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Item 8. Financial Statements and Supplementary Data

2022-03-02 compared with 2021-03-02 · 279 added, 352 removed, 702 unchanged (47% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets

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We have audited the accompanying consolidated balance sheets of Grocery Outlet Holding Corp.

and subsidiaries (the "Company") as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the fiscal years ended January 2, 2021 , December 28, 2019 and December 29, 2018, and the related notes and Schedule I listed in the Index at Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for the fiscal years ended January 2, 2021 , December 28, 2019 and December 29, 2018, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the "Company") as of January 1, 2022 and January 2, 2021, the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows, for each of the fiscal years ended January 1, 2022, January 2, 2021 and December 28, 2019, and the related notes and Schedule I listed in the Index at Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 1, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2022 expressed an unqualified opinion on the Company's internal control over financial reporting.

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(in thousands, except share and per share amounts)

2021 December 28,

2022 January 2,

Current assets:

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Accrued compensation 8,450 26,447

Current portion of long-term debt — 246

Current lease liabilities 51,136 48,675

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Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

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Income from operations 89,095 107,375 68,343

Other expenses:

Other expenses (income):

Interest expense, net 15,564 20,043 45,927

Gain on insurance recoveries ( 3,970 ) — —

Debt extinguishment and modification costs — 198 5,634

Total other expenses 20,241 51,561 60,615

Total other expenses (income) 11,594 20,241 51,561

Income before income taxes 77,501 87,134 16,782

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Cumulative effect of accounting change 168 168

Issuance of shares 54,184 — 2,946 — 29 29

Repurchase of shares ( 2,946 ) — ( 34 ) ( 34 )

Share-based compensation expense 10,409 10,409

Dividends paid ( 126,236 ) ( 27,351 ) ( 153,587 )

Net income and comprehensive income 15,868 15,868

Balance at December 29, 2018 67,435,288 $ 67 1,038,413 $ 1 1 $ — $ 287,457 $ 12,426 $ 299,951

Cumulative effect of accounting change 168 168

Issuance of common shares upon initial public offering, net of underwriting discounts 19,765,625 20 407,646 407,666

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Redemption of preferred shares ( 1 ) — —

Exercise and vest of share-based awards 735,736 1 30,000 4,443 4,444

Exercise and vesting of share-based awards 735,736 1 30,000 4,443 4,444

Tax paid on behalf of employees related to net settlement of share-based awards ( 2,813 ) ( 2,813 )

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Cumulative effect of accounting change 439 439

Exercise and vest of share-based awards 5,849,274 6 32,598 32,604

Exercise and vesting of share-based awards 5,849,274 6 32,598 32,604

Tax paid on behalf of employees related to net settlement of share-based awards ( 483 ) ( 483 )

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Balance at January 2, 2021 94,854,336 $ 95 — $ — — $ — $ 787,047 $ 135,165 $ 922,307

Exercise and vesting of share-based awards 1,290,097 1 7,225 7,226

Share-based compensation expense 17,615 17,615

Dividends paid ( 186 ) ( 186 )

Net income and comprehensive income 62,310 62,310

Balance at January 1, 2022 96,144,433 $ 96 — $ — — $ — $ 811,701 $ 197,475 $ 1,009,272

See Notes to Consolidated Financial Statements

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Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

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Amortization of intangible and other assets 7,682 7,302 7,237

Amortization of debt issuance costs and bond discounts 2,452 2,542 4,108

Amortization of debt issuance costs and debt discounts 2,511 2,452 2,542

Gain on insurance recoveries ( 3,970 ) — —

Debt extinguishment and modification costs — 198 5,634

Share-based compensation 17,615 38,084 31,439

Provision for accounts receivable ( 456 ) 2,575 749

Provision for independent operator notes, independent operator receivables and other accounts receivable 4,813 ( 456 ) 2,575

Proceeds from insurance recoveries - business interruption and inventory 2,103 479 —

Deferred income taxes 12,944 ( 19,578 ) 872

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Trade accounts payable, accrued compensation and other accrued expenses 3,179 4,778 22,599

Deferred rent — — 16,233

Proceeds from insurance recoveries 479 — —

Changes in operating lease assets and liabilities, net 19,134 22,964 22,732

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Proceeds from sales of assets 37 269 586

Intangible assets and licenses ( 5,861 ) ( 3,073 ) ( 3,173 )

Proceeds from insurance recoveries 305 — —

Investments in intangible assets and licenses ( 9,772 ) ( 5,861 ) ( 3,073 )

Proceeds from insurance recoveries - property and equipment 1,867 305 —

Net cash used in investing activities ( 136,713 ) ( 133,786 ) ( 108,019 )

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Proceeds from initial public offering, net of underwriting discounts paid — — 407,666

Proceeds from exercise of share-based compensation awards 32,604 4,444 29

Proceeds from term loans — — 871,688

Proceeds from exercise of stock options 7,226 32,604 4,444

Proceeds from revolving credit facility loan — 90,000 —

Principal payments on revolving credit facility loan — ( 90,000 ) —

Payments made for net settlement of employee share-based awards

Payments made for net settlement of employee share-based compensation awards

— ( 483 ) ( 2,813 )

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Property and equipment accrued at end of period $ 14,986 $ 15,604 $ 10,498

Intangible assets accrued at end of period $ 1,613 $ 1,050 $ —

Acquisition of equipment in exchange for reduction of independent operator notes and independent operator receivables $ 7,609 $ — $ —

See Notes to Consolidated Financial Statements

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(together with its wholly owned subsidiaries, collectively, "Grocery Outlet," "we," or the "Company") is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores.

As of January 2, 2021, we had 380 stores throughout California, Washington, Oregon, Pennsylvania, Idaho and Nevada.

As of January 1, 2022, we had 415 stores throughout California, Washington, Oregon, Pennsylvania, Idaho, Nevada and New Jersey.

Grocery Outlet Holding Corp.

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("Midco"), which owns 100 % of Grocery Outlet Inc.

Initial Public Offering — In June 2019, we completed an initial public offering (“IPO”) of 19,765,625 shares of our common stock at a public offering price of $ 22.00 per share for net proceeds of $ 407.7 million, after deducting underwriting discounts and commissions of $ 27.1 million.

We also incurred offering costs payable by us of $ 7.2 million.

The shares of common stock sold in the IPO and the net proceeds from the IPO included the full exercise of the underwriters’ option to purchase additional shares.

Our Amended and Restated Certificate of Incorporation (the “Charter”) became effective in connection with the completion of the IPO on June 24, 2019.

The Charter, among other things, provided that all of our outstanding shares of nonvoting common stock were automatically converted into shares of voting common stock on a one-for-one basis and that our authorized capital stock consisted of 500,000,000 shares of common stock, and 50,000,000 shares of preferred stock, par value $ 0.001 per share.

Our bylaws were also amended and restated as of June 24, 2019.

Additionally, upon the closing of the IPO, we redeemed all of our outstanding preferred stock for an aggregate of $ 1.00 .

On June 24, 2019, we used the net proceeds from the IPO to repay $ 150.0 million in principal on the outstanding term loan under our second lien credit agreement, dated as of October 22, 2018 (as amended, the “Second Lien Credit Agreement”), as well as accrued and unpaid interest as of that date of $ 3.6 million, and terminated the Second Lien Credit Agreement.

In addition, using the remainder of net proceeds, together with excess cash on hand, we prepaid a portion of our outstanding senior secured term loan under our First Lien Credit Agreement (as defined below) totaling $ 248.0 million plus accrued interest of $ 3.8 million.

On October 23, 2019, we prepaid an additional $ 15.0 million of principal on the senior secured term loan under the First Lien Credit Agreement.

Secondary Public Offerings — On October 8, 2019, certain of our selling stockholders completed a secondary public offering of shares of our common stock.

We did not receive any of the proceeds from the sale of these shares by the selling stockholders.

We incurred offering costs of $ 1.1 million, which are included in selling, general and administrative expenses (“SG&A“) for fiscal 2019, and received $ 3.2 million in cash (excluding withholding taxes) in connection with the exercise of 451,470 options by certain stockholders participating in this secondary public offering.

On February 3, 2020, certain selling stockholders completed an additional secondary public offering of shares of our common stock.

We did not receive any of the proceeds from the sale of these shares by the selling stockholders.

We incurred offering costs of $ 1.1 million, which were recognized in SG&A expenses during fiscal 2020.

We received $ 1.4 million in cash (excluding withholding taxes) in connection with the exercis e of 191,470 opti ons by certain stockholders participating in this secondary public offering.

On April 27, 2020, certain of our selling stockholders completed another secondary public offering of shares of our common stock.

We did not receive any of the proceeds from the sale of these shares by the selling stockholders.

We incurred related offering costs of $ 1.0 million which we recognized in SG&A expenses during fiscal 2020.

We received $ 1.6 million in cash (excluding withholding taxes) in connection with the exercise of 269,000 options by certain stockholders participating in this secondary public offering.

On May 28, 2020, the stockholder affiliated with our former private equity sponsor, Hellman and Friedman LLC (the "H&F Investor"), distributed the remainder of its holdings representing 9.6 million shares of our common stock to its equity holders.

We did not receive any proceeds or incur any material costs related to this distribution.

Forward Stock Split — All share amounts and per share disclosures for all periods presented reflect a 1.403 for 1 forward stock split effected on June 6, 2019.

Fiscal Year — We operate on a fiscal year that ends on the Saturday closest to December 31st each year.

The fiscal year ended January 2, 2021 contained 53 weeks while each of the fiscal years ended December 28, 2019 and December 29, 2018 contained 52 weeks.

The fiscal years ended January 1, 2022 ("fiscal 2021") and December 28, 2019 ("fiscal 2019") consisted of 52 weeks while the fiscal year ended January 2, 2021 ("fiscal 2020") consisted of 53 weeks.

Basis of Presentation — The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the U.S.

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In the opinion of management, these consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented.

Certain prior period amounts in the notes to the consolidated financial statements have been reclassified to conform to the current period presentation.

The reclassification of these items had no impact on net income, earnings per share, or retained earnings in the current or prior period.

Use of Estimates — The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

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All cash equivalents are unrestricted and available for immediate use.

