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What changed in SiteOne Landscape Supply, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SiteOne Landscape Supply, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+369 added−337 removedSource: 10-K (2023-02-23) vs 10-K (2022-02-24)

Top changes in SiteOne Landscape Supply, Inc.'s 2023 10-K

369 paragraphs added · 337 removed · 280 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

68 edited+14 added−5 removed48 unchanged
Biggest changeAvailable Information We make available free of charge on the “Investor Relations” page of our website, www.siteone.com, our filed and furnished reports on Forms 10-K, 10-Q, and 8-K, and all amendments thereto, as soon as reasonably practicable after the reports are filed with or furnished to the Securities and Exchange Commission (the “SEC”).
Biggest changeChanges in, or new interpretations of, existing laws, regulations or enforcement policies, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including obligations with respect to any potential health hazards of our products, may lead to additional compliance or other costs. 13 Table of Contents Available Information We make available free of charge on the “Investor Relations” page of our website, www.siteone.com, our filed and furnished reports on Forms 10-K, 10-Q, and 8-K, and all amendments thereto, as soon as reasonably practicable after the reports are filed with or furnished to the Securities and Exchange Commission (the “SEC”).
Based on management estimates, we believe that nursery products represent the largest product category in the industry, with sales accounting for more than one-third of industry sales, followed by landscape accessories with approximately one-fifth of industry sales, and each of control products, hardscapes, irrigation products and outdoor lighting, and fertilizer and other accounting for approximately one-tenth of industry sales.
Based on management estimates, we believe that nursery products represent the largest product category in the industry, with sales accounting for more than one-third of industry sales, followed by landscape accessories with approximately one-fifth of industry sales, and each of control products, hardscapes, irrigation and outdoor lighting, and fertilizer and other products accounting for approximately one-tenth of industry sales.
Landscape Accessories Our landscape accessories products include mulches, soil amendments, drainage pipe, tools, and sod. Landscape accessories are typically sold in combination with other landscape supply products. As a result, sales of these accessories are often tied to sales of fertilizers and control products, as well as sales of nursery goods and hardscapes products.
Landscape Accessories Our landscape accessories products include mulches, soil amendments, drainage pipe, tools, and sod. Landscape accessories are typically sold in combination with other landscape supply products. As a result, sales of these accessories are often tied to sales of fertilizers and control products, as well as sales of nursery goods and hardscapes.
In addition, the SEC maintains a website that contains reports, proxy, and information statements, and other information regarding issuers, including us, that file electronically with the SEC at www.sec.gov. We are required to disclose any change to, or waiver from, our Business Code of Conduct and Ethics for our executive officers and Board members.
In addition, the SEC maintains a website that contains reports, proxy, and information statements, and other information regarding issuers, including us, that file electronically with the SEC at www.sec.gov. We are required to disclose any change to, or waiver from, our Business Code of Conduct and Ethics for our executive officers and members of our Board of Directors.
Our initiatives include the following: • Metrics intended to increase the Company’s diversity in certain field and field support associates’ short-term incentive bonus plans. • Associate Resource Groups (“ARGs”) which are voluntary, employee-led groups tied to an aspect of diversity. Membership in each ARG is open to all SiteOne associates and diverse representation is encouraged.
Our initiatives include the following: • Metrics intended to increase the Company’s diversity in certain field and field support associates’ short-term incentive bonus plans. • Associate Resource Groups (“ARGs”), which are voluntary, associate-led groups tied to an aspect of diversity. Membership in each ARG is open to all SiteOne associates and diverse representation is encouraged.
Additionally, we have continued our digital initiative, to include the enhancement of our website and business-to-business (“B2B”) e-Commerce platform. Although we are still primarily in the early stages of these initiatives, they have already enhanced our customer service, contributed to improvement in our profitability, and we believe we will continue to benefit from these and other operational improvements.
Additionally, we have continued to advance our digital initiative, to include the enhancement of our website and business-to-business (“B2B”) e-Commerce platform. Although we are still primarily in the early stages of these initiatives, they have already enhanced our customer service, contributed to improvement in our profitability, and we believe we will continue to benefit from these and other operational improvements.
The core SiteOne Green Tech ® product lines include central irrigation control systems, solar assemblies, fertilizer injection systems, irrigation pumps, and hand-held remote control equipment. Pro-Trade ® In September 2017, we launched a line of professional-grade landscape lighting fixtures, LED lamps, and transformers under our Pro-Trade® brand.
The core SiteOne Green Tech ® product lines include central irrigation control systems, solar assemblies, fertilizer injection systems, irrigation pumps, and hand-held remote control equipment. Pro-Trade ® In 2017, we launched a line of professional-grade landscape lighting fixtures, LED lamps, and transformers under our Pro-Trade ® brand.
We intend to continue pursuing strategic acquisitions to better serve our customers, grow our market share, and enhance our local market leadership positions by taking advantage of our scale, operational experience, and acquisition know-how. In addition, we currently have branches in approximately 50% of the 384 U.S.
We intend to continue pursuing strategic acquisitions to better serve our customers, grow our market share, and enhance our local market leadership positions by taking advantage of our scale, operational experience, and acquisition know-how. We currently have branches in approximately 50% of the 384 U.S.
The market for irrigation products has historically provided stable growth and is driven primarily by new home construction and maintenance of existing irrigation systems. Fertilizer and Other Our fertilizer and other products include fertilizer, grass seed, and ice melt products. Fertilizer products are sold to the maintenance end market and accordingly are relatively stable through economic cycles.
The market for irrigation products has historically provided stable growth and is driven primarily by new home and commercial construction and maintenance of existing irrigation systems. Fertilizer and Other Our fertilizer and other products include fertilizer, grass seed, and ice melt products. Fertilizer products are sold to the maintenance end market and accordingly are relatively stable through economic cycles.
These federal, state, provincial, and local laws and regulations include laws relating to consumer protection, wage and hour, deceptive trade practices, permitting and licensing, state contractor laws, workers’ safety, tax, healthcare reforms, collective bargaining and other labor matters, environmental, and employee benefits.
These federal, state, provincial, and local laws and regulations include laws relating to consumer protection, wage and hour, deceptive trade practices, permitting and licensing, state contractor laws, workers’ safety, tax, healthcare reforms, collective bargaining and other labor matters, environmental, cybersecurity, and employee benefits.
These sales benefit from increasing existing home sales, increasing home prices, and rising consumer spending. 4 Table of Contents Net Sales for 2021 Fiscal Year Our History Our company was established after Deere & Company (“Deere”) entered the wholesale landscape distribution market through the acquisitions of McGinnis Farms and Century Rain Aid in 2001, United Green Mark in 2005, and LESCO Inc.
These sales benefit from increasing existing home sales, increasing home prices, and rising consumer spending. 4 Table of Contents Net Sales for the 2022 Fiscal Year Our History Our company was established after Deere & Company (“Deere”) entered the wholesale landscape distribution market through the acquisitions of McGinnis Farms and Century Rain Aid in 2001, United Green Mark in 2005, and LESCO Inc.
We believe that high-performing local leaders coupled with creative, adaptable, and engaged associates are critical to our success and to maintaining our competitive position, and we are committed to being the employer of choice in our industry. 6 Table of Contents Our Products and Services Our comprehensive portfolio of landscape products consists of over 135,000 SKUs from approximately 5,000 suppliers.
We believe that high-performing local leaders coupled with creative, adaptable, and engaged associates are critical to our success and to maintaining our competitive position, and we are committed to being the employer of choice in our industry. 6 Table of Contents Our Products and Services Our comprehensive portfolio of landscape products consists of approximately 155,000 SKUs from over 5,000 suppliers.
We source our products from approximately 5,000 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies, and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes, and other landscape products. We have a balanced mix of sales across product categories, construction sectors, and end markets.
We source our products from over 5,000 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies, and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes, and other landscape products. We have a balanced mix of sales across product categories, construction sectors, and end markets.
Sales of LESCO ® , SiteOne Green Tech ® , and Pro-Trade ® together accounted for approximately 15% of our 2021 Fiscal Year Net sales, the large majority of which is attributable to LESCO ® . 7 Table of Contents LESCO ® LESCO ® is a premium brand and maintains strong brand awareness with golf and professional landscape contractors.
Sales of LESCO ® , SiteOne Green Tech ® and Pro-Trade ® together accounted for approximately 15% of our 2022 Fiscal Year Net sales, the large majority of which is attributable to LESCO ® . 7 Table of Contents LESCO ® LESCO ® is a premium brand and maintains strong brand awareness with golf and professional landscape contractors.
We periodically administer a company-wide associate engagement survey, the most recent of which occurred in November 2021, and we believe that we have good relations with our associates. Approximately 92% of our associates are employed on a full-time, year-round basis.
We periodically administer a company-wide associate engagement survey, the most recent of which occurred in November 2021, and we believe that we have good relations with our associates. Approximately 94% of our associates are employed on a full-time, year-round basis.
Suppliers We source our products from approximately 5,000 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies, and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes, and other landscape products. Some of our largest suppliers include Hunter, Rain Bird, Cresline, Oldcastle, Turf Care Supply, Bayer, NDS, Toro, Techo-Bloc, and Spears Manufacturing.
Suppliers We source our products from over 5,000 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies, and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes, and other landscape products. Some of our largest suppliers include Hunter Industries, Rain Bird, Cresline, Oldcastle, Bayer, Turf Care Supply, NDS, Toro, Techo-Bloc, and Spears Manufacturing.
Our suppliers benefit from access to our more than 280,000 customers, a single point of contact for improved production planning and efficiency, and our ability to bring new product launches quickly to market on a national scale.
Our suppliers benefit from access to our more than 290,000 customers, a single point of contact for improved production planning and efficiency, and our ability to bring new product launches quickly to market on a national scale.
Company Overview We are the largest and only national wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation, and maintenance of lawns, gardens, golf courses, and other outdoor spaces.
Company Overview We are the largest and only national full product line wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation, and maintenance of lawns, gardens, golf courses, and other outdoor spaces.
Reward points may be utilized, for example, on credit on-account, trips and special events, gift cards to major retailers, and SiteOne University courses and educational events. Access to preferred rate business services includes, for example, payroll and select human resource services, cell phone services, office supplies, and fuel rebates.
Reward points may be utilized, for example, on credit on-account, trips and special events, gift cards to major retailers, and SiteOne University courses and educational events. Access is also provided to preferred rate business services and includes, for example, payroll and select human resource services, cell phone services, office supplies, and fuel rebates.
Our branches are integrated on a single technology platform, allowing us to leverage our full operational scale for procurement, inventory management, financial support, data analytics, and performance reporting. Our outside sales force is organized by geographic area.
Our integrated branches utilize a single technology platform, allowing us to leverage our full operational scale for procurement, inventory management, financial support, data analytics, and performance reporting. Our outside sales force is organized by geographic area.
For the 2021 Fiscal Year, Partners Program participants accounted for approximately 50% of our Net sales. 8 Table of Contents Operational Structure Our operational philosophy is to create local area teams and branch networks specifically designed to best meet our customers’ needs at the local market level, while supporting these teams with the resources of a large company delivered through regional and divisional management, including company-wide functions.
For the 2022 Fiscal Year, Partners Program participants accounted for approximately 52% of our Net sales. 8 Table of Contents Operational Structure Our operational philosophy is to create local area teams and branch networks specifically designed to best meet our customers’ needs at the local market level, while supporting these teams with the resources of a large company delivered through regional and divisional management, including company-wide support functions.
Distribution of our LESCO® proprietary branded products on a wholesale basis to retailers represented less than 1% of our 2021 Fiscal Year Net sales.
Distribution of our LESCO® proprietary branded products on a wholesale basis to retailers represented less than 1% of our 2022 Fiscal Year Net sales.
The recurring nature of landscape maintenance demand helps to provide stability in our financial performance across economic cycles. Fertilizer and control products are the primary products used in maintenance. The sale of products relating to new construction of homes, commercial buildings, and recreational spaces accounted for approximately 36% of our 2021 Fiscal Year Net sales.
The recurring nature of landscape maintenance demand helps to provide stability in our financial performance across economic cycles. Fertilizer and control products are the primary products used in maintenance. The sale of products relating to new construction of homes, commercial buildings, and recreational spaces accounted for approximately 35% of our 2022 Fiscal Year Net sales.
We typically do not maintain inventory for direct distribution, but rather use our existing supplier relationships, marketing expertise, and ordering and logistics infrastructure to serve this demand, requiring less working capital investment for these sales. Approximately 6% of our 2021 Fiscal Year Net sales were from direct distribution.
We typically do not maintain inventory for direct distribution, but rather use our existing supplier relationships, marketing expertise, and ordering and logistics infrastructure to serve this demand, requiring less working capital investment for these sales. Approximately 5% of our 2022 Fiscal Year Net sales were from direct distribution.
Through our expansive North American network, we offer a comprehensive selection of more than 135,000 stock keeping units (“SKUs”) including irrigation supplies, fertilizer and control products ( e.g. , herbicides), hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, outdoor lighting, and ice melt products to green industry professionals.
Through our expansive North American network, we offer a comprehensive selection of approximately 155,000 stock keeping units (“SKUs”) including irrigation supplies, fertilizer and control products (e.g., herbicides), hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, outdoor lighting, and ice melt products to green industry professionals.
Benefits We offer a competitive benefits package with the goal of enabling our associates to get the most out of work and life. In 2021, we added a paid military leave benefit that provides additional resources to our full-time associates as they continue to serve our country.
Benefits We offer a competitive benefits package with the goal of enabling our associates to get the most out of work and life. Among our benefits, we offer a paid military leave benefit that provides additional resources to our full-time associates as they continue to serve our country.
We use our website to disseminate this disclosure as permitted by applicable SEC rules. 13 Table of Contents
We use our website to disseminate this disclosure as permitted by applicable SEC rules. 14 Table of Contents
Revenue from Contracts with Customers” to our audited financial statements for information on our Net sales in landscaping products (irrigation supplies, hardscapes, landscape accessories, nursery goods, and outdoor lighting) and agronomic and other products (fertilizer, control products, ice melt, equipment, and other products). Irrigation Supplies Our irrigation products include controllers, valves, sprinkler heads, and irrigation pipe.
Revenue from Contracts with Customers” to our audited financial statements for information on our Net sales of landscaping products (irrigation supplies, hardscapes, landscape accessories, nursery goods, and outdoor lighting) and agronomic and other products (fertilizer, control products, ice melt, equipment, and other products). Irrigation Supplies Our irrigation products include controllers, valves, sprinkler heads, irrigation pipe, and micro-irrigation or drip products.
At the local market level, we organize our over 590 branches and approximately 530 outside sales representatives into 42 designated “areas” that each typically serve a defined geography, a large MSA, or a combination of MSAs in close proximity. Area Managers are responsible for organization and talent planning, branch operations, sales strategy, and product delivery strategy.
At the local market level, we organize our over 630 branches and approximately 620 outside sales representatives into 41 designated “areas” that each typically serve a defined geography, a large MSA, or a combination of MSAs in close proximity. Area Managers are responsible for organization and talent planning, branch operations, sales strategy, and product delivery strategy.
These products primarily include irrigation, hardscapes, landscape accessories, nursery, and outdoor lighting. Approximately 27% of our 2021 Fiscal Year Net sales were derived from sales of products for the repair and upgrade of existing landscapes.
These products primarily include irrigation, hardscapes, landscape accessories, nursery, and outdoor lighting. Approximately 29% of our 2022 Fiscal Year Net sales were derived from sales of products for the repair and upgrade of existing landscapes.
In addition, our broad product portfolio, convenient branch locations, and nationwide fleet of over 1,900 delivery vehicles position us well to meet the needs of our customers and ensure timely delivery of products.
In addition, our broad product portfolio, convenient branch locations, and nationwide fleet of over 2,200 delivery vehicles position us well to meet the needs of our customers and ensure timely delivery of products.
Our Industry Based on management’s estimates, we believe that our addressable market in North America for the wholesale distribution of landscape supplies represented approximately $23 billion in revenue in 2021.
Our Industry Based on management’s estimates, we believe that our addressable market in North America for the wholesale distribution of landscape supplies represented approximately $25 billion in revenue in 2022.
Purchases from our top 10 suppliers accounted for approximately 34% of total purchases for our 2021 Fiscal Year. We generally procure our products through purchase orders rather than under long-term contracts with firm commitments.
Purchases from our top 10 suppliers accounted for approximately 33% of total purchases for the 2022 Fiscal Year. We generally procure our products through purchase orders rather than under long-term contracts with firm commitments.
We support our over 590 branches and 42 areas with regional management and company-wide functions by providing: management of business performance, development and execution of local strategies, sharing of best practices, execution and integration of acquisitions, finance and accounting expertise (e.g., credit/collections, payables), category management and procurement, supply chain (e.g., planners, buyers), pricing strategies, marketing, and information technology.
We support our over 630 branches and 41 areas with regional management and company-wide support functions by providing: management of business performance, development and execution of local strategies, sharing of best practices, execution and integration of acquisitions, finance and accounting expertise (including credit/collections, payables, and other shared services), category management and procurement, supply chain (e.g., planners and buyers), pricing strategies, marketing, and information technology.
Other services provided by our project services teams include specifications assistance and irrigation take-offs. Partners Program We offer a loyalty rewards program, our Partners Program, which had approximately 22,500 enrolled customers as of January 2, 2022 and provides business and personal rewards, access to business services at preferred rates, and technical training and support.
Other services provided by our project services teams include specifications assistance and irrigation project take-offs. Partners Program We offer a loyalty rewards program, our Partners Program, which had approximately 25,000 enrolled customers as of January 1, 2023 and provides business and personal rewards, access to business services at preferred rates, and technical training and support.
We created two new sick leave policies in response to COVID-19 – quarantine pay, which allows associates who quarantine in compliance with CDC or local guidelines to stay home with pay, and a paid time off donation program, which allows associates to donate paid time off to other associates whose family members are impacted by COVID-19.
During the peak of the COVID-19 pandemic, we created two new sick leave policies – quarantine pay, which allows associates who quarantine in compliance with CDC or local guidelines to stay home with pay, and a paid time off (“PTO”) donation program, which allows associates to donate PTO to other associates whose family members are impacted by COVID-19.
Our customer base consists of more than 280,000 firms and individuals, with our top 10 customers collectively accounting for approximately 4% of our 2021 Fiscal Year Net sales, with no single customer accounting for more than 2% of Net sales. Small customers, with annual purchases of up to $25,000, made up 24% of our 2021 Fiscal Year Net sales.
