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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidatedfinancial statements and related notes and other financial information appearingelsewhere in this Form 10-K. In addition to historical information, thefollowing discussion and other parts of this Form 10-K containforward-looking information that involves risks and uncertainties. Our actual resultscould differ materially from those anticipated by this forward-looking informationdue to the factors discussed under “Risk Factors,” “Cautionary Statement ConcerningForward-Looking Statements,” and elsewhere in this Form 10-K.

This section of this Form 10-K does not address certain items regarding the fiscal year ended December 29, 2018 (“fiscal 2018”). Discussion and analysis of fiscal 2018 and year-to-year comparisons between fiscal 2019 and fiscal 2018 not included in this Form 10-K can be found in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

Executive Level Overview

Company Background

BlueLinx is a leading U.S. wholesale distributor of residential and commercial building products with both branded and private-label SKUs across product categories such as lumber, panels, engineered wood, siding, millwork, metal building products, and other construction materials. With a strong market position, broad geographic coverage footprint servicing 40 states, and the strength of a locally focused sales force, we distribute our comprehensive range of products to over 15,000 national, regional, and local dealers, specialty distributors, national home centers, and manufactured housing customers. BlueLinx is able to provide a wide range of value added services and solutions to our customers and suppliers. We are headquartered in Georgia, with executive offices located at 1950 Spectrum Circle, Marietta, Georgia, and we operate our distribution business through a broad network of distribution centers.

As a “two-step” wholesale distributor of building products, BlueLinx stocks products from leading manufacturers, such as Huber Engineered Woods, James Hardie, Georgia Pacific, Weyerhaeuser, and Oldcastle, and supplies these products to a broad range of customers, including lumber yards, dealers, home centers, and hardware stores. These customers then serve residential and commercial builders and contractors in their respective geographic areas. BlueLinx plays a critical role in enabling its lumber yard, dealer, and home center customers to offer a broad range of products and brands, as most of BlueLinx’s customers do not have the capability to purchase and warehouse directly from the manufacturers for such a large set of SKUs. Similarly, BlueLinx provides value to its manufacturer partners by enabling access to the fragmented network of lumber yards and dealers that the manufacturers could not adequately serve directly. Our place in this distribution model of building products provides easy access to the marketplace for our suppliers and the value proposition of rapid delivery on an as-needed basis to our customers from our network of warehouse facilities. In addition to its broad portfolio of building products, BlueLinx also offers a wide array of custom cutting and fabrication services for the wood products industry.

Recent Developments

Real Estate Transactions

During the first quarter of fiscal 2020, we completed real estate financing transactions through sale-leaseback arrangements on fourteen of our distribution facilities. Gross proceeds for these transactions were $78.3 million. Net proceeds from these transactions were used to repay indebtedness under our Term Loan Facility. Upon completion of the transactions, we entered into long-term leases with multiple renewal options on the properties. These real estate financing transactions were accounted for as finance leases, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Additionally, during the third quarter of fiscal 2020, we completed a real estate financing transaction through a sale-leaseback arrangement on one distribution facility. Gross proceeds for this transaction were $11.0 million and we recognized a gain of $8.7 million on the sale of this facility. Net proceeds from this transaction were used to repay indebtedness under our Term Loan Facility. Upon completion of the transaction, we entered into a long-term lease with multiple renewal options on the property. The real estate financing transaction was accounted for as a sale and the lease was accounted for as an operating lease, in accordance with U.S. GAAP.

These transactions are described in further detail in Note 12, Lease Commitments, in the Notes to the Consolidated Financial Statements.

Factors That Affect Our Operating Results and Trends

Our results of operations and financial performance are influenced by a variety of factors, including: (i) the commodity nature of the products we manufacture and distribute; (ii) general economic and industry conditions affecting demand in the housing market; and (iii) cost and availability of the products we distribute. These factors have historically produced cyclicality in our results of operations, and we expect this cyclicality to continue in future periods.

Commodity Nature of Our Products

Many of the building products we distribute, including OSB, plywood, and lumber, are commodities that are widely available from various suppliers with prices and volumes determined frequently in a market based on participants' perceptions and expectations of short-term supply and demand factors. The selling price of our commodity products is based on the current market purchase price to replace those products in our inventory, plus adders for our shipping, handling, overhead costs, and our profit margin. At certain times, the selling price for any one or more of the products we distribute, especially those of a commodity nature, may well exceed our purchase price because our prices are based on current replacement cost which, in a dynamic inflationary commodity market, may at times well exceed our purchase price. At certain other times, the selling price for any one or more of the products we distribute, especially those of a commodity nature, may fall below our purchase costs for the same reasons, requiring us to incur short-term losses on specific sales transactions. Therefore, our profitability with respect to these commodity products depends, in significant part, on commodity prices in addition to managing our cost structure, particularly shipping and handling costs, which represent significant components of our operating costs. Composite structural panel and lumber prices have been historically volatile.

The following table represents the percentage price changes on a year over year basis of the average composite panel, including certain panel subcategories, and average composite lumber prices as reflected by Random Lengths, an industry publication, for the periods noted below. In addition to the year-over-year average price changes, 2020 was a year of exceptional price volatility when compared to historical results over the last eight years as both composite panel and composite lumber prices experienced the largest difference between high and low price levels within a calendar year. Pricing for these products declined starting in March, but rebounded during the remaining portion of the second quarter, significantly increasing during most of the third quarter. A two-month decline began in the final weeks of the third quarter and lasted until December. In December 2020, pricing began to rapidly increase towards all-time highs. These market trends resulted in substantial favorable revenue and gross margin comparisons for fiscal 2020 for our structural products and our business as a whole. Wood-based commodity index prices began January at record or near-record highs and remain at elevated levels. There is much uncertainty regarding future trends in lumber and panel index prices. We continue to closely monitor these pricing trends, and work to manage our business, inventory levels, and costs accordingly.

Calendar Year Ended

December 31

Increase (decrease) in composite lumber prices 59% (23)%

Increase (decrease) in Western SPF lumber prices 45% (20)%

Increase (decrease) in Southern pine lumber prices 53% (22)%

Increase (decrease) in composite panel prices 56% (27)%

Increase (decrease) in Western fir plywood prices 22% (16)%

Increase (decrease) in Southern pine plywood prices 29% (18)%

Increase (decrease) in OSB prices 99% (38)%

General Economic and Industry Conditions Affecting Demand

Many of the factors that cause our operations to fluctuate are seasonal or cyclical in nature. Historically, our operating results have also been correlated with the level of single-family residential housing starts in the U.S. The demand for new homes is dependent on a variety of factors, including job growth, changes in population and demographics, the availability and cost of mortgage financing, the supply of new and existing homes, and consumer confidence. The COVID-19 pandemic had a significant negative effect on single family housing starts in April and May. However, housing starts rebounded during the second half of the year. Low interest rates, shortages in existing home inventory, and a potential growing trend toward relocating away from populated metropolitan areas to areas with single-family homes may help sustain the improvement in

single-family housing starts. We believe the housing market improvement trend will continue in the long term, and that we are well-positioned to support our customers. For additional information regarding the risk factors impacting our business, please refer to Part I, Item 1A, Risk Factors.

Cost And Availability of the Products We Distribute

The structural products we distribute are available from variety of suppliers. The specialty products we distribute are available from select suppliers from which we have established and cultivated relationships in the specific markets we serve. As a result of the COVID-19 pandemic, manufacturing output was impacted on both the structural and specialty sides of our business. Supply constraints which arose from reduced mill output as a result of the pandemic had an impact on both the availability and pricing of our structural products which contributed to increased market prices throughout the year. Reduced manufacturing capacity combined with increased demand for our specialty products also had an impact on the products we distribute in this category, namely vinyl siding. The continued availability of both structural and specialty products may have an impact on our operating results and are discussed in more detail in Part I, Item 1A, Risk Factors.

COVID-19 Pandemic

We began preparations for the COVID-19 pandemic in late February 2020, and in early March 2020 we implemented policies and procedures to protect our associates, serve our customers, and support our suppliers. We also moved quickly to develop and execute plans and take actions designed to give financial and operating flexibility during the pandemic. To date, our business has been designated as “essential” in all states in which we operate, and we have continued to operate and provide service to our customers and suppliers.

During fiscal 2020, and into 2021, we have continued to practice safety and hygiene protocols consistent with the Centers for Disease Control and Prevention (“CDC”) and local guidance. We also continued our efforts to reduce operating costs and optimize liquidity and took actions designed to sustain many of our first and second quarter cost reduction actions long-term. Cost structure and liquidity will remain areas of acute focus for us as the pandemic continues.

While the pandemic impacted many aspects of our business and operations during fiscal 2020, that impact was offset by the recovery in single-family residential housing starts and the escalation in wood-based commodity pricing. Our net sales and gross margin increased, largely driven by the significant increase in wood-based pricing. For fiscal 2020, net sales increased $460.1 million compared to fiscal 2019 and net income improved $98.5 million as we moved from a net loss for fiscal 2019 to net income for fiscal 2020.

The extent of the impact of the pandemic on our business for fiscal 2021 will depend on future developments, including, among others, the duration of the pandemic, the success of actions taken by governmental authorities to contain the pandemic and address its impact, the success of local return to work and business reopening plans, and the impact the COVID-19 pandemic has on the supply chain, pricing, and demand in the markets we service. The trajectory of the pandemic continues to evolve rapidly, and we cannot predict the extent to which our financial condition, results of operation, or cash flows will ultimately be impacted. We are closely monitoring the impact of the pandemic on industry conditions, the progress of local return to work and reopening plans, and any pandemic related restrictions that may have an impact on our business.

CARES Act

In an attempt to assist businesses during the COVID-19 pandemic, Congress enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act on March 27, 2020. The CARES Act contained several provisions, including tax-based measures, meant to counteract the effects of the COVID-19 pandemic. After review of the many provisions, we took advantage of several of the provisions, including the deferral of our defined benefit plan pension contribution, deferral of the payment of employer payroll taxes, and the increase in the percentage of allowable percentage of interest expense under Section 163(j) of the Internal Revenue Code (“IRC”).

During fiscal 2020, as a result of the CARES Act, we were able to recognize discrete tax benefits during the year of $4.8 million resulting from the release of the valuation allowance associated with nondeductible interest expense as the CARES Act increased the allowable percentage from 30 percent to 50 percent of adjusted taxable income. We also elected to defer the payment of employer payroll taxes that would normally be paid during fiscal 2020. These taxes are required to be paid in two tranches, with 50 percent due by the end of 2021 and 50 percent due by the end of 2022. We expect to make payments of $3.2 million by December 2021 and the remaining $3.1 million by December 2022. Finally, we elected to defer defined benefit plan pension contributions totaling $0.6 million required during fiscal 2020 until December 31, 2020. We were required to pay

interest on the contributions in accordance with the provision included in the CARES Act. We made the contributions, including interest, of $0.6 million, on December 15, 2020.

Results of Operations

Fiscal 2020 Compared to Fiscal 2019

The following table sets forth our results of operations for fiscal 2020 and fiscal 2019, which were comprised of 53 and 52 weeks, respectively.

Fiscal 2020 % ofNetSales Fiscal 2019 % ofNetSales

($ in thousands)

Amortization of deferred gains on real estate (4,008) (0.1)% (3,960) (0.2)%

Provision for (benefit from) income taxes 14,199 0.5% (3,952) (0.1)%

The following table sets forth changes in net sales by product category. Prior year amounts have been reclassified to conform to the current year mix of structural and specialty products.