Allowance for Independent Operator ( “ IO ” ) Receivables and Notes and Other Accounts Receivable — We maintain allowances and accruals for estimated losses of amounts advanced to IOs and other third parties determined to be uncollectible.

See NOTE 2 — Independent Operator Notes and Receivables, for additional information.

Allowance for Independent Operator ("IO") Receivables and IO Notes and Other Accounts Receivable — We maintain allowances and accruals for estimated losses of amounts advanced to IOs and other third parties determined to be uncollectible.

See NOTE 2 — Independent Operator Notes and Independent Operator Receivables, for additional information.

Concentrations of Credit Risk — Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts and notes receivable.

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To date, we have not experienced any losses on our cash deposits.

No single customer or store represented more than 10% of net sales for the years ended January 2, 2021, December 28, 2019 and December 29, 2018.

No single customer or IO represented more than 10% of accounts receivable or notes receivable as of January 2, 2021 and December 28, 2019.

No single customer or store represented more than 10% of net sales for the fiscal years ended January 1, 2022, January 2, 2021 and December 28, 2019.

No single customer or IO represented more than 10% of accounts receivable or notes receivable as of January 1, 2022 and January 2, 2021.

Merchandise Inventories — Merchandise inventories are valued at the lower of cost or net realizable value.

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If the sum of the undiscounted future cash flows is less than the carrying amount of an asset, we record an impairment loss for the amount by which the carrying amount of the asset exceeds its fair value.

The total amount of property and equipment, including store assets, and operating lease right-of-use assets as of January 1, 2022 were $ 499.4 million and $ 898.2 million, respectively.

The estimated fair value of the asset or asset group is based on the estimated discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk.

There were no adjustments to the carrying value of long-lived assets due to impairment charges during fiscal 2020.

We recorded impairment charges of $ 0.5 million and $ 0.6 million during fiscal 2019 and 2018, respectively .

There were no adjustments to the carrying value of long-lived assets due to impairment charges during fiscal 2021 and 2020.

We recorded impairment charges of $ 0.5 million during fiscal 2019 .

See NOTE 3—Property and Equipment, for additional information.

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As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is estimated to approximate the interest rate on a collateralized basis with similar terms and payments based on the information available at the commencement date to determine the present value of our lease payments.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

Amortization of finance lease right-of-use assets, interest expense on finance lease liabilities and operating and financing cash flows for finance leases are immaterial.

We have lease agreements with retail facilities for store locations, distribution centers, office space and equipment with lease and non-lease components, which are accounted for separately.

Lease term is defined as the non-cancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term while finance lease payments are charged to interest expense and depreciation and amortization expense over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

lease expense for these leases is recognized on a straight-line basis over the lease term.

The short-term lease expense is reflective of the short-term lease commitments on a go-forward basis.

lease expense for these short-term leases is recognized on a straight-line basis over the lease term.

We generally lease retail facilities for store locations, distribution centers, office space and equipment and account for these leases as operating leases.

We account for one retail store lease and certain equipment leases as finance leases.

Lease and non-lease components are accounted for separately.

We sublease certain real estate to unrelated third parties under non-cancelable leases and the sublease portfolio consists of operating leases for retail stores.

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Measurement of such an impairment loss would be based on the excess of the carrying amount over fair value.

There were no goodwill impairment charges recorded during the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018.

There were no changes in the carrying amount of goodwill for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018.

There were no goodwill impairment charges recorded during the fiscal years ended January 1, 2022, January 2, 2021 and December 28, 2019.

There were no changes in the carrying amount of goodwill for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019.

Intangible assets include trademarks, computer software, and liquor licenses.

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Computer software includes both acquired software and eligible costs to develop internal-use software that are incurred during the application development stage.

These assets are amortized over their estimated useful lives of 3 years.

These assets are amortized over their estimated useful lives of three to 10 years.

Liquor license assets have been classified as indefinite-lived intangible assets and accordingly, are not subject to amortization.

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If the carrying amount of the intangible assets are not recoverable, the impairment is measured as the amount by which the carrying value of the intangible asset exceeds its fair value.

There were no impairments of intangible assets recognized during the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018.

There were no impairments of intangible assets recognized during the fiscal years ended January 1, 2022, January 2, 2021 and December 28, 2019.

Fair Value Measurements — Fair value is defined as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

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The fair value framework requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

There were no assets or liabilities measured at fair value on a recurring basis as of January 2, 2021 or December 28, 2019.

There were no assets or liabilities measured at fair value on a recurring basis as of January 1, 2022 or January 2, 2021.

Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.

See NOTE 3—Property and Equipment and NOTE 5—Goodwill and Intangible Assets, for additional information.

There were no transfers of assets or liabilities between levels within the fair value hierarchy as of January 2, 2021 or December 28, 2019.

There were no transfers of assets or liabilities between levels within the fair value hierarchy during the fiscal years ended January 1, 2022 or January 2, 2021.

Our financial assets and liabilities are carried at cost, which generally approximates their fair value, as described below:

Cash and cash equivalents, IO receivables, other accounts receivable and accounts payable — The carrying value of such financial instruments approximates their fair value due to factors such as their short-term nature or their variable interest rates.

IO notes receivable (net) — The carrying value of such financial instruments approximates their fair value.

Notes payable and term loans — The carrying value of such financial instruments approximates their fair value since the stated interest rates approximates market rates for loans with similar terms for borrowers with similar credit profiles.

However, in accordance with Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments, the fair values of our term loans as of January 2, 2021 and December 28, 2019 are set forth below.

IO notes receivable (net) — The carrying value of such financial instruments approximates their fair value due to the effect of the related allowance for expected credit losses.

The following table sets forth by level within the fair value hierarchy the carrying amounts and estimated fair values of our significant financial liabilities that are not recorded at fair value on the consolidated balance sheets (amounts in thousands):

2021 December 28,

2022 January 2,

Carrying Amount (1)

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Financial Liabilities:

Term loans (Level 2) $ 458,757 $ 460,000 $ 458,682 $ 466,515

Term loan (Level 2) $ 451,468 $ 457,700 $ 449,233 $ 460,000

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(1) The carrying amounts as of January 2, 2021 and December 28, 2019 are net of unamortized debt discounts of $ 1.2 million and $ 1.5 million, respectively.

(2) The estimated fair value of our term loans was determined based on the average quoted bid-ask prices for the term loans in an over-the-counter market on the last trading day of fiscal 2020 and 2019.

(1) The carrying amounts as of January 1, 2022 and January 2, 2021 are net of unamortized debt discounts of $ 1.0 million and $ 1.2 million, respectively, and debt issuance costs of $ 7.5 million and $ 9.5 million, respectively.

(2) The estimated fair value of our term loan was determined based on the average quoted bid-ask prices for the term loan in an over-the-counter market on the last trading day of fiscal 2021 and 2020.

Revenue Recognition

Net Sales — We recognize revenue from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities.

For e-commerce related sales in which a third-party company provides home delivery service, revenue is recognized upon delivery to the customer.

Our performance obligations are satisfied upon the transfer of goods to the customer, at the point of sale, and payment from customers is also due at the time of sale.

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We do not accept manufacturer coupons.

We do not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current year from performance obligations satisfied in previous periods, any performance obligations, or any material costs to obtain or fulfill a contract as of January 2, 2021 and December 28, 2019.

Gift Cards — We record a deferred revenue liability when a Grocery Outlet gift card is sold.

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While gift cards are generally redeemed within 12 months, some are never fully redeemed.

We reduce the liability and recognize revenue for the unused portion of the gift cards (“breakage”) under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards.

Our gift card deferred revenue liability was $ 3.2 million as of January 2, 2021 and $ 2.0 million as of December 28, 2019.

Breakage amounts were $ 0.2 million for the fiscal year ended January 2, 2021, and less than $ 0.1 million for each of the fiscal years ended December 28, 2019 and December 29, 2018.

Disaggregated Revenues — The following table presents sales revenue by type of product for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018 (amounts in thousands):

2021 December 28,

We reduce the liability and recognize

revenue for the unused portion of the gift cards ("breakage") under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards.

Our gift card deferred revenue liability was $ 3.6 million as of January 1, 2022 and $ 3.2 million as of January 2, 2021.

Breakage amounts were $ 0.3 million and $ 0.2 million for the fiscal years ended January 1, 2022 and January 2, 2021, respectively, and less than $ 0.1 million for the fiscal year ended December 28, 2019.

Disaggregated Revenues — The following table presents net sales revenue by type of product for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019 (amounts in thousands);

e-commerce sales have been allocated to their respective product type:

2022 January 2,

2021 December 28,

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and fresh meat and seafood.

(2) Non-perishable departments include grocery;

(2) Non-perishable departments include non-perishable grocery;

general merchandise;

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and beer and wine.

(3) The fiscal year ended January 2, 2021 contained 53 weeks while each of the fiscal years ended December 28, 2019 and December 29, 2018 contained 52 weeks.

Cost of Sales — Cost of sales includes, among other things, merchandise costs, inventory markdowns, shrink and transportation, distribution and warehousing costs, including depreciation.

(3) The fiscal years ended January 1, 2022 and December 28, 2019 consisted of 52 weeks while the fiscal year ended January 2, 2021 consisted of 53 weeks.

Cost of Sales — Cost of sales includes, among other things, merchandise costs, inventory markdowns, shrink and transportation, third-party delivery fees and distribution and warehousing costs, including depreciation.

Marketing and Advertising Expenses — Costs for store promotions, newspaper, television, radio and other media advertising are expensed at the time the promotion or advertising takes place.

Advertising costs are included in SG&A in the accompanying consolidated statements of operations and comprehensive income and amounted to approximately $ 25.9 million, $ 26.2 million and $ 21.2 million, respectively, in the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018.

Advertising costs are included in SG&A in the accompanying consolidated statements of operations and comprehensive income and amounted to approximately $ 32.6 million, $ 25.9 million and $ 26.2 million, respectively, in the fiscal years ended January 1, 2022, January 2, 2021 and December 28, 2019.

Share-based Awards — We estimate the fair value of time-based stock option awards subject to only a service condition on the date of grant using the Black-Scholes valuation model.