Our customer base consists of more than 290,000 firms and individuals, with our top 10 customers collectively accounting for less than 4% of our 2022 Fiscal Year Net sales, with no single customer accounting for more than 2% of Net sales. Small customers, with annual purchases of up to $25,000, made up 22% of our 2022 Fiscal Year Net sales.
Among wholesale distributors, we primarily compete against a small number of regional distributors and many small, local, privately-owned distributors. Some of our competitors carry several product categories, while others mainly focus on one product category such as irrigation, fertilizer/control, nursery goods, or hardscapes.
Among wholesale distributors, we primarily compete against a small number of regional distributors and many small, local, privately-owned distributors. Some of our competitors carry several product categories, while others mainly focus on one product category such as irrigation, fertilizer/control, nursery goods, or hardscapes. We are the only national wholesale distributor to carry a full product line of landscape supplies.
Branches Our branch network is the core of our operations and creates a valuable connection between our suppliers and our customers. Of our approximately 5,000 suppliers, few are set up to serve the shipping needs of our customers as their supply chains are typically focused on bulk quantities shipped from only a few locations.
Branches Our branch network is the core of our operations and creates a valuable connection between our suppliers and our customers. Of our over 5,000 suppliers, few are set up to serve the shipping needs of our customers as their supply chains are typically focused on bulk quantity shipments.
Also, to reward exceptional performance during the challenging circumstances created by the COVID-19 pandemic, we made a special “thank you” payment in August 2020 to front-line branch associates. The aggregate payment totaled $1.5 million. In March 2021, we made a second special “thank you” payment to front-line branch associates to reward their ongoing work during the pandemic.
Additionally, to reward exceptional performance during the challenging circumstances created by the COVID-19 pandemic, we made a special “thank you” payment in August 2020 to front-line branch associates and the aggregate payment totaled $1.5 million.
Our ARGs include the following: ▪ Black Resource Inclusion and Diversity Group for Excellence – BR1DGE provides a network for Black associates to be connected and supported, and to process and discuss life experiences in a safe space. ▪ UN1DOS – UN1DOS aims to attract and retain engaged and diverse associates while enhancing SiteOne’s understanding of and relationships with Hispanic communities and customers. ▪ VETS1 – VETS1 fosters an environment of diverse and engaged associates while developing SiteOne’s understanding of and relationships with Veteran associates, customers, and communities. ▪ Women in the Green Growing – W1GG promotes an environment of diverse and engaged associates while advocating female growth within SiteOne and the Green Industry. • The creation of a Diversity & Inclusion Council during 2020 that consists of ARG leaders, select operational and functional leaders, our Executive Vice President of Human Resources and our Chief Executive Officer.
Our ARGs include the following: ▪ Black Resource Inclusion and Diversity Group for Excellence – BR1DGE provides a network for Black associates to be connected and supported, and to process and discuss life experiences in a safe space. ▪ INSP1RE – INSP1RE fosters an inclusive culture with a focus on our extended Asian community – South Asia, South-East Asia, East Asia, Asian Pacific Islander, Asian American, and beyond, creating a platform for our teams to feel inspired, empowered, celebrated, and supported. 11 Table of Contents ▪ UN1DOS – UN1DOS aims to attract and retain engaged and diverse associates while enhancing SiteOne’s understanding of and relationships with Hispanic communities and customers. ▪ VETS1 – VETS1 fosters an environment of diverse and engaged associates while developing SiteOne’s understanding of and relationships with Veteran associates, customers, and communities. ▪ Women in the Green Growing – W1GG promotes an environment of diverse and engaged associates while advocating female growth within SiteOne and the green industry. • The creation of a Diversity & Inclusion Council during 2020 that consists of ARG leaders, select operational and functional leaders, our Executive Vice President of Human Resources, and our Chief Executive Officer.
Medium customers, with annual purchases from $25,000 up to $150,000, made up 33% of our 2021 Fiscal Year Net sales. Large customers, with annual purchases over $150,000, made up 43% of our 2021 Fiscal Year Net sales. Some of our largest customers include BrightView, Weed Man, Lowe’s, The Home Depot, Lawn Doctor, and Davey Tree.
Medium customers, with annual purchases from $25,000 up to $150,000, made up 31% of our 2022 Fiscal Year Net sales. Large customers, with annual purchases over $150,000, made up 47% of our 2022 Fiscal Year Net sales. Some of our largest customers include BrightView, Weed Man, The Home Depot, Davey Tree, and Yellowstone Landscape.
As of January 2, 2022, we had over 590 branch locations in 45 U.S. states and six Canadian provinces.
As of January 1, 2023, we had over 630 branch locations in 45 U.S. states and six Canadian provinces.
The Council assists executive leadership in the creation and execution of the Company’s inclusion strategy, including key action items and milestones. • Increasing Spanish-speaking capabilities in our branches, with the goal to employ at least one Spanish-speaking associate in each branch.
The Diversity & Inclusion Council assists executive leadership in the creation and execution of the Company’s inclusion strategy, including key action items and milestones. • Increasing Spanish-speaking capabilities in our branches, with the goal to employ at least one Spanish-speaking associate in each branch. • Partnering with Sigma Alpha, a professional agricultural sorority, to develop a pipeline of female talent.
At SiteOne, a culture in which all our associates are respected and valued is critical. Our diversity and inclusion efforts focus on creating a work environment that is respectful and supportive of each of our associates and which places the team first.
Our diversity and inclusion efforts focus on creating a work environment that is respectful and supportive of each of our associates and which places the team first.
We primarily lease 5,000 to 15,000 square foot facilities in both freestanding and multi-tenant buildings with secured outside storage yards averaging from 10,000 to 20,000 square feet. 9 Table of Contents Direct Distribution Our direct distribution business provides point-to-point logistics for bulk quantities of landscape products between suppliers and customers.
We primarily lease 5,000 to 15,000 square foot facilities in both freestanding and multi-tenant buildings with secured outside storage yards averaging from 10,000 to 20,000 square feet. 9 Table of Contents Direct Distribution Our direct distribution business provides point-to-point logistics for bulk quantities of landscape products between suppliers and customers, providing customers with sourcing and logistics support services for inventory management and delivery, and in many cases, these services are more economical than the producers might otherwise provide.
Services We offer a variety of complementary, value-added services to support the sale of our products. We do not derive separate revenue for these services, but we believe they are an important differentiator in establishing our value proposition to our customers.
We do not derive separate revenue for these services, but we believe they are an important differentiator in establishing our value proposition to our customers.
We derived approximately 60% of our 2021 Fiscal Year Net sales from the residential construction sector, 30% from the commercial (including institutional) construction sector, and 10% from the recreational and other construction sector. By end market, we derived approximately 37% of our 2021 Fiscal Year Net sales from maintenance of residential, commercial, and recreational properties.
We derived approximately 61% of our 2022 Fiscal Year Net sales from the residential construction sector, 31% from the commercial (including institutional) construction sector, and 8% from the recreational and other construction sector. By end market, we derived approximately 36% of our 2022 Fiscal Year Net sales from maintenance of existing residential, commercial, and recreational properties.
In addition, other than commercially available software licenses, we do not believe that any of our licenses for third-party intellectual property are material to our business, taken as a whole. 12 Table of Contents Weather Conditions and Seasonality For a discussion regarding seasonality and weather, refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Weather Conditions and Seasonality,” of this Annual Report on Form 10-K.
In addition, other than commercially available software licenses, we do not believe that any of our licenses for third-party intellectual property are material to our business, taken as a whole. Weather Conditions and Seasonality For a discussion regarding seasonality and weather, refer to Item 7.
We believe our top nine largest competitors include Ewing, Heritage Landscape Supply Group (a subsidiary of SRS Distribution), Harrell’s, Horizon Distributors (a subsidiary of Pool Corporation), BWI, Target Specialty Products, Howard Fertilizer and Chemical, BFG Supply, and Central Turf and Irrigation Supply. 10 Table of Contents We believe regional or local competitors comprise approximately 85% of the landscape supply industry based on 2021 Net sales.
We believe our top nine largest competitors include Heritage Landscape Supply Group (a subsidiary of SRS Distribution), Ewing, Horizon Distributors (a subsidiary of Pool Corporation), Harrell’s, BWI, Target Specialty Products, Howard Fertilizer and Chemical, Central Turf and Irrigation Supply, and BFG Supply.
We could also incur significant investigation and clean-up costs for contamination at any currently or formerly owned or operated facilities, including LESCO’s manufacturing and blending facilities. Refer to “ Note 10 . Commitments and Contingencies” to our audited consolidated financial statements. In addition, we cannot predict the effect of possible future environmental, health, or safety laws on our operations.
We could also incur significant investigation and clean-up costs for contamination at any currently or formerly owned or operated facilities, including LESCO’s manufacturing and blending facilities. Refer to “ Note 10 . Commitments and Contingencies” to our audited consolidated financial statements for additional information.
In aggregate, this second payment totaled $0.4 million. In addition to the “thank you” payments, during 2021, we issued COVID-19 reward payments to associates who became fully vaccinated. As of January 2, 2022, we paid $1.0 million towards this incentive.
In addition to the “thank you” payments, during the 2021 Fiscal Year and the 2022 Fiscal Year, we issued COVID-19 reward payments to associates who became fully vaccinated totaling $1.2 million towards this incentive.
Growth in our industry is driven by a broad array of factors, including consumer spending, housing starts, existing home sales, home prices, commercial construction, repair and remodeling spending, and demographic trends. Within the wholesale landscape supply industry, products sold for residential applications represent the largest construction sector, followed by the commercial, and recreational and other sectors.
Growth in our industry is driven by a broad array of factors, including consumer spending, housing starts, existing home sales, home prices, mortgage interest rates, commercial, recreational, and residential construction, repair and remodeling spending, and demographic trends.
We will continue to work with new and existing suppliers to maintain the most comprehensive product offering for our customers at competitive prices and enhance our role as a critical player in the supply chain. Grow at the Local Level The vast majority of our customers operate at a local level.
We intend to keep increasing our size and scale in customer, geographic, and product reach, which we believe will continue to benefit our supplier base. We will continue to work with new and existing suppliers to maintain the most comprehensive product offering for our customers at competitive prices and enhance our role as a critical player in the supply chain.
Our goal is a robust culture of safety with all associates committed to working safely, every task, every day, 100% of the time. 11 Table of Contents Diversity and Inclusion We believe in the power of teamwork and in creating a great place to work for all our associates, no matter their race, age, gender, sexual orientation, or military status.
Diversity and Inclusion We believe in the power of teamwork and in creating a great place to work for all our associates, no matter their race, age, gender, sexual orientation, or military status. At SiteOne, a culture in which all our associates are respected and valued is critical.
The Pro-Trade® line of products is sold exclusively through our branches and website, and has expanded to include landscape lighting products, irrigation products, long handle tools, wire connectors, landscape staples, glues and solvents, and a centrifugal pump. During 2021, we introduced 20 new products and plan to continue expanding our Pro-Trade® offering in 2022.
The Pro-Trade ® line of products is sold exclusively through our branches and website, and has expanded to include irrigation products (swing pipe and drip), long handle tools, PVC cutters, snow shovels, safety gloves, a wheelbarrow, wire connectors, landscape staples, glues and solvents, and a centrifugal pump.
As of January 2, 2022, over 2,250 associates have received quarantine pay and approximately 7,400 hours of paid time off have been donated to provide support for 121 associates that have utilized the program.
Since the start of the COVID-19 pandemic, over 3,350 associates have received quarantine pay and approximately 7,400 hours of PTO have been donated to provide support for approximately 125 associates that have utilized the program as of January 1, 2023.
We intend to maintain these trademark registrations and the other trademarks associated with our business so long as they remain valuable to our business.
Generally, trademark rights have a perpetual life, provided they are renewed on a timely basis and continue to be used properly as trademarks. We intend to maintain these trademark registrations and the other trademarks associated with our business so long as they remain valuable to our business.
Targeted skill development training is designed around an associate’s development and career interests. We offer certification programs that include instructor-led training, online learning, in-field work, and exit exams. We also facilitate leadership training to develop an understanding of leadership style, our values, and key coaching techniques.
We offer certification programs that include instructor-led training, online learning, in-field work, and exit exams. We also facilitate leadership training to develop an understanding of leadership style, our values, and key coaching techniques. Engagemen t We administer associate engagement surveys to determine how we are doing in our mission to be the employer of choice in the green industry.
The principal competitive factors in our business include, but are not limited to, location, availability of materials and supplies, technical product knowledge and expertise, advisory or other service capabilities, delivery capabilities, pricing of products, and availability of credit. Human Capital Management As of January 2, 2022, we employed approximately 5,700 associates, none of whom were affiliated with labor unions.
The principal competitive factors in our business include, but are not limited to, location, availability of materials and supplies, technical product knowledge and expertise, advisory or other service capabilities, delivery capabilities, pricing of products, and availability of credit. 10 Table of Contents Human Capital Management At SiteOne, we believe our associates are our greatest asset and the safety, health, and wellness of our associates and their families is a top priority.
Our Safety Champions are high potential, well-respected associates who help demonstrate and influence our culture of safety.
Our Safety Champions are high potential, well-respected associates who help demonstrate and influence our culture of safety. Our goal is a robust culture of safety with all associates committed to working safely, every task, every day, 100% of the time.
The parental leave benefit provides time away from work within the first year of the birth or adoption of a child with 100% of base pay. Training and Development We believe that the training provided through our development programs and our entrepreneurial, performance-based culture provide significant benefits to our associates.
We also offer a paid parental leave benefit for our full-time associates to help parents during the early days of parenthood. The parental leave benefit provides time away from work within the first year of the birth or adoption of a child with 100% of base pay.
Our associate count currently includes approximately 450 seasonal associates, who are temporarily employed due to the weather-dependent nature of our business. An associate is anyone employed by the Company. At SiteOne, we believe our associates are our greatest asset and the safety, health, and wellness of our associates and their families is a top priority.
Our associate count currently includes approximately 430 seasonal associates, who are temporarily employed due to the weather-dependent nature of our business. An associate is anyone employed by the Company. COVID-19 Response During the ongoing recovery from the COVID-19 pandemic, our primary objective is to ensure the safety of our associates, customers, and suppliers.
Our direct distribution business provides customers with sourcing and logistics support services for inventory management and delivery, and in many cases, these services are more economical than the producers might otherwise provide. We believe that producers view us not as competitors, but as providers of a valuable service, brokering these large orders through the use of our network.
We believe that producers view us not as competitors, but as providers of a valuable service, brokering these large orders through the use of our network.
The support that we offer to our associates is an important part of our vision to be a great place to work and the employer of choice in the Green Industry. COVID-19 Response Our primary objective during this uncertain period is to ensure the safety of our associates and customers.
The support we offer to our associates is an important part of our vision to be a great place to work and the employer of choice in the green industry. As of January 1, 2023, we employed approximately 7,000 associates, none of whom were affiliated with labor unions.
We monitor associate satisfaction and aim to strengthen our pipeline of top talent by conducting talent reviews and succession planning for all critical roles in the organization. We identify, communicate, and utilize career development paths for key roles. This includes not only a path up for associates, but exposure to parallel roles across the organization.
We review the survey results with all of our associates and seek their involvement in developing and executing action plans to continue our workplace improvements. We monitor associate satisfaction and aim to strengthen our pipeline of top talent by conducting talent reviews and succession planning for all critical roles in the organization.
We also adjusted our PTO carry-over rule for 2021 to allow associates to carry over additional hours into 2022. In 2020, we added a paid parental leave benefit for our full-time associates to help new parents during the early days of parenthood.
In addition, given the difficulties our associates have experienced during the COVID-19 pandemic, we adjusted our PTO carry-over rule for the 2021 Fiscal Year and the 2022 Fiscal Year to allow associates to carry over additional hours into the following year.
Service Marks, Trademarks and Trade Names We hold various trademark registrations, including SiteOne ® , LESCO ® , SiteOne Green Tech ® , and Pro-Trade ® , which we consider important to our marketing activities. Generally, trademark rights have a perpetual life, provided they are renewed on a timely basis and continue to be used properly as trademarks.
This includes not only an upward path for associates, but exposure to parallel roles across the organization. 12 Table of Contents Service Marks, Trademarks and Trade Names We hold various trademark registrations, including SiteOne ® , LESCO ® , SiteOne Green Tech ® , and Pro-Trade ® , which we consider important to our marketing activities.
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We intend to continue to increase our size and scale in customer, geographic, and product reach, which we believe will continue to benefit our supplier base.
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Within the wholesale landscape supply industry, products sold for residential applications represent the largest construction sector, followed by the commercial, and recreational and other sectors.
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We are one of the only wholesale distributors which carries the full line of irrigation, fertilizer and other, control products, hardscapes, landscape accessories, nursery goods, and outdoor lighting products.
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Grow at the Local Level The vast majority of our customers operate at a local level.
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SiteOne has also implemented the measures listed below to mitigate the risk of exposure at our branches and field support offices: • Requiring associates who are not fully vaccinated to wear face coverings inside branches, warehouses, offices, vehicles, and outside in branch yards; • Asking customers to follow all state and local face covering legal requirements while in branches and offices; • Reducing non-essential travel for associates and canceling certain events and company gatherings to help limit exposure; • Asking associates not to travel to any high-risk areas identified by the CDC; • Sanitizing and disinfecting checkout areas, equipment, restrooms, and other shared areas on a regular basis; and • Equipping all locations with additional cleaning and sanitizing supplies and instruction on how to properly disinfect frequently touched surfaces.
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During the 2022 Fiscal Year, we introduced 27 new products and plan to continue expanding our Pro-Trade ® offering in the 2023 Fiscal Year. Services We offer a variety of complementary, value-added services to support the sale of our products.
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Engagemen t We administer associate engagement surveys to determine how we are doing in our mission to be the employer of choice in the Green Industry. We review the survey results with all of our associates and seek their involvement in developing and executing action plans to continue our workplace improvements.
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We believe regional or local competitors comprise approximately 84% of the landscape supply industry based on 2022 Net sales.
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Changes in, or new interpretations of, existing laws, regulations or enforcement policies, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including obligations with respect to any potential health hazards of our products, may lead to additional compliance or other costs.
