BlueLinx Holdings Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS BLUELINX HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except per share data) (Unaudited) Three Months Ended March 30, 2024 April 1, 2023 Net sales $ 726,244 $ 797,904 Cost of products sold 598,563 664,365 Gross profit 127,681 133,539 Operating expenses (income): Selling, general, and administrative 91,250 91,174 Depreciation and amortization 9,433 7,718 Amortization of deferred gains on real estate ( 984 ) ( 984 ) Other operating expenses 314 3,116 Total operating expenses 100,013 101,024 Operating income 27,668 32,515 Non-operating expenses: Interest expense, net 4,624 7,687 Other expense, net — 594 Income before provision for income taxes 23,044 24,234 Provision for income taxes 5,552 6,422 Net income $ 17,492 $ 17,812 Basic earnings per share $ 2.02 $ 1.96 Diluted earnings per share $ 2.00 $ 1.94 Comprehensive income: Net income $ 17,492 $ 17,812 Other comprehensive income: Amortization of unrecognized pension gain, net of tax — 239 Other — ( 11 ) Total other comprehensive income — 228 Comprehensive income $ 17,492 $ 18,040 See accompanying Notes. 1 Table of Contents BLUELINX HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) March 30, 2024 December 30, 2023 ASSETS Current assets: Cash and cash equivalents $ 481,309 $ 521,743 Receivables, less allowances of $ 3,293 and $ 3,398 , respectively 288,244 228,410 Inventories, net 370,942 343,638 Other current assets 32,165 26,608 Total current assets 1,172,660 1,120,399 Property and equipment, at cost 406,918 396,321 Accumulated depreciation ( 175,757 ) ( 170,334 ) Property and equipment, net 231,161 225,987 Operating lease right-of-use assets 34,869 37,227 Goodwill 55,372 55,372 Intangible assets, net 29,768 30,792 Deferred income tax asset, net 53,629 53,256 Other non-current assets 14,186 14,568 Total assets $ 1,591,645 $ 1,537,601 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 171,715 $ 157,931 Accrued compensation 13,642 14,273 Finance lease liabilities - current 12,157 11,178 Operating lease liabilities - current 5,824 6,284 Real estate deferred gains - current 3,935 3,935 Other current liabilities 41,873 24,961 Total current liabilities 249,146 218,562 Long-term debt 294,073 293,743 Finance lease liabilities - noncurrent 279,910 274,248 Operating lease liabilities - noncurrent 30,248 32,519 Real estate deferred gains - noncurrent 65,648 66,599 Other non-current liabilities 19,399 17,644 Total liabilities 938,424 903,315 Commitments and Contingencies Stockholders' Equity: Preferred Stock, $ 0.01 par value, 30,000,000 shares authorized, none issued — — Common Stock, $ 0.01 par value, 20,000,000 shares authorized, 8,661,738 and 8,650,046 outstanding, respectively 87 87 Additional paid-in capital 166,503 165,060 Retained earnings 486,631 469,139 Total stockholders’ equity 653,221 634,286 Total liabilities and stockholders’ equity $ 1,591,645 $ 1,537,601 See accompanying Notes. 2 Table of Contents BLUELINX HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Common Stock Additional Paid-In Capital Retained Earnings Stockholders’ Equity Total Shares Amount Balance, December 30, 2023 8,650 $ 87 $ 165,060 $ 469,139 $ 634,286 Net income — — — 17,492 17,492 Vesting of restricted stock units 19 (a) (a) — — Compensation related to share-based grants — — 2,350 — 2,350 Repurchase of shares to satisfy employee tax withholdings ( 7 ) — ( 907 ) — ( 907 ) Balance, March 30, 2024 8,662 $ 87 $ 166,503 $ 486,631 $ 653,221 (a) Activity rounds to less than one thousand dollars . Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Stockholders’ Equity Total Shares Amount Balance, December 31, 2022 9,049 $ 90 $ 200,748 $ ( 31,412 ) $ 420,603 $ 590,029 Net income — — — — 17,812 17,812 Other comprehensive income — — — 228 — 228 Vesting of restricted stock units 67 1 ( 1 ) — — — Compensation related to share-based grants — — 4,569 — — 4,569 Repurchase of shares to satisfy employee tax withholdings ( 8 ) — ( 570 ) — — ( 570 ) Obligation for repurchase of shares to satisfy employee tax withholdings ( 19 ) ( 1,319 ) — — ( 1,319 ) Balance, April 1, 2023 9,089 $ 91 $ 203,427 $ ( 31,184 ) $ 438,415 $ 610,749 There has been no activity for Preferred Stock . See accompanying Notes. 3 Table of Contents BLUELINX HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 30, 2024 April 1, 2023 Cash flows from operating activities: Net income $ 17,492 $ 17,812 Adjustments to reconcile net income to cash (used in) provided by operations: Depreciation and amortization 9,433 7,718 Amortization of debt discount and issuance costs 330 329 Provision for deferred income taxes ( 373 ) 213 Amortization of deferred gains from real estate ( 984 ) ( 984 ) Share-based compensation 2,350 4,569 Changes in operating assets and liabilities: Accounts receivable ( 59,834 ) ( 47,333 ) Inventories ( 27,304 ) 74,989 Accounts payable 13,784 25,420 Other current assets ( 5,557 ) 5,953 Other assets and liabilities 19,528 279 Net cash (used in) provided by operating activities ( 31,135 ) 88,965 Cash flows from investing activities: Proceeds from sale of assets 127 37 Property and equipment investments ( 5,447 ) ( 9,008 ) Net cash used in investing activities ( 5,320 ) ( 8,971 ) Cash flows from financing activities: Repurchase of shares to satisfy employee tax withholdings ( 907 ) ( 570 ) Principal payments on finance lease liabilities ( 3,072 ) ( 2,133 ) Net cash used in financing activities ( 3,979 ) ( 2,703 ) Net change in cash and cash equivalents ( 40,434 ) 77,291 Cash and cash equivalents at beginning of period 521,743 298,943 Cash and cash equivalents at end of period $ 481,309 $ 376,234 Supplemental cash flow information: Interest paid during the period $ 6,796 $ 6,190 Taxes paid during the period $ 1,342 $ — Non-cash transactions: Obligation for repurchase of shares to satisfy employee tax withholdings $ — $ 1,319 See accompanying Notes. 