The Black-Scholes model requires the use of certain input assumptions.

Because we completed our IPO during fiscal 2019, we have limited historical exercise data from which to derive such input assumptions, including an option's expected term and the price volatility of the underlying stock.

Consequently, we determine the expected term using an accepted, simplified formula which derives an expected term by taking the sum of the contractual term and adding the length of the vesting period and dividing by two.

We estimate stock price volatility for our common stock by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants.

Because we completed our IPO during fiscal 2019, for awards granted in fiscal 2019 we had limited historical exercise data from which to derive such input assumptions, including an option's expected term and the price volatility of the underlying stock.

Consequently, we determined the expected term using an accepted, simplified formula which derives an expected term by taking the sum of the contractual term and adding the length of the vesting period and dividing by two.

We estimated stock price volatility for our common stock by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants.

Industry peers consist of several public companies in our industry which are of similar size, complexity and stage of development.

The risk-free interest rate for the expected term of the option is based on the U.S.

The risk-free interest rate for the expected term of the option was based on the U.S.

Treasury implied yield at the date of grant.

We did not award any time-based or performance-based stock options during fiscal 2021 and 2020.

We estimate the fair value of performance-based stock option awards subject to both a market condition and a performance condition on the date of grant using a Monte Carlo simulation approach implemented in a risk-neutral framework.

We estimate the fair value of restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") based upon the closing price of our common stock as reported on the Nasdaq Global Select Market on the date of grant.

The PSUs vest in one installment after a three year performance period based on the achievement of cumulative operating goals.

We recognize compensation expense for share-based payment awards with only a service condition on a straight-line basis over the requisite service period, which is generally the award's vesting period.

Vesting of these awards would be accelerated for certain employees in the event of a change in control.

Vesting of these awards would be accelerated for certain employees in the event of a change in control as well as certain termination events.

Compensation expense for share-based payment awards subject to vesting based upon the achievement of a performance condition is recognized on a graded-vesting basis at the time the achievement of the performance condition becomes probable.

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For awards exercised (or vested for RSUs) during our fiscal year ended January 1, 2022, the difference between the grant date fair value and the exercise or vest date intrinsic value totaled $ 30.3 million.

If the share price for our common stock were to depreciate for a sustained period of time, we could be required to recognize a tax benefit shortfall.

If the share price for our common stock were to depreciate for a sustained period of time, we could be required to recognize a tax shortfall.

Such shortfalls could have a material effect on our cash flows and financial results.

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A valuation allowance is established, when necessary, to reduce net deferred income tax assets to the amount expected to be realized.

We have not recorded any valuation allowances against our deferred income tax balances for the fiscal years ended January 2, 2021 and December 28, 2019.

We have not recorded any valuation allowances against our deferred income tax balances for the fiscal years ended January 1, 2022 and January 2, 2021.

Significant items comprising our future tax benefits and liabilities (deferred tax assets and liabilities) include net operating losses, depreciation and amortization, goodwill, intangible assets, lease liability obligations and right-of-use assets.

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A reporting entity is determined to be a VIE's primary beneficiary if it has the power to direct the activities that most significantly impact a VIE's economic performance and the obligation to absorb losses or rights to receive benefits that could potentially be significant to a VIE.

We had 375 , 342 and 308 stores operated by IOs as of January 2, 2021, December 28, 2019 and December 29, 2018, respectively.

We had 411 , 375 and 342 stores operated by IOs as of January 1, 2022, January 2, 2021 and December 28, 2019, respectively.

We have agreements in place with each IO.

The IO orders its merchandise exclusively from us, which is provided to the IO on consignment.

The IO orders merchandise exclusively from us which is provided to the IO on consignment.

Under the Independent Operator Agreement (the "Operator Agreement"), the IO may select a majority of merchandise that we consign to the IO, which the IO chooses from our merchandise order guide according to the IO's knowledge and experience with local customer purchasing trends, preferences, historical sales and similar factors.

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As consignor of all merchandise to each IO, the aggregate net sales proceeds from merchandise sales belongs to us.

Sales related to IO stores were $ 3.1 billion, $ 2.5 billion , and $ 2.2 billion for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

Net sales related to IO store s were $ 3.0 billion, $ 3.1 billion, and $ 2.5 billion for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

We, in turn, pay IOs a commission based on a share of the gross profit of the store.

Inventories and related sales proceeds are our property, and we are responsible for store rent and related occupancy costs.

Inventories and related net sales proceeds are our property, and we are responsible for store rent and related occupancy costs.

IO commissions were expensed and included in SG&A.

IO commissions were $ 469.3 million, $ 382.8 million, and $ 340.0 million for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

IO commissions of $ 6.0 million and $ 6.1 million were included in accrued expenses as of both January 2, 2021 and December 28, 2019, respectively.

IOs may fund their initial store investment from existing capital, a third-party loan or most commonly through a loan from us, as further discussed in NOTE 2—Independent Operator Notes and Receivables.

IO commissions were $ 463.8 million, $ 469.3 million, and $ 382.8 million for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

IO commissions of $ 9.1 million and $ 6.0 million were included in accrued expenses as of January 1, 2022 and January 2, 2021, respectively.

As collateral for IO obligations and performance, the Operator Agreements grant us the security interests in the assets owned by the IOs related to the respective store.

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The IO is also responsible for all of their own labor.

Labor activities that significantly impact the IO's economic performance include hiring, training, supervising, directing,

compensating (including wages, salaries and employee benefits) and terminating all of the employees of the IO, activities which the IO controls.

Labor activities that significantly impact the IO's economic performance include hiring, training, supervising, directing, compensating (including wages, salaries and employee benefits) and terminating all of the employees of the IO, activities which the IO controls.

Accordingly, the IO has the power to direct the activities that most significantly impact the IO's economic performance.

Furthermore, the mutual termination rights associated with the Operator Agreements vitiate our control over the IO.

Our maximum exposure to the IOs is generally limited to the gross operator notes and receivables due from these entities, which was $ 41.0 million and $ 37.7 million as of January 2, 2021 and December 28, 2019, respectively.

See NOTE 2—Independent Notes and Operator Receivables, for additional information.

Furthermore, the mutual termination rights associated with the Operator Agreements illustrate the lack of ultimate control over the IO.

Therefore, the Company is not the primary beneficiary of these VIEs.

Our maximum exposure to the IOs is generally limited to the IO notes and IO receivables due from these entities, which was $ 40.6 million and $ 41.0 million as of January 1, 2022 and January 2, 2021, respectively.

See NOTE 2—Independent Operator Notes and Independent Operator Receivables, for additional information.

Net Income Per Share — Basic net income per share is calculated using net income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.

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Recently Adopted Accounting Standards

2016-13 — In June 2016, Financial Accounting Standards Board (“FASB”) issued ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13, which was further updated and clarified by the FASB through issuance of additional related ASUs, amends the guidance surrounding measurement and recognition of credit losses on financial assets measured at amortized cost, including trade receivables and debt securities, by requiring recognition of an allowance for credit losses expected to be incurred over an asset’s lifetime based on relevant information about past events, current conditions, and reasonable and supportable forecasts impacting the financial asset's ultimate collectability.

This “expected loss” model will likely result in earlier recognition of credit losses than the previous “as incurred” model, under which losses were recognized only upon an occurrence of an event that gave rise to the incurrence of a probable loss.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be adopted on a modified retrospective basis.

We adopted ASU 2016-13 on December 29, 2019.

The adoption of ASU 2016-13 resulted in a $0.4 million cumulative-effect increase to the opening balance of retained earnings.

The adoption of the new standard did not have a material impact on our consolidated statements of operations and comprehensive income or consolidated statements of cash flows.

See NOTE 2—Independent Notes and Operator Receivables for additional information.

2018-15 — In August 2018, FASB issued ASU No.

2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”).

ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

ASU 2018-15 is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2019.

We adopted ASU 2018-15 on December 29, 2019.

The adoption of ASU 2018-15 did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

2019-12 —In December 2019, FASB issued ASU No.

2019-12 —In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12").

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ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

We will adopt ASU 2019-12 beginning in the first quarter of fiscal 2021.

We do not expect the adoption of ASU 2019-12 to have a material impact on our consolidated financial statements.

NOTE 2— Independent Operator Notes and Receivables

The amounts included in independent operator notes and accounts receivable consist primarily of funds we loaned to IOs, net of estimated uncollectible amounts.

Independent operator notes are payable on demand and typically bear interest at rates between 3.00 % and 9.95 %.

Accrued interest receivable on independent operator notes is included within the “independent operator receivables and current portion of independent operator notes, net of allowance” line item on the condensed consolidated balance sheets and was $ 0.4 million and $ 0.5 million as of January 2, 2021 and December 28, 2019, respectively.

There were no independent operator notes that were past due or on a non-accrual status due to delinquency as of January 2, 2021 or December 28, 2019.

Notes and receivables of our IOs participating in our TCAP, as

defined below, are not considered to be past due or on a non-accrual status due to delinquency and are excluded from such measures.

We adopted ASU 2019-12 beginning in the first quarter of fiscal 2021.

The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

No recently issued accounting pronouncements are expected to have a material effect on our consolidated financial statements.

NOTE 2— Independent Operator Notes and Independent Operator Receivables

The amounts included in IO notes and IO receivables consist primarily of funds we loaned to IOs, net of estimated uncollectible amounts.

IO notes are payable on demand and typically bear interest at rates between 3.00 % and 9.95 %.

Accrued interest receivable on IO notes is included within the "independent operator receivables and current portion of independent operator notes, net of allowance" line item on the condensed consolidated balance sheets and was $ 0.5 million and $ 0.4 million as of January 1, 2022 and January 2, 2021, respectively.

There were no IO notes that were past due or on a non-accrual status due to delinquency as of January 1, 2022 or January 2, 2021.

Notes and receivables from our IOs

participating in our TCAP, as defined below, are not considered to be past due or on a non-accrual status due to delinquency and are excluded from such measures.

IO notes and receivables are financial assets which are measured and carried at amortized cost.

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The primary shared risk characteristic and credit quality indicator pools that we use as a basis for collective evaluation include:

• TCAP — Includes the notes and receivables of IOs with stores that have been open for more than 18 months that are participating in our Temporary Commission Adjustment Program (“TCAP”) as of the end of each reporting period.

