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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 28, 2019
 OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-32383
BL2A19.JPG
BlueLinx Holdings Inc.
 
 
(Exact name of registrant as specified in its charter)
 
 
Delaware
77-0627356
(State of Incorporation)
(I.R.S. Employer Identification No.)
 
 
 
1950 Spectrum Circle, Suite 300

Marietta
GA
30067
(Address of principal executive offices)
(Zip Code)
 
(770) 953-7000
(Registrant’s telephone number, including area code)
 Not applicable
(Former name or former address, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
BXC
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer 
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
Emerging Growth Company 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
                                                                                             
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
As of November 4, 2019 there were 9,364,959 shares of BlueLinx Holdings Inc. common stock, par value $0.01, outstanding.





BLUELINX HOLDINGS INC.
Form 10-Q
For the Quarterly Period Ended September 28, 2019
 
INDEX
 
PAGE 
 
1
1
2
3
4
6
19
26
26
 
 
 
27
27
27
27
27
27
28
 
 
29


i



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net sales
$
678,665

 
$
859,776

 
$
2,023,814

 
$
2,190,215

Cost of sales
584,952

 
768,021

 
1,749,889

 
1,939,484

Gross profit
93,713

 
91,755

 
273,925

 
250,731

Operating expenses:
 

 
 

 
 

 
 

Selling, general, and administrative
79,881

 
87,692

 
228,392

 
238,655

Gains from sales of property
(38
)
 

 
(9,798
)
 

Depreciation and amortization
7,577

 
8,068

 
22,408

 
18,177

Total operating expenses
87,420

 
95,760

 
241,002

 
256,832

Operating income (loss)
6,293

 
(4,005
)
 
32,923

 
(6,101
)
Non-operating expenses (income):
 

 
 

 
 

 
 

Interest expense
13,409

 
13,273

 
40,527

 
33,947

Other income, net
(317
)
 
(94
)
 
(212
)
 
(282
)
Loss before provision for (benefit from) income taxes
(6,799
)
 
(17,184
)
 
(7,392
)
 
(39,766
)
Provision for (benefit from) income taxes
244

 
(7,288
)
 
69

 
(7,885
)
Net loss
$
(7,043
)
 
$
(9,896
)
 
$
(7,461
)
 
$
(31,881
)

 
 
 
 
 
 
 
Basic loss per share
$
(0.75
)
 
$
(1.07
)
 
$
(0.80
)
 
$
(3.46
)
Diluted loss per share
$
(0.75
)
 
$
(1.07
)
 
$
(0.80
)
 
$
(3.46
)
 
 
 
 
 
 
 
 
Comprehensive loss:
 

 
 

 
 

 
 

Net loss
$
(7,043
)
 
$
(9,896
)
 
$
(7,461
)
 
$
(31,881
)
Other comprehensive income (loss):
 

 
 

 
 

 
 

Foreign currency translation, net of tax
(9
)
 

 
(2
)
 
(3
)
Amortization of unrecognized pension gain (loss), net of tax
(1,834
)
 
201

 
(1,403
)
 
605

Pension curtailment, net of tax

 

 
(632
)
 

Other
(7
)
 

 
9

 

Total other comprehensive income (loss)
(1,850
)
 
201

 
(2,028
)
 
602

Comprehensive loss
$
(8,893
)
 
$
(9,695
)
 
$
(9,489
)
 
$
(31,279
)
 
See accompanying Notes.
 


1




BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
September 28, 2019
 
December 29, 2018
ASSETS
Current assets:
 
 
 
Cash
$
12,847

 
$
8,939

Receivables, less allowances of $3,811 and $3,656, respectively
243,905

 
208,434

Inventories, net
362,389

 
341,851

Other current assets
42,366

 
40,629

Total current assets
661,507

 
599,853

Property and equipment, at cost
321,004

 
308,398

Accumulated depreciation
(113,740
)
 
(103,285
)
Property and equipment, net
207,264

 
205,113

Operating lease right-of-use assets
53,689

 

Goodwill
47,772

 
47,772

Intangible assets, net
28,354

 
35,222

Deferred tax assets
54,784

 
52,645

Other non-current assets
19,259

 
19,284

Total assets
$
1,072,629

 
$
959,889

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
 

 
 

Accounts payable
$
179,376

 
$
149,188

Accrued compensation
8,780

 
7,974

Current maturities of long-term debt, net of discount and debt issuance
costs of $74 and $64, respectively
1,790

 
1,736

Finance leases - short-term
8,373

 
7,555

Real estate deferred gains - short-term
4,448

 
5,330

Operating lease liabilities - short-term
6,381

 

Other current liabilities
13,835

 
24,985

Total current liabilities
222,983

 
196,768

Non-current liabilities:
 

 
 

Long-term debt, net of discount and debt issuance costs
of $12,081 and $12,665, respectively
488,097

 
497,939

Finance leases - long-term
155,258

 
143,486

Real estate financing obligation
44,725

 

Real estate deferred gains - long-term
82,400

 
86,011

Operating lease liabilities - long-term
47,418

 

Pension benefit obligation
27,625

 
26,668

Other non-current liabilities
24,694

 
23,680

Total liabilities
1,093,200

 
974,552

Commitments and Contingencies


 


STOCKHOLDERS’ DEFICIT:
 

 
 

Common Stock, $0.01 par value, Authorized - 20,000,000 shares,
Issued and Outstanding - 9,364,959 and 9,293,794, respectively
94

 
92

Additional paid-in capital
260,883

 
258,596

Accumulated other comprehensive loss
(39,157
)
 
(37,129
)
Accumulated stockholders’ deficit
(242,391
)
 
(236,222
)
Total stockholders’ deficit
(20,571
)
 
(14,663
)
Total liabilities and stockholders’ deficit
$
1,072,629

 
$
959,889

See accompanying Notes.

2




BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
Net cash used in operating activities
$
(54,940
)
 
$
(59,293
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Proceeds from sale of assets
13,699

 
107,972

Acquisition of business, net of cash acquired

 
(353,094
)
Property and equipment investments
(3,321
)
 
(1,872
)
Net cash provided by (used in) investing activities
10,378

 
(246,994
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Borrowings on revolving credit facilities
512,379

 
736,254

Repayments on revolving credit facilities
(490,842
)
 
(503,577
)
Borrowings on term loan

 
180,000

Repayments on term loan
(31,899
)
 
(900
)
Principal payments on mortgage

 
(97,847
)
Proceeds from real estate transactions
44,725

 

Change in outstanding payments
22,348

 
14,671

Debt issuance costs
(1,588
)
 
(10,470
)
Payments on finance lease obligations
(6,445
)
 
(5,890
)
Repurchase of shares to satisfy employee tax withholdings
(208
)
 
(3,020
)
Net cash provided by financing activities
48,470

 
309,221

 
 
 
 
Net change in cash
3,908

 
2,934

Cash at beginning of period
8,939

 
4,696

Cash at end of period
$
12,847

 
$
7,630


See accompanying Notes.

3




BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands)
(Unaudited)

 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated Deficit
 
Stockholders’ Deficit Total
 
Shares
 
Amount
 
 
 
 
Balance, December 29, 2018
9,294

 
$
92

 
$
258,596

 
$
(37,129
)
 
$
(236,222
)
 
$
(14,663
)
Net loss

 

 

 

 
(6,719
)
 
(6,719
)
Adoption of ASC 842, net of tax

 

 

 

 
1,291

 
1,291

Foreign currency translation, net of tax

 

 

 
7

 

 
7

Unrealized gain from pension plan, net of tax

 

 

 
1,077

 

 
1,077

Vesting of restricted stock units
49

 
1

 

 

 

 
1

Compensation related to share-based grants

 

 
706

 

 

 
706

Other

 

 

 
15

 
 
 
15

Balance, March 30, 2019
9,343

 
93

 
259,302

 
(36,030
)
 
(241,650
)
 
(18,285
)
Net income

 

 

 

 
6,301

 
6,301

Unrealized loss from pension plan, net of tax

 

 

 
(1,278
)
 

 
(1,278
)
Vesting of restricted stock units
32

 
1

 

 

 

 
1

Compensation related to share-based grants

 

 
635

 

 

 
635

Repurchase of shares to satisfy employee tax withholdings
(10
)
 

 
(208
)
 

 

 
(208
)
Other

 

 
(2
)
 
1

 

 
(1
)
Balance, June 29, 2019
9,365

 
94

 
259,727

 
(37,307
)
 
(235,349
)
 
(12,835
)
Net loss

 

 

 

 
(7,043
)
 
(7,043
)
Foreign currency translation, net of tax

 

 

 
(9
)
 

 
(9
)
Unrealized loss from pension plan, net of tax

 

 

 
(1,834
)
 

 
(1,834
)
Compensation related to share-based grants

 

 
1,156

 

 

 
1,156

Other

 

 

 
(7
)
 
1

 
(6
)
Balance, September 28, 2019
9,365

 
$
94

 
$
260,883

 
$
(39,157
)
 
