What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-02 · 277 added, 287 removed, 694 unchanged (45% of the section changed)

12 unchanged sentences

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

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.

and subsidiaries (the "Company") as of December 31, 2022 and January 1, 2022, the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows, for each of the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021, 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 December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for each of the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, 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 December 31, 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 1, 2023 expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

8 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Long-Lived Store Asset Impairment – Refer to Notes 1 and 3 to the financial statements

Long-Lived Store Asset Impairment — Refer to Note 1, 3, and 4 to the financial statements

Critical Audit Matter Description

2 unchanged sentences

Impairment may result when the carrying value of these store assets exceeds the estimated undiscounted future cash flows over the remaining useful life.

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

The total amount of property and equipment, including store assets, and operating lease right-of-use assets as of December 31, 2022 are $560.7 million and $902.2 million, respectively.

The Company's impairment analysis consists of (1) identifying stores with

indicators of impairment, (2) testing the identified store assets for recoverability and (3) measuring the impairment loss, if any.

During the year ended January 1, 2022, the Company recorded no impairment of long-lived assets.

The principal considerations for our determination that performing procedures relating to the impairment of store-level long-lived assets is a critical audit matter relates to the significant judgment by management in developing the estimated future discounted cash flows expected to be generated by the asset.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the discounted cash flows, including the significant assumptions for sales growth rate and gross margin.

During the year ended December 31, 2022, the Company recorded no impairment of long-lived assets.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the cash flows, including the significant assumptions for sales growth rate and gross margin.

How the Critical Audit Matter Was Addressed in the Audit

6 unchanged sentences

– Internal communications to management and the Board of Directors

• We tested the completeness, accuracy, and relevance of underlying data used in the valuations

• We tested the completeness, accuracy, and relevance of underlying data used in determining undiscounted cash flows.

/s/ DELOITTE & TOUCHE LLP

19 unchanged sentences

Goodwill 747,943 747,943

Deferred income tax assets, net — 3,529

Other assets 7,667 8,144

3 unchanged sentences

Trade accounts payable $ 137,631 $ 122,110

Accrued expenses 49,025 35,699

Accrued and other current liabilities 53,213 49,025

Accrued compensation 27,194 8,450

5 unchanged sentences

Long-term lease liabilities 980,759 961,746

Other long-term liabilities 1,485 —

Total liabilities 1,662,190 1,660,536

1 unchanged sentence

Stockholders' equity:

Voting common stock, par value $ 0.001 per share, 500,000,000 shares authorized;

Common stock, par value $ 0.001 per share, 500,000,000 shares authorized;

97,674,356 and 96,144,433 shares issued and outstanding, respectively

11 unchanged sentences

2022 January 1,

2021 December 28,

2022 January 2,

Net sales $ 3,578,101 $ 3,079,582 $ 3,134,640

10 unchanged sentences

Gain on insurance recoveries — ( 3,970 ) —

Debt extinguishment and modification costs — 198 5,634

Loss on debt extinguishment and modification 1,274 — 198

Total other expenses (income) 19,241 11,594 20,241

11 unchanged sentences

(in thousands, except share amounts)

Voting Common Nonvoting Common Preferred Additional

Common Stock Additional

Paid-In Capital Retained Earnings Stockholders' Equity

Shares Amount Shares Amount Shares Amount

Shares Amount

Balance at December 28, 2019 89,005,062 $ 89 $ 717,282 $ 28,013 $ 745,384

Cumulative effect of accounting change — — — 439 439

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

Other direct initial public offering costs ( 7,245 ) ( 7,245 )

Conversion of nonvoting to voting common shares 1,068,413 1 ( 1,068,413 ) ( 1 ) —

Redemption of preferred shares ( 1 ) — —

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

3 unchanged sentences

Net income and comprehensive income — — — 106,713 106,713

Balance at December 28, 2019 89,005,062 $ 89 — $ — — $ — $ 717,282 $ 28,013 $ 745,384

Cumulative effect of accounting change 439 439

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

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

Share-based compensation expense — — 17,615 — 17,615

4 unchanged sentences

Share-based compensation expense — — 32,556 — 32,556

Repurchase of common stock ( 139,718 ) — ( 3,451 ) — ( 3,451 )

Dividends paid — — ( 105 ) — ( 105 )

Net income and comprehensive income — — — 65,052 65,052

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

Balance at December 31, 2022 97,674,356 $ 98 $ 847,589 $ 262,527 $ 1,110,214

See Notes to Consolidated Financial Statements

4 unchanged sentences

2022 January 1,

2021 December 28,

2022 January 2,

Cash flows from operating activities:

4 unchanged sentences

Amortization of debt issuance costs and debt discounts 2,264 2,511 2,452

Non-cash rent 6,932 10,753 10,673

Gain on insurance recoveries — ( 3,970 ) —

Debt extinguishment and modification costs — 198 5,634

Loss on debt extinguishment and modification 1,274 — 198

Share-based compensation 32,556 17,615 38,084

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

Provision for (write-off of) accounts receivable reserves 4,318 4,813 ( 456 )

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

4 unchanged sentences

Merchandise inventories ( 58,817 ) ( 30,345 ) ( 25,737 )

Prepaid expenses and other current assets 3,301 ( 6,628 ) 498

Prepaid expenses and other assets 841 3,301 ( 6,628 )

Income and other taxes payable 705 ( 362 ) 2,906

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

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

Trade accounts payable, accrued compensation and other liabilities 35,094 3,179 4,778

Operating lease liabilities 12,728 8,381 12,291

Net cash provided by operating activities 185,511 165,587 181,237

8 unchanged sentences

Cash flows from financing activities:

