What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-21 · 148 added, 225 removed, 217 unchanged (63% 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 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.

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 1, 2022.

Executive Level Overview

Company Background

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, 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.

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.

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 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

Share Repurchase Program

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

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

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

(ii) the commoditized nature of many 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 .

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

General Economic Conditions Affecting Demand

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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.

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

Industry Conditions Affecting Demand

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home prices and affordability;

macro-economic conditions and expectations around inflationary rate, unemployment rate, interest rate, and economic output;

raw materials prices;

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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.

According to the Joint Center For Housing Studies’ Leading Indicator of Remodeling Activity (“LIRA”) Index, R&R demand returned to more normalized levels in 2023 and 2022 following two consecutive years in 2021 and 2020 of elevated R&R activity fueled by pandemic-induced changes in housing and lifestyle decisions.

Spending for R&R is expected to shrink in 2024 for the first time since 2010, but should begin to improve late in the year.

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.

homeowner improvements and repairs spending expected to be approximately $450 billion in 2024, down from $481 billion in 2023, but still up significantly from $363 billion in 2020.

Further, as the median age of U.S.

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According to the U.S.

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

Census Bureau and Department of Housing and Urban Development, the median age of an owner-occupied home in the U.S.

increased from 23 years in 1985 to 40 years in 2021.

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

Moreover, approximately 75 percent of the current owner-occupied housing stock was built prior to 1999.

We believe the increasing average age of the nation’s approximate 144 million existing homes will continue to drive demand for repair and remodel projects.

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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 our products are more likely to be used in single-family construction than in multi-family units.

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

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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.

Department of Housing and Urban Development, for full year 2023 residential housing starts for single family units and multi-family units were down 6% and 13%, respectively, compared to full year 2022.

We believe the overall decrease for single family starts reflected higher mortgage rates, partially offset by demand for new homes due to the decrease in the level of existing home inventory.

We also believe multi-family starts were down due mainly to recent overbuilding of multi-family units in many cities.

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 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.

Many of the building products we distribute, including lumber, as well as panels, such as oriented strand board (“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.

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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.

Prices rebounded slightly at the beginning of the third quarter, but in August 2022 resumed their decline over the remainder of the year, ending the year below the five-year average.

During 2023, prices improved slightly during the first and second quarters and peaked during the third quarter, declining again during the fourth quarter and still ending the year below the five-year average.

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

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Cost and Availability of the Products We Distribute

Our gross profit is net sales less the cost of the products sold.

Substantially all of the amount reported in Cost of products sold is composed of cost to purchase inventory for resale to customers, including the cost of inbound freights, volume incentives, and inventory adjustments.

During fiscal 2023, 2022 or 2021, no one supplier represented more than 10% of our consolidated Cost of products sold.

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 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

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

The impact of disease-related pandemics can affect our operational and financial performance to varying degrees, such as the COVID-19 global pandemic did.

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.

The CARES Act contained several provisions, including tax-based measures, meant to counteract the effects of the COVID-19 pandemic.

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 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 $6.3 million.

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

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Sales Fiscal 2022 % of

($ in thousands)

($ amounts in thousands)

Net sales $ 3,136,381 $ 4,450,214

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Amortization of deferred gains on real estate (3,934) (0.1)% (3,934) (0.1)%

Gains from sales of property (144) 0.0% (8,427) (0.2)%

Gain from sale of properties, net — 0.0% (144) 0.0%

Other operating expenses 4,640 0.1% 4,057 0.1%

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Interest expense, net 23,746 0.8% 42,272 0.9%

Settlement of frozen defined benefit pension plan 30,440 1.0% — 0.0%

Other expense (income), net 2,377 0.1% 2,054 0.0%

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Fiscal 2023 Fiscal 2022

($ in thousands)

($ amounts in thousands)

Net sales by product category

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Fiscal 2023 Fiscal 2022

($ in thousands)

($ amounts in thousands)

Gross profit by product category:

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Discussion of Results of Operations for Fiscal 2023 Compared to Fiscal 2022

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.