($ in thousands)

Net sales by category

The following table sets forth gross margin dollars and percentages by product category versus comparable prior periods. Prior year amounts have been reclassified to conform to the current year product mix of structural and specialty products.

($ in thousands)

Gross profit $ by category:

Gross margin % by category

Structural products 12.8 % 8.7 %

Specialty products 17.1 % 15.9 %

Total gross margin % 15.4 % 13.5 %

Discussion of Results of Operations

Net sales. Net sales of $3.1 billion in fiscal 2020 increased by 17.4 percent, or $0.5 billion, from fiscal 2019. The sales increase was primarily a result of wood-based commodity price inflation, partially offset by a slight decline in sales volume attributable to supply outages in structural products occurring during the second half of fiscal 2020. The COVID-19 pandemic created unprecedented market conditions on the supply and demand of our products. As the severity of the COVID-19 pandemic initially became apparent, manufacturers ran fewer shifts out of an abundance of caution creating supply bottlenecks. In addition, productivity was negatively impacted by COVID-19 employee illnesses from our supply partners. At the same time, after an initial decline in single family housing starts and repair and remodeling activities, the housing market became more robust during fiscal year 2020 and the growth rate for single family housing starts was 11.5 percent, while housing repair and remodeling activity was estimated to have grown by 3.5 percent. The impact of the reduced supply coupled with increasing demand led to a historically high increase in wood-based commodity prices after the pandemic began. Full year structural product net sales, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, were $1.2 billion and the impact of the record wood-based commodity price inflation occurring in the second half of the year is estimated to have increased net sales by approximately $210 million to $230 million.

Gross profit. Total gross profit for fiscal 2020 was $477.7 million, compared to $356.9 million in fiscal 2019. Gross margin increased to 15.4 percent in fiscal 2020, compared to 13.5 percent in fiscal 2019. Gross margin percentage increased primarily due to wood-based commodity price inflation in our structural product category as we were selling lower costed inventory during a period of rapidly increasing commodity prices. This was largely a result of the extension of lead times during the increase in the second half of the year and tightened supply due to the pandemic, paired with strong demand. Specialty products margins benefited from mix shifts to higher margin categories, paired with pricing strategies focused in key products categories such as engineered wood and millwork products.

Selling, general, and administrative expenses. Selling, general, and administrative (“SG&A”) expenses for fiscal 2020 were $314.2 million, compared to $291.5 million, for fiscal 2019. The increase was primarily due to higher variable incentive compensation of approximately $13.1 million, higher sales commissions of approximately $10.0 million, and increased operational expenses related to higher than anticipated sales volume. Our cost reduction actions taken in the second quarter, focused primarily on labor, realized approximately $10.5 million of savings for the Company, annualized to $13.9 million. These savings were offset by additional payroll and other operating expenses attributable to the additional fiscal week in fiscal 2020.

Depreciation and amortization expense. Depreciation and amortization expense for fiscal 2020 was $28.9 million, compared to $30.2 million, for fiscal 2019, a decrease of $1.3 million. This decrease was primarily due to certain assets becoming fully depreciated during 2020.

Gains from sales of property. Total gains from sales of property in fiscal 2020 were $10.5 million compared to $13.1 million in fiscal 2019, a decrease of 19.5 percent. In fiscal 2020, the majority of our real estate transactions were sale leaseback transactions where we were not allowed to recognize a gain under U.S. GAAP, with the exception of the sale leaseback of our Denver facility. In fiscal 2019, the majority of our real estate transactions were largely typical sale transactions where we were allowed to recognize a gain under U.S. GAAP.

Other operating expenses. Other operating expenses were $6.9 million in fiscal 2020 compared to $17.0 million in fiscal 2019, a decrease of 59.5 percent. The decrease is primarily due to a decrease in spending related to the integration of the Cedar Creek acquisition, partially offset by severance expense incurred in relation to headcount reductions that occurred throughout the period.

Interest expense, net. Interest expense for fiscal 2020 was $47.4 million, compared to $54.2 million for fiscal 2019. The decrease of $6.8 million was largely attributable to a decrease in the bank debt balance of $141.8 million, comprised of decreases in our Term Loan Facility of $103.5 million and Revolving Credit Facility of $38.3 million, respectively, as well as a reduction in the variable LIBOR rate that is a component of the interest rate on our bank debt instruments.

Other expense (income), net. Other expense (income), net was $(0.3) million in fiscal 2020 compared to $2.5 million in fiscal 2019, a decrease of $2.8 million. The decrease was due to expenses related to the lump sum payout offer made in fiscal 2019 to certain eligible retirees in the BlueLinx Hourly Retirement plan instead of receiving their typical payment streams.

Provision for (benefit from) income taxes. Our effective tax rate was 14.9 percent and 18.3 percent for fiscal 2020 and fiscal 2019, respectively. Primary drivers of the decline in our effective tax rate in fiscal 2020 versus fiscal 2019 included the

release of valuation allowances associated with state net operating losses and our previously nondeductible interest expense, both of which we believe we will be able to realize based on our positive taxable income for fiscal 2020.

Our effective tax rate for fiscal 2020 was impacted by the effect of the release of our valuation allowance for disallowed interest expense stemming from federal tax reforms, and the CARES Act, the partial release of our valuation allowance for state net operating losses that we anticipate being able to utilize, the tax benefit related to the lapse of statutes of limitations from uncertain tax positions (FIN 48), changes in the state effective tax rate used to value deferred tax assets, and the permanent addback of certain nondeductible expenses including executive compensation and nondeductible meals and entertainment.

Our effective tax rate for fiscal 2019 was impacted by the effect of the valuation allowance for disallowed interest expense stemming from federal tax reforms and certain state net operating losses, the tax benefit related to the lapse of statutes of limitations from uncertain tax positions (FIN 48), changes in the state effective tax rate used to value deferred tax assets, and the permanent addback of certain nondeductible expenses including executive compensation and nondeductible meals and entertainment.

Our effective tax rate moving forward will continue to be subject to fluctuations in quarters throughout the year because of various factors. These factors include the impact of permanent items combined with the timing of discrete items such as equity compensation windfalls and/or shortfalls, which occur as our equity compensation grants become vested throughout the year, any potential releases of our valuation allowance against net operating loss carryforwards, and the annual impact of the expiration of the statute of limitations associated with our uncertain tax positions (FIN 48). The magnitude of the impact to our effective tax rate in any given quarter resulting from the vesting of our equity compensation grants can vary depending in our stock price at the time of vesting. The impact to our effective rate tax rate resulting from the expiration of the statute of limitations associated with our uncertain tax positions (FIN 48) occurred in the fourth quarter of both fiscal 2020 and 2019, the timing of which we expect to continue into future periods.

Liquidity and Capital Resources

We expect our primary sources of liquidity to be cash flows from sales in the normal course of our operations and availability from our Revolving Credit Facility. We expect that these sources will be sufficient to fund our ongoing cash requirements for the foreseeable future, including at least the next twelve months.

Sources and Uses of Cash

Operating Activities

Fiscal 2020 cash flows provided by operating activities totaled $55.0 million. This cash activity was primarily driven by net income of $80.9 million, which included a non-cash gain on sale of property of $10.5 million and changes in working capital components. The changes in working capital components included an increase in cash due to a decrease in inventory of $3.7 million and an increase in accounts payable of $32.8 million and a decrease in cash due to an increase in accounts receivable of $100.8 million.

Fiscal 2019 cash flows used in operating activities totaled $10.3 million. This cash activity was primarily driven by a net loss of $17.7 million, which included a non-cash gain on sale of property of $13.1 million and changes in working capital components. The changes in working capital components included an increase in cash due to a decrease in accounts receivable of $15.6 million and a decrease in cash due to an increase in inventory of $4.0 million and a decrease in accounts payable of $16.8 million.

Investing Activities

During fiscal 2020, our net cash provided by investing activities was $9.2 million, which was substantially driven by cash received from the sale of real estate of $12.8 million, offset by cash paid for investments in equipment of $3.7 million.

During fiscal 2019, our net cash provided by investing activities was $21.1 million, which was substantially driven by cash received from the sale of real estate of $19.9 million, in addition to $6.0 million of cash returned from escrow related to the acquisition of Cedar Creek, offset by cash paid for investments in equipment of $4.8 million.

Financing Activities

Net cash used in financing activities was $75.7 million during fiscal 2020, which primarily reflected repayments on our term loan of $103.5 million and net repayments on our Revolving Credit Facility of $38.3 million, in addition to payments on

finance leases of $8.7 million and debt financing costs of $3.4 million, all of which were partially offset by proceeds from real estate financing transactions of $78.3 million.

Net cash used in financing activities was $8.1 million during fiscal 2019, which primarily reflected repayments on our term loan of $32.4 million and net repayments on our Revolving Credit Facility of $6.8 million, in addition to payments on our finance leases of $10.0 million and debt financing costs of $3.6 million, all of which were partially offset by proceeds from real estate financing transactions of $44.9 million.

Operating Working Capital

Operating working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash. Operating working capital is defined as the sum of cash, receivables, and inventory less accounts payable. Management of operating working capital helps us monitor our progress in meeting our goals to enhance our return on working capital assets.

Selected financial information

(In thousands)

Current assets:

Receivables, less allowance for doubtful accounts 293,643 192,872

Current liabilities:

Operating working capital increased to $470.7 million as of January 2, 2021, from $418.0 million as of December 28, 2019. The increase in operating working capital is primarily due to an increase in accounts receivable of $100.8 million, offset by a decrease in cash of $11.6 million and an increase in accounts payable of $32.8 million. The increases in accounts receivable and accounts payable are due primarily to wood-based commodity price inflation, which impacted sales dollars and the cost of inventory as reflected in accounts receivable and accounts payable balances.

Debt and Credit Sources

As of January 2, 2021 and December 28, 2019, long-term debt consisted of the following:

(In thousands)

Unamortized debt issuance costs (9,010) (12,555)

Less: current maturities of long-term debt 6,846 8,662

Long-term debt, net of current maturities $ 588,713 $ 649,964

Revolving Credit Facility

In April 2018 we amended and restated our Revolving Credit Facility, which is secured by substantially all of our assets, to provide for a senior secured revolving loan and letter of credit facility of up to $600 million and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $150 million. If we obtain the full amount of the additional increases in commitments, the Revolving Credit Facility will allow borrowings of up to $750 million. Borrowings under the Revolving Credit Facility are subject to availability under the “Borrowing Base” (as that term is defined in the Revolving Credit Facility). The Borrowing Base is calculated based upon our outstanding accounts receivable, subject to certain adjustments. Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit Facility, which would reduce the amount of the revolving loans available under the facility. The Revolving Credit Agreement provides for interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.75 percent to 2.25 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the administrative agent’s base rate plus a margin ranging from 0.75 percent to 1.25 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.

If excess availability under the Revolving Credit Facility falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time, we will be required to maintain a fixed charge coverage ratio of 1.0 to 1.0 until excess availability has been at least the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time for a period of 30 consecutive days.