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

Proceeds from exercise of stock options 6,890 7,226 32,604

2 unchanged sentences

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

— ( 483 ) ( 2,813 )

Other direct costs paid related to the initial public offering — — ( 7,062 )

Principal payments on term loans — ( 188 ) ( 414,813 )

Principal payments on senior term loan ( 75,000 ) — ( 188 )

Principal payments on other borrowings ( 1,271 ) ( 1,155 ) ( 1,024 )

Repurchase of common stock ( 3,451 ) — —

Dividends paid ( 105 ) ( 186 ) ( 434 )

1 unchanged sentence

Net cash provided by (used in) financing activities ( 72,937 ) 5,885 29,774

Net increase in cash and cash equivalents 34,759 77,225 7,038

Net increase (decrease) in cash and cash equivalents ( 37,357 ) 34,759 77,225

Cash and cash equivalents at beginning of period 140,085 105,326 28,101

12 unchanged sentences

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

As of December 31, 2022, we had 441 stores throughout California, Washington, Oregon, Pennsylvania, Idaho, Nevada, Maryland and New Jersey.

Grocery Outlet Holding Corp.

4 unchanged sentences

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

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.

Securities and Exchange Commission (the "SEC").

The fiscal years ended December 31, 2022 ("fiscal 2022") and January 1, 2022 ("fiscal 2021") consisted of 52 weeks while the fiscal year ended January 2, 2021 ("fiscal 2020") consisted of 53 weeks.

Our consolidated financial statements include the accounts of Grocery Outlet Holding Corp.

2 unchanged sentences

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.

Beginning in the fourth quarter of fiscal 2022, non-cash rent previously included within changes in operating lease assets and liabilities, net is now separately presented in our consolidated statements of cash flows.

Prior period amounts have been reclassified to conform to the current period presentation.

The reclassification of this item had no impact on net income, earnings per share, or retained earnings in the current or prior periods.

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.

1 unchanged sentence

Changes in these estimates are recorded when known.

We consider our accounting policy relating to long-lived asset impairment to be a significant accounting policy that involves management estimate and judgment.

Segment Reporting — We manage our business as one operating segment.

All of our sales were made to customers located in the United States and all property and equipment is located in the United States.

In addition, all of our sales were made to customers located in the U.S.

and all property and equipment is located in the U.S.

Cash and Cash Equivalents — We consider all highly liquid investments, purchased with original maturities of three months or less, to be cash equivalents.

2 unchanged sentences

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.

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

Although we deposit our cash with creditworthy financial institutions, our deposits typically exceed federally insured limits.

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 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.

No single customer or store represented more than 10% of net sales for the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021.

No single customer or IO represented more than 10% of accounts receivable or notes receivable as of December 31, 2022 and January 1, 2022.

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

10 unchanged sentences

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 total amount of property and equipment, including store assets, and operating lease right-of-use assets as of December 31, 2022 were $ 560.7 million and $ 902.2 million, respectively, and 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 2022, 2021 and 2020 .

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

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

See NOTE 3—Property and Equipment and NOTE 4—Leases for additional information.

Leases — We determine if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use assets, current lease liabilities, and long-term lease liabilities on our consolidated balance sheets.

Finance leases are included in other assets, current lease liabilities, and long-term lease liabilities on our consolidated balance sheets.

Operating leases are included in operating lease right-of-use assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets.

Finance leases are included in other assets, current lease liabilities, and long-term lease liabilities in our consolidated balance sheets.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease over the same term.

16 unchanged sentences

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 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.

There were no goodwill impairment charges recorded during the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021.

There were no changes in the carrying amount of goodwill for the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021.

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

2 unchanged sentences

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 three to 10 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.

1 unchanged sentence

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 1, 2022, January 2, 2021 and December 28, 2019.

There were no impairments of intangible assets recognized during the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021.

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.

6 unchanged sentences

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 1, 2022 or January 2, 2021.

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

There were no assets or liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2022 or January 1, 2022.

Generally, assets are recorded at fair value on a non-recurring 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 during the fiscal years ended January 1, 2022 or January 2, 2021.

There were no transfers of assets or liabilities between levels within the fair value hierarchy during the fiscal years ended December 31, 2022 or January 1, 2022.

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

8 unchanged sentences

Financial Liabilities:

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

Senior term loan (Level 2) $ 379,650 $ 383,075 $ 451,468 $ 457,700

_______________________

(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.

(1) The carrying amounts as of December 31, 2022 and January 1, 2022 are net of unamortized debt discounts of $ 0.6 million and $ 1.0 million, respectively, and debt issuance costs of $ 4.7 million and $ 7.5 million, respectively.

(2) The estimated fair value of our senior term loan was determined based on the average quoted bid-ask prices for the senior term loan in an over-the-counter market on the last trading day of fiscal 2022 and 2021.

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.

For e-commerce related sales in which a third-party 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.

Discounts provided to customers by us are recognized at the time of sale as a reduction in sales as the products are sold.

Discounts provided by IOs are not recognized as a reduction in sales as these are provided solely by the IO who bears the incremental costs arising from the discount.

Discounts provided to customers by us are recognized at the time of sale as a reduction in net sales as the products are sold.

Discounts provided by IOs are not recognized as a reduction in net sales as these are provided solely by the IO who bears the incremental costs arising from the discount.

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 1, 2022 and January 2, 2021.

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 material performance obligations other than our gift card deferred revenue liability, or any material costs to obtain or fulfill a contract as of December 31, 2022 and January 1, 2022.