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In March 2021, we made a second special “thank you” payment to front-line branch associates to reward their ongoing work during the pandemic and this second payment totaled $0.4 million.
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For the past five years, female associates of SiteOne have mentored 75 students across the country, leading to hiring Sigma Alpha sisters in both our internship and entry level roles in both field operations and field support. • Other diversity & inclusion partnerships and initiatives, including Minorities in Agriculture, Natural Resources, and Related Sciences (“MANRRS”) sponsorship, high school recruiting programs, particularly with JR MANRRS, Historically Black Colleges and Universities and Hispanic Serving Institutions recruiting strategies, and veteran programs like Hiring Our Heroes, which has resulted in 100% of conversion from fellowships to full-time hires.
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In the 2022 Fiscal Year, we announced the launch of SiteOne CARES, a grant assistance program designed to help our associates cope with unexpected financial challenges arising from personal hardships.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

80 edited+22 added−18 removed173 unchanged
Biggest changeRisk Factor Summary The following is a summary of the principal risks that could adversely affect our business, operations, and financial results: Risks Related to Our Business and Our Industry • Cyclicality in our business could result in lower Net sales and reduced cash flows and profitability. • Our business is affected by general business, financial market, and economic conditions. • Seasonality affects the demand for our products and services and our results of operations and cash flows. • Our operations are substantially dependent on weather conditions. • The prices and costs of the products we purchase may be subject to large and significant price fluctuations. • Inflation and increases in operating costs could adversely impact our business. • Public health emergencies such as the COVID-19 pandemic have adversely affected, and could in the future, adversely affect our business and the business of our customers and suppliers. • Public perceptions that the products we use and the services we deliver are not environmentally friendly or safe or that our practices are not sustainable may result in significant costs and adversely impact the demand for our products or services. • Increased competitive pressures could reduce our market share. • We may face supply chain delays or interruptions, product shortages or the loss of key suppliers or fail to develop relationships with qualified suppliers. • We are subject to inventory management risks. • We may not successfully implement our business strategies, including achieving our growth objectives. • We may be unable to successfully acquire and integrate other businesses or increased competition for those businesses may result in less favorable acquisition terms. • We face risks associated with our labor force and our customers’ labor force. • We may not be able to attract or retain key executives. • We are exposed to construction defect and product liability claims as well as other legal proceedings. • An impairment of goodwill and/or other intangible assets could reduce Net income. • We may face adverse credit and financial market events and conditions. • We may fail to collect monies owed by our credit sale customers. • The operating results of individual branches may vary. • Compliance with, or liabilities under, environmental, health and safety laws and regulations, including laws and regulations pertaining to the use and application of fertilizers, herbicides, insecticides, and fungicides, could result in significant costs. • Our business exposes us to risks associated with hazardous materials and related activities, not all of which are covered by insurance. • Laws and government regulations applicable to our business could increase our legal and regulatory expenses, and impact our business. • We could experience operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings or suffer damage to our reputation in the event of a cybersecurity incident. • A large-scale malfunction or failure in our information technology systems could disrupt our business, create potential liabilities for us, or limit our ability to effectively monitor, operate, and control our operations. • We may fail to protect the security of personal information about our customers. • We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business. • We may be subject to unanticipated changes in our tax provisions. • We may face acts or threats of terrorism, public health emergencies, violence, or unfavorable or uncertain political conditions. 14 Table of Contents Risks Related to Our Indebtedness • We have outstanding indebtedness and may incur substantial additional indebtedness, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business, or satisfy our obligations. • Increases in interest rates. • The agreements and instruments governing our indebtedness contain restrictions and limitations that could significantly impact our ability to operate our business. • Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
Biggest changeRisk Factor Summary The following is a summary of the principal risks that could adversely affect our business, operations, and financial results: Risks Related to Our Business and Our Industry • Cyclicality in our business could result in lower Net sales and reduced cash flows and profitability. • Our business is affected by general business, financial market, and economic conditions. • Seasonality affects the demand for our products and services and our results of operations and cash flows. • Our operations are substantially dependent on weather and climate conditions. • The prices and costs of the products we purchase may be subject to large and significant price fluctuations. • Market variables and other events outside of our control could cause our Cost of goods sold and operating costs to grow more rapidly than Net sales. • Inflation and increases in operating costs could adversely impact our business. • The COVID-19 pandemic or other public health emergencies have, and may in the future, adversely affect our business and the business of our customers and suppliers. • Public perceptions that the products we use and the services we deliver are not environmentally friendly or safe or that our practices are not sustainable may result in significant costs and adversely impact the demand for our products or services. • Increased competitive pressures could reduce our market share. • We may face supply chain delays or interruptions, product shortages, or the loss of key suppliers or fail to develop relationships with qualified suppliers. • We are subject to inventory management risks. • We may not successfully implement our business strategies, including achieving our growth objectives. • We may be unable to successfully acquire and integrate other businesses or increased competition for those businesses may result in less favorable acquisition terms. • We face risks associated with our labor force and our customers’ labor force. • We may not be able to attract or retain key executives. • We are exposed to construction defect and product liability claims as well as other legal proceedings. • An impairment of goodwill and/or other intangible assets could reduce Net income. • We may face adverse credit and financial market events and conditions. • We may be inefficient or ineffective in capital allocation. • We may fail to collect monies owed by our credit sale customers. • The operating results of individual branches may vary. • Compliance with, or liabilities under, environmental, health and safety laws and regulations, including laws and regulations pertaining to the use and application of fertilizers, herbicides, insecticides, and fungicides, could result in significant costs. • Our business exposes us to risks associated with hazardous materials and related activities, not all of which are covered by insurance. • Laws and government regulations applicable to our business could increase our legal and regulatory expenses, and impact our business. • We could experience operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings or suffer damage to our reputation in the event of a cybersecurity incident. • A large-scale malfunction or failure in our information technology systems could disrupt our business, create potential liabilities for us, or limit our ability to effectively monitor, operate, and control our operations. • We may fail to protect the security of personal information about our customers. • We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business. 15 Table of Contents • We may be subject to unanticipated changes in our tax provisions. • We may face acts or threats of terrorism, public health emergencies, violence, or unfavorable or uncertain political conditions.
At any given time, we may be evaluating or in discussions with one or more acquisition targets, including entering into non-binding letters of intent. Future acquisitions may result in the incurrence of debt and contingent liabilities, legal liabilities, goodwill impairments, increased interest expense, and amortization expense, and significant integration costs.
At any given time, we may be evaluating or in discussions with one or more acquisition targets, including entering into non-binding letters of intent. Future acquisitions may result in the incurrence of debt and contingent liabilities, legal liabilities, goodwill impairments, increased interest and amortization expense, and significant integration costs.
Acquisitions involve a number of special risks, including: • our inability to manage acquired businesses or control integration costs and other costs relating to acquisitions; • potential adverse short-term effects on operating results from increased costs or otherwise; • diversion of management’s attention; • failure to retain existing customers or key personnel of the acquired business and recruit qualified new associates at the location; • failure to successfully implement infrastructure, logistics, and systems integration which could, among other things, increase the risk of a cybersecurity incident; • potential impairment of goodwill; • our inability to obtain financing necessary to complete acquisitions on attractive terms or at all; • risks associated with the internal controls of acquired companies; • exposure to legal claims for activities of the acquired business prior to acquisition and inability to realize on any indemnification claims, including with respect to environmental and immigration claims; and • the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabilities.
Acquisitions involve a number of special risks, including: • our inability to manage acquired businesses or control integration costs and other costs relating to acquisitions; • potential adverse short-term effects on operating results from increased costs or otherwise; • diversion of management’s attention; • failure to retain existing customers or key personnel of the acquired business and recruit qualified new associates at the location; • failure to successfully implement infrastructure, logistics, and systems integrations which could, among other things, increase the risk of a cybersecurity incident; • potential impairment of goodwill; • our inability to obtain financing necessary to complete acquisitions on attractive terms or at all; • risks associated with the internal controls of acquired companies; • exposure to legal claims for activities of the acquired business prior to acquisition and inability to realize on any indemnification claims, including with respect to environmental and immigration claims; and • the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabilities.
The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our financial condition, operating results, and cash flows, as well as our ability to benefit from ongoing supply chain initiatives. 19 Table of Contents Our ability to continue to identify and develop relationships with qualified suppliers who can comply with our Supplier Code of Conduct and satisfy our high standards for quality and our need to be supplied with products in a timely and efficient manner is a significant challenge.
The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our financial condition, operating results, and cash flows, as well as our ability to benefit from ongoing supply chain initiatives. 20 Table of Contents Our ability to continue to identify and develop relationships with qualified suppliers who can comply with our Supplier Code of Conduct and satisfy our high standards for quality and our need to be supplied with products in a timely and efficient manner is a significant challenge.
To the extent such costs increase as a result of inflation or otherwise, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, and the rates we pay to our suppliers may increase, any of which could have a material adverse impact on our business, financial position, results of operations, and cash flows Public health emergencies such as the COVID-19 pandemic have adversely affected, and could in the future, adversely affect our business and the business of our customers and suppliers.
To the extent such costs increase as a result of inflation or otherwise, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, and the rates we pay to our suppliers may increase, any of which could have a material adverse impact on our business, financial position, results of operations, and cash flows The COVID-19 pandemic or other public health emergencies have, and may in the future, adversely affect our business and the business of our customers and suppliers.
The final maturity date of the term loans is March 23, 2028. We may be unable to refinance any of our indebtedness or obtain additional financing, particularly because of our high levels of indebtedness.
The final maturity date of the New Term Loans is March 23, 2028. We may be unable to refinance any of our indebtedness or obtain additional financing, particularly because of our high levels of indebtedness.
Increases in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability. Our indebtedness under the Credit Facilities bears interest at variable rates, and as a result, increases in interest rates could increase the cost of servicing our indebtedness and could materially reduce our profitability and cash flows.
Our indebtedness under the Credit Facilities bears interest at variable rates, and as a result, increases in interest rates could increase the cost of servicing our indebtedness and could materially reduce our profitability and cash flows.
There can be no guarantee that the release of any of this information will not have a material adverse effect on our business, reputation, financial condition, and results of operations. In addition, the July 2020 ransomware attack could result in potential claims from customers, associates, shareholders, or regulatory agencies, which could result in significant judgements against us, penalties, and fines.
There can be no guarantee that the release of any of this information will not have a material adverse effect on our business, reputation, financial condition, and results of operations. In addition, the July 2020 ransomware attack could result in potential claims from customers, associates, stockholders, or regulatory agencies, which could result in significant judgements against us, penalties, and fines.
Further implementation of these actions could materially adversely affect our ability to adequately staff, manage, and maintain our operations, impair our ability to sustain sufficient financial liquidity, and impact our financial results.
Implementation of these actions could materially adversely affect our ability to adequately staff, manage, and maintain our operations, impair our ability to sustain sufficient financial liquidity, and impact our financial results.
In addition, our business and operating results could be impacted to a greater degree than we previously experienced to the extent that unfavorable weather conditions are exacerbated by global climate change or otherwise. 16 Table of Contents The prices and costs of the products we purchase may be subject to large and significant price fluctuations.
In addition, our business and operating results could be impacted to a greater degree than we previously experienced to the extent that unfavorable weather conditions are exacerbated by global climate change or otherwise. 17 Table of Contents The prices and costs of the products we purchase may be subject to large and significant price fluctuations.
As a result, we may suffer from reputational damage and our business or financial condition could be adversely affected. 18 Table of Contents Our industry and the markets in which we operate are highly competitive and fragmented, and increased competitive pressures could reduce our share of the markets we serve and adversely affect our business, financial position, results of operations, and cash flows.
As a result, we may suffer from reputational damage and our business or financial condition could be adversely affected. 19 Table of Contents Our industry and the markets in which we operate are highly competitive and fragmented, and increased competitive pressures could reduce our share of the markets we serve and adversely affect our business, financial position, results of operations, and cash flows.
Our success also depends on our ability to continue to attract, manage, and retain other qualified management personnel as we grow. We may not be able to continue to attract or retain such personnel in the future. The nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings.
Our success also depends on our ability to continue to identify, attract, manage, motivate, and retain other qualified management personnel as we grow. We may not be able to continue to attract or retain such personnel in the future. The nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings.
If any such strikes or other work stoppages occur, or if other associates become represented by a union, we could experience a disruption of our operations and higher labor costs. 21 Table of Contents In addition, certain of our suppliers have unionized work forces and certain of our products are transported by unionized truckers.
If any such strikes or other work stoppages occur, or if other associates become represented by a union, we could experience a disruption of our operations and higher labor costs. 22 Table of Contents In addition, certain of our suppliers have unionized work forces and certain of our products are transported by unionized truckers.
In addition, changes in, or new interpretations of, existing laws, regulations, or enforcement policies as a result of the new Biden administration or otherwise, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including obligations with respect to any potential health hazards of our products, may lead to additional compliance or other costs that could have a material adverse effect on our business, financial position, results of operations, and cash flows.
In addition, changes in, or new interpretations of, existing laws, regulations, or enforcement policies as a result of the current presidential administration or otherwise, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including obligations with respect to any potential health hazards of our products, may lead to additional compliance or other costs that could have a material adverse effect on our business, financial position, results of operations, and cash flows.
In particular, our financial performance is adversely affected by increases in these operating costs. Given the inflation rates in the 2021 Fiscal Year, we experienced rising product and logistics costs as well as increased commodity costs. Most of our facilities are located in leased premises.
In particular, our financial performance is adversely affected by increases in these operating costs. Given the inflation rates in the 2021 Fiscal Year and the 2022 Fiscal Year, we also experienced rising product and logistics costs as well as increased commodity costs. Most of our facilities are located in leased premises.
Because of our current indebtedness: • our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing is limited; • our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes, and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future; • a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes; • although we enter into interest rate hedging transactions periodically, we are exposed to the risk of increased interest rates because borrowings under the Credit Facilities and certain floating rate operating and finance leases are at variable rates of interest; • it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness; • we may be more vulnerable to general adverse economic and industry conditions; • we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns; • our ability to refinance indebtedness may be limited or the associated costs may increase; 27 Table of Contents • our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and • we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve operating margins of our businesses.
Because of our current indebtedness: • our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing is limited; • our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements, or general corporate purposes, and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future; • a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes; • although we enter into interest rate hedging transactions periodically, we are exposed to the risk of increased interest rates because borrowings under the Credit Facilities and certain floating rate operating and finance leases are at variable rates of interest; • it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness; • we may be more vulnerable to general adverse economic and industry conditions; • we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns; • our ability to refinance indebtedness may be limited or the associated costs may increase; • our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and • we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve operating margins of our businesses. 29 Table of Contents Increases in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability.
Also, our business strategies may change from time to time in light of our ability to implement our business initiatives, competitive pressures, economic uncertainties or developments, or other factors. 20 Table of Contents We may be unable to successfully acquire and integrate other businesses.
Also, our business strategies may change from time to time in light of our ability to implement our business initiatives, competitive pressures, economic uncertainties or developments, or other factors. 21 Table of Contents We may be unable to successfully acquire and integrate other businesses.
Housing starts are dependent upon a number of factors, including housing demand, housing inventory levels, housing affordability, foreclosure rates, demographic changes, the availability of land, local zoning and permitting processes, the availability of construction financing, and the health of the economy and mortgage markets.
Housing starts are dependent upon a number of factors, including housing demand, housing inventory levels, housing affordability and mortgage rates, foreclosure rates, demographic changes, the availability of land, local zoning and permitting processes, the availability of construction financing, and the overall health of the economy.
However, if a larger number of our associates were to unionize, including in the wake of any future legislation that makes it easier for associates to unionize, our business could be negatively affected. Any inability by us to negotiate collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs.
However, if a larger number of our associates were to unionize, including as a result of any future legislation that makes it easier for associates to unionize, our business could be negatively affected. Any inability by us to negotiate collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs.
The majority of our Net sales in our 2021 Fiscal Year were derived from the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the areas where they operate.
The majority of our Net sales in our 2022 Fiscal Year were derived from the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the areas where they operate.
Additionally, defending against lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources from other matters regardless of the ultimate outcome. An impairment of goodwill and/or other intangible assets could reduce Net income. Acquisitions frequently result in the recording of goodwill and other intangible assets.
Additionally, defending against lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources from other matters regardless of the ultimate outcome. 23 Table of Contents An impairment of goodwill and/or other intangible assets could reduce Net income. Acquisitions frequently result in the recording of goodwill and other intangible assets.
For example, in Fiscal 2021, our supply chains have been and may continue to be negatively impacted by the COVID-19 pandemic, especially with respect to freight and labor availability. When shortages occur, our suppliers often allocate products among distributors.
For example, in the 2022 Fiscal Year, our supply chains have been and may continue to be negatively impacted by the COVID-19 pandemic, especially with respect to freight and labor availability. When shortages occur, our suppliers often allocate products among distributors.
Restrictive immigration policy and increases in our customers’ personnel costs or the inability of our customers to hire sufficient personnel, which may be amplified in tight labor market conditions, could adversely impact our business, financial position, results of operations, and cash flows. We depend on a limited number of key personnel.
Restrictive immigration policies, trends in labor migration, and increases in our customers’ personnel costs or the inability of our customers to hire sufficient personnel, which may be amplified in tight labor market conditions, could adversely impact our business, financial position, results of operations, and cash flows. We depend on a limited number of key personnel.
The stock market in general and our common stock in particular have recently experienced significant volatility and the market price of our common stock may continue to fluctuate significantly.
The market price of our common stock may be volatile. The stock market in general and our common stock in particular have recently experienced significant volatility and the market price of our common stock may continue to fluctuate significantly.
Our suppliers’ ability to provide us with products can also be adversely affected in the event they become financially unstable, fail to comply with applicable laws, encounter supply disruptions, shipping interruptions, trade restrictions, tariffs or increased costs, or face other factors beyond our control, including, for example, as a result of the COVID-19 pandemic.
Our suppliers’ ability to provide us with products can also be adversely affected in the event they become financially unstable, fail to comply with applicable laws, encounter supply disruptions, shipping interruptions, trade restrictions, tariffs or increased costs, or face other factors beyond our control, including, for example, as a result of the conflict between Russia and Ukraine or the COVID-19 pandemic.