In January 2020, we amended the Revolving Credit Facility to (i) modify the “Seasonal Period” to run from November 15, 2019, through July 15, 2020, for the calendar year 2019, and to run from December 15 of each calendar year through April 15 of each immediately succeeding calendar year for the calendar year 2020 and thereafter, and (ii) extend the measurement period in the definition of “Cash Dominion Event” from three consecutive business days to five consecutive business days. The amendment better aligns advance rates under the facility with the seasonality associated with our business.

As of January 2, 2021, we had outstanding borrowings of $288.2 million and excess availability of $184.3 million under our Revolving Credit Facility. As of December 28, 2019, we had outstanding borrowings of $326.5 million and excess availability of $80.0 million under our Revolving Credit Facility. Our average effective interest rate under the facility was approximately 3.3 percent and 4.8 percent for the years ended January 2, 2021 and December 28, 2019, respectively.

We were in compliance with all covenants under the Revolving Credit Facility as of January 2, 2021.

Term Loan Facility

In April 2018, we entered into a Credit and Guaranty Agreement with HPS Investment Partners, LLC, and other financial institutions as party thereto. The agreement provides for a Term Loan Facility of $180.0 million secured by substantially all of our assets. Borrowings under the Term Loan Facility may be made as Base Rate Loans or Eurodollar Rate Loans. The Base Rate Loans will bear interest at the rate per annum equal to (i) the greatest of the (a) U.S. prime lending rate published in The Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum; and (ii) plus the Applicable Margin, as described below. Eurodollar Rate Loans will bear interest at the rate per annum equal to (i) the ICE Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent per annum; plus (ii) the Applicable Margin. The Applicable Margin will be 6.00 percent with respect to Base Rate Loans and 7.00 percent with respect to Eurodollar Rate Loans.

In October 2019, we amended the Term Loan Facility to, among other things, permit real estate sale leaseback transactions. During fiscal 2020, in December 2019, we amended the Term Loan Facility to extend the period for satisfying the designated outstanding principal balance level, and the principal balance level was satisfied on January 31, 2020, through repayments from real estate financing transactions. On February 28, 2020, we further amended our Term Loan Facility to provide that we will not be subject to the facility’s quarterly “Total Net Leverage Ratio” covenant from and after the time, and then for so long as, the principal balance outstanding under the facility is less than $45 million. During the fourth quarter of 2020, we reduced the principal balance outstanding under the Term Loan Facility below $45 million and were no longer subject to this covenant. We do not anticipate future borrowings under the Term Loan Facility and expect to not be subject to the Total Net Leverage ratio covenant in the future.

The Term Loan Facility permits us to enter into real estate sale leaseback transactions with the net proceeds therefrom to be used for repayment of indebtedness under the facility, subject to payment of an applicable prepayment premium. In addition,

proceeds from the sale of “Specified Properties” will be used for the repayment of indebtedness under the Term Loan Facility, subject to payment of an applicable prepayment premium, or, under certain circumstances, repayment of indebtedness under our Revolving Credit Facility. Prepayment premiums associated with the repayment of indebtedness were $3.0 million and $0.5 million for fiscal 2020 and 2019, respectively.

We had outstanding borrowings of $43.2 million and $146.7 million under our Term Loan Facility as of January 2, 2021 and December 28, 2019, respectively. Our average interest rate under the facility, exclusive of fees and prepayment premiums, was approximately 8.2 percent and 9.3 percent for the years ended January 2, 2021 and December 28, 2019, respectively.

We were in compliance with all covenants under the Term Loan Facility as of January 2, 2021.

Finance Lease Commitments

Our finance lease liabilities consist of leases related to equipment and vehicles, and to real estate, with the majority of those finance lease commitments relating to the real estate financing transactions that we have completed in recent years. During fiscal 2017 and 2018, we completed real estate financing transactions on six warehouse facilities, during fiscal 2019, we completed real estate financing transactions on two warehouse facilities; and during fiscal 2020, we completed real estate financing transactions on fourteen warehouse facilities. We recognized financing lease assets and obligations as a result of each of these transactions. Our total finance lease commitments, including the properties associated with these transactions, totaled $273.1 million and $198.0 million as of January 2, 2021 and December 28, 2019, respectively. Of the $273.1 million of finance lease commitments as of January 2, 2021, $243.7 million related to real estate and $29.4 million related to equipment. Of the $198.0 million of finance lease commitments as of December 28, 2019, $165.5 million related to real estate and $32.5 million related to equipment.

Investments in Capital Assets

Our investments in capital assets consist of cash paid for owned assets and the inception of financing lease arrangements for long-lived assets to support our distribution infrastructure. The gross value of these assets are included in their respective category in the “Property and equipment, at cost” section on our consolidated balance sheet. For fiscal 2020, we invested $3.7 million in cash related to investments in long-lived assets and entered into finance leases totaling $3.8 million, for a total investment of $7.5 million. For fiscal 2019, we invested $4.8 million in cash related to investments in long-lived assets and entered into finance lease agreements totaling $15.0 million, for a total investments of $19.8 million.

Pension Funding Obligations

We were required to make cash contributions of during 2020 and 2021 totaling approximately $0.9 million, relating to our fiscal 2020 funding year pension contributions. We continue to evaluate pension funding obligations and requirements in order to meet our obligations while maintaining flexibility for working capital requirements. See Note 8, Employee Benefits, in the Notes to the Consolidated Financial Statements.

Interest Rates

Our Revolving Credit Facility and our Term Loan Facility include available interest rate options based on LIBOR. It is widely expected that LIBOR will be discontinued after 2021, and the U.S. and other countries are currently working to replace LIBOR with alternative reference rates. The consequences of these development with respect to LIBOR cannot be entirely predicted; however, we do not believe that the discontinuation of LIBOR as a reference rate in our loan agreements will have a material adverse effect on our financial position or materially affect our interest expense.

Off-Balance Sheet Arrangements

As of January 2, 2021, we did not have any material off-balance sheet arrangements.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which require management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe that our most critical accounting policies and estimates relate to: (1) revenue recognition; (2) goodwill; and (3) income taxes.

Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. All of these estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their potential

effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in our recording additional pension liabilities, or increased tax liabilities, among other effects.

Management has discussed the development, selection, and disclosure of critical accounting policies and estimates with the Audit Committee of the Company’s Board of Directors. While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future, actual results ultimately may differ from these estimates and assumptions. For a discussion of the Company’s significant accounting policies, see Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.

Revenue Recognition

We recognize revenue when the following criteria are met: (1) Contract with the customer has been identified; (2) Performance obligations in the contract have been identified; (3) Transaction price has been determined; (4) The transaction price has been allocated to the performance obligations; and (5) When (or as) performance obligations are satisfied. For us, this generally means that we recognize revenue when title to our products is transferred to our customers. Title usually transfers upon shipment to, or receipt at, our customers’ locations, as determined by the specific sales terms of each transaction. Our customers can earn certain incentives including, but not limited to, cash discounts and rebates. These incentives are deducted from revenue recognized. In preparing the financial statements, management must make estimates related to the contractual terms, customer performance, and sales volume to determine the total amounts recorded as deductions from revenue. Management also considers past results in making such estimates. The actual amounts ultimately paid may be different from our estimates, and recorded once they have been determined.

Goodwill

Goodwill is not subject to amortization, and is tested for impairment at least annually. We perform our annual goodwill impairment test as of the first day of our fiscal fourth quarter. This test requires us to assign goodwill to a reporting unit and to determine if the fair value of the reporting unit’s goodwill is less than its carrying amount. We have identified that we have a single reporting unit and we assign our goodwill to that reporting unit. As of January 2, 2021, our goodwill was $47.8 million.

We also evaluate goodwill for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amounts may be impaired. Such events and indicators may include, without limitation, significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our market capitalization.

Income Taxes

Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax expense and in evaluating our tax positions. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the positions become uncertain based upon one of the following: (1) the tax position is not “more likely than not” to be sustained; (2) the tax position is “more likely than not” to be sustained, but for a lesser amount; or (3) the tax position is “more likely than not” to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information, (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings, and case law and their applicability to the facts and circumstances of the tax position, and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation with other tax positions taken. We adjust these reserves, including any impact on the related interest and penalties, in light of changing facts and circumstances, such as the progress of a tax audit. Refer to Note 5, Income Taxes, in the Notes to the Consolidated Financial Statements.

A number of years may elapse before a particular matter for which we have established a reserve is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the “more likely than not” recognition threshold would be recognized in our income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions: (1) the tax position is “more likely than not” to be sustained; (2) the tax position, amount, and/or timing is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the tax position has expired. Settlement of any particular issue would usually require the use of cash.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which contained a tax provision that increased the allowable deductible percentage of interest expense from 30 percent to 50

percent. This resulted in the company being able to immediately recognize a $3.9 million benefit in the first quarter of 2020. As a result of our income in 2020, we were able to release the remaining valuation allowance at year end.

Tax law requires items to be included in the tax return at different times than when these items are reflected in the consolidated financial statements. As a result, the annual tax rate reflected in our consolidated financial statements is different from that reported in our tax return (our cash tax rate). Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences reverse over time, such as depreciation expense. These timing differences create deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities. The tax rates used to determine deferred tax assets or liabilities are the enacted tax rates in effect for the year and manner in which the differences are expected to reverse. Based on the evaluation of all available information, we recognize future tax benefits, such as net operating loss carryforwards, to the extent that realizing these benefits is considered more likely than not.

We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable income using both historical and projected future operating results, the reversal of existing taxable temporary differences, taxable income in prior carryback years (if permitted), and the availability of tax planning strategies. A valuation allowance is required to be established unless management determines that it is more likely than not that we will ultimately realize the tax benefit associated with a deferred tax asset. As of January 2, 2021, positive evidence continued to outweigh negative evidence, so no valuation allowance was deemed necessary except to the extent of certain state NOLs. The valuation allowances related to our NOLs approximate $7.3 million. See Note 5, Income Taxes, in the Notes to Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

For a summary of recent accounting pronouncements applicable to our consolidated financial statements, see Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Page

Report of Independent Registered Public Accounting Firm 33

Consolidated Statements of Operations and Comprehensive Income (Loss) 35

Consolidated Balance Sheets 36

Consolidated Statements of Stockholders’ Equity (Deficit) 37

Consolidated Statements of Cash Flows 38

Notes to Consolidated Financial Statements 39

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

BlueLinx Holdings Inc. and subsidiaries

Marietta, Georgia

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of BlueLinx Holdings Inc. and subsidiaries (the “Company”) as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have 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 2, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 3, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. 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.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the Realizability of Deferred Tax Assets

As described in Note 5 to the consolidated financial statements, the Company has recognized net deferred tax assets of $62.9 million as of January 2, 2021. The Company evaluates its ability to realize the tax benefits associated with deferred tax assets by analyzing the forecasted future taxable income using both historical and projected future operating results, the reversal of existing taxable temporary differences, taxable income from prior carryback years and the availability of tax planning strategies. A valuation allowance to reduce the deferred tax balance is required to be established unless management determines it is more likely than not that the tax benefit associated with the deferred tax asset will be realized. Realization is dependent upon the existence of sufficient future taxable income of an appropriate character within the carryforward periods. The Company's forecasted future taxable income requires significant management judgment.

We identified the assessment of the realizability of deferred tax assets as a critical audit matter. The development of management’s forecasted future taxable income involves significant judgment and assumptions, including the complexities related to the assessment of weighting relevant positive and negative evidence. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the need for specialized knowledge and skill in assessing these elements.