• TCAP — Includes the notes and receivables from IOs with stores that have been open for more than 18 months that are participating in our Temporary Commission Adjustment Program ("TCAP") as of the end of each reporting period.

TCAP allows us to provide a greater commission to participating IOs who require assistance in meeting their working capital needs for various reasons, such as new or increased competition or differences in IO skills and experience.

• Non-TCAP — Includes the notes and receivables of IOs with stores that have been open for more than 18 months that are not participating in TCAP as of the end of each reporting period.

• New store — Includes the notes and receivables of IOs with stores that have been open for less than 18 months as of the end of each reporting period.

• Non-TCAP — Includes the notes and receivables from IOs with stores that have been open for more than 18 months that are not participating in TCAP as of the end of each reporting period.

• New store — Includes the notes and receivables from IOs with stores that have been open for less than 18 months as of the end of each reporting period.

Assets without such shared risk characteristics or credit quality indicators, such as assets with unique circumstances or with delinquencies and historical losses in excess of their TCAP, non-TCAP or new store peers are evaluated on an individual basis.

Amounts due from IOs and the related allowances as of January 2, 2021 and December 28, 2019 consisted of the following (amounts in thousands) :

Amounts due from IOs and the related allowances as of January 1, 2022 and January 2, 2021 consisted of the following (amounts in thousands) :

Allowance Current Portion Long-term Portion

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Gross Current Portion Long-term Portion Net

December 28, 2019

January 2, 2021

Independent operator notes $ 37,238 $ ( 514 ) $ ( 7,124 ) $ 29,600 $ 2,160 $ 27,440

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Total $ 40,992 $ ( 985 ) $ ( 7,124 ) $ 32,883 $ 5,443 $ 27,440

A summary of IO notes and receivables allowance activity is as follows (amounts in thousands):

A summary of activity in the IO notes and IO receivables allowance was as follows (amounts in thousands):

Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

Balance at beginning of year $ 10,371 $ 9,067 $ 9,031

Provision for independent operator notes and receivables ( 473 ) 2,741 1,029

Beginning balance $ 8,109 $ 10,371 $ 9,067

Provision for IO notes and IO receivables 4,790 ( 473 ) 2,741

Cumulative effect of accounting change — ( 439 ) —

Write-off of provision for independent operator notes and receivables ( 1,350 ) ( 1,437 ) ( 993 )

Balance at end of year $ 8,109 $ 10,371 $ 9,067

Write-off of provision for IO notes and IO receivables ( 987 ) ( 1,350 ) ( 1,437 )

Ending balance $ 11,912 $ 8,109 $ 10,371

The following table presents the amortized cost basis of IO notes by year of origination and credit quality indicator as of January 1, 2022 (amounts in thousands):

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NOTE 3— Property and Equipment

Property and equipment as of January 2, 2021 and December 28, 2019 consisted of the following (amounts in thousands):

Property and equipment as of January 1, 2022 and January 2, 2021 consisted of the following (amounts in thousands):

Property and Equipment, At Cost Accumulated Depreciation

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Totals $ 762,984 $ ( 263,597 ) $ 499,387

December 28, 2019

January 2, 2021

Leasehold improvements $ 275,586 $ ( 70,999 ) $ 204,587

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Construction in progress is primarily composed of leasehold improvements and fixtures and equipment related to new or remodeled stores where construction had not been completed at year-end.

Long-lived assets were evaluated for potential impairment by measuring their fair value on a nonrecurring basis.

Fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows (including rental expense for leased properties, sublease rental income, common area maintenance costs, and real estate taxes) and discounting them using a risk-adjusted rate.

We estimate future cash flows based on our experience and knowledge of the market in which each store is located.

There were no adjustments to the carrying value of long-lived assets due to impairment charges during fiscal 2020.

We recorded impairment charges of $ 0.5 million and $ 0.6 million during fiscal 2019 and 2018, respectively.

Depreciation expense on property and equipment for fiscal 2021, 2020 and 2019 was as follows (amounts in thousands):

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Consolidated Statements of Operations and Comprehensive Income Location January 1,

2021 December 28,

2022 January 2,

2021 December 28,

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NOTE 4— Leases

We generally lease retail facilities for store locations, distribution centers, office space and equipment and account for these leases as operating leases.

We account for one retail store lease and certain equipment leases as finance leases.

Lease right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at the lease commencement date to determine the present value of lease payments.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

lease expense for these short-term leases is recognized on a straight-line basis over the lease term.

Leases for 15 of our store locations and one warehouse location are controlled by related parties as of both January 2, 2021 and December 28, 2019.

Leases for 15 of our store locations and one warehouse location are controlled by related parties as of January 1, 2022 and January 2, 2021.

See NOTE 11—Related Party Transactions, for additional information.

As of January 2, 2021, the right-of-use assets and lease liabilities related to these properties was $ 39.8 million and $ 44.3 million, respectively.

As of December 28, 2019, the right-of-use assets and lease liabilities related to these properties was $ 42.5 million and $ 46.7 million, respectively.

As of January 2, 2021, we had executed leases for 37 store locations that we had not yet taken possession of with total undiscounted future lease payments of $ 200.4 million with lease terms through 2039.

As of January 1, 2022, we had executed leases for 25 store locations that we had not yet taken possession of with total undiscounted future lease payments of $ 141.9 million and lease terms through 2039.

Based upon our initial investment in store leasehold improvements, we utilize an initial, reasonably-certain lease life of 15 years.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from five to 15 years or more.

Our lease terms only include options to extend the lease when we are reasonably certain that we will exercise such options.

Our leases do not include any material residual value guarantees or material restrictive covenants.

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Leases Classification January 1,

2021 December 28,

2022 January 2,

Operating lease assets Operating right-of-use assets $ 898,152 $ 835,397

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Lease Cost Classification (1)

2022 January 2,

2021 December 28,

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(1) Certain supply chain related lease costs herein are included in cost of sales.

Short-term lease expense payments recorded in operating expenses were immaterial for the fiscal years ended January 2, 2021 and December 28, 2019.

Maturities of lease liabilities as of January 1, 2022 were as follows (amounts in thousands):

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The weighted-average lease terms and discount rates of operating and finance leases were as follows:

2021 December 28,

2022 January 2,

Weighted-average remaining lease term:

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Fiscal Year Ended

2022 January 2,

2021 December 28,

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$ 113,886 $ 101,245 $ 88,362

Operating cash flows from finance leases

$ 378 $ 378 $ 337

Finance cash flows from finance leases $ 1,155 $ 821 $ 675

Leased assets obtained in exchange for new lease liabilities — adoption

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$ 139,663 $ 166,018 $ 155,986

ASC 840 Disclosure

Rental expense for all operating leases for the fiscal year ended December 29, 2018 totaled $ 86.0 million.

Leased assets obtained in exchange for new finance lease liabilities $ 2,019 $ 883 $ —

NOTE 5— Goodwill and Intangible Assets

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Total goodwill and intangible assets $ 848,733 $ ( 48,869 ) $ 799,864

Information regarding our goodwill and intangible assets as of December 28, 2019 was as follows (amounts in thousands):

Information regarding our goodwill and intangible assets as of January 2, 2021 was as follows (amounts in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Trademarks $ 58,400 $ ( 24,218 ) $ 34,182

Customer lists 160 ( 160 ) —

Computer software 24,868 ( 18,368 ) 6,500

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Total goodwill and intangible assets $ 838,755 $ ( 42,586 ) $ 796,169

Amortization expense for finite-lived intangible assets was $ 6.5 million, $ 6.7 million, and $ 10.0 million for t he fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

Liquor license assets have been classified as indefinite-lived intangible assets and accordingly, are not subject to amortization.

There were no impairments of goodwill or intangible assets during the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

Amortization expense for finite-lived intangible assets was $ 6.6 million, $ 6.5 million, and $ 6.7 million for t he fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

The estimated future amortization expense related to finite-lived intangible assets as of January 1, 2022 is as follows (amounts in thousands):

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Long-term debt consisted of the following (amounts in thousands):

2021 December 28,

2022 January 2,

First Lien Credit Agreement:

Term loan $ 460,000 $ 460,000

Notes payable — 246

Long-term debt, gross 460,000 460,000

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( 8,532 ) ( 10,767 )

Long-term debt, less unamortized debt discounts and debt issuance costs 449,233 447,989

Current portion — ( 246 )

Long-term debt, net $ 451,468 $ 449,233

First Lien Credit Agreement

On October 22, 2018, GOBP Holdings, our wholly owned subsidiary, together with another of our wholly owned subsidiaries, entered into a first lien credit agreement (the “First Lien Credit Agreement”) with a syndicate of lenders for a $ 725.0 million senior term loan and a revolving credit facility for an amount up to $ 100.0 million, with a sub-commitment for a $ 35.0 million letter of credit and a sub-commitment for $ 20.0 million of swingline loans.

Borrowings under the First Lien Credit Agreement are secured by substantially all the assets of the borrower subsidiary and its guarantors.

The term loan proceeds were primarily used for retiring our prior first lien credit agreement and paying cash dividends related to our 2018 recapitalization.

As of January 2, 2021, we had standby letters of credit outstanding totali ng $ 3.5 million u nder the First Lien Credit Agreement.

GOBP Holdings, our wholly owned subsidiary, together with another of our wholly owned subsidiaries, has a first lien credit agreement (the "First Lien Credit Agreement") with a syndicate of lenders that consists of a $ 460.0 million senior term loan and a revolving credit facility for an amount up to $ 100.0 million, with sub-commitments for a $ 35.0 million letter of credit and $ 20.0 million of swingline loans as of January 1, 2022.

The First Lien Credit Agreement permits voluntary prepayment on borrowings without premium or penalty.

In connection with the closing of our IPO, we prepaid $ 248.0 million of principal and $ 3.8 million of interest on the outstanding term loan under the First Lien Credit Agreement on June 24, 2019 and elected to apply the prepayment against the remaining principal installments in the direct order of maturity.

No further principal payment on the term loan will be due until the maturity date of this term loan.