Among the factors that could affect our stock price are: • industry or general market conditions, including as a result of the ongoing pandemic; • domestic and international economic and political factors unrelated to our performance; • changes in our customers’ or their end-users’ preferences; • new regulatory pronouncements and changes in regulatory guidelines; • lawsuits, enforcement actions, and other claims by third parties or governmental authorities; • actual or anticipated fluctuations in our quarterly operating results; • changes in securities analysts’ estimates of our financial performance; • action by institutional stockholders or other large stockholders, including future sales; • comments by public figures or other third parties, including blogs, articles, message boards, and social and other media; • failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices; • announcements by us of significant impairment charges; • speculation in the press or investment community; • investor perception of us and our industry; • changes in market valuations or earnings of similar companies; • announcements by us or our competitors of significant contracts, acquisitions, dispositions, or strategic partnerships; • novel and unforeseen trading strategies adopted by retail investors or other market participants; • war, civil unrest, terrorist acts, and epidemic disease; • any future sales of our common stock or other securities; and • additions or departures of key personnel.
Among the factors that could affect our stock price are: • industry or general market conditions; • domestic and international economic and political factors unrelated to our performance; • changes in our customers’ or their end-users’ preferences; • new regulatory pronouncements and changes in regulatory guidelines; • lawsuits, enforcement actions, and other claims by third parties or governmental authorities; 31 Table of Contents • actual or anticipated fluctuations in our quarterly operating results; • changes in securities analysts’ estimates of our financial performance; • action by institutional stockholders or other large stockholders, including future sales; • comments by public figures or other third parties, including blogs, articles, message boards, and social and other media; • failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices; • announcements by us of significant impairment charges; • speculation in the press or investment community; • investor perception of us and our industry; • changes in market valuations or earnings of similar companies; • announcements by us or our competitors of significant contracts, acquisitions, dispositions, or strategic partnerships; • novel and unforeseen trading strategies adopted by retail investors or other market participants; • war, civil unrest, terrorist acts, and epidemic disease, including the ongoing conflict between Russia and Ukraine; • any future repurchases or sales of our common stock or other securities; and • additions or departures of key personnel.
Payments of dividends, if any, will be at the sole discretion of our board of directors after taking into account various factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, and implications of the payment of dividends by us to our stockholders or by our subsidiaries (including Landscape) to us, and such other factors as our board of directors may deem relevant.
Payments of dividends, if any, will be at the sole discretion of our Board of Directors after taking into account various factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, our ability and plans to fund future share repurchases, contractual, legal, tax, and regulatory restrictions, and implications of the payment of dividends by us to our stockholders or by our subsidiaries (including Landscape) to us, and such other factors as our Board of Directors may deem relevant.
Our business has been negatively impacted, and could also be negatively impacted over the medium-to-longer term if the ongoing disruptions related to COVID-19 and the spread of variant strains of COVID-19, among other things: limit the ability of our suppliers to manufacture, or procure from manufacturers, the products we sell, or to meet delivery requirements and commitments; limit the ability of our employees to perform their work due to impacts caused by the pandemic or local, state, or federal orders that restrict our operations or the operations of our customers; limit the ability of carriers to deliver our products to our branches and customers; limit the ability of our customers to conduct their business and purchase our products and services; decrease demand for our customers’ services; limit the ability of our customers to pay us on a timely basis; precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our products; impair our ability to operate in a typical manner or at all, generate revenues and cash flows, and/or access the capital or lending markets (or significantly increase the costs of doing so), as may be necessary to sustain our business.
The COVID-19 pandemic, as well as future public health emergencies, could also negatively impact our business over the medium-to-longer term if disruptions related to COVID-19 or future public health emergencies, among other things: limit the ability of our suppliers to manufacture, or procure from manufacturers, the products we sell, or to meet delivery requirements and commitments; limit the ability of our employees to perform their work due to impacts caused by the pandemic or local, state, or federal orders that restrict our operations or the operations of our customers; limit the ability of carriers to deliver our products to our branches and customers; limit the ability of our customers to conduct their business and purchase our products and services; decrease demand for our customers’ services; limit the ability of our customers to pay us on a timely basis; precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our products; impair our ability to operate in a typical manner or at all, generate revenues and cash flows, and/or access the capital or lending markets (or significantly increase the costs of doing so), as may be necessary to sustain our business.
We cannot predict the outcome or the severity of the effect of the EPA’s continuing evaluations. In addition, the use of certain herbicide and pesticide products is regulated by various federal, state, provincial, and local environmental and public health agencies. We may be unable to prevent violations of these or other regulations from occurring.
We cannot predict the outcome or the severity of the effect of the EPA’s continuing evaluations. 25 Table of Contents The use of certain herbicide and pesticide products is also regulated by various federal, state, provincial, and local environmental and public health agencies. We may be unable to prevent violations of these or other regulations from occurring.
Our business, financial condition, results of operations, and cash flows could be adversely affected if any of the foregoing factors were to occur. Risks associated with our labor force and our customer’s labor force could have a significant adverse effect on our business. We have an employee base of approximately 5,700 associates.
Our business, financial condition, results of operations, and cash flows could be adversely affected if any of the foregoing factors were to occur. Risks associated with our labor force and our customers’ labor force could have a significant adverse effect on our business. We have an employee base of approximately 7,000 associates.
In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our indebtedness, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. The final maturity date of the ABL Facility is February 1, 2024.
In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our indebtedness, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. The final maturity date of the ABL Facility is July 22, 2027.
Such laws also impose liability for investigating and remediating, and damages resulting from, present and past releases of hazardous substances, including releases at sites we have ever owned, leased or operated or used as a disposal site.
Such laws also impose liability for investigation and remediation failures, and damages resulting from, present and past releases of hazardous substances, including releases at sites we have ever owned, leased or operated, or used as a disposal site.
As of January 2, 2022, goodwill represented approximately 15% of our total assets. Goodwill is currently not amortized for financial reporting purposes and is subject to impairment testing at least annually using a fair-value based approach. The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units.
As of January 1, 2023, goodwill represented approximately 16% of our total assets. Goodwill is currently not amortized for financial reporting purposes and is subject to impairment testing at least annually using a fair-value based approach. The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units.
For example, our amended and restated certificate of incorporation and amended and restated by-laws collectively: • authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt; • provide for a classified board of directors, which divides our board of directors into three classes, with members of each class serving staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting; • limit the ability of stockholders to remove directors; • provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office; • prohibit stockholders from calling special meetings of stockholders; • prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders; and • establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders. 30 Table of Contents These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context.
For example, our amended and restated certificate of incorporation and amended and restated by-laws collectively: • authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt; • provide for a classified board of directors, which divides our Board of Directors into three classes, with members of each class serving staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting; • limit the ability of stockholders to remove directors; • provide that vacancies on our Board of Directors, including vacancies resulting from an enlargement of our Board of Directors, may be filled only by a majority vote of directors then in office; • prohibit stockholders from calling special meetings of stockholders; • prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders; and • establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders.
SiteOne Landscape Supply Holding, LLC (“Landscape Holding”) and SiteOne Landscape Supply, LLC (“Landscape”) are parties to a credit agreement dated December 23, 2013, which has been amended pursuant to the First Amendment dated June 13, 2014, the Second Amendment dated January 26, 2015, the Third Amendment dated February 13, 2015, the Fourth Amendment dated October 20, 2015, the Omnibus Amendment dated May 24, 2017, and the Sixth Amendment dated February 1, 2019 (such agreement, as so amended, the “ABL Credit Agreement”), providing for an asset-based loan facility in the amount of up to $375.0 million, subject to availability under a borrowing base, with UBS AG, Stamford Branch, as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto (the “ABL Facility”).
SiteOne Landscape Supply Holding, LLC (“Landscape Holding”) and SiteOne Landscape Supply, LLC (“Landscape”) are parties to a credit agreement dated December 23, 2013, which has been amended pursuant to the First Amendment dated June 13, 2014, the Second Amendment dated January 26, 2015, the Third Amendment dated February 13, 2015, the Fourth Amendment dated October 20, 2015, the Omnibus Amendment dated May 24, 2017, the Sixth Amendment dated February 1, 2019, and the Seventh Amendment dated July 22, 2022 (such agreement, as so amended, the “ABL Credit Agreement”), providing for an asset-based loan facility in the amount of up to $600.0 million, subject to availability under a borrowing base, with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto (the “ABL Facility”).
We sell a significant portion of our products for landscaping activities associated with new residential and commercial construction sectors, which have experienced cyclical downturns in the past, some of which have been severe.
We sell a significant portion of our products for landscaping activities associated with new residential and commercial construction sectors, which have experienced cyclical downturns in the past and may experience cyclical downturns in the future, some of which have been, or could in the future be, severe.
Acts or threats of terrorism, public health emergencies, violence, or unfavorable or uncertain political conditions could harm our business. Acts of terrorism or war, public health emergencies, political or civil unrest and uncertainty, pandemics, and other catastrophes may disrupt commerce and undermine consumer confidence, which could negatively affect our sales by causing consumer spending to decline.
Acts of terrorism or war, public health emergencies, political or civil unrest and uncertainty, pandemics, and other catastrophes may disrupt commerce and undermine consumer confidence, which could negatively affect our sales by causing consumer spending to decline.
Our business is subject to significant federal, state, provincial, and local laws and regulations. These laws and regulations include laws relating to consumer protection, wage and hour requirements, the employment of immigrants, labor relations, permitting and licensing, building code requirements, workers’ safety, the environment, employee benefits, marketing and advertising, and the application and use of herbicides, pesticides, and other chemicals.
These laws and regulations include laws relating to consumer protection, wage and hour requirements, the employment of immigrants, labor relations, permitting and licensing, building code requirements, workers’ safety, the environment, employee benefits, marketing and advertising, and the application and use of herbicides, pesticides, and other chemicals.
The ongoing effects of the COVID-19 pandemic, including the emergence of future variants, may cause the disruption or closure of our customers’ and/or suppliers’ facilities and supply chains, which could materially and adversely impact demand for our products, our ability to obtain or deliver inventory and our ability to collect accounts receivable as customers and suppliers face higher liquidity and solvency risks.
Additionally, the emergence of future variants or other public health emergencies may cause the disruption or closure of our customers’ and/or suppliers’ facilities and supply chains, which could materially and adversely impact demand for our products, our ability to obtain or deliver inventory, and our ability to collect accounts receivable as customers and suppliers face higher liquidity and solvency risks.
We may not be able to fully implement our business strategies or realize, in whole or in part within the expected time frames, the anticipated benefits of our various growth, or other initiatives.
We may not be able to fully implement our business strategies or realize, in whole or in part within the expected time frames, the anticipated benefits of our various growth, or other initiatives, such as our transportation and customer relationship management systems.
Furthermore, our increased use of mobile and cloud technologies, including as a result of the shift to work-from-home arrangements as a result of the COVID-19 pandemic, has heighted these cybersecurity and privacy risks, including risks from cyber-attacks such as phishing, spam emails, hacking, social engineering, and malicious software.
Furthermore, our increased use of mobile and cloud technologies, including as a result of changes in working environments such as work-from-home arrangements, has heighted these cybersecurity and privacy risks, including risks from cyber-attacks such as phishing, spam emails, hacking, social engineering, and malicious software.
In addition, if we were to fail to comply with any applicable law or regulation, we could be subject to substantial fines or damages, be involved in litigation, suffer losses to our reputation, or suffer the loss of licenses or incur penalties that may affect how our business is operated, which, in turn, could have a material adverse impact on our business, financial position, results of operations, and cash flows.
In addition, if we were to fail to comply with any applicable law or regulation, we could be subject to substantial fines or damages, be involved in litigation, suffer losses to our reputation, or suffer the loss of licenses, or incur penalties that may affect how our business is operated, which, in turn, could have a material adverse impact on our business, financial position, results of operations, and cash flows. 26 Table of Contents In the event of a cybersecurity incident, we could experience operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings, or suffer damage to our reputation.
Seasonality affects the demand for our products and services and our results of operations and cash flows. The demand for our products and services and our results of operations are affected by the seasonal nature of our irrigation, outdoor lighting, nursery, landscape accessories, fertilizers, turf protection products, grass seed, turf care equipment, and golf course maintenance supplies.
The demand for our products and services and our results of operations are affected by the seasonal nature of our irrigation, outdoor lighting, nursery, landscape accessories, fertilizers, turf protection products, grass seed, turf care equipment, and golf course maintenance supplies. Such seasonality causes our results of operations to vary considerably from quarter to quarter.
We cannot predict the duration of the current market conditions, including the impacts that COVID-19 may have or the timing or strength of any future recovery of commercial construction activity in our markets. We also rely, in part, on repair and upgrade of existing landscapes.
We cannot predict the duration of the current market conditions, including the impacts that, among others, inflation and rising interest rates may have or the timing or strength of any future recovery of commercial construction activity in our markets. 16 Table of Contents We also rely, in part, on repair and upgrade of existing landscapes.
Our ability to make scheduled payments on, or to refinance our obligations under, our indebtedness depends on the financial and operating performance of our subsidiaries, which, in turn, depends on their results of operations, cash flows, cash requirements, financial position, and general business conditions, and any legal and regulatory restrictions on the payment of dividends to which they may be subject, many of which may be beyond our control. 28 Table of Contents We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.
Our ability to make scheduled payments on, or to refinance our obligations under, our indebtedness depends on the financial and operating performance of our subsidiaries, which, in turn, depends on their results of operations, cash flows, cash requirements, financial position, and general business conditions, and any legal and regulatory restrictions on the payment of dividends to which they may be subject, many of which may be beyond our control.
Despite these efforts, our information technology systems and those of third parties with whom we do business or communicate may be damaged, disrupted, or shut down due to attacks by unauthorized access, malicious software, computer viruses, undetected intrusion, hardware failures, or other events, and in these circumstances our disaster recovery plans may be ineffective or inadequate.
Despite these efforts, and especially in light of increasingly sophisticated techniques used in cybersecurity attacks, our information technology systems and those of third parties with whom we do business or communicate may be damaged, disrupted, or shut down due to attacks by unauthorized access, malicious software, computer viruses, undetected intrusion, hardware failures, or other events, and in these circumstances where we cannot fully anticipate, detect, repel, or implement fully effective preventative measures, our disaster recovery plans may be ineffective or inadequate.
Accordingly, the potential effect of the phase-out or replacement of LIBOR cannot yet be determined and it is not possible to predict the effect of this announcement, including what alternative reference rates may replace LIBOR in use going forward, and how LIBOR will be determined for purposes of loans, securities, and derivative instruments currently referencing it if it ceases to exist.
Accordingly, the potential effect of the phase-out or replacement of LIBOR cannot yet be determined, and it is not possible to predict the effect of this transition, including the impact of utilizing alternative reference rates and how LIBOR will be determined for purposes of existing loans, securities, and derivative instruments currently referencing it when LIBOR ceases to exist.
In Fiscal 2021, supply chain disruptions, labor shortages and rising commodity and product costs have been, and may continue to be, exacerbated by the COVID-19 pandemic.
During the 2022 Fiscal Year, supply chain disruptions, labor shortages, and rising commodity and product costs were, and may continue to be, exacerbated by the COVID-19 pandemic.
As a result, certain of our branches may experience higher or lower levels of growth and profitability than other branches. 23 Table of Contents Compliance with, or liabilities under, environmental, health and safety laws and regulations, including laws and regulations pertaining to the use and application of fertilizers, herbicides, insecticides and fungicides, could result in significant costs that adversely impact our reputation, business, financial position, results of operations, and cash flows.
Compliance with, or liabilities under, environmental, health and safety laws and regulations, including laws and regulations pertaining to the use and application of fertilizers, herbicides, insecticides, and fungicides, could result in significant costs that adversely impact our reputation, business, financial position, results of operations, and cash flows.
Governments may implement limitations on water usage that make effective irrigation or turf maintenance unsustainable, which could negatively impact the demand for our products.
Such water shortages may also make irrigation or the maintenance of turf uneconomical. Governments may implement limitations on water usage, such as those enacted in California, that make effective irrigation or turf maintenance unsustainable, which could negatively impact the demand for our products.
Any impairment of goodwill or other intangible assets, as a result of market dynamics in connection with the COVID-19 pandemic or otherwise, will reduce Net income in the period in which the impairment is recognized.
Any impairment of goodwill or other intangible assets, including as a result of market dynamics beyond our control, will reduce Net income in the period in which the impairment is recognized.
We determine the fair values of our reporting units by using both a market and income approach. 22 Table of Contents We evaluate the recoverability of goodwill for impairment in between our annual tests when events or changes in circumstances including a sustained decline in our market capitalization, indicate that the carrying amount of goodwill may not be recoverable.
We evaluate the recoverability of goodwill for impairment in between our annual tests when events or changes in circumstances, including a sustained decline in our market capitalization, indicate that the carrying amount of goodwill may not be recoverable.
Our business, financial condition, and results of operations could be materially impaired by environmental, health, safety, and other risks that reduce our revenues, increase our costs, or subject us to other liabilities in excess of available insurance. 24 Table of Contents Laws and government regulations applicable to our business could increase our legal and regulatory expenses, and impact our business, financial position, results of operations, and cash flows.
Our business, financial condition, and results of operations could be materially impaired by environmental, health, safety, and other risks that reduce our revenues, increase our costs, or subject us to other liabilities in excess of available insurance.
In addition, the operating results of an individual branch may differ from that of another branch for a variety of reasons, including market size, management practices, competitive landscape, regulatory requirements, and local economic conditions.
In addition, the operating results of an individual branch may differ from that of another branch for a variety of reasons, including market size, management practices, competitive landscape, regulatory requirements, and local economic conditions. As a result, certain of our branches may experience higher or lower levels of growth and profitability than other branches.
For instance, our supply of plants could decrease, or prices could rise, due to such water shortages, and customer demand for certain types of plants may change in ways in which we are unable to predict. Such water shortages may also make irrigation or the maintenance of turf uneconomical.
In particular, droughts could cause shortages in the water supply, which may have an adverse effect on our business. For instance, our supply of plants could decrease, or prices could rise, due to such water shortages, and customer demand for certain types of plants may change in ways in which we are unable to predict.
High unemployment levels, high mortgage delinquency and foreclosure rates, lower home prices, limited availability of mortgage and home improvement financing, and significantly lower housing turnover, may restrict consumer spending, particularly on discretionary items such as landscape projects, and adversely affect consumer confidence levels and result in reduced spending on repair and upgrade activities. 15 Table of Contents Our business is affected by general business, financial market and economic conditions, which could adversely affect our financial position, results of operations, and cash flows.