$
(242,391
)
 
$
(20,571
)



















4




BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands)
(Unaudited)
 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated Deficit
 
Stockholders’ Equity Total
 
Shares
 
Amount
 
 
 
 
Balance, December 30, 2017
9,101

 
$
91

 
$
259,588

 
$
(36,507
)
 
$
(188,170
)
 
$
35,002

Net loss

 

 

 

 
(13,427
)
 
(13,427
)
Foreign currency translation, net of tax

 

 

 
6

 

 
6

Unrealized gain from pension plan, net of tax

 

 

 
203

 

 
203

Vesting of performance shares
109

 
1

 

 

 

 
1

Compensation related to share-based grants

 

 
319

 

 

 
319

Repurchase of shares to satisfy employee tax withholdings

 

 
(1
)
 

 

 
(1
)
Other

 

 

 

 
(7
)
 
(7
)
Balance, March 31, 2018
9,210

 
92

 
259,906

 
(36,298
)
 
(201,604
)
 
22,096

Net loss

 

 

 

 
(8,558
)
 
(8,558
)
Foreign currency translation, net of tax

 

 

 
(9
)
 

 
(9
)
Unrealized gain from pension plan, net of tax

 

 

 
201

 

 
201

Vesting of restricted stock units
11

 

 

 

 

 

Compensation related to share-based grants

 

 
338

 

 

 
338

Repurchase of shares to satisfy employee tax withholdings
(2
)
 

 
(1,719
)
 

 

 
(1,719
)
Other

 

 

 

 
7

 
7

Balance, June 30, 2018
9,219

 
92

 
258,525

 
(36,106
)
 
(210,155
)
 
12,356

Net loss

 

 

 

 
(9,896
)
 
(9,896
)
Unrealized gain from pension plan, net of tax

 

 

 
201

 

 
201

Vesting of restricted stock units
70

 

 

 

 

 

Compensation related to share-based grants

 

 
635

 

 

 
635

Repurchase of shares to satisfy employee tax withholdings

 

 
(1,068
)
 

 

 
(1,068
)
Other

 

 
(4
)
 

 

 
(4
)
Balance, September 29, 2018
9,289

 
$
92

 
$
258,088

 
$
(35,905
)
 
$
(220,051
)
 
$
2,224

 

See accompanying Notes.



5




BLUELINX HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 28, 2019
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of BlueLinx Holdings Inc. and its wholly owned subsidiaries (the “Company”). These financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted (“GAAP”) in the United States (“U.S.”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K (the “Annual Report on Form 10-K”) for the year ended December 29, 2018, as filed with the Securities and Exchange Commission on March 13, 2019.
Our financial condition as of, and our operating results for, the three and nine-month periods ended September 28, 2019, are not necessarily indicative of the financial condition and results that may be expected for the full year ending December 28, 2019, or any other interim period. Certain prior period amounts have been reclassified to conform to the current period's presentation. These reclassifications did not materially impact the Company's operating income (loss) or consolidated net income (loss).
Subsequent Events
We evaluated subsequent events through the date that our Condensed Consolidated Financial Statements were issued. Except as described in Note 13, no matters were identified that required adjustment of the Condensed Consolidated Financial Statements or additional disclosure.
Outstanding Payments
Outstanding payments represent outstanding checks and electronic payments that have not been presented for payment as of the end of the period. These amounts are typically funded within 24 hours. As of September 28, 2019, and December 29, 2018, outstanding payments of $39.8 million and $17.4 million, respectively, were included in accounts payable on our condensed consolidated balance sheets.
Recently Adopted Accounting Standards
Leases.  In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” Topic 842 establishes a new lease accounting model. The most significant changes include the clarification of the definition of a lease, the requirement for lessees to recognize, for all leases, a right-of-use asset and a lease liability in the consolidated balance sheet, and additional quantitative and qualitative disclosures which are designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. Lease expenses will continue to be recognized in the consolidated statement of income (loss) in a manner similar to prior accounting guidance. Lessor accounting under the new standard is substantially unchanged. We adopted this standard, and all related amendments thereto, effective December 30, 2018, the first day of our 2019 fiscal year, using a modified retrospective approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. We have made an accounting policy election to keep leases with an initial term of 12 months or less off of the consolidated balance sheet. We implemented internal controls and a lease accounting information system to enable the preparation of financial information required by the new standard. The adoption of Topic 842 had a material impact on our condensed consolidated balance sheets but did not have a material impact on our condensed consolidated statements of operations and comprehensive loss. The most significant impact was the recognition of right-of-use assets and lease liabilities of $57.5 million on the condensed consolidated balance sheet. Additionally, $1.7 million of deferred gains associated with sale-leaseback transactions was recorded as a cumulative-effect adjustment to accumulated deficit. See Note 9 “Leases” for additional disclosures regarding our lease commitments.

6




Comprehensive Income. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220).” This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive loss to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard was effective for interim and annual reporting periods beginning after December 15, 2018. We did not exercise the option to make this reclassification.
Accounting Standards Effective in Future Years
Credit Impairment Losses. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” This ASU sets forth a current expected credit loss (“CECL”) model which requires the measurement of all expected credit losses for financial instruments or other assets (e.g., trade receivables), held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model, is applicable to the measurement of credit losses on financial assets measured at amortized cost, and applies to some off-balance sheet credit exposures. The standard also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. The standard is effective for reporting periods beginning after December 15, 2019. We have not completed our assessment of the standard but we do not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Goodwill. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350).” This ASU is intended to simplify the test for goodwill impairments by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new ASU, a goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The accounting standard will be effective for reporting periods beginning after December 15, 2019, and early adoption is permitted. We do not expect the adoption of the standard to have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Fair Value Measurement. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value (“FV”) Measurement (Topic 820).” Among other modifications, this ASU removes the requirements to disclose: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the FV hierarchy; (ii) the policy for timing transfers between levels; and (iii) the valuation process for Level 3 FV measurements. The standard will require public entities to disclose: (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 FV measurements held at the end of the reporting period; and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 FV measurements. The additional disclosure requirements should be applied prospectively for the most recent interim or annual period presented in the fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented. The amendments in this standard are effective for fiscal years beginning after December 15, 2019. Early adoption is permitted, and an entity may adopt the removed or modified disclosures and delay the adoption of new disclosures until the effective date. We have not completed our assessment of the standard but we do not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Defined Benefit Pension Plan. In August 2018, the FASB issued ASU No. 2018-14, “Compensation-Retirement-Benefits-Defined Benefit Plans-General (Subtopic 715-20).” The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing six previously required disclosures and adding two. The amendments also clarify certain other disclosure requirements. The amendments in this standard are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We have not completed our assessment of the standard but we do not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.
2. Acquisition of Cedar Creek
On April 13, 2018, we completed the acquisition of Cedar Creek Holdings, Inc. (“Cedar Creek”) for a purchase price of approximately $361.8 million. The acquisition was completed pursuant to the terms of an Agreement and Plan of Merger (the "Merger Agreement"), dated as of March 9, 2018, by and among BlueLinx Corporation, one of our wholly owned subsidiaries, Panther Merger Sub, Inc., a wholly-owned subsidiary of BlueLinx Corporation ("Merger Sub"), Cedar Creek, and CharlesBank Equity Fund VII, Limited Partnership. Upon closing the transactions contemplated by the Merger Agreement, among other things, Merger Sub was merged with and into Cedar Creek, with Cedar Creek surviving the merger as one of our indirect

7




wholly-owned subsidiaries. The merger allowed us to expand our product offerings, while maintaining our existing geographical footprint.

Cedar Creek was established in 1977 as a wholesale building materials distribution company that distributes wood products across the United States. Its products include specialty lumber, oriented strand board, siding, cedar, spruce, engineered wood products and other building products.

The acquisition was accounted for under the acquisition method of accounting. The assets acquired, liabilities assumed and results of operations of the acquired business have been included in our consolidated results since April 13, 2018.