Borrowings under the First Lien Credit Agreement are secured by substantially all the assets of the borrower subsidiary and its guarantors.

Our $ 460.0 million senior term loan matures on October 22, 2025 and had an interest rate of 2.85 % as of January 1, 2022.

Due to previous prepayments on the term loan, no further principal payment on the term loan will be due until the maturity date.

The terms of the First Lien Credit Agreement include mandatory prepayment requirements on the term loan if certain conditions are met (as described in the First Lien Credit Agreement).

First Incremental Agreement — On July 23, 2019, GOBP Holdings together with another of our wholly owned subsidiaries entered into an incremental agreement (the “First Incremental Agreement”) to amend the First Lien Credit Agreement.

The First Incremental Agreement refinanced the term loan outstanding under the First Lien Credit Agreement with a replacement $ 475.2 million senior secured term loan (the “First Replacement Term Loan”) with an applicable margin of 3.50 % or 3.25 % for Eurodollar loans and 2.50 % or 2.25 % for base rate loans, in each case depending on the public corporate family rating of GOBP Holdings.

The First Replacement Term Loan was to mature on October 22, 2025, which was the same maturity date as the prior term loan under the First Lien Credit Agreement.

We wrote off debt issuance costs of $ 0.3 million and incurred debt modification costs of $ 0.2 million during the third quarter of fiscal 2019 in connection with this refinance.

On October 23, 2019 , we prepaid $ 15.0 million of principal on the First Replacement Term Loan.

Second Incremental Agreement — On January 24, 2020, GO BP Holdings together with another of our wholly owned subsidiaries entered into a second incremental agreement (the “Second Incremental Agreement”) which amended the First Incremental Agreement.

The Second Incremental Agreement refinanced the First Replacement Term loan under the First Incremental Agreement with a replacement $ 460.0 million senior secured term loan (the “Second Replacement Term Loan”) with an applicable margin of 2.75 % for Eurodollar loans and 1.75 % for base rate loans, in each case depending on the public corporate family rating of GOBP Holdings, and made certain other corresponding technical changes and updates to the First Incremental Agreement.

The interest rate on the First Replacement Term Loan was 2.90 % as of January 2, 2021.

The Second Replacement Term Loan matures on October 22, 2025, which is the same maturity date as prior term loans under the First Lien Credit Agreement and First Incremental Agreement.

On January 24, 2020, GO BP Holdings together with another of our wholly owned subsidiaries, entered into a second incremental agreement (the "Second Incremental Agreement") which amended a previous incremental agreement (the "First Incremental Agreement").

The Second Incremental Agreement refinanced a previous replacement term loan under the First Incremental Agreement with a replacement $ 460.0 million senior secured term loan (the "Second Replacement Term Loan") with an applicable margin of 2.75 % for Eurodollar loans and 1.75 % for base rate loans, in each case depending on the public corporate family rating of GOBP Holdings, and made certain other corresponding technical changes and updates to the First Incremental Agreement.

We wrote off debt issuance costs of $ 0.1 million and incurred debt modification costs of $ 0.1 million during the first quarter of fiscal 2020 in connection with this refinance.

Other than as described above, the Second Replacement Term Loan has the same terms as provided under the original First Lien Credit Agreement and the First Incremental Agreement.

Additionally, the parties to the Second Incremental Agreement continue to have the same obligations set forth in the original First Lien Credit Agreement and the First Incremental Agreement (collectively, the “First Lien Credit Agreement”).

Additionally, the parties to the Second Incremental Agreement continue to have the same obligations set forth in the original First Lien Credit Agreement and the First Incremental Agreement.

Revolving Credit Facility

As of January 1, 2022, we had $ 3.5 million of outstanding standby letters of credit and $ 96.5 million of r emaining borrowing capacity available under the revolving credit facility .

No amounts were outstanding under the revolving credit facility as of January 1, 2022 and January 2, 2021.

We are required to pay a quarterly commitment fee ranging from 0.25 % to 0.50 % on the daily unused amount of the commitment under the revolving credit facility based upon the leverage ratio defined in the agreement and certain criteria specified in the agreement.

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The interest rate for the revolving credit facility is determined based on a formula using certain market rates.

No amounts were outstanding under the revolving credit facility as of January 2, 2021 and December 28, 2019.

On March 19, 2020, we borrowed $ 90.0 million under the revolving credit facility of our First Lien Credit Agreement (the "Revolving Credit Facility Loan"), the proceeds of which were to be used as reserve funding for working capital needs as a precautionary measure in light of the economic uncertainty surrounding the COVID-19 pandemic.

On May 26, 2020, we repaid the Revolving Credit Facility Loan in full.

As of January 2, 2021 , we had $ 96.5 million of borrowing capacity available under the revolving credit facility.

Second Lien Credit Agreement

On October 22, 2018, one of our wholly owned subsidiaries entered into a second lien credit agreement with a syndicate of lenders for a $ 150.0 million senior term loan.

The proceeds were primarily used for retiring the prior second lien credit agreement and paying the dividends related to our 2018 recapitalization.

The term loan under the Second Lien Credit Agreement did not require minimum quarterly principal payment.

The Second Lien Credit Agreement did require mandatory prepayment if certain conditions were met and permitted voluntarily prepayment on borrowings without premium or penalty.

On June 24, 2019, we terminated the Second Lien Credit Agreement and repaid in full the outstanding principal balance of $ 150.0 million and accrued interest of $ 3.6 million.

In addition, we wrote off the remaining unamortized debt issuance costs of $ 3.8 million and loan discounts of $ 1.4 million on June 24, 2019.

No amounts were borrowed under the Revolving Credit Facility Loan during the fiscal year ended January 1, 2022 .

Debt Covenants

The First Lien Credit Agreement contains certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants.

The First Lien Credit Agreement has the ability to restrict us from entering into certain types of transactions and making certain types of payments including dividends and stock repurchase and other similar distributions, with certain exceptions.

Additionally, the revolving credit facility under our First Lien Credit Agreement is subject to a first lien secured leverage ratio of 7.00 to 1.00, tested quarterly if, and only if, the aggregate principal amount from the revolving facility, letters of credit (to the extent not cash collateralized or backstopped or, in the aggregate, not in excess of the greater of $ 10.0 million and the stated face amount of letters of credit outstanding on the closing date) and swingline loans outstanding and/or issued, as applicable, exceeds 35 % of the total amount of the revolving credit facility commitments (as defined in the First Lien Credit Agreement).

The First Lien Credit Agreement restricts us from entering into certain types of transactions and making certain types of payments including dividends and stock repurchase and other similar distributions, with certain exceptions.

Additionally, borrowing availability under the revolving credit facility under our First Lien Credit Agreement is subject to a first lien secured leverage ratio (as defined in the First Lien Credit Agreement) of 7.00 to 1.00, tested quarterly if, and only if, the aggregate principal amount outstanding and/or issued, as applicable, from the revolving facility, letters of credit (to the extent not cash collateralized or backstopped or, in the aggregate, not in excess of the greater of $ 10.0 million and the stated face amount of letters of credit outstanding on the closing date) and swingline loans exceeds 35 % of the total amount of the revolving credit facility commitments (as defined in the First Lien Credit Agreement).

As of January 1, 2022, we were in compliance with all applicable financial covenant requirements for our First Lien Credit Agreement.

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Total $ 460,000

Interest Expense

Interest Expense, Net

Interest expense, net, consisted of the following (amounts in thousands):

Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

Interest on loans $ 13,930 $ 18,950 $ 45,084

Amortization of debt issuance costs 2,289 2,367 4,024

Amortization of debt issuance costs and debt discounts 2,511 2,452 2,542

Interest on finance leases 378 376 263

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Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

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Debt modification costs — 124 150

Write off of loan discounts — 1,374 —

Write off of debt discounts — — 1,374

Debt extinguishment and modification costs $ — $ 198 $ 5,634

NOTE 7— Stockholders' Equity

As of January 1, 2022, the total amount of the Company’s authorized capital stock consisted of 500,000,000 shares of common stock, par value $ 0.001 per share, and 50,000,000 shares of undesignated preferred stock, par value of $ 0.001 per share.

Holders of our common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election or removal of directors.

The holders of our common stock do not have cumulative voting rights in the election of directors.

Preferred Stock

We did not have any shares of preferred stock issued or outstanding as of January 1, 2022.

Our Board of Directors has the authority to issue shares of preferred stock from time to time on terms it may determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative, participating, optional and other special rights, and the qualifications, limitations or restrictions thereof as the board of directors may from time to time determine, which could affect the relative voting power or other rights of the holders of our common stock.

The issuance of preferred stock could have the effect of decreasing the trading price of our common stock, restricting dividends on the common stock, diluting the voting power of our common stock, or subordinating the liquidation rights of the common stock.

Dividend Rights

Holders of our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to the rights of the holders or one or more outstanding series of our preferred stock.

Initial Public Offering

In June 2019, we completed an initial public offering ("IPO") of 19,765,625 shares of our common stock at a public offering price of $ 22.00 per share for net proceeds of $ 407.7 million, after deducting underwriting discounts and commissions of $ 27.1 million.

We also incurred offering costs payable by us of $ 7.2 million.

The shares of common stock sold in the IPO and the net proceeds from the IPO included the full exercise of the underwriters' option to purchase additional shares.

Our Amended and Restated Certificate of Incorporation (the "Charter") became effective in connection with the completion of the IPO on June 24, 2019.

Our bylaws were also amended and restated as of June 24, 2019.

Additionally, upon the closing of the IPO, we redeemed all of our outstanding preferred stock for an aggregate of $ 1.00 .

On June 24, 2019, we used the net proceeds from the IPO to repay $ 150.0 million in principal on the outstanding term loan under our second lien credit agreement, dated as of October 22, 2018 (as amended, the "Second Lien Credit Agreement"), as well as accrued and unpaid interest as of that date of $ 3.6 million, and terminated the Second Lien Credit Agreement.

plus accrued interest of $ 3.8 million.

On October 23, 2019, we prepaid an additional $ 15.0 million of principal on the senior secured term loan under the First Lien Credit Agreement.

Secondary Public Offerings

On October 8, 2019, certain of our selling stockholders completed a secondary public offering of shares of our common stock.