High unemployment levels, high mortgage delinquency and foreclosure rates, lower home prices, limited availability of mortgage and home improvement financing, and significantly lower housing turnover, may restrict consumer spending, particularly on discretionary items such as landscape projects, and adversely affect consumer confidence levels and result in reduced spending on repair and upgrade activities.
To the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends. 29 Table of Contents The market price of our common stock may be volatile.
In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock. To the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends.
Our business and results of operations are significantly affected by general business, financial market, and economic conditions.
Our business is affected by general business, financial market and economic conditions, which could adversely affect our financial position, results of operations, and cash flows. Our business and results of operations are significantly affected by general business, financial market, and economic conditions.
Our accounting for impairment contains uncertainty because management must use its judgment in determining appropriate assumptions to be used in the measurement of fair value.
Our accounting for impairment contains uncertainty because management must use its judgment in determining appropriate assumptions to be used in the measurement of fair value. We determine the fair values of our reporting units by using both a market and income approach.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
These provisions may facilitate management entrenchment that may delay, deter, render more difficult, or prevent a change in our control, which may not be in the best interests of our stockholders. 32 Table of Contents Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
This could have serious consequences to our financial position and results of operations and could cause us to become bankrupt or insolvent. 30 Table of Contents Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
Any inability to pass cost increases on to customers may adversely affect our business, financial condition, and results of operations. In addition, if market prices for the products that we sell decline, we may realize reduced profitability levels from selling such products and lower revenues from sales of existing inventory of such products.
In addition, if market prices for the products that we sell decline, we may realize reduced profitability levels from selling such products and lower revenues from sales of existing inventory of such products.
A significant or large-scale malfunction or interruption of our systems or the systems of third-party vendors could adversely affect our ability to manage and keep our operations running efficiently and damage our reputation.
Changes or modifications to our information technology systems could cause disruptions to our operations or cause challenges with respect to our compliance with laws, regulations, or other applicable standards. 27 Table of Contents A significant or large-scale malfunction or interruption of our systems or the systems of third-party vendors could adversely affect our ability to manage and keep our operations running efficiently and damage our reputation.
Such seasonality causes our results of operations to vary considerably from quarter to quarter. Typically, our Net sales and Net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters.
Typically, our Net sales and Net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters. Our Net sales and Net income are typically significantly lower in the first and fourth quarters due to lower landscaping, irrigation, and turf maintenance activities in these quarters.
We cannot predict the extent to which we may experience future increases in costs of occupancy, fuel, vehicle maintenance, equipment, parts, wages and salaries, employee benefits, health care, self-insurance costs and other insurance premiums, as well as various regulatory compliance costs and other operating costs.
If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers, our results of operations would be adversely affected. 18 Table of Contents We cannot predict the extent to which we may experience future increases in costs of occupancy, fuel, vehicle maintenance, equipment, parts, wages and salaries, employee benefits, health care, self-insurance costs and other insurance premiums, as well as various regulatory compliance costs and other operating costs.
The majority of our Net sales are derived from credit sales, which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the geographic areas in which they operate, and the failure to collect monies owed from customers could adversely affect our working capital and financial condition.
Therefore, if we do not properly allocate our capital, including with respect to returning value to our stockholders through this share repurchase authorization, we may fail to produce optimal financial results and experience a reduction in stockholder value. 24 Table of Contents The majority of our Net sales are derived from credit sales, which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the geographic areas in which they operate, and the failure to collect monies owed from customers could adversely affect our working capital and financial condition.
Changes in prices for the products that we purchase affect our Net sales and Cost of goods sold, as well as our working capital requirements, levels of debt, and financing costs. We might not always be able to reflect increases in our costs in our own pricing, especially in times of extreme price volatility.
Our business is exposed to these fluctuations, as well as to fluctuations in our costs for transportation and distribution. Changes in prices for the products that we purchase affect our Net sales and Cost of goods sold, as well as our working capital requirements, levels of debt, and financing costs.
As of January 2, 2022, we had available borrowing capacity of $364.1 million under the ABL Facility.
As of January 1, 2023, we had available borrowing capacity of $487.4 million under the ABL Facility. The ABL Facility matures on July 22, 2027.
We carry cybersecurity insurance to help mitigate the financial exposure and related notification procedures in the event of intentional intrusion, including the July 2020 ransomware attack; however, there can be no assurance that our insurance will adequately protect against potential losses that could adversely affect our business. 25 Table of Contents We rely on our computer and data processing systems, and a large-scale malfunction or failure in our information technology systems could disrupt our business, create potential liabilities for us, or limit our ability to effectively monitor, operate, and control our operations and adversely impact our reputation, business, financial position, results of operations, and cash flows.
We rely on our computer and data processing systems, and a large-scale malfunction or failure in our information technology systems could disrupt our business, create potential liabilities for us, or limit our ability to effectively monitor, operate, and control our operations and adversely impact our reputation, business, financial position, results of operations, and cash flows.
Further, there may also be new legislation or regulatory change in response to the perceived effects of climate change, the occurrence of which may be elevated due to newly elected members to the U.S. Congress and the election and inauguration of a new U.S. President following the 2020 U.S. federal elections.
Further, there may also be new legislation or regulatory change in response to the perceived effects of climate change, the occurrence of which may be elevated due to the current presidential administration.
We supply landscape, irrigation, and turf maintenance products, the demand for each of which is affected by weather conditions, including, without limitation, potential impacts, if any, from climate change. In particular, droughts could cause shortages in the water supply, which may have an adverse effect on our business.
Accordingly, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Our operations are substantially dependent on weather and climate conditions. We supply landscape, irrigation, and turf maintenance products, the demand for each of which is affected by weather conditions, including, without limitation, potential impacts, if any, from climate change.
The cessation date for submission and publication of rates for all other tenors of USD LIBOR has been extended by the ICE Benchmark Administration until mid-2023. While this announcement extends the transition period, the United States Federal Reserve issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021.
The cessation date for submission and publication of rates for all other tenors of USD LIBOR has been extended by the ICE Benchmark Administration until mid-2023.
While the COVID-19 pandemic has not yet adversely affected overall demand for our products, we cannot predict whether this trend will continue, the impact that future developments (including the duration and severity of the outbreak and the timing and efficacy of vaccination programs) will have on consumers, or the manner in which COVID-19 will impact economic conditions and consumer preferences over the long term.
We cannot predict whether these and other adverse economic conditions will continue, the impact that future economic developments will have on consumers, or the manner in which these economic trends will impact consumer demand or preferences over the long term. Seasonality affects the demand for our products and services and our results of operations and cash flows.
Our Net sales also depend, in significant part, on commercial construction, which is cyclical in nature and subject to downturns, which can be severe.
If the residential construction sector does continue to soften, the timing and extent of any such reduction in homebuilding activity and the resulting impact on demand for landscape supplies are uncertain. Our Net sales also depend, in significant part, on commercial construction, which is cyclical in nature and subject to downturns, which can be severe.
It is not possible to predict potential changes in the tax laws or changes in their interpretation and whether they could have a material adverse impact on our operating results. We have filed our tax returns in prior years based upon certain filing positions we believe are appropriate.
The 1% excise tax on share repurchases applies to shares repurchased after December 31, 2022, subject to certain exceptions. It is not possible to predict whether the Inflation Reduction Act of 2022 or other potential changes in the tax laws or changes in their interpretation could have a material adverse impact on our operating results.
As of January 2, 2022, we had $260.2 million aggregate principal amount of total long-term consolidated indebtedness outstanding and $45.4 million of finance leases.
As of January 1, 2023, we had $356.1 million of total long-term consolidated indebtedness outstanding and $58.7 million of finance lease obligations excluding interest.
We have not entered into any hedging arrangements that protect against fuel price increases and we do not have any long-term fuel purchase contracts. If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers, our results of operations would be adversely affected.
We have not entered into any hedging arrangements that protect against fuel price increases and we do not have any long-term fuel purchase contracts.
Congress and the election and inauguration of a new U.S. President following the 2020 U.S. federal elections, and the effect and timing cannot be predicted and may be adverse to us or our business, financial position, results of operations, and cash flows.
There may also be technical corrections or superseding legislation proposed with respect to tax laws, the risk of which may be elevated due to the current presidential administration, and the effect and timing cannot be predicted and may be adverse to us or our business, financial position, results of operations, and cash flows.
Additionally, as of January 2, 2022, an increase of one percentage point in interest rates would not result in a change in the annual interest expense on the term loans primarily due to our interest rate swap agreements.
As of January 1, 2023, an increase of one percentage point in interest rates would result in an increase of approximately $1.1 million in projected interest payments for the 2023 Fiscal Year based on the amounts outstanding under the ABL Facility and the New Term Loans that were not covered by our interest rate swap contracts.
Unfavorable changes in any of these factors could adversely affect consumer spending, result in decreased demand for homes, and adversely affect our business. The timing and extent of any recovery in homebuilding activity and the resulting impact on demand for landscape supplies are uncertain.
Unfavorable changes in any of these factors could adversely affect consumer spending, result in decreased demand for homes, and adversely affect our business. Recently, we have seen early signs of softening of the residential construction sector, including as a result of home price inflation and higher mortgage rates, which we anticipate may continue in the 2023 Fiscal Year.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of January 2, 2022, we operated 596 branches in the following locations: State /Province Number of Locations State /Province Number of Locations California 74 Nevada 5 Florida 65 Oklahoma 5 Texas 41 Wisconsin 5 North Carolina 35 New Hampshire 4 Massachusetts 27 Oregon 4 New York 25 Kentucky 3 Georgia 22 Nebraska 3 Michigan 20 Utah 3 New Jersey 19 Delaware 2 Virginia 19 Iowa 2 South Carolina 17 Louisiana 2 Ohio 16 Arkansas 1 Illinois 15 Hawaii 1 Connecticut 14 Maine 1 Missouri 14 Mississippi 1 Arizona 13 New Mexico 1 Washington 13 North Dakota 1 Tennessee 11 Rhode Island 1 Maryland 10 South Dakota 1 Pennsylvania 10 Alberta 9 Colorado 9 British Columbia 7 Indiana 9 Ontario 6 Minnesota 9 Saskatchewan 3 Alabama 6 Manitoba 1 Idaho 5 Québec 1 Kansas 5 32 Table of Contents
Biggest changeAs of January 1, 2023, we operated 636 branches in the following locations: State /Province Number of Locations State /Province Number of Locations California 75 Kansas 5 Florida 67 Louisiana 5 Texas 46 Nevada 5 Virginia 38 Oklahoma 5 North Carolina 36 New Hampshire 4 Massachusetts 28 Oregon 4 New York 26 Kentucky 3 Georgia 22 Nebraska 3 Michigan 20 Utah 3 New Jersey 19 Arkansas 2 South Carolina 17 Delaware 2 Arizona 16 Iowa 2 Ohio 16 Hawaii 1 Illinois 15 Maine 1 Missouri 15 Mississippi 1 Connecticut 13 New Mexico 1 Washington 13 North Dakota 1 Maryland 11 Rhode Island 1 Tennessee 11 South Dakota 1 Pennsylvania 10 Alberta 9 Indiana 9 British Columbia 7 Minnesota 9 Ontario 7 Colorado 8 Saskatchewan 3 Alabama 7 Manitoba 1 Wisconsin 6 Québec 1 Idaho 5 34 Table of Contents
We primarily lease 5,000 to 15,000 square foot facilities in both freestanding and multi-tenant buildings with secured outside storage yards averaging from 10,000 to 20,000 square feet. As of January 2, 2022, we leased five distribution center facilities across the United States.
We primarily lease 5,000 to 15,000 square foot facilities in both freestanding and multi-tenant buildings with secured outside storage yards averaging from 10,000 to 20,000 square feet. As of January 1, 2023, we leased four distribution center facilities across the United States.
Both of these distribution centers commenced operations in the first quarter of 2018. The significant majority of our facilities are subject to operating leases, and we own 15 properties.
The Carlisle, Pennsylvania distribution center is approximately 201,000 square feet and the Colton, California distribution center is approximately 179,000 square feet, both of which commenced operations in the first quarter of 2018. The significant majority of our facilities are subject to operating leases, and we own 16 properties.
We were in the process of completing the transition of our Southeast distribution center operations from Fairburn, Georgia to a new location in Palmetto, Georgia as of January 2, 2022. We intend to operate a single Southeast distribution center going forward. The Palmetto, Georgia distribution center is approximately 335,000 square feet and commenced operations in the fourth quarter of 2021.
The Hutchins, Texas distribution center is approximately 338,000 square feet and the Palmetto, Georgia distribution center is approximately 335,000 square feet, both of which commenced operations in the fourth quarter of 2021.
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We also commenced operations of a new distribution center during the fourth quarter of 2021 in Hutchins, Texas, with approximately 338,000 square feet. In addition, we operate two other distribution centers in the United States with one located in Colton, California, with approximately 179,000 square feet, and the other in Carlisle, Pennsylvania, with approximately 201,000 square feet.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Safety Disclosures Not applicable. 33 Table of Contents PART II
Biggest changeMine Safety Disclosures Not applicable. 35 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe data for the NYSE Composite Index, Standard & Poor’s MidCap 400 Index, and Dow Jones US Industrial Supplier Index assumes all dividends were reinvested on the date paid. The points on the graph represent fiscal year-end values based on the last trading day of each fiscal year.
Biggest changeAll values assume a $100 initial investment at the closing price of our common stock on the NYSE and in each index on the last trading day of fiscal year 2017. The data for the NYSE Composite Index, Standard & Poor’s MidCap 400 Index, and Dow Jones US Industrial Supplier Index assumes all dividends were reinvested on the date paid.
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report on Form 10-K, which information will be set forth in SiteOne’s Proxy Statement for the 2022 Annual Meeting of Stockholders. 34 Table of Contents Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act.
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report on Form 10-K, which information will be set forth in SiteOne’s Proxy Statement for the 2023 Annual Meeting of Stockholders. 36 Table of Contents Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act.
Dividends We do not expect to declare or pay dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings, if any, to service our debt, finance the growth and development of our business, and for working capital and general corporate purposes.
Dividends We do not expect to declare or pay dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings, if any, to service our debt, finance the growth and development of our business, fund share repurchases, and for working capital and general corporate purposes.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Shares of our common stock trade on the NYSE under the symbol “SITE”. As of February 18, 2022, there was one registered holder of our common stock (this excludes stockholders whose shares are held of record by brokers, banks, or other nominees).
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Shares of our common stock trade on the NYSE under the symbol “SITE”. As of February 17, 2023, there was one registered holder of our common stock (this excludes stockholders whose shares are held of record by brokers, banks, or other nominees).
The graph and table below present the Company’s cumulative total shareholder returns relative to the performance of the NYSE Composite Index, Standard & Poor’s MidCap 400 Index, and Dow Jones US Industrial Supplier Index for the five most recent fiscal years.
The graph and table below present our cumulative total stockholder returns relative to the performance of the NYSE Composite Index, Standard & Poor’s MidCap 400 Index, and Dow Jones US Industrial Supplier Index for the five most recent fiscal years.
The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.
The points on the graph represent fiscal year-end values based on the last trading day of each fiscal year. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.
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All values assume a $100 initial investment at the closing price of the Company’s common stock on the NYSE and in each index on the last trading day of fiscal year 2016.
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Fiscal Year Ended Company / Index December 31, 2017 December 30, 2018 December 29, 2019 January 3, 2021 January 2, 2022 January 1, 2023 SiteOne Landscape Supply, Inc. $ 100.00 $ 72.48 $ 117.94 $ 206.82 $ 315.88 $ 152.96 NYSE Composite $ 100.00 $ 90.37 $ 114.49 $ 122.26 $ 147.54 $ 133.75 S&P 400 MidCap $ 100.00 $ 88.01 $ 112.15 $ 127.54 $ 159.12 $ 138.34 Dow Jones US Industrial Suppliers Index $ 100.00 $ 97.10 $ 129.01 $ 163.14 $ 217.97 $ 189.21 Recent Sales of Unregistered Securities None. 37 Table of Contents Purchases of Equity Securities by Issuer and Affiliates Purchasers The following table provides information about the purchases of our common stock made during the three months ended January 1, 2023: Periods Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (a) October 3, 2022 to November 6, 2022 — $ — — $ — November 7, 2022 to December 4, 2022 30,723 $ 120.43 30,723 $ 396.3 December 5, 2022 to January 1, 2023 180,387 $ 118.06 180,387 $ 375.0 Total 211,110 $ 118.40 211,110 $ 375.0 ______________ (a) In October 2022, our Board of Directors approved a share repurchase authorization for up to $400.0 million of our common stock.
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Fiscal Year Ended Company / Index January 1, 2017 December 31, 2017 December 30, 2018 December 29, 2019 January 3, 2021 January 2, 2022 SiteOne Landscape Supply, Inc. $ 100.00 $ 220.85 $ 160.06 $ 260.47 $ 456.75 $ 697.61 NYSE Composite $ 100.00 $ 118.73 $ 107.30 $ 135.94 $ 145.16 $ 175.17 S&P 400 MidCap $ 100.00 $ 116.24 $ 102.31 $ 130.36 $ 148.26 $ 184.97 Dow Jones US Industrial Suppliers Index $ 100.00 $ 104.26 $ 101.24 $ 134.51 $ 170.10 $ 227.27 Recent Sales of Unregistered Securities None.