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

1 unchanged sentence

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 $ 3.6 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:

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 December 31, 2022 and January 1, 2022.

Breakage amounts were $ 0.3 million, $ 0.3 million and $ 0.2 million for the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021, respectively.

Disaggregated Revenues — The following table presents net sales revenue by type of product for the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021 (amounts in thousands):

2022 January 1,

2021 December 28,

2022 January 2,

Perishable (1)

2 unchanged sentences

2,305,901 2,012,384 2,080,134

Total sales (3)

Total net sales (3)

$ 3,578,101 $ 3,079,582 $ 3,134,640

8 unchanged sentences

and beer and wine.

(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.

(3) The fiscal years ended December 31, 2022 and January 1, 2022 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, 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 $ 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, 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 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.

Advertising costs are included in SG&A in the accompanying consolidated statements of operations and comprehensive income and amounted to $ 34.6 million, $ 32.6 million and $ 25.9 million, respectively, in the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021.

Share-based Awards — 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.

3 unchanged sentences

We recognize share-based award forfeitures as they occur rather than estimating by applying a forfeiture rate.

While we recognize share-based compensation expense over the performance period and/or requisite service period based on the fair market value of the award as of the grant date, we will not know the actual amount of tax benefit an award will generate until such award is exercised (or vested for RSUs or PSUs)).

Until such award is exercised (or vested for RSUs or PSUs) we assume that the amount ultimately recognized for tax purposes is the same amount we are currently recognizing in our operating results, that is for "book" purposes.

Consequently, our deferred tax asset related to share-based compensation expense, which totaled $ 10.9 million as of January 1, 2022, is based on each qualifying award's grant date fair value rather than the award's to-be-determined exercise date intrinsic value (or vesting date fair value).

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.

Until such award is exercised or vested we assume that the amount ultimately recognized for tax purposes is the same amount we are currently recognizing in our operating results, that is for "book" purposes.

Consequently, our deferred tax asset related to share-based compensation expense, which totaled $ 14.0 million as of December 31, 2022, is based on each qualifying award's grant date fair value rather than the award's to-be-determined exercise date intrinsic value (or vesting date fair value).

For awards exercised or vested during our fiscal year ended December 31, 2022, the difference between the grant date fair value and the exercise or vest date intrinsic value totaled $ 33.3 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 shortfall.

4 unchanged sentences

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 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.

We have not recorded any valuation allowances against our deferred income tax balances for the fiscal years ended December 31, 2022 and January 1, 2022.

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

We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

We record uncertain tax positions in accordance with ASC Topic 740, Income Taxes, on the basis of a two-step process in which (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We record uncertain tax positions in accordance with Accounting Standards Codification ("ASC") Topic 740, Income Taxes, on the basis of a two-step process in which (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Variable Interest Entities — In accordance with the variable interest entities sub-section of ASC Topic 810, Consolidation, we assess at each reporting period whether we, or any consolidated entity, are considered the primary beneficiary of a variable interest entity ("VIE") and therefore required to consolidate the financial results of the VIE in our consolidated financial statements.

1 unchanged sentence

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

We had 438 , 411 and 375 stores operated by IOs as of December 31, 2022, January 1, 2022 and January 2, 2021, respectively.

We have agreements in place with each IO.

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.

Under the Independent Operator Agreement (the "Operator Agreement"), the IO selects 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.

The Operator Agreement gives the IO discretion to adjust our initial prices if the overall effect of all price changes at any time comports with the reputation of our Grocery Outlet retail stores for selling quality, name-brand consumables and fresh products and other merchandise at extreme discounts.

IOs are required to furnish initial working capital and to acquire certain store and safety ass ets.

The IO is required to furnish initial working capital and to acquire certain store and safety ass ets.

The IO is also required to hire, train and employ a properly trained workforce sufficient in number to enable the IO to fulfill its obligations under the Operator Agreement.

2 unchanged sentences

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

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.

Net sales related to IO store s were $ 3.5 billion, $ 3.0 billion, and $ 3.1 billion for the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, respectively.

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

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 $ 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.

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 Independent Operator Receivables.

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.

Since the total investment at risk associated with each IO is not sufficient to permit each IO to finance its activities without additional subordinated financial support, the IOs are VIEs which we have variable interests in.

To determine if we are the primary beneficiary of these VIEs, we evaluate whether we have (i) the power to direct the activities that most significantly impact the IO's economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the IO that could potentially be significant to the IO.

Our evaluation includes identification of significant activities and an assessment of its ability to direct those activities.

IO commissions are expensed and included in SG&A.

IO commissions were $ 533.1 million, $ 463.8 million, and $ 469.3 million for the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021, respectively.

IO commissions of $ 6.2 million and $ 9.1 million were included in accrued and other current liabilities as of December 31, 2022 and January 1, 2022, respectively.

An IO may fund its 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 Independent Operator Receivables.

As collateral for IO obligations and performance, the Operator Agreement grants us the security interests in the assets owned by each IO related to the respective store.

Since the total investment at risk associated with each IO is not sufficient to permit each IO to finance its activities without additional subordinated financial support, each IO is a VIE that we have a variable interest in.

To determine if we are the primary beneficiary of a VIE, we evaluate whether we have (i) the power to direct the activities that most significantly impact the IO's economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the IO that could potentially be significant to the IO.

Our evaluation includes identification of significant activities and an assessment of the IO's ability to direct those activities.

Activities that most significantly impact the IO's economic performance relate to sales and labor.

Sales activities that significantly impact the IO's economic performance include determining what merchandise the IO will order and sell and the price of such merchandise, both of which the IO controls.