We did not receive any of the proceeds from the sale of these shares by the selling stockholders.

We incurred related offering costs of $ 1.1 million, which we recognized in selling, general and administrative expenses ("SG&A") for fiscal 2019, and received $ 3.2 million in cash (excluding withholding taxes) in connection with the exercise of 451,470 options by certain stockholders participating in this secondary public offering.

On February 3, 2020, certain selling stockholders completed an additional secondary public offering of shares of our common stock.

We did not receive any of the proceeds from the sale of these shares by the selling stockholders.

We incurred offering costs of $ 1.1 million, which we recognized in SG&A during fiscal 2020.

We received $ 1.4 million in cash (excluding withholding taxes) in connection with the exercis e of 191,470 opti ons by certain stockholders participating in this secondary public offering.

On April 27, 2020, certain of our selling stockholders completed another secondary public offering of shares of our common stock.

We did not receive any of the proceeds from the sale of these shares by the selling stockholders.

We incurred related offering costs of $ 1.0 million which we recognized in SG&A during fiscal 2020.

We received $ 1.6 million in cash (excluding withholding taxes) in connection with the exercise of 269,000 options by certain stockholders participating in this secondary public offering.

We did not receive any proceeds or incur any material costs related to this distribution.

Share Repurchase Program

In November 2021, our Board of Directors approved a share repurchase program.

This program, effective November 5, 2021 and without an expiration date, authorized us to repurchase up to $ 100.0 million of our outstanding common stock utilizing a variety of methods including open market purchases, accelerated share repurchase programs, privately negotiated transactions, structured repurchase transactions and under a Rule 10b5-1 plan (which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under securities laws).

During the fiscal year ended January 1, 2022, we did not purchase any of our equity securities.

As of January 1, 2022, we had $ 100.0 million of repurchase authority remaining under the share repurchase program.

NOTE 8— Share-based Awards

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A total of 4,597,862 shares of common stock were reserved for issuance under the 2019 Plan at that time.

In addition, on the first day of each fiscal year beginning in fiscal 2020 and ending in fiscal 2029, the 2019 Plan provides for an annual automatic increase of the shares reserved for issuance in an amount equal to the positive difference between (i) 4 % of the outstanding common stock on the last day of the immediately preceding fiscal year and (ii) the plan share reserve on the last day of the immediately preceding fiscal year, or a lesser number as determined by our board of directors.

As of January 2, 2021, there were a total of 5,057,940 shares of common stock reserved for issuance under the 2019 Plan, which includes 460,078 shares added effective December 29, 2019 per the above noted annual automatic increase.

As of January 2, 2021, there were 3,076,015 remaining shares available for issuance of the new equity awards under the 2019 Plan.

On April 28, 2020, the Compensation Committee approved a long-term incentive program (the “LTIP”) under the 2019 Plan consisting of time-based RSUs and PSUs.

RSUs granted under the LTIP generally vest over 3 years.

Half of the total PSUs granted under the LTIP will vest upon the achievement of certain revenue-based performance targets (“Tranche I PSUs”) and half will vest upon the achievement of certain adjusted EBITDA-based performance targets (“Tranche II PSUs”) as determined by the Compensation Committee following the last day of the three -year performance period from December 29, 2019 to December 31, 2022.

The number of PSUs ultimately earned will equal the number of Tranche I and Tranche II PSUs granted multiplied by the applicable percentage of actual revenue and adjusted-EBITDA performance target levels achieved, and can range from 0 % to 200 % of the number of PSUs granted based on the following performance levels and percentages:

below minimum ( 0 %);

minimum ( 50 %);

target ( 100 %);

maximum ( 200 %);

above maximum ( 200 %).

Actual performance achievement percentages that fall between the minimum and target performance levels and the target and maximum performance levels will be determined using linear interpolation.

In addition, on the first day of each fiscal year beginning in fiscal 2020 and ending in fiscal 2029, the 2019 Plan provides for an annual automatic increase of the shares reserved for issuance in an amount equal to the positive difference between (i) 4 % of the "outstanding common stock" (as defined in the 2019 Plan) on the last day of the immediately preceding fiscal year and (ii) the plan share reserve on the last day of the immediately preceding fiscal year, or a lesser number as determined by our Board of Directors.

As of January 1, 2022, there were a total of 6,048,252 shares of common stock reserved for issuance under the 2019 Plan, which includes 501,845 shares added effective January 3, 2021 per the above noted annual automatic increase.

As of January 1, 2022, there were 3,330,247 remaining shares available for issuance of new equity awards under the 2019 Plan.

Long-term incentive programs ("LTIPs") under the 2019 Plan consist of time-based RSUs and PSUs.

RSUs granted under the LTIPs generally vest over one to three years .

Half of the total PSUs granted under the LTIPs will vest upon the achievement of certain revenue-based performance targets ("Tranche I PSUs") and half will vest upon the achievement of certain adjusted EBITDA-based performance targets ("Tranche II PSUs") as determined by the Compensation Committee following the last day of a three-year performance period.

The number of PSUs ultimately earned will equal the number of

Tranche I and Tranche II PSUs granted multiplied by the applicable percentage of actual revenue and adjusted-EBITDA performance target levels achieved, and can range from 0 % to 200 % of the number of PSUs granted.

Fair Value Determination

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For RSUs and PSUs, the closing price of our common stock as reported on the grant date is utilized to estimate the fair value of the awards.

We determine the input assumptions for the Black-Scholes stock option valuation model as follows:

• Expected term — The expected term represents the period that a stock option award is expected to be outstanding.

We have limited historical exercise data from which to derive expected term input assumptions.

Consequently, we calculate expected term using the SEC simplified method whereby the expected term of a stock option award is equal to the average of the award's contractual term and vesting term.

• Volatility — We have limited historical data from which to derive stock price volatility input assumptions.

Consequently, we estimate stock price volatility for our common stock by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option award.

Industry peers consist of several public companies in our industry which are of similar size, complexity and stage of development.

• Risk-free interest rate — The risk-free interest rate is based on the U.S.

Treasury yield curve in effect on a stock option award's grant date for U.S Treasury securities with maturities that approximate the expected term of the stock option award.

• Dividend yield — Dividend yield is assumed to be zero as we have not paid and do not expect to pay cash dividends on our common shares issued subsequent to our IPO.

The respective valuation methods resulted in weighted-average grant date fair values for time-based stock options, performance-based stock options, RSUs, and PSUs granted during fiscal 2021, 2020 and 2019 as follows:

Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

Time-based stock options N/A $ 7.61 $ 2.96

Performance-based stock options N/A $ 5.78 $ 4.65

Time-based stock options N/A N/A $ 7.61

Performance-based stock options N/A N/A $ 5.78

RSUs $ 28.70 $ 37.07 $ 27.13

PSUs $ 36.90 N/A N/A

We did not award any time-based or performance-based stock options during fiscal 2020.

The grant date fair value of time-based stock options awarded during fiscal 2019 and 2018 was estimated using the Black-Scholes valuation model with the following weighted-average assumptions:

Fiscal Year Ended

2019 December 29,

PSUs $ 35.45 $ 36.90 N/A

We did not award any time-based or performance-based stock options during fiscal 2021 and 2020.

The grant date fair value of time-based stock options awarded during fiscal 2019 was estimated using the Black-Scholes valuation model with the following weighted-average assumptions:

Exercise price $ 21.66

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The following table summarizes stock option activity under all equity incentive plans during fiscal 2021, 2020 and 2019:

Time-Based Options Performance-Based Options

Time-Based Stock Options Performance-Based Stock Options

Number of Options Weighted-Average

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Exercise Price

Options outstanding at December 30, 2017 5,528,836 $ 7.27 5,525,860 $ 6.11

Options outstanding as of December 29, 2018 5,798,375 $ 7.53 5,795,330 $ 4.40

Granted 1,363,822 21.66 99,788 17.29

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Forfeitures ( 101,479 ) 12.72 ( 117,997 ) 7.15

Options outstanding at December 29, 2018 (1)

5,798,375 $ 7.53 5,795,330 $ 4.40

Options outstanding as of December 28, 2019 6,243,667 $ 10.57 5,777,121 $ 4.57

Granted — — — —

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Forfeitures ( 52,676 ) 20.63 ( 13,071 ) 16.47

Options outstanding at December 28, 2019 6,243,667 $ 10.57 5,777,121 $ 4.57

Options outstanding as of January 2, 2021 3,864,772 $ 12.42 2,325,580 $ 4.54

Granted — — — —

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Forfeitures ( 191,324 ) 19.77 — —

Options outstanding at January 2, 2021 3,864,772 $ 12.42 2,325,580 $ 4.54

Options vested and exercisable at January 2, 2021 2,309,467 $ 7.45 2,325,580 $ 4.54

_______________________

(1) The decrease in weighted-average exercise price for outstanding performance-based options at December 29, 2018 was due to a dividend declared on October 22, 2018 pursuant to which all performance-based options outstanding at that date received a $ 2.10 downward adjustment to the exercise price.

The total intrinsic value of time-based stock options exercised w as $ 68.7 million and $ 20.8 million for fiscal 2020 and 2019, respectively, and less than $ 0.1 million for fiscal 2018 .

Options outstanding as of January 1, 2022 3,135,141 $ 12.77 1,696,194 $ 4.58

Options vested and exercisable as of January 1, 2022 1,896,260 $ 7.59 1,696,194 $ 4.58

The total intrinsic value of time-based stock options exercised w as $ 15.5 million, $ 68.7 million and $ 20.8 million for fiscal 2021, 2020 and 2019, respectively .

Intrin sic value represents the difference between the current fair value of the underlying stock and the exercise price of the stock option.