The following unaudited consolidated pro forma information presents consolidated information as if the acquisition had occurred on January 1, 2017:
 
 
Pro forma
 
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share data)
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net sales
 
$
678,665

 
$
859,776

 
$
2,023,814

 
$
2,592,597

Net income (loss)
 
(5,194
)
 
(6,219
)
 
937

 
(5,455
)
Earnings (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.55
)
 
$
(0.67
)
 
$
0.10

 
$
(0.59
)
Diluted
 
(0.55
)
 
(0.67
)
 
0.10

 
(0.59
)

The pro forma amounts above have been calculated in accordance with GAAP after applying the Company's accounting policies and adjusting the three and nine months ended September 28, 2019, for $1.8 million and $8.4 million, and the three and nine months ended September 29, 2018, for $3.7 million and $40.3 million, respectively, for transaction related costs, net of tax. Due to the net loss for the three month period ended September 28, 2019, 114,000 incremental shares from share-based compensation arrangements were excluded from the computation of diluted weighted average shares outstanding because their effect would be anti-dilutive. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the acquisition, are presented for illustrative purposes only, and are not necessarily indicative of results that would have been achieved had the acquisition occurred as of January 1, 2017, or of future operating performance.
The purchase price of Cedar Creek consisted of the following items:
 
 
(In thousands)
Consideration paid to shareholders and amounts paid to creditors:
 
 
Payments to Cedar Creek shareholders[1]
 
$
166,447

 
Subordinated unsecured note (due to shareholder)[2]
 
 
13,743

 
Seller’s transaction costs paid by Company
 
 
7,349

 
Repayment of Cedar Creek debt[3]
 
 
174,213

 
Total cash purchase price
 
$
361,752

 

[1] 
Payments to Cedar Creek’s shareholders include the purchase of common stock and certain escrow adjustments.
[2] 
The Cedar Creek note payable to a shareholder of $13.7 million was paid in full upon the acquisition of Cedar Creek and included $10 million in subordinated debt and $3.7 million in accrued interest.
[3] 
To finance the acquisition of Cedar Creek, the Company amended and restated its Revolving Credit Facility to increase the capacity thereunder to $600.0 million and also entered into a new $180.0 million senior secured Term Loan Facility. (See Note 6)


The excess of total purchase price, which includes the aggregate cash consideration paid in excess of the fair value of the tangible and intangible assets acquired, was recorded as goodwill. The goodwill recognized is attributable to the expected operating synergies and growth potential that the Company expects to realize from the acquisition. None of the goodwill generated from the acquisition is deductible for tax purposes.


8




The following table summarizes the values of the assets acquired and liabilities assumed at the date of the acquisition:
(In thousands)
Allocation as of December 29, 2018
Cash and net working capital assets
(excluding inventory)
$
88,318

Inventory

159,227

Property and equipment

71,203

Other, net
 
(1,395
)
Intangible assets and goodwill:



Customer relationships

25,500

Non-compete agreements

8,254

Trade names

6,826

Favorable leasehold interests

800

Goodwill

47,772

Finance leases and other liabilities

(44,753
)
   Cash purchase price
$
361,752


3. Goodwill and Other Intangible Assets
In connection with the acquisition of Cedar Creek, we acquired certain intangible assets. As of September 28, 2019, our intangible assets consist of goodwill and other intangible assets including customer relationships, noncompete agreements, and trade names.
Goodwill
Goodwill is the excess of the cost of an acquired entity over the fair value of tangible and intangible assets (including customer relationships, noncompete agreements and trade names) acquired, and liabilities assumed, under acquisition accounting for business combinations. As of September 28, 2019, goodwill was $47.8 million.
Goodwill is not subject to amortization but must be tested for impairment at least annually. This test requires us to assign goodwill to a reporting unit and to determine if the implied fair value of the reporting unit’s goodwill is less than its carrying amount. We evaluate goodwill for impairment during the fourth quarter of each fiscal year. In addition, we will evaluate the carrying value for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such events and indicators may include, without limitation, significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our market capitalization.
Definite-Lived Intangible Assets.
At September 28, 2019, in connection with the acquisition of Cedar Creek, we had definite-lived intangible assets that related to customer relationships, noncompete agreements, and trade names.
At September 28, 2019, the gross carrying amounts, the accumulated amortization, and the net carrying amounts of our definite-lived intangible assets were as follows:
(In thousands)
 
Gross carrying amounts
 
Accumulated
Amortization
[1] 
Net carrying amounts
Customer relationships
 
$
25,500

 
$
(5,885
)
 
$
19,615

Noncompete agreements
 
8,254

 
(3,016
)
 
5,238

Trade names
 
6,826

 
(3,325
)
 
3,501

Total
 
$
40,580

 
$
(12,226
)
 
$
28,354


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

9




Amortization Expense
The weighted average estimated useful life remaining for customer relationships, noncompete agreements and trade names is approximately 11 years, 3 years, and 2 years, respectively. Amortization expense for the definite-lived intangible assets was $2.0 million and $6.1 million for the three and nine month periods ended September 28, 2019, respectively. For the three and nine month periods ended September 29, 2018, amortization expense was $2.1 million and $4.0 million.
Estimated amortization expense for definite-lived intangible assets for the remaining portion of 2019 and the next five fiscal years is as follows:
(In thousands)
 
Estimated Amortization
2019
 
$
1,970

2020
 
7,461

2021
 
4,973

2022
 
3,111

2023
 
1,807

2024
 
1,505



4. Revenue Recognition
We recognize revenue when control of promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Contracts with our customers are generally in the form of standard terms and conditions of sale. From time to time, we may enter into specific contracts with some of our larger customers, which may affect delivery terms. Performance obligations in our contracts generally consist solely of delivery of goods. For all sales channel types, consisting of warehouse, direct, and reload sales, we typically satisfy our performance obligations upon shipment. Our customer payment terms are typical for our industry, and may vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not deemed to be significant by us. For certain sales channels and/or products, our standard terms of payment may be as early as ten days.
In addition, we provide inventory to certain customers through pre-arranged agreements on a consignment basis. Customer consigned inventory is maintained and stored by certain customers; however, ownership and risk of loss remain with us. When the consigned inventory is sold by the customer, we recognize revenue, net of trade allowances.
All revenues recognized are net of trade allowances (i.e., rebates), cash discounts and sales returns. Cash discounts and sales returns are estimated using historical experience. Trade allowances are based on the estimated obligations and historical experience. Adjustments to earnings resulting from revisions to estimates on discounts and returns have been insignificant for each of the reported periods. Certain customers may receive cash-based incentives or credits (rebates), which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration.
With the acquisition and integration of Cedar Creek, we changed our internal product hierarchy. The following table presents our revenues disaggregated by revenue source. Certain prior year amounts have been reclassified to conform to the current year product mix of structural and specialty products. Sales and usage-based taxes are excluded from revenues.

10




 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
 
(In thousands)
Structural products
$
225,522

 
$
312,510

 
$
646,513

 
$
833,412

Specialty products
453,143

 
547,266

 
1,377,301

 
1,356,803

Total net sales
$
678,665

 
$
859,776

 
$
2,023,814

 
$
2,190,215


Also, due to the acquisition and integration of Cedar Creek, our reload sales are less distinct from warehouse sales as they have been traditionally classified. The following table presents our revenues disaggregated by sales channel. Certain prior year amounts have been reclassified to conform to the current year revenues disaggregated by sales channel. Sales and usage-based taxes are excluded from revenues.
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
 
(In thousands)
Warehouse and reload
$
577,172

 
$
716,604

 
$
1,693,206

 
$
1,815,531

Direct
114,586

 
153,847

 
360,252

 
402,420

Service revenue
272

 
981

 
1,033

 
2,872

Customer discounts and rebates
(13,365
)
 
(11,656
)
 
(30,677
)
 
(30,608
)
Total net sales
$
678,665

 
$
859,776

 
$
2,023,814

 
$
2,190,215



Practical Expedients and Exemptions

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

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


5. Assets Held for Sale and Net Gain on Disposition

In fiscal 2018, we designated certain non-operating properties as held for sale due to strategic realignments of our business. At the time of designation, we ceased recognizing depreciation expense on these assets. As of December 29, 2018, six properties were designated as held for sale, with an additional property designated during the first quarter of 2019. During the nine months ended September 28, 2019, three properties were sold, as further described below. As of September 28, 2019, and December 29, 2018, the net book value of total assets held for sale was $2.1 million and $3.1 million, respectively, and was included in “Other current assets” in our Condensed Consolidated Balance Sheets. Properties held for sale as of September 28, 2019, consisted of land in the Northeast, and four warehouses located in the Midwest and South. We plan to sell these properties within the next 12 months. We continue to actively market all properties that are designated as held for sale.

During the nine months ended September 28, 2019, we sold three non-operating distribution facilities previously designated as “held for sale”. We recognized a gain of $9.8 million in the Condensed Consolidated Statements of Operations as a result of these sales.