For fiscal 2023, we generated net sales of $3.1 billion , a decrease of $1.3 billion when compared to fiscal 2022, and gross margin decreased from 18.7% to 16.8% year over year.

The decreases in net sales and overall gross margin percentage compared to the prior fiscal year were primarily due to price deflation combined with lower sales volumes in our specialty and structural products, reflecting changing market conditions that have returned to normalized levels.

Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased $687.4 million to $2.2 billion in fiscal 2023 .

The decrease was due to price deflation combined with lower sales volume across all product categories as we return to more normalized market conditions.

Specialty products gross profit decreased $219.6 million to $420.8 million , with a year-over-year decrease of 300 basis points in specialty gross margin to 19.3% for fiscal 2023, compared to 22.3% for fiscal 2022.

The decrease in specialty products gross margin percentage over the prior fiscal year was also attributable to the year-over-year price and sales volume normalization.

Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased $626.4 million to $952.1 million in fiscal 2023 primarily due to price deflation in the wood-based commodity markets represented by the declines in the average composite price of framing lumber and structural panels, which were 47% and 32%, respectively, in addition to lower sales volumes.

Our structural gross margin percentage of fiscal 2023 was 11.2%, down from 12.2% in the prior fiscal year, primarily attributable to price deflation in the wood-based commodity markets represented by the aforementioned year-over-year declines in the average composite price of framing lumber and structural panels.

The impacts of these factors on the gross margin percentage in fiscal 2023 were partially offset by our consistent focus on pricing discipline and inventory management, as well as favorable changes in our net provisions for inventory reserves in the current fiscal year.

Fiscal 2023 was favorably impacted by a net $2.6 million inventory reserve release, while net inventory reserve provisions of $2.6 million were recorded in fiscal 2022.

For more details on our lower of cost or market reserves for inventories, see Note 3, Inventories, in Item 8 of this Annual Report.

Our selling, general, and administrative (“SG&A”) expenses decreased 2.9 percent overall, or $10.5 million , compared to fiscal 2022 primarily due to decreases in delivery expenses, variable compensation, professional fees and non-employee labor, partially offset by increases in technology costs, employee benefits costs, and $5.9 million of full-year incremental operating expenses in fiscal 2023 related to our acquisition of Vandermeer that occurred in the fourth quarter of fiscal 2022.

Depreciation and amortization expense increased 16.0% compared to fiscal 2022 due to a higher base of amortizable and depreciable assets throughout fiscal 2023 when compared to the prior fiscal year, resulting from our continued focus on capital investment and increased intangible assets related to our Vandermeer acquisition.

Other operating expenses increased $0.6 million compared to fiscal 2022 primarily due to restructuring related costs, including severance payments, incurred in fiscal 2023 due to our leadership transition.

Interest expense, net, decreased by 43.8 percent, or $18.5 million, compared to fiscal 2022.

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.

The decrease is primarily due to the generation of higher interest income, given our year-over-year increase in cash and cash equivalents generating interest income at higher interest rates than in the prior year.

During the fourth quarter of fiscal 2023, we settled our frozen defined benefit pension plan by transferring future financial responsibilities for the plan to a highly rated insurance company through the purchase of an annuity.

The accounting for this settlement resulted in the non-cash reclassification of $34.9 million, including net deferred income taxes of $4.5 million, from accumulated other comprehensive loss to earnings.

The settlement also required the Company, as plan sponsor, to make a final $6.9 million cash contribution to the plan trust in order for the plan trust to have sufficient assets to purchase the annuity from

the insurance company.

The settlement of the frozen defined benefit pension plan does not result in any changes to the multi-employer pension plans in which some of our union employees participate.

Our effective income tax rate was 40.7% and 25.0% for fiscal 2023 and fiscal 2022, respectively.

The higher effective rate in fiscal 2023 was due primarily to the one-time accounting for the settlement of our frozen defined benefit pension plan, as described above, which increased the effective income tax rate by 14.8%.