The primary procedures we performed to address this critical audit matter included:

•Evaluating the reasonableness of the assumptions and evidence to support the assumptions used by the Company to develop projections of forecasted future taxable income considering:

(i) the current and past performance of the Company;

(ii) the consistency with external market and industry data, and

(iii) the consistency of the assumptions with evidence obtained in other areas of the audit.

•Utilizing personnel with specialized knowledge and skill to assist in evaluating the Company’s application of the relevant tax regulations to the assumptions used in the determination of forecasted future taxable income.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2015.

Atlanta, Georgia

March 3, 2021

BLUELINX HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

Fiscal Year Ended January 2, 2021 Fiscal Year Ended December 28, 2019

(In thousands, except per share data)

Operating expenses:

Amortization of deferred gains on real estate (4,008) (3,960)

Non-operating expenses (income):

Other (income) expense, net (254) 2,544

Income (loss) before provision for (benefit from) income taxes 95,081 (21,608)

Provision for (benefit from) income taxes 14,199 (3,952)

Basic income (loss) per share $ 8.58 $ (1.89)

Diluted income (loss) per share $ 8.55 $ (1.89)

Comprehensive income (loss):

Other comprehensive (loss) income:

Actuarial loss on defined benefit plan, net of tax (2,202) (372)

Amortization of unrecognized pension gain, net of tax 788 2,932

Total other comprehensive (loss) income (1,429) 2,566

See the accompanying Notes to the consolidated financial statements.

BLUELINX HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

ASSETS

Current assets:

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

Finance lease liabilities - short-term 5,675 6,486

Operating lease liabilities - short-term 6,076 7,317

Real estate deferred gains - short-term 4,040 3,935

Non-current liabilities:

Operating lease liabilities - long-term 44,965 47,091

Real estate deferred gains - long-term 78,009 81,886

Commitments and contingencies

STOCKHOLDERS’ EQUITY (DEFICIT)

Accumulated other comprehensive loss (35,992) (34,563)

Total stockholders’ equity (deficit) 59,092 (26,083)

Total liabilities and stockholders’ equity (deficit) $ 1,048,130 $ 971,425

See the accompanying Notes to the consolidated financial statements.

BLUELINX HOLDINGS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

Shares Amount

(In thousands)

Foreign currency translation, net of tax — — — 6 — 6

Impact of defined pension plan, net of tax — — — 2,560 — 2,560

Vesting of restricted stock units 82 2 — — — 2

Compensation related to share-based grants — — 2,592 — — 2,592

Repurchase of shares to satisfy employee tax withholdings (10) — (211) — — (211)

Other — — (3) — (1) (4)

Foreign currency translation, net of tax — — — (6) — (6)

Impact of defined pension plan, net of tax — — — (1,414) — (1,414)

Vesting of restricted stock units 127 1 — — — 1

Compensation related to share-based grants — — 5,992 — — 5,992

Repurchase of shares to satisfy employee tax withholdings (30) — (271) — — (271)

Other — — — (9) — (9)

See the accompanying Notes to the consolidated financial statements.

BLUELINX HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Year Ended January 2, 2021 Fiscal Year Ended December 28, 2019

(In thousands)

Cash flows from operating activities:

Provision for (benefit from) income taxes 14,199 (3,952)

Amortization of debt issuance costs 3,881 3,323

Amortization of deferred gain from real estate (4,008) (3,960)

Changes in operating assets and liabilities:

Prepaid and other current assets (9,546) 6,282

Net cash provided by (used in) operating activities 55,019 (10,304)

Cash flows from investing activities:

Acquisition of business, net of cash acquired — 6,009

Property and equipment investments (3,689) (4,791)

Net cash provided by investing activities 9,160 21,149

Cash flows from financing activities:

Repayments on revolving credit facilities (882,155) (656,596)

Proceeds from real estate financing transactions 78,263 44,914

Repurchase of shares to satisfy employee tax withholdings (271) (211)

Principal payments on finance lease liabilities (8,662) (9,992)

Net cash used in financing activities (75,740) (8,141)

Supplemental Cash Flow Information

Net income tax payments during the period $ 14,377 $ 2,991

Noncash transactions:

Additions of real property under finance leases $ 3,833 $ 15,041

See the accompanying Notes to the consolidated financial statements.

BLUELINX HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

BlueLinx is a leading U.S. wholesale distributor of residential and commercial building products with both branded and private-label SKUs across product categories such as lumber, panels, engineered wood, siding, millwork, metal building products, and other construction materials. With a strong market position, broad geographic coverage footprint servicing 40 states, and the strength of a locally focused sales force, we distribute our comprehensive range of products to over 15,000 national, regional, and local dealers, specialty distributors, national home centers, and manufactured housing customers. BlueLinx is able to provide a wide range of value added services and solutions to our customers and suppliers. Our Consolidated Financial Statements include the accounts of BlueLinx Holdings Inc. and its wholly owned subsidiaries. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). All significant intercompany accounts and transactions have been eliminated. On April 13, 2018, we completed the acquisition of Cedar Creek Holdings, Inc. (“Cedar Creek”). Results for Cedar Creek are included in the consolidated financial information presented herein.

We operate on a 5-4-4 fiscal calendar. Our fiscal year ends on the Saturday closest to December 31 of that fiscal year and may comprise 53 weeks in certain years. Our 2020 fiscal year contained 53 weeks and ended on January 2, 2021. Fiscal 2019 contained 52 weeks and ended on December 28, 2019.

Reclassification of Prior Period Presentation

We have reclassified certain costs within the Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 28, 2019 from selling, general, and administrative to amortization of deferred gains on real estate and other operating expenses. These costs primarily relate to the amortization of gains from prior real estate sales and the integration of the acquisition of Cedar Creek, respectively.

Additionally, an adjustment has been made to the Consolidated Statements of Cash Flows for the year ended December 28, 2019 to include outstanding payments as part of the change in accounts payable within cash flows from operating activities. In previous periods this change was included within cash flows from financing activities.

Use of Estimates

Our financial statements are prepared in conformity with U.S. GAAP, which requires us to make estimates based on assumptions about current, and for some estimates, future economic and market conditions, which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. Some of our estimates may be affected by the ongoing novel coronavirus (“COVID-19”) pandemic. The severity, magnitude, and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain, rapidly changing, and difficult to predict. As a result, our accounting estimates and assumptions may change over time in response to COVID-19.

Recent Accounting Standards - Recently Issued

Income Taxes. In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in this standard are effective for interim periods and fiscal years beginning after December 15, 2020. Early adoption is permitted. We have assessed the impact of the new guidance, and determined it will not have an impact on the Company’s consolidated financial position, results of operations, or cash flows.

Credit Impairment Losses. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” This ASU sets forth a current expected credit loss (“CECL”) model which requires the measurement of all expected credit losses for financial instruments or other assets (e.g., trade receivables), held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model, is

applicable to the measurement of credit losses on financial assets measured at amortized cost, and applies to some off-balance sheet credit exposures. The standard also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. ASU 2019-10 extended the effective date to interim and annual periods beginning after December 15, 2022, for certain public business entities, including smaller reporting companies. We have not completed our assessment of the standard, but we do not expect adoption of the standard to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

Recent Accounting Standards - Recently Adopted

Defined Benefit Pension Plan. In August 2018, the FASB issued ASU No. 2018-14, “Compensation-Retirement-Benefits-Defined Benefit Plans-General (Subtopic 715-20).” The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing six previously required disclosures and adding two. The ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The ASU also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. We adopted this standard effective for fiscal year 2020. The adoption of the standard did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

Fair Value Measurement. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value (“FV”) Measurement (Topic 820).” In addition to making certain modifications, the standard removes the requirements to disclose: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the FV hierarchy; (ii) the policy for timing transfers between levels; and (iii) the valuation process for Level 3 FV measurements. The standard will require public entities to disclose: (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 FV measurements held at the end of the reporting period; and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 FV measurements. The additional disclosure requirements should be applied prospectively for the most recent interim or annual period presented in the fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented. We adopted this standard effective December 29, 2019, the first day of our 2020 fiscal year. The adoption of this standard did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

Goodwill. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350).” This standard is intended to simplify the test for goodwill impairments by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new ASU, a goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We elected to early adopt this standard effective the first day of the fourth quarter of 2019, which corresponds with the date of our annual goodwill impairment testing date. The adoption of the standard did not have a material impact on Company's consolidated financial position, results of operations, or cash flows.

Leases. In 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Topic 842 establishes a new lease accounting model for leases. The most significant changes include the clarification of the definition of a lease, the requirement for lessees to recognize for all leases a right-of-use asset and a corresponding lease liability in the consolidated balance sheet, and additional quantitative and qualitative disclosures which are designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. Expenses are recognized in the consolidated statement of income in a manner similar to previous accounting guidance. Lessor accounting under the new standard is substantially unchanged. We adopted this standard, and all related amendments thereto, effective December 30, 2018, the first day of our 2019 fiscal year, using a prospective approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. We have made an accounting policy election to keep leases with an initial term of 12 months or less off of the consolidated balance sheet. The adoption of Topic 842 had a material impact on our consolidated balance sheets, but did not have a material impact on our consolidated statements of operations and comprehensive income (loss). There also was no impact to our debt covenant calculations. The most significant impact was the recognition of right-of-use assets and corresponding lease liabilities of $57.5 million on the consolidated balance sheet. Additionally, $1.7 million of deferred gains associated with sale-leaseback transactions was recorded as a cumulative-effect

adjustment to accumulated deficit. See Note 12, Lease Commitments, for additional disclosures regarding our lease commitments.

Cloud Computing Arrangements. In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal Use-Software (Subtopic 350-40).” This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). We early adopted this standard effective December 30, 2018, the first day of our 2019 fiscal year and did so prospectively. Costs that have been recorded have been classified as other current and other non-current assets. The adoption of the standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Comprehensive Income. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220).” This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) (“AOCI”) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. We adopted this standard effective December 30, 2018, the first day of our 2019 fiscal year. We did not exercise the option to make this reclassification.

Revenue Recognition

We recognize revenue when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration we expected to be entitled to in exchange for those goods or services. The timing of revenue recognition largely is dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated free on board (“FOB”) shipping point. For sales transactions designated FOB destination, revenue is recorded when the product is delivered to the customer’s delivery site.

All revenues recognized are net of trade allowances, cash discounts, and sales returns. Cash discounts and sales returns are estimated using historical experience. Trade allowances are based on the estimated obligations and historical experience. Adjustments to earnings resulting from revisions to estimates on discounts and returns have been immaterial for each of the reported periods.

In addition, we provide inventory to certain customers through pre-arranged agreements on a consignment basis. Customer consigned inventory is maintained and stored by certain customers; however, ownership and risk of loss remains with us.

Leases

We are the lessee in a lease contract when we obtain the right to control an asset associated with a particular lease. For operating leases, we record a right-of-use ("ROU") asset that represents our right to use an underlying asset for the lease term, and a corresponding lease liability that represents our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Financing ROU assets associated with finance leases are included in property and equipment. Leases with a lease term of 12 months or less at inception are not recorded on our consolidated balance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of operations. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future lease payments. When our contracts contain lease and non-lease components, we account for both components as a single lease component. See Note 12, Lease Commitments, for further discussion.