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

The IO is also responsible for all of its 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.

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 illustrate the lack of ultimate control over the IO.

Furthermore, the mutual termination rights associated with the Operator Agreement 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.

Our maximum exposure, in accordance with ASC Topic 810, to the IOs is generally limited to the IO notes and IO receivables due from these entities, which was $ 48.1 million and $ 40.6 million as of December 31, 2022 and January 1, 2022, 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.

Diluted net income per share reflects the dilutive effects of stock options and RSUs outstanding during the period, to the extent such securities would not be anti-dilutive, and is determined using the treasury stock method.

Diluted net income per share reflects the dilutive effects of stock options and RSUs outstanding during the period, to the extent such securities would not be anti-dilutive, as well as dilutive PSUs, and is determined using the treasury stock method.

Recently Adopted Accounting Standards

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

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

ASU 2019-12 simplifies accounting guidance for certain tax matters including franchise taxes, certain transactions that result in a step-up in tax basis of goodwill, and enacted changes in tax laws in interim periods.

In addition, it eliminates a company's need to evaluate certain exceptions relating to the incremental approach for intra-period tax allocation, accounting for basis differences when there are ownership changes in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses.

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

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.

No recently adopted accounting pronouncements had a material effect 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.

Accounting Standards Update ("ASU") No.

2022-02 — In March 2022, the Financial Accounting Standards Board issued ASU No.

2022-02, Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02").

ASU 2022-02 eliminates the accounting guidance on troubled debt restructurings for creditors in ASC Topic 310 and amends the guidance on "vintage disclosures" to require disclosure of current-period gross write-offs by year of origination.

ASU 2022-02 also updates the requirements related to accounting for credit losses under ASC Topic 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty.

ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

We will adopt ASU 2022-02 beginning in the first quarter of fiscal 2023.

We do not expect the adoption of ASU 2022-02 to have a material impact 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.

IO notes, which are payable on demand and have no maturity date, 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 consolidated balance sheets and was $ 0.9 million and $ 0.5 million as of December 31, 2022 and January 1, 2022, respectively.

There were no IO notes that were past due or on a non-accrual status due to delinquency as of December 31, 2022 or January 1, 2022.

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

An allowance for expected credit losses is deducted from (for expected losses) or added to (for expected recoveries) the amortized cost basis of these assets to arrive at the net carrying amount expected to be collected for such assets.

The allowance is estimated using an expected loss framework, which includes information about past events, current conditions, and reasonable and supportable forecasts that impact the collectibility of the reported amounts of the assets over their lifetime.

The allowance is evaluated on a collective basis for assets with shared risk characteristics and credit quality indicators.

The allowance is evaluated on a collective basis for assets with shared risk characteristics and credit quality

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

4 unchanged sentences

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

Amounts due from IOs and the related allowances as of December 31, 2022 and January 1, 2022 consisted of the following (amounts in thousands) :

Allowance Current Portion Long-term Portion

Gross Current Portion Long-term Portion Net

January 1, 2022

December 31, 2022

Independent operator notes $ 37,522 $ ( 700 ) $ ( 12,509 ) $ 24,313 $ 1,778 $ 22,535

10 unchanged sentences

2022 January 1,

2021 December 28,

2022 January 2,

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

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

Provision for (write-off of) IO notes and IO receivables reserves 4,160 4,790 ( 473 )

Cumulative effect of accounting change — — ( 439 )

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

Write-off of uncollectible IO notes and IO receivables ( 1,325 ) ( 987 ) ( 1,350 )

Ending balance $ 14,747 $ 11,912 $ 8,109

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):

The following table presents the amortized cost basis of IO notes by year of origination and credit quality indicator as of December 31, 2022 (amounts in thousands):

Credit Quality Indicator 2022 2021 2020 2019 2018 Prior Total

4 unchanged sentences

NOTE 3— Property and Equipment

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

Property and equipment as of December 31, 2022 and January 1, 2022 consisted of the following (amounts in thousands):

Property and Equipment, At Cost Accumulated Depreciation

and Amortization Property and Equipment, Net

January 1, 2022

December 31, 2022

Leasehold improvements $ 392,448 $ ( 117,745 ) $ 274,703

12 unchanged sentences

Fiscal Year Ended

Consolidated Statements of Operations and Comprehensive Income Location January 1,

Consolidated Statements of Operations and Comprehensive Income Location December 31,

2022 January 1,

2021 December 28,

2022 January 2,

Cost of sales $ 1,711 $ 1,486 $ 1,299

2 unchanged sentences

NOTE 4— Leases

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.

Leases for 15 of our store locations and one warehouse location were controlled by related parties as of December 31, 2022 and January 1, 2022.

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

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.

As of December 31, 2022, we had executed leases for 43 store locations that we had not yet taken possession of with total undiscounted future lease payments of $ 224.7 million and lease terms through 2041.

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

1 unchanged sentence

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

We also have non-cancelable subleases with unrelated third parties with future minimum rental receipts as of January 1, 2022 totaling $ 5.3 million ending in various years through 2036, which have not been deducted from the future minimum lease payments.

We also have non-cancelable subleases with unrelated third parties with future minimum rental receipts as of December 31, 2022 totaling $ 4.2 million ending in various years through 2036, which have not been deducted from the future minimum lease payments.