The reclassification of $30.4 million to pre-tax earnings resulted in $12.2 million income tax expense (of which $4.5 million was reclassified from accumulated other comprehensive loss) related to the one-time settlement of our frozen defined benefit pension plan, which will not result in cash tax payments.

Removing the income tax effects related to the one-time settlement of our frozen defined benefit pension plan, our effective income tax rate for fiscal 2023 would have been approximately 25.9%.

Our effective income tax rate for both fiscal years was impacted by state taxes as well as the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, offset by a benefit from vesting of share-based compensation.

Our net income for fiscal 2023 was $48.5 million, or $5.39 per diluted share, versus $296.2 million, or $31.51 per diluted share, in the prior fiscal year.

Our net income for fiscal 2023 decreased primarily due to a decrease in gross profit driven by lower sales volume particularly for our engineered wood products, lumber, and panels, along with declines in pricing and the accounting for the settlement of our frozen defined benefit pension plan.

This decrease was partially offset by favorable net interest income in the current fiscal year.

Results of Operations

Fiscal 2022 Compared to Fiscal 2021

For a comparison of the Company’s results of operations for the fiscal year ended December 31, 2022 to the fiscal year ended January 1, 2022, refer to Item 7 of the Company’s Annual Report on Form 10-K for fiscal 2022 filed with the SEC on February 21, 2023.

Liquidity and Capital Resources

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• Periodic estimated income tax payments, as required;

• 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 .

• Periodic interest payments associated with our senior secured notes, as discussed in Note 8, Debt and Finance Leases, in Item 8 of this Annual Report;

• Lease agreements which have fixed lease payment obligations, as discussed in Note 13, Lease Commitments, in Item 8 of this Annual Report.

Our purchase orders are based on near-term needs and are typically fulfilled by our vendors within short time horizons.

We do not have significant agreements for the purchase of inventory specifying minimum quantities or set prices that exceed our expected requirements or that cannot be canceled by us within 30 to 60 days.

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.

As of December 30, 2023, we had $521.7 million of cash and cash equivalents plus $346.5 million of availability on our revolving credit facility.

Sources and Uses of Cash

Operating Activities

Net cash provided by operating activities totaled $306.3 million for fiscal 2023 compared to $400.3 million for fiscal 2022.

The decrease in cash provided by operating activities during fiscal 2023 was primarily the result of a decrease in net income for the current fiscal year compared to the prior fiscal year, partially offset by higher cash generated from changes in working capital in fiscal 2023.

For working capital, the change in inventory increased $120.1 million for fiscal 2023 as a result of lower product cost and our continuing efforts to better manage inventory on hand.

The change in accounts payable increased $37.8 million for fiscal 2023 due to the timing of payments.

These increases in cash from working capital changes were partially offset by a decrease in the change for accounts receivable of $78.1 million for fiscal 2023 due to lower sales in the fourth quarter of fiscal 2023 compared to the fourth quarter of fiscal 2022.

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.

See Note 2, Business Combination, in Item 8 of this Annual Report 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.

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Investing Activities

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.

Net cash used in investing activities was $26.9 million during fiscal 2023, primarily for capital expenditures.

Our investing activities in fiscal 2023 reflected continuing improvements to our distribution facilities and upgrades to our fleet.

Net cash used in investing activities was $98.7 million during fiscal 2022, which was primarily driven by cash of $63.8 million used for the acquisition of Vandermeer and capital expenditures of $35.9 million throughout fiscal 2022, partially offset by cash received from the sale of real estate of $1.0 million.

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

Financing Activities

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

Operating working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash.

Operating working capital is defined as the sum of cash, receivables, and inventory less accounts payable.

Management of operating working capital helps us monitor our progress in meeting our goals to enhance our return on working capital assets.

Selected financial information

December 31, 2022 January 1, 2022

Net cash used in financing activities was $56.6 million during fiscal 2023.

Of this amount $42.1 million was used to repurchase our common stock under authorized share repurchase programs, $5.3 million was used to repurchase shares to satisfy employee payroll and tax withholdings for vesting of share-based compensation, and $9.2 million was used for payments on finance lease obligations.

