BLUELINX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 28, 2013
1. Basis of Presentation and Background
Basis of Presentation
BlueLinx Holdings Inc. has prepared the accompanying Unaudited Consolidated Financial Statements, including its accounts and the accounts of its wholly-owned subsidiaries, in accordance with the instructions to Form 10-Q, and therefore they do not include all of the information and notes required by United States generally accepted accounting principles (“GAAP”). These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 29, 2012, as filed with the Securities and Exchange Commission (“SEC”). Our fiscal year is a 52- or 53-week period ending on the Saturday closest to the end of the calendar year. Fiscal year 2013 and fiscal year 2012 contain 53 weeks and 52 weeks, respectively. BlueLinx Corporation is the wholly-owned operating subsidiary of BlueLinx Holdings Inc. and is referred to herein as the “operating subsidiary” when necessary.
We believe the accompanying Unaudited Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments and other nonrecurring adjustments disclosed in the subsequent notes to the consolidated financial statements, necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented. The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Unaudited Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates and such differences could be material. In addition, the operating results for interim periods may not be indicative of the results of operations for a full year. We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors, with the second and third quarters typically accounting for the highest sales volumes. These seasonal factors are common in the building products distribution industry.
We
are a leading distributor of building products in North America with approximately 1,800 employees. We offer
approximately 10,000 products from over 750 suppliers to service more than 11,500 customers nationwide, including dealers, industrial
manufacturers, manufactured housing producers and home improvement retailers. We operate our distribution business from sales
centers in Atlanta and Denver, and our current network of approximately 50 distribution centers.
2. Summary of Significant Accounting Policies
Revenue Recognition
We recognize revenue when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed and determinable and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition is largely dependent on shipping terms. For sales transactions designated as FOB (free on board) shipping point, revenue is recorded at the time of shipment. For sales transactions designated FOB destination, revenue is recorded when the product is delivered to the customer’s delivery site.
All revenues are recorded gross. The key indicators used to determine when and how revenue is recorded are as follows:
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·
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We are the primary obligor responsible for fulfillment and all other aspects of the customer relationship.
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·
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Title passes to BlueLinx, and we carry all risk of loss related to warehouse and third-party (“reload”) inventory and inventory shipped directly from vendors to our customers.
|
|
|
·
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We are responsible for all product returns.
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·
|
We control the selling price for all channels.
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·
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We select the supplier.
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·
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We bear all credit risk.
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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 inventory is sold by the customer, we recognize revenue on a gross basis. Customer consigned inventory at September 28, 2013 and December 29, 2012 was approximately $10.8 million and $10.3 million, respectively.
All
revenues are recorded after trade allowances, cash discounts and sales returns are deducted. Cash discounts and
sales returns are estimated using historical experience. Trade allowances are based on the estimated obligations and historical
experience.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with maturity dates of less than three months when purchased.
Restricted Cash
We had restricted cash of $20.4 million and $9.9 million at September 28, 2013 and December 29, 2012, respectively. Restricted cash primarily includes amounts held in escrow related to our mortgage and insurance for workers’ compensation, auto liability, and general liability. Restricted cash is included in “Other current assets” and “Other non-current assets” on the accompanying Consolidated Balance Sheets.
The table below provides the balances of each individual component in restricted cash as of September 28, 2013 and December 29, 2012 (in thousands):
| |
|
|
|
|
|
|
|
Cash in escrow:
|
|
|
|
|
|
|
|
Mortgage(1)
|
|
$ |
9,010 |
|
|
$ |
41 |
|
|
Insurance
|
|
|
7,916 |
|
|
|
7,906 |
|
|
Other
|
|
|
3,523 |
|
|
|
1,964 |
|
|
Total
|
|
$ |
20,449 |
|
|
$ |
9,911 |
|
(1)The
increase in cash in escrow related to the mortgage primarily is comprised of restricted cash received as part of the sale of
the Denver sales center which will be applied to the outstanding principal of the mortgage during the fourth quarter of fiscal 2013. See “Note 7 – Mortgage”
for further discussion.
Allowance for Doubtful Accounts and Related Reserves
We evaluate the collectability of accounts receivable based on numerous factors, including past transaction history with customers and their creditworthiness. We maintain an allowance for doubtful accounts for each aging category on our aged trial balance, which is aged utilizing contractual terms, based on our historical loss experience. This estimate is periodically adjusted when we become aware of specific customers’ inability to meet their financial obligations (e.g., bankruptcy filing or other evidence of liquidity problems). As we determine that specific balances ultimately will be uncollectible, we remove them from our aged trial balance. Additionally, we maintain reserves for cash discounts that we expect customers to earn as well as expected returns. At September 28, 2013 and December 29, 2012, these reserves totaled $5.3 million and $4.7 million, respectively.
Inventory Valuation
Inventories are carried at the lower of cost or market. The cost of all inventories is determined by the moving average cost method. We have included all material charges directly or indirectly incurred in bringing inventory to its existing condition and location. We evaluate our inventory value at the end of each quarter to ensure that first quality, actively moving inventory, when viewed by category, is carried at the lower of cost or market. During the second quarter of fiscal 2013, we recorded in “Cost of sales” in the Consolidated Statements of Operations and Comprehensive Loss a lower of cost or market charge of $3.8 million related to declines in prices for our lumber, oriented strand board (“OSB”) and plywood inventory. As we sold through inventory impacted by this reserve during the third quarter of fiscal 2013 and prices of lumber, OSB and plywood stabilized, the reserve was reduced to zero as of September 28, 2013. At September 28, 2013 and December 29, 2012, the market value of our inventory exceeded its cost.
Additionally, we maintain a reserve for the estimated value impairment associated with damaged, excess and obsolete inventory. The damaged, excess and obsolete reserve generally includes discontinued items or inventory that has turn days in excess of 270 days, excluding new items during their product launch. At September 28, 2013 and December 29, 2012, our damaged, excess and obsolete inventory reserves were $1.5 million and $1.1 million, respectively. The damaged, excess and obsolete inventory reserve at September 28, 2013 includes $0.3 million related to the closure of five distribution centers, which was recorded in “Cost of sales” in the Consolidated Statements of Operations and Comprehensive Loss during the second quarter of fiscal 2013. We discuss the closure or ceasing of operations of these distribution centers, which is included in our 2013 restructuring plan (the “2013 restructuring”), further in “Note 3 – Restructuring Charges”.
Consignment Inventory
We enter into consignment inventory agreements with our vendors. This vendor consignment inventory relationship allows us to obtain and store vendor inventory at our warehouses and reload facilities; however, ownership remains with the vendor and risk of loss generally remains with the vendor. When the inventory is sold, we are required to pay the vendor, and we simultaneously take and transfer ownership from the vendor to the customer.
Consideration Received from Vendors and Consideration Paid to Customers
Each year, we enter into agreements with many of our vendors providing for inventory purchase rebates, generally based on the achievement of specified volume purchasing levels. We also receive rebates related to price protection and various marketing allowances that are common industry practice. We accrue for the receipt of vendor rebates based on purchases, and also reduce inventory value to reflect the net acquisition cost (purchase price less expected purchase rebates). At September 28, 2013 and December 29, 2012, the vendor rebate receivable totaled $6.8 million and $9.0 million, respectively.
In addition, we enter into agreements with many of our customers to offer customer rebates, generally based on achievement of specified volume sales levels and various marketing allowances that are common industry practice. We accrue for the payment of customer rebates based on sales to the customer, and also reduce sales value to reflect the net sales (sales price less expected customer rebates). At September 28, 2013 and December 29, 2012, the customer rebate payable totaled $5.0 million and $5.5 million, respectively.
Loss per Common Share
Certain of our restricted stock awards are considered participating securities as they receive non-forfeitable rights to dividends at the same rate as common stock. As participating securities, we include these instruments in the earnings allocation in computing income per share under the two-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders.
On
March 27, 2013, we completed a rights offering of common stock to our stockholders (the “2013 Rights Offering”) at
a subscription price that was lower than the market price of our common stock. The 2013 Rights Offering was deemed to contain
a bonus element that is similar to a stock dividend, requiring us to adjust the weighted average number of common shares
used to calculate basic and diluted earnings per share in prior periods retrospectively by a factor
of 1.0894. Weighted average shares for the quarter and nine months ended September 29, 2012 prior to giving effect
to the 2013 Rights Offering were 60,098,691 and 60,066,595, respectively and were 65,472,685 and 65,437,719, respectively,
after application of the adjustment factor noted above.
The following table calculates basic and diluted income per common share for the three months ended September 29, 2012 under the two-class method (in thousands, except per share data):
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Period from
July 1, 2012
to
|
|
|
Basic income per share:
|
|
|
|
|
Net income
|
|
$ |
3,068 |
|
|
Less: Income attributable to participating securities
|
|
|
168 |
|
|
Net income available to common stockholders
|
|
$ |
2,900 |
|
|
Basic weighted average shares outstanding (1)
|
|
|
65,473 |
|
|
Basic income per share
|
|
$ |
0.04 |
|
| |
|
|
|
|
|
Diluted income per share:
|
|
|
|
|
|
Net income
|
|
$ |
3,068 |
|
|
Less: Income attributable to participating securities
|
|
|
168 |
|
|
Net income available to common stockholders
|
|
$ |
2,900 |
|
|
Basic weighted average shares outstanding (1)
|
|
|
65,473 |
|
|
Common stock equivalents
|
|
$ |
— |
|
|
Diluted weighted average shares outstanding (1)
|
|
|
65,473 |
|
|
Diluted income per share
|
|
$ |
0.04 |
|
(1)This
includes an adjustment to the weighted average number of common shares related to the 2013 Rights Offering used to calculate basic and diluted earnings per share in prior periods retrospectively by a factor of 1.0894.
Given that the restricted stockholders do not have a contractual obligation to participate in the losses and the inclusion of such unvested restricted shares in our basic and dilutive per share calculations would be anti-dilutive, we have not included these amounts in our weighted average number of common shares outstanding for periods in which we report a net loss. Therefore, we have not included 1,996,911 and 3,597,774 of unvested shares of restricted stock that had the right to participate in dividends in our basic and dilutive calculations for the first nine months of fiscal 2013 and for the first nine months of fiscal 2012, respectively. In addition, we have not included 1,996,911 of unvested shares of restricted stock that had the right to participate in dividends in our basic and dilutive calculations for the third quarter of fiscal 2013.
Except
when the effect would be anti-dilutive, the diluted earnings per share calculation includes the dilutive effect of the
assumed exercise of stock options and performance shares using the treasury stock method. During the first nine months of
fiscal 2013, we granted 2,969,424 performance shares under our 2006 Long-Term Equity Incentive Plan (the
“2006 Plan”) in which shares are issuable upon satisfaction of certain performance criteria. As of September 28, 2013,
we assumed that 2,348,017 of these performance shares will vest, net of forfeitures and vestings to date, based on our
assumption that meeting the performance criteria is probable. The performance shares are not considered participating shares
under the two-class method because they do not receive any non-transferable rights to dividends. The 2,348,017
performance shares we assume will vest were not included in the computation of diluted earnings per share calculation because
they were antidilutive.
As
we experienced losses in all periods, except for the third quarter of fiscal 2012, basic and diluted loss per share are computed
by dividing net loss by the weighted average number of common shares outstanding for these respective periods. For
the first nine months of fiscal 2013, we excluded 5,136,428 of unvested share-based awards, which includes excluding the assumed
exercise of 791,500 unexpired stock options and 2,348,017 performance shares, from the diluted earnings per share calculation
because they were anti-dilutive. For the first nine months of fiscal 2012, we excluded 4,503,090 of unvested
share-based awards, which includes excluding the assumed exercise of 905,316 unexpired stock options, from the diluted earnings
per share calculation because they were anti-dilutive.
Stock-Based Compensation
We
have two stock-based compensation plans covering officers, directors, certain employees and consultants: the 2004 Equity Incentive
Plan (the “2004 Plan”) and the 2006 Plan. The plans are designed to motivate and retain individuals who are responsible
for the attainment of our primary long-term performance goals. The plans provide a means whereby our employees and directors develop
a sense of proprietorship and personal involvement in our development and financial success and encourage them to devote their
best efforts to our business. Although we do not have a formal policy on the matter, we issue new shares of our common stock to
participants upon the exercise of options, upon the granting of restricted stock or upon the vesting of performance shares, out
of the total amount of common shares authorized for issuance under either the 2004 Plan or the 2006 Plan. During the
first nine months of fiscal 2013, the Compensation Committee granted 1,202,185 restricted shares of our common stock to certain
of our officers and directors. During the second quarter of fiscal 2013, we announced that George R. Judd no longer
would serve as President and Chief Executive Officer of the Company (the “change in executive leadership”). Due
to this change in executive leadership, 1,081,071 restricted shares vested. Restricted shares of 2,208,823 vested
in the first nine months of fiscal 2013 due to the completion of the vesting term and the modification related to the change in
executive leadership. In addition, during the first nine months of fiscal 2013 the Compensation Committee granted certain
of our executive officers and directors awards of performance shares of our common stock. These awards, which totaled 2,969,424
performance shares, are contingent upon the successful achievement of certain financial and strategic goals approved by the Compensation
Committee. In conjunction with the change in executive leadership, performance shares of 498,370 vested due to the
removal of vesting and performance criteria.
We
recognize compensation expense equal to the grant-date fair value for all share-based payment awards that are expected to vest.
This expense is recorded on a straight-line basis over the requisite service period of the entire award, unless the awards are
subject to market or performance conditions, in which case we recognize compensation expense over the requisite service period
of each separate vesting tranche to the extent the occurrence of such conditions are probable. All compensation expense related
to our share-based payment awards is recorded in “Selling, general, and administrative” expense in the Consolidated
Statements of Operations. For the third quarter and for the first nine months of fiscal 2013, our total stock-based
compensation expense was $1.3 million and $5.6 million, respectively. Approximately $0.3 million and $2.7 million,
respectively, of total stock-based compensation during the third quarter and first nine months of fiscal 2013 is related to the
2013 restructuring and the change in executive leadership. For the third quarter and for the first nine months of fiscal
2012, our total stock-based compensation expense was $0.7 and $2.1 million, respectively. We did not recognize related material
income tax benefits during these periods.
Income Taxes
Deferred income taxes are provided using the liability method. Accordingly, deferred income taxes are recognized for differences between the income tax and financial reporting bases of our assets and liabilities based on enacted tax laws and tax rates applicable to the periods in which the differences are expected to affect taxable income. We recognize a valuation allowance, when based on the weight of all available evidence, we believe it is more likely than not that some or all of our deferred tax assets will not be realized. In evaluating our ability to recover our deferred income tax assets, we considered available positive and negative evidence, including our past operating results, our ability to carryback losses against prior taxable income, the existence of cumulative losses in the most recent years, our forecast of future taxable income and an excess of appreciated assets over the tax basis of our net assets. In estimating future taxable income, we developed assumptions including the amount of future state and federal pretax operating and non-operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions required significant judgment about the forecasts of future taxable income. We considered all of the available positive and negative evidence during the third quarter of fiscal 2013, and based on the weight of available evidence, we recorded an additional deferred tax asset and valuation allowance of $1.5 million relating to our current period net operating losses, which resulted in a total net deferred tax asset of $93.2 million with a valuation allowance of a corresponding amount as of September 28, 2013. As of December 29, 2012, our total net deferred tax asset was $78.0 million with a valuation allowance of a corresponding amount.
If the realization of deferred tax assets in the future is considered more likely than not, a reduction to the valuation allowance related to the deferred tax assets would increase net income in the period such determination is made. The amount of the deferred tax asset considered realizable is based on significant estimates, and it is possible that changes in these estimates could materially affect the financial condition and results of operations. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss; changes to the valuation allowance; changes to federal or state tax laws; and as a result of acquisitions.
