What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-18 compared with 2024-02-20 · 120 added, 125 removed, 240 unchanged (51% of the section changed)

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

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

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

These developments have impacted the U.S.

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

housing industry.

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

housing industry that continued through 2024 into 2025.

In addition, looking ahead, we believe that the demand for our products could face pressure from increases in tariffs and other inflationary pressures, the potential for trade disruption through embargoes, sanctions and import and export controls, and labor shortages and workforce disruption in the home building and remodeling industry due to immigration enforcement activities.

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.

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raw materials prices;

the pace of new household formation;

the pace of new household formations;

savings rates;

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

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

According to the Joint Center For Housing Studies’ 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.

Residential mortgage rates have risen in recent years and we believe many homeowners who secured mortgages with lower interest rates will be inclined to stay longer in existing homes, which could benefit R&R demand over the near-to-medium term.

On the other hand, we are experiencing low existing home turnover, which we believe may be currently hindering any significant growth in R&R activity.

According to the Joint Center For Housing Studies’ Leading Indicator of Remodeling Activity (“LIRA”) Index, spending for R&R is expected to increase in 2025 over 2024, particularly later in the year.

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 $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.

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

homeowner improvements and repairs spending expected to be approximately $509 billion in 2025, compared to the $503 billion, $510 billion, and $515 billion in 2024, 2023, and 2022, respectively, but up significantly from the $407 billion in 2021 and the $363 billion in 2020.

As the median age of U.S.

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

According to the U.S.

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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.

We believe the increasing average age of the nation’s approximately 145 million existing homes will drive demand for R&R projects.

Residential New Construction

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

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

We believe our products are more likely to be used in single-family construction than in multi-family units, and therefore we are actively pursuing multi-family business as part of our sales growth strategy.

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, 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.

Department of Housing and Urban Development, for full year 2024 residential housing starts for single family units and multi-family units were up 7% and down 27%, respectively, compared to full year 2023.

We believe the overall increase for single family starts was driven by builders adding more supply to a market with a significant housing shortage and by stabilizing economic conditions.

We believe multi-family starts were down due to the elevated interest rate environment and 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 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 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.

Many of the building products we distribute including lumber and 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 that is based on participants' perceptions and expectations of short-term supply and demand factors.

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

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

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

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

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

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

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

Composite lumber and panel prices have been historically volatile.

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

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

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

Calendar Year Ended

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

2024 versus 2023 2023 versus 2022 2022 versus 2021

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Increase (decrease) in composite panel prices 1.2% (32)% (18)%

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

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

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

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

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

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

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

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, 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.

Our gross profit is equal to our 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.

During fiscal 2024, 2023 and 2022, no one supplier represented more than 10% of our consolidated Cost of products sold.

The specialty products we distribute are available from select domestic and international suppliers from which we have established and cultivated relationships.

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

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.

Pandemics and Public Health Crisis

The impact of disease outbreaks, epidemics, or pandemics and other public health crises 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 the COVID-19 pandemic, or related containment measures and government responses are highly uncertain and cannot be predicted.

Results of Operations

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Interest expense, net 19,364 0.7% 23,746 0.8%

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%

Settlement of defined benefit pension plan (2,481) (0.1)% 30,440 1.0%

Other expense, net — —% 2,377 0.1%

Income before provision for income taxes 70,687 2.4% 81,886 2.6%

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Total net sales $ 2,952,532 100.0 % $ 3,136,381 100.0 %

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

The following table sets forth gross margin dollars and percentages by product category.

Fiscal 2024 Fiscal 2023

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Total gross profit $ 489,139 $ 527,017

Gross Margin % 16.6% 16.8%

Gross margin % by product category:

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Structural products 10.1% 11.2%

Total gross margin % 16.8 % 18.7 %

Discussion of Results of Operations for Fiscal 2023 Compared to 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.

Fiscal 2024 Compared to Fiscal 2023

For fiscal 2024, we generated net sales of $3.0 billion, a decrease of $184 million, or 5.9 percent, compared to fiscal 2023.

The Company’s gross margin percentage decreased from 16.8 percent to 16.6 percent year over year.

The decrease in the Company’s net sales was driven by both specialty products (down 6.3 percent) and structural products (down 4.8 percent) due to price deflation for both specialty and structural products that was partially offset by volume increases for specialty products.

The decrease in the Company’s gross margin percentage was driven by structural products (decrease of 110 basis points) partially offset by an increase of 10 basis points for specialty products.

Company gross profit and Company gross margin percentage for specialty products reflect the positive impact of a net benefit of $12.7 million for import duty items in the current fiscal year.

The import duty items were related to changes in retroactive rates for anti-dumping duties resulting in a credit to cost of products sold of $20.7 million, partially offset by classification adjustments for certain goods imported by the Company that resulted in a net increase in Cost of products sold of $8.0 million for the current year.