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

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

Net cash used in financing activities was $55.8 million during fiscal 2021, which reflected the repayment of the remaining $43.2 million balance on our former term loan, net repayments on our revolving credit facility of $286.6 million, 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 issuance of our 2029 Notes of $295.9 million, net of discount.

Share Repurchase Programs

As discussed elsewhere in this Form 10-K, during fiscal 2023 and fiscal 2022, we used cash of $42.1 million and $66.4 million, respectively, to repurchase shares of our common stock under repurchase programs authorized by our Board of Directors.

As of December 30, 2023, we have $91.4 million of remaining repurchase authorization under the $100 million program approved by our Board of Directors on October 31, 2023.

Under this share repurchase program, we may repurchase our common stock from time to time, without prior notice, subject to prevailing market conditions and other considerations.

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

Net Working Capital

Net working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash.

Net working capital is defined as the sum of accounts receivable and inventory, less accounts

This metric differs from traditional working capital in that it excludes certain current assets and current liabilities that are reported in our consolidated balance sheet.

Our net working capital as of December 30, 2023 and December 31, 2022 is presented in the following table:

December 30, 2023 December 31, 2022

(In thousands)

Current assets:

Cash and cash equivalents $ 298,943 $ 85,203

Current assets included in net working capital:

Accounts receivable, less allowance for doubtful accounts $ 228,410 $ 251,555

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$ 572,048 $ 735,868

Current liabilities:

Current liabilities included in net working capital:

Accounts payable $ 157,931 $ 151,626

$ 157,931 $ 151,626

Operating working capital $ 883,185 $ 733,298

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.

Net working capital $ 414,117 $ 584,242

Net working capital decreased by $170.1 million to $414.1 million as of December 30, 2023 from $584.2 million as of December 31, 2022.

The decrease in net working capital was primarily due to an increase in accounts payable of $6.3 million, a decrease in accounts receivable of $23.1 million, and a decrease in inventory of $140.7 million.

The decrease in accounts receivable was due to lower revenue in fiscal 2023.

The significant decrease in inventory reflects lower product costs and our our continuing strategic inventory management efforts.

Debt and Credit Sources

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

December 31, 2022 January 1, 2022

As of December 30, 2023, and December 31, 2022, debt and finance leases consisted of the following:

December 30, 2023 December 31, 2022

(In thousands)

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579,169 565,499

current maturities of long-term debt 7,089 7,864

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

(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.

current portions of finance leases 11,178 7,089

Total debt and finance leases, net of current portions $ 567,991 $ 558,410

(1) As of December 30, 2023 and December 31, 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 $293.7 million and $292.4 million as of December 30, 2023 and December 31, 2022, respectively.

This presentation is net of their discount of $3.0 million and $3.5 million and the combined carrying value of our debt issuance costs of $3.2 million and $4.1 million as of December 30, 2023 and December 31, 2022, respectively.

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

(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.

(2) No borrowings were outstanding during fiscal 2023 or fiscal 2022.

Available borrowing capacity under this revolving credit facility was $346.5 million and $346.5 million on December 30, 2023 and December 31, 2022, respectively.

(3) Refer to Note 13, Lease Commitments , in Item 8 of this Annual Report for interest rates associated with finance lease obligations.

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, as defined below.

In October 2021, we completed a private offering of $300.0 million of our six percent senior secured notes due 2029 (the “2029 Notes”).

Interest is payable semi-annually.

Our 2029 Notes mature on November 15, 2029, and no principal is due until that

time as long as we remain in compliance with the related covenants.

As of December 30, 2023, we were in compliance with these covenants.

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.

Our amended revolving credit facility matures on August 2, 2026 provided we remain in compliance with the related covenants.

As of December 30, 2023, we were in compliance with these covenants.

Any outstanding borrowings under the revolving credit facility bear interest at a rate per annum equal to (i) Adjusted Term Secured Overnight Financing Rate (“SOFR”) (calculated as SOFR plus 0.1%) plus a margin ranging from 1.25% to 1.75%, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on SOFR, or (ii) the agent’s base rate (as that term is defined in the revolving credit agreement) plus a margin ranging from 0.25% to 0.75%, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.

