASR Agreement.

Additionally, $10.5 million was spent in connection with the repurchase of shares to satisfy employee tax withholdings on the vesting of restricted stock units and $10.9 million was spent for principal payments on our finance lease obligations.

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 principal payments on finance lease obligations 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 partially offset by proceeds from the sale of our senior secured notes, net of discount, of $295.9 million.

Share Repurchase Program

As discussed elsewhere in this Form 10-K, during fiscal 2022, we repurchased a total of 882,346 shares for $66.4 million under our share repurchase program, including shares purchased through the ASR Agreement, at an average price of $75.28 per share.

As of December 31, 2022, we have a remaining authorization amount of $33.6 million.

Operating Working Capital

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Selected financial information

January 1, 2022 January 2, 2021

December 31, 2022 January 1, 2022

(In thousands)

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Operating working capital $ 883,185 $ 733,298

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.

Operating working capital increased by $149.9 million to $883.2 million as of December 31, 2022 from $733.3 million as of January 1, 2022.

The increase in operating working capital is primarily due to an increase in cash of $213.7 million and a decrease in accounts payable of $28.4 million, partially offset by a decrease in accounts receivable of $88.1 million, and a decrease in inventory of $4.1 million.

The increase in cash was driven in large part by the reduction in accounts receivable due to improved collection efforts throughout fiscal 2022, as well as strong operating performance.

The decrease in inventory reflects our strategic inventory management efforts throughout fiscal 2022.

The decrease in accounts payable is due to the decrease in inventory and the timing of cash disbursements.

Debt and Credit Sources

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

January 1, 2022

January 2, 2021

As of December 31, 2022, and January 1, 2022, long-term debt consisted of the following:

December 31, 2022 January 1, 2022

(In thousands)

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Revolving credit facility (2)

Term loan facility (3)

Finance lease obligations (3)

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Long-term debt, net of current maturities $ 558,410 $ 558,124

(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.

(1) As of December 31, 2022 and January 1, 2022, our long-term debt was comprised of $300.0 million of senior secured notes issued in October 2021.

These notes are presented under the long-term debt caption of our balance sheet at $292.4 million and $291.3 million at December 31, 2022 and January 1, 2022, respectively.

This presentation is net of their discount of

$3.5 million and $4.0 million and the combined carrying value of our debt issuance costs of $4.1 million and $4.7 million at December 31, 2022 and January 1, 2022, respectively.

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.

(2) The average effective interest rate was zero percent and 2.5 percent for the years ended December 31, 2022 and January 1, 2022, respectively.

(3) Refer to Note 14, Lease Commitments , for interest rates associated with finance lease obligations.

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.

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”).

Senior Secured Notes

In October 2021, we completed a private offering of $300.0 million of our six percent senior secured notes due 2029 (the “2029 Notes”), and in connection therewith we entered into an indenture (the “Indenture”) with the guarantors party thereto and Truist Bank, as trustee and collateral agent.

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.

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

Revolving Credit Facility

In April 2018, we entered into a revolving credit facility with Wells Fargo Bank, National Association, as administrative agent (“the Agent”), and certain other financial institutions party thereto.

In August 2021, we entered into a second amendment to our revolving credit facility to, among other things, extend the maturity date of the facility to August 2, 2026, and reduce the interest rate on borrowings under the facility (as amended, the “Revolving Credit Facility”).

In October 2021, in conjunction with the offering of our 2029 Notes, we reduced the credit limit of the Revolving Credit Facility from $600.0 million to $350.0 million.

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

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.

The Revolving Credit Facility provides for a senior secured asset-based revolving loan and letter of credit facility of up to $350.0 million.

The Borrowers’ obligations under the Revolving Credit Facility are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items.

Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the Agent’s base rate plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.

Our Revolving Credit Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, 2023.

Under the terms of the facility, LIBOR will be replaced with SOFR with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023.

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

The Borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect.

The Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.

As of December 31, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $645.4 million under our Revolving Credit Facility.

As of January 1, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $431.7 million under our Revolving Credit Facility.

Available borrowing capacity under our Revolving Credit Facility was $346.5 million on December 31, 2022 and January 1, 2022, respectively.

Our average effective interest rate under the facility was zero percent and 2.5 percent for the years ended December 31, 2022 and January 1, 2022, respectively.

The Revolving Credit Facility contains certain financial and other covenants, and our right to borrow under the Revolving Credit Facility is conditioned upon, among other things, our compliance with these covenants.

We were in compliance with all covenants under the Revolving Credit Facility as of December 31, 2022.

Term Loan Facility

On April 2, 2021, we repaid the remaining outstanding principal balance of our former term loan facility, and, as a result, as of January 1, 2022 and December 31, 2022, we had zero outstanding borrowings under the term loan facility, which has been extinguished.

In connection with our repayment of the outstanding principal balance in full on April 2, 2021, we expensed $5.8

million of debt issuance costs that we were amortizing in connection with our former term loan 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.

As the facility was paid in full as of April 2, 2021, our average effective interest rate under the facility, exclusive of fees and prepayment premiums, was zero percent and 8.0 percent for the years ended December 31, 2022 and January 1, 2022, respectively.

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 completed in recent years.

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 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.

We recognized $9.1 million and $10.5 million for tractors acquired as a component of our fleet investment plan during fiscal 2022 and fiscal 2021, respectively.