11




6. Long-Term Debt
As of September 28, 2019, and December 29, 2018, long-term debt consisted of the following:
 
  
 
  
September 28,
 
December 29,
(In thousands)
 
Maturity Date
  
2019
 
2018
Revolving Credit Facility (net of discounts and debt issuance
costs of $4.9 million and $6.0 million at September 28, 2019
and December 29, 2018, respectively)
 
October 10, 2022
   
$
349,982

 
$
327,319

Term Loan Facility (net of discounts and debt issuance costs
of $7.3 million and $6.7 million at September 28, 2019
and December 29, 2018, respectively)
 
October 13, 2023
   
 
139,905

 
 
172,356

Total debt
 
 
   
 
489,887

 
 
499,675

Less: current portion of long-term debt
 
 
   
 
(1,790
)
 
 
(1,736
)
Long-term debt, net
 
 
   
$
488,097

 
$
497,939


Revolving Credit Facility
On April 13, 2018, we entered into an Amended and Restated Credit Agreement with certain of our subsidiaries as borrowers (together with us, the “Borrowers”) or guarantors thereunder, Wells Fargo Bank, National Association, in its capacity as administrative agent, and certain other financial institutions party thereto (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for a senior secured asset-based revolving loan and letter of credit facility (the “Revolving Credit Facility”) of up to $600 million and an uncommitted accordion feature that permits the Borrowers to increase the facility by an aggregate additional principal amount of up to $150 million, which would allow borrowings of up to $750 million under the Revolving Credit Facility. Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit Agreement, which would reduce the amount of the revolving loans available under the Revolving Credit Facility. The maturity date of the Revolving Credit Agreement is October 10, 2022. The Borrowers’ obligations under the Revolving Credit Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items.
Borrowings under the Revolving Credit Agreement are subject to availability under the Borrowing Base (as that term is defined in the Revolving Credit Agreement). The Borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. The Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.
The Revolving Credit Agreement provides for interest on the loans at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.75 percent to 2.25 percent, with the amount of such margin determined based upon the average of the Borrowers’ excess availability for the immediately preceding fiscal quarter as calculated by the administrative agent, for loans based on LIBOR, or (ii) the administrative agent’s base rate plus a margin ranging from 0.75 percent to 1.25 percent, with the amount of such margin determined based upon the average of the Borrowers’ excess availability for the immediately preceding fiscal quarter as calculated by the administrative agent, for loans based on the base rate.
In the event excess availability falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the Borrowing Base and (b) the maximum permitted credit at such time, the Revolving Credit Agreement requires maintenance of a fixed charge coverage ratio of 1.0 to 1.0 until such time as the Borrowers’ excess availability has been at least the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the Borrowing Base and (b) the maximum permitted credit at such time for a period of 30 consecutive days.
The Revolving Credit Agreement also contains representations and warranties and affirmative and negative covenants customary for financings of this type, as well as customary events of default.
As of September 28, 2019, we had outstanding borrowings of $354.8 million, excess availability of $98.2 million, and a weighted average interest rate of 4.4 percent under our Revolving Credit Facility. As of December 29, 2018, our principal balance was $333.3 million, excess availability was $91.7 million, and our weighted average interest rate was 4.6 percent under our Revolving Credit Facility.

12




We were in compliance with all covenants under the Revolving Credit Agreement as of September 28, 2019.
Term Loan Facility
On April 13, 2018, in connection with the acquisition of Cedar Creek, we entered into a credit and guaranty agreement with HPS Investment Partners, LLC, as administrative agent and collateral agent (“HPS”) and certain other financial institutions as party thereto. On October 24, 2019, the credit and guaranty agreement was amended to, among other things, permit real estate sale leaseback transactions and modify the total net leverage ratio beginning in the third quarter of 2019 (as amended, the “Term Loan Agreement”). The Term Loan Agreement provides for a senior secured first lien loan facility in an aggregate principal amount of $180 million (the “Term Loan Facility”). The maturity date of the Term Loan Agreement is October 13, 2023. The proceeds from the Term Loan Facility were used to fund a portion of the cash consideration payable in connection with the acquisition of Cedar Creek and to fund transaction costs in connection with the acquisition and the Term Loan Facility.
The obligations under the Term Loan Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets, including inventories, accounts receivable, real property, and proceeds from those items.
The Term Loan Agreement requires monthly interest payments, and quarterly principal payments of $450,000, in arrears. The Term Loan Agreement also requires certain mandatory prepayments of outstanding loans, subject to certain exceptions, including prepayments commencing with the fiscal year ending December 28, 2019, based on a percentage of excess cash flow (as defined in the Term Loan Agreement for such fiscal year). The remaining balance is due on the loan maturity date of October 13, 2023.
The Term Loan Facility may be prepaid in whole or in part from time to time, subject to payment of the “Prepayment Premium” (as such term is defined in the Term Loan Agreement) if such voluntary prepayment does not otherwise constitute an exception to the Prepayment Premium under the Term Loan Agreement and is made on or prior to February 28, 2023, and all breakage costs incurred by any lender thereunder.
Borrowings under the Term Loan Agreement may be made as Base Rate Loans or Eurodollar Rate Loans. The Base Rate Loans will bear interest at the rate per annum equal to (i) the greatest of the (a) U.S. prime lending rate published in The Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum; and (ii) plus the Applicable Margin, as described below. Eurodollar Rate Loans will bear interest at the rate per annum equal to (i) the ICE Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent per annum; plus (ii) the Applicable Margin. The Applicable Margin will be 6.00 percent with respect to Base Rate Loans and 7.00 percent with respect to Eurodollar Rate Loans.
With the October 2019 amendment, the Term Loan Agreement required maintenance of a total net leverage ratio of 7.50 to 1.00 for the fiscal quarter ending September 28, 2019, and such required covenant level generally reduces over the remaining term of the Term Loan Facility as set forth in the amended Term Loan Agreement; provided, that 2019 fourth quarter and subsequent quarterly covenant levels revert to the higher levels existing prior to the October 2019 amendment if we do not reduce the outstanding principal balance of the Term Loan Facility to approximately $95.3 million by January 31, 2020. As of September 28, 2019, we were in compliance with the total net leverage ratio.
The Term Loan Agreement also contains representations, warranties, affirmative and negative covenants customary for financing transactions of this type, and customary events of default. Please refer to our risk factor entitled, “The instruments governing our indebtedness contain various covenants limiting the discretion of our management in operating our business, including requiring us to maintain a minimum level of excess liquidity” in our 2018 Annual Report on Form 10-K.
As of September 28, 2019, we had outstanding borrowings of $147.2 million under our Term Loan Credit Facility and an interest rate of 9.1 percent per annum. At December 29, 2018, our principal balance was $179.1 million with an interest rate of 9.3 percent per annum.
We were in compliance with all covenants under the Term Loan Agreement as of September 28, 2019.

13




Our remaining scheduled principal payments for fiscal 2019 and the following fiscal years, and thereafter, are as follows:
(In thousands)
 
 
2019
 
$
527

2020
 
 
2,250

2021
 
 
1,800

2022
 
 
1,800

Thereafter
 
 
140,824


7. Net Periodic Pension Cost
The following table shows the components of our net periodic pension cost:
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
 
(in thousands)
Service cost
$
29

 
$
133

 
$
190

 
$
399

Interest cost on projected benefit obligation
881

 
963

 
2,899

 
2,889

Expected return on plan assets
(1,339
)
 
(1,327
)
 
(3,828
)
 
(3,981
)
Amortization of unrecognized loss
278

 
271

 
857

 
813

Net periodic pension cost (benefit)
$
(151
)
 
$
40

 
$
118

 
$
120


During the first nine months of fiscal 2019, we renegotiated our collective bargaining agreement with 5 unionized locations. This collective bargaining agreement covers a number of specific items such as wages, medical coverage, and certain other benefit programs, including pension plan participation. As a result of these renegotiations, 49 of the participants in the plan are no longer accruing future years of service under the applicable pension plan, which triggered a curtailment. As a result of the curtailment, we performed a revaluation of plan assets and liabilities. The related pension benefit obligation decreased $0.1 million and $0.3 million for the three and nine months ended September 28, 2019, respectively, as a result of changes in valuation assumptions. An overall increase in plan asset valuation was accompanied by a decrease to accumulated other comprehensive income of $2.5 million and $2.7 million for the three and nine months ended September 28, 2019, respectively, which was recorded in other comprehensive loss on the Condensed Consolidated Statements of Operations and Comprehensive Loss. No intraperiod income tax effect was required to be recorded as a result of the curtailment.
In the third quarter of 2019, we offered a voluntary lump sum payment option to certain qualified former employees or their beneficiaries who are vested participants in the BlueLinx Hourly Pension Plan. Qualified participants had until October 25, 2019 to determine whether to accept the offer. Lump sum payments in connection with the offer are expected to total approximately $9.5 million, and will be completed during the fourth quarter of 2019. The payments are being funded with existing plan assets, and no additional contribution by the Company to the plan was required in connection with the offer. The offer, once completed, will have the effect of decreasing our net periodic pension cost and overall projected benefit obligation, which will be reflected in our 2019 year end consolidated financial statements once the offer, and our year end pension valuation, have been completed.
8. Stock Compensation
Cash-Settled Stock Appreciation Rights (“SARs”)
During fiscal 2016, we granted certain executives and employees cash-settled SARs. The cash-settled SARs vested on July 16, 2018. On the vesting date, half of the vested value of the cash-settled SARs became payable within thirty days of the vesting date, and the remainder payable within one year of the vesting date. The exercise price for the cash-settled SARs was amended so that it was based on a 20 day trading average of the Company’s common stock through the vesting date, in excess of the $7.00 grant date valuation.
On September 28, 2019, there was no remaining liability related to the cash-settled SARs.