We generally believe that the positions taken on previously filed tax returns are more likely than not to be sustained by the taxing authorities. We have recorded income tax and related interest liabilities where we believe our position may not be sustained. Such amounts are disclosed in Note 5 in our Annual Report on Form 10-K for the year-ended December 29, 2012. During the third quarter of fiscal 2013 we reversed approximately $0.6 million of this income tax liability due to the expiration of the statute. There were no other material changes to our tax positions during the first nine months of fiscal 2013.
Impairment of Long-Lived Assets
We consider whether there are indicators of potential impairment of long-lived assets, primarily property, plant, and equipment, on a quarterly basis. Indicators of impairment include current period losses combined with a history of losses, management’s decision to exit a facility, reductions in the fair market value of real properties and changes in other circumstances that indicate the carrying amount of an asset may not be recoverable.
Our evaluation of long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual distribution facility. In the event of indicators of impairment, the assets of the distribution facility are evaluated by comparing the facility’s undiscounted cash flows over the estimated useful life of the asset, which ranges between 5-40 years, to its carrying value. If the carrying value is greater than the undiscounted cash flows, an impairment loss is recognized for the difference between the carrying value of the asset and the estimated fair market value. Impairment losses are recorded as a component of “Selling, general, and administrative” expenses in the Consolidated Statements of Operations.
Our estimate of undiscounted cash flows is subject to assumptions that affect estimated operating income at a distribution facility level. These assumptions are related to future sales, margin growth rates, economic conditions, market competition and inflation. In the event that undiscounted cash flows do not exceed the carrying value of a facility, our estimates of fair market value are generally based on market appraisals and our experience with related market transactions. We use a two year average of cash flows based on 2012 net income before interest and tax expense, depreciation and amortization expense, and other non-cash charges (“EBITDA”) and 2013 projected EBITDA, which includes a growth factor assumption, to estimate undiscounted cash flows. These assumptions used to determine impairment are considered to be level 3 measurements in the fair value hierarchy as defined in Note 13 of the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.
No
impairment indicators appear to be present that would result in material reductions to our December 29, 2012 projected undiscounted
cash flows, which exceeded our carrying value in all cases during the performance of our December 29, 2012 impairment analysis. The
two facilities we exited in connection with the 2013 restructuring did not have indicators of impairment as fair market value
exceeded book value.
It is our policy to self-insure, up to certain limits, traditional risks including workers’ compensation, comprehensive general liability, and auto liability. Our self-insured deductible for each claim involving workers’ compensation and auto liability is limited to $0.8 million and $2.0 million, respectively. Our self-insured retention for each claim involving comprehensive general liability (including product liability claims) is limited to $0.8 million. We are also self-insured up to certain limits for certain other insurable risks, primarily physical loss to property ($0.1 million per occurrence) and the majority of our medical benefit plans ($0.3 million per occurrence). Insurance coverage is maintained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. A provision for claims under this self-insured program, based on our estimate of the aggregate liability for claims incurred, is revised annually. The estimate is derived from both internal and external sources including but not limited to actuarial estimates. The actuarial estimates are subject to uncertainty from various sources, including, among others, changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although we believe that the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect our self-insurance obligations, future expense and cash flow. At September 28, 2013 and December 29, 2012, the self-insurance reserves totaled $7.1 million and $7.2 million, respectively.
New Accounting Standards
In the first quarter of fiscal 2013, the Financial Accounting Standards Board (the “FASB”) issued an amendment to previously issued guidance which requires companies to report, in one place, information about reclassifications out of accumulated other comprehensive income (“AOCI”). The update also requires companies to present reclassifications by component when reporting changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the period, companies must report the effect of the reclassifications on the respective line items in the statement where net income is presented. In certain circumstances, this can be done on the face of that statement. Otherwise, it must be presented in the notes. For items not reclassified to net income in their entirety in the period, companies must cross-reference in a note to other required disclosures. The amendments are effective for public companies in fiscal years, and interim periods within those years, beginning after December 15, 2012. We adopted this guidance during the first quarter of fiscal 2013; refer to “Note 12 – Accumulated Other Comprehensive Loss” for the required disclosures.
There were no other accounting pronouncements adopted during the first nine months of fiscal 2013 that had a material impact on our financial statements.
3. Restructuring Charges
We
account for exit and disposal costs by recognizing a liability for costs associated with an exit or disposal activity at fair
value in the period in which it is incurred or when the entity ceases using the right conveyed by a contract (i.e., the right
to use a leased property). We account for severance and outplacement costs by recognizing a liability for employees’
rights to post-employment benefits when management has committed to a plan, due to the existence of a post employment benefit
agreement. These costs are included in “Selling, general, and administrative” expenses in the Consolidated Statements
of Operations and Comprehensive Loss for the third quarter and the first nine months of fiscal 2013 and the third quarter
and the first nine months of fiscal 2012, and in “Accrued compensation” on the Consolidated Balance Sheets at
September 28, 2013 and December 29, 2012.
2013 Facility Lease Obligation and Severance Costs
During the second quarter of fiscal 2013, we announced the 2013 restructuring which included the realignment of headquarters resources and the strategic review of our distribution centers. This review resulted in the Company designating five distribution centers to be sold or closed. These distribution centers were closed or ceased operations during the third quarter of fiscal 2013. In connection with the 2013 restructuring and the change in executive leadership, referred to in “Note 2 – Summary of Significant Accounting Policies”, the Company has recognized severance related charges of $0.4 million and $4.7 million in “Selling, general, and administrative” expenses in the Consolidated Statements of Operations and Comprehensive Loss during the third quarter and the first nine months of fiscal 2013, respectively. In addition, the Company has recognized facility lease obligation charges of $1.4 million for two closed facilities in “Selling, general, and administrative” expenses in the Consolidated Statements of Operations and Comprehensive Loss during the third quarter and the first nine months of fiscal 2013.
The table below summarizes the balance of reduction in force activities and the related accrued facility lease obligation reserve and the changes in the accrual for the third quarter of fiscal 2013 (in thousands):
| |
|
Reduction in
Force
Activities
|
|
|
Facility Lease Obligation
|
|
|
Total
|
|
|
Balance at June 29, 2013
|
|
$ |
4,331 |
|
|
$ |
— |
|
|
$ |
4,331 |
|
|
Charges
|
|
|
441 |
|
|
|
1,398 |
|
|
|
1,839 |
|
|
Assumption changes
|
|
|
(69 |
) |
|
|
— |
|
|
|
(69 |
) |
|
Payments
|
|
|
(1,970 |
) |
|
|
— |
|
|
|
(1,970 |
) |
|
Balance at September 28, 2013
|
|
$ |
2,733 |
|
|
$ |
1,398 |
|
|
$ |
4,131 |
|
The table below summarizes the balance of reduction in force activities and the related accrued facility lease obligation reserve and the changes in the accrual for the nine months ending in September 28, 2013 (in thousands):
| |
|
Reduction in
Force
Activities
|
|
|
Facility Lease Obligation
|
|
|
Total
|
|
|
Balance at December 29, 2013
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Charges
|
|
|
4,772 |
|
|
|
1,398 |
|
|
|
6,170 |
|
|
Assumption changes
|
|
|
(69 |
) |
|
|
— |
|
|
|
(69 |
) |
|
Payments
|
|
|
(1,970 |
) |
|
|
— |
|
|
|
(1,970 |
) |
|
Balance at September 28, 2013
|
|
$ |
2,733 |
|
|
$ |
1,398 |
|
|
$ |
4,131 |
|
In addition to the charges described above, during the first nine months of fiscal 2013 we recorded approximately $2.0 million of other restructuring related charges, of which $0.7 million was recorded during the third quarter of 2013 with the remaining $1.3 million recorded during the second quarter of fiscal 2013 in “Selling, general and administrative” expenses in the Consolidated Statement of Operations and Comprehensive Loss.
During the third quarter of fiscal 2011, we entered into an amendment to our corporate headquarters lease in Atlanta, Georgia related to the unoccupied 4100 building, which was exited during fiscal 2007. This amendment released us from our obligations with respect to this unoccupied space as of January 31, 2012, in exchange for a $5.0 million space remittance fee, which was paid in the first quarter of 2012. We also paid $0.9 million in the third quarter of fiscal 2012 and are obligated to pay an additional $0.3 million on or before December 31, 2013 related to contractually obligated tenant improvement reimbursement expense. The provisions relating to the occupied 4300 building remain unchanged. Under the existing provisions, the current term of the lease ends on January 31, 2019.
4. Assets Held for Sale and Net Gain on Disposition
We
have certain assets that we have designated as assets held for sale. At the time of designation, we ceased recognizing depreciation
expense on these assets. As of September 28, 2013 and December 29, 2012, total assets held for sale were $3.2 million and $1.6 million,
respectively, and were included in “Other current assets” in our Consolidated Balance Sheets. During
the second quarter of fiscal 2013, we designated the Denver, Colorado sales center as held for sale. We finalized the
sale of the owned Denver, Colorado sales center, which had a carrying value of $3.3 million, during the third quarter of fiscal
2013. We also designated two of our distribution centers as held for sale during the second quarter of fiscal 2013. These
two properties have a total carrying value of $2.5 million, and we plan to finalize a sale of the facilities within the
next twelve months. We continue to actively market all properties that are designated as held for sale.
During the third quarter and first nine months of fiscal 2013 we recognized a gain of $3.7 million, which was net of $0.5 million of capitalized broker commissions related to the Denver, Colorado sales center lease that were written off during the period, on the sale of the Denver, Colorado sales center. This gain was recorded in “Selling, general, and administrative” expenses in the Consolidated Statements of Operations and Comprehensive Loss. No other real properties classified as held for sale were sold during the period. We recognized an additional gain related to the sale of our Fremont, California location during the first quarter and first nine months of 2013 of approximately $0.2 million. The gain was related to seller’s proceeds that were held by the title company for certain remediation activities that were settled during the first quarter of fiscal 2013.
5. Employee Benefits
Most of our hourly employees participate in noncontributory defined benefit pension plans. These include a plan that is administered solely by us (the “hourly pension plan”) and union-administered multiemployer plans. Our funding policy for the hourly pension plan is based on actuarial calculations and the applicable requirements of federal law. Benefits under the majority of plans for hourly employees (including multiemployer plans) are primarily related to years of service. We believe that our portion of each multiemployer pension plan is immaterial to our financial statements and that we represent an immaterial portion of the total contributions and future obligations of these plans.
Net periodic pension cost for our pension plans included the following (in thousands):
| |
|
Third Quarter |
|
|
|
|
Period from June 30, 2013 to
September 28, 2013
|
|
|
Period from July 1, 2012 to
September 29, 2012
|
|
| |
|
|
|
|
Service cost
|
|
$ |
548 |
|
|
$ |
469 |
|
|
Interest cost on projected benefit obligation
|
|
|
1,188 |
|
|
|
1,221 |
|
|
Expected return on plan assets
|
|
|
(1,306 |
) |
|
|
(1,224 |
) |
|
Amortization of unrecognized loss
|
|
|
718 |
|
|
|
519 |
|
|
Net periodic pension cost
|
|
$ |
1,148 |
|
|
$ |
985 |
|
| |
|
Nine Months Ended |
|
|
|
|
Period from December 30,
2012 to September 28, 2013
|
|
|
Period from January 1,
2012 to September 29, 2012
|
|
| |
|
|
|
|
Service cost
|
|
$ |
1,644 |
|
|
$ |
1,407 |
|
|
Interest cost on projected benefit obligation
|
|
|
3,563 |
|
|
|
3,663 |
|
|
Expected return on plan assets
|
|
|
(3,918 |
) |
|
|
(3,672 |
) |
|
Amortization of unrecognized loss
|
|
|
2,154 |
|
|
|
1,557 |
|
|
Net periodic pension cost
|
|
$ |
3,443 |
|
|
$ |
2,955 |
|
The
Company’s minimum required contribution for plan year 2012 was $3.2 million. In an effort to
preserve additional cash for operations, we applied for a waiver from the IRS for our 2012 minimum required
contribution. The Company believes that the waiver will be granted. We have not made $2.1 million of the
required 2012 contributions related to the 2012 minimum required contribution. Assuming the requested waiver is
granted, our minimum required contribution for 2012 will be amortized over the following five years, increasing our future
minimum required contributions. We currently are required to make three quarterly cash contributions during fiscal 2013
of $0.8 million related to our 2013 minimum required contribution.
During
the second quarter of fiscal 2013, we contributed certain qualifying employer real property to our hourly pension plan. The properties,
including certain land and buildings, are located in Charleston, S.C. and Buffalo, N.Y., and have been valued by independent appraisals
at approximately $6.8 million. The contribution was recorded by the hourly pension plan at the fair value of $6.8 million. We
are leasing back the contributed properties for an initial term of twenty years with two five-year extension options and continue
to use the properties in our distribution operations. Each lease provides us a right of first refusal on any subsequent
sale by the hourly pension plan and a repurchase option. The hourly pension plan engaged an independent fiduciary who
evaluated the transaction on behalf of the hourly pension plan, negotiated the terms of the property contribution and the leases,
and also manages the properties on behalf of the hourly pension plan. We have designated the property contribution
to the 2013 plan year and we believe it is sufficient to cover our 2013 required minimum contribution. In the
event the waiver for 2012 is not granted, we believe the contribution will be sufficient to cover both the 2012 and 2013 funding
requirements discussed above.
We determined that the contribution of the properties does not meet the accounting definition of a plan asset within the scope of relevant accounting guidance. Accordingly, the contributed properties are not considered a contribution for financial reporting purposes and, as a result, are not included in plan assets and have no impact on the net pension liability recorded on our Consolidated Balance Sheets. We continue to depreciate the carrying value of the properties in our financial statements, and no gain or loss was recognized at the contribution date for financial reporting purposes. Rent payments will be made on a monthly basis and will be recorded as contributions to the hourly pension plan, of which $0.3 million has been recorded as of September 28, 2013. These rental payments will reduce our unfunded obligation to the hourly pension plan.
6. Revolving Credit Facilities
We have our U.S. revolving credit facility agreement (the “U.S. revolving credit facility”) with several lenders including Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association (“Wells Fargo Bank”), dated August 4, 2006, as amended. The U.S. revolving credit facility has a final maturity of April 15, 2016 and maximum available credit of $447.5 million. The U.S. revolving credit facility also includes an additional $75 million uncommitted accordion credit facility, which permits us to increase the maximum available credit up to $522.5 million.
On
June 28, 2013, we entered into an amendment to our U.S. revolving credit facility, which became effective on that date and pursuant
to which certain components of the borrowing base calculation and excess liquidity calculation were adjusted. The most
significant of the changes included in the amendment is the addition of PNC Bank, National Association (“PNC”) as
a lender and their additional loan commitment of $25.0 million, which increased the maximum availability of the U.S. revolving
credit facility to $447.5 million. The new terms of this amended agreement are described in this footnote. In
conjunction with this amendment, we incurred $0.1 million of debt fees that were capitalized and are being amortized over the
amended debt term.
On March 29, 2013, we entered into an amendment to our U.S. revolving credit facility, which became effective on that date and pursuant to which certain components of the borrowing base calculation and excess liquidity calculation were adjusted. The most significant of the changes included in the amendment are extending the final maturity of the U.S. revolving credit facility, increasing the maximum available credit under the facility and adjusting the excess availability threshold calculation. In conjunction with this amendment, we incurred $2.8 million of debt fees that were capitalized and are being amortized over the amended debt term.