4 Table of Contents BLUELINX HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 30, 2024 (Unaudited) 1. Basis of Presentation and Significant Accounting Policies BlueLinx Holdings Inc., including consolidated subsidiaries (collectively, the “Company”), is a leading wholesale distributor of residential and commercial building products in the United States. The Company is a two-step distributor and purchases products from manufacturers and distributes those products to dealers and other suppliers in local markets, who then sell those products to end users. The Company carries 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, moulding and millwork, outdoor living, specialty lumber and panels, and industrial products. Structural products include items such as lumber, plywood, oriented strand board, rebar, and remesh. The Company also provides a wide range of value-added services and solutions aimed at relieving distribution and logistics challenges for its customers and suppliers, while enhancing their marketing and inventory management capabilities. The Company’s unaudited condensed consolidated financial statements and accompanying notes have been prepared using generally accepted accounting principles in the United States (“GAAP”) and the interim reporting guidance of the U.S. Securities and Exchange Commission (“SEC”). The Company is composed of a single reportable segment for financial reporting purposes. The Company’s consolidated balance sheet as of December 30, 2023 contained herein was derived from the audited consolidated balance sheet included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (the “2023 Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”) on February 20, 2024. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the Company’s results of operations and comprehensive income for the three months ended March 30, 2024 and April 1, 2023, financial condition as of March 30, 2024 and December 30, 2023, changes in stockholders’ equity for the three months ended March 30, 2024 and April 1, 2023, and cash flows for the three months ended March 30, 2024 and April 1, 2023. The Company has condensed or omitted certain notes and other information from the unaudited condensed consolidated financial statements presented in this report. Therefore, these condensed financial statements and accompanying notes should be read in conjunction with the Company’s 2023 Form 10-K. The results for the three months ended March 30, 2024 are not necessarily indicative of results that may be expected for the full fiscal year ending December 28, 2024, or any other interim period. The Company operates on a 5-4-4 fiscal calendar and its fiscal year ends on the Saturday closest to December 31st of each fiscal year and may comprise 53 weeks in certain years. Fiscal 2024 contains 52 weeks and will end on December 28, 2024. Fiscal 2023 contained 52 weeks and ended on December 30, 2023. The fair value of cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities, to the extent the underlying liability will be settled in cash, approximates the carrying values because of the short-term nature of these instruments. Use of Estimates The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates based on assumptions about current and, for some estimates, future economic and market conditions, which affect reported amounts and related disclosures in the Company’s financial statements. Although current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from management’s expectations, which could materially affect the Company’s results of operations and financial position. 5 Table of Contents Significant Accounting Policies The Company has made no material changes to its significant accounting policies described in the notes to its consolidated financial statement included in its 2023 Form 10-K. The Company did not adopt any new accounting standards during the fiscal year ended December 30, 2023, or the three months ended March 30, 2024. Recent Accounting Standards - Adoption Pending Segment Reporting Improvements . On November 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The FASB issued the new guidance primarily to provide financial statement users with more disaggregated expense information about a public business entity’s (“PBE”) reportable segment(s). This ASU will require PBEs to provide incremental disclosures related to the entity’s reportable segment(s), including disclosures for expenses that are both 1) significant to each reportable segment and are provided regularly to the Chief Operating Decision Maker (“CODM”) or easily computed from information regularly provided to the CODM