The balance sheet classification of our right-of-use lease assets and lease liabilities was as follows (amounts in thousands):

Leases Classification January 1,

Leases Classification December 31,

2022 January 1,

11 unchanged sentences

2022 January 1,

2021 December 28,

2022 January 2,

Operating lease cost Selling, general and administrative expenses $ 132,065 $ 123,799 $ 112,096

7 unchanged sentences

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

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

Maturities of lease liabilities as of December 31, 2022 were as follows (amounts in thousands):

Operating Leases Finance Leases Total

19 unchanged sentences

2022 January 1,

2021 December 28,

2022 January 2,

Cash paid for amounts included in the measurement of lease liabilities:

4 unchanged sentences

Finance cash flows from finance leases $ 1,279 $ 1,155 $ 821

Leased assets obtained in exchange for new lease liabilities — adoption

$ — $ — $ 664,882

Leased assets obtained in exchange for new operating lease liabilities

2 unchanged sentences

NOTE 5— Goodwill and Intangible Assets

Information regarding our goodwill and intangible assets as of January 1, 2022 was as follows (amounts in thousands):

Information regarding our goodwill and intangible assets as of December 31, 2022 was as follows (amounts in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

15 unchanged sentences

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

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):

Amortization expense for finite-lived intangible assets was $ 6.6 million, $ 6.6 million, and $ 6.5 million for t he fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, respectively.

The estimated future amortization expense related to finite-lived intangible assets as of December 31, 2022 is as follows (amounts in thousands):

Fiscal 2023 $ 9,836

8 unchanged sentences

2022 January 1,

First Lien Credit Agreement:

Term loan $ 460,000 $ 460,000

Prior First Lien Credit Agreement:

Senior term loan $ 385,000 $ 460,000

Long-term debt, gross 385,000 460,000

Unamortized debt discounts and debt issuance costs

Unamortized debt issuance costs and debt discounts

( 5,350 ) ( 8,532 )

Long-term debt, net $ 379,650 $ 451,468

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.

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).

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.

Prior First Lien Credit Agreement

GOBP Holdings, our wholly owned subsidiary, was the borrower under a first lien credit agreement (the "Prior First Lien Credit Agreement") with a syndicate of lenders that consisted of a $ 385.0 million senior term loan and a revolving credit facility for an amount up to $ 100.0 million, with sub-commitments for $ 35.0 million of letters of credit and $ 20.0 million of swingline loans, as of December 31, 2022.

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

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

On February 21, 2023, we repaid all of the outstanding indebtedness under the Prior First Lien Credit Agreement of $ 387.2 million as well as fees and expenses in connection therewith.

All obligations of the Company’s subsidiaries under the Prior First Lien Credit Agreement were discharged as of such date.

See NOTE 14—Subsequent Event, for additional information.

Senior Term Loan

On April 29, 2022, we prepaid $ 75.0 million of principal on the senior term loan outstanding under our Prior First Lien Credit Agreement.

In connection with the payment, we wrote off $ 1.3 million of previously unamortized debt issuance costs and debt discounts.

Our $ 385.0 million senior term loan under our Prior First Lien Credit Agreement had a maturity date of October 22, 2025, had an applicable margin of 2.75 % for Eurodollar loans and 1.75 % for base rate loans, and had an effective interest rate of 7.13 % as of December 31, 2022.

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

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.

We are also required to pay fronting fees and other customary fees for letters of credit issued under the revolving credit facility.

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

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.

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

As of December 31, 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 under our Prior First Lien Credit Agreement, which had a maturity date of October 23, 2023 .

No amounts were outstanding under the revolving credit facility as of December 31, 2022 and January 1, 2022 and no amounts were borrowed under the revolving credit facility during the fiscal years ended December 31, 2022 and January 1, 2022.

We were 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.

We were also required to pay fronting fees and other customary fees for letters of credit

issued under the revolving credit facility.

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

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 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.

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

The Prior First Lien Credit Agreement restricted us from entering into certain types of transactions, such as incurring additional debt or issuing certain preferred shares, and making certain types of payments including dividends and stock repurchases and other similar distributions, with certain exceptions.

Additionally, the revolving credit facility under our Prior First Lien Credit Agreement was subject to compliance with a first lien secured leverage ratio (as specified in the Prior 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 exceeded 35 % of the total amount of the revolving credit facility commitments.

As of December 31, 2022, we were in compliance with all applicable financial covenant requirements for our Prior First Lien Credit Agreement.

Schedule of Principal Maturities

Principal maturities of debt as of January 1, 2022 are as follows (amounts in thousands):

Principal maturities of debt as of December 31, 2022 were as follows (amounts in thousands):

Fiscal 2023 $ —

8 unchanged sentences

2022 January 1,

2021 December 28,

2022 January 2,

Interest on loans $ 18,743 $ 13,930 $ 18,950

4 unchanged sentences

Interest expense, net $ 17,967 $ 15,564 $ 20,043

Debt Extinguishment and Modification Costs

Debt extinguishment and modification costs consisted of the following (amounts in thousands):

Loss on debt extinguishment and modification

Loss on debt extinguishment and modification consisted of the following (amounts in thousands):

Fiscal Year Ended

2022 January 1,

2021 December 28,

2022 January 2,

Write-off of debt issuance costs $ 1,127 $ — $ 74

Debt modification costs — 124 150

Write-off of debt discounts 147 — —

Debt modification costs — — 124

Debt extinguishment and modification costs $ 1,274 $ — $ 198

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.

As of December 31, 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.

1 unchanged sentence

Preferred Stock

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

We did not have any shares of preferred stock issued or outstanding as of December 31, 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.

2 unchanged sentences

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.

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 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.

Secondary Offerings

On February 3, 2020, certain 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 we recognized in SG&A during fiscal 2020.

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.

1 unchanged sentence

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 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.