On
March 27, 2013, we concluded the 2013 Rights Offering. The 2013 Rights Offering was fully subscribed and resulted in net
proceeds of approximately $38.6 million. We issued 22.9 million
shares of stock to our stockholders in conjunction with the 2013 Rights Offering.
As of September 28, 2013, we had outstanding borrowings of $234.8 million and excess availability of $91.3 million under the terms of our U.S. revolving credit facility. The interest rate on the U.S. revolving credit facility was 3.8% at September 28, 2013. As of December 29, 2012, we had outstanding borrowings of $169.5 million and excess availability of $86.0 million under the terms of our U.S. revolving credit facility. The interest rate on the U.S. revolving credit facility was 4.1% at December 29, 2012. As of September 28, 2013 and December 29, 2012, we had outstanding letters of credit totaling $4.5 million for the purposes of securing collateral requirements under casualty insurance programs and for guaranteeing lease and certain other obligations. The $4.5 million in outstanding letters of credit as of September 28, 2013 does not include an additional $1.5 million fully collateralized letter of credit securing certain insurance obligations that was issued outside of the U.S. revolving credit facility.
As of September 28, 2013, our U.S. revolving credit facility, as amended, contains customary negative covenants and restrictions for asset based loans, including a requirement that we maintain a fixed charge coverage ratio of 1.1 to 1.0 in the event our excess availability falls below the greater of $31.8 million or the amount equal to 12.5% of the lesser of the borrowing base or $447.5 million (the “Excess Availability Threshold”). The fixed charge coverage ratio is calculated as EBITDA divided by the sum of cash payments for income taxes, interest expense, cash dividends, principal payments on debt, and capital expenditures. EBITDA is defined as BlueLinx Corporation’s net income before interest and tax expense, depreciation and amortization expense, and other non-cash charges. The fixed charge coverage ratio requirement only applies to us when excess availability under our amended U.S. revolving credit facility is less than the Excess Availability Threshold on any date. As of September 28, 2013 and through the time of the filing of this Form 10-Q, we were in compliance with all covenants under the U.S. revolving credit facility. We are required to maintain the Excess Availability Threshold in order to avoid being required to meet certain financial ratios and triggering additional limits on capital expenditures. Our lowest level of fiscal month-end availability in the last three years as of September 28, 2013 was $79.1 million. We do not anticipate our excess availability in fiscal 2013 will drop below the Excess Availability Threshold. Should our excess availability fall below the Excess Availability Threshold on any date, however, we would not meet the required fixed charge coverage ratio covenant with our current operating results.
In the event that excess availability falls below $37.1 million or the amount equal to 15% of the lesser of the borrowing base or $447.5 million, the U.S. revolving credit facility gives the lenders the right to dominion of our bank accounts. This would not make the underlying debt callable by the lender and may not change our ability to borrow on the U.S. revolving credit facility. However, we would be required to reclassify the “Long-term debt” to “Current maturities of long-term debt” on our Consolidated Balance Sheet. In addition, we would be required to maintain a springing lock-box arrangement where customer remittances go directly to a lock-box maintained by our lenders and then are forwarded to our general bank accounts. Our U.S. revolving credit facility does not contain a subjective acceleration clause, which would allow our lenders to accelerate the scheduled maturities of our debt or to cancel our agreement.
Our
subsidiary BlueLinx Building Products Canada Ltd. (“BlueLinx Canada”) has a revolving credit agreement (the “Canadian
revolving credit facility”) with Canadian Imperial Bank of Commerce (as successor to CIBC Asset-Based Lending Inc.) and
the other signatories thereto, as lender, administrative agent and collateral agent, dated August 12,
2011, as amended.
On August 16, 2013, we entered into an amendment to our Canadian revolving credit facility, which became effective on that date. The Amendment modifies the maturity date under the Credit Agreement to the earlier of (i) August 12, 2016 or the (ii) maturity date of the U.S. revolving credit facility. All other terms of the Canadian revolving credit facility remain the same.
As of September 28, 2013, we had outstanding borrowings of $4.6 million and excess availability of $1.2 million under the terms of our Canadian revolving credit facility. As of December 29, 2012, we had outstanding borrowings of $1.9 million and excess availability of $2.0 million under the terms of our Canadian revolving credit facility. The interest rate on the Canadian revolving credit facility was 4.0% at September 28, 2013 and December 29, 2012. The Canadian revolving credit facility contains customary covenants and events of default for asset-based credit agreements of this type, including the requirement for BlueLinx Canada to maintain a minimum adjusted tangible net worth of $3.9 million and for that entity’s capital expenditures not to exceed 120% of the amount budgeted in a given year. As of September 28, 2013 and through the time of the filing of this Form 10-Q, we were in compliance with all covenants under this facility.
7. Mortgage
We
have a $295 million mortgage loan with the German American Capital Corporation. The mortgage has a term of ten years and
is secured by 51 distribution facilities owned by the special purpose entities. The stated interest rate on the mortgage
is fixed at 6.35%. German American Capital Corporation assigned half of its interest in the mortgage loan to Wells Fargo Bank
and both lenders securitized their Notes in separate commercial mortgage backed securities pools in 2006. As of September
28, 2013 and December 29, 2012, the balance on our mortgage loan was $198.4 million and $206.0 million, respectively.
On September 19, 2012, we entered into an amendment to our mortgage agreement, which provided for the immediate prepayment of approximately $11.8 million of the indebtedness under the mortgage agreement without incurring a prepayment premium from cash currently held as collateral under the mortgage agreement. In addition, on a quarterly basis, starting with the fourth quarter of 2012, additional funds held as collateral under the mortgage agreement were to be used to prepay indebtedness under the mortgage agreement, without prepayment premium, up to an aggregate additional prepayment of $10.0 million. Thereafter, any cash remaining in the collateral account under the mortgage agreement, up to an aggregate of $10.0 million, will be released to the Company on the last business day of each calendar quarter through the second quarter of 2014. All funds released pursuant to these provisions may be used by the Company to pay for usual and customary operating expenses. During the periods described above in which cash in the collateral account is used to either prepay indebtedness under the mortgage agreement or released to the Company, the lenders will not release any of the cash collateral to the Company for specified capital expenditures as previously provided under the mortgage agreement.
Under the terms of our mortgage, we are required to transfer certain funds to be held as collateral. We expect to transfer approximately $13.3 million as collateral during the next twelve month period, approximately $10.0 million of which will be released from escrow to us on a quarterly basis for operational uses as indicated in the amendment. In conjunction with the modification of our mortgage agreement we incurred approximately $0.3 million in fees that were capitalized and are being amortized over the remaining term of the mortgage.
During
the third quarter of fiscal 2013, we sold our sales center in Denver, Colorado and increased the restricted cash related to our
mortgage by $8.4 million which represents the allocated mortgage related to the property. This restricted cash
was used to pay down outstanding principal of the mortgage in the fourth quarter of fiscal 2013. During
the first quarter of fiscal 2012, we sold certain parcels of excess land. As a result of the sale of one of these parcels, we
increased the amount of restricted cash required to be held in connection with our mortgage by $0.3 million. In addition,
during the third quarter of fiscal 2012, we sold our facility in Newark, California and increased the restricted cash related
to our mortgage by $12.8 million. This restricted cash was used to pay down the mortgage in the fourth quarter of fiscal
2012.
The mortgage loan required interest-only payments through June 2011, at which time we began making payments on the outstanding principal balance. The balance of the loan outstanding at the end of the ten year term will then become due and payable. The principal will be paid in the following increments (in thousands):
|
2013*
|
|
$ |
9,769 |
|
|
2014
|
|
|
2,447 |
|
|
2015
|
|
|
2,609 |
|
|
2016
|
|
|
183,602 |
|
|
2017
|
|
|
— |
|
|
Thereafter
|
|
|
— |
|
|
Total
|
|
$ |
198,427 |
|
* We estimate that approximately $9.0 million of restricted cash will be paid during fiscal 2013 to reduce mortgage principal.
8. Fair Value Measurements
We determine a fair value measurement based on the assumptions a market participant would use in pricing an asset or liability. The fair value measurement guidance established a three level hierarchy making a distinction between market participant assumptions based on (i) unadjusted quoted prices for identical assets or liabilities in an active market (Level 1), (ii) quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or liability (Level 2), and (iii) prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (Level 3).
Carrying
amounts for our financial instruments are not significantly different from their fair value, with the exception of our mortgage. To
determine the fair value of our mortgage, we used a discounted cash flow model. We believe the mortgage fair value valuation to
be Level 2 in the fair value hierarchy, as the valuation model has inputs that are observable for substantially the full term
of the liability. Assumptions critical to our fair value measurements in the period are present value factors used in determining
fair value and an interest rate. At September 28, 2013, the discounted carrying value and fair value of our mortgage
was $198.4 million and $198.0 million, respectively. At December 29, 2012, the discounted carrying
value and fair value of our mortgage was $206.0 million and $205.5 million, respectively.
9. Related Party Transactions
Cerberus Capital Management, L.P., our equity sponsor, retains consultants that specialize in operations management and support and who provide Cerberus with consulting advice concerning portfolio companies in which funds and accounts managed by Cerberus or its affiliates have invested. From time to time, Cerberus makes the services of these consultants available to Cerberus portfolio companies. We believe that the terms of these consulting arrangements are favorable to us, or, alternatively, are materially consistent with those terms that would have been obtained by us in an arrangement with an unaffiliated third party. We have normal service, purchase and sales arrangements with other entities that are owned or controlled by Cerberus. We believe that these transactions are at arms’ length terms and are not material to our results of operations or financial position.
10. Commitments and Contingencies
Legal Proceedings
During the first nine months of fiscal 2013, there were no material changes to our previously disclosed legal proceedings. 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.
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 the ultimate outcome of these matters could be material to operating results in any given quarter but will not have a materially adverse effect on our long-term financial condition, our results of operations, or our cash flows.
Collective Bargaining Agreements
As
of September 28, 2013, approximately 33% of our employees were represented by various labor unions. As of September
28, 2013, we had 38 collective bargaining agreements, of which 11 were up for renewal in fiscal 2013. As of
September 28, 2013, we have renegotiated all 11 of these agreements, all of which renewals became effective in fiscal 2013. We
consider our relationship with our employees generally to be good.
11. Subsequent Events
We are not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on our Consolidated Financial Statements.
12. Accumulated Other Comprehensive Loss
The changes in accumulated balances for each component of other comprehensive (loss) income for the quarter ended September 28, 2013 were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency, net
of tax
|
|
|
Defined
benefit pension
plan, net of tax
|
|
|
Other, net of tax
|
|
|
Total
|
|
|
Beginning balance
|
|
$ |
1,526 |
|
|
$ |
(31,175 |
) |
|
$ |
212 |
|
|
$ |
(29,437 |
) |
|
Other comprehensive loss before reclassification
|
|
|
92 |
|
|
|
— |
|
|
|
— |
|
|
|
92 |
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
|
— |
|
|
|
437 |
|
|
|
— |
|
|
|
437 |
|
|
Current-period other comprehensive (loss) income, net of tax
|
|
|
92 |
|
|
|
437 |
|
|
|
— |
|
|
|
529 |
|
|
Ending balance, net of tax
|
|
$ |
1,618 |
|
|
$ |
(30,738 |
) |
|
$ |
212 |
|
|
$ |
(28,908 |
) |
The changes in accumulated balances for each component of other comprehensive (loss) income for the quarter ended September 29, 2012 were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency, net
of tax
|
|
|
Defined
benefit pension
plan, net of tax
|
|
|
Other, net of tax
|
|
|
Total
|
|
|
Beginning balance
|
|
$ |
1,720 |
|
|
$ |
(23,806 |
) |
|
$ |
212 |
|
|
$ |
(21,874 |
) |
|
Current-period other comprehensive (loss) income
|
|
|
185 |
|
|
|
— |
|
|
|
— |
|
|
|
185 |
|
|
Ending balance
|
|
$ |
1,905 |
|
|
$ |
(23,806 |
) |
|
$ |
212 |
|
|
$ |
(21,689 |
) |
The changes in accumulated balances for each component of other comprehensive (loss) income for the first nine months of fiscal 2013 were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency, net
of tax
|
|
|
Defined
benefit pension
plan, net of tax
|
|
|
Other, net of tax
|
|
|
Total
|
|
|
Beginning balance
|
|
$ |
1,797 |
|
|
$ |
(32,051 |
) |
|
$ |
212 |
|
|
$ |
(30,042 |
) |
|
Other comprehensive loss before reclassification
|
|
|
(179 |
) |
|
|
— |
|
|
|
— |
|
|
|
(179 |
) |
|
Amounts reclassified from accumulated other comprehensive loss, net of tax
|
|
|
— |
|
|
|
1,313 |
|
|
|
— |
|
|
|
1,313 |
|
|
Current-period other comprehensive (loss) income, net of tax
|
|
|
(179 |
) |
|
|
1,313 |
|
|
|
— |
|
|
|
1,134 |
|
|
Ending balance, net of tax
|
|
$ |
1,618 |
|
|
$ |
(30,738 |
) |
|
$ |
212 |
|
|
$ |
(28,908 |
) |
The changes in accumulated balances for each component of other comprehensive (loss) income for the first nine months of fiscal 2012 were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency, net
of tax
|
|
|
Defined
benefit pension
plan, net of tax
|
|
|
Other, net of tax
|
|
|
Total
|
|
|
Beginning balance
|
|
$ |
1,694 |
|
|
$ |
(23,806 |
) |
|
$ |
212 |
|
|
$ |
(21,900 |
) |
|
Current-period other comprehensive (loss) income
|
|
|
211 |
|
|
|
— |
|
|
|
— |
|
|
|
211 |
|
|
Ending balance
|
|
$ |
1,905 |
|
|
$ |
(23,806 |
) |
|
$ |
212 |
|
|
$ |
(21,689 |
) |
Reclassifications
out of accumulated other comprehensive loss into the Consolidated Statements of Operations and Comprehensive Loss
for the quarter ended September 28, 2013 were as follows (in thousands):
| |
|
|
|
|
|
Details about accumulated other comprehensive loss
components
|
|
Amount reclassified from
accumulated other
comprehensive loss
|
|
Affected line item in the
statement where net
income is presented
|
|
Amortization of defined benefit pension items:
|
|
|
|
|
|
Actuarial loss
|
|
$ |
718 |
|
Total
before tax (1)
|
|
Tax impact
|
|
|
281 |
|
Tax
impact (2)
|
|
Total, net of tax
|
|
$ |
437 |
|
Net
of tax
|
Reclassifications
out of accumulated other comprehensive loss into the Consolidated Statements of Operations and Comprehensive Loss for
the first nine months of fiscal 2013 were as follows (in thousands):
| |
|
|
|
|
|
Details about accumulated other comprehensive loss components
|
|
Amount reclassified from
accumulated other
comprehensive loss
|
|
Affected line item in the
statement where net
income is presented
|
|
Amortization of defined benefit pension items:
|
|
|
|
|
|
Actuarial loss
|
|
$ |
2,154 |
|
Total
before tax (1)
|
|
Tax impact
|
|
|
841 |
|
Tax
impact (2)
|
|
Total, net of tax
|
|
$ |
1,313 |
|
Net
of tax
|
(1)
These accumulated other comprehensive loss components are included in the computation of net periodic pension cost.
(2)
We allocated income tax expense to accumulated other comprehensive loss to the extent income was recorded in accumulated other
comprehensive loss and we have a loss from continuing operations.
There were no reclassifications out of accumulated other comprehensive loss for the quarter or nine month period ended September 29, 2012. See Note 5 for additional details.