14




Stock Compensation Expense
During the three months ended September 28, 2019 and September 29, 2018, we incurred stock compensation expense of $1.2 million and $1.7 million, respectively. During the nine months ended September 28, 2019 and September 29, 2018, we incurred stock compensation expense of $2.5 million and $14.7 million, respectively. The decrease in our stock compensation expense for the three and nine month periods of fiscal 2019 is attributable to cash-settled SARs expense in the prior year.
9. Leases
Effective December 30, 2018, we adopted ASU No. 2016-02, “Leases (Topic 842)” using the modified retrospective method, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. We have elected the package of practical expedients permitted under the transition guidance within the new standard. This election allowed us to carry forward our historical lease classification. The adoption of this standard resulted in the recording of operating lease right-of-use (“ROU”) assets and corresponding operating lease liabilities of $57.5 million on the condensed consolidated balance sheet as of December 30, 2018 (adoption date), the first day of fiscal 2019, which amortizes over the lease term.
Our operating and finance (formerly capital) lease portfolio includes leases for real estate, certain logistics equipment and vehicles. The majority of our leases have remaining lease terms of 1 year to 15 years, some of which include one or more options to extend the leases for 5 years. Operating lease ROU assets and liabilities are presented separately on the condensed consolidated balance sheets. Finance lease assets are included in property and equipment and the finance lease obligations are presented separately in the condensed consolidated balance sheet. We have also made the accounting policy election to not separate lease components from non lease components related to leases of several trucks during the second and third quarters of 2019.
When a lease does not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.
A portion of our real estate lease cost is generally subject to annual changes in the Consumer Price Index (“CPI”). The changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. In addition, a subset of our vehicle lease cost is considered variable.
The components of lease expense were as follows:
 
Three Months Ended September 28, 2019
 
Nine Months Ended September 28, 2019
 
 
(In thousands)
Operating lease cost:
$
2,911

 
$
9,047

Finance lease cost:
 
 
 
   Amortization of right-of-use assets
$
2,589

 
$
8,481

   Interest on lease liabilities
3,467

 
10,764

Total finance lease costs
$
6,056

 
$
19,245


15




Supplemental cash flow information related to leases was as follows:
 
 
Three Months Ended September 28, 2019
 
Nine Months Ended September 28, 2019
 
 
 
(In thousands)
 
Cash paid for amounts included in the measurement of lease liabilities
 
 
 
 
   Operating cash flows from operating leases
$
2,990

 
$
8,957

 
   Operating cash flows from finance leases
3,467

 
10,764

 
   Financing cash flows from finance leases
2,213

 
6,445

 
Right-of-use assets obtained in exchange for lease obligations
 
 
 
 
   Operating leases
$

 
$

 
   Finance leases
14,403

 
18,652


Supplemental balance sheet information related to leases was as follows:
 
(In thousands)
September 28, 2019
 
 
Finance leases
 
 
   Property and equipment
$
168,247

 
   Accumulated depreciation
(22,457
)
 
Property and equipment, net
$
145,790

 
Weighted Average Remaining Lease Term (in years)
 
 
   Operating leases
12.14

 
   Finance leases
20.36

 
Weighted Average Discount Rate
 
 
   Operating leases
9.44
%
 
   Finance leases
10.93
%


As of September 28, 2019, maturities of lease liabilities were as follows:
(In thousands)
Operating leases
 
Finance leases
2019
$
3,380

 
$
6,232

2020
9,403

 
22,877

2021
7,485

 
20,203

2022
6,111

 
19,216

2023
5,733

 
18,630

Thereafter
53,118

 
307,018

Total lease payments
$
85,230

 
$
394,176

Less: imputed interest
(31,431
)
 
(230,545
)
Total
$
53,799

 
$
163,631




16




At December 29, 2018, our total operating lease commitments were as follows:
(In thousands)
 
2019
$
11,980

2020
9,928

2021
8,435

2022
8,066

2023
7,539

Thereafter
60,847

Total
$
106,795


10. Commitments and Contingencies
Environmental and Legal Matters
From time to time, we are involved in various proceedings incidental to our businesses, and we are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. Although the ultimate outcome of these proceedings cannot be determined with certainty, based on presently available information management believes that adequate reserves have been established for probable losses with respect thereto. Management further believes that, while the ultimate outcome of one or more of these matters could be material to operating results in any given quarter, it will not have a materially adverse effect on our consolidated financial condition, our results of operations, or our cash flows.
Collective Bargaining Agreements
As of September 28, 2019, we had over 2,200 employees on a full-time basis, and approximately 20 percent of our employees were represented by various local labor union Collective Bargaining Agreements (“CBAs”). As of September 28, 2019, less than 1 percent of our employees are covered by CBAs that are up for renewal in fiscal 2019 or are currently expired and under negotiation.
11. Accumulated Other Comprehensive Loss
Comprehensive income (loss) is a measure of income (loss) which includes both net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) results from items deferred from recognition into our Condensed Consolidated Statements of Operations and Comprehensive Loss. Accumulated other comprehensive loss is separately presented on our Condensed Consolidated Balance Sheets as part of stockholders’ deficit.

17




The changes in balances for each component of accumulated other comprehensive loss for the nine months ended September 28, 2019, were as follows:
(In thousands)
Foreign currency, net
of tax
 
Defined
benefit pension
plan, net of tax
 
Other,
net of tax
 
Total Accumulated Other Comprehensive Loss
December 29, 2018, beginning balance
$
660

 
$
(38,001
)
 
$
212

 
$
(37,129
)
Other comprehensive income, net of tax [1]
(2
)
 
(2,035
)
 
9

 
(2,028
)
September 28, 2019, ending balance, net of tax
$
658

 
$
(40,036
)
 
$
221

 
$
(39,157
)
________________________________ 
[1] For the nine months ended September 28, 2019, the actuarial loss recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss as a component of net periodic pension cost was $2.7 million, net of tax of $0.7 million. Please see Note 7, Net Periodic Pension Cost, for further information.
12. Loss per Share
We calculate basic loss per share by dividing net loss by the weighted average number of common shares outstanding. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including restricted stock units, and performance units. Due to the financial results for the three and nine month periods ended September 28, 2019, 0.1 million and 0.0 million, respectively, of incremental shares were excluded from the computation of diluted weighted average shares outstanding, because their effect would be anti-dilutive. For the three and nine month periods ended September 29, 2018, 0.0 million and 0.1 million, respectively, of incremental shares from share-based compensation arrangements were excluded from the computation of diluted weighted average shares outstanding, because their effect would be anti-dilutive.
The reconciliation of basic loss and diluted loss per common share for the three- and nine-month periods of fiscal 2019 and 2018 were as follows:
 
Three Months Ended
 
Nine Months Ended
(in thousands, except per share data)
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net loss
$
(7,043
)
 
$
(9,896
)
 
$
(7,461
)
 
$
(31,881
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic
9,366

 
9,274

 
9,351

 
9,209

Dilutive effect of share-based awards

 

 

 

Weighted-average shares outstanding - diluted
9,366

 
9,274

 
$
9,351

 
$
9,209

 
 
 
 
 
 
 
 
Basic loss per share
$
(0.75
)
 
$
(1.07
)
 
$
(0.80
)
 
$
(3.46
)
Diluted loss per share
$
(0.75
)
 
$
(1.07
)
 
$
(0.80
)
 
$
(3.46
)

13. Subsequent Events
Third Amendment to Term Loan Facility
On October 24, 2019, we amended our Term Loan Facility by entering into that certain Third Amendment to Credit and Guaranty Agreement (the “Amendment”), by and among the Company, as borrower, certain of the Company’s subsidiaries, as guarantors, the lenders party thereto, and HPS, in its capacity as administrative agent.

Pursuant to the Amendment, we are permitted to enter into additional real estate sale leaseback transactions, effective from the date of the Amendment through the remaining tenor of the Term Loan Facility, with the net proceeds therefrom to be used for repayment of indebtedness under the Term Loan Facility or the Revolving Credit Facility. In addition, any net proceeds from the sale of “Specified Properties” (as such term is defined under the Term Loan Facility) will be used for repayment of indebtedness under the Term Loan Facility and the Revolving Credit Facility. The Amendment also modified the quarterly total net leverage ratio covenant levels over the term of the Term Loan Facility with the 2019 fourth quarter and subsequent quarterly level modifications reverting to the pre-Amendment levels subject to a designated outstanding principal balance level on January 31, 2020. The Amendment also provides that certain post-period prepayment rights will not apply for purposes of calculating compliance with the total net leverage ratio for the fourth quarter of 2019.