On May 28, 2020, the stockholder affiliated with our former private equity sponsor, Hellman and Friedman LLC, 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.

2 unchanged sentences

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.

Any repurchased shares are constructively retired and returned to an unissued status.

During the fiscal year ended December 31, 2022, we repurchased 139,718 shares of common stock totaling $ 3.5 million at an average price of $ 24.70 per share in open-market transactions pursuant to a Rule 10b5-1 plan.

During the fiscal year ended January 1, 2022, we did not repurchase any shares of our common stock.

As of December 31, 2022, we had $ 96.6 million of repurchase authority remaining under the share repurchase program.

NOTE 8— Share-based Awards

9 unchanged sentences

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.

As of December 31, 2022, there were a total of 6,812,723 shares of common stock reserved for issuance under the 2019 Plan, which includes 764,471 shares added effective January 2, 2022 per the above noted annual automatic increase.

As of December 31, 2022, there were 3,675,604 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.

1 unchanged sentence

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.

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

3 unchanged sentences

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.

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:

The respective valuation methods resulted in weighted-average grant date fair values for RSUs and PSUs granted during fiscal 2022, 2021 and 2020 as follows:

Fiscal Year Ended

2022 January 1,

2021 December 28,

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

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

2022 January 2,

RSUs $ 29.70 $ 28.70 $ 37.07

PSUs $ 35.45 $ 36.90 N/A

PSUs $ 29.16 $ 35.45 $ 36.90

We did not award any time-based or performance-based stock options during fiscal 2022, 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

Volatility 30.2 %

Risk-free interest rate 1.9 %

Dividend yield — %

Expected term (in years) 6.8

Grant Activity

Share-based Award Activity

The following table summarizes stock option activity under all equity incentive plans during fiscal 2022, 2021 and 2020:

7 unchanged sentences

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

Options outstanding as of 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 — — — —

5 unchanged sentences

Forfeitures ( 296,345 ) 21.25 — —

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

Options outstanding as of December 31, 2022 2,562,774 $ 12.13 801,635 $ 4.68

Options vested and exercisable as of December 31, 2022 1,707,031 $ 7.46 801,635 $ 4.68

The total intrinsic value of time-based stock options exercised w as $ 7.1 million, $ 15.5 million and $ 68.7 million for fiscal 2022, 2021 and 2020, respectively .

7 unchanged sentences

Forfeitures ( 11,496 ) 31.78

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

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

Granted 669,546 28.70

5 unchanged sentences

Forfeitures ( 95,884 ) 30.61

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

Unvested balance as of December 31, 2022 690,354 $ 31.79

The following table summarizes PSU activity under the 2019 Plan during fiscal 2022, 2021 and 2020:

13 unchanged sentences

404,382 29.16

Adjustment for expected performance achievement (2)

423,347 31.86

Forfeitures ( 72,651 ) 33.79

Unvested balance as of December 31, 2022 (3)

1,331,803 $ 32.89

_______________________

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

(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.

(3) An additional 428,750 PSUs could potentially be included if the maximum performance level of 200 % is reached for all PSUs outstanding as of December 31, 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.

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

Share-based compensation expense and the related tax benefit consisted of the following (amounts in thousands):

Fiscal Year Ended

2022 January 1,

2021 December 28,

2022 January 2,

Time-based stock options $ 471 $ 2,030 $ 2,941

3 unchanged sentences

Dividends (1)

186 434 3,645

Share-based compensation expense (2)

$ 32,556 $ 17,615 $ 38,084

_______________________

(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.

(2) Total recognized income tax benefit related to share-based compensation expense was $ 8.7 million, $ 4.7 million and $ 10.1 million for fiscal 2022, 2021 and 2020, respectively.

Share-based compensation expense qualifying for capitalization was insignificant for each of the fiscal years ended December 31, 2022, January 1, 2022 and January 2, 2021.

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

Time-Based Stock Options

We did not record compensation expense for time-based stock option grants prior to the closing of our IPO in June of fiscal 2019 because such time-based options were subject to a post-termination repurchase right by us until certain contingent events such as involuntary termination, a change in control, or an initial public offering occurred, and such contingent events were not deemed probable during fiscal 2018 or any other fiscal period prior to our IPO.

As a result of this repurchase right feature, other than in limited circumstances, stock issued upon the exercise of these options could be repurchased at our discretion at the lower of fair value or the applicable exercise price.

The repurchase right feature lapsed upon the closing of our IPO on June 24, 2019 (the "IPO closing date").

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.

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.

Unamortized compensation cost related to unvested time-based options was $ 0.8 million as of December 31, 2022, $ 0.7 million of which related to time-based stock options granted at the time of our IPO.

The $ 0.8 million of unamortized compensation cost is expected to be amortized over a weighted average period of approximately 0.6 years.

Performance-Based Stock Options

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 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

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.

Unamortized compensation expense for RSUs was $ 12.5 million as of December 31, 2022, which is expected to be amortized over a weighted average period of approximately 1.9 years.

Performance-Based RSUs

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 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 $ 0.2 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.

Unamortized compensation cost related to the expected level of achievement of unvested PSUs was $ 16.1 million as of December 31, 2022, which is expected to be amortized over a weighted average period of approximately 1.8 years.

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 2022 and beyond, we intend to make dividend payments as these time-based stock options and RSUs vest.

As such, our dividends are not considered declared and payable and are not accrued as a liability in our consolidated balance sheet as of December 31, 2022.

We paid $ 0.1 million, $ 0.2 million and $ 0.4 million of d ividends during the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, 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 immaterial as of December 31, 2022.