Accounts Receivable

Accounts receivable are stated at net realizable value, do not bear interest, and consist of amounts owed for orders shipped to customers. Management establishes an overall credit policy for sales to customers. The allowance for doubtful accounts is determined based on a number of factors including specific customer account reviews, historical loss experience, current economic trends, and the creditworthiness of significant customers based on ongoing credit evaluations.

Inventory Valuation

The cost of all inventories is determined by the moving average cost method. We have included all material charges directly or indirectly incurred in bringing inventory to its existing condition and location. We evaluate our inventory value at

the end of each quarter to ensure that inventory, when viewed by category, is carried at the lower of cost and net realizable value, which also considers items that may be damaged, excess, and obsolete inventory.

Consideration Received from Vendors and Paid to Customers

Each year, we enter into agreements with many of our vendors providing for inventory purchase rebates, generally based on achievement of specified volume purchasing levels. We also receive rebates related to price protection and various marketing allowances that are common industry practice. We accrue for the receipt of vendor rebates based on purchases, and also reduce inventory to reflect the net acquisition cost (purchase price less expected purchase rebates).

In addition, we enter into agreements with many of our customers to offer customer rebates, generally based on achievement of specified sales levels and various marketing allowances that are common industry practice. We accrue for the payment of customer rebates based on sales to the customer, and also reduce sales to reflect the net sales (sales price less expected customer rebates). Adjustments to earnings resulting from revisions to rebate estimates have been immaterial.

Shipping and Handling

Outbound shipping and handling costs included in “Selling, general, and administrative” expenses were $151.2 million and $150.4 million for fiscal 2020 and fiscal 2019, respectively. Shipping and handling costs include amounts related to the administration of our logistical infrastructure, handling of material in our warehouses, and amounts pertaining to the delivery of products to our customers, such as fuel and maintenance costs for our mobile fleet, wages for our drivers, and third party freight charges.

Property and Equipment

Property and equipment are recorded at cost. Lease obligations for which we assume or retain substantially all the property rights and risks of ownership are capitalized. Amortization of assets recorded under finance leases is included in “Depreciation and amortization” expense. Replacements of major units of property are capitalized and the replaced properties are retired. Replacements of minor components of property and repair and maintenance costs are charged to expense as incurred.

Depreciation is computed using the straight-line method over the estimated useful lives of the related assets included in the table below. Upon retirement or disposition of assets, cost and accumulated depreciation are removed from the related accounts and any gain or loss is included in income.

Property and equipment consisted of the following asset classes with the following general range of estimated useful lives:

(In thousands)

(1) The range of estimated useful lives for the “Land and land improvements” asset class applies only to land improvements.

Income Taxes

We account for deferred income taxes using the liability method. Accordingly, we recognize deferred tax assets and liabilities based on the tax effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. All deferred tax assets and liabilities are classified as noncurrent in our consolidated balance sheet. A valuation allowance is recorded to reduce deferred tax assets when necessary. For additional information about our income taxes, see Note 5, Income Taxes.

Insurance and Self-Insurance

For fiscal 2020 and 2019, the Company was insured for its non-union and certain unionized employee health benefits. Health benefits for some unionized employees for fiscal 2020 and 2019 were paid directly to a union trust, depending upon the union-negotiated benefit arrangement.

For fiscal 2020 and 2019, the Company was self-insured, up to certain limits, for workers’ compensation losses, general liability, and automotive liability losses, all subject to varying “per occurrence” retentions or deductible limits. The Company provides for estimated costs to settle both known claims and claims incurred but not yet reported by making periodic prepayments, considering our retention and stop loss limits. Liabilities of the Company associated with these claims are estimated, in part, by considering the frequency and severity of historical claims, both specific to us, as well as industry-wide loss experience and other actuarial assumptions. We determine our insurance obligations with the assistance of actuarial firms. Since there are many estimates and assumptions involved in recording insurance liabilities, and in the case of workers’ compensation, a significant period of time elapses before the ultimate resolution of claims, differences between actual future events, and prior estimates and assumptions could result in adjustments to these liabilities. The Company has deposits on hand with certain third-party insurance administrators and insurance carriers to cover its obligation for future payment of claims. These deposits are recorded in other current and non-current assets in our consolidated balance sheets.

2. Revenue Recognition

Contracts with our customers are generally in the form of standard terms and conditions of sale. From time to time, we may enter into specific contracts with some of our larger customers, which may affect delivery terms. Performance obligations in our contracts generally consist solely of delivery of goods. For all sales channel types, consisting of warehouse, direct, and reload sales, we typically satisfy our performance obligations upon shipment. Our customer payment terms are typical for our industry, and may vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not deemed to be significant by us. For certain sales channels and/or products, our standard terms of payment may be as early as ten days.

All revenues recognized are net of trade allowances (i.e., rebates), cash discounts and sales returns. Cash discounts and sales returns are estimated using historical experience. Trade allowances are based on the estimated obligations and historical experience. Adjustments to earnings resulting from revisions to estimates on discounts and returns have been insignificant for each of the reported periods. Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration.

The following table presents our revenues disaggregated by revenue source. Prior year amounts have been reclassified to conform to the current year product mix of structural and specialty products. Sales and usage-based taxes are excluded from revenues.

Fiscal Year Ended

(In thousands)

The following table presents our revenues disaggregated by sales channel. Warehouse sales are delivered from our warehouses to our customers. Reload sales are similar to warehouse sales but are shipped from third-party warehouses where we store owned products to enhance operating efficiencies. This channel is employed primarily to service strategic customers that would be less economical to service from our warehouses, and to distribute large volumes of imported products from port

facilities. Direct sales are shipped from the manufacturer to the customer without our taking physical possession of the inventory and, as a result, typically generate lower margins than our warehouse and reload distribution channels. This distribution channel requires the lowest amount of committed capital and fixed costs. In addition, from time to time, we may also make changes to certain intercompany allocations amongst sales channels. Sales and usage-based taxes are excluded from revenues.

Fiscal Year Ended

(In thousands)

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general, and administrative expense.

We have made an accounting policy election to treat outbound shipping and handling activities as an expense.

3. Goodwill and Other Intangible Assets

In connection with the acquisition of Cedar Creek in 2018, we acquired certain intangible assets. As of January 2, 2021, our intangible assets consist of goodwill and other intangible assets including customer relationships, noncompete agreements, and trade names.

Goodwill

Goodwill is the excess of the cost of an acquired entity over the fair value of tangible and intangible assets (including customer relationships, noncompete agreements, and trade names) acquired and liabilities assumed under acquisition accounting for business combinations.

During the year ended December 29, 2018, we allocated the fair values of assets acquired and liabilities assumed in the acquisition of Cedar Creek, and recognized $47.8 million in goodwill.

Goodwill is not subject to amortization, but must be tested for impairment at least annually. This test requires us to assign goodwill to a reporting unit and to determine if the fair value of the reporting unit’s goodwill is less than its carrying amount. We evaluate goodwill for impairment as the first day of our fourth quarter, which was September 27, 2020 for fiscal 2020. We performed a quantitative analysis of our goodwill using a combined discounted cash flow and guideline public company approach. Based on management’s assessment, no impairment was indicated.

In addition, we willevaluate the carrying value of goodwill for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amounts may be impaired. Such events and indicators may include, without limitation, significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our market capitalization. No such indicators were present in fiscal 2020 and fiscal 2019.

Definite-Lived Intangible Assets

At January 2, 2021, in connection with the acquisition of Cedar Creek, we had definite-lived intangible assets that related to customer relationships, noncompete agreements, and trade names.

The gross carrying amounts, accumulated amortization, and net carrying amounts of our definite-lived intangible assets at January 2, 2021 were as follows:

(In thousands)

(1) Intangible assets except customer relationships are amortized on straight line basis. Customer relationships are amortized on a double declining balance method.

The gross carrying amounts, accumulated amortization, and net carrying amounts of our definite-lived intangible assets at December 28, 2019 were as follows:

(In thousands)

(1) Intangible assets except customer relationships are amortized on straight line basis. Customer relationships are amortized on a double declining balance method.

Amortization Expense

Amortization expense for the definite-lived intangible assets was $7.5 million and $8.1 million for the years ended January 2, 2021, and December 28, 2019, respectively.

Estimated annual amortization expense for definite-lived intangible assets over the next five fiscal years is as follows:

Fiscal Year Ended Estimated Amortization

(In thousands)

4. Assets Held for Sale and Net Gain on Disposition

As of January 2, 2021, two properties were designated as “held for sale,” and, as of December 28, 2019, three properties had been designated as “held for sale.” As of January 2, 2021, and December 28, 2019, the net book value of total assets “held for sale” was $1.3 million and $1.1 million, respectively, and was included in “Other current assets” in our Consolidated Balance Sheets. Properties held for sale as of January 2, 2021 consisted of two former distribution facilities located in Midfield, Alabama, and Houston, Texas. We plan to sell these properties within the next 12 months. At the time of designation, we ceased recognizing depreciation expense on these assets. We continue to actively market all properties that are designated as “held for sale.” During the year ended January 2, 2021, we removed our Grand Rapids facility from “held for sale” as we decided to restart operations at this facility.

During the year ended January 2, 2021, we sold one non-operating distribution facility previously designated as “held for sale,” as well as certain equipment. We recognized a gain of $1.3 million in the Consolidated Statements of Operations as a result of this sale.

5. Income Taxes

In fiscal 2020, our total statutory rate was 25.8 percent which was comprised of the federal statutory income tax rate of 21.0 percent and our blended state statutory rate of 4.8 percent. In fiscal 2019, our total statutory rate was 27.3 percent which was comprised of the federal statutory income tax rate of 21.0 percent and our blended state statutory rate of 6.3 percent. Our blended state rate is impacted by our federal income taxes and, as a result, may differ from year to year based on our federal taxable income. Our effective tax rate is impacted by the effects of permanent differences and discrete (one-time) items occurring throughout our fiscal year.

For fiscal 2020 and fiscal 2019, our effective tax was 14.9 percent and 18.3 percent, respectively.

Fiscal Year Ended January 2, 2021 Fiscal Year Ended December 28, 2019

(In thousands)

Federal income taxes:

State income taxes:

Provision for (benefit from) income taxes $ 14,199 $ (3,952)

Effective tax rate 14.9 % 18.3 %

Our provision for (benefit from) income taxes is reconciled to the federal statutory amount as follows:

Fiscal Year Ended January 2, 2021 Fiscal Year Ended December 28, 2019

(In thousands)

State income taxes (benefit), net of federal benefit 4,636 (1,752)

Valuation allowance change arising from state net operating losses (4,101) (550)

Permanent differences arising from compensation 500 67

Provision for (benefit from) income taxes $ 14,199 $ (3,952)

In accordance with the intraperiod tax allocation provisions of U.S. GAAP, we are required to consider all items (including items recorded in other comprehensive income) in determining the amount of tax expense or benefit that should be allocated between continuing operations and other comprehensive income. In fiscal year 2020, there is tax expense allocated to the income from continuing operations and tax benefit allocated to the income from other comprehensive income. In fiscal year 2019, there is a tax benefit allocated to the loss from continuing operations and tax expense allocated to the income from other comprehensive income. While the income tax provision from continuing operations is reported in our Consolidated Statements of Operations and Comprehensive Income (Loss), the income tax (benefit) or expense on other comprehensive income or (loss) is recorded directly to accumulated other comprehensive loss, which is a component of stockholders’ equity (deficit).