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The share repurchase authorization, which was announced on November 2, 2022, does not have an expiration date and may be amended, suspended, or terminated by our Board of Directors at any time. Item 6. [Reserved] 38 Table of Contents
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Purchases of Equity Securities by Issuer and Affiliates Purchasers None. Item 6. [Reserved] 35 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(In millions except per share information and percentages, unaudited) 2021 Fiscal Year 2020 Fiscal Year Year Qtr 4 Qtr 3 Qtr 2 Qtr 1 Year Qtr 4 Qtr 3 Qtr 2 Qtr 1 Net sales $ 3,475.7 $ 805.2 $ 936.4 $ 1,083.9 $ 650.2 $ 2,704.5 $ 675.1 $ 751.9 $ 817.7 $ 459.8 Cost of goods sold 2,263.1 522.8 595.9 695.7 448.7 1,803.2 452.8 501.8 531.6 317.0 Gross profit 1,212.6 282.4 340.5 388.2 201.5 901.3 222.3 250.1 286.1 142.8 Selling, general and administrative expenses 900.6 247.2 235.3 225.8 192.3 728.2 202.8 183.3 175.0 167.1 Other (income) expense, net (1.7) (0.1) 1.8 (2.2) (1.2) (6.7) (2.7) (1.8) (1.2) (1.0) Operating income (loss) 313.7 35.3 103.4 164.6 10.4 179.8 22.2 68.6 112.3 (23.3) Interest and other non-operating expenses, net 19.2 5.1 4.3 4.3 5.5 31.0 9.1 6.6 7.6 7.7 Income tax (benefit) expense 56.1 2.7 19.1 36.8 (2.5) 27.5 1.6 13.8 25.6 (13.5) Net income (loss) $ 238.4 $ 27.5 $ 80.0 $ 123.5 $ 7.4 $ 121.3 $ 11.5 $ 48.2 $ 79.1 $ (17.5) Net income (loss) per common share: Basic $ 5.35 $ 0.61 $ 1.79 $ 2.77 $ 0.17 $ 2.83 $ 0.26 $ 1.11 $ 1.89 $ (0.42) Diluted $ 5.20 $ 0.60 $ 1.74 $ 2.70 $ 0.16 $ 2.75 $ 0.25 $ 1.08 $ 1.83 $ (0.42) Adjusted EBITDA (a) $ 415.1 $ 61.8 $ 128.2 $ 190.6 $ 34.5 $ 260.2 $ 43.9 $ 87.8 $ 132.1 $ (3.6) Net sales as a percentage of annual Net sales 100.0 % 23.2 % 26.9 % 31.2 % 18.7 % 100.0 % 25.0 % 27.8 % 30.2 % 17.0 % Gross profit as a percentage of annual Gross profit 100.0 % 23.3 % 28.1 % 32.0 % 16.6 % 100.0 % 24.7 % 27.8 % 31.7 % 15.8 % Adjusted EBITDA as a percentage of annual Adjusted EBITDA 100.0 % 14.9 % 30.9 % 45.9 % 8.3 % 100.0 % 16.9 % 33.7 % 50.8 % (1.4) % _____________________________________ 43 Table of Contents (a) In addition to our Net income (loss) determined in accordance with GAAP, we present Adjusted EBITDA in this Annual Report on Form 10-K to evaluate the operating performance and efficiency of our business.
Biggest change(In millions except per share information and percentages, unaudited) 2022 Fiscal Year 2021 Fiscal Year Year Qtr 4 Qtr 3 Qtr 2 Qtr 1 Year Qtr 4 Qtr 3 Qtr 2 Qtr 1 Net sales $ 4,014.5 $ 890.0 $ 1,102.6 $ 1,216.6 $ 805.3 $ 3,475.7 $ 805.2 $ 936.4 $ 1,083.9 $ 650.2 Cost of goods sold 2,593.0 587.4 714.0 755.5 536.1 2,263.1 522.8 595.9 695.7 448.7 Gross profit 1,421.5 302.6 388.6 461.1 269.2 1,212.6 282.4 340.5 388.2 201.5 Selling, general and administrative expenses 1,097.0 304.6 289.2 272.7 230.5 900.6 247.2 235.3 225.8 192.3 Other (income) expense, net (8.6) (2.0) (2.4) (1.7) (2.5) (1.7) (0.1) 1.8 (2.2) (1.2) Operating income 333.1 — 101.8 190.1 41.2 313.7 35.3 103.4 164.6 10.4 Interest and other non-operating expenses, net 20.0 5.5 5.6 4.6 4.3 19.2 5.1 4.3 4.3 5.5 Income tax (benefit) expense 67.7 (4.6) 22.9 44.8 4.6 56.1 2.7 19.1 36.8 (2.5) Net income (loss) $ 245.4 $ (0.9) $ 73.3 $ 140.7 $ 32.3 $ 238.4 $ 27.5 $ 80.0 $ 123.5 $ 7.4 Net income (loss) per common share: Basic $ 5.45 $ (0.02) $ 1.63 $ 3.12 $ 0.72 $ 5.35 $ 0.61 $ 1.79 $ 2.77 $ 0.17 Diluted $ 5.36 $ (0.02) $ 1.60 $ 3.07 $ 0.70 $ 5.20 $ 0.60 $ 1.74 $ 2.70 $ 0.16 Adjusted EBITDA (a) $ 464.3 $ 38.9 $ 135.6 $ 222.0 $ 67.8 $ 415.1 $ 61.8 $ 128.2 $ 190.6 $ 34.5 Net sales as a percentage of annual Net sales 100.0 % 22.2 % 27.5 % 30.3 % 20.0 % 100.0 % 23.2 % 26.9 % 31.2 % 18.7 % Gross profit as a percentage of annual Gross profit 100.0 % 21.3 % 27.3 % 32.4 % 19.0 % 100.0 % 23.3 % 28.1 % 32.0 % 16.6 % Adjusted EBITDA as a percentage of annual Adjusted EBITDA 100.0 % 8.4 % 29.2 % 47.8 % 14.6 % 100.0 % 14.9 % 30.9 % 45.9 % 8.3 % _____________________________________ (a) In addition to our Net income (loss) determined in accordance with GAAP, we present Adjusted EBITDA in this Annual Report on Form 10-K to evaluate the operating performance and efficiency of our business.
Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as snow storms, wet weather, and hurricanes, which not only impact the demand for certain products like fertilizer and ice melt, but also may delay construction projects where our products are used.
Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as snow and ice storms, wet weather, and hurricanes, which not only impact the demand for certain products like fertilizer and ice melt, but also may delay construction projects where our products are used.
If an event of default occurs, the lenders could elect to declare all amounts outstanding under the ABL Facility to be immediately due and payable, enforce their interest in collateral pledged under the agreement, or restrict the borrowers’ ability to obtain additional borrowings thereunder.
If an event of default occurs, the lenders could elect to declare all amounts outstanding under the ABL Facility to be immediately due and payable, enforce their interest in collateral pledged under the agreement, or restrict the ABL Borrowers’ ability to obtain additional borrowings thereunder.
We have prepared the quarterly data on a basis that is consistent with the financial statements included in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of these data.
We have prepared the quarterly data on a basis that is consistent with the financial statements included in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data.
The fair value of the assets and liabilities acquired is determined through established valuation techniques, such as the income, cost, or market approach, and estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain.
The fair value of the assets acquired and liabilities assumed is determined through established valuation techniques, such as the income, cost, or market approach, and estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain.
In accordance with GAAP, the results of the acquisitions are reflected in our financial statements from the date of acquisition forward. Additionally, we incur transaction costs in connection with identifying and completing acquisitions as well as ongoing integration costs as we integrate acquired companies and seek to achieve synergies.
In accordance with GAAP, the results of the acquisitions are reflected in our financial statements from the date of acquisition forward. Additionally, we incur transaction costs in connection with identifying and completing acquisitions as well as ongoing costs as we integrate acquired companies and seek to achieve synergies.
We believe that Adjusted EBITDA is an important supplemental measure of operating performance because: • Adjusted EBITDA is used to test compliance with certain covenants under our long-term debt agreements; • Adjusted EBITDA is frequently used by securities analysts, investors, and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results; • Adjusted EBITDA is helpful in highlighting operating trends, because it excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, age and book depreciation of facilities, and capital investments; • we consider (gains) losses on the acquisition, disposal, and impairment of assets as resulting from investing decisions rather than ongoing operations; and • other significant non-recurring items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of our results.
We believe that Adjusted EBITDA is an important supplemental measure of operating performance because: • Adjusted EBITDA is used to test compliance with certain covenants under our long-term debt agreements; • Adjusted EBITDA is frequently used by securities analysts, investors, and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results; 47 Table of Contents • Adjusted EBITDA is helpful in highlighting operating trends because it excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, age and book depreciation of facilities, and capital investments; • we consider (gains) losses on the acquisition, disposal, and impairment of assets as resulting from investing decisions rather than ongoing operations; and • other significant non-recurring items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of our results.
Weather Conditions and Seasonality In a typical year, our operating results are impacted by seasonality. Historically, our Net sales and Net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters.
Weather Conditions and Seasonality In a typical year, our operating results are impacted by seasonality. Our Net sales and Net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters.
There are no financial covenants included in the ABL Credit Agreement, other than a springing minimum consolidated fixed charge coverage ratio of at least 1.00 to 1.00, which is tested only when specified availability is less than 10.0% of the lesser of (x) the then applicable borrowing base and (y) the then aggregate effective commitments under the ABL Facility, and continuing until such time as specified availability has been in excess of such threshold for a period of 30 consecutive calendar days.
There are no financial covenants included in the ABL Credit Agreement, other than a springing minimum consolidated fixed charge coverage ratio of at least 1.00 to 1.00, which is tested only when specified availability is less than 10.0% of the lesser of (x) the then applicable borrowing base and (y) the then aggregate effective commitments under the ABL Facility, and continuing until such time as specified availability has been in excess of such threshold for a period of 20 consecutive calendar days.
We allocate the purchase consideration paid to acquire the business to the assets and liabilities acquired based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill.
We allocate the purchase consideration paid to acquire the business to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill.
In a blend and extend arrangement, the liability position of the existing interest rate swap arrangement is effectively blended into the amended or new interest rate swap arrangement and the term to maturity of the hedged position is extended.
In a blend and extend arrangement, the liability position of the existing interest rate swap arrangement is blended into the amended or new interest rate swap arrangement and the term to maturity of the hedged position is extended.
Our Net sales have been significantly lower in the first and fourth quarters due to lower landscaping, irrigation, and turf maintenance activities in these quarters, and we have incurred net losses in these quarters.
Our Net sales have been significantly lower in the first and fourth quarters due to lower landscaping, irrigation, and turf maintenance activities in these quarters, and historically, we have incurred net losses in these quarters.
Refer to “Results of Operations – Quarterly Results of Operations Data” for more information regarding how we calculate EBITDA and Adjusted EBITDA and the limitations of those metrics. 38 Table of Contents Key Factors Affecting Our Operating Results In addition to the metrics described above, a number of other important factors may affect our results of operations in any given period.
Refer to “Results of Operations – Quarterly Results of Operations Data” for more information regarding how we calculate EBITDA and Adjusted EBITDA and the limitations of those metrics. 41 Table of Contents Key Factors Affecting Our Operating Results In addition to the metrics described above, a number of other important factors may affect our results of operations in any given period.
The landscape supply industry has historically grown in line with rates of growth in residential housing and commercial building. The industry is also affected by trends in home prices, home sales, and consumer spending. As general economic conditions improve or deteriorate, consumption of these products and services also tends to fluctuate.
The landscape supply industry has historically grown in line with rates of growth in residential housing and commercial building. The industry is also affected by trends in home prices, mortgage interest rates, home sales, and consumer spending. As general economic conditions improve or deteriorate, consumption of these products and services also tends to fluctuate.
Voluntary prepayments of the New Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty, subject to a 1.00% premium payable in connection with certain repricing transactions within the first twelve months after the date of the initial funding of the New Term Loans.
Voluntary prepayments of the New Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty, subject to a 1.00% premium payable in connection with certain repricing transactions within the first 12 months after the date of the initial funding of the New Term Loans.
Sensitivity of Estimates to Change: During the third quarter of the 2021 Fiscal Year, we performed our annual quantitative assessment of goodwill. No goodwill impairment charge was recorded as a result of the testing and the estimated fair value of each of our reporting units substantially exceeded its carrying value.
Sensitivity of Estimates to Change: During the third quarter of the 2022 Fiscal Year, we performed our annual quantitative assessment of goodwill. No goodwill impairment charge was recorded as a result of the testing and the estimated fair value of each of our reporting units substantially exceeded its carrying value.
We have not recorded any material net adjustments or such changes to our inventory reserves during the 2021 Fiscal Year or 2020 Fiscal Year. Acquisitions Summary: From time to time, we enter into strategic acquisitions in an effort to better service existing customers and to attract new customers.
We have not recorded any material net adjustments or such changes to our inventory reserves during the 2022 Fiscal Year or the 2021 Fiscal Year. Acquisitions Summary: From time to time, we enter into strategic acquisitions in an effort to better service existing customers and to attract new customers.
Examples of current trends we believe are important to our business include a heightened interest in professional landscape services inspired by the popularity of home and garden television shows and magazines, the increasingly popular concept of “outdoor living,” which has been a key driver of sales growth for our hardscapes and outdoor lighting products, and the social focus on eco-friendly products that promote water conservation, energy efficiency, and the adoption of “green” standards.
Examples of current trends we believe are important to our business include an ongoing interest in professional landscape services inspired by the popularity of home and garden television shows, magazines, and social media, the increasingly popular concept of “outdoor living,” which has been a key driver of sales growth for our hardscapes and outdoor lighting products, and the social focus on eco-friendly products that promote water conservation, energy efficiency, and the adoption of “green” standards.
We expect that cash and cash equivalents on hand, cash provided from operations, and available capacity under the ABL Facility will provide sufficient funds to operate our business, make expected capital expenditures, complete acquisitions, and meet all of our liquidity requirements for the next 12 months, including payment of interest and principal on our debt.
We expect that cash and cash equivalents on hand, cash provided from operations, and available capacity under the ABL Facility will provide sufficient funds to operate our business, make capital expenditures, complete acquisitions and share repurchases, and meet all of our liquidity requirements for the next 12 months, including payment of interest and principal on our debt.
Proceeds of the New Term Loans were used to, among other things, (i) to repay in full the Tranche E Term Loans outstanding under the Existing Credit Agreement immediately prior to effectiveness of the Fifth Amendment, (ii) to pay fees and expenses related to the Fifth Amendment and the Second Amended and Restated Credit Agreement, and (iii) for working capital and other general corporate purposes.
Proceeds of the New Term Loans were used to, among other things, (i) to repay in full the term loans outstanding under the Existing Credit Agreement immediately prior to effectiveness of the Fifth Amendment (the “Tranche E Term Loans”), (ii) to pay fees and expenses related to the Fifth Amendment and the Second Amended and Restated Credit Agreement, and (iii) for working capital and other general corporate purposes.
With two locations in the San Diego, Southern Orange County and Inland Empire markets in California, Rock & Block is a distributor of hardscapes, masonry, and landscape supplies to landscape professionals. 39 Table of Contents • In April 2021, we acquired the assets and assumed the liabilities of Melrose Supply & Sales Corp (“Melrose”).
With two locations in the San Diego, Southern Orange County and Inland Empire markets in California, Rock & Block is a distributor of hardscapes, masonry, and landscape supplies to landscape professionals. • In April 2021, we acquired the assets and assumed the liabilities of Melrose Supply & Sales Corp (“Melrose”).
We are the largest and only national wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation, and maintenance of lawns, gardens, golf courses, and other outdoor spaces.
We are the largest and only national full product line wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation, and maintenance of lawns, gardens, golf courses, and other outdoor spaces.
(b) Represents Net sales from acquired branches that have not been under our ownership for at least four full fiscal quarters at the start of the 2021 Fiscal Year.
(b) Represents Net sales from acquired branches that have not been under our ownership for at least four full fiscal quarters at the start of the 2022 Fiscal Year.
Further, all of our product categories have similar supply chain processes and classes of customers. Key Business and Performance Metrics We focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and performance of our business. These metrics include: Net sales .
Further, all of our product categories have similar supply chain processes and classes of customers. 40 Table of Contents Key Business and Performance Metrics We focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and performance of our business. These metrics include: Net sales .
With six locations throughout Florida, Melrose is a distributor of irrigation, lighting, and drainage products to landscape professionals. • In April 2021, we acquired all of the outstanding stock of Timberwall Landscape & Masonry Products, Inc. (“Timberwall”).
With six locations throughout Florida, Melrose is a distributor of irrigation, lighting, and drainage products to landscape professionals. 43 Table of Contents • In April 2021, we acquired all of the outstanding stock of Timberwall Landscape & Masonry Products, Inc. (“Timberwall”).
Refer to “ Note 8 . Long-Term Debt” in the notes to the consolidated financial statements for further information regarding our debt instruments. Our finance leases consist primarily of leases for our vehicle fleet. Our operating leases consist primarily of leases for equipment and real estate, which includes office space, branch locations, and distribution centers.
Long-Term Debt” in the notes to the consolidated financial statements for further information regarding our debt instruments. Our finance leases consist primarily of leases for our vehicle fleet. Our operating leases consist primarily of leases for equipment and real estate, which includes office space, branch locations, and distribution centers.
As of January 2, 2022, approximately $1.5 million was classified as Long-term debt, current portion and approximately $3.3 million was classified as Long-term debt, less current portion on our Consolidated Balance Sheets. For additional information, refer to “ Note 1 . Nature of Business and Significant Accounting Policies” and “ Note 8 .
As of January 1, 2023, approximately $1.5 million was classified as Long-term debt, current portion and approximately $1.8 million was classified as Long-term debt, less current portion on our Consolidated Balance Sheets. For additional information, refer to “ Note 1 . Nature of Business and Significant Accounting Policies” and “ Note 8 .
Through our expansive North American network, we offer a comprehensive selection of more than 135,000 SKUs, including irrigation supplies, fertilizer and control products (e.g., herbicides), hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, outdoor lighting, and ice melt products to green industry professionals.
Through our expansive North American network, we offer a comprehensive selection of approximately 155,000 SKUs, including irrigation supplies, fertilizer and control products (e.g., herbicides), hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, outdoor lighting, and ice melt products to green industry professionals.
The agreements governing the Second Amended and Restated Credit Agreement and the ABL Facility restrict the ability of our subsidiaries to pay dividends, make loans, or otherwise transfer assets to us.
The Second Amended and Restated Credit Agreement and the ABL Credit Agreement restrict the ability of our subsidiaries to pay dividends, make loans, or otherwise transfer assets to us.
There are also other supplier and service arrangements with vendors totaling $49.9 million, of which $22.7 million of payments are expected to be made in the 2022 Fiscal Year. These purchase obligations are generally cancelable, but we have no intent to cancel and incur a penalty for not meeting the minimum required purchases.
There are also other supplier and service arrangements with vendors totaling $49.7 million, of which $26.8 million of payments are expected to be made in the 2023 Fiscal Year. These purchase obligations are generally cancelable, but we have no intent to cancel and incur a penalty for not meeting the minimum required purchases.
If we determine that the useful lives of assets acquired are shorter than we had originally estimated, the rate of amortization is accelerated over the assets’ new, shorter useful lives.