13. Unaudited Supplemental Consolidating Financial Statements
The consolidating financial information as of September 28, 2013 and December 29, 2012 and for the third quarters of fiscal 2013 and fiscal 2012 is provided due to restrictions in our revolving credit facility that limit distributions by BlueLinx Corporation, our operating company and our wholly-owned subsidiary, to us, which, in turn, may limit our ability to pay dividends to holders of our common stock (see our Annual Report on Form 10-K for the year ended December 29, 2012, for a more detailed discussion of these restrictions and the terms of the facility). Also included in the supplemental consolidated financial statements are fifty-five single member limited liability companies, which are wholly owned by us (the “LLC subsidiaries”). The LLC subsidiaries own certain warehouse properties that are occupied by BlueLinx Corporation, each under the terms of a master lease agreement. The warehouse properties collateralize our mortgage loan and are not available to satisfy the debts and other obligations of either us or BlueLinx Corporation.
The consolidating statement of operations for BlueLinx Holdings Inc. for the period from June 30, 2013 to September 28, 2013 follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueLinx
Holdings
Inc.
|
|
|
BlueLinx
Corporation and Subsidiaries
|
|
|
LLC
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$ |
— |
|
|
$ |
557,952 |
|
|
$ |
6,888 |
|
|
$ |
(6,888 |
) |
|
$ |
557,952 |
|
|
Cost of sales
|
|
|
— |
|
|
|
495,460 |
|
|
|
— |
|
|
|
— |
|
|
|
495,460 |
|
|
Gross profit
|
|
|
— |
|
|
|
62,492 |
|
|
|
6,888 |
|
|
|
(6,888 |
) |
|
|
62,492 |
|
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
559 |
|
|
|
66,832 |
|
|
|
(3,248 |
) |
|
|
(6,888 |
) |
|
|
57,255 |
|
|
Depreciation and amortization
|
|
|
— |
|
|
|
1,331 |
|
|
|
813 |
|
|
|
— |
|
|
|
2,144 |
|
|
Total operating expenses (income)
|
|
|
559 |
|
|
|
68,163 |
|
|
|
(2,435 |
) |
|
|
(6,888 |
) |
|
|
59,399 |
|
|
Operating (loss) income
|
|
|
(559 |
) |
|
|
(5,671 |
) |
|
|
9,323 |
|
|
|
— |
|
|
|
3,093 |
|
|
Non-operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
— |
|
|
|
3,399 |
|
|
|
3,519 |
|
|
|
— |
|
|
|
6,918 |
|
|
Other loss (income), net
|
|
|
— |
|
|
|
22 |
|
|
|
(5 |
) |
|
|
— |
|
|
|
17 |
|
|
(Loss) income before (benefit from) provision for income taxes
|
|
|
(559 |
) |
|
|
(9,092 |
) |
|
|
5,809 |
|
|
|
— |
|
|
|
(3,842 |
) |
|
(Benefit from) provision for income taxes
|
|
|
(5 |
) |
|
|
(811 |
) |
|
|
180 |
|
|
|
— |
|
|
|
(636 |
) |
|
Equity in loss of subsidiaries
|
|
|
(2,652 |
) |
|
|
— |
|
|
|
— |
|
|
|
2,652 |
|
|
|
— |
|
|
Net (loss) income
|
|
$ |
(3,206 |
) |
|
$ |
(8,281 |
) |
|
$ |
5,629 |
|
|
$ |
2,652 |
|
|
$ |
(3,206 |
) |
The consolidating statement of operations for BlueLinx Holdings Inc. for the period from July 1, 2012 to September 29, 2012 follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueLinx
Holdings
Inc.
|
|
|
BlueLinx
Corporation and Subsidiaries
|
|
|
LLC
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$ |
— |
|
|
$ |
496,810 |
|
|
$ |
7,148 |
|
|
$ |
(7,148 |
) |
|
$ |
496,810 |
|
|
Cost of sales
|
|
|
— |
|
|
|
436,279 |
|
|
|
— |
|
|
|
— |
|
|
|
436,279 |
|
|
Gross profit
|
|
|
— |
|
|
|
60,531 |
|
|
|
7,148 |
|
|
|
(7,148 |
) |
|
|
60,531 |
|
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
(8,095 |
) |
|
|
63,399 |
|
|
|
— |
|
|
|
(7,148 |
) |
|
|
48,156 |
|
|
Depreciation and amortization
|
|
|
— |
|
|
|
1,228 |
|
|
|
878 |
|
|
|
— |
|
|
|
2,106 |
|
|
Total operating expenses (income)
|
|
|
(8,095 |
) |
|
|
64,627 |
|
|
|
878 |
|
|
|
(7,148 |
) |
|
|
50,262 |
|
|
Operating (loss) income
|
|
|
8,095 |
|
|
|
(4,096 |
) |
|
|
6,270 |
|
|
|
— |
|
|
|
10,269 |
|
|
Non-operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
— |
|
|
|
3,205 |
|
|
|
4,089 |
|
|
|
— |
|
|
|
7,294 |
|
|
Other income, net
|
|
|
— |
|
|
|
(11 |
) |
|
|
(5 |
) |
|
|
— |
|
|
|
(16 |
) |
|
(Loss) income before provision for income taxes
|
|
|
8,095 |
|
|
|
(7,290 |
) |
|
|
2,186 |
|
|
|
— |
|
|
|
2,991 |
|
|
(Benefit from) provision for income taxes
|
|
|
275 |
|
|
|
(426 |
) |
|
|
74 |
|
|
|
— |
|
|
|
(77 |
) |
|
Equity in loss of subsidiaries
|
|
|
(4,752 |
) |
|
|
— |
|
|
|
— |
|
|
|
4,752 |
|
|
|
— |
|
|
Net (loss) income
|
|
$ |
3,068 |
|
|
$ |
(6,864 |
) |
|
$ |
2,112 |
|
|
$ |
4,752 |
|
|
$ |
3,068 |
|
The consolidating statement of operations for BlueLinx Holdings Inc. for the period from December 30, 2012 to September 28, 2013 follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueLinx
Holdings
Inc.
|
|
|
BlueLinx
Corporation and Subsidiaries
|
|
|
LLC
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$ |
— |
|
|
$ |
1,665,697 |
|
|
$ |
20,663 |
|
|
$ |
(20,663 |
) |
|
$ |
1,665,697 |
|
|
Cost of sales
|
|
|
— |
|
|
|
1,491,563 |
|
|
|
— |
|
|
|
— |
|
|
|
1,491,563 |
|
|
Gross profit
|
|
|
— |
|
|
|
174,134 |
|
|
|
20,663 |
|
|
|
(20,663 |
) |
|
|
174,134 |
|
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
1,981 |
|
|
|
205,279 |
|
|
|
(1,413 |
) |
|
|
(20,663 |
) |
|
|
185,184 |
|
|
Depreciation and amortization
|
|
|
— |
|
|
|
3,982 |
|
|
|
2,565 |
|
|
|
— |
|
|
|
6,547 |
|
|
Total operating expenses (income)
|
|
|
1,981 |
|
|
|
209,261 |
|
|
|
1,152 |
|
|
|
(20,663 |
) |
|
|
191,731 |
|
|
Operating (loss) income
|
|
|
(1,981 |
) |
|
|
(35,127 |
) |
|
|
19,511 |
|
|
|
— |
|
|
|
(17,597 |
) |
|
Non-operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
— |
|
|
|
10,302 |
|
|
|
10,724 |
|
|
|
— |
|
|
|
21,026 |
|
|
Other expense (income), net
|
|
|
— |
|
|
|
263 |
|
|
|
(11 |
) |
|
|
— |
|
|
|
252 |
|
|
(Loss) income before (benefit from) provision for income taxes
|
|
|
(1,981 |
) |
|
|
(45,692 |
) |
|
|
8,798 |
|
|
|
— |
|
|
|
(38,875 |
) |
|
(Benefit from) provision for income taxes
|
|
|
(48 |
) |
|
|
(938 |
) |
|
|
272 |
|
|
|
— |
|
|
|
(714 |
) |
|
Equity in loss of subsidiaries
|
|
|
(36,228 |
) |
|
|
— |
|
|
|
— |
|
|
|
36,228 |
|
|
|
— |
|
|
Net (loss) income
|
|
$ |
(38,161 |
) |
|
$ |
(44,754 |
) |
|
$ |
8,526 |
|
|
$ |
36,228 |
|
|
$ |
(38,161 |
) |
The consolidating statement of operations for BlueLinx Holdings Inc. for the period from January 1, 2012 to September 29, 2012 follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueLinx
Holdings
Inc.
|
|
|
BlueLinx
Corporation and Subsidiaries
|
|
|
LLC
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$ |
— |
|
|
$ |
1,467,544 |
|
|
$ |
21,443 |
|
|
$ |
(21,443 |
) |
|
$ |
1,467,544 |
|
|
Cost of sales
|
|
|
— |
|
|
|
1,289,593 |
|
|
|
— |
|
|
|
— |
|
|
|
1,289,593 |
|
|
Gross profit
|
|
|
— |
|
|
|
177,951 |
|
|
|
21,443 |
|
|
|
(21,443 |
) |
|
|
177,951 |
|
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
(6,386 |
) |
|
|
189,597 |
|
|
|
(410 |
) |
|
|
(21,443 |
) |
|
|
161,358 |
|
|
Depreciation and amortization
|
|
|
— |
|
|
|
3,907 |
|
|
|
2,646 |
|
|
|
— |
|
|
|
6,553 |
|
|
Total operating expenses (income)
|
|
|
(6,386 |
) |
|
|
193,504 |
|
|
|
2,236 |
|
|
|
(21,443 |
) |
|
|
167,911 |
|
|
Operating (loss) income
|
|
|
6,386 |
|
|
|
(15,553 |
) |
|
|
19,207 |
|
|
|
— |
|
|
|
10,040 |
|
|
Non-operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
— |
|
|
|
9,106 |
|
|
|
12,295 |
|
|
|
— |
|
|
|
21,401 |
|
|
Other income, net
|
|
|
— |
|
|
|
(18 |
) |
|
|
(11 |
) |
|
|
— |
|
|
|
(29 |
) |
|
(Loss) income before (benefit from) provision for income taxes
|
|
|
6,386 |
|
|
|
(24,641 |
) |
|
|
6,923 |
|
|
|
— |
|
|
|
(11,332 |
) |
|
(Benefit from) provision for income taxes
|
|
|
217 |
|
|
|
(126 |
) |
|
|
234 |
|
|
|
— |
|
|
|
325 |
|
|
Equity in loss of subsidiaries
|
|
|
(17,826 |
) |
|
|
— |
|
|
|
— |
|
|
|
17,826 |
|
|
|
— |
|
|
Net (loss) income
|
|
$ |
(11,657 |
) |
|
$ |
(24,515 |
) |
|
$ |
6,689 |
|
|
$ |
17,826 |
|
|
$ |
(11,657 |
) |
The consolidating balance sheet for BlueLinx Holdings Inc. as of September 28, 2013 follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueLinx
Holdings Inc.
|
|
|
BlueLinx
Corporation
and Subsidiaries
|
|
|
LLC
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
76 |
|
|
$ |
6,793 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
6,869 |
|
|
Receivables
|
|
|
— |
|
|
|
207,927 |
|
|
|
— |
|
|
|
— |
|
|
|
207,927 |
|
|
Inventories
|
|
|
— |
|
|
|
259,722 |
|
|
|
— |
|
|
|
— |
|
|
|
259,722 |
|
|
Other current assets
|
|
|
1,175 |
|
|
|
17,084 |
|
|
|
11,437 |
|
|
|
— |
|
|
|
29,696 |
|
|
Intercompany receivable
|
|
|
74,259 |
|
|
|
33,978 |
|
|
|
— |
|
|
|
(108,237 |
) |
|
|
— |
|
|
Total current assets
|
|
|
75,510 |
|
|
|
525,504 |
|
|
|
11,437 |
|
|
|
(108,237 |
) |
|
|
504,214 |
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land improvements
|
|
|
— |
|
|
|
3,211 |
|
|
|
37,842 |
|
|
|
— |
|
|
|
41,053 |
|
|
Buildings
|
|
|
— |
|
|
|
10,729 |
|
|
|
79,657 |
|
|
|
— |
|
|
|
90,386 |
|
|
Machinery and equipment
|
|
|
— |
|
|
|
78,145 |
|
|
|
— |
|
|
|
— |
|
|
|
78,145 |
|
|
Construction in progress
|
|
|
— |
|
|
|
2,415 |
|
|
|
— |
|
|
|
— |
|
|
|
2,415 |
|
|
Property and equipment, at cost
|
|
|
— |
|
|
|
94,500 |
|
|
|
117,499 |
|
|
|
— |
|
|
|
211,999 |
|
|
Accumulated depreciation
|
|
|
— |
|
|
|
(73,523 |
) |
|
|
(30,825 |
) |
|
|
— |
|
|
|
(104,348 |
) |
|
Property and equipment, net
|
|
|
— |
|
|
|
20,977 |
|
|
|
86,674 |
|
|
|
— |
|
|
|
107,651 |
|
|
Investment in subsidiaries
|
|
|
(56,600 |
) |
|
|
— |
|
|
|
— |
|
|
|
56,600 |
|
|
|
— |
|
|
Non-current deferred income tax assets
|
|
|
— |
|
|
|
445 |
|
|
|
— |
|
|
|
— |
|
|
|
445 |
|
|
Other non-current assets
|
|
|
— |
|
|
|
11,785 |
|
|
|
5,165 |
|
|
|
— |
|
|
|
16,950 |
|
|
Total assets
|
|
$ |
18,910 |
|
|
$ |
558,711 |
|
|
$ |
103,276 |
|
|
$ |
(51,637 |
) |
|
$ |
629,260 |
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
1,207 |
|
|
$ |
108,313 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
109,520 |
|
|
Bank overdrafts
|
|
|
— |
|
|
|
20,463 |
|
|
|
— |
|
|
|
— |
|
|
|
20,463 |
|
|
Accrued compensation
|
|
|
— |
|
|
|
4,678 |
|
|
|
— |
|
|
|
— |
|
|
|
4,678 |
|
|
Current maturities of long-term debt
|
|
|
— |
|
|
|
49,353 |
|
|
|
11,504 |
|
|
|
— |
|
|
|
60,857 |
|
|
Deferred income taxes, net
|
|
|
— |
|
|
|
449 |
|
|
|
— |
|
|
|
— |
|
|
|
449 |
|
|
Other current liabilities
|
|
|
— |
|
|
|
14,349 |
|
|
|
1,063 |
|
|
|
— |
|
|
|
15,412 |
|
|
Intercompany payable
|
|
|
33,978 |
|
|
|
74,259 |
|
|
|
— |
|
|
|
(108,237 |
) |
|
|
— |
|
|
Total current liabilities
|
|
|
35,185 |
|
|
|
271,864 |
|
|
|
12,567 |
|
|
|
(108,237 |
) |
|
|
211,379 |
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
— |
|
|
|
190,092 |
|
|
|
186,922 |
|
|
|
— |
|
|
|
377,014 |
|
|
Other non-current liabilities
|
|
|
— |
|
|
|
57,142 |
|
|
|
— |
|
|
|
— |
|
|
|
57,142 |
|
|
Total liabilities
|
|
|
35,185 |
|
|
|
519,098 |
|
|
|
199,489 |
|
|
|
(108,237 |
) |
|
|
645,535 |
|
|
Stockholders’(deficit) equity/parent’s investment
|
|
|
(16,275 |
) |
|
|
39,613 |
|
|
|
(96,213 |
) |
|
|
56,600 |
|
|
|
(16,275 |
) |
|
Total liabilities and stockholders’(deficit) equity/parent’s investment
|
|
$ |
18,910 |
|
|
$ |
558,711 |
|
|
$ |
103,276 |
|
|
$ |
(51,637 |
) |
|
$ |
629,260 |
|
The consolidating balance sheet for BlueLinx Holdings Inc. as of December 29, 2012 follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueLinx
Holdings Inc.