and 2) included in the reported measure of segment profit or loss used by the CODM to assess performance and allocate resources. If a PBE does not disclose any significant segment expenses for a reportable segment, it is required to disclose narratively the nature of the expenses used by the CODM to manage each segment’s operations. Under the provisions of this ASU, all of the disclosures required in the segment guidance, including disclosing a measure of segment profit or loss used by the CODM and reporting significant segment expenses, applies to all PBEs, including those with a single operating or reportable segment. However, this ASU does not change the definition of a segment, the method for determining segments, or the criteria for aggregating operating segments into reportable segments. ASU 2023-07 will be effective for the Company’s annual reporting period for fiscal 2024 and all interim reporting periods beginning in fiscal 2025. At adoption, the disclosures are retrospectively presented for all comparative periods presented. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-07. Income Tax Disclosure Improvement. On December 14, 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. The ASU’s disclosure requirements apply to all entities subject to Accounting Standards Codification (“ASC”) No. 740, Income Taxes (“ASC 740”). The overall objective of these disclosure requirements is for an entity, particularly an entity operating in multiple jurisdictions, to disclose sufficient information to enable users of financial statements to understand the nature and magnitude of factors contributing to the difference between the effective tax rate and the statutory tax rate. ASU 2023-09 will be effective for the Company for the fiscal 2025 annual reporting period. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-09. 2. Inventories The Company’s inventories consist almost entirely of finished goods inventory, with a very limited amount of work-in-process inventory. The cost of all inventories is determined by the moving average cost method. The Company included all material charges directly incurred in bringing inventory to its existing condition and location, including the cost of inbound freight, volume incentives, inventory adjustments, tariffs, duties and other import fees. The Company evaluates its inventory value at the end of each quarter to ensure that inventory, when viewed by category, is carried at the lower of cost or net realizable value, which also considers items that may be considered damaged, excess, and obsolete inventory. As of March 30, 2024, the Company assessed the carrying value of its inventory and determined it was presented at the lower of cost or net realizable value and that a reserve was not necessary. As of December 30, 2023, the Company also had no such inventory reserve. Substantially all of the amount reported in Cost of products sold on the Company’s consolidated statement of operations is composed of costs incurred to purchase inventory that is subsequently resold to customers, including costs related to import duties and tariffs. Import duties and tariffs are not typically passed through to customers as separately billed charges. Certain import duties are classified by the U.S. Department of Commerce (the “Commerce Department”) as “antidumping or countervailing duties,” and these duties may be subject to periodic review and adjustments by the Commerce Department through a process known as a trade remedy administrative review, which can result in both retroactive and prospective adjustments to duty rates. At the time of importation, the Company tenders antidumping duty and countervailing duty cash deposits (as use of that term has been defined by the Commerce Department) to the U.S. Customs and Border Protection (“U.S. 6 Table of Contents Customs”) and accounts for duties and tariffs based on the then-current rates in effect, and records any retroactive adjustments in the period in which U.S. Customs determines final duty rates at the time entries subject to antidumping and countervailing duties liquidate (as use of that term has been defined by the Commerce Department), typically through the resolution of a trade remedy administrative review proceeding. During the three months ended March 30, 2024, the Company received refunds of $ 16.9 million, plus interest of $ 2.0 million, related to retroactive adjustments associated with certain antidumping duties for imported wood moulding and millwork products. The antidumping duty cash deposits were originally paid and accounted for by the Company in prior reporting periods at the then-current rates. Impacted inventories have since been sold. These adjustment amounts are reflected in Costs of products sold and Interest expense, net, respectively, on the Company’s unaudited condensed consolidated statement of operations for the three months ended March 30, 2024. See Note 9, Commitments and Contingencies , for disclosure concerning another matter related to import duties. 