18




ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a leading distributor of building and industrial products in the U.S. With a combination of market position and geographic coverage, the buying power of certain centralized procurement, and the strength of a locally-focused sales force, BlueLinx is able to provide a wide range of value-added services and solutions to our customers and suppliers. We are headquartered in Georgia, with executive offices located at 1950 Spectrum Circle, Suite 300, Marietta, Georgia, and we operate our distribution business through a broad network of distribution centers. We serve many major metropolitan areas in the U.S. and deliver building and industrial products to a variety of wholesale and retail customers. We distribute products in two principal categories: structural products and specialty products. Structural products include primarily plywood, oriented strand board, rebar and remesh, lumber, spruce and other wood products primarily used for structural support, walls, and flooring in construction projects. Structural products represented approximately 33% of our third quarter 2019 net sales. Specialty products include primarily engineered wood products, moulding, siding and trim, cedar, metal products (excluding rebar and remesh) and insulation. Specialty products accounted for approximately 67% of our third quarter 2019 net sales.
Recent Developments
Amendment to the Term Loan Facility
On October 24, 2019 we amended our Term Loan Facility. Please refer to Note 6, Long-Term Debt, and Note 13, Subsequent Events, for more details.
Recent Sales of Assets
Third Quarter

In the third quarter, we sold a non-operating distribution facility previously designated as “held for sale” for a gain of $0.1 million.

Fourth Quarter

In October 2019, we completed the sale of the pre-finishing assets and the transfer of the related real estate lease associated with our former pre-finish facility located near St. Louis, Missouri. Also in October 2019, we sold a non-operating distribution facility and a parcel of undeveloped land. This non-operating distribution facility was previously designated as “held for sale.” A total gain of approximately $4.0 million will be recognized in our 2019 fourth quarter and year end consolidated financial statements for these sales.
Industry Conditions
Many of the factors that cause our operations to fluctuate are seasonal or cyclical in nature. Our operating results have historically been correlated with the level of single-family residential housing starts in the U.S. At any time, the demand for new homes is dependent on a variety of factors, including job growth, changes in population and demographics, the availability and cost of mortgage financing, the supply of new and existing homes, and consumer confidence. Since 2011, the U.S. housing market has generally shown improvement. Single family housing starts increased 3.7% in the third quarter of 2019 and the builders confidence index remains high. We continue to believe the housing market improvement trend will continue in the long term, and that we are well-positioned to support our customers.

Our operating results are also affected by commodity pricing, and during the third and fourth quarters of 2018, the industry experienced a significant decline in wood-based commodity prices, which included panels and framing lumber.  Lumber prices generally trended upwards during the third quarter of 2019, enhancing gross margins for structural products.  Though wood based commodity pricing is returning closer to historical averages, sales realization in the third quarter of 2019 was below the prior year levels, resulting in revenue declines compared to the third quarter of 2018. We continue to closely monitor these pricing trends, and work to manage our business, inventory levels, and costs, accordingly.


19




Factors That Affect Our Operating Results
Our results of operations and financial performance are influenced by a variety of factors, including the following: the integration of the Cedar Creek business with ours and the potential for disruption in distribution relationships, operational performance and sales resulting therefrom; changes in the prices, supply and/or demand for products that we distribute; inventory management and commodities pricing; new housing starts; repair and remodeling activity; general economic and business conditions in the U.S.; disintermediation by our customers and suppliers; acceptance by our customers of our branded and privately branded products; financial condition and credit worthiness of our customers; supply from key vendors; reliability of the technologies we utilize; activities of competitors; changes in significant operating expenses; fuel costs; risk of losses associated with accidents; exposure to product liability claims and other legal proceedings; changes in the availability of capital and interest rates; adverse weather patterns or conditions; acts of cyber intrusion or other disruptions to our information technology systems; and variations in the performance of the financial markets, including the credit markets.
Results of Operations
The following table sets forth our results of operations for the third quarter of fiscal 2019 and fiscal 2018:
(Dollars in thousands)
Third Quarter of Fiscal 2019
 
% of
Net
Sales
 
Third Quarter of Fiscal 2018
 
% of
Net
Sales
Net sales
$
678,665

 
100.0%
 
$
859,776

 
100.0%
 
 
 
 
 
 
 
 
Gross profit
93,713

 
13.8%
 
91,755

 
10.7%
Selling, general, and administrative
79,881

 
11.8%
 
87,692

 
10.2%
Gains from sales of property
(38
)
 
0.0%
 

 
0.0%
Depreciation and amortization
7,577

 
1.1%
 
8,068

 
0.9%
Operating income (loss)
6,293

 
0.9%
 
(4,005
)
 
(0.5)%
Interest expense
13,409

 
2.0%
 
13,273

 
1.5%
Other income, net
(317
)
 
0.0%
 
(94
)
 
0.0%
Loss before provision for (benefit from) income taxes
(6,799
)
 
(1.0)%
 
(17,184
)
 
(2.0)%
Provision for (benefit from) income taxes
244

 
0.0%
 
(7,288
)
 
(0.8)%
Net loss
$
(7,043
)
 
(1.0)%
 
$
(9,896
)
 
(1.2)%
The following table sets forth our results of operations for the nine-month periods of fiscal 2019 and fiscal 2018:
(Dollars in thousands)
First Nine Months of Fiscal 2019
 
% of
Net
Sales
 
First Nine Months of Fiscal 2018
 
% of
Net
Sales
Net sales
$
2,023,814

 
100.0%
 
$
2,190,215

 
100.0%
 
 
 
 
 
 
 
 
Gross profit
273,925

 
13.5%
 
250,731

 
11.4%
Selling, general, and administrative
228,392

 
11.3%
 
238,655

 
10.9%
Gains from sales of property
(9,798
)
 
(0.5)%
 

 
0.0%
Depreciation and amortization
22,408

 
1.1%
 
18,177

 
0.8%
Operating income (loss)
32,923

 
1.6%
 
(6,101
)
 
(0.3)%
Interest expense
40,527

 
2.0%
 
33,947

 
1.5%
Other income, net
(212
)
 
0.0%
 
(282
)
 
0.0%
Loss before provision for (benefit from) income taxes
(7,392
)
 
(0.4)%
 
(39,766
)
 
(1.8)%
Provision for (benefit from) income taxes
69

 
0.0%
 
(7,885
)
 
(0.4)%
Net loss
$
(7,461
)
 
(0.4)%
 
$
(31,881
)
 
(1.5)%


20




The following table sets forth net sales by product category for the three and nine-month periods of fiscal 2019 and 2018 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019

September 29, 2018
Structural products
$
225,522

 
$
312,510

 
$
646,513

 
$
833,412

Specialty products
453,143

 
547,266

 
1,377,301

 
1,356,803

Net sales
$
678,665

 
$
859,776

 
$
2,023,814

 
$
2,190,215

The following table sets forth gross profit and gross margin percentages by product category for the three and nine-month periods of fiscal 2019 and 2018 (dollars in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Structural products
$
20,183

 
$
15,151

 
$
56,187

 
$
65,177

Specialty products
73,530

 
82,625

 
217,738

 
202,493

Inventory adjustments[1]

 
(6,021
)
 

 
(16,939
)
Gross profit
$
93,713

 
$
91,755

 
$
273,925

 
$
250,731

Gross margin percentage by category
 

 
 

 
 

 
 

Structural products
8.9
%
 
4.8
%
 
8.7
%
 
7.8
%
Specialty products
16.2
%
 
15.1
%
 
15.8
%
 
14.9
%
Total, including adjustments
13.8
%
 
10.7
%
 
13.5
%
 
11.4
%

[1] ”Inventory adjustments” includes an adjustment for lower of cost or net realizable value of $5.2 million for the three and nine- month periods ended September 29, 2018, and inventory acquisition step-up charges of $0.8 million for the three months ended September 29, 2018, and $11.8 million for the nine months ended September 29, 2018.
Third Quarter of Fiscal 2019 Compared to Third Quarter of Fiscal 2018
Net sales.  For the third quarter of fiscal 2019, net sales decreased 21.1 percent, or $181.1 million, compared to the third quarter of fiscal 2018. The sales decrease was driven by declines in wood-based commodity prices and supplier and sales disruptions in connection with our Cedar Creek integration activities.
Gross profit and gross margin.  For the third quarter of fiscal 2019, gross profit increased by $2.0 million, or 2.1 percent, compared to the third quarter of fiscal 2018, primarily due to improved gross margins in our structural products business during the quarter. Gross profit was negatively impacted by the lower of cost or net realizable value adjustment on inventory of $5.2 million in the prior year period and the inventory step-up charge related to the Cedar Creek acquisition during the quarter. Gross margin during the same period was 13.8 percent, an increase compared to 10.7 percent in the third quarter of fiscal 2018, driven by improvements in our structural products business.
Selling, general, and administrative expenses.  The decrease in selling, general, and administrative expenses of 8.9 percent, or $7.8 million, for the third quarter of fiscal 2019, compared to the third quarter of fiscal 2018, is primarily due to the realization of acquisition synergies, a $0.6 million decrease in stock compensation expense and cost controls for the lower rate of sales.
Depreciation and amortization expense. For the third quarter of fiscal 2019, depreciation and amortization expense decreased by $0.5 million to $7.6 million due to a lower base of depreciable assets.
Interest expense. Interest expense increased by $0.1 million for the third quarter of fiscal 2019, compared to the third quarter of fiscal 2018. The increase was largely attributable to an increase in finance leases.
Provision for income taxes. Our effective tax rate was (3.6) percent and 42.4 percent for the third quarter of fiscal 2019 and 2018, respectively. Our effective tax rate for the third quarter of fiscal 2019 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses and consolidated interest expense limitation, including a $0.6 million discrete tax expense related to prior periods.  The effective tax rate for the third quarter of fiscal 2018 was impacted by: (i) the inclusion of Cedar Creek’s operations from April 13, 2018, to September 29, 2018; (ii) the permanent addback of certain

21




nondeductible expenses including transaction costs related to the Cedar Creek acquisition; (iii) the discrete tax benefit of $0.6 million for stock vesting; and (iv) the effect of the valuation allowance for separate company state income tax losses generated during the third quarter of fiscal 2018.
Net loss. Our net loss improved over the prior year due to higher gross margins and reduced costs associated with the acquisition of Cedar Creek, partially offset by the decrease in sales.