NOTE 9— Retirement Plans

We make payments into the UFCW—Northern California Employers Joint Pension Trust Fund (the "Pension Fund") and the UFCW—Benefits Trust Fund ("Benefits Fund"), multiemployer pension and welfare trusts, established for the benefit of union employees at two company operated stores under the terms of a collective bargaining agreement.

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

We make contributions to the UFCW—Northern California Employers Joint Pension Trust Fund (the "Pension Fund") and the UFCW—Benefits Trust Fund ("Benefits Fund"), each a multiemployer plan, established for the benefit of union employees at two company operated stores under the terms of a collective bargaining agreement.

We currently operate under a collective bargaining agreement that expired on September 6, 2022 and which is in the process of being renegotiated as of the filing date of this Annual Report on Form 10-K.

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.

Payments into the Pens ion Fun d were $ 0.5 million, $ 0.6 million, and $ 0.6 million for the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, 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:

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

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

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, 2020, the latest available information from the Pension Fund.

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

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.

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

The following information represents our participation in the Pension Fund for the annual period ended December 31, 2021, the latest available information from the Pension Fund.

All such information is based on information we received from the Pension Fund.

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

Our 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 Pension Fund was in critical status during the plan year.

Among other factors, generally, plans in critical status are less than 65 percent funded.

In an effort to improve the Plan's funding situation, the trustees adopted a rehabilitation plan on July 8, 2010.

In an effort to improve the Pension Fund's funding situation, the trustees adopted a rehabilitation plan on July 8, 2010 and most recently updated it on May 3, 2022.

The rehabilitation plan changes the benefits for participants who retire and commence a pension on or after January 1, 2012, and changes future benefit accruals earned on or after January 1, 2012.

2 unchanged sentences

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:

A defined contribution retirement plan for warehouse employees, which requires an annual contribution of 15 % of eligible salaries.

This defined contribution retirement plan is available to nonunion employees who meet certain service criteria.

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

Payments into the Benefits Fund were $ 1.2 million, $ 1.4 million, and $ 1.4 million for the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, respectively.

For our nonunion employees, we offered the following plans during fiscal 2022, 2021 or 2020:

A defined contribution retirement plan for warehouse employees, which required an annual contribution of 15 % of eligible salaries.

This defined contribution retirement plan was available to nonunion employees who met certain service criteria.

A noncontributory profit-sharing plan for administrative personnel under which the Board of Directors may authorize an annual contribution of up to 15 % of eligible salaries.

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

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.

We expensed $ 6.9 million, $ 1.5 million and $ 6.1 million for contributions to the two plans described above in (a) and (b) for the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, respectively.

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

1 unchanged sentence

We are not obligated to match any employee contributions for the 401(k) retirement plans.

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 1, 2022, January 2, 2021, and December 28, 2019, respectively.

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 December 31, 2022, January 1, 2022, and January 2, 2021, respectively.

NOTE 10— Income Taxes

Components of income tax expense (benefit)

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.

Income before income taxes consisted entirely of income from domestic operations of $ 75.7 million, $ 77.5 million, and $ 87.1 million for the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, respectively.

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

1 unchanged sentence

2022 January 1,

2021 December 28,

2022 January 2,

$ — $ — $ ( 285 )

12 unchanged sentences

2022 January 1,

2021 December 28,

2022 January 2,

Taxes at federal statutory rates 21.0 % 21.0 % 21.0 %

25 unchanged sentences

Debt transaction costs ( 1,231 ) ( 1,972 )

Other ( 1,228 ) —

Total deferred tax liabilities ( 390,141 ) ( 369,140 )

5 unchanged sentences

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets.

A significant piece of objective positive evidence was the cumulative income incurred over the three-year period ended January 1, 2022.

A significant piece of objective positive evidence was the cumulative income incurred over the three-year period ended December 31, 2022.

Based on our current assessment, we anticipate it is more likely than not that we will generate sufficient taxable income to realize all of our material deferred tax assets.

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

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.

As such we did not record a valuation allowance against these material deferred tax assets as of December 31, 2022.

Our policy is to recognize interest and penalties associated with uncertain tax positions as part of the income tax provision in our consolidated statements of operations and comprehensive income 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, nor have we accrued for or made payments for interest and penalties.

We had no uncertain tax positions as of December 31, 2022 and January 1, 2022, 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.

As of January 1, 2022, our tax returns remain open to examination by the tax authorities for tax years 2011 to 2021 for U.S.

As of December 31, 2022, our tax returns remain open to examination by the tax authorities for tax years 2010 to 2022 for U.S.

federal and for various state jurisdictions.

1 unchanged sentence

Related Party Lease s

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 December 31, 2022 and January 1, 2022, we leased 15 store locations and one warehouse location from entities in which Eric Lindberg, Jr., Chairman of our Board of Directors (and Chief Executive Officer until December 31, 2022), and MacGregor Read, Jr., who served as Vice Chairman of our Board of Directors until September 1, 2022, or their respective families, had a direct or indirect financial interest .

As of December 31, 2022, the right-of-use assets and lease liabilities related to these properties was $ 40.5 million and $ 45.5 million, respectively.

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.

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.

These related parties received aggregate lease payments from us of $ 6.8 million, $ 6.1 million, and $ 6.0 million for the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, 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.

We offer interest-bearing notes to IOs and the gross amount of IO operating notes and IO receivables due was $ 48.1 million and $ 40.6 million as of December 31, 2022 and January 1, 2022, respectively.

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

1 unchanged sentence

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

We establish an accrual for legal proceedings if and when those matters reach a stage where they present loss contingencies that are both probable and reasonably estimable.