Our total finance lease commitments totaled $273.1 million and $274.7 million as of December 31, 2022 and January 1, 2022, respectively.

Of the $273.1 million of finance lease commitments as of December 31, 2022, $243.8 million related to real estate and $29.3 million related to equipment.

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.

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.

For fiscal 2021, we invested $14.4 million in cash related to investments in long-lived assets and entered into finance leases totaling $10.5 million, for a total investment of $24.9 million.

For fiscal 2020, we invested $3.7 million in cash related to investments in long-lived assets and entered into finance lease agreements totaling $3.8 million, for a total investments of $7.5 million.

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.

The gross value of these assets are included in property and equipment, at cost on our consolidated balance sheet.

For fiscal 2022, we invested $45.0 million in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet, which includes $35.9 million in cash investments and $9.1 million in new finance leases recognized for tractors acquired as a component of our fleet investment plan.

For fiscal 2021, we invested $25.0 million in long-lived assets primarily related to investments in our distribution facilities and to a lesser extent, upgrading our fleet, which includes $14.4 million in cash investments and $10.5 million in new finance leases recognized for tractors acquired as a component of our fleet investment plan.

Pension Funding Obligations

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.

See Note 8, Employee Benefits , in the Notes to the Consolidated Financial Statements.

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

We continue to evaluate pension funding obligations and requirements in order to meet our obligations.

See Note 11, Employee Benefits , in the notes to the consolidated financial statements for more information related to our defined benefit pension plan and our plan to terminate.

Interest Rates

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.

The consequences of these development 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.

Our Revolving Credit Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, 2023.

Under the terms of our Revolving Credit Facility, LIBOR will be replaced with SOFR with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023.

There can be no assurances as to whether SOFR will be a more or less favorable reference rate than LIBOR, and the consequences of replacing LIBOR with SOFR cannot be entirely predicted.

However, at this time, we do not believe that the replacement of LIBOR by SOFR as a reference rate in our revolving credit facility will have a material adverse effect on our financial position or materially affect our interest expense.

Off-Balance Sheet Arrangements

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

As of December 31, 2022, we did not have any off-balance sheet arrangements.

Critical Accounting Policies

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

(1) pension benefit obligation;

(1) revenue recognition;

(2) income taxes;

(3) business combinations;

(4) goodwill;

and (4) income taxes.

and (5) pension benefit obligation.

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.

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.

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.

Management has discussed the development, selection, and disclosure of critical accounting policies and estimates with the audit committee of the Company’s board of directors.

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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

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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.

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The actual amounts ultimately paid may be different from our estimates, and recorded once they have been determined.

Goodwill is not subject to amortization, and is tested for impairment at least annually.

We perform our annual goodwill impairment test as of the first day of our fiscal fourth quarter.

This test requires us to assign goodwill to a reporting unit and to determine if the fair value of the reporting unit’s goodwill is less than its carrying amount.

We have identified that we have a single reporting unit and we assign our goodwill to that reporting unit.

As of January 1, 2022, our goodwill was $47.8 million.

We also evaluate goodwill for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amounts may be impaired.

Such events and indicators may include, without limitation, significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our market capitalization.

Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate.

Significant judgment is required in determining our annual tax expense and in evaluating our tax positions.

Judgment is required in determining our annual tax expense and in evaluating our tax positions.

We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the positions become uncertain based upon one of the following:

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Settlement of any particular issue would usually require the use of cash.

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 percent.

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.

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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.

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.

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 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.

As of December 31, 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 December 31, 2022 was approximately $4.1 million.

See Note 8, Income Taxes , in the notes to consolidated financial statements.

Business Combinations

We account for business combinations by recognizing the assets acquired and liabilities assumed at the acquisition date fair value.

In valuing certain acquired assets and liabilities, fair value estimates use Level 3 inputs, including future expected cash flows and discount rates.

Goodwill is measured as the excess of consideration transferred over the fair values of the assets acquired and the liabilities assumed.

While we use our best estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments arising from new facts and circumstances are recorded to the consolidated statements of operations.

The results of operations of acquisitions are reflected in our consolidated financial statements from the date of acquisition.

Accounting for business combinations requires our management to make significant estimates and assumptions about intangible assets, obligations assumed and pre-acquisition contingencies, including uncertain tax positions and tax-related valuation allowances and reserves, where applicable.

Critical inputs and assumptions in valuing certain of the intangible assets include, but are not limited to, future expected cash flows from customer relationships and developed technologies;

the acquired Company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined Company’s product portfolio;

and discount rates.

Goodwill is not subject to amortization, and is tested for impairment at least annually.

We perform our annual goodwill impairment test as of the first day of our fiscal fourth quarter.

This test requires us to assign goodwill to a reporting unit and to determine if the fair value of the reporting unit’s goodwill is less than its carrying amount.

We have identified that we have a single reporting unit and we assign our goodwill to that reporting unit.

As of December 31, 2022, our goodwill was $55.4 million.

We also evaluate goodwill for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amounts may be impaired.

Pension Benefit Obligation

As discussed in Note 11, Employee Benefits , in the notes to consolidated financial statements, our pension benefit obligation was $82.7 million and exceeded the fair value of pension plan assets of $81.2 million, resulting in an unfunded obligation of $1.5 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.

Recently Issued Accounting Pronouncements

For a summary of recent accounting pronouncements applicable to our consolidated financial statements, see Note 1, Summary of Significant Accounting Policies , in the notes to consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information.

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