|
|
|
BlueLinx
Corporation
and
Subsidiaries
|
|
|
LLC
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
28 |
|
|
$ |
5,160 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,188 |
|
|
Receivables
|
|
|
— |
|
|
|
157,465 |
|
|
|
— |
|
|
|
— |
|
|
|
157,465 |
|
|
Inventories
|
|
|
— |
|
|
|
230,059 |
|
|
|
— |
|
|
|
— |
|
|
|
230,059 |
|
|
Other current assets
|
|
|
1,596 |
|
|
|
17,790 |
|
|
|
41 |
|
|
|
— |
|
|
|
19,427 |
|
|
Intercompany receivable
|
|
|
73,981 |
|
|
|
28,814 |
|
|
|
— |
|
|
|
(102,795 |
) |
|
|
— |
|
|
Total current assets
|
|
|
75,605 |
|
|
|
439,288 |
|
|
|
41 |
|
|
|
(102,795 |
) |
|
|
412,139 |
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land improvements
|
|
|
— |
|
|
|
3,250 |
|
|
|
39,870 |
|
|
|
— |
|
|
|
43,120 |
|
|
Buildings
|
|
|
— |
|
|
|
10,213 |
|
|
|
83,857 |
|
|
|
— |
|
|
|
94,070 |
|
|
Machinery and equipment
|
|
|
— |
|
|
|
78,674 |
|
|
|
— |
|
|
|
— |
|
|
|
78,674 |
|
|
Construction in progress
|
|
|
— |
|
|
|
1,173 |
|
|
|
— |
|
|
|
— |
|
|
|
1,173 |
|
|
Property and equipment, at cost
|
|
|
— |
|
|
|
93,310 |
|
|
|
123,727 |
|
|
|
— |
|
|
|
217,037 |
|
|
Accumulated depreciation
|
|
|
— |
|
|
|
(71,583 |
) |
|
|
(30,101 |
) |
|
|
— |
|
|
|
(101,684 |
) |
|
Property and equipment, net
|
|
|
— |
|
|
|
21,727 |
|
|
|
93,626 |
|
|
|
— |
|
|
|
115,353 |
|
|
Investment in subsidiaries
|
|
|
(67,053 |
) |
|
|
— |
|
|
|
— |
|
|
|
67,053 |
|
|
|
— |
|
|
Non-current deferred income tax assets, net
|
|
|
— |
|
|
|
445 |
|
|
|
— |
|
|
|
— |
|
|
|
445 |
|
|
Other non-current assets
|
|
|
— |
|
|
|
10,646 |
|
|
|
6,153 |
|
|
|
— |
|
|
|
16,799 |
|
|
Total assets
|
|
$ |
8,552 |
|
|
$ |
472,106 |
|
|
$ |
99,820 |
|
|
$ |
(35,742 |
) |
|
$ |
544,736 |
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
203 |
|
|
$ |
77,257 |
|
|
$ |
390 |
|
|
$ |
— |
|
|
|
77,850 |
|
|
Bank overdrafts
|
|
|
— |
|
|
|
35,384 |
|
|
|
— |
|
|
|
— |
|
|
|
35,384 |
|
|
Accrued compensation
|
|
|
127 |
|
|
|
6,043 |
|
|
|
— |
|
|
|
— |
|
|
|
6,170 |
|
|
Current maturities of long-term debt
|
|
|
— |
|
|
|
— |
|
|
|
8,946 |
|
|
|
— |
|
|
|
8,946 |
|
|
Deferred income tax liabilities, net
|
|
|
— |
|
|
|
449 |
|
|
|
— |
|
|
|
— |
|
|
|
449 |
|
|
Other current liabilities
|
|
|
— |
|
|
|
9,831 |
|
|
|
1,106 |
|
|
|
— |
|
|
|
10,937 |
|
|
Intercompany payable
|
|
|
28,814 |
|
|
|
73,981 |
|
|
|
— |
|
|
|
(102,795 |
) |
|
|
— |
|
|
Total current liabilities
|
|
|
29,144 |
|
|
|
202,945 |
|
|
|
10,442 |
|
|
|
(102,795 |
) |
|
|
139,736 |
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
— |
|
|
|
171,412 |
|
|
|
197,034 |
|
|
|
— |
|
|
|
368,446 |
|
|
Other non-current liabilities
|
|
|
— |
|
|
|
57,146 |
|
|
|
— |
|
|
|
— |
|
|
|
57,146 |
|
|
Total liabilities
|
|
|
29,144 |
|
|
|
431,503 |
|
|
|
207,476 |
|
|
|
(102,795 |
) |
|
|
565,328 |
|
|
Stockholders’ (deficit) equity/parent’s investment
|
|
|
(20,592 |
) |
|
|
40,603 |
|
|
|
(107,656 |
) |
|
|
67,053 |
|
|
|
(20,592 |
) |
|
Total liabilities and stockholders’(deficit) equity/parent’s investment
|
|
$ |
8,552 |
|
|
$ |
472,106 |
|
|
$ |
99,820 |
|
|
$ |
(35,742 |
) |
|
$ |
544,736 |
|
The consolidating statement of cash flows for BlueLinx Holdings Inc. for the period from December 30, 2012 to September 28, 2013 follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueLinx
Holdings
Inc.
|
|
|
BlueLinx
Corporation
and
Subsidiaries
|
|
|
LLC
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(38,161 |
) |
|
$ |
(44,754 |
) |
|
$ |
8,526 |
|
|
$ |
36,228 |
|
|
$ |
(38,161 |
) |
|
Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
— |
|
|
|
3,982 |
|
|
|
2,565 |
|
|
|
— |
|
|
|
6,547 |
|
|
Amortization of debt issuance costs
|
|
|
— |
|
|
|
1,405 |
|
|
|
991 |
|
|
|
— |
|
|
|
2,396 |
|
|
Write off of debt issuance costs
|
|
|
— |
|
|
|
119 |
|
|
|
— |
|
|
|
— |
|
|
|
119 |
|
|
Gain (loss) from the sale of properties
|
|
|
— |
|
|
|
556 |
|
|
|
(4,464 |
) |
|
|
— |
|
|
|
(3,908 |
) |
|
Gain from property insurance settlement
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Vacant property charges, net
|
|
|
— |
|
|
|
1,398 |
|
|
|
— |
|
|
|
— |
|
|
|
1,398 |
|
|
Severance charges
|
|
|
— |
|
|
|
4,703 |
|
|
|
— |
|
|
|
— |
|
|
|
4,703 |
|
|
Payments on modification of lease agreement
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Deferred income tax benefit
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based
compensation expense
|
|
|
895 |
|
|
|
4,682 |
|
|
|
— |
|
|
|
— |
|
|
|
5,577 |
|
|
Increase in restricted cash related to insurance and other
|
|
|
— |
|
|
|
(2,028 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,028 |
) |
|
Other
|
|
|
294 |
|
|
|
2,080 |
|
|
|
(1,254 |
) |
|
|
— |
|
|
|
1,120 |
|
|
Equity in earnings of subsidiaries
|
|
|
36,228 |
|
|
|
— |
|
|
|
— |
|
|
|
(36,228 |
) |
|
|
— |
|
|
Intercompany receivable
|
|
|
(278 |
) |
|
|
(5,164 |
) |
|
|
— |
|
|
|
5,442 |
|
|
|
— |
|
|
Intercompany payable
|
|
|
5,164 |
|
|
|
278 |
|
|
|
— |
|
|
|
(5,442 |
) |
|
|
— |
|
| |
|
|
4,142 |
|
|
|
(32,743 |
) |
|
|
6,364 |
|
|
|
— |
|
|
|
(22,237 |
) |
|
Changes in primary working capital components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
— |
|
|
|
(50,462 |
) |
|
|
— |
|
|
|
— |
|
|
|
(50,462 |
) |
|
Inventories
|
|
|
— |
|
|
|
(29,663 |
) |
|
|
— |
|
|
|
— |
|
|
|
(29,663 |
) |
|
Accounts payable
|
|
|
902 |
|
|
|
31,057 |
|
|
|
(391 |
) |
|
|
— |
|
|
|
31,568 |
|
|
Net cash provided by (used in) operating activities
|
|
|
5,044 |
|
|
|
(81,811 | ) |
|
|
5,973 |
|
|
|
— |
|
|
|
(70,794 |
) |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
(40,844 |
) |
|
|
37,924 |
|
|
|
2,920 |
|
|
|
— |
|
|
|
— |
|
|
Property, plant and equipment investments
|
|
|
— |
|
|
|
(4,005 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,005 |
) |
|
Proceeds from disposition of assets
|
|
|
— |
|
|
|
442 |
|
|
|
7,631 |
|
|
|
— |
|
|
|
8,073 |
|
|
Net cash (used in) provided by investing activities
|
|
|
(40,844 |
) |
|
|
34,361 |
|
|
|
10,551 |
|
|
|
— |
|
|
|
4,068 |
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from share-based compensation arrangements
|
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
Repurchase of shares to satisfy employee tax withholdings
|
|
|
(2,867 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,867 |
) |
|
Repayments on the revolving credit facilities
|
|
|
— |
|
|
|
(422,231 |
) |
|
|
— |
|
|
|
— |
|
|
|
(422,231 |
) |
|
Borrowings from the revolving credit facilities
|
|
|
— |
|
|
|
490,264 |
|
|
|
— |
|
|
|
— |
|
|
|
490,264 |
|
|
Payments of principal on mortgage
|
|
|
— |
|
|
|
— |
|
|
|
(7,554 |
) |
|
|
— |
|
|
|
(7,554 |
) |
|
Payments on capital lease obligations
|
|
|
— |
|
|
|
(1,152 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,152 |
) |
|
Decrease in bank overdrafts
|
|
|
— |
|
|
|
(14,921 |
) |
|
|
— |
|
|
|
— |
|
|
|
(14,921 |
) |
|
Increase in restricted cash related to the mortgage
|
|
|
— |
|
|
|
— |
|
|
|
(8,970 |
) |
|
|
— |
|
|
|
(8,970 |
) |
|
Debt issuance costs
|
|
|
— |
|
|
|
(2,893 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,893 |
) |
|
Proceeds
from rights offering, less expenses paid
|
|
|
38,715 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
38,715 |
|
|
Net cash provided by (used in) financing activities
|
|
|
35,848 |
|
|
|
49,083 |
|
|
|
(16,524 |
) |
|
|
— |
|
|
|
68,407 |
|
|
Increase in cash
|
|
|
48 |
|
|
|
1,633 |
|
|
|
— |
|
|
|
— |
|
|
|
1,681 |
|
|
Balance, beginning of period
|
|
|
28 |
|
|
|
5,160 |
|
|
|
— |
|
|
|
— |
|
|
|
5,188 |
|
|
Balance, end of period
|
|
$ |
76 |
|
|
$ |
6,793 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,869 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
The consolidating statement of cash flows for BlueLinx Holdings Inc. for the period from January 1, 2012 to September 29, 2012 follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueLinx
Holdings
Inc.
|
|
|
BlueLinx
Corporation
and
Subsidiaries
|
|
|
LLC
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(11,657 |
) |
|
$ |
(24,515 |
) |
|
$ |
6,689 |
|
|
$ |
17,826 |
|
|
$ |
(11,657 |
) |
|
Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
— |
|
|
|
3,907 |
|
|
|
2,646 |
|
|
|
— |
|
|
|
6,553 |
|
|
Amortization of debt issuance costs
|
|
|
— |
|
|
|
1,855 |
|
|
|
944 |
|
|
|
— |
|
|
|
2,799 |
|
|
Gain from the sale of properties
|
|
|
— |
|
|
|
— |
|
|
|
(9,680 |
) |
|
|
— |
|
|
|
(9,680 |
) |
|
Gain from property insurance settlement
|
|
|
— |
|
|
|
— |
|
|
|
(476 |
) |
|
|
— |
|
|
|
(476 |
) |
|
Vacant property charges, net
|
|
|
— |
|
|
|
(30 |
) |
|
|
— |
|
|
|
— |
|
|
|
(30 |
) |
|
Payments on modification of lease agreement
|
|
|
— |
|
|
|
(5,875 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,875 |
) |
|
Deferred income tax benefit
|
|
|
— |
|
|
|
(24 |
) |
|
|
— |
|
|
|
— |
|
|
|
(24 |
) |
|
Stock-based
compensation expense
|
|
|
430 |
|
|
|
1,667 |
|
|
|
— |
|
|
|
— |
|
|
|
2,097 |
|
|
Increase in restricted cash related to insurance and other
|
|
|
— |
|
|
|
(123 |
) |
|
|
— |
|
|
|
— |
|
|
|
(123 |
) |
|
Other
|
|
|
82 |
|
|
|
6,354 |
|
|
|
(1,927 |
) |
|
|
— |
|
|
|
4,509 |
|
|
Equity in earnings of subsidiaries
|
|
|
17,826 |
|
|
|
— |
|
|
|
— |
|
|
|
(17,826 |
) |
|
|
— |
|
|
Intercompany receivable
|
|
|
(317 |
) |
|
|
(2,592 |
) |
|
|
— |
|
|
|
2,909 |
|
|
|
— |
|
|
Intercompany payable
|
|
|
2,592 |
|
|
|
317 |
|
|
|
— |
|
|
|
(2,909 |
) |
|
|
— |
|
| |
|
|
8,956 |
|
|
|
(19,059 |
) |
|
|
(1,804 |
) |
|
|
— |
|
|
|
(11,907 |
) |
|
Changes in primary working capital components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
— |
|
|
|
(52,868 |
) |
|
|
— |
|
|
|
— |
|
|
|
(52,868 |
) |
|
Inventories
|
|
|
— |
|
|
|
(34,675 |
) |
|
|
— |
|
|
|
— |
|
|
|
(34,675 |
) |
|
Accounts payable
|
|
|
801 |
|
|
|
11,975 |
|
|
|
— |
|
|
|
— |
|
|
|
12,776 |
|
|
Net cash provided by (used in) operating activities
|
|
|
9,757 |
|
|
|
(94,627 |
) |
|
|
(1,804 |
) |
|
|
— |
|
|
|
(86,674 |
) |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
(9,756 |
) |
|
|
770 |
|
|
|
8,986 |
|
|
|
— |
|
|
|
— |
|
|
Property, plant and equipment investments
|
|
|
— |
|
|
|
(2,490 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,490 |
) |
|
Proceeds from disposition of assets
|
|
|
— |
|
|
|
144 |
|
|
|
18,417 |
|
|
|
— |
|
|
|
18,561 |
|
|
Net cash (used in) provided by investing activities
|
|
|
(9,756 |
) |
|
|
(1,576 |
) |
|
|
27,403 |
|
|
|
— |
|
|
|
16,071 |
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of shares to satisfy employee tax withholdings
|
|
|
— |
|
|
|
(446 |
) |
|
|
— |
|
|
|
— |
|
|
|
(446 |
) |
|
Repayments on the revolving credit facilities
|
|
|
— |
|
|
|
(345,674 |
) |
|
|
— |
|
|
|
— |
|
|
|
(345,674 |
) |
|
Borrowings from the revolving credit facilities
|
|
|
— |
|
|
|
436,374 |
|
|
|
— |
|
|
|
— |
|
|
|
436,374 |
|
|
Payments of principal on mortgage
|
|
|
— |
|
|
|
— |
|
|
|
(8,370 |
) |
|
|
— |
|
|
|
(8,370 |
) |
|
Payments on capital lease obligations
|
|
|
— |
|
|
|
(604 |
) |
|
|
— |
|
|
|
— |
|
|
|
(604 |
) |
|
Increase in restricted cash related to the mortgage
|
|
|
— |
|
|
|
— |
|
|
|
(15,546 |
) |
|
|
— |
|
|
|
(15,546 |
) |
|
Increase in bank overdrafts
|
|
|
— |
|
|
|
9,528 |
|
|
|
|
|
|
|
— |
|
|
|
9,528 |
|
|
Debt financing costs
|
|
|
— |
|
|
|
— |
|
|
|
(1,683 |
) |
|
|
— |
|
|
|
(1,683 |
) |
|
Net cash provided by (used in) financing activities
|
|
|
— |
|
|
|
99,178 |
|
|
|
(25,599 |
) |
|
|
— |
|
|
|
73,579 |
|
|
Increase in cash
|
|
|
1 |
|
|
|
2,975 |
|
|
|
— |
|
|
|
— |
|
|
|
2,976 |
|
|
Balance, beginning of period
|
|
|
27 |
|
|
|
4,871 |
|
|
|
— |
|
|
|
— |
|
|
|
4,898 |
|
|
Balance, end of period
|
|
$ |
28 |
|
|
$ |
7,846 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,874 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
$ |
— |
|
|
$ |
32 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
32 |
|
The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) has been derived from our historical financial statements and is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. This MD&A section should be read in conjunction with our consolidated financial statements and notes to those statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 29, 2012 as filed with the U.S. Securities and Exchange Commission (the “SEC”). This MD&A section is not a comprehensive discussion and analysis of our financial condition and results of operations, but rather updates disclosures made in the aforementioned filing.