Our financial statements contain certain deferred tax assets which primarily resulted from tax benefits associated with the loss before income taxes in prior years, as well as net deferred income tax assets resulting from other temporary differences related to certain reserves, pension obligations, and differences between book and tax depreciation and amortization. We record a valuation allowance against our net deferred tax assets when we determine that, based on the weight of available evidence, it is more likely than not that our net deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences can be carried under tax law. For fiscal 2020 and fiscal 2019, the components of our net deferred income tax assets are as follows:

(In thousands)

Deferred income tax assets:

Compensation-related accruals 6,524 3,523

Interest expense limitation — 4,767

Total gross deferred income tax assets 89,476 91,357

Total net deferred income tax assets $ 82,189 $ 75,163

Deferred income tax liabilities:

Total deferred income tax liabilities (19,290) (21,170)

The change in valuation allowance noted above is exclusive of items that do not impact income from continuing operations, but are reflected in the change in deferred income tax assets and liabilities in the Consolidated Balance Sheets as disclosed in the components of net deferred income tax assets. Activity in our deferred tax asset valuation allowance for fiscal 2020 and 2019 was as follows:

(In thousands)

Balance as of beginning of the fiscal year $ 16,194 $ 12,348

Valuation allowance provided for taxes related to:

State net operating loss carryforwards (4,101) (960)

Disallowed interest limitation under the Tax Act and CARES (4,806) 4,806

Balance as of end of the fiscal year $ 7,287 $ 16,194

We have recorded income tax and related interest liabilities where we believe certain of our tax positions are not more likely than not to be sustained if challenged. These balances are included in other noncurrent liabilities in our Consolidated Balance Sheets.

The following table summarizes the activity related to our gross unrecognized tax benefits:

($ in thousands)

Balance at beginning of the fiscal year $ 4,245 $ 5,843

Reductions due to lapse of applicable statute of limitations (1,983) (1,598)

Balance at end of the fiscal year $ 2,262 $ 4,245

Included in the unrecognized tax benefits as of January 2, 2021 and December 28, 2019, were $2.1 million and $4.0 million, respectively of tax benefits that, if recognized, would reduce our annual effective tax rate for fiscal 2020 and 2019. No penalties were accrued for either 2020 or 2019. We believe that it is reasonably possible that approximately $0.7 million of our remaining unrecognized tax benefit may be recognized by the end of fiscal 2021 as a result of a lapse of statute of limitations related to our uncertain tax positions.

Impacts of the Tax Act and CARES

In December of 2017, the U.S. enacted comprehensive tax legislation under the Tax Cuts and Jobs Act, (“The Tax Act”), which made broad and complex changes to the tax code. During fiscal 2019, we recorded a valuation allowance of $4.8 million primarily related to interest disallowed for deduction related to changes included in the Tax Act. In March of 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security (“CARES” Act). CARES included a provision which raised the level of deductibility for previously disallowed interest which had been enacted under the Tax Act. During fiscal 2020, because of the provision included in CARES, we benefited from the release of the $4.8 million in valuation allowance which we had recorded in during fiscal 2019 under the provisions of the Tax Act.

Net Operating Losses

At the end of fiscal 2019, our federal net operating losses were $80.6 million. Based on our taxable income for fiscal 2020, we have fully utilized all our previously remaining federal net operating losses and have none remaining.

At the end of fiscal 2020, our gross state net operating loss carryovers are $162.6 million and our net state NOL carryovers are $8.0 million, of which $7.3 million is subject to a valuation allowance and could be limited under Internal Revenue Code (“IRC”) Section 382. Our state net operating loss carryovers will expire in 1 to 20 years. For fiscal 2020, we reversed $4.1 million in valuation allowance against our state net operating losses. Based on our taxable income for 2020 in the states where we have net operating loss carryforwards, we believe we will be able to utilize the state net operating losses that were previously reserved by this valuation allowance. We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2017 through 2020 tax years generally remain subject to examination by federal and most state and foreign tax authorities.

Although we believe our estimates are reasonable in the carrying value of our valuation allowances against our deferred tax items, the ultimate determination of the appropriate amounts of valuation allowance involves significant judgement.

Assessing our Deferred Tax Assets

Quarterly, we assess the carrying value of our deferred tax assets for impairment by evaluating the weight of available evidence at the end of each fiscal quarter. In our evaluation of the weight of available evidence at the end of fiscal 2020, we considered the recent reported income in the current year, as well as the reported losses for 2019 and 2018, which resulted in a three-year cumulative income situation as positive evidence which carried substantial weight. While this was substantial, it was not the only evidence we evaluated. We also considered evidence related to the four sources of taxable income, to determine whether such positive evidence outweighed the negative evidence. The evidence considered included:

•future reversals of existing taxable temporary differences;

•future taxable income exclusive of reversing temporary differences and carryforwards;

•taxable income in prior carryback years, if carryback is permitted under the tax law; and

•tax planning strategies.

In addition to the positive evidence discussed above, we considered as positive evidence forecasted future taxable income, the detail scheduling of timing of the reversal of our deferred tax assets and liabilities, and the evidence from business and tax planning strategies. At the end of fiscal 2020 and 2019, in our evaluation of the weight of available evidence, we concluded that our deferred tax assets were not impaired.

6. Long-Term Debt

As of January 2, 2021, and December 28, 2019, long-term debt consisted of the following:

(In thousands)

Unamortized debt issuance costs (9,010) (12,555)

Less: current maturities of long-term debt 6,846 8,662

Long-term debt, net of current maturities $ 588,713 $ 649,964

(1) The average effective interest rate was 3.3 percent and 4.8 percent for the years ended January 2, 2021 and December 28, 2019, respectively.

(2) The average interest rate, exclusive of fees and prepayment penalties, was 8.2 percent and 9.3 percent for the years ended January 2, 2021 and December 28, 2019, respectively.

(3) Refer to Note 12, Lease Commitments, for interest rates associated with finance lease obligations.

Revolving Credit Facility

In April 2018, we entered into an Amended and Restated Credit Agreement, with certain of our subsidiaries as borrowers (together with us, the “Borrowers”) or guarantors thereunder, Wells Fargo Bank, National Association, in its capacity as administrative agent (“Wells Fargo”), and certain other financial institutions party thereto. The Amended and Restated Credit Agreement was further amended in January 2020 to provide that (i) the “Seasonal Period” run from November 15, 2019, through July 15, 2020, for the calendar year 2019, and from December 15 of each calendar year through April 15 of each immediately succeeding calendar year for the calendar year 2020 and thereafter, and (ii) the measurement period in the definition of “Cash Dominion Event” will be five consecutive business days instead of three consecutive business days (as amended, the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for a senior secured asset-based revolving loan and letter of credit facility (the “Revolving Credit Facility”) of up to $600 million and an uncommitted accordion feature that permits the Borrowers, with consent of the lenders, to increase the facility by an aggregate additional principal amount of up to $150 million, which will allow borrowings of up to $750 million under the Revolving Credit Facility. Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit Agreement, which would reduce the amount of the revolving loans available under the Revolving Credit Facility. The maturity date of the Revolving Credit Agreement is October 10, 2022. The Borrowers’ obligations under the Revolving Credit Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items.

Borrowings under the Revolving Credit Agreement are subject to availability under the Borrowing Base (as that term is defined in the Revolving Credit Agreement). The Borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. The Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.

The Revolving Credit Agreement provides for interest on the loans at a rate per annum equal to (i) the London Inter-bank Offered Rate (“LIBOR”) plus a margin ranging from 1.75 percent to 2.25 percent, with the amount of such margin determined based upon the average of the Borrowers’ excess availability for the immediately preceding fiscal quarter as calculated by the administrative agent, for loans based on LIBOR, or (ii) the administrative agent’s base rate plus a margin ranging from 0.75 percent to 1.25 percent, with the amount of such margin determined based upon the average of the Borrowers’ excess availability for the immediately preceding fiscal quarter as calculated by the administrative agent, for loans based on the base rate.

In the event excess availability falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the Borrowing Base and (b) the maximum permitted credit at such time, the Revolving Credit Agreement requires maintenance of a fixed charge coverage ratio of 1.0 to 1.0 until such time as the Borrowers’ excess availability has been at least the greater of (i)

$50 million and (ii) 10 percent of the lesser of (a) the Borrowing Base and (b) the maximum permitted credit at such time for a period of 30 consecutive days.

The Revolving Credit Agreement also contains representations and warranties and affirmative and negative covenants customary for financings of this type as well as customary events of default.

We were in compliance with all covenants under the Revolving Credit Agreement as of January 2, 2021.

Term Loan Facility

In April 2018, in connection with the acquisition of Cedar Creek, we entered into a Credit and Guaranty Agreement by and among the Company, as borrower, certain of our subsidiaries, as guarantors, HPS Investment Partners, LLC, as administrative agent and collateral agent (“HPS”) and certain other financial institutions as parties thereto. In October 2019, the Credit and Guaranty Agreement was amended to, among other things, permit real estate sale leaseback transactions. The Credit and Guaranty Agreement was further amended in fiscal January 2020, and February 2020 (as amended, the “Term Loan Agreement”). The Term Loan Agreement provides for a senior secured term loan facility in an aggregate principal amount of $180 million (the “Term Loan Facility”). The maturity date of the Term Loan Agreement is October 13, 2023. The proceeds from the Term Loan Facility were used to fund a portion of the cash consideration payable in connection with the acquisition of Cedar Creek and to fund transaction costs in connection with the acquisition and the Term Loan Facility.

The January 2020 amendment extended the period for satisfying the designated outstanding principal balance level required to maintain the modified “Total Net Leverage Ratio” covenant levels for the 2019 fourth and subsequent quarters under the Term Loan Facility. The principal balance level was satisfied on January 31, 2020, through repayments from the real estate financing transactions described in Note 12, Lease Commitments. On February 28, 2020, we further amended our Term Loan Facility to provide that we will not be subject to the facility’s quarterly “Total Net Leverage Ratio” covenant from and after the time, and then for so long as, the principal balance level under the facility is less than $45 million. The Term Loan Facility balance fell below $45 million during October 2020 and remained below that amount for the remainder of fiscal 2020; we were no longer subject to the quarterly “Total Net Leverage Ratio” covenant starting for the fourth quarter of 2020.

In connection with the Term Loan Agreement, the Company and certain of our subsidiaries also entered into a Pledge and Security Agreement with HPS (the “Term Loan Security Agreement”). Pursuant to the Term Loan Security Agreement and other “Collateral Documents” (as such term is defined in the Term Loan Agreement), the obligations under the Term Loan Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets, including inventories, accounts receivable, real property, and proceeds from those items.

The Term Loan Agreement requires monthly interest payments, and quarterly principal payments of $311,190, in arrears. The Term Loan Agreement also requires certain mandatory prepayments of outstanding loans, subject to certain exceptions, including prepayments commencing with the fiscal year ending December 28, 2019, based on a percentage of excess cash flow (as defined in the Term Loan Agreement for such fiscal year). The remaining balance is due on the loan maturity date of October 13, 2023.

The Term Loan Facility may be prepaid in whole or in part from time to time after the first anniversary thereof, subject to payment of the “Prepayment Premium” (as such term is defined in the Term Loan Agreement) if such voluntary prepayment does not otherwise constitute an exception to the Prepayment Premium under the Term Loan Agreement and is made prior to the fourth anniversary of the closing date of the Term Loan Agreement, and all breakage costs incurred by any lender thereunder.