3. Goodwill and Other Intangible Assets As a result of merger and acquisition activities, the Company’s consolidated balance sheet reflects goodwill along with other intangible assets for customer relationships, noncompete agreements, and trade names. As of March 30, 2024, the only changes since December 30, 2023 were for amortization of intangible assets. Goodwill The Company does not amortize its goodwill but must assess its goodwill for impairment at least annually, either quantitatively or qualitatively. Under GAAP, goodwill is assessed at the reporting unit level. Since the Company is composed of one reporting unit, the Company’s goodwill is assessed at the enterprise level. The most recent scheduled annual impairment assessment for goodwill was conducted quantitatively as of October 1, 2023. Based on that assessment, the Company’s management, with the assistance of an independent expert, concluded that goodwill was not impaired, meaning the fair value of the enterprise exceeded the carrying value of the enterprise, including goodwill. In addition to the annual impairment assessments described above, the Company will assess for impairment between the annual impairment assessments if events occur, or circumstances materially change, that indicate a potential goodwill impairment may exists. During the three months ended March 30, 2024, the Company did not note any indicators of potential impairment for its goodwill. As of March 30, 2024 and December 30, 2023, the carrying value of the Company’s goodwill was $ 55.4 million. Definite-Lived Intangible Assets The gross carrying amounts, accumulated amortization, and net carrying amounts of the Company definite-lived intangible assets at March 30, 2024 were as follows: Intangible Asset Weighted Average Remaining Useful Lives (Years) Gross Carrying Amounts Accumulated Amortization (1) Net Carrying Amounts ($ in thousands) Customer relationships 9 $ 48,500 $ ( 19,722 ) $ 28,778 Noncompete agreements 4 8,954 ( 8,464 ) 490 Trade names 2 7,826 ( 7,326 ) 500 Total $ 65,280 $ ( 35,512 ) $ 29,768 (1) Intangible assets except customer relationships are amortized on straight line basis. Certain of our customer relationships are amortized on a double declining balance method and certain others are amortized on a straight line basis. Amortization Expense Amortization expense for definite-lived intangible assets was approximately $ 1.0 million and $ 1.1 million for the three-months ended March 30, 2024 and April 1, 2023, respectively. 7 Table of Contents Estimated amortization expense for definite-lived intangible assets for the remaining portion of 2024 and the next five fiscal years is as follows: Fiscal Year Estimated Amortization (In thousands) 2024 $ 2,897 2025 3,765 2026 3,471 2027 3,340 2028 3,340 2029 3,340 4. Revenue Recognition The following table presents the Company’s revenues disaggregated by product type. Sales and usage-based taxes are excluded from revenues. Three Months Ended Product type March 30, 2024 April 1, 2023 (In thousands) Specialty products $ 503,834 $ 567,838 Structural products 222,410 230,066 Total net sales $ 726,244 $ 797,904 The following table presents the Company’s revenues disaggregated by sales channel. Sales and usage-based taxes are excluded from revenues. Three Months Ended Sales channel March 30, 2024 April 1, 2023 (In thousands) Warehouse and reload $ 591,768 $ 686,632 Direct 149,750 127,095 Customer discounts and rebates ( 15,274 ) ( 15,823 ) Total net sales $ 726,244 $ 797,904 Warehouse sales are delivered from Company warehouses. Reload sales are similar to warehouse sales but are shipped from warehouses, most of which are operated by third parties, where the Company stores owned products to enhance operating efficiencies. This channel is employed primarily to service strategic customers that would be less economical to service from Company warehouses, and to distribute large volumes of imported products from port facilities. Direct sales are shipped from the manufacturer to the customer without the Company taking physical possession of the inventory and, as a result, typically generate lower margins than warehouse and reload distribution channels but require lower amount of committed capital and fixed costs. Performance obligations in contracts with customers generally consist solely of delivery of goods. 8 Table of Contents 5. Debt and Finance Leases As of March 30, 2024 and December 30, 2023, outstanding debt and finance leases consisted of the following: March 30, 2024 December 30, 2023 (In thousands) Senior secured notes (1) $ 300,000 $ 300,000 Revolving credit facility (2) — — Finance lease obligations (3) 292,067 285,426 592,067 585,426 Unamortized debt issuance costs ( 3,043 ) ( 3,246 ) Unamortized bond discount costs ( 2,884 ) ( 3,011 ) 586,140 579,169 Less: current portions of finance lease obligations 12,157 11,178 Total debt and finance lease obligations, net of current portions $ 573,983 $ 567,991 (1) As of March 30, 2024 and December 30, 2023, 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 consolidated balance sheets at $ 294.1 million and $ 293.7 million as of March 30, 2024 and December 30, 2023, respectively. This presentation is net of discount of $ 2.9 million and $ 3.0 million and the combined carrying value of debt issuance costs of $ 3.0 million and $ 3.2 million as of March 30, 2024 and December 30, 2023, respectively. The senior secured notes are presented in the above table at face value and have an annual interest rate of 6.0 % through maturity. (2) No