The discussion below contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply 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. All of these 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, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, strategy or actual results to differ materially from the forward-looking statements. These risks and uncertainties may include those discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 29, 2012 as filed with the SEC and other factors, some of which may not be known to us. 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 you should consider that could cause these differences include, among other things:
|
|
●
|
changes in the prices, supply and/or demand for products which we distribute, especially as a result of conditions in the residential housing market;
|
|
|
●
|
the acceptance by our customers of our privately branded products;
|
|
|
●
|
inventory levels of new and existing homes for sale;
|
|
|
●
|
general economic and business conditions in the United States;
|
|
|
●
|
risks associated with doing business globally;
|
|
|
●
|
the financial condition and credit worthiness of our customers;
|
|
|
●
|
the activities of competitors;
|
|
|
●
|
changes in significant operating expenses;
|
|
|
●
|
risk of losses associated with accidents;
|
|
|
●
|
limitations on our transportation operations, which are subject to governmental regulation;
|
|
|
●
|
exposure to product liability claims;
|
|
|
●
|
changes in the availability of capital and interest rates;
|
|
|
●
|
our ability to achieve expected operational efficiencies and cost savings as a result of our restructuring initiatives;
|
|
|
●
|
immigration patterns and job and household formation;
|
|
|
●
|
our ability to identify acquisition opportunities and effectively and cost-efficiently integrate acquisitions;
|
|
|
●
|
adverse weather patterns or conditions;
|
|
|
●
|
acts of war or terrorist activities, including acts of cyber intrusion;
|
|
|
●
|
variations in the performance of the financial markets, including the credit markets; and
|
|
|
●
|
the other factors described herein and in our Annual Report on Form 10-K for the year ended December 29, 2012 as filed with the SEC.
|
Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.
Overview
Background
We are a leading distributor of building products in the United States. We distribute approximately 10,000 products to more than 11,500 customers through our current network of approximately 50 distribution centers which serve all major metropolitan markets in the United States. We distribute products in two principal categories: structural products and specialty products. Structural products include plywood, oriented strand board (“OSB”), rebar and remesh, lumber and other wood products primarily used for structural support, walls and flooring in construction projects. Structural products represented approximately 43% of our third quarter of fiscal 2013 gross sales. Specialty products include roofing, insulation, moulding, engineered wood, vinyl products (used primarily in siding), outdoor living, and metal products (excluding rebar and remesh). Specialty products accounted for approximately 57% of our third quarter of fiscal 2013 gross sales.
Industry Conditions
We operate in a changing environment in which new risks can emerge from time to time. A number of factors cause our results of operations to fluctuate from period to period. Many of these factors are seasonal or cyclical in nature. Conditions in the United States (“U.S.”) housing market, while improving, continue to be at historically low levels. Our operating results have declined during the past several years as they are closely tied to U.S. housing starts. Additionally, over the past several years, the mortgage markets have experienced substantial disruption due to an unprecedented number of defaults. This disruption and the related defaults have increased the inventory of homes for sale in some markets (some markets have sold through excess inventory now) and also have caused lenders to tighten mortgage qualification criteria, which further reduces demand for new homes. While there has been some recent improvement, we expect the lower than historical average level of new housing activity will continue to negatively impact our operating results. We continue to prudently manage our inventories, receivables and spending in this environment. However, along with many forecasters, we believe that we are in the beginning of a housing recovery and that U.S. housing demand will continue to improve in the long term based on population demographics and a variety of other factors.
Facility Lease Obligation and Related Restructuring
During
the second quarter of fiscal 2013, we announced our 2013 restructuring plan (the “2013 restructuring”) which included
the realignment of headquarters resources and the strategic review of our distribution centers. This review resulted
in the Company designating five distribution centers to be sold or closed. These distribution centers were closed or
ceased operations during the third quarter of fiscal 2013. In addition to the 2013 restructuring, we announced during
the second quarter of fiscal 2013 that George R. Judd no longer would serve as President and Chief Executive Officer of the Company
(the “change in executive leadership”). In connection with the 2013 restructuring and the change in executive
leadership, the Company has recognized severance related charges of $0.4 million, $0.3 million of related stock compensation charges,
a $1.4 million facility lease obligation and $0.7 million of other restructuring related charges in “Selling, general,
and administrative” expenses in the Consolidated Statements of Operations and Comprehensive Loss for the third quarter of
fiscal 2013. During the first nine months of fiscal 2013, we have recognized severance related charges of $4.7 million,
$2.7 million of related stock compensation charges, a $1.4 million facility lease obligation and $2.0 million of other restructuring
related charges in “Selling, general, and administrative” expenses in the Consolidated Statements of Operations
and Comprehensive Loss. In addition we recognized a $1.0 million inventory reserve charge recorded in “Cost of
sales” in the Consolidated Statements of Operations and Comprehensive Loss.
During
the first quarter of fiscal 2013, we completed the transition of our Fremont, California operation to our new facility in Stockton,
California. We incurred approximately $0.8 million of transition costs related to this move which are recorded
in “Selling, general, and administrative” expenses in the Consolidated Statements of Operations in the first nine
months of fiscal 2013.
Selected Factors Affecting Our Operating Results
Our operating results are affected by housing starts, mobile home production, industrial production, repair and remodeling spending and non-residential construction. Our operating results are also impacted by changes in product prices. Structural product prices can vary significantly based on short-term and long-term changes in supply and demand. The prices of specialty products can also vary from time to time, although they are generally significantly less variable than structural products.
The following table sets forth changes in net sales by product category, sales variances due to changes in unit volume and dollar and percentage changes in unit volume and price versus comparable prior periods, in each case for the third quarter of fiscal 2013, the third quarter of fiscal 2012, the first nine months of fiscal 2013, the first nine months of fiscal 2012, fiscal 2012 and fiscal 2011.
| |
|
Fiscal
Q3 2013
|
|
|
Fiscal
Q3 2012
|
|
|
Fiscal
2013 YTD
|
|
|
Fiscal
2012 YTD
|
|
|
Fiscal
2012
|
|
|
Fiscal
2011
|
|
| |
|
(Dollars in millions)
(Unaudited)
|
|
|
Sales by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Products
|
|
$ |
243 |
|
|
$ |
211 |
|
|
$ |
753 |
|
|
$ |
610 |
|
|
$ |
806 |
|
|
$ |
705 |
|
|
Specialty Products
|
|
|
321 |
|
|
|
289 |
|
|
|
925 |
|
|
|
865 |
|
|
|
1,114 |
|
|
|
1,068 |
|
|
Other(1)
|
|
|
(6 |
) |
|
|
(3 |
) |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(12 |
) |
|
|
(18 |
) |
|
Total Sales
|
|
$ |
558 |
|
|
$ |
497 |
|
|
$ |
1,666 |
|
|
$ |
1,468 |
|
|
$ |
1,908 |
|
|
$ |
1,755 |
|
|
Sales Variances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Volume $ Change
|
|
$ |
60 |
|
|
$ |
(9 |
) |
|
$ |
122 |
|
|
$ |
30 |
|
|
$ |
42 |
|
|
$ |
(52 |
) |
|
Price/Other(1)
|
|
|
1 |
|
|
|
33 |
|
|
|
76 |
|
|
|
74 |
|
|
|
111 |
|
|
|
3 |
|
|
Total $ Change
|
|
$ |
61 |
|
|
$ |
24 |
|
|
$ |
198 |
|
|
$ |
104 |
|
|
$ |
153 |
|
|
$ |
(49 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Volume % Change
|
|
|
11.9 |
% |
|
|
(1.9 |
)% |
|
|
8.3 |
% |
|
|
2.2 |
% |
|
|
2.3 |
% |
|
|
(2.8 |
)% |
|
Price/Other(1)
|
|
|
.4 |
% |
|
|
7.0 |
% |
|
|
5.2 |
% |
|
|
5.4 |
% |
|
|
6.4 |
% |
|
|
0.1 |
% |
|
Total % Change
|
|
|
12.3 |
% |
|
|
5.1 |
% |
|
|
13.5 |
% |
|
|
7.6 |
% |
|
|
8.7 |
% |
|
|
(2.7 |
)% |
|
(1)
|
“Other” includes unallocated allowances and discounts.
|
The following table sets forth changes in gross margin dollars and percentage changes by product category, and percentage changes in unit volume growth by product, in each case for the third quarter of fiscal 2013, the third quarter of fiscal 2012, the first nine months of fiscal 2013, the first nine months of fiscal 2012, fiscal 2012 and fiscal 2011.
| |
|
Fiscal
Q3 2013
|
|
|
Fiscal
Q3 2012
|
|
|
Fiscal
2013 YTD
|
|
|
Fiscal
2012 YTD
|
|
|
Fiscal
2012
|
|
|
Fiscal
2011
|
|
|
Gross Margin $’s by
|
|
(Dollars in millions)
(Unaudited)
|
|
|
Category
|
|
Structural Products
|
|
$ |
18 |
|
|
$ |
21 |
|
|
$ |
49 |
|
|
$ |
59 |
|
|
$ |
77 |
|
|
$ |
65 |
|
|
Specialty Products
|
|
|
39 |
|
|
|
38 |
|
|
|
119 |
|
|
|
113 |
|
|
|
146 |
|
|
|
137 |
|
|
Other (1)
|
|
|
5 |
|
|
|
2 |
|
|
|
6 |
|
|
|
6 |
|
|
|
7 |
|
|
|
8 |
|
|
Total Gross Margin $’s
|
|
$ |
62 |
|
|
$ |
61 |
|
|
$ |
174 |
|
|
$ |
178 |
|
|
$ |
230 |
|
|
$ |
210 |
|
|
Gross Margin %’s by Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Products
|
|
|
7.4 |
% |
|
|
10.0 |
% |
|
|
6.5 |
% |
|
|
9.7 |
% |
|
|
9.6 |
% |
|
|
9.2 |
% |
|
Specialty Products
|
|
|
12.1 |
% |
|
|
13.1 |
% |
|
|
12.9 |
% |
|
|
13.1 |
% |
|
|
13.1 |
% |
|
|
12.8 |
% |
|
Total Gross Margin %’s
|
|
|
11.2 |
% |
|
|
12.2 |
% |
|
|
10.5 |
% |
|
|
12.1 |
% |
|
|
12.1 |
% |
|
|
12.0 |
% |
|
Unit Volume Change by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structural Products
|
|
|
14.2 |
% |
|
|
(3.3 |
)% |
|
|
10.7 |
% |
|
|
2.1 |
% |
|
|
1.4 |
% |
|
|
(15.1 |
)% |
|
Specialty Products
|
|
|
10.2 |
% |
|
|
(1.0 |
)% |
|
|
6.5 |
% |
|
|
2.2 |
% |
|
|
2.9 |
% |
|
|
7.4 |
% |
|
Total Change in Unit Volume %’s
|
|
|
11.9 |
% |
|
|
(1.9 |
)% |
|
|
8.3 |
% |
|
|
2.2 |
% |
|
|
2.3 |
% |
|
|
(2.8 |
)% |
|
(1)
|
“Other” includes unallocated allowances and discounts.
|
The following table sets forth changes in net sales and gross margin by channel and percentage changes in gross margin by channel, in each case for the third quarter of fiscal 2013, the third quarter of fiscal 2012, the first nine months of fiscal 2013, the first nine months of fiscal 2012, fiscal 2012 and fiscal 2011.
| |
|
Fiscal
Q3 2013
|
|
|
Fiscal
Q3 2012
|
|
|
Fiscal
2013 YTD
|
|
|
Fiscal
2012 YTD
|
|
|
Fiscal
2012
|
|
|
Fiscal
2011
|
|
| |
|
(Dollars in millions)
(Unaudited)
|
|
| |
|
Sales by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse/Reload
|
|
$ |
463 |
|
|
$ |
403 |
|
|
$ |
1,361 |
|
|
$ |
1,177 |
|
|
$ |
1,534 |
|
|
$ |
1,397 |
|
|
Direct
|
|
|
101 |
|
|
|
97 |
|
|
|
317 |
|
|
|
298 |
|
|
|
386 |
|
|
|
376 |
|
|
Other(1)
|
|
|
(6 |
) |
|
|
(3 |
) |
|
|
(12 |
) |
|
|
(7 |
) |
|
|
(12 |
) |
|
|
(18 |
) |
|
Total
|
|
$ |
558 |
|
|
$ |
497 |
|
|
$ |
1,666 |
|
|
$ |
1,468 |
|
|
$ |
1,908 |
|
|
$ |
1,755 |
|
|
Gross Margin by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse/Reload
|
|
$ |
51 |
|
|
$ |
53 |
|
|
$ |
149 |
|
|
$ |
153 |
|
|
$ |
199 |
|
|
$ |
179 |
|
|
Direct
|
|
|
6 |
|
|
|
6 |
|
|
|
19 |
|
|
|
19 |
|
|
|
24 |
|
|
|
23 |
|
|
Other(1)
|
|
|
5 |
|
|
|
2 |
|
|
|
6 |
|
|
|
6 |
|
|
|
7 |
|
|
|
8 |
|
|
Total
|
|
$ |
62 |
|
|
$ |
61 |
|
|
$ |
174 |
|
|
$ |
178 |
|
|
$ |
230 |
|
|
$ |
210 |
|
|
Gross Margin % by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehouse/Reload
|
|
|
11.0 |
% |
|
|
13.2 |
% |
|
|
10.9 |
% |
|
|
13.0 |
% |
|
|
13.0 |
% |
|
|
12.8 |
% |
|
Direct
|
|
|
5.9 |
% |
|
|
6.2 |
% |
|
|
6.0 |
% |
|
|
6.4 |
% |
|
|
6.2 |
% |
|
|
6.1 |
% |
|
Total
|
|
|
11.2 |
% |
|
|
12.2 |
% |
|
|
10.5 |
% |
|
|
12.1 |
% |
|
|
12.1 |
% |
|
|
12.0 |
% |
(1) “Other” includes unallocated allowances and adjustments.