Borrowings under the Term Loan Agreement may be made as Base Rate Loans or Eurodollar Rate Loans. The Base Rate Loans bear interest at the rate per annual equal to: (i) the greatest of the (a) U.S. prime lending rate published in The Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum; and (ii) plus the Applicable Margin, as described below. Eurodollar Rate Loans bear interest at the rate per annum equal to: (i) the ICE Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent per annum;

plus (ii) the Applicable Margin. The Applicable Margin is 6.00 percent with respect to Base Rate Loans and 7.00 percent with respect to Eurodollar Rate Loans.

The Term Loan Agreement also contains representations, warranties, and affirmative and negative covenants customary for financing transactions of this type, and customary events of default.

We had outstanding borrowings of $43.2 million and $146.7 million under our Term Loan Facility as of January 2, 2021 and December 28, 2019, respectively. Our average interest under the facility, exclusive of fees and prepayment premiums, was approximately 8.2 percent and 9.3 percent for the years ended January 2, 2021 and December 28, 2019, respectively.

We were in compliance with all covenants under the Term Loan Facility as of January 2, 2021.

Our remaining scheduled principal payments of the Term Loan through 2023 as of January 2, 2021, is as follows:

Fiscal Year Ended Remaining principal payments

($ in thousands)

Finance Lease Obligations

Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate, with the majority of those finance leases related to real estate. For more information on our finance lease obligations, refer to Note 12, Lease Commitments.

7. Fair Value Measurements

We determine a fair value measurement based on the assumptions a market participant would use in pricing an asset or liability, in accordance with ASC 820 - Fair Value Measurement. The fair value measurement guidance established a three level hierarchy making a distinction between market participant assumptions based on (i) unadjusted quoted prices for identical assets or liabilities in an active market (Level 1), (ii) quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (Level 2), and (iii) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (Level 3).

Fair value measurements for defined benefit pension plan

The fair value hierarchy discussed above not only is applicable to assets and liabilities that are included in our consolidated balance sheets, but also is applied to certain other assets that indirectly impact our consolidated financial statements. For example, we sponsor and contribute to a single-employer defined benefit pension plan (see Note 8, Employee Benefits). Assets contributed by us become the property of the pension plan. Even though the Company no longer has control over these assets, we are indirectly impacted by subsequent fair value adjustments to these assets. The actual return on these assets impacts our future net periodic benefit cost, as well as amounts recognized in our consolidated balance sheets. The Company uses the fair value hierarchy to measure the fair value of assets held by our pension plan. We believe the pension plan asset fair value valuation to comprise Level 2 in the fair value hierarchy. Level 2 assets held in the pension plan under U.S. GAAP consist of collective investment trust assets.

Fair value measurements for financial instruments

Carrying amounts for our financial instruments are not significantly different from their fair value.

8. Employee Benefits

Single-Employer Defined Benefit Pension Plan

We sponsor a noncontributory defined benefit pension plan administered solely by us (the “pension plan”). Most of the participants in the plan are inactive, with all remaining active participants no longer accruing benefits, and the plan is closed to new entrants. Our funding policy for the pension plan is based on actuarial calculations and the applicable requirements of federal law. Benefits under the pension plan primarily are related to years of service.

The following tables set forth the change in projected benefit obligation and the change in plan assets for the pension plan:

(In thousands)

Change in projected benefit obligation:

Projected benefit obligation at beginning of period $ 107,026 $ 107,909

Service cost — 190

Curtailment gain — (349)

Projected benefit obligation at end of period $ 113,827 $ 107,026

Change in plan assets:

Fair value of assets at beginning of period $ 83,606 $ 81,241

Fair value of assets at end of period 91,143 83,606

The accumulated benefit obligation for the pension plan was $113.8 million and $107.0 million at January 2, 2021, and December 28, 2019, respectively. We recognize the unfunded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of our pension plan in our Consolidated Balance Sheets, with a corresponding adjustment to AOCI, net of tax. On January 2, 2021, we measured the fair value of our plan assets and benefit obligations. As of January 2, 2021, and December 28, 2019, the net unfunded status of our benefit plan was $22.7 million and $23.4 million, respectively.

Starting in 2018, we have elected to utilize a full yield curve approach in the estimation service and interest cost components for pension (income)/expense recognized during the fiscal year by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant projected cash flows. We have made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of our total benefit obligations.

Actuarial gains and losses occur when actual experience differs from the estimates used to determine the components of net periodic pension cost, and when certain assumptions used to determine the fair value of the plan assets or projected benefit obligation are updated, including but not limited to, changes in the discount rate, plan amendments, differences between actual and expected returns on plan assets, mortality assumptions, and plan re-measurement.

We amortize a portion of unrecognized actuarial gains and losses for the pension plan into our Consolidated Statements of Operations and Comprehensive Income (Loss). The amount recognized in the current year’s operations is based on amortizing the unrecognized gains or losses for the pension plan that exceed the larger of 10% of the projected benefit obligation or the fair value of plan assets, also known as the corridor. In the current fiscal year, the amount representing the unrecognized gain or loss that exceeds the corridor is amortized over the estimated average remaining life expectancy of participants, as almost all the participants in the plan are inactive.

The net adjustment to other comprehensive income (loss) for fiscal 2020 and fiscal 2019, was a $1.4 million loss and a $2.6 million gain, respectively. The adjustments are primarily due to the actuarial loss in fiscal 2020 and the amortization of the unrecognized pension gain in 2019.

The decrease in the unfunded obligation for the fiscal year was approximately $0.7 million and was primarily comprised of $9.8 million of actuarial losses, $11.9 million of investment gains, $1.5 million of pension contributions (comprised of cash contributions and lease payments for the properties contributed to the pension plan in 2013), and a charge of $2.9 million due to current year interest cost. The net periodic pension credit was $0.9 million in fiscal 2020 compared to $0.1 million in fiscal 2019, driven primarily by a reduction in the interest cost on the projected benefit obligation. The most significant change in the obligation was due to the decline in benefits paid from 2019 to 2020 resulting from the lump sum payout made to qualifying participants during 2019.

The unfunded status recorded as Pension Benefit Obligation on our Consolidated Balance Sheets for the pension plan is set forth in the following table, along with the unrecognized actuarial loss, which is presented as part of Accumulated Other Comprehensive Loss:

(In thousands)

Amounts recognized on the balance sheet consist of:

Accumulated other comprehensive loss (pre-tax) 32,921 31,221

The net periodic pension credit for the pension plan included the following:

Fiscal Year Ended January 2, 2021 Fiscal Year Ended December 28, 2019

(In thousands)

Service cost $ — $ 190

Interest cost on projected benefit obligation 2,892 3,730

Expected return on plan assets (4,840) (5,162)

Amortization of unrecognized loss 1,052 1,158

Net periodic pension credit for the pension plan $ (896) $ (84)

The following assumptions were used to determine the projected benefit obligation at the measurement date and the net periodic pension cost:

Projected benefit obligation:

Average rate of increase in future compensation levels N/A N/A

Net periodic pension:

Average rate of increase in future compensation levels N/A Graded 5.5-2.5%

Expected long-term rate of return on plan assets 6.00 % 6.00 %

Our estimates of the amount and timing of our future funding obligations for our defined benefit pension plan are based upon various assumptions specified above. These assumptions include, but are not limited to, the discount rate, projected return on plan assets, and mortality rates. The rate of increase in future compensation levels has a minimal effect on both the projected benefit obligation and net periodic pension cost, as almost all the participants in the plan are inactive, the majority of the remaining active participants are no longer accruing benefits, and the plan is closed to new entrants.

Projected return on plan assets. Pension plan assets are managed under a balanced portfolio allocation policy comprised of two major components: a return-seeking portion and a liability-matching portion. The expected role of return-seeking investments is to achieve a reasonable long-term growth of pension assets with a prudent level of risk, whilethe role of liability-matching investments is to provide a partial hedge against liability performance associated with changes in interest rates. The objective within return-seeking investments is to achieve asset diversity in order to balance return and volatility. We employ a designated fiduciary to manage the day to day investment responsibilities for pension plan assets and relationships with certain agents, advisors, and other fiduciaries.

The discount rate. We utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve of high-quality corporate bonds used in determination of the benefit obligation to the relevant

projected cash flows. We have made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates.

Mortality rates. The valuations and assumptions reflect adoption of the Society of Actuaries updated RP-2014 mortality tables, with a “blue collar employee” adjustment for non-annuitants and a BlueLinx custom adjustment projected from 2015 for annuitants. Additionally, we use the most current generational projection scales, which were MP-2020 as of January 2, 2021, and MP-2019 as of December 28, 2019.

Plan Assets and Long-Term Rate of Return

Fiscal 2020

We base the asset return assumption on current and expected asset allocations, as well as historical and expected returns on the plan asset categories. The allocation of the plan’s assets impacts our expected return on plan assets. The expected return on plan assets is based on a targeted allocation consisting of return-seeking securities (including public equity, real assets, and diversified credit investment strategies), liability-matching securities (fixed income), and cash and cash equivalents. Our net benefit cost increases as the expected return on plan assets decreases. We believe that our actual long-term asset allocations on average will approximate our targetedallocation. Our targeted allocation is driven by our investment strategy to earn a reasonable rate of return while maintaining risk at acceptable levels through the diversification of investments across and within various asset categories. For fiscal 2020, we used a 6.00% expected rate of return on plan assets.

The investment policy for the pension plan, in general, is to achieve a reasonable long-term rate of return on plan assets with an acceptable level of risk in order to maintain adequate funding levels. The pension plan’s Investment Committee establishes risk mitigation policies and regularly monitors investment performance and investment allocation policies, with a third-party investment advisor executing on these strategies. We employ a designated fiduciary to manage the day to day investment responsibilities for pension plan assets and relationships with certain agents, advisors, and other fiduciaries.

The current targets, adjusted to exclude non-GAAP BlueLinx real-estate holdings, and actual investment allocation, by asset category as of January 2, 2021, consisted of the following:

Type Current Target Allocation Actual Allocation, January 2, 2021

Return-seeking securities 70 % 71 %

Liability-matching securities 28 % 26 %

Cash and cash equivalents 2 % 3 %

The following table sets forth by level, within the fair value hierarchy (as defined in Note 7, Fair Value Measurements), pension plan assets at their fair values as of January 2, 2021:

(In thousands)

Return-seeking securities

Collective investment trust(1) $ — $ 64,870 $ — $ 64,870

Liabilities-matching securities:

Cash and cash equivalents 2,371 — — 2,371

(1) This category is comprised of a collective investment trust of equity funds that track the MCSI World Index, and a collective investment trust that holds publicly traded listed infrastructure securities.

(2) This category consists of a collective investment trust investing in Treasury STRIPS.

The fair value of the Level 1 assets was based on quoted prices in active markets for the identical assets. The fair value of the Level 2 assets was determined by management based on an assessment of valuations provided by asset management entities and was calculated by aggregating market prices for all underlying securities.

Investment objectives for our pension plan assets are:

•Matching Plan liability performance

•Diversifying risk

•Achieving a target investment return

We believe that there are no significant concentrations of risk within our plan assets as of January 2, 2021. We comply with the rules and regulations promulgated under the Employee Retirement Income Security Act of 1974 (“ERISA”) and we prohibit investments and investment strategies not allowed by ERISA.