First Nine Months of Fiscal 2019 Compared to First Nine Months of Fiscal 2018
Net sales.  For the first nine months of fiscal 2019, net sales decreased 7.6 percent, or $166.4 million, compared to the first nine months of fiscal 2018. Sales decreased primarily as a result of lower sales realization for structural products, partially offset by the acquisition of Cedar Creek and the inclusion of Cedar Creek’s sales revenue for the full nine months in 2019, as opposed to only during the period of April 13, 2018, the date of closing, to September 29, 2018, in the prior year period. Supplier and sales disruptions in connection with our Cedar Creek integration activities also contributed to the decrease in sales.
Gross profit and gross margin.  For the first nine months of fiscal 2019, gross profit increased by $23.2 million, or 9.3 percent, with gross margin of 13.5 percent, compared to 11.4 percent for the first nine months of fiscal 2018. Gross profit was negatively impacted in the prior year by the acquisition related inventory step-up charge of $11.8 million and a lower of cost or net realizable value inventory adjustment of $5.2 million.
Selling, general, and administrative expenses. For the first nine months of fiscal 2019, selling, general, and administrative expenses decreased $10.3 million, or 4.3 percent, compared to the first nine months of fiscal 2018. The inclusion of the Cedar Creek business for the full nine months in 2019, as opposed to the period of April 13, 2018, to September 29, 2018, in the prior year period, increased expenses on a year-over-year basis. This was more than offset by a $12.2 million decrease in stock compensation expense, synergies realized from the acquisition of Cedar Creek, and decreases in cost of sales related to the year-over-year sales decline.
Gains from sales of property. Sales of property with no leaseback in the first nine months of fiscal 2019 resulted in gains recognized of $9.8 million. Gains from the sale and leaseback of property in the first nine months of fiscal 2018 were deferred, due to the rules of accounting for sale and leaseback transactions, and are amortized as a credit to selling, general, and administrative expenses in the amount of approximately $1.0 million per fiscal quarter.
Depreciation and amortization expense. For the first nine months of fiscal 2019, depreciation and amortization expense increased by $4.2 million to $22.4 million due to the acquisition of Cedar Creek, which resulted in a higher depreciable asset base and the addition of depreciable intangible assets.
Interest expense. Interest expense increased by $6.6 million for the first nine months of fiscal 2019, compared to the first nine months of fiscal 2018. The increase was largely attributable to a higher average debt balance over the period, coupled with a higher average interest rate on outstanding debt. We increased our outstanding debt to finance the acquisition of Cedar Creek in the prior year and incurred transaction costs that are amortized as interest expense.
Provision for income taxes. Our effective tax rate was (0.9) percent and 19.8 percent for the first nine months of fiscal 2019 and 2018, respectively. Our effective tax rate for the first nine months of fiscal 2019 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses and consolidated interest expense limitation, including a $0.6 million discrete tax expense related to prior periods.  In addition, during the first nine months of fiscal 2019, we recorded discrete tax expense of $0.2 million for a shortfall on stock vesting which was offset by a $0.2 million discrete tax benefit for claiming state tax credits.  The effective tax rate for the first nine months of fiscal 2018 was impacted by: (i) the inclusion of Cedar Creek’s operations from April 13, 2018, to September 29, 2018; (ii) the permanent addback of certain nondeductible expenses including transaction costs related to the Cedar Creek acquisition; and (iii) the effect of the valuation allowance for separate company state losses.
Net loss. Net loss was substantially impacted by the factors described above including: (i) gain on sale of properties in fiscal 2019 of $9.8 million, (ii) higher selling, general and administrative expenses in fiscal 2018 resulting from the acquisition of Cedar Creek and related transaction fees totaling $19.1 million, along with an inventory valuation step-up charge of $11.8 million; (iii) increased interest expense due to higher interest rates on outstanding debt; and (iv) $14.7 million of additional expense recognized for cash-settled stock appreciation rights and other share based compensation in fiscal 2018.


22




Seasonality
We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the building products distribution industry. The first and fourth fiscal quarters are typically our lower volume quarters, due to the impact of poor weather on the construction market. Our second and third fiscal quarters are typically our higher volume quarters, reflecting an increase in construction, due to more favorable weather conditions. Assuming no change in underlying inventory costs, our working capital generally increases in the fiscal second and third quarters, reflecting increased seasonal demand.
Liquidity and Capital Resources
We expect our primary sources of liquidity to be cash flows from sales in the normal course of our operations and borrowings under our Revolving Credit Facility. We expect that these sources will fund our ongoing cash requirements for the foreseeable future. We believe that sales in the normal course of our operations, and amounts currently available from our Revolving Credit Facility and other sources, will be sufficient to fund our routine operations, including working capital requirements, for at least the next 12 months.
Long-Term Debt
As of September 28, 2019, and December 29, 2018, long-term debt consisted of the following:
 
 
 
 
September 28,
 
December 29,
(In thousands)
 
Maturity Date
 
2019
 
2018
Revolving Credit Facility (net of discounts and debt issuance
costs of $4.9 million and $6.0 million at September 28, 2019
and December 29, 2018, respectively)
 
October 10, 2022
 
$
349,982

 
$
327,319

Term Loan Facility (net of discounts and debt issuance costs
of $7.3 million and $6.7 million at September 28, 2019
and December 29, 2018, respectively)
 
October 13, 2023
 
 
139,905

 
 
172,356

Total debt
 
 
 
 
489,887

 
 
499,675

Less: current portion of long-term debt
 
 
 
 
(1,790
)
 
 
(1,736
)
Long-term debt, net
 
 
 
$
488,097

 
$
497,939

Revolving Credit Facility
On April 13, 2018, we amended and restated our Revolving Credit Facility to provide for a senior secured revolving loan and letter of credit facility of up to $600 million and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $150 million. If we obtain the full amount of the additional increases in commitments, the Revolving Credit Facility will allow borrowings of up to $750 million. Borrowings under the Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the Revolving Credit Agreement). Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit Agreement, which would reduce the amount of the revolving loans available under the Revolving Credit Facility. The Revolving Credit Agreement provides for interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.75 percent to 2.25 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the administrative agent’s base rate plus a margin ranging from 0.75 percent to 1.25 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.
If excess availability falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time, the Revolving Credit Agreement requires maintenance of a fixed charge coverage ratio of 1.0 to 1.0 until excess availability has been at least the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time for a period of 30 consecutive days.
As of September 28, 2019, we had outstanding borrowings of $354.8 million and excess availability of $98.2 million under our Revolving Credit Facility with a weighted average interest rate of 4.4 percent. As of December 29, 2018 our principal balance was $333.3 million, excess availability was $91.7 million and our stated interest rate was 4.6 percent under our Revolving Credit Facility.