If we determine that the useful lives of assets acquired are shorter than we had originally estimated, the rate of amortization would be accelerated over the assets’ new, shorter useful lives.
When we acquire a controlling financial interest in an entity or group of assets that are determined to meet the definition of a business, we apply the acquisition method described in ASC Topic 805, Business Combinations .
When we acquire a controlling financial interest in an entity or group of assets that are determined to meet the definition of a business, we apply the acquisition method described in Accounting Standards Codification Topic 805, Business Combinations .
Long-Term Debt” in the notes to the consolidated financial statements. Critical Accounting Estimates In order to prepare our financial statements in accordance with GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes.
Long-Term Debt” in the notes to the consolidated financial statements. 54 Table of Contents Critical Accounting Estimates In order to prepare our financial statements in accordance with GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes.
Includes Net sales from branches acquired in 2020 and 2021. 45 Table of Contents Liquidity and Capital Resources We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating and investing activities and service our debt, taking into consideration available borrowings and the seasonal nature of our business.
Includes Net sales from branches acquired in 2022 and 2021. 49 Table of Contents Liquidity and Capital Resources We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating and investing activities, repurchase shares, and service our debt, taking into consideration available borrowings and the seasonal nature of our business.
We monitor our inventory levels by branch and record provisions for excess inventories. The assumptions we make to record adjustments for excess or obsolete inventory are based on these historical recovery rates, such as recent history of usage of our products, expected future demand for our products, current market conditions, and other factors, including liquidation value.
The assumptions we make to record adjustments for excess or obsolete inventory are based on these historical recovery rates, such as recent history of usage of our products, expected future demand for our products, current market conditions, and other factors, including liquidation value.
We believe we will continue to benefit from the following initiatives, among others: • Category management initiatives, including the implementation of organic growth strategies, the development of our private label product strategy, the expansion of product lines, and the reorganization of brands and products by preferred suppliers. • Supply chain initiatives, including the implementation of new inventory planning and stocking systems and functionalities, the installation of new distribution centers, local hubs in large markets, and local fleet utilization and cost improvements. • Sales force performance initiatives, including the implementation of new compensation plans, the restructuring of our sales force, formal sales and product training for our sales force and sales force management, and the implementation of a comprehensive CRM. • Marketing initiatives, including product marketing, customer strategy and analytics, Hispanic customer engagement, implementation of our digital marketing strategy, and the relaunch of our Partners Program. • Digital initiatives, including increasing customer demand and adoption of our website and B2B e-Commerce platform SiteOne.com, which provides the convenience of an online sales channel, enhanced account management functionality, and industry specific productivity tools for our customers. • Operational excellence initiatives, including the implementation of best practices in branch operations which encompasses safety, merchandising, stocking and assortment, customer engagement, delivery, labor management, as well as branch systems automation and enhancement including the rollout of barcoding.
We believe we will continue to benefit from the following initiatives, among others: • Category management initiatives, including the implementation of organic growth strategies, the development of our private label product strategy, the expansion of product lines, and the reorganization of brands and products by preferred suppliers. • Supply chain initiatives, including the implementation of new inventory planning and stocking systems and functionalities, the installation of new distribution centers, local hubs in large markets, and local fleet utilization and cost improvements. • Sales force performance initiatives, including the implementation of new compensation plans, the restructuring of our sales force, formal sales and product training for our sales force and sales force management, and the implementation of a comprehensive CRM. • Marketing initiatives, including product marketing, customer strategy and analytics, Hispanic customer engagement, implementation of our digital marketing strategy, and the relaunch of our Partners Program. • Digital initiatives, including increasing customer demand and adoption of our website and B2B e-Commerce platform SiteOne.com, which provides the convenience of an online sales channel, enhanced account management functionality, and industry specific productivity tools for our customers. • Operational excellence initiatives, including the implementation of best practices in branch operations which encompasses safety, merchandising, stocking and assortment, customer engagement, delivery, labor management, as well as the additional automation and enhancement of branch systems, including the rollout of barcoding. 44 Table of Contents Working Capital Our business is characterized by a relatively high level of reported working capital, the effects of which can be compounded by changes in prices.
Estimating the fair value of reporting units using the discounted cash flow model requires us to make assumptions and projections of revenue growth rates, gross margins, selling, general and administrative expenses, capital expenditures, working capital, depreciation, terminal values, and weighted average cost of capital, among other factors.
Estimating the fair value of reporting units using the discounted cash flow model requires us to make assumptions and projections of revenue growth rates, gross margins, SG&A, capital expenditures, working capital, depreciation, terminal values, and weighted average cost of capital, among other factors.
Our estimates of the useful lives of finite-lived intangible assets are primarily based on these same factors. We consider the period of expected cash flows and the underlying data used to measure the fair value of the intangible assets when selecting a useful life.
Our estimates of the useful lives of finite-lived intangible assets are primarily based on these same factors. We consider the period of expected cash flows and the underlying data used to measure the fair value of the intangible assets when selecting a useful life. Customer relationship intangible assets are amortized on an accelerated method.
Subject to certain conditions, without the consent of the then existing lenders (but subject to the receipt of commitments), the New Term Loans may be increased (or a new term loan facility, revolving credit facility, or letter of credit facility added) by up to (i) the greater of (a) $275.0 million and (b) 100% of Consolidated EBITDA (as defined in the Second Amended and Restated Credit Agreement) for the trailing 12-month period plus (ii) an additional amount that will not cause the net secured leverage ratio after giving effect to the incurrence of such additional amount and any use of proceeds thereof to exceed 4.00 to 1.00. 47 Table of Contents The New Term Loans are subject to mandatory prepayment provisions, covenants, and events of default.
The New Term Loans mature on March 23, 2028. 51 Table of Contents Subject to certain conditions, without the consent of the then existing lenders (but subject to the receipt of commitments), the New Term Loans may be increased (or a new term loan facility, revolving credit facility, or letter of credit facility added) by up to (i) the greater of (a) $275.0 million and (b) 100% of Consolidated EBITDA (as defined in the Second Amended and Restated Credit Agreement) for the trailing 12-month period plus (ii) an additional amount that will not cause the net secured leverage ratio after giving effect to the incurrence of such additional amount and any use of proceeds thereof to exceed 4.00 to 1.00.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” and “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021 filed with the SEC on March 3, 2021, which discussion is incorporated herein by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” and “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended January 2, 2022 filed with the SEC on February 24, 2022, which discussion is incorporated herein by reference.
Changes in key assumptions resulting in a 10% revision of the estimated fair values of finite-lived intangible assets acquired during the 2021 Fiscal Year would impact amortization of acquisition intangible assets by $6.3 million over a weighted-average amortization period of 17.7 years primarily on an accelerated basis.
Changes in key assumptions resulting in a 10% revision of the estimated fair values of finite-lived intangible assets acquired during the 2022 Fiscal Year would impact amortization of acquisition intangible assets by $11.1 million over a weighted-average amortization period of 17.9 years primarily on an accelerated basis.
The negative covenants limit the ability of Landscape Holding and Landscape to: • incur additional indebtedness; • pay dividends, redeem stock, or make other distributions; • repurchase, prepay, or redeem subordinated indebtedness; • make investments; • create restrictions on the ability of Landscape Holding’s restricted subsidiaries to pay dividends or make other intercompany transfers; • create liens; • transfer or sell assets; • make negative pledges; • consolidate, merge, sell, or otherwise dispose of all or substantially all of Landscape Holding’s assets; • change lines of business; and • enter into certain transactions with affiliates. 48 Table of Contents ABL Facility Landscape Holding and Landscape (collectively, the “ABL Borrower”) are parties to the credit agreement dated December 23, 2013 (as amended by the First Amendment to the Credit Agreement, dated June 13, 2014, the Second Amendment to the Credit Agreement, dated January 26, 2015, the Third Amendment to the Credit Agreement, dated February 13, 2015, the Fourth Amendment to the Credit Agreement, dated October 20, 2015, the Omnibus Amendment to the Credit Agreement, dated May 24, 2017, and the Sixth Amendment to the Credit Agreement, dated February 1, 2019, the “ABL Credit Agreement”) providing for an ABL Facility in the amount of up to $375.0 million with the maturity date of February 1, 2024.
The negative covenants limit the ability of Landscape Holding and Landscape to: • incur additional indebtedness; • pay dividends, redeem stock, or make other distributions; • repurchase, prepay, or redeem subordinated indebtedness; • make investments; • create restrictions on the ability of Landscape Holding’s restricted subsidiaries to pay dividends or make other intercompany transfers; • create liens; • transfer or sell assets; • make negative pledges; • consolidate, merge, sell, or otherwise dispose of all or substantially all of Landscape Holding’s assets; • change lines of business; and • enter into certain transactions with affiliates. 52 Table of Contents ABL Facility Landscape Holding and Landscape (collectively, the “ABL Borrowers”) are parties to the credit agreement dated December 23, 2013 (as amended by the First Amendment to the Credit Agreement, dated June 13, 2014, the Second Amendment to the Credit Agreement, dated January 26, 2015, the Third Amendment to the Credit Agreement, dated February 13, 2015, the Fourth Amendment to the Credit Agreement, dated October 20, 2015, the Omnibus Amendment to the Credit Agreement, dated May 24, 2017, the Sixth Amendment to the Credit Agreement, dated February 1, 2019, and the Seventh Amendment to the Credit Agreement, dated July 22, 2022, the “ABL Credit Agreement”) providing for an asset-based credit facility (the “ABL Facility”) of up to $600.0 million, subject to borrowing base availability, with a maturity date of July 22, 2027.
For the discussion of the financial condition and results of operations for the year ended January 3, 2021 compared to the year ended December 29, 2019, refer to “Part II – Item 7.
For the discussion of the financial condition and results of operations for the year ended January 2, 2022 compared to the year ended January 3, 2021, refer to “Part II – Item 7.
To date, such impacts have been minimized mainly through our ongoing supply chain initiatives, as discussed further below in “Strategic Initiatives”. We have benefited from strategic inventory purchases resulting in increased safety stock which has allowed us to largely satisfy customer demand when products are not immediately available from our suppliers.
To date, such impacts have been minimized mainly through our ongoing supply chain initiatives, as discussed further below in “Strategic Initiatives”. We have benefited from strategic inventory purchases ahead of supplier cost increases, which resulted in increased safety stock that allowed us to largely satisfy customer demand when products were not immediately available from our suppliers.
Quarterly Results of Operations Data The following tables set forth certain financial data for each of the most recent eight fiscal quarters including our unaudited Net sales, Cost of goods sold, Gross profit, Selling, general and administrative expenses, Net income (loss), and Adjusted EBITDA data (including a reconciliation of Adjusted EBITDA to Net income (loss)).
The increase in Net income was primarily due to sales growth and gross margin improvement. 46 Table of Contents Quarterly Results of Operations Data The following tables set forth certain financial data for each of the most recent eight fiscal quarters including our unaudited Net sales, Cost of goods sold, Gross profit, Selling, general and administrative expenses, Net income (loss), and Adjusted EBITDA data (including a reconciliation of Adjusted EBITDA to Net income (loss)).
The interest rate on the outstanding balance was 2.50% as of January 2, 2022. On December 31, 2021, we paid down $68.0 million of the New Term Loans principal with cash on hand.
The interest rate on the outstanding balance of the New Term Loans was 6.39% as of January 1, 2023. On December 31, 2021, we paid down $68.0 million of the New Term Loans principal with cash on hand.
The table above provides our expected payments of finance lease obligations including interest and the undiscounted rental payment obligations under operating lease agreements for the amounts due in the next 12 months and beyond 12 months. Refer to “ Note 6 . Leases” in the notes to the consolidated financial statements for additional information regarding our lease arrangements.
The table above provides our expected payments of finance lease obligations including interest and the undiscounted rental payment obligations under operating lease agreements for the amounts due in the next 12 months and beyond 12 months. Refer to “ Note 6 .
The ABL Facility is secured by a first lien on the inventory and receivables of the Borrowers. The ABL Facility is guaranteed by SiteOne Landscape Supply Bidco, Inc. (“Bidco”), an indirect wholly-owned subsidiary of the Company, and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape. Availability is determined using borrowing base calculations of eligible inventory and receivable balances.
The ABL Facility is secured by a first lien on the inventory and receivables of the ABL Borrowers. The ABL Facility is guaranteed by SiteOne Landscape Supply Bidco, Inc. (“Bidco”), an indirect wholly-owned subsidiary of the Company, and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape.
Recently Issued and Adopted Accounting Pronouncements Refer to Note 1 to our audited consolidated financial statements included in this Annual Report on Form 10-K, for a description of recently issued and adopted accounting pronouncements.
Nature of Business and Significant Accounting Policies” to our audited consolidated financial statements included in this Annual Report on Form 10-K, for a description of recently issued and adopted accounting pronouncements. Accounting Pronouncements Issued But Not Yet Adopted Refer to “ Note 1 .
Our inventories are generally not susceptible to technological obsolescence. 50 Table of Contents Judgments and Uncertainties: Significant judgment is required to estimate the net realizable value of our inventory as it requires assumptions and projections to be made based off the historical recovery rates for our slower moving inventory.
Our inventories are generally not susceptible to technological obsolescence. Judgments and Uncertainties: Significant judgment is required to estimate the net realizable value of our inventory as it requires assumptions and projections to be made based off the historical recovery rates for our slower moving inventory. We monitor our inventory levels by branch and record provisions for excess inventories.
Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies limiting their usefulness as a comparative measure. 44 Table of Contents The following table presents a reconciliation of Adjusted EBITDA to Net income (loss) (in millions, unaudited): 2021 Fiscal Year 2020 Fiscal Year Year Qtr 4 Qtr 3 Qtr 2 Qtr 1 Year Qtr 4 Qtr 3 Qtr 2 Qtr 1 Reported Net income (loss) $ 238.4 $ 27.5 $ 80.0 $ 123.5 $ 7.4 $ 121.3 $ 11.5 $ 48.2 $ 79.1 $ (17.5) Income tax (benefit) expense 56.1 2.7 19.1 36.8 (2.5) 27.5 1.6 13.8 25.6 (13.5) Interest expense, net 19.2 5.1 4.3 4.3 5.5 31.0 9.1 6.6 7.6 7.7 Depreciation & amortization 83.0 22.3 21.0 20.3 19.4 67.2 18.2 16.3 16.4 16.3 EBITDA 396.7 57.6 124.4 184.9 29.8 247.0 40.4 84.9 128.7 (7.0) Stock-based compensation (a) 14.3 3.1 3.5 4.6 3.1 10.6 2.7 2.6 2.8 2.5 (Gain) loss on sale of assets (b) (0.1) 0.2 (0.2) (0.2) 0.1 (0.4) (0.2) (0.4) 0.1 0.1 Financing fees (c) 0.7 — — — 0.7 — — — — — Acquisitions and other adjustments (d) 3.5 0.9 0.5 1.3 0.8 3.0 1.0 0.7 0.5 0.8 Adjusted EBITDA (e) $ 415.1 $ 61.8 $ 128.2 $ 190.6 $ 34.5 $ 260.2 $ 43.9 $ 87.8 $ 132.1 $ (3.6) _____________________________________ (a) Represents stock-based compensation expense recorded during the period.
Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies limiting their usefulness as a comparative measure. 48 Table of Contents The following table presents a reconciliation of Adjusted EBITDA to Net income (in millions, unaudited): 2022 Fiscal Year 2021 Fiscal Year Year Qtr 4 Qtr 3 Qtr 2 Qtr 1 Year Qtr 4 Qtr 3 Qtr 2 Qtr 1 Reported Net income (loss) $ 245.4 $ (0.9) $ 73.3 $ 140.7 $ 32.3 $ 238.4 $ 27.5 $ 80.0 $ 123.5 $ 7.4 Income tax (benefit) expense 67.7 (4.6) 22.9 44.8 4.6 56.1 2.7 19.1 36.8 (2.5) Interest expense, net 20.0 5.5 5.6 4.6 4.3 19.2 5.1 4.3 4.3 5.5 Depreciation & amortization 103.8 31.6 27.4 23.1 21.7 83.0 22.3 21.0 20.3 19.4 EBITDA 436.9 31.6 129.2 213.2 62.9 396.7 57.6 124.4 184.9 29.8 Stock-based compensation (a) 18.3 4.3 4.5 5.8 3.7 14.3 3.1 3.5 4.6 3.1 (Gain) loss on sale of assets (b) (0.8) 0.2 (0.7) (0.2) (0.1) (0.1) 0.2 (0.2) (0.2) 0.1 Financing fees (c) 0.3 — 0.1 0.2 — 0.7 — — — 0.7 Acquisitions and other adjustments (d) 9.6 2.8 2.5 3.0 1.3 3.5 0.9 0.5 1.3 0.8 Adjusted EBITDA (e) $ 464.3 $ 38.9 $ 135.6 $ 222.0 $ 67.8 $ 415.1 $ 61.8 $ 128.2 $ 190.6 $ 34.5 _____________________________________ (a) Represents stock-based compensation expense recorded during the period.
We continue to actively monitor the ongoing COVID-19 pandemic and may take further actions that alter our business operations if required by federal, state, or local authorities or that we determine are in the best interests of our associates, customers, suppliers, and shareholders.
We will continue to monitor the ongoing COVID-19 pandemic and may take further actions that alter our business operations if required or that we determine are in the best interests of our associates, customers, suppliers, and stockholders.
Accounting Pronouncements Issued But Not Yet Adopted Refer to Note 1 to our audited consolidated financial statements included in this Annual Report on Form 10-K, for a description of accounting pronouncements that have been issued but not yet adopted. 52 Table of Contents
Nature of Business and Significant Accounting Policies” to our audited consolidated financial statements included in this Annual Report on Form 10-K, for a description of accounting pronouncements that have been issued but not yet adopted. 57 Table of Contents
“Selling Days” are defined below within the “Key Business and Performance Metrics” section. 37 Table of Contents We manage our business as a single reportable segment. Within our organizational framework, the same operational resources support multiple geographic regions and performance is evaluated at a consolidated level. We also evaluate performance based on discrete financial information on a regional basis.
We manage our business as a single reportable segment. Within our organizational framework, the same operational resources support multiple geographic regions and performance is evaluated at a consolidated level. We also evaluate performance based on discrete financial information on a regional basis.
As of January 2, 2022, we had over 590 branch locations in 45 U.S. states and six Canadian provinces.