borrowings were outstanding on this revolving credit facility during the three months ended March 30, 2024 or fiscal year 2023. Available borrowing capacity under this revolving credit facility was $ 346.5 million as of March 30, 2024 and December 30, 2023. The available borrowing capacity reflects undrawn letters of credit. (3) Refer to Note 8, Lease Commitments , for interest rates associated with finance lease obligations. Interest expense, net on the Company’s unaudited condensed consolidated statements of operations for the three months ended March 30, 2024 and April 1, 2023 consists of interest expense of $ 13.1 million and $ 11.3 million, respectively, and interest income of $ 8.5 million and $ 3.6 million, respectively. Interest expense reflects amortization of debt issuance costs and bond discount costs of $ 0.3 million and $ 0.3 million for first quarter 2024 and first quarter 2023, respectively. Included in interest income for the three months ended March 30, 2024 is $ 2.0 million received with refunds from U.S. Customs for antidumping import duties (see Note 2, Inventories) . Interest expense for the three months ended March 30, 2024 also includes $ 1.6 million of accrued estimated interest expense related to import duties that the Company believes it may owe (see Note 9, Commitments and Contingencies) . Senior Secured Notes In October 2021, the Company and certain subsidiaries completed a private offering of $ 300.0 million of 6.0 % percent senior secured notes due 2029 (the “2029 Notes”), and in connection therewith we entered into an indenture (the “Indenture”) with the subsidiary guarantors and Truist Bank, as trustee and collateral agent. The 2029 Notes were issued to investors at 98.625 % of their principal amount. The 2029 Notes are secured by a first-priority security interest in substantially all of the Company’s assets, other than accounts receivables, inventory, deposit accounts, securities accounts, business interruption insurance and other related assets. The 2029 Notes are scheduled to mature on November 15, 2029, however at the sole discretion of the Company, the notes may be redeemed, in whole or in part, prior to scheduled maturity. Early redemptions made by the Company prior to November 15, 2026 would require the Company to pay a redemption premium, as defined in the Indenture. Interest expense for the 2029 Notes totaled $ 4.5 million for the three months ended March 30, 2024 and April 1, 2023. As of March 30, 2024 and December 30, 2023, the fair value of the Company’s 2029 Notes was approximately $ 291.9 million and $ 273.2 million, respectively, which were estimated from inputs that are designated as Level 2 in the fair value hierarchy. The Company’s valuation technique is based primarily on observable market prices in less active markets. Revolving Credit Facility 9 Table of Contents In April 2018, the Company and certain subsidiaries entered into the Amended and Restated Credit Agreement for a revolving credit facility with Wells Fargo Bank, National Association, as administrative agent (“the Agent”), and certain other financial institutions. In August 2021, the Company entered into a second amendment to this 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, and in June 2023, the Company entered into a third amendment to this revolving credit facility to, among other things, replace the interest rate based on the London interbank offered rate (“LIBOR”) thereunder with an interest rate based on the secured overnight financing rate (“SOFR”) and a customary spread adjustment (as amended, the “Revolving Credit Facility”). In October 2021, in conjunction with the offering of the 2029 Notes, the Company reduced the credit limit of the Revolving Credit Facility from $ 600.0 million to $ 350.0 million. The Revolving Credit Facility provides for a senior secured asset-based revolving loan and letter of credit facility of up to $ 350.0 million, as amended. The obligations under the Revolving Credit Facility are secured by a security interest in substantially all of the Company’s and its subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items, under the Amended and Restated Guaranty and Security Agreement. From and after June 30, 2023, borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to (i) Adjusted Term SOFR (calculated as SOFR plus 0.1 %) 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 SOFR, 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. 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 Company would be required to repay the Revolving Credit Facility to the extent that such revolving borrowings 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 March 30, 2024, the Company had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $ 827.8 million under our Revolving Credit Facility. As of December 30, 2023, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $ 868.2 million under our Revolving Credit Facility. Available borrowing capacity under our Revolving Credit Facility was $ 346.5 million on March 30, 2024 and $ 346.5 million December 30, 2023. Debt Covenants The Revolving Credit Facility and the 2029 Notes contain various covenants and restrictions, including customary financial covenants. The Company’s right to make draws on the