In such cases, there may be a possible exposure to loss in excess of any amounts accrued.

We monitor those matters for developments that would affect the likelihood of a loss and the accrued amount, if any, thereof, and adjust the amount as appropriate.

If the loss contingency at issue is not both probable and reasonably estimable, we do not establish an accrual, but will continue to monitor the matter for developments that will make the loss contingency both probable and reasonably estimable.

If it is at least a reasonable possibility that a material loss will occur, the Company will provide disclosure regarding the contingency.

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.

3 unchanged sentences

2022 January 1,

2021 December 28,

2022 January 2,

Net income and comprehensive income $ 65,052 $ 62,310 $ 106,713

1 unchanged sentence

Effect of dilutive options 2,813 3,564 6,538

Effect of dilutive RSUs 129 96 42

Effect of dilutive RSUs and PSUs 537 129 96

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

4 unchanged sentences

_______________________

(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.

On April 27, 2020 in conjunction with an additional secondary offering, certain performance criteria were achieved resulting in the vesting of the remaining 1.7 million unvested 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.

(1) 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 2020.

based stock options are included in the diluted weighted-average shares outstanding for fiscal 2020.

See NOTE 8—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 fiscal years 2021 and 2020.

No PSUs were included in diluted weighted-average shares outstanding for fiscal 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):

1 unchanged sentence

2022 January 1,

2021 December 28,

2022 January 2,

RSUs 98 11 3,239

Time-based stock options — — 682

Total 11 3,239 732

NOTE 14— Subsequent Event

On February 21, 2023, the Company entered into a credit agreement with Bank of America, N.A., as administrative agent and collateral agent, and the other parties party thereto (the "Credit Agreement").

The Credit Agreement provides for senior secured credit facilities consisting of (i) a senior secured term loan facility (the "term loan facility") in an aggregate principal amount of $ 300.0 million and (ii) a senior secured revolving credit facility (the "revolving credit facility" and, together with the term loan facility, the "credit facilities") in an aggregate principal amount of $ 400.0 million.

The term loan facility was borrowed in full at closing, and $ 25.0 million of the revolving credit facility was borrowed at closing.

On February 21, 2023, the Company repaid all of the outstanding indebtedness under the Prior First Lien Credit Agreement of $ 387.2 million as well as fees and expenses in connection therewith.

All obligations of the Company’s subsidiaries under the Prior First Lien Credit Agreement were discharged as of such date.

The revolving credit facility includes borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as the swingline loans.

The credit facilities permit the Company to add one or more incremental term loan facilities, increase any existing term loan facility, increase revolving commitments, and/or add incremental replacement revolving credit facility tranches.

The aggregate principal amount of such incremental facilities are limited to (a) an amount not in excess of the sum of the greater of $ 200.0 million and 100 % of Consolidated EBITDA (as defined in the Credit Agreement), subject to certain limitations, plus (b) voluntary prepayments of the term loan facility, voluntary permanent reductions of the commitments for the revolving credit facility and voluntary prepayments of indebtedness secured by liens on the collateral securing the credit facilities, subject to certain exceptions, plus (c) an amount such that (assuming that the full amount of any such incremental revolving increase and/or incremental replacement revolving credit facility was drawn, and after giving effect to any appropriate pro forma adjustment events) the Company would be in compliance, on a pro forma basis (but excluding the cash proceeds of such incurrence), with a total net leverage ratio of 3.00 to 1.00.

The lenders under the credit facilities are not under any obligation to provide any such incremental commitments or loans under incremental facilities and any such incremental commitments or loans under incremental facilities are subject to certain customary conditions.

Borrowings under the Credit Agreement in dollars bear interest at a rate equal to, at our option, either (a) the base rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the federal funds rate then in effect, plus 0.50 %, (ii) the prime rate then in effect and (iii) a specified Term SOFR (as defined in the Credit Agreement) rate plus 1.00 %, subject to the interest rate floors set forth therein, plus an applicable margin ranging from 0.75 % to 1.75 % based on the Company's total net leverage ratio;

and (b) an adjusted Term SOFR rate determined on the basis of a one, three or six month interest period, plus 0.10 %, subject to the interest rate floors set forth therein, plus an applicable margin ranging from 1.75 % to 2.75 % based on the Company's total net leverage ratio.

As of the closing date, interest on the initial borrowings under the new credit facility were based on one-month Term SOFR with an applicable margin of 2.25 %.

The credit facilities mature on February 21, 2028.

The Company’s obligations under the Credit Agreement are unconditionally guaranteed by all of the Company’s wholly owned restricted subsidiaries, subject to certain exceptions.

All obligations under the Credit Agreement, and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by substantially all of the Company’s assets and those of each subsidiary guarantor.

The Credit Agreement requires the Company to make scheduled amortization payments of the outstanding term loans.

The Company may voluntarily prepay the senior secured credit facilities, in whole or in part, at any time without premium or penalty, subject to reimbursement of the lenders’ breakage and redeployment costs in applicable cases.

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

The Credit Agreement contains certain covenants that, among other things, limit the Company’s ability and the ability of the Company’s restricted subsidiaries to:

pay dividends or distributions, repurchase equity, prepay junior debt and make certain investments;

incur additional debt or issue certain disqualified stock and preferred stock;

incur liens on assets;

merge or consolidate with another company or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets;

enter into transactions with affiliates;

and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments to the borrower.

The Credit Agreement also contains financial performance covenants requiring the Company to satisfy a maximum total net leverage ratio test and a minimum interest coverage ratio test as of the last day of each fiscal quarter ending on or after April 1, 2023, as specified therein.

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