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 Company is 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.

Available borrowing capacity under our Revolving Credit Facility was $346.5 million on December 30, 2023.

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.

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.

Our total finance lease commitments totaled $285.4 million and $273.1 million as of December 30, 2023 and December 31, 2022, respectively.

Of the $285.4 million of finance lease commitments as of December 30, 2023, $243.2 million related to real estate and $42.3 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 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.

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.

As of December 30, 2023, $11.2 million of our finance leases are classified as current liabilities.

Pension Funding Obligations

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, 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.

During the fourth quarter of fiscal 2023, we settled our frozen defined benefit pension plan by transferring future financial responsibility to a highly rated insurance company through the purchase of an annuity.

We do not anticipate any additional funding obligations related to this pension plan.

Some of our union employees continue to participate in multi-employer pension plans, and those plans were not impacted by the settlement of the frozen defined benefit pension plan.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

As of December 30, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which require management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

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(3) business combinations;

(4) goodwill;

and (5) pension benefit obligation.

and (4) goodwill.

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 expenses or additional 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.

While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future, actual results ultimately may differ from these estimates and assumptions.

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.

For a discussion of the Company’s significant accounting policies, see Note 1, Summary of Significant Accounting Policies , in Item 8 of this Annual Report.

Revenue Recognition

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We adjust these reserves, including any impact on the related interest and penalties, in light of changing facts and circumstances, such as the progress of a tax audit.

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

Refer to Note 7, Income Taxes , in Item 8 of this Annual Report.

A number of years may elapse before a particular matter for which we have established a reserve is audited and finally resolved.

14 unchanged sentences

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 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.

As of December 30, 2023, 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 allowance related to our net operating losses as of December 30, 2023 was approximately $3.5 million.

See Note 7, Income Taxes , in Item 8 of this Annual Report.

Business Combinations

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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.

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.

6 unchanged sentences

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.

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.

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.

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.

Estimates are used in the determination of the fair values of identifiable asset acquired, including intangible assets, and liabilities assumed in a business combination, but the initial carrying value assigned to goodwill is of a residual nature.

Goodwill is not subject to amortization, but must be tested for impairment at least annually using either a qualitative method or a quantitative method.

Goodwill may also need to be assessed for impairment between the annual assessments if an event occurs or circumstances change that would indicate the carrying value of goodwill may be impaired.

Such interim events and circumstances can include significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our market capitalization.

Goodwill is assessed for impairment at the reporting unit level and the assessment must determine if the fair value of the reporting unit, including the goodwill, is less than its carrying value.

For entities like us that consists of a single reporting unit, goodwill is assessed at the enterprise level.

In performing a qualitative assessment, potential impairment indicators must be evaluated to determine if it is “more likely than not that the fair value of the reporting unit is less than its carrying amount.” Such evaluations involve estimates of the significance and materiality of any identified impairment indicators.

For a quantitative assessment, we utilize a combination of the present value of expected cash flows and the guideline public companies method to determine the estimated fair value of our enterprise.

This present value model requires management to estimate future cash flows, the timing of the future cash flows, and a discount rate (based on a weighted-average cost of capital), which represents the time value of money and the inherent risk and uncertainty of the future cash flows.

These estimates can have material influences on a goodwill assessment.

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

Based on the results of our most recent annual assessment, which was quantitative, our goodwill was not impaired.

As of December 30, 2023, the carrying value of our goodwill was $55.4 million, which represented less than 4% of our consolidated assets.

Between our annual impairment assessment for fiscal 2023 and 2022, we noted no interim events or circumstances to indicate that the carrying value of our goodwill was impaired.

Therefore, we relied on our annual assessments.

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.

For a summary of recent accounting pronouncements applicable to our consolidated financial statements, see Note 1, Summary of Significant Accounting Policies , in Item 8 of this Annual Report.

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