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Grant Date Fair Value

Unvested balance at December 30, 2017 100,804 $ 7.51

Unvested balance as of December 29, 2018 80,820 $ 8.80

Granted 195,135 27.13

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Forfeitures ( 8,242 ) 30.03

Unvested balance at December 29, 2018 80,820 $ 8.80

Unvested balance as of December 28, 2019 190,872 $ 22.89

Granted 277,496 37.07

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Forfeitures ( 11,496 ) 31.78

Unvested balance at December 28, 2019 190,872 $ 22.89

Unvested balance as of January 2, 2021 341,842 $ 35.16

Granted 669,546 28.70

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Forfeitures ( 63,936 ) 34.05

Unvested balance at January 2, 2021 341,842 $ 35.16

The following table summarizes PSU activity under the 2019 Plan during fiscal 2020:

Unvested balance as of January 1, 2022 836,496 $ 30.14

The following table summarizes PSU activity under the 2019 Plan during fiscal 2021 and 2020:

Number of Shares Weighted-Average

Grant Date Fair Value

Unvested balance at December 28, 2019 — $ —

Unvested balance as of December 28, 2019 — $ —

272,640 36.90

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Forfeitures ( 999 ) 36.88

Unvested balance at January 2, 2021 407,462 $ 36.90

Unvested balance as of January 2, 2021 407,462 $ 36.90

319,606 35.45

Adjustment for expected performance achievement (2)

( 91,332 ) 35.45

Forfeitures ( 59,011 ) 36.52

Unvested balance as of January 1, 2022 (3)

576,725 $ 36.36

_______________________

(1) Represents initial grant of PSUs based on performance target level achievement of 100 %.

(2) Represents the adjustment to previously granted PSUs based on current performance expectations.

An additional 135,820 PSUs could potentially be included if the maximum performance level is reached.

(2) Represents the adjustment to previously granted PSUs based on performance expectations as of the end of each respective reporting period.

(3) An additional 516,976 PSUs could potentially be included if the maximum performance level of 200 % is reached for all PSUs outstanding as of January 1, 2022.

Share-Based Compensation Expense

We recognize compensation expense for stock options, RSUs, and PSUs by amortizing the grant date fair value on a straight-line basis over the expected vesting period to the extent we determine the vesting of the grant is probable.

We recognize share-based award forfeitures in the period such forfeitures occur.

Share-based compensation expense qualifying for capitalization was insignificant for each of the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018.

Share-based compensation expense consisted of the following (amounts in thousands):

Fiscal Year Ended

2022 January 2,

2021 December 28,

Time-based stock options $ 2,030 $ 2,941 $ 25,740

Performance-based stock options — 26,079 —

RSUs 8,488 4,978 2,054

PSUs 6,911 3,652 —

Dividends (1)

186 434 3,645

Share-based compensation expense $ 17,615 $ 38,084 $ 31,439

_______________________

(1) Represents cash dividends paid upon vesting of share-based awards as a result of dividends declared in connection with recapitalizations that occurred in fiscal 2018 and 2016.

Share-based compensation expense qualifying for capitalization was insignificant for each of the fiscal years ended January 1, 2022, January 2, 2021 and December 28, 2019.

Accordingly, no share-based compensation expense was capitalized during these years.

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Subsequent to the IPO closing date, we recognized share-based compensation expense for prior service completed as of the IPO closing date and began recognizing the remaining unamortized share-based compensation expense related to these outstanding time-based stock options over the remaining service period.

During the fiscal years ended January 2, 2021 and December 28, 2019, we recognized $ 3.0 million and $ 25.7 million, respectively, of share-based compensation expense for time-based stock options.

Unamortized compensation cost related to unvested time-based options was $ 3.4 million as of January 1, 2022, $ 3.1 million of which related to time-based stock options granted at the time of our IPO.

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Performance-Based Stock Options

We did not record compensation expense for performance-based stock options during the fiscal years ended December 28, 2019 and December 29, 2018 because the performance criteria of such awards had not been achieved and the ultimate vesting of the awards was not considered probable as of such dates.

We did not record compensation expense for performance-based stock options during the fiscal year ended December 28, 2019 because the performance criteria of such awards had not been achieved and the ultimate vesting of the awards was not considered probable as of such dates.

On February 3, 2020 and April 27, 2020, certain selling stockholders completed secondary public offerings of shares of our common stock.

In conjunction with these secondary offerings, certain performance criteria were achieved resulting in the vesting of 4.1 million and 1.7 million performance-based stock options, respectively, and the recognition of $ 18.5 million and $ 7.6 million, respectively, of share-based compensation expense associated with the vesting of these performance-based stock options.

As of January 2, 2021, all outstanding performance-based stock options are fully vested and fully expensed.

As of January 2, 2021, all outstanding performance-based stock options were fully vested and fully expensed and, as such, we did not record compensation expense for performance-based stock options during the fiscal year ended January 1, 2022.

Time-Based RSUs

Shares-based compensation expense for RSUs held by employees and non-employee directors was $ 4.9 million, $ 2.1 million, and $ 0.4 million for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

Unamortized compensation expense for RSUs was $ 16.9 million as of January 1, 2022, which is expected to be amortized over a weighted average period of approximately 1.6 years.

Performance-Based RSUs

During the fiscal year ended January 2, 2021 we recognized $ 3.7 million of share-based compensation expense for PSUs, which represents the expense associated with the expected level of performance achievement as of January 2, 2021.

There were no such amounts recognized in the comparable prior year periods as PSUs only began being granted during fiscal 2020.

There was no share-based compensation expense for PSUs held by employees recognized for the fiscal year ended December 28, 2019 as PSUs only began being granted during fiscal 2020.

Unamortized compensation cost related to the expected level of achievement of unvested PSUs was $ 10.4 million as of January 1, 2022, which is expected to be amortized over a weighted average period of approximately 1.5 years.

For time-based stock options and RSUs that were outstanding on the dividend dates of June 23, 2016 and October 22, 2018 and that are expected to vest in fiscal year 2021 and beyond, we intend to make dividend payments as these time-based stock options and RSUs vest.

For time-based stock options and RSUs that were outstanding on the dividend date of October 22, 2018 and that are expected to vest in fiscal year 2022 and beyond, we intend to make dividend payments as these time-based stock options and RSUs vest.

Pursuant to the 2014 Plan, if we are unable to make those payments, we may instead elect to reduce the per share exercise price of each such time-based stock option by an amount equal to the dividend amount in lieu of making the applicable dividend payme nt.

As such, our dividends are not considered declared and payable and are not accrued as a liability in our consolidated balance sheet as of January 1, 2022.

We paid $ 0.4 million and $ 3.6 million of d ividends during the fiscal year ended January 2, 2021 and December 28, 2019, respectively, which were included in share-based compensation expense.

Share-based compensation expense of $ 10.4 million for the fiscal year ended December 29, 2018 includes $ 8.7 million in payments related to the June 23, 2016 dividend for outstanding stock options that vested during fiscal 2018.

The remaining share-based compensation expense in fiscal 2018 related to RSUs.

We paid $ 0.2 million, $ 0.4 million and $ 3.6 million of d ividends during the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively, which were included in share-based compensation expense.

Unamortized compensation cost related to future dividend payments on unvested time-based stock options and RSU share-based awards was approximately $ 0.2 million as of January 1, 2022.

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We currently operate under a collective bargaining agreement that expires on September 6, 2022.

Payments into the Pens ion Fund we re $ 0.6 million, $ 0.4 million, and $ 0.4 million for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

Payments into the Benefits Fund were $ 1.4 million, $ 1.2 million, and $ 1.1 million for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

Such contributions represent less than 5 % of the total contributions to the Fund.

We paid no surcharges to the Fund.

In addition, minimum contributions outside of the agreed upon contractual rates are not required.

Minimum contributions outside of the agreed upon contractual rates are not required for the Pension Fund.

Payments into the Pens ion Fund we re $ 0.6 million, $ 0.6 million, and $ 0.4 million for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

We paid no surcharges to the Pension Fund.

The risks of participating in a multiemployer pension plan are different from single-employer pension plans in the following aspects:

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If we stop participating in its multiemployer pension plan, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The following information represents our participation in the plan for the annual period ended December 31, 2019, the latest available information from the Fund.

The following information represents our participation in the plan for the annual period ended December 31, 2020, the latest available information from the Pension Fund.

All such information is based on information we received from the plan.

The Fund’s Employer Identification Number and Plan Number is 946313554-001.

The Pension Fund's Employer Identification Number and Plan Number is 946313554-001.

Contributions represented less than 5 % of the total contributions to the Pension Fund.

Under the provisions of the Pension Protection Act (PPA) zone status, the Fund was in critical status during the plan year.

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Except in limited circumstances, the pensions of participants and beneficiaries whose pension effective date is before January 1, 2012, are not affected.

The Benefits Fund provides medical, dental, pharmacy, vision, and other ancillary benefits to active employees and retirees.

The majority of our contributions cover active employees and as such, may not constitute contributions to a postretirement benefit plan.

However, we are unable to separate contribution amounts to the postretirement benefit part of the plan from contribution amounts paid to the active employee part of the plan.

Payments into the Benefits Fund were $ 1.4 million, $ 1.4 million, and $ 1.2 million for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

For our nonunion employees, we offer the following plans:

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This profit-sharing plan is available to nonunion employees who meet certain service criteria.

We expensed $ 6.1 million, $ 4.4 million and $ 3.6 million for contributions to the two plans described above in (a) and (b) for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

We expensed $ 1.5 million, $ 6.1 million and $ 4.4 million for contributions to the two plans described above in (a) and (b) for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

A 401(k) retirement plan for warehouse employees, which is available to those employees who meet certain service criteria

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However, for certain employees who meet certain service criteria, we have a 401(k) retirement plan under which we will match employee contributions at a rate of 35 % of each participating employee's contributions, not to exceed 6 % of wages.

We expensed an insignificant amount for contributions to this plan for each of the fiscal years ending January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

We expensed an insignificant amount for contributions to this plan for each of the fiscal years ending January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

NOTE 10— Income Taxes

Impact of U.S.

Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was enacted.

The Tax Act made broad changes to the U.S.

tax code, including, but not limited to, (i) reducing the U.S.

federal corporate tax rate from 35 percent to 21 percent;

(ii) eliminating the corporate alternative minimum tax (AMT);

(iii) a new limitation on deductible business interest expense;

(iv) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017;

and (v) expanding bonus depreciation to allow full expensing of qualified property.

For the fiscal year ended December 30, 2017, we recognized a provisional tax benefit of $ 5.4 million due to the enactment of the Tax Act in our consolidated financial statements which was associated with the re-measurement of our deferred tax assets and liabilities.