23




Term Loan Facility
On April 13, 2018, we entered into the Term Loan Agreement with HPS and certain other financial institutions as party thereto, and on October 24, 2019, we amended the Term Loan Agreement. The Term Loan Agreement provides for a Term Loan Facility of $180 million secured by substantially all of our assets. Borrowings under the Term Loan Agreement may be made as Base Rate Loans or Eurodollar Rate Loans. The Base Rate Loans will bear interest at the rate per annum equal to (i) the greatest of the (a) U.S. prime lending rate published in The Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum; and (ii) plus the Applicable Margin, as described below. Eurodollar Rate Loans will bear interest at the rate per annum equal to (i) the ICE Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent per annum; plus (ii) the Applicable Margin. The Applicable Margin will be 6.00 percent with respect to Base Rate Loans and 7.00 percent with respect to Eurodollar Rate Loans.
With the October 2019 amendment, the Term Loan Agreement required maintenance of a total net leverage ratio of 7.50 to 1.00 for the fiscal quarter ending September 28, 2019, and such required covenant level generally reduces over the remaining term of the Term Loan Facility as set forth in the amended Term Loan Agreement; provided, that 2019 fourth quarter and subsequent quarterly covenant levels revert to the higher levels existing prior to the October 2019 amendment if we do not reduce the outstanding principal balance of the Term Loan Facility to approximately $95.3 million by January 31, 2020.
Under the Term Loan Agreement, we are permitted to enter into real estate sale leaseback transactions with the net proceeds therefrom to be used for repayment of indebtedness under the Term Loan Facility, subject to payment an applicable prepayment premium, or, under certain circumstances, repayment of indebtedness under our Revolving Credit Facility. In addition, proceeds from the sale of “Specified Properties” (as that term is defined in the Term Loan Agreement) will be used for the repayment of indebtedness under the Term Loan Facility, subject to payment of an applicable prepayment premium, or, under certain circumstances, repayment of indebtedness under our Revolving Credit Facility.
As of September 28, 2019, we had outstanding borrowings of $147.2 million under our Term Loan Facility and a stated interest rate of 9.1 percent per annum. At December 29, 2018, our principal balance was $179.1 million, with a stated interest rate of 9.3 percent per annum under our Term Loan Facility.
Mortgage Payoff and Finance Lease Commitments
On January 10, 2018, we completed sale-leaseback transactions on four distribution centers. We sold these properties for gross proceeds of $110.0 million. As a result of the transactions, we recognized finance lease assets and obligations totaling $95.1 million on these properties, and a total deferred gain of $83.9 million, which will be amortized over the lives of the applicable leases, in accordance with U.S. GAAP. The net proceeds received from the transactions were used to pay the remaining balance of our mortgage of $97.8 million, in its entirety, in the first quarter of fiscal 2018.
Our total finance lease commitments, which substantially relate to leases of property, totaled $163.6 million as of September 28, 2019.
Interest Rates
Our Revolving Credit Facility and our Term Loan Facility include available interest rate options based on the London Inter-bank Offered Rate (LIBOR). It is widely expected that LIBOR will be discontinued after 2021, and the U.S. and other countries are currently working to replace LIBOR with alternative reference rates. The consequences of these developments with respect to LIBOR cannot be entirely predicted; however we do not believe that the discontinuation of LIBOR as a reference rate in our loan agreements will have a material adverse effect on our financial position or materially affect our interest expense.
Sources and Uses of Cash
Operating Activities
Net cash used in operating activities for the first nine months of fiscal 2019 was $54.9 million, compared to net cash used in operating activities of $59.3 million in the first nine months of fiscal 2018. During the first nine months of fiscal 2019, cash used in operating activities decreased primarily from the decrease in working capital from the prior year.

24




Investing Activities
Net cash provided by investing activities for the first nine months of fiscal 2019 was $10.4 million compared to net cash used in investing activities of $247.0 million in the first nine months of fiscal 2018. The net cash provided in the current year primarily related to the proceeds from the sale of assets of $13.7 million. Net cash used in the prior year primarily related to the $353.1 million of net cash paid for the acquisition of Cedar Creek during the second quarter of 2018, offset by the proceeds from the sale-leaseback transactions in the first quarter of 2018.
Financing Activities
Net cash provided by financing activities totaled $48.5 million for the first nine months of fiscal 2019, compared to $309.2 million for the first nine months of fiscal 2018. The decrease in net cash provided by financing activities is due to the decrease in borrowings in the current year relative to borrowings in the prior year, which included borrowings for the acquisition of Cedar Creek.
Operating Working Capital [1] 
Selected financial information (in thousands)
 
September 28, 2019
 
December 29, 2018
 
September 29, 2018
Current assets:
 
 
 
 
 
Cash
$
12,847

 
$
8,939

 
$
7,630

Receivables, less allowance for doubtful accounts
243,905

 
208,434

 
285,489

Inventories, net
362,389

 
341,851

 
401,222

Other current assets
42,366

 
40,629

 
44,947

Total current assets
$
661,507

 
$
599,853

 
$
739,288

 
 
 
 
 
 
Current liabilities:
 

 
 

 
 
Accounts payable
$
179,376

 
$
149,188

 
$
190,078

Accrued compensation
8,780

 
7,974

 
7,611

Current maturities of long-term debt, net of discount
1,790

 
1,736

 
1,736

Finance leases - short-term
8,373

 
7,555

 
8,058

Real estate deferred gains - short-term
4,448

 
5,330

 
5,330

Operating lease liabilities - short-term
6,381

 

 

Other current liabilities
13,835

 
24,985

 
21,528

Total current liabilities
$
222,983

 
$
196,768

 
$
234,341

 
 
 
 
 
 
Operating working capital
$
440,314

 
$
404,821

 
$
506,683

___________________________ 
[1] Operating working capital is defined as current assets less current liabilities plus the current portion of long-term debt.
Operating working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash.
Operating working capital of $440.3 million at September 28, 2019, compared to $404.8 million as of December 29, 2018, increased on a net basis by approximately $35.5 million. The increase in operating working capital is primarily driven by seasonal increases in accounts receivable and inventory to support expected increases in sales activity during the summer building season, offset by increases in accounts payable.
Operating working capital decreased from September 29, 2018, to September 28, 2019, by $66.4 million, primarily driven by the decrease in sales and decline in commodity prices.

Critical Accounting Policies
The preparation of our consolidated financial statements and related disclosures in conformity with GAAP requires our management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. There have been no material changes to our critical accounting policies from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
Forward-Looking Statements
This report contains forward-looking statements. Forward-looking statements include, without limitation, any statement that predicts, forecasts, indicates or implies future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will be,” “will likely continue,” “will likely result” or words or phrases of similar meaning. The forward-looking statements in this report include statements about the anticipated effects of adopting certain accounting standards; estimated future annual amortization expense; potential changes to estimates made in connection with revenue recognition; the expected outcome of legal proceedings; industry conditions; seasonality; and liquidity and capital resources.
Forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. These risks and uncertainties include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 29, 2018, and those discussed elsewhere in this report and in future reports that we file with the SEC. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Factors that may cause these differences include, among other things: our ability to integrate and realize anticipated synergies from acquisitions; loss of material customers, suppliers, or product lines in connection with acquisitions; our indebtedness and its related limitations; sufficiency of cash flows and capital resources; changes in interest rates; fluctuations in commodity prices; adverse housing market conditions; disintermediation by customers and suppliers; changes in prices, supply and/or demand for our products; inventory management; competitive industry pressures; industry consolidation; product shortages; loss of and dependence on key suppliers and manufacturers; new tariffs; our ability to monetize real estate assets; our ability to successfully implement our strategic initiatives; fluctuations in operating results; sale-leaseback transactions and their effects; real estate leases; exposure to product liability claims; changes in our product mix; petroleum prices; information technology security and business interruption risks; litigation and legal proceedings; natural disasters and unexpected events; activities of activist stockholders; labor and union matters; limits on net operating loss carryovers; pension plan assumptions and liabilities; risks related to our internal controls; retention of associates and key personnel; federal, state, local and other regulations, including environmental laws and regulations; and changes in accounting principles. Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

25




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Our management performed an evaluation, as of the end of the period covered by this report on Form 10-Q, under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

During the period covered by this report, other than described below, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On April 13, 2018, we acquired Cedar Creek Holdings, Inc. in a business combination. The Company is in the process of integrating the policies, processes, information technology systems and other components of internal controls over financial reporting of the combined business. Management’s assessment of the Company’s internal control over financial reporting for the fiscal year 2019 will include the internal controls over financial reporting of Cedar Creek.




26




PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the third quarter of fiscal 2019, there were no material changes to our legal proceedings as disclosed in our Annual Report on Form 10-K for the year ended December 29, 2018. Additionally, we are, and from time to time may be, a party to routine legal proceedings incidental to the operation of our business. The outcome of any pending or threatened proceedings is not expected to have a material adverse effect on our financial condition, operating results, or cash flows, based on our current understanding of the relevant facts. Legal expenses incurred related to these contingencies are generally expensed as incurred.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 29, 2018.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not repurchase any of our equity securities during the period covered by this report pursuant to any publicly announced plan or program, and no such plan or program is presently in effect. From time to time, we withhold shares upon the vesting of employee equity awards to satisfy certain tax obligations due in connection therewith, and the withholding of shares may be deemed to be repurchases of our equity securities. No such withholding occurred during the third quarter of 2019.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.

27




ITEM 6. EXHIBITS

Exhibit
Number
 
Description
10.1
 

10.2
 

10.3
 

31.1
*
31.2
*
32.1
**
32.2
**
101.Def
 
Definition Linkbase Document.
101.Pre
 
Presentation Linkbase Document.
101.Lab
 
Labels Linkbase Document.
101.Cal
 
Calculation Linkbase Document.
101.Sch
 
Schema Document.
101.Ins
 
Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
 
 
 
 
*
Filed herewith.
 
**
Exhibit is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.


28




SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
BlueLinx Holdings Inc.
 
 
 
(Registrant)
 
 
 
 
 
Date: November 6, 2019
By:
/s/ Susan C. O’Farrell
 
 
 
Susan C. O’Farrell
 
 
 
Senior Vice President, Chief Financial Officer, Treasurer, and Principal Accounting Officer
 


29

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