Revolving Credit Facility may be conditioned upon, among other things, compliance with these covenants. The Company was in compliance with all covenants as of March 30, 2024 and December 30, 2023. These covenants also limit the Company’s ability to, among other things: incur additional debt; grant liens on assets; make investments; repurchase stock; pay dividends and make distributions; sell or acquire assets, including certain real estate assets, outside the ordinary course of business; engage in transactions with affiliates; and make fundamental business changes. Finance Lease Obligations The Company’s finance lease liabilities consist of leases related to equipment and vehicles, and real estate, with the majority of those finance leases related to real estate. For more information on our finance lease obligations, refer to Note 8, Lease Commitments . 10 Table of Contents 6. Net Periodic Pension Cost As previously disclosed, effective December 5, 2023, the Company settled its noncontributory defined benefit pension plan (the “DB Plan”) by purchasing an irrevocable nonparticipating annuity contract with an insurance company (the “buy-out contract”). The buyout contract met the requirements for a settlement, as that term is defined in ASC No. 715, Compensation-Retirement Benefits , and the DB Plan and Company, as sponsor, were relieved of primary responsibility for the benefits obligations. Prior to settlement, during the three months ended April 1, 2023 the Company incurred the following net periodic pension cost: Three Months Ended April 1, 2023 (In thousands) Service cost (1) $ — Interest cost on projected benefit obligation 1,104 Expected return on plan assets ( 812 ) Amortization of unrecognized gain 302 Net periodic pension cost $ 594 (1) Service cost was not a part of net periodic pension benefit since the pension plan was frozen for all participants. The net periodic pension cost is included in other expense, net in the Company’s unaudited condensed consolidated statement of operations and comprehensive income. 7. Share-Based Compensation During the three months ended March 30, 2024 and April 1, 2023, the Company incurred stock compensation expense of $ 2.4 million and $ 4.6 million, respectively. Stock compensation expense for the three months ended April 1, 2023 included the acceleration of unrecognized compensation cost in conjunction with announced leadership transitions that occurred in 2023. As of April 1, 2023, $ 1.3 million was accrued for tax withholding obligations of the Company’s employees upon vesting of restricted stock unit awards. This was presented as a non-cash transaction in the Company’s unaudited condensed consolidated statement of cash flows. 8. Lease Commitments The Company has operating and finance leases for certain of its distribution facilities, office space, land, mobile fleet, and equipment. Many of these leases are non-cancelable and typically have a defined initial lease term, and some provide options to renew at the Company’s election for specified periods of time. The majority of these leases have remaining lease terms of one to 15 years, some of which include one or more options to extend the leases for typically five years . The Company’s leases generally provide for fixed annual rentals. Certain leases include provisions for escalating rent based on, among other things, contractually defined increases and/or changes in the Consumer Price Index (“CPI”). The known changes to lease payments are included in the lease liability at lease commencement. Unknown changes related to CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. In addition, a subset of vehicle lease cost is considered variable. Some leases require the Company to pay taxes, insurance, and maintenance expenses associated with the leased assets. The lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company determines if an arrangement is a lease at inception and assesses lease classification as either operating or finance at lease inception or modification. Operating lease right-of use (“ROU”) assets and liabilities are presented separately on the Company’s consolidated balance sheets. Finance lease ROU assets are included in property and equipment and the finance lease obligations are presented separately in the Company’s consolidated balance sheets. When a lease does not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company has also made the accounting policy election to not separate lease components from non-lease components related to our mobile fleet asset class. 