Not including this net $12.7 million benefit, the Company’s gross margin percentage would have been 16.1 percent in the current year.

Net sales of specialty products, which includes product types such as engineered wood, siding, millwork, outdoor living products, specialty lumber and panels, and industrial products, decreased $138.3 million, or 6.3 percent, to $2.0 billion in fiscal 2024 .

The overall decrease in specialty products net sales was due to price deflation for all specialty product types, partially offset by volume increases for all specialty product types except industrial.

Specialty products gross profit decreased $23.2 million to $397.6 million in the current year.

Specialty products gross margin percentage increased to 19.4 percent for fiscal 2024 compared to 19.3 percent for fiscal 2023.

Gross profit and gross margin percentage for specialty products benefited in the current year from the aforementioned net $12.7 million benefit related to import duty items.

Excluding this net benefit, gross margin percentage for specialty products was 18.8 percent for the current year.

Net sales of structural products, which includes product types such as lumber, plywood, oriented strand board, rebar, and remesh, decreased overall by $45.5 million, or 4.8 percent, to $907 million in fiscal 2024.

This overall decrease in net sales was primarily due to market-based price deflation for all structural product types and lower volume for lumber, partially offset by volume gains for panels.

Gross profit for structural products decreased in the current year by $14.7 million, or 14 percent, to $91.5 million from $106.2 million in the prior year period due to lower sales in the current year.

Compared to fiscal year 2023, average composite pricing for lumber in the U.S.

decreased 2.5 percent while panel prices increased 1.2 percent.

Structural products gross margin percentage for fiscal 2024 was 10.1 percent, down from 11.2 percent in the prior fiscal year, which was primarily attributable to the aforementioned price deflation.

Our selling, general, and administrative (“SG&A”) expenses increased 2.7 percent overall, or $9.7 million , compared to fiscal 2023.

In the current year, SG&A expenses were higher for payroll and payroll-related expenses driven by increased logistics costs due to higher volumes, expenses associated with our digital transformation, legal expenses associated with duty-related matters, and bad debt related to a customer bankruptcy.

These SG&A increases were partially offset by lower commission expense and lower share-based compensation expense.

Depreciation and amortization expense increased 20.1 percent compared to fiscal 2023 due to a higher base of amortizable and depreciable assets throughout fiscal 2024 when compared to the prior fiscal year, resulting from our continued focus on capital investment.

Other operating expenses decreased $2.9 million compared to fiscal 2023 primarily due to lower restructuring related costs, including severance payments.

Restructuring related costs incurred in fiscal 2023 included costs related to our leadership transition.

Interest expense, net, decreased by 18.5 percent, or $4.4 million, compared to fiscal 2023.

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.

The decrease is primarily due to the net interest income associated with the refunded antidumping duties described in Note 1, Summary of Significant Accounting Policies , under the heading Inventory.

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.

During fiscal 2024, we received cash refunds of $2.5 million related to the settlement when the separate pension trust entity was closed.

The settlement of the frozen defined benefit pension plan did 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 24.9 percent and 40.7 percent for fiscal 2024 and fiscal 2023, respectively.

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 percent.

Our effective income tax rates for both fiscal years were 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 2024 was $53.1 million, or $6.19 per diluted share, versus $48.5 million, or $5.39 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.

Our net income for fiscal 2024 increased primarily due to the lack of the defined benefit pension plan settlement cost incurred in fiscal 2023, the aforementioned net benefit of $12.7 million for import duty items, lower net interest expense and lower income tax provision in the current year, partially offset by lower gross profit, higher SG&A expense, and higher depreciation expense in the current year.

Results of Operations

Fiscal 2023 Compared to Fiscal 2022

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.

For a comparison of the Company’s results of operations for the fiscal year ended December 30, 2023 to the fiscal year ended December 31, 2022, refer to Item 7 of the Company’s Annual Report on Form 10-K for fiscal 2023 filed with the SEC on February 20, 2024.

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 8, Debt and Finance Leases, in Item 8 of this Annual Report;

• Periodic interest payments associated with our senior secured notes, as discussed in Note 8, Debt and Finance Lease Obligations, 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.

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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.

We expect our primary sources of liquidity for the next 12 months to be cash/cash equivalents on hand, 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/cash equivalents on hand, cash flows from our operations, and financing arrangements.

As of December 28, 2024, we had $505.6 million of cash and cash equivalents plus $346.2 million of availability on our revolving credit facility.

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Net cash provided by operating activities totaled $85.2 million for fiscal 2024 compared to $306.3 million for fiscal 2023.

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.

The decrease in cash provided by operating activities for fiscal 2024 was primarily the result of changes in working capital, particularly with respect to changes in inventory and other current assets within fiscal 2024 when compared to changes in inventory and other current assets within fiscal 2023.