Fiscal Year
Our
fiscal year is a 52- or 53-week period ending on the Saturday closest to the end of the calendar year. Fiscal year
2013 contains 53 weeks and fiscal year 2012 contained 52 weeks.
Results of Operations
Third Quarter of Fiscal 2013 Compared to Third Quarter of Fiscal 2012
The following table sets forth our results of operations for the third quarter of fiscal 2013 and third quarter of fiscal 2012.
| |
|
Third Quarter of
Fiscal 2013
|
|
|
% of
Net
Sales
|
|
|
Third Quarter of
Fiscal 2012
|
|
|
% of
Net
Sales
|
|
| |
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
| |
|
(Dollars in thousands)
|
|
|
Net sales
|
|
$ |
557,952 |
|
|
|
100.0 |
% |
|
$ |
496,810 |
|
|
|
100.0 |
% |
|
Gross profit
|
|
|
62,492 |
|
|
|
11.2 |
% |
|
|
60,531 |
|
|
|
12.2 |
% |
|
Selling, general, and administrative
|
|
|
57,255 |
|
|
|
10.3 |
% |
|
|
48,156 |
|
|
|
9.7 |
% |
|
Depreciation and amortization
|
|
|
2,144 |
|
|
|
0.4 |
% |
|
|
2,106 |
|
|
|
0.4 |
% |
|
Operating income
|
|
|
3,093 |
|
|
|
0.6 |
% |
|
|
10,269 |
|
|
|
2.1 |
% |
|
Interest expense
|
|
|
6,918 |
|
|
|
1.2 |
% |
|
|
7,294 |
|
|
|
1.5 |
% |
|
Other expense (income), net
|
|
|
17 |
|
|
|
0.0 |
% |
|
|
(16 |
) |
|
|
0.0 |
% |
|
(Loss) income before benefit from income taxes
|
|
|
(3,842 |
) |
|
|
(0.7 |
)% |
|
|
2,991 |
|
|
|
0.6 |
% |
|
Benefit from income taxes
|
|
|
(636 |
) |
|
|
(0.1 |
)% |
|
|
(77 |
) |
|
|
0.0 |
% |
|
Net (loss) income
|
|
$ |
(3,206 |
) |
|
|
(0.6 |
)% |
|
$ |
3,068 |
|
|
|
0.6 |
% |
Net sales. For the third quarter of fiscal 2013, net sales increased by 12.3%, or $61.1 million, to $558.0 million. Sales during the quarter were positively impacted by an increase in demand. Structural sales increased by $31.8 million, or 15.1%, compared to the third quarter of fiscal 2012, primarily due to an increase in unit volumes of 14.2% and an increase in structural product prices of 0.9%. Specialty sales increased by $31.7 million, or 11.0% from a year ago, primarily as a result of an increase in specialty unit volumes of 10.2% and an increase in specialty product prices of 0.8%.
Gross
profit. Gross profit for the third quarter of fiscal 2013 was $62.5 million, or 11.2% of sales, compared to $60.5
million, or 12.2% of sales, in the prior year period. The increase in gross profit dollars compared to the third quarter of fiscal
2012 was driven by an increase in volume partially offset by an unfavorable variance in our gross margin percentage.
Our overall gross margin percentage was lower due to a greater percentage of our sales being comprised of lower gross margin structural
products coupled with a highly competitive pricing environment. In addition, we experienced lower margin sales as we sold through
inventory at the five distribution centers we closed during the third quarter of fiscal 2013.
Selling,
general, and administrative expenses. Selling, general, and administrative expenses were $57.3 million, or 10.3%
of net sales, for the third quarter of fiscal 2013, compared to $48.2 million, or 9.7% of net sales, a $9.1 million increase compared
to the third quarter of fiscal 2012. This increase in selling, general, and administrative expenses primarily was due
to a reduction in real estate related gains, which were $3.7 million during the third quarter of fiscal 2013 compared to $9.2 million during
the third quarter of fiscal 2012. In addition, there were $2.8 million of restructuring charges associated
with the 2013 restructuring recorded during the third quarter of fiscal 2013. Variable
costs such as payroll related costs, third party freight and third party handling and storage also increased due
to an increase in unit volume of 11.9%.
Depreciation and amortization. Depreciation and amortization expense totaled $2.1 million for the third quarter of fiscal 2013 and the third quarter of fiscal 2012.
Operating income. Operating income for the third quarter of fiscal 2013 was $3.1 million, or 0.6% of sales, compared to operating income of $10.3 million, or 2.1% of sales, in the third quarter of fiscal 2012, reflecting an increase in selling, general, and administrative expense of $9.1 million offset by an increase in gross profit dollars of $2.0 million.
Interest
expense. Interest expense totaled $6.9 million for the third quarter of fiscal 2013 compared to $7.3 million for
the third quarter of fiscal 2012. The $0.4 million decrease is largely due to a $0.6 million decrease in
interest expense incurred on our mortgage as a result of principal reductions and a $0.2 million decrease in
amortization of debt fees partially offset by a $0.4 million increase in interest expense incurred on our revolving credit
facilities. Interest expense included $0.7 million of debt issue cost amortization for the third quarter of fiscal
2013 and $0.9 million for the third quarter of fiscal 2012. During the third quarter of fiscal 2013, interest
expense related to our revolving credit facilities and mortgage was $3.0 million and $3.2 million,
respectively. During the third quarter of fiscal 2012, interest expense related to our revolving credit facilities
and mortgage was $2.6 million and $3.8 million, respectively. See “Liquidity and Capital Resources” below for a
description of agreements for the revolving credit facilities and the mortgage.
Benefit
from income taxes. The effective tax rate was 16.6% and (2.6)% for the third quarter of fiscal 2013 and the third quarter
of fiscal 2012, respectively. The unusual effective tax rate in both periods is primarily driven by a full valuation
allowance recorded against our year to date federal and state tax benefit. In addition, we recorded tax expense related
to gross receipts, Canadian and certain state taxes. Also, during the third quarter of fiscal 2013, we allocated income tax expense
to accumulated other comprehensive loss to the extent income was recorded related to the pension plan, which resulted in a higher
tax benefit to continuing operations. Finally, during the third quarter of fiscal 2013, we recorded a benefit related to the reversal
of a $0.6 million reserve for an uncertain tax position due to the expiration of the statute of limitations.
Net income (loss). Net loss for the third quarter of fiscal 2013 was $3.2 million compared to net income of $3.1 million for the third quarter of fiscal 2012 as a result of the above factors.
On
a per-share basis, basic and diluted (loss) income applicable to common stockholders for the third quarter of fiscal 2013 and
for the third quarter of fiscal 2012 was ($0.04) and $ 0.04 , respectively. On March 27, 2013, we completed a
rights offering (the “2013 Rights Offering”) of common stock to our stockholders at a subscription price that was
lower than the market price of our common stock. The 2013 Rights Offering was deemed to contain a bonus element that is similar
to a stock dividend requiring us to adjust the weighted average number of common shares used to calculate basic and diluted earnings
per share in prior periods retrospectively by a factor of 1.0894. Weighted average shares for the quarter ended September
29, 2012 prior to giving effect to the 2013 Rights Offering were 60,098,691 and were 65,472,685 after application of the adjustment
factor of 1.0894.
First Nine Months of Fiscal 2013 Compared to First Nine Months of Fiscal 2012
The following table sets forth our results of operations for the first nine months of fiscal 2013 and the first nine months of fiscal 2012.
| |
|
First Nine Months
of
Fiscal 2013
|
|
|
% of
Net
Sales
|
|
|
First Nine Months
of
Fiscal 2012
|
|
|
% of
Net
Sales
|
|
| |
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
| |
|
(Dollars in thousands)
|
|
|
Net sales
|
|
$ |
1,665,697 |
|
|
|
100.0 |
% |
|
$ |
1,467,544 |
|
|
|
100.0 |
% |
|
Gross profit
|
|
|
174,134 |
|
|
|
10.5 |
% |
|
|
177,951 |
|
|
|
12.1 |
% |
|
Selling, general, and administrative
|
|
|
185,184 |
|
|
|
11.1 |
% |
|
|
161,358 |
|
|
|
11.0 |
% |
|
Depreciation and amortization
|
|
|
6,547 |
|
|
|
0.4 |
% |
|
|
6,553 |
|
|
|
0.4 |
% |
|
Operating (loss) income
|
|
|
(17,597 |
) |
|
|
(1.1 |
)% |
|
|
10,040 |
|
|
|
0.7 |
% |
|
Interest expense
|
|
|
21,026 |
|
|
|
1.3 |
% |
|
|
21,401 |
|
|
|
1.5 |
% |
|
Other expense (income), net
|
|
|
252 |
|
|
|
0.0 |
% |
|
|
(29 |
) |
|
|
(0.0 |
)% |
|
Loss before (benefit from) provision for income taxes
|
|
|
(38,875 |
) |
|
|
(2.3 |
)% |
|
|
(11,332 |
) |
|
|
(0.8 |
)% |
|
(Benefit from) provision for income taxes
|
|
|
(714 |
) |
|
|
0.0 |
% |
|
|
325 |
|
|
|
0.0 |
% |
|
Net loss
|
|
$ |
(38,161 |
) |
|
|
(2.3 |
)% |
|
$ |
(11,657 |
) |
|
|
(0.8 |
)% |
Net sales. For the first nine months of fiscal 2013, net sales increased by 13.5%, or $198.2 million, to $1.7 billion. Sales during the period were positively impacted by an increase in demand. Specialty sales increased by $60.1 million, or 7.0% compared to the first nine months of fiscal 2012, reflecting a 6.6% increase in unit volume and a 0.4% increase in prices. Structural sales increased by $143.2 million, or 23.5%, from a year ago, primarily due to a 10.7% increase in unit volume and a 12.8% increase in product prices.
Gross
profit. Gross profit for the first nine months of fiscal 2013 was $174.1 million, or 10.5% of sales, compared to $178 million,
or 12.1% of sales, in the prior year period. The decrease in gross profit dollars compared to the first nine months of fiscal
2012 was driven by an unfavorable variance in our gross margin percentage. Structural product prices have increased,
when compared to the prior period, which resulted in an increase in revenue. However, we experienced a decline during
the second quarter of fiscal 2013 in the market prices of lumber, OSB and plywood. The decline in market prices negatively
impacted our gross margin percentage as we sold through the affected inventory. In addition, the overall gross margin
percentage was lower due to a greater percentage of our sales being comprised of lower gross margin structural products.
Selling,
general, and administrative. Selling, general, and administrative expenses for the first nine months of
fiscal 2013 were $185.2 million, or 11.1% of net sales, compared to $161.4 million, or 11.0% of net sales, during the first
nine months of fiscal 2012. The increase in selling, general, and administrative expenses primarily was due to
$11.0 million of restructuring and other charges associated with the 2013 restructuring and the change in executive
leadership. Also contributing to the increase was a reduction in real estate related gains, which
were $3.9 million in the first nine months of fiscal 2013 as compared to real estate related gains of $10.2 million in
the first nine months of fiscal 2012. In addition, variable costs such as payroll related costs, third party freight and
operating supplies increased due to an increase in unit volume of 8.3%.
Depreciation and amortization. Depreciation and amortization expense totaled $6.5 million for the first nine months of fiscal 2013, and $6.6 million for the first nine months of fiscal 2012.
Operating (loss) income. Operating (loss) income for the first nine months of fiscal 2013 was ($17.6) million compared to $10.0 million in the prior year period. The change in operating loss reflects a $3.8 million decrease in gross profit and an increase in selling, general and administrative expenses of $23.8 million.
Interest
expense. Interest expense totaled $21.0 million for the first nine months of fiscal 2013 compared to $21.4 million
for the first nine months of fiscal 2012. The $0.4 million decrease largely is due to a $1.6 million decrease in
interest expense incurred on our mortgage as a result of principal reductions, a $0.4 million decrease in amortization of
debt fees partially offset by a $1.4 million increase in interest expense incurred on our revolving
credit facilities. Interest expense included $2.4 million and $1.9 million of debt issue cost amortization for the
first nine months of fiscal 2013 and for the first nine months of fiscal 2012, respectively. Interest expense for
the first nine months of fiscal 2013 also included the write-off of $0.1 million in previously capitalized debt fees related
to the amendment of our U.S. revolving credit facility. During the first nine months of fiscal 2013, interest
expense related to our revolving credit facilities and mortgage was $8.6 million and $9.7 million,
respectively. During the first nine months of fiscal 2012, interest expense related to our revolving credit
facility and mortgage was $7.2 million and $11.3 million, respectively. See “Liquidity and Capital
Resources” below for a description of agreements for the revolving credit facilities and the mortgage.
(Benefit
from) provision for income taxes. The effective tax rate was 1.8% and (2.9)% for the first nine months of fiscal 2013 and
the first nine months of fiscal 2012, respectively. The unusual effective tax rate in both periods is primarily driven by a full
valuation allowance recorded against our year to date federal and state tax benefit. In addition, we recorded tax expense
related to gross receipts, Canadian and certain state taxes. Also, during the first nine months of fiscal 2013, we allocated income
tax expense to accumulated other comprehensive loss to the extent income was recorded related to the pension plan, which resulted
in a tax benefit to continuing operations. Finally, during the third quarter of fiscal 2013, we recorded a benefit related to
the reversal of a $0.6 million reserve for an uncertain tax position due to the expiration of the statute of limitations.
Net loss. Net loss for the first nine months of fiscal 2013 was $38.2 million compared to a net loss of $11.7 million for the first nine months of fiscal 2012 as a result of the above factors.
On a per-share basis, basic and diluted loss per share applicable to common stockholders for the first nine months of fiscal 2013 and for the first nine months of fiscal 2012 were $0.49 and $0.18, respectively. Weighted average shares for the nine months ended September 29, 2012 prior to giving effect to the 2013 Rights Offering were 60,066,595 and were 65,437,719 after application of the adjustment factor of 1.0894.
Seasonality
We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These seasonal factors are common in the building products distribution industry. The first and fourth quarters are typically our slowest quarters due to the impact of poor weather on the construction market. Our second and third quarters are typically our strongest quarters, reflecting a substantial increase in construction due to more favorable weather conditions. Our working capital and accounts receivable and payable generally peak in the third quarter, while inventory generally peaks in the second quarter in anticipation of the summer building season.
Liquidity and Capital Resources
We depend on cash flows from operations and funds available under our revolving credit facilities to finance working capital needs and capital expenditures. We had approximately $91.3 million of excess availability ($50.8 million above the minimum required) under our U.S. revolving credit facility agreement (the “U.S. revolving credit facility”) and $1.2 million under our Canadian revolving credit facility agreement (the “Canadian revolving credit facility”), described further below, as of September 28, 2013. We had approximately $86.0 million of excess availability under our U.S. revolving credit facility and $2.0 million under our Canadian revolving credit facility as of December 29, 2012. As of September 28, 2013, under our amended U.S. revolving credit facility, we are required to maintain a fixed charge coverage ratio of 1.1 to 1.0 in the event our excess availability falls below the greater of $31.8 million or the amount equal to 12.5% of the lesser of the borrowing base or $447.5 million (the “Excess Availability Threshold”). If we fail to maintain this minimum excess availability, the U.S. revolving credit facility requires us to (i) maintain certain financial ratios, which we would not meet with current operating results, and (ii) limit our capital expenditures, which would have a negative impact on our ability to finance working capital needs and capital expenditures. In the event that excess availability falls below $37.1 million or the amount equal to 15% of the lesser of the borrowing base or $447.5 million, the U.S. revolving credit facility gives the lenders the right, but not the obligation, to dominion over our bank accounts. This would not make the underlying debt callable by the lender and may not change our ability to borrow on the U.S. revolving credit facility. However, we would be required to reclassify the “Long-term debt” to “Current maturities of long-term debt” on our Consolidated Balance Sheet. For additional information regarding our financial covenants under our revolving credit facilities, see “Debt and Credit Sources” below and the risk factor “The instruments governing our indebtedness contain various covenants limiting the discretion of our management in operating our business” set forth under Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 29, 2012, as filed with the SEC.