11 Table of Contents The Company’s finance lease liabilities consist of leases related to equipment and vehicles, and real estate. A majority of the Company’s finance leases relate to real estate. During fiscal 2017 and fiscal 2018, the Company entered into real estate financing transactions on certain of its warehouse facilities. These transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, the Company entered into long-term leases on the properties having renewal options. The Company accounted for these transactions in accordance with the ASC 840, Leases , which was the lease accounting standard in effect for the Company at the inception of these arrangements. The Company recorded these transactions as finance lease liabilities on its consolidated balance sheet. Gains on these sale-leaseback transactions were deferred and are being recognized into the Company’s earnings. As of March 30, 2024 and December 30, 2023, the remaining unrecognized deferred gains related to these transactions were $ 69.6 million and $ 70.5 million, respectively, and these deferred gains are being recognized in earning on a straight-line basis. During the first quarters of fiscal 2024 and 2023, the Company recognized $ 1.0 million of these deferred gains in each quarter. The following table presents the assets and liabilities related to the Company’s leases as of March 30, 2024 and December 30, 2023: Lease assets and liabilities March 30, 2024 December 30, 2023 (In thousands) Assets Classification Operating lease right-of-use assets Operating lease right-of-use assets $ 34,869 $ 37,227 Finance lease right-of-use assets (1) Property and equipment, net 141,570 138,357 Total lease right-of-use assets $ 176,439 $ 175,584 Liabilities Current portion: Operating lease liabilities Operating lease liabilities - current $ 5,824 $ 6,284 Finance lease liabilities Finance lease liabilities - current 12,157 11,178 Non-current portion: Operating lease liabilities Operating lease liabilities - noncurrent 30,248 32,519 Finance lease liabilities Finance lease liabilities - noncurrent 279,910 274,248 Total lease liabilities $ 328,139 $ 324,229 (1) Finance lease right-of-use assets are presented net of accumulated amortization of $ 102.4 million and $ 102.9 million as of March 30, 2024 and December 30, 2023, respectively. 12 Table of Contents The components of lease expense were as follows: Three Months Ended Components of lease expense March 30, 2024 April 1, 2023 (In thousands) Operating lease cost: Operating lease cost $ 2,446 $ 2,918 Sublease income ( 861 ) ( 578 ) Total operating lease costs $ 1,585 $ 2,340 Finance lease cost: Amortization of right-of-use assets $ 4,736 $ 2,089 Interest on lease liabilities 6,291 6,044 Total finance lease costs $ 11,027 $ 8,133 Supplemental cash flow information related to leases was as follows: Three Months Ended Cash flow information March 30, 2024 April 1, 2023 (In thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 2,509 $ 3,458 Operating cash flows from finance leases $ 6,291 $ 6,044 Financing cash flows from finance leases $ 3,072 $ 2,133 Non-cash supplemental cash flow information related to leases was as follows: Three Months Ended Non-cash information March 30, 2024 April 1, 2023 (In thousands) Right-of-use assets obtained in exchange for lease obligations: Operating leases $ — $ — Finance leases $ 8,177 $ — 13 Table of Contents Supplemental balance sheet information related to leases was as follows: Balance sheet information March 30, 2024 December 30, 2023 ($ in thousands) Finance leases Property and equipment $ 243,920 $ 241,276 Accumulated depreciation ( 102,350 ) ( 102,919 ) Property and equipment, net $ 141,570 $ 138,357 Weighted Average Remaining Lease Term (in years) Operating leases 8.97 8.88 Finance leases 18.35 19.94 Weighted Average Discount Rate Operating leases 8.79 % 8.74 % Finance leases 8.85 % 8.84 % The major categories of the Company’s finance lease liabilities as of March 30, 2024 and December 30, 2023 are as follows: Category March 30, 2024 December 30, 2023 (In thousands) Equipment and vehicles $ 48,445 $ 42,252 Real estate 243,622 243,174 Total finance leases $ 292,067 $ 285,426 Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of March 30, 2024. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the unaudited condensed consolidated balance sheet, including options to extend lease terms that are reasonably certain of being exercised. Fiscal year Operating leases Finance leases (In thousands) 2024 $ 7,257 $ 28,661 2025 8,768 33,374 2026 5,344 36,810 2027 4,044 31,223 2028 3,914 31,316 Thereafter 24,976 500,233 Total lease payments $ 54,303 $ 661,617 Less: imputed interest ( 18,231 ) ( 369,550 ) Total $ 36,072 $ 292,067 14 Table of Contents 9. Commitments and Contingencies Regulatory Matters Government and regulatory agencies may have the ability to conduct routine audits and periodic examinations of, and administrative proceedings regarding, the Company’s business operations. As previously disclosed, U.S. Customs gathered initial information from the Company under routine audit procedures, and the information indicated that the Company potentially underpaid duties in prior periods arising from certain classification discrepancies for products imported into the United States as separately entered shipments. In working with the U.S. Customs, the Company has exercised reasonable care to address this matter in an equitable and expeditious manner through the filing of a prior disclosure submission with U.S. Customs and now estimates that it will be required to pay approximately $ 10.4 million, excluding any interest. The Company accrued this estimated amount in the first quarter of 2024 and it is reflected in Other current liabilities and in Costs of products sold on the Company’s unaudited condensed consolidated balance sheet and unaudited condensed consolidated statement of operations as of and for the three months ended March 30, 2024. See Note 2, Inventories , for disclosure concerning another