During the fiscal year ended December 29, 2018, we finalized our accounting for the impacts of the Tax Act and recorded an immaterial measurement period adjustment associated with the re-measurement of our deferred tax assets and liabilities.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted.

We have analyzed the provision, which provides for, (i) changes in the deductibility of business interest;

(ii) acceleration of alternative minimum tax credit refunds;

and (iii) a technical correction to allow accelerated deductions for qualified leasehold improvements.

The technical correction allows us to accelerate deductions for qualified assets placed in service in the current and prior years, however, the CARES Act is not otherwise expected to have a material impact on our income tax provision for fiscal 2020.

Components of income tax expense (benefit)

Income before income taxes consisted entirely of income from domestic operations of $ 87.1 million, $ 16.8 million, and $ 21.9 million for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

Income before income taxes consisted entirely of income from domestic operations of $ 77.5 million, $ 87.1 million, and $ 16.8 million for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

The components of income tax expense (benefit) consisted of the following (amounts in thousands):

Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

$ — $ ( 285 ) $ 52

2,247 284 439

Total current

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Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

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Excess federal tax benefits from exercise and vest of share-based awards ( 8.2 ) % ( 40.3 ) % ( 21.4 ) %

Return to provision 1.9 % — % — %

Other 0.2 % 1.0 % 3.3 %

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Significant components of our deferred tax assets and liabilities were as follows (amounts in thousands):

2021 December 28,

2022 January 2,

Deferred tax assets:

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Reserves and allowances 4,446 3,092

Interest expense carryforward — 1,103

Other 4,510 4,194

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As such we did not record a valuation allowance against these material deferred tax assets as of January 1, 2022.

Our policy is to include interest and penalties associated with uncertain tax positions within income tax expense and include accrued interest and penalties with the related income tax liability on our consolidated balance sheets.

To date, we have not recognized any interest and penalties in our consolidated statements of operations and comprehensive income and do not anticipate any changes in our uncertain tax position within the next 12 months.

Our policy is to recognize interest and penalties associated with uncertain tax positions as part of the income tax provision and include accrued interest and penalties with the related income tax liability on our consolidated balance sheets.

To date, we have not recognized any interest and penalties in our condensed consolidated statements of operations and comprehensive income, nor have we accrued for or made payments for interest and penalties.

We had no uncertain tax positions as of January 1, 2022 and January 2, 2021, respectively, and do not anticipate any changes to our uncertain tax positions within the next 12 months.

We are subject to taxation in the United States and various state jurisdictions.

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Related Party Lease s

We leased property from entities affiliated with certain of our non-controlling stockholders for 15 store locations and one warehouse location as of both January 2, 2021 and December 28, 2019.

Affiliated entities received aggregate annual lease payments from us of $ 6.0 million, $ 6.1 million , and $ 6.6 million for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, respectively.

During April 2020, we entered into an aircraft dry lease agreement (the "Aircraft Lease") with an entity controlled by our Chief Executive Officer, Mr.

Lindberg, to lease a Pilatus PC-12 aircraft.

We believe that this agreement provides us better access to visit our stores, many of which are in remote areas or are not easily accessible by car or regular commercial airline service, and to visit prospective real estate sites.

The Aircraft Lease gives us the ability to use the aircraft in the course of our operations on an as-needed, non-exclusive basis.

The Aircraft Lease provides that we pay an hourly lease rate and we bear all direct operating costs associated with our use of the aircraft, and the lessor bears all fixed costs (e.g.

maintenance, hangar, insurance).

Lindberg, to the extent that he operates the aircraft for his personal use, will bear all costs associated with his operation of the aircraft.

We believe that the terms of the aircraft lease are no less favorable than could be obtained from an unrelated third party and we believe that the foregoing arrangement, including related direct operating costs, insurance and crew costs, will reduce our average hourly cost for use of private aircraft, which previously had been primarily conducted through charter arrangements.

Operating lease costs related to the aircraft lease are included in SG&A, and were less than $ 0.1 million for fiscal 2020.

Independent Operator Notes and Receivables

We offer interest-bearing notes to IOs and the gross operating notes and receivables due from these IOs wa s $ 41.0 million an d $ 37.7 million as of January 2, 2021 and December 28, 2019, respectively.

See NOTE 2—Independent Operator Notes and Receivables, for additional information.

We have business contracts with two portfolio companies of the H&F Investor, The Ultimate Software Group, Inc.

and HUB International Limited.

On May 28, 2020, the H&F Investor ceased being a related party when it distributed the remainder of its holdings in our common stock to its equity holders.

Payments to these two portfolio companies totaled $ 0.2 million from December 29, 2019 through May 28, 2020, $ 0.7 million for the fiscal year ended December 28, 2019, and $ 0.3 million for the fiscal year ended December 29, 2018.

As of January 1, 2022 and January 2, 2021, we leased 15 store locations and one warehouse location from entities in which Eric Lindberg, Jr., Chief Executive Officer, and MacGregor Read, Jr., Vice Chairman of our Board of Directors, or their respective families, had a direct or indirect material interest .

As of January 1, 2022, the right-of-use assets and lease liabilities related to these properties was $ 36.9 million and $ 41.6 million, respectively.

As of January 2, 2021, the right-of-use assets and lease liabilities related to these properties was $ 39.8 million and $ 44.3 million, respectively.

Affiliated entities received aggregate lease payments from us of $ 6.1 million, $ 6.0 million, and $ 6.1 million for the fiscal years ended January 1, 2022, January 2, 2021, and December 28, 2019, respectively.

Independent Operator Notes and Independent Operator Receivables

We offer interest-bearing notes to IOs and the gross amount of IO operating notes and IO receivables due was $ 40.6 million and $ 41.0 million as of January 1, 2022 and January 2, 2021, respectively.

See NOTE 2—Independent Operator Notes and Independent Operator Receivables, for additional information.

NOTE 12— Commitments and Contingencies

We are involved from time to time in claims, proceedings, and litigation arising in the normal course of business.

We do not believe the impact of such litigation will have a material adverse effect on our consolidated financial statements taken as a whole.

Management believes that we do not have any pending litigation that, separately or in the aggregate, would have a material adverse effect on our results of operations, financial condition or cash flows .

NOTE 13— Earnings Per Share

Earnings Per Share Attributable to Common Stockholders

A reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share attributable to common stockholders is as follows (dollars and shares in thousands, except per share amounts):

The following table sets forth the calculation of basic and diluted earnings per share (amounts in thousands, except per share data):

Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

Net income attributable to common stockholders $ 106,713 $ 15,419 $ 15,868

Weighted-average shares of common stock 91,818 79,044 68,473

Effect of dilutive RSUs 96 42 73

Net income and comprehensive income $ 62,310 $ 106,713 $ 15,419

Weighted-average shares outstanding - basic 95,725 91,818 79,044

Effect of dilutive options 3,564 6,538 2,777

Weighted-average shares of common stock - diluted (1) (2) (3)

Effect of dilutive RSUs 129 96 42

Weighted-average shares outstanding - diluted (1) (2)

99,418 98,452 81,863

Earnings per share attributable to common stockholders:

Earnings per share:

Basic $ 0.65 $ 1.16 $ 0.20

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_______________________

(1) The diluted weighted-average shares outstanding for the fiscal years ended December 28, 2019 and December 29, 2018 did not include performance-based stock options because the requisite performance criteria of such stock options had not been achieved as of that date.

(1) The diluted weighted-average shares outstanding for the fiscal year ended December 28, 2019 did not include performance-based stock options because the requisite performance criteria of such stock options had not been achieved as of that date.

On February 3, 2020, in conjunction with a secondary offering, certain performance criteria were achieved resulting in the vesting of 4.1 million performance-based stock options, and accordingly, these vested performance-based stock options are included in the diluted weighted-average shares outstanding for fiscal year 2020.

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See NOTE 8—Share-based Awards, for additional information.

(2) The diluted weighted-average shares for the fiscal year ended December 29, 2018 did not include time-based stock options because such options were subject to a post-termination repurchase right by us until the occurrence of a qualifying contingent event occurred (involuntary termination, change in control or initial public offering), and the occurrence of such an event was not deemed probable.

Upon the completion of our IPO in June of fiscal 2019, a qualifying contingent event had occurred and therefore time-based stock options were included in the weighted-average diluted shares for the fiscal years ended January 2, 2021 and December 28, 2019.

See NOTE 7—Share-based Awards, for additional information.

(2) We are required to include in diluted weighted-average shares outstanding contingently issuable shares that would be issued assuming the end of our reporting period was the end of the relevant PSU award contingency period.

No PSUs were included in diluted weighted-average shares outstanding for the fiscal year ended January 2, 2021.

No PSUs were included in diluted weighted-average shares outstanding for fiscal years 2021 and 2020.

The following weighted-average common share equivalents were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive (amounts in thousands):

Fiscal Year Ended

2021 December 28,

2022 January 2,

2021 December 28,

2 unchanged sentences

Total 11 3,239 732

NOTE 13— Selected Quarterly Financial Data (unaudited)

Selected unaudited summarized quarterly financial information for fiscal 2020 and 2019 was as follows (amounts in thousands, except per share data):

First Quarter Second Quarter Third Quarter Fourth Quarter

Net sales $ 760,308 $ 803,429 $ 764,082 $ 806,821

Gross Profit 237,026 253,751 238,183 244,387

Income from operations 16,873 32,359 30,315 27,828

Net income 12,642 29,333 40,474 24,264

Basic earnings per share $ 0.14 $ 0.32 $ 0.44 $ 0.26

Diluted earnings per share $ 0.13 $ 0.30 $ 0.41 $ 0.24

Net sales $ 606,271 $ 645,289 $ 652,540 $ 655,517

Gross Profit 187,017 198,720 201,087 200,278

Income from operations 21,656 5,735 23,948 17,004

Net income (loss) 3,774 ( 10,632 ) 12,445 9,832

Basic earnings per share $ 0.06 $ ( 0.15 ) $ 0.14 $ 0.11

Diluted earnings per share $ 0.06 $ ( 0.15 ) $ 0.13 $ 0.11

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data