Fiscal 2019

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair values as of December 28, 2019:

(In thousands)

Return-seeking securities

Collective investment trust(1) $ — $ 57,966 $ — $ 57,966

Liabilities-matching securities:

Cash and cash equivalents 888 — — 888

(2) This category consists of a collective investment trust investing in Treasury STRIPS.

Pension Plan Cash Flows

Our estimated normal future benefit payments to pension plan participants are as follows:

Fiscal Year Ended (In thousands)

We fund the pension plan liability in accordance with the limits imposed by ERISA, federal income tax laws, and the funding requirements of the Pension Protection Act of 2006 (“Pension Act”). We are required to make cash contributions to the pension plan totaling approximately $0.3 million for fiscal funding year 2021.

Multiemployer Pension Plans

We are involved in various multiemployer pension plans (“MEPPs”) that provide retirement benefits to certain union employees in accordance with certain collective bargaining agreements (“CBAs”). As one of many participating employers in these MEPPs, we are generally responsible with the other participating employers for any plan underfunding. Our contributions to a particular MEPP are established by the applicable CBAs; however, our required contributions may increase based on the funded status of an MEPP and legal requirements such as those of the Pension Act, which requires substantially underfunded MEPPs to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve their funded status. Factors that could impact funded status of an MEPP include, without limitation, investment performance, changes in the participant demographics, decline in the number of contributing employers, changes in actuarial assumptions, and the utilization of extended amortization provisions. A FIP or RP requires a particular MEPP to adopt measures to correct its underfunded status. These measures may include, but are not limited to: an increase in our contribution rate to the applicable CBA, a reallocation of the contributions already being made by participating employers for various benefits to individuals participating in the MEPP, and/or a reduction in the benefits to be paid to future and/or current retirees.

We could also be obligated to make future payments to MEPPs if we either cease to have an obligation to contribute to the MEPP or significantly reduce our contributions to the MEPP because we reduce our number of employees who are covered by the relevant MEPP for various reasons, including, but not limited to, layoffs or closures, assuming the MEPP has unfunded vested benefits. The amount of such payments (known as a complete or partial withdrawal liability) generally would equal our proportionate share of the plan’s unfunded vested benefits.

The following table lists our participation in our multiemployer plans which we deem significant. “Contributions” represent the amounts contributed to the plan during the fiscal years presented:

Contributions (In millions)

Our contributions to this plan are approximately 0.10 percent of total contributions, which is less than the required disclosure threshold of 5 percent of total plan contributions. However, this plan is deemed significant for disclosure as it is severely underfunded. Our current CBA that requires contributions to the plan expires on December 31, 2022. In May 2020, we received a demand letter for payment resulting from our partial withdrawal in 2018 from the Central States Plan and started making payments in June 2020. These payments are payable monthly for a period of 20 years. Our liability for the remainder of these payments was $8.0 million as of January 2, 2021. We may, in the future, record an additional liability if required by an event of our complete withdrawal from the plan or a mass withdrawal. Our most recent contingent withdrawal liability was estimated at approximately $60.7 million, for a complete withdrawal occurring in 2021. In the case of a complete withdrawal or a mass withdrawal, the Central States Plan could demand yearly payments of approximately $1.0 million, which do not include payments for the partial withdrawal of approximately $0.6 million annually. In a complete withdrawal, the payments would not amortize the liability fully; however, payments for a complete withdrawal are limited to a 20-year period. In the case of a mass withdrawal, the liability would not amortize fully under current government regulations, and payments would continue indefinitely.

Defined Contribution Plans

Our employees also participate in two defined contribution plans: the BlueLinx Corporation Hourly Savings Plan covering hourly employees, and the BlueLinx Corporation Salaried Savings Plan covering salaried employees. Discretionary contributions to the plans are based on employee contributions and compensation, and, in certain cases, participants in the hourly savings plan also receive employer contributions based on union negotiated match amounts. Employer contributions to the hourly savings plan for both fiscal 2019 and 2020 were $0.7 million.

Employer contributions totaling $1.8 million for the salaried savings plan for fiscal 2020 have been deferred until the first quarter of 2021. Employer contributions to the salaried savings plan for fiscal 2019 of $1.7 million were deferred and paid in the third quarter of fiscal 2020.

9. Share-Based Compensation

We have three stock-based compensation plans covering officers, directors, certain employees, and consultants: the 2004 Equity Incentive Plan (the “2004 Plan”), the 2006 Long-Term Equity Incentive Plan (the “2006 Plan”), and the 2016 Amended and Restated Long-Term Incentive Plan (the “2016 Plan”). The plans are designed to motivate and retain individuals who are responsible for the attainment of our primary long-term performance goals. The plans provide a means whereby the participants develop a further sense of proprietorship and personal involvement in our development and financial success, thereby advancing the interests of the Company and its stockholders. Although we do not have a formal policy on the matter, we issue new shares of our common stock to participants upon the exercise of options or upon the vesting of restricted stock, restricted stock units, or performance shares, out of the total amount of common shares applicable for issuance or vesting under the aforementioned plans. Shares are available for new issuance only under the 2016 Plan. The 2004 and 2006 Plans have no shares remaining for issuance. Remaining 2006 Plan shares are outstanding only for the vesting of outstanding equity awards.

The 2016 Plan permits the grant of nonqualified stock options, incentive stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance shares, performance units, cash-based awards, and other share-based awards to participants of the 2016 Plan selected by our Board of Directors or a committee of the Board that administers the 2016 Plan. We reserved 810,200 shares of our common stock for issuance under the 2016 Plan. The terms and conditions of awards under the 2016 Plan are determined by the Compensation Committee. Some of the awards issued under both the 2006 and 2016 Plans are subject to accelerated vesting in the event of a change in control as such an event is defined in the respective Plan documents.

For all awards designated as equity awards, we recognize compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest, as described further below, in “Compensation Expense.” This expense is recorded on a straight-line basis over the requisite service period of the entire award, unless the awards are subject to market or performance conditions, in which case we recognize compensation expense over the requisite service period of each separate vesting tranche, to the extent the occurrence of such conditions are probable.

All compensation expense related to our share-based payment awards is recorded in “Selling, general, and administrative” expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Restricted Stock Units

During fiscal 2020 and in prior years, the Board of Directors was granted restricted stock units with a one-year vesting period, although a pro-rated portion may vest prior to the one-year period, with the remainder forfeited, if a Director chooses not to stand for re-election before the one-year vesting period has elapsed. All vested director grants settle at the earlier of ten years from the vesting date or retirement from the Board of Directors. These awards are time-based and are not based upon attainment of performance goals.

During fiscal 2019 and 2020, the Board of Directors granted restricted stock units to certain of our employees and executive officers. Certain of the restricted stock units granted in fiscal 2019 and 2020 vest in equal annual increments over the three years after the date of grant. Of the remaining restricted stock units granted in fiscal 2019 certain of the awards vest on the third anniversary of the date of grant if certain performance conditions are met prior to the vesting date, and the remaining restricted stock units granted in fiscal 2019 vest at the end of the Company’s second fiscal quarter in 2022 if certain performance conditions are met as of the vesting date.

As of January 2, 2021, there was approximately $6.2 million of total unrecognized compensation expense related to restricted stock units. The unrecognized compensation expense is expected to be recognized over a weighted average term of 1.9 years. As of January 2, 2021, the weighted average remaining contractual term for our restricted stock units was 1.9 years, and the maximum contractual term was 3.0 years.

The following table summarizes activity for our restricted stock units during fiscal 2020:

Restricted Stock Units

Number ofAwards WeightedAverage FairValue

(1)The total fair value of restricted stock units vested in fiscal 2020 and 2019 was $1.0 million and $1.9 million, respectively.

For fiscal 2019, the weighted average grant date fair value of restricted stock units granted was $19.96.

Compensation Expense

Total share-based compensation expense from our share-based awards was as follows:

(In thousands)

We do not estimate forfeitures, but adjust for them as they occur.

We recognized related income tax benefits in fiscal years 2020 and 2019 of $1.5 million and $0.7 million, respectively, which were fully realized in fiscal 2020 and 2019. We include the benefits of tax deductions in excess of recognized compensation expense as a net operating cash outflow in our Consolidated Statements of Cash Flows when present. There were no excess tax benefits in fiscal 2020 or fiscal 2019.

10. Income (loss) per Common Share

We calculate basic income (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding, excluding unvested restricted stock units. We calculate diluted income (loss) per share using the treasury stock method, by dividing net income (loss) by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including restricted stock units. The following table shows the computation of basic and diluted income (loss) per share:

Fiscal Year Ended

($ in thousands, except per share data)

Weighted average shares outstanding - basic 9,422 9,355

Dilutive effect of share-based awards 41 —

Weighted average shares outstanding - diluted 9,463 9,355

Basic income (loss) per share $ 8.58 $ (1.89)

Diluted income (loss) per share $ 8.55 $ (1.89)

(1) Basic and diluted loss per share are equivalent for fiscal 2019 due to a net loss for the period, and all outstanding share-based awards would be anti-dilutive.

For fiscal years 2020 and 2019, we excluded 725,483 and 490,194 unvested share-based awards, respectively, from the diluted income per share calculation because they were either anti-dilutive or “out of the money.” Outstanding share based awards not included in diluted loss per share consisted of restricted stock units.

11. Related Party Transactions

D. Wayne Trousdale, the Company’s former Vice Chairman, Operating Companies, who served until April 2019, and which we now have an active consulting agreement with, owns approximately 33.33% of a limited liability company that owns and leases six facilities to us. During fiscal 2019 and 2020, approximately $2.1 million and $1.9 million, respectively, in aggregate rent and related amounts was paid to the limited liability company for these properties. Mr. Trousdale’s interest in these amounts for fiscal 2019 and 2020 was approximately $0.7 million and $0.6 million, respectively.

12. Lease Commitments

We have operating and finance leases for certain of our distribution facilities, office space, land, mobile fleet, and equipment. Many of our leases are non-cancelable and typically have a defined initial lease term, and some provide options to renew at our election for specified periods of time. The majority of our leases have remaining lease terms of 1 year to 15 years, some of which include one or more options to extend the leases for 5 years. Our leases generally provide for fixed annual rentals. Certain of our leases include provisions for escalating rent based on, among other things, contractually defined increases and/or changes in the Consumer Price Index (“CPI”). The known changes to lease payments are included in the lease liability at lease commencement. Unknown changes related to CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. In addition, a subset of our vehicle lease cost is considered variable. Some of our leases require us to pay taxes, insurance, and maintenance expenses associated with the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We determine if an arrangement is a lease at inception and assess lease classification as either operating or finance at lease inception or modification. Operating lease right-of use (“ROU”) assets and liabilities are presented separately on the consolidated balance sheets. Finance lease ROU assets are included in property and equipment and the finance lease obligations are presented separately in the consolidated balance sheet. When a lease does not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We have also made the accounting policy election to not separate lease components from non-lease components related to our mobile fleet asset class.

Finance Lease Liabilities

Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate. As noted in the table below, a majority of our finance leases, formally known as capital leases, relate to real estate.

BXC US Equity

BXC · 10-K · period ended 2021-01-02

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BXC US Equity☆

BXC · 10-K · period ended 2021-01-02

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BXC US Equity