matter related to import duties. Environmental Matters From time to time, the Company is involved in various proceedings incidental to its business and the Company is subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which it operates. Although the ultimate outcome of these proceedings cannot be determined with certainty, based on presently available information, the Company believes that adequate liabilities have been accrued for probable losses with respect thereto and receivables recorded for expected receipts from settlements. The Company further believes that, while the ultimate outcome of these matters could be material to the Company’s financial position, results of operations and cash flows in any given reporting period, they will not have a materially adverse effect on the Company’s long-term financial condition, results of operations, or cash flows. Collective Bargaining Agreements As of March 30, 2024, approximately 20 % of the Company’s employees were represented by various local labor unions with terms and conditions of employment governed by Collective Bargaining Agreements (“CBAs”). Three CBAs covering approximately 3.5 % of the Company’s employees are up for renewal in the remainder of fiscal 2024, of which one has already been renegotiated, one is currently under negotiations, and one is expected to be renegotiated before their renewal dates. 10 . Accumulated Other Comprehensive Loss As of March 30, 2024 and December 30, 2023, the Company had no accumulated other comprehensive income or loss. As of April 1, 2023, the components of accumulated other comprehensive loss were as follows: Defined Benefit Pension Plan, Net of Tax Other Total Accumulated Other Comprehensive Loss, Net of Tax April 1, 2023 balance $ ( 32,436 ) $ 1,252 $ ( 31,184 ) 11. Income Taxes Effective Income Tax Rate The Company’s effective tax rate for the three months ended March 30, 2024 and April 1, 2023 was 24.1 percent and 26.5 percent, respectively. For the full fiscal year ending December 28, 2024, the Company estimates that its annual effective income tax rate will be approximately 26 % . The Company’s effective tax rates for the three months ended March 30, 2024 and April 1, 2023 were impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, slightly offset by a benefit from the vesting of restricted stock units, which occurred during each period. Additionally, the effective income tax rate for the three months ended March 30, 2024 was impacted by a partial release of the valuation allowance for deferred income tax assets due to a state income tax adjustment. 15 Table of Contents 12. Earnings Per Share and Stockholders' Equity Earnings Per Share The Company calculates basic earnings per share by dividing net income for the period by the weighted average number of common shares outstanding for the period. For rounding purposes when calculating earnings per share, the Company’s policy is to round down to the whole cent. Diluted earnings per share are calculated using the treasury stock method whereby net income for the period is divided by the weighted average number of common shares outstanding for the period plus the dilutive effect, if any, of shares of stock associated with unvested share-based grants. However, for performance-based share-based grants, the dilutive effect is included only for grants where the performance goals have been actually achieved. The reconciliation of basic net income and diluted net earnings per common share for the three-month periods ended March 30, 2024 and April 1, 2023 were as follows: Three Months Ended March 30, 2024 April 1, 2023 (In thousands, except per share data) Net income $ 17,492 $ 17,812 Weighted average shares outstanding - Basic 8,653 9,059 Dilutive effect of share-based awards 88 98 Weighted average shares outstanding - Diluted 8,741 9,157 Basic earnings per share $ 2.02 $ 1.96 Diluted earnings per share $ 2.00 $ 1.94 Approximately 114,000 and 78,000 weighted-average share-based awards were excluded from the computation of earnings per share assuming dilution during the three months ended March 30, 2024 and April 1, 2023, respectively, as the awards would have been anti-dilutive for the periods presented. Share Repurchases 2023 Authorization On October 31, 2023, the Company’s board of directors authorized a new share repurchase program for $ 100 million. Under the new share repurchase program, the Company may repurchase its 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. During the three months ended March 30, 2024, the Company did not repurchase any of its common shares. As of March 30, 2024, there remained $ 91.4 million repurchase capacity under this authorization. 2021/2022 Authorization On August 23, 2021, the Company’s board of directors approved a stock repurchase program that authorized the Company to repurchase up to $ 25.0 million of its common stock. On May 3, 2022, the Company’s board of directors increased the share repurchase authorization to $ 100 million. During the three months ended April 1, 2023, the Company did not repurchase any shares of its common stock under the 2021/2022 authorization. Between April 2023 and October 2023, the Company exhausted the remaining available capacity under the 2021/2022 authorization. 16 Table of Contents