Additionally, net income was lower in fiscal 2024 when the non-cash reclassification from accumulated other comprehensive loss of $30.4 million in fiscal 2023 is considered in the net income comparison between fiscal 2024 and fiscal 2023.

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 in fiscal 2023 compared to fiscal 2022, 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.

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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, 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.

See Note 2, Business Combination , in Item 8 of this Annual Report for more information about this acquisition.

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

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

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

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

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

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

Investing Activities

Net cash used in investing activities was $39.2 million during fiscal 2024, primarily for capital expenditures.

Our investing activities in fiscal 2024 reflected continuing improvements to our distribution facilities, upgrades to our fleet, and digital transformation.

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 $56.6 million during fiscal 2023.

Net cash used in financing activities was $62.1 million for fiscal 2024.

Of this amount $45.3 million was used to repurchase our common stock under authorized share repurchase programs and remit excise taxes due on fiscal 2023 share repurchases, $3.4 million was used to repurchase shares to satisfy employee payroll and tax withholdings for vesting of share-based compensation, and $13.4 million was used for payments on finance lease obligations.

Net cash used in financing activities was $56.6 million for 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.

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

As discussed elsewhere in this Form 10-K, during fiscal years 2024, 2023, and 2022 we used cash of $45.0 million, $42.1

million, and $66.4 million, respectively, to repurchase shares of our common stock under repurchase programs authorized by our Board of Directors, excluding excise tax due on the 2024 and 2023 repurchases.

As of December 28, 2024, we had $46.5 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.

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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

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

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.

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Accounts payable 170,202 157,931

$ 157,931 $ 151,626

Net working capital $ 411,544 $ 414,117

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 28, 2024, and December 30, 2023, debt and finance leases consisted of the following:

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Available borrowing capacity under this revolving credit facility was $346.2 million and $346.5 million on December 28, 2024 and December 30, 2023, respectively.

Available borrowing capacity is net of undrawn letters of credit commitments.

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

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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.

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 28, 2024, we were in compliance with these covenants.

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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.

Our total finance lease commitments totaled $292.5 million and $285.4 million as of December 28, 2024 and December 30, 2023, respectively.

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As of December 28, 2024, $12.5 million of our finance leases are classified as current liabilities.

Pension Funding Obligations

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.

The real estate finance leases noted above include $125.1 million and $125.0 million as of December 28, 2024 and December 30, 2023, respectively, for sale-leasebacks of real estate in fiscal 2019 and 2020 that did not qualify for sale treatment for accounting purposes.

Off-Balance Sheet Arrangements

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

As of December 28, 2024 and December 30, 2023, we did not have any off-balance sheet arrangements other than short-term inventory commitments in the normal course of our business.

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

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

Critical Accounting Policies and Estimates

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

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

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

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

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

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

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

(1) the tax position is not “more likely than not” to be sustained;

(2) the tax position is “more likely than not” to be sustained, but for a lesser amount;

or (3) the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position was originally taken.

For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information, (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings, and case law and their applicability to the facts and circumstances of the tax position, and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation with other tax positions taken.

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.

or (3) the tax position is “more likely than not” to be sustained, but not in the financial period in which the income tax position was originally taken.

For purposes of evaluating whether or not an income tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information, (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings, and case law and their applicability to the facts and circumstances of the income tax position, and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation with other income tax positions taken.

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 an income tax audit.

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.

The number of years with open tax audits varies depending on the tax jurisdiction.

The tax benefit that has been previously reserved because of a failure to meet the “more likely than not” recognition threshold would be recognized in our income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions:

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

The number of years with open income tax audits varies depending on the tax jurisdiction.

The income tax benefit that has been previously subject to an allowance because of a failure to meet the “more likely than not” recognition threshold would be recognized in our income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions:

(1) the tax position is “more likely than not” to be sustained;

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

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

As a result, the annual tax rate reflected in our consolidated financial statements is different from that reported in our tax return (our cash tax rate).

Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense.

These timing differences create deferred tax assets and liabilities.

Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities.

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

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

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

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

As of 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.

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

As a result, the annual income tax rate reflected in our consolidated financial statements is different from that reported in our income tax return (our cash income tax rate).

Some of these differences are permanent, such as expenses that are not deductible in our income tax return, and some differences reverse over time, such as depreciation expense.

These timing differences create deferred income tax assets and liabilities.

Deferred income tax assets and liabilities are determined based on temporary differences between the financial reporting and income tax bases of assets and liabilities.

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

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

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

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

As of December 28, 2024, 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 28, 2024 was approximately $3.5 million.

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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.

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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.

For entities like us that consist 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.

This present value model requires management to estimate future gross profit, 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.

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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.

As of December 28, 2024, the carrying value of our goodwill was $55.4 million, which represented 3.5% of our consolidated assets.

Between our annual impairment assessment for fiscal 2024 and 2023, we noted no interim events or circumstances to indicate that the carrying value of our goodwill was impaired.

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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