On
March 27, 2013, we concluded the 2013 Rights Offering. The 2013 Rights Offering was fully subscribed and resulted in
net proceeds of approximately $38.6 million. We issued 22.9 million shares of stock to our stockholders
in conjunction with the 2013 Rights Offering.
Excess
availability may decrease while our industry and the Company continue to participate in the recovery of the housing market.
However, we believe that the amounts available from our revolving credit facilities and other sources will be sufficient to fund
our routine operations and capital requirements for the next 12 months.
We may elect to selectively pursue acquisitions. Accordingly, depending on the nature of the acquisition, we may use cash or stock, or a combination of both, as acquisition currency. Our cash requirements may significantly increase and incremental cash expenditures may be required in connection with the integration of the acquired company’s business and to pay fees and expenses in connection with any acquisitions. To the extent that significant amounts of cash are expended in connection with acquisitions, our liquidity position may be adversely impacted. In addition, there can be no assurance that we will be successful in completing or integrating acquisitions in the future. For a discussion of the risks associated with acquisitions, see the risk factor “Integrating acquisitions may be time-consuming and create costs that could reduce our net income and cash flows” set forth under Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 29, 2012, as filed with the SEC.
The following tables indicate our working capital and cash flows for the periods indicated.
| |
|
|
|
|
|
|
| |
|
(Dollars in thousands)
|
|
| |
|
(Unaudited)
|
|
|
Working capital
|
|
$ |
292,835 |
|
|
$ |
272,403 |
|
| |
|
Period from
December 30, 2012
to September 28,
2013
|
|
|
Period from
January 1, 2012 to
September 29, 2012
|
|
| |
|
(Dollars in thousands)
|
|
| |
|
(Unaudited)
|
|
|
Cash flows used in operating activities
|
|
$ |
(70,794 |
) |
|
$ |
(86,674 |
) |
|
Cash
flows provided by in investing activities
|
|
|
4,068 |
|
|
|
16,071 |
|
|
Cash flows provided by financing activities
|
|
|
68,407 |
|
|
|
73,579 |
|
Working Capital
Working
capital increased by $20.4 million to $292.8 million at September 28, 2013 from $272.4 million at December 29, 2012. The
increase in working capital is primarily attributable to increases in inventory of $29.7 million, receivables of $50.5 million,
other current assets of $10.3 million, cash of $1.7 million and a decrease in bank overdrafts of $14.9 million. We
increased inventory levels to meet current demand and the increase in accounts receivable is due to an increase in demand and
seasonal payment patterns. The increase in other current assets primarily relates to an increase in restricted cash
related to the mortgage in connection with the sale of the Denver, Colorado sales center. These changes were
partially offset by increases in accounts payable of $31.6 million , increased net borrowings on the current portion
of our revolving credit facilities of $49.4 million as we purchased more products to meet existing demand and an increase in other
current liabilities of $4.5 million.
Operating Activities
During
the first nine months of fiscal 2013, cash flows used in operating activities totaled $(70.8) million. The primary
drivers of cash flow used in operations were increases in accounts receivable of $50.5 million reflecting increased revenue resulting
from an increase in demand and seasonal payment patterns, an increase in inventories of $29.7 million due to an increase in purchases
to meet increased demand and a net loss, as adjusted for non-cash charges, of $21.3 million. These cash outflows were
offset by an increase in accounts payable related to operating activities of $31.6 million due to an increase in purchase volume
associated with increased demand.
During the first nine months of fiscal 2012, cash flows used in operating activities totaled $86.7 million. The primary drivers of cash flow used in operations were increases in accounts receivable of $52.9 million due to increased sales volume primarily due to increased demand and the effect of seasonal payment patterns, an increase in inventories of $34.7 million due to an increase in purchases to meet current demand and a net loss, adjusted for non-cash charges, of $10.4 million. In addition, we made certain payments totaling $5.9 million related to the modification of the lease agreement for our corporate headquarters. These cash outflows were offset by an increase in accounts payable of $12.8 million due to an increase in purchase volume associated with the increased demand.
Investing Activities
During the first nine months of fiscal 2013 and fiscal 2012, cash flows provided by investing activities totaled $4.1 million and $16.1 million, respectively.
During
the first nine months of fiscal 2013 and fiscal 2012, our expenditures for property and equipment were $4.0 million and $2.5 million,
respectively. During the first nine months of fiscal 2013, we purchased additional space for our distribution center
in Elkhart, Indiana, which included both land and a building and resulted in a capital expenditure of approximately $1.0 million. The
remaining capital expenditures in 2013 primarily relate to normal replenishment. The capital expenditures in 2012 primarily relate
to normal replenishment. The majority of our capital expenditures for fiscal 2013 and 2012 have been and likely
will continue to be paid from our revolving credit facility. We intend to purchase an additional 50 tractors to replenish
the fleet during the fourth quarter of fiscal 2013 and anticipate financing these tractors with a third party leasing company.
Proceeds from the disposition of property totaled $8.1 million and $18.6 million for the first nine months of fiscal 2013 and the first nine months of fiscal 2012, respectively. The proceeds from disposition of assets in the first nine months of fiscal 2013 were primarily related to the sale of the Denver, Colorado sales center and certain pieces of equipment. The proceeds from disposition of assets in the first nine months of fiscal 2012 were primarily related to the sale of certain real properties.
Financing Activities
Net
cash provided by financing activities was $68.4 million and $73.6 million during the first nine months of fiscal 2013 and
the first nine months of fiscal 2012, respectively. The net cash provided by financing activities in the first nine
months of fiscal 2013 primarily reflected a net increase in the balance of our revolving credit facility of $68.0 million and
net proceeds from the 2013 Rights Offering of $38.7 million. These increases were partially offset by a decrease in
bank overdrafts of $14.9 million, increases in our restricted cash related to the mortgage of $9.0 million, payments of
principal on the mortgage of $7.6 million and cash paid for debt financing costs of $2.9 million. The net cash provided by financing
activities in the first nine months of fiscal 2012 primarily reflected an increase in the balance of our revolving credit facility
of $90.7 million and an increase in bank overdrafts of $9.5 million. Partially offsetting these cash inflows were increases
in our restricted cash related to the mortgage of $15.5 million, $8.4 million of principal payments on our mortgage and $1.7 million
of cash paid for debit financing costs.
Debt and Credit Sources
Our U.S. revolving credit facility is with several lenders including Wells Fargo Bank, National Association, successor by merger to Wachovia Bank, National Association, dated August 4, 2006, as amended. The U.S. revolving credit facility has a final maturity of April 15, 2016 and maximum available credit of $447.5 million. The U.S. revolving credit facility also includes an additional $75 million uncommitted accordion credit facility, which permits us to increase the maximum available credit up to $522.5 million.
On
June 28, 2013, we entered into an amendment to our U.S. revolving credit facility, which became effective on that date and
pursuant to which certain components of the borrowing base calculation and excess liquidity calculation were adjusted. The
most significant of the changes included in the amendment is the addition of PNC Bank, National Association as a lender and
their additional loan commitment of $25.0 million, which increased the maximum availability under the U.S. revolving
credit facility to $447.5 million. The terms of this amended agreement are described below. In
conjunction with this amendment, we incurred $0.1 million of debt fees that were capitalized and are being amortized over the
amended debt term.
On March 29, 2013, we entered into an amendment to our U.S. revolving credit facility, which became effective on that date and pursuant to which certain components of the borrowing base calculation and excess liquidity calculation were adjusted. The most significant of the changes included in the amendment are extending the final maturity of our U.S. revolving credit facility, increasing the maximum available credit under the facility and adjusting the excess availability threshold calculation. In conjunction with this amendment, we incurred $2.8 million of debt fees that were capitalized and are being amortized over the amended debt term.
On
March 27, 2013, we concluded the 2013 Rights Offering. The 2013 Rights Offering was fully subscribed and resulted in net proceeds of approximately $38.6 million. We issued
22.9 million shares of stock to our stockholders in conjunction with the 2013 Rights Offering.
As
of September 28, 2013, we had outstanding borrowings of $234.8 million and excess availability of $91.3 million
under the terms of our U.S. revolving credit facility. The interest rate on the U.S. revolving credit facility was
3.8% at September 28, 2013. As of December 29, 2012, we had outstanding borrowings of $169.5 million and
excess availability of $86.0 million under the terms of our U.S. revolving credit facility. The interest rate on the
U.S. revolving credit facility was 4.1% at December 29, 2012. As of September 28, 2013 and December 29, 2012, we had
outstanding letters of credit totaling $4.5 million for the purposes of securing collateral requirements under casualty insurance
programs and for guaranteeing lease and certain other obligations. The $4.5 million in outstanding letters of credit
as of September 28, 2013 does not include an additional $1.5 million fully collateralized letter of credit securing certain insurance
obligations that was issued outside of the U.S. revolving credit facility.
As
of September 28, 2013, our U.S. revolving credit facility, as amended, contains customary negative covenants and restrictions
for asset based loans, including a requirement that we maintain a fixed charge coverage ratio of 1.1 to 1.0 in the event our excess
availability falls below the Excess Availability Threshold. The fixed charge coverage ratio is calculated as EBITDA
divided by the sum of cash payments for income taxes, interest expense, cash dividends, principal payments on debt, and capital
expenditures. EBITDA is defined as BlueLinx Corporation’s net income before interest and tax expense, depreciation
and amortization expense, and other non-cash charges. The fixed charge coverage ratio requirement only applies to us
when excess availability under our amended U.S. revolving credit facility is less than the Excess Availability Threshold on any
date. As of September 28, 2013 and through the time of the filing of this Form 10-Q, we were in compliance with all covenants
under the U.S. revolving credit facility. We are required to maintain the Excess Availability Threshold in order to
avoid being required to meet certain financial ratios and triggering additional limits on capital expenditures. Our
lowest level of fiscal month-end availability in the last three years as of September 28, 2013 was $79.1 million. We
do not anticipate our excess availability in fiscal 2013 will drop below the Excess Availability Threshold. Should
our excess availability fall below the Excess Availability Threshold on any date, however, we would not meet the required fixed
charge coverage ratio covenant with our current operating results.
In the event that excess availability falls below $37.1 million or the amount equal to 15% of the lesser of the borrowing base or $447.5 million, the U.S. revolving credit facility gives the lenders the right to dominion over our bank accounts. This would not make the underlying debt callable by the lender and may not change our ability to borrow on the U.S. revolving credit facility. However, we would be required to reclassify the “Long-term debt” to “Current maturities of long-term debt” on our Consolidated Balance Sheet. In addition, we would be required to maintain a springing lock-box arrangement where customer remittances go directly to a lock-box maintained by our lenders and then are forwarded to our general bank accounts. Our amended U.S. revolving credit facility does not contain a subjective acceleration clause, which would allow our lenders to accelerate the scheduled maturities of our debt or to cancel our agreement.
Our
subsidiary BlueLinx Building Products Canada Ltd. (“BlueLinx Canada”) has a revolving credit agreement (the “Canadian
revolving credit facility”) with Canadian Imperial Bank of Commerce (as successor to CIBC Asset-Based Lending Inc.) and
the other signatories thereto, as lender, administrative agent and collateral agent, dated August 12,
2011, as amended.
On
August 16, 2013, we entered into an amendment to our Canadian revolving credit facility, which became effective on that date. The
Amendment modifies the maturity date under the Credit Agreement to the earlier of (i) August 12, 2016 or the (ii)
maturity date of the U.S. revolving credit facility. All other terms of the Canadian revolving credit facility remain
the same.
As
of September 28, 2013, we had outstanding borrowings of $4.6 million and excess availability of $1.2 million
under the terms of our Canadian revolving credit facility. As of December 29, 2012, we had outstanding borrowings of
$1.9 million and excess availability of $2.0 million under the terms of our Canadian revolving credit facility. The
interest rate on the Canadian revolving credit facility was 4.0% at September 28, 2013 and December 29, 2012. The Canadian
revolving credit facility contains customary covenants and events of default for asset-based credit agreements of this type, including
the requirement for BlueLinx Canada to maintain a minimum adjusted tangible net worth of $3.9 million and for that entity’s
capital expenditures not to exceed 120% of the amount budgeted in a given year. As of September 28, 2013 and through
the time of the filing of this Form 10-Q, we were in compliance with all covenants under this facility.
On
September 19, 2012, we entered into an amendment to our mortgage agreement, which provided for the immediate prepayment of approximately
$11.8 million of the indebtedness under the mortgage agreement without incurring a prepayment premium from cash currently held
as collateral under the mortgage agreement. We are required to transfer funds under the terms of the mortgage that
are held as collateral. We expect to transfer approximately $13.3 million as collateral during the next twelve
month period. Approximately $10.0 million will be released from escrow to us on a quarterly basis for operational uses
as indicated in the amendment. As part of the September 2012 amendment to the mortgage, on a quarterly basis, additional
funds held as collateral under the mortgage agreement were to be used to prepay indebtedness under the mortgage agreement, without
prepayment premium, up to an aggregate additional prepayment of $10.0 million. Thereafter, any cash remaining in the
collateral account under the mortgage agreement, up to an aggregate of $10.0 million, will be released to the Company on the last
business day of each calendar quarter through the second quarter of 2014. All funds released pursuant to these provisions
may only be used by the Company to pay for usual and customary operating expenses. During the periods described above
in which cash in the collateral account is used to either prepay indebtedness under the mortgage agreement or released to the
Company, the lenders will not release any of the cash collateral to the Company for specified capital expenditures as previously
provided under the mortgage agreement. In conjunction with the modification of our mortgage agreement we incurred approximately
$0.3 million in debt fees that were capitalized and are being amortized over the remaining term of the mortgage. As
of September 28, 2013 and December 29, 2012, the balance on our mortgage loan was $198.4 million and $206.0 million, respectively.
Contractual Obligations
There have been no material changes to our contractual obligations from those disclosed above or in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.
Critical Accounting Policies
The preparation of our consolidated financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires our management to make judgments and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. There have been no material changes to our accounting policies from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.
New Accounting Standards
In the first quarter of fiscal 2013, the Financial Accounting Standards Board issued an amendment to previously issued guidance which requires companies to report, in one place, information about reclassifications out of accumulated other comprehensive income (“AOCI”). The update also requires companies to present reclassifications by component when reporting changes in AOCI balances. For significant items reclassified out of AOCI to net income in their entirety in the period, companies must report the effect of the reclassifications on the respective line items in the statement where net income is presented. In certain circumstances, this can be done on the face of that statement. Otherwise, it must be presented in the notes. For items not reclassified to net income in their entirety in the period, companies must cross-reference in a note to other required disclosures. The amendments are effective for public companies in fiscal years, and interim periods within those years, beginning after December 15, 2012. We adopted this guidance during the first quarter of fiscal 2013, refer to Note 12 of the Notes to Consolidated Financial Statements for the required disclosures.
There were no other accounting pronouncements adopted during the first nine months of fiscal 2013 that had a material impact on our financial statements.
There have been no material changes in market risk from the information provided in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.