As of January 1, 2023, we had over 630 branch locations in 45 U.S. states and six Canadian provinces.
Failure to comply with these covenants and other provisions could result in an event of default under the Second Amended and Restated Credit Agreement. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the New Term Loans to be immediately due and payable and enforce their interest in collateral pledged under the agreement.
If an event of default occurs, the lenders could elect to declare all amounts outstanding under the New Term Loans to be immediately due and payable and enforce their interest in collateral pledged under the agreement.
In addition, a 10% decline in projected cash flows or a 10% increase in the discount rate assumption utilized in our annual quantitative testing would not result in an impairment of any of our reporting units.
In addition, a 10% decline in the projected cash flows or a 10% increase in the discount rate assumption utilized in our annual quantitative testing would not result in an impairment of any of our reporting units. Recently Issued and Adopted Accounting Pronouncements Refer to “ Note 1 .
To date, we have successfully mitigated the effects of product cost inflation by working with our suppliers and customers to pass through the cost increases that have occurred in the market. As a result, price inflation contributed approximately 11% to our Organic Daily Sales growth in the 2021 Fiscal Year.
To date, we have successfully mitigated the effects of product cost inflation by working with our suppliers and customers to pass through the cost increases that have occurred in the market. Based upon year-over-year price increases in our highest selling SKUs, we estimate price inflation contributed approximately 18% to our Organic Daily Sales growth in the 2022 Fiscal Year.
Inventory Valuation Summary: Product inventories represent our largest asset and are recorded at the lower of actual cost or estimated net realizable value. Our goal is to manage our inventory so that we minimize out of stock positions.
Inventory Valuation Summary: Product inventories represent our largest asset and are recorded at the lower of actual cost or estimated net realizable value. Our goal is to manage our inventory so that we minimize out of stock positions. To do this, we maintain an adequate inventory of approximately 155,000 SKUs and manage inventory at each branch based on sales history.
Cash flow used in financing activities Net cash used in financing activities was $30.4 million for the 2021 Fiscal Year compared to $9.1 million in the 2020 Fiscal Year.
Cash flow provided by (used in) financing activities Net cash provided by financing activities was $43.4 million for the 2022 Fiscal Year compared to net cash used in financing activities of $(30.4) million in the 2021 Fiscal Year.
There were no outstanding balances under the ABL Facility as of January 2, 2022 and January 3, 2021. Additionally, the Borrowers paid a commitment fee of 0.25% on the unfunded amount as of January 2, 2022 and January 3, 2021. The ABL Facility contains customary representations and warranties and customary affirmative and negative covenants.
There were no outstanding balances under the ABL Facility as of January 2, 2022. Additionally, the ABL Borrowers paid a commitment fee of 0.20% on the unfunded amount as of January 1, 2023, and a commitment fee of 0.25% on the unfunded amount as of January 2, 2022.
Commitments and Contingencies” in the notes to the consolidated financial statements for additional information regarding our purchase commitments. 46 Table of Contents Cash Flow Summary Information about our cash flows, by category, is presented in our statements of cash flows and is summarized below (in millions): For the year Net cash provided by (used in): January 4, 2021 to January 2, 2022 December 30, 2019 to January 3, 2021 Operating activities $ 210.8 $ 229.4 Investing activities $ (182.0) $ (184.2) Financing activities $ (30.4) $ (9.1) Cash flow provided by operating activities Net cash provided by operating activities for the 2021 Fiscal Year was $210.8 million compared to $229.4 million for the 2020 Fiscal Year.
Cash Flow Summary Information about our cash flows, by category, is presented in our statements of cash flows and is summarized below (in millions): For the year Net cash provided by (used in): January 3, 2022 to January 1, 2023 January 4, 2021 to January 2, 2022 Operating activities $ 217.2 $ 210.8 Investing activities $ (284.4) $ (182.0) Financing activities $ 43.4 $ (30.4) Cash flow provided by operating activities Net cash provided by operating activities for the 2022 Fiscal Year was $217.2 million compared to $210.8 million for the 2021 Fiscal Year.
If during the measurement period (a period not to exceed 12 months from the acquisition date) we receive additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown to us, we make the appropriate adjustments to the purchase price allocation in the reporting period the amounts are determined.
If during the measurement period (a period not to exceed 12 months from the acquisition date) we receive additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown to us, we make the appropriate adjustments to the purchase price allocation in the reporting period the amounts are determined. 55 Table of Contents Judgments and Uncertainties: Significant judgment is required to estimate the fair value of intangible assets and in assigning their respective useful lives.
Our working capital needs are exposed to these price fluctuations, as well as to fluctuations in our cost for transportation and distribution. We might not always be able to reflect these increases in our pricing.
Our working capital needs are exposed to these price fluctuations, as well as to fluctuations in our cost for transportation and distribution. We may not always be able to reflect these increases in our pricing. The strategic initiatives described above are designed to reduce our exposure to these fluctuations and maintain and improve our efficiency.
Further, our subsidiaries are permitted under the terms of the Second Amended and Restated Credit Agreement and the ABL Facility and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends, or the making of loans to us. 49 Table of Contents Interest Rate Swaps We are subject to interest rate risk with regard to existing and future issuances of debt.
Further, our subsidiaries are permitted under the terms of the Second Amended and Restated Credit Agreement and the ABL Credit Agreement and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends, or the making of loans to us.
Our purchase obligations include various commitments with vendors to purchase goods and services, primarily inventory. The largest purchase obligations include contracts with various farmers that run through the 2025 Fiscal Year and obligate us to make payments for certain nursery products and grass seeds for approximately $160.8 million, which includes expected payments of $82.4 million for the 2022 Fiscal Year.
The largest purchase obligations include contracts with various farmers that run through the 2025 Fiscal Year and obligate us to make payments for certain nursery products and grass seeds for approximately $125.0 million, which includes expected payments of $77.9 million for the 2023 Fiscal Year.
We work to develop strong relationships with select suppliers that we target based on a number of factors, including brand and market recognition, price, quality, product support, service levels, delivery terms, and strategic positioning.
Volume-Based Pricing We generally procure our products through purchase orders rather than under long-term contracts with firm commitments. We work to develop strong relationships with select suppliers that we target based on a number of factors, including brand and market recognition, price, quality, product support, service levels, delivery terms, and strategic positioning.
The projected interest payments are calculated for future periods through maturity dates of our long-term debt using interest rates in effect as of January 2, 2022. Certain of these projected interest payments may differ in the future based on changes in floating interest rates or other factors and events, including our entry into amendments of the term loan facility.
Certain of these projected interest payments may differ in the future based on changes in floating interest rates or other factors and events, including our entry into amendments of the term loan facility and the ABL Facility.
Our borrowing base capacity under the ABL Facility was $364.1 million and $362.3 million as of as of January 2, 2022 and January 3, 2021, respectively. As of January 2, 2022, we had total cash and cash equivalents of $53.7 million, total gross long-term debt of $260.2 million, and total finance lease obligations (excluding interest) of $45.4 million.
There were no revolving credit loans outstanding and our borrowing base capacity under the ABL Facility was $364.1 million as of January 2, 2022. As of January 1, 2023, we had total cash and cash equivalents of $29.1 million, total gross long-term debt of $356.1 million, and total finance lease obligations (excluding interest) of $58.7 million.
Consolidated Statements of Operations (in millions) January 4, 2021 to January 2, 2022 December 30, 2019 to January 3, 2021 Net sales $ 3,475.7 100.0 % $ 2,704.5 100.0 % Cost of goods sold 2,263.1 65.1 % 1,803.2 66.7 % Gross profit 1,212.6 34.9 % 901.3 33.3 % Selling, general and administrative expenses 900.6 25.9 % 728.2 26.9 % Other income 1.7 — % 6.7 0.2 % Operating income 313.7 9.0 % 179.8 6.6 % Interest and other non-operating expenses, net 19.2 0.6 % 31.0 1.1 % Income tax expense 56.1 1.6 % 27.5 1.0 % Net income $ 238.4 6.9 % $ 121.3 4.5 % Comparison of the 2021 Fiscal Year to the 2020 Fiscal Year Net sales Net sales for the 2021 Fiscal Year increased 29% to $3,475.7 million as compared to $2,704.5 million for the 2020 Fiscal Year due to continued investment in outdoor living spaces as consumers spent more time at home, price inflation from rising product costs, and contributions from acquisitions.
Consolidated Statements of Operations January 3, 2022 to January 1, 2023 January 4, 2021 to January 2, 2022 Net sales $ 4,014.5 100.0 % $ 3,475.7 100.0 % Cost of goods sold 2,593.0 64.6 % 2,263.1 65.1 % Gross profit 1,421.5 35.4 % 1,212.6 34.9 % Selling, general and administrative expenses 1,097.0 27.3 % 900.6 25.9 % Other income 8.6 0.2 % 1.7 — % Operating income 333.1 8.3 % 313.7 9.0 % Interest and other non-operating expenses, net 20.0 0.5 % 19.2 0.6 % Income tax expense 67.7 1.7 % 56.1 1.6 % Net income $ 245.4 6.1 % $ 238.4 6.9 % Comparison of the 2022 Fiscal Year to the 2021 Fiscal Year Net sales Net sales for the 2022 Fiscal Year increased 16% to $4,014.5 million as compared to $3,475.7 million for the 2021 Fiscal Year primarily due to price inflation resulting from rising product costs and contributions from acquisitions.
Judgments and Uncertainties: Significant judgment is required to estimate the fair value of intangible assets and in assigning their respective useful lives. Accordingly, we typically engage third-party valuation specialists, who work under the direction of management, for the more significant acquired tangible and intangible assets.
Accordingly, we typically engage third-party valuation specialists, who work under the direction of management, for the more significant acquired tangible and intangible assets.
The change in working capital was primarily attributable to higher receivables reflecting our strong sales growth and higher inventory as a result of our decision to increase inventory stocking levels to mitigate supply chain disruptions and the impact of product cost inflation, as well as to support the expansion of our distribution center network.
The change in working capital was primarily attributable to higher receivables reflecting our sales growth and higher inventory as a result of acquisitions, product cost inflation, and our decision to increase inventory stocking levels to mitigate supply chain disruptions. Capital expenditures of $27.1 million for the 2022 Fiscal Year were 0.7% of Net sales for the year.
Although we have experienced operational and other challenges to date, there has been no material adverse impact as a result of the pandemic on our results of operations during the 2021 Fiscal Year or 2020 Fiscal Year. In addition, we expect a continuing inflationary environment, marked by rising product and logistics costs as well as increased commodity costs.
Although we have experienced operational and other challenges to date, and may again in the future, there has been no material adverse impact as a result of the pandemic on our results of operations during the 2022 Fiscal Year.
No material adjustments to the valuation of such assets, impairment loss, or accelerated amortization of intangible assets due to revised useful lives was recorded in the 2021 Fiscal Year or 2020 Fiscal Year. Goodwill Summary: Goodwill represents the acquired fair value of a business in excess of the fair values of tangible and identified intangible assets acquired and liabilities assumed.
No material adjustments to the valuation of such assets, impairment loss, or accelerated amortization of intangible assets due to revised useful lives was recorded in the 2022 Fiscal Year or the 2021 Fiscal Year.
If the fair value exceeds the carrying amount, the goodwill is not considered impaired. To the extent a reporting unit’s carrying amount exceeds its fair value, the reporting unit’s goodwill is deemed impaired, and an impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value.
To the extent a reporting unit’s carrying amount exceeds its fair value, the reporting unit’s goodwill is deemed impaired, and an impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value. 56 Table of Contents Judgments and Uncertainties: Significant judgment is required to determine whether impairment indicators exist and to estimate the fair value of our reporting units.
Capital expenditures of $32.5 million were $13.9 million higher in the 2021 Fiscal Year compared to $18.6 million in the 2020 Fiscal Year due to increased investments in material handling equipment used in our branches.
The increase reflects higher acquisition investments during the 2022 Fiscal Year compared to the 2021 Fiscal Year. Capital expenditures of $27.1 million were $5.4 million lower in the 2022 Fiscal Year compared to $32.5 million in the 2021 Fiscal Year due to decreased investments in material handling equipment used in our branches.
We test goodwill on an annual basis as of July fiscal month end and additionally if an event occurs or circumstances change that would indicate the carrying amount may be impaired. The goodwill impairment test requires us to estimate and compare the fair value of a reporting unit to its carrying amount, including goodwill.
Goodwill Summary: Goodwill represents the acquired fair value of a business in excess of the fair values of tangible and identified intangible assets acquired and liabilities assumed. We test goodwill on an annual basis as of July fiscal month end and additionally if an event occurs or circumstances change that would indicate the carrying amount may be impaired.
The increase in the effective tax rate was due primarily to an increase in Income before taxes, partially offset by an increase in the amount of excess tax benefits from stock-based compensation recognized as a component of Income tax expense in the Consolidated Statements of Operations.
The increase in the effective tax rate was due primarily to a decrease in the amount of excess tax benefits from stock-based compensation recognized as a component of Income tax expense in the Consolidated Statements of Operations. Excess tax benefits of $10.4 million were recognized for the 2022 Fiscal Year as compared to $20.2 million for the 2021 Fiscal Year.
Working capital was $615.9 million as of January 2, 2022, an increase of $132.9 million as compared to $483.0 million as of January 3, 2021.
Working capital was $759.5 million as of January 1, 2023, an increase of $143.6 million as compared to $615.9 million as of January 2, 2022.
The majority of customer relationship intangible assets are amortized on an accelerated method. 51 Table of Contents Sensitivity of Estimates to Change: We completed eight acquisitions during the 2021 Fiscal Year for an aggregate purchase price of $147.2 million and the preliminary valuations of assets acquired included customer relationship intangible assets of $54.2 million and trademarks and other intangible assets of $8.3 million.
Sensitivity of Estimates to Change: We completed 16 acquisitions during the 2022 Fiscal Year for an aggregate purchase price of $248.7 million and the preliminary valuations of assets acquired included customer relationship intangible assets of $95.8 million and trademarks and other intangible assets of $15.4 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe borrowing margins are defined by a pricing grid, as included in the ABL Facility agreement, based on average excess availability for the previous quarter. • The New Term Loans bear interest at either (i) an adjusted LIBOR rate plus an applicable margin equal to 2.00% (with a LIBOR floor of 0.50%) or (ii) an alternative base rate plus an applicable margin equal to 1.00%.
Biggest changeInterest rate swaps are entered into with the objective of converting variable to fixed rate debt, thereby reducing volatility in borrowing costs. • Loans under the ABL Facility bear interest, at Landscape Holding’s option, at either (i) an adjusted term SOFR rate equal to term SOFR plus 0.10% (subject to a floor of 0.00%) plus an applicable margin of 1.25% or 1.50% or (ii) an alternate base rate plus an applicable margin of 0.25% or 0.50%, in each case depending on average daily excess availability under the ABL Facility, and in each case subject to a 0.125% reduction when the Consolidated First Lien Leverage Ratio (as defined in the ABL Credit Agreement) is less than 1.50:1.00. • The New Term Loans bear interest, at Landscape Holding’s option, at either (i) an adjusted LIBOR rate plus an applicable margin equal to 2.00% (with a LIBOR floor of 0.50%) or (ii) an alternative base rate plus an applicable margin equal to 1.00%.
Investments, if any, are only in liquid securities and only with counterparties with appropriate credit ratings. Transactions involving derivative financial instruments are with counterparties with which we have a signed netting agreement and which have appropriate credit ratings. We do not expect any counterparty to fail to meet its obligations. 53 Table of Contents
Transactions involving derivative financial instruments are with counterparties with which we have a signed netting agreement and which have appropriate credit ratings. We do not expect any counterparty to fail to meet its obligations. 58 Table of Contents
In the normal course of business, we provide credit to our customers, perform ongoing credit evaluations of these customers, and maintain reserves for potential credit losses. Our typical credit terms extend 30 days from the date of purchase, but terms of up to 60 days are not uncommon.
We perform credit evaluations on all customers requesting credit above a specified exposure level. In the normal course of business, we provide credit to our customers, perform ongoing credit evaluations of these customers, and maintain reserves for potential credit losses.
We typically have limited risk from a concentration of credit risk as no individual customer represents greater than 10% of the outstanding accounts receivable balance. Bad debt reserves, which we use as a proxy for our bad debt exposure, were approximately 3% of gross receivables as of January 2, 2022.
Our typical credit terms extend 30 days from the date of purchase, but terms of up to 60 days are not uncommon. We typically have limited risk from a concentration of credit risk as no individual customer represents greater than 5% of the outstanding accounts receivable balance.
Removed
Interest rate swaps are entered into with the objective of converting variable to fixed rate debt, thereby reducing volatility in borrowing costs. • The ABL Facility bears interest (i) in the case of U.S. dollar-denominated loans, either at LIBOR or an alternate base rate, at our option, plus applicable borrowing margins and (ii) in the case of Canadian dollar denominated loans, either at the Bankers’ Acceptances Rate or the Canadian Prime Rate, at our option, plus applicable borrowing margins.
Added
We are exposed to market risk in the ordinary course of our business, primarily in the form of commodity risk, product price risk, interest rate risk, and credit risk. To mitigate these risks, we utilize various financial instruments in the ordinary course of business, which are not held for any speculative or trading purposes.
Removed
A 1% increase in interest rates on our variable-rate debt would not change our annual forecasted interest expense primarily due to our interest rate swap agreements . Credit Risk We have a credit policy in place and monitor exposure to credit risk on an ongoing basis. We perform credit evaluations on all customers requesting credit above a specified exposure level.
Added
The portions of our outstanding balances under the ABL Facility and the New Term Loans that were not covered by interest rate swap contracts are subject to variable interest rates.
Added
We performed a sensitivity analysis and determined that an increase of one percentage point in interest rates on our variable-rate debt outstanding at January 1, 2023 would increase our projected interest payments by approximately $1.1 million for the 2023 Fiscal Year.
Added
Actual interest payments may differ in the future based on additional changes in floating interest rates or other factors and events, including our entry into amendments of the ABL Facility and the New Term Loans . Credit Risk We have a credit policy in place and monitor exposure to credit risk on an ongoing basis.
Added
Bad debt reserves, which we use as a proxy for our bad debt exposure, were approximately 5% of gross receivables as of January 1, 2023. Investments, if any, are only in liquid securities and only with counterparties with appropriate credit ratings.

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