BlueLinx Holdings Inc.
2018 Annual Report
BlueLinx Holdings Inc.
1950 Spectrum Circle
Marietta, Georgia 30067
To the Stockholders of BlueLinx,
The 2018 year was a transformational year for BlueLinx as we consummated our acquisition
of Cedar Creek, expanded our leadership team and strengthened our balance sheet. Our efforts to integrate
the Cedar Creek business continued throughout the year as we worked toward our goal of
generating annual run rate acquisition synergies in excess of $50 million, and we ended the year
with Adjusted EBITDA at its highest level since 2006.
As we enter 2019, we will maintain our top priority of continuing our relentless focus on our
customers while emphasizing our strategic relationship with our supply partners. We are committed
to enhancing our customer service while providing outstanding sales and marketing value in the
markets which we serve. We believe that our dedication to continuous improvement, coupled with
our excellent sales coverage, service, and footprint will continue to provide significant opportunities
for BlueLinx in the days ahead.
Thank you for your continued support. The BlueLinx team remains committed to
maximizing the long-term value of your investment in our Company.
Sincerely,
Mitchell B. Lewis
President & CEO
BlueLinx Holdings Inc.
This Page Intentionally Left Blank
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 29, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 1-32383
BlueLinx Holdings Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1950 Spectrum Circle, Suite 300, Marietta, Georgia
(Address of principal executive offices)
77-0627356
(I.R.S. Employer
Identification No.)
30067
(Zip Code)
Registrant’s telephone number, including area code: 770-953-7000
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class
Name of Each Exchange on Which Registered
Common stock, par value $0.01 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2018 was $334,707,890, based on the closing price on
the New York Stock Exchange of $37.53 per share on June 29, 2018.
As of February 28, 2019, the registrant had 9,342,864 shares of common stock outstanding.
Part III of this Annual Report on Form 10-K incorporates by reference to the registrant’s definitive Proxy Statement, to be filed with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended December 29, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
BLUELINX HOLDINGS INC.
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 29, 2018
TABLE OF CONTENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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7
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35
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70
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72
73
73
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74
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75
79
80
ITEM 1
ITEM 1A
ITEM 1B
ITEM 2
ITEM 3
ITEM 4
ITEM 5
ITEM 6
ITEM 7
ITEM 7A
ITEM 8
ITEM 9
ITEM 9A
ITEM 9B
ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14
ITEM 15
ITEM 16
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As used herein, unless the context otherwise requires, “BlueLinx,” the “Company,” “we,” “us,” and “our” refer to
BlueLinx Holdings Inc. and its wholly-owned subsidiaries. Reference to “fiscal 2018” refers to the 52-week period ending
December 29, 2018. Reference to “fiscal 2017” refers to the 52-week period ended December 30, 2017. Reference to “fiscal
2016” refers to the 52-week period ended December 31, 2016. Reference to “fiscal 2015” refers to the 52-week period ended
January 2, 2016.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains information that may constitute “forward-looking statements.” Words such as
“believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking
statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not
mean that a statement is not forward-looking. All statements that address operating performance, events or developments that
we expect or anticipate will occur in the future — including statements relating to volume growth, share of sales and earnings
per share growth, and statements expressing general views about future operating results — are forward-looking statements.
Management believes that these forward-looking statements are reasonable as and when made. However, caution should be
taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date
when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to differ materially from our Company’s historical
experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those
described in Item 1A. Risk Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, and elsewhere in this report, and those described from time to time in our future reports filed with the Securities
and Exchange Commission.
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ITEM 1. BUSINESS
Company Overview
PART I
We are a leading distributor of building and industrial products in the United States (“U.S.”). The Company is
headquartered in Georgia, with executive offices located at 1950 Spectrum Circle, Marietta, Georgia, and we operate our
distribution business through a broad network of distribution centers. We serve many major metropolitan areas in the U.S., and
deliver building and industrial products to a variety of wholesale and retail customers.
We were incorporated on March 8, 2004 as ABP Distribution Holdings, Inc. (“ABP”). ABP was majority-owned by an
affiliate of Cerberus Capital Management, L.P., a private, New York-based investment firm. On May 7, 2004, Georgia-Pacific
Corporation sold the assets of its distribution division to ABP. ABP subsequently merged into BlueLinx Holdings Inc., a
Delaware corporation formed on August 26, 2004. On December 17, 2004, we consummated an initial public offering of our
common stock.
On October 23, 2017, Cerberus completed the public offering and sale of approximately 97% of its ownership interest in
the Company. Cerberus subsequently sold its remaining ownership interest in the Company.
Significant Recent Transactions
On January 10, 2018, we completed sale-leaseback transactions on four of our distribution centers. We sold these
properties for gross proceeds of $110.0 million. The net proceeds received from the transactions were used to pay the remaining
$97.8 million balance of our 2006 Commercial Mortgage-Backed Securities (“CMBS”) mortgage, in its entirety, in the first
quarter of fiscal 2018.
On April 13, 2018, we completed the acquisition of Cedar Creek Holdings, Inc. (“Cedar Creek”) for a preliminary
purchase price of approximately $361.8 million. As a result of the acquisition, we increased the number of our distribution
facilities to approximately 70 facilities, and increased the number of our full-time employees to approximately 2,600. The
merger allowed us to expand our product offerings and geographical footprint.
Fiscal Year
Fiscal 2018, fiscal 2017, and fiscal 2016 each were comprised of 52 weeks.
Products and Services
We distribute products in two principal categories: structural products and specialty products. Structural products, which
represented approximately 45%, 46% and 41% of our fiscal 2018, fiscal 2017, and fiscal 2016 gross sales, respectively, include
plywood, oriented strand board, rebar and remesh, lumber, spruce and other wood products primarily used for structural
support, walls, and flooring in construction projects. Specialty products, which represented approximately 55%, 54% and 59%
of our fiscal 2018, fiscal 2017 and fiscal 2016 gross sales, respectively, include engineered wood products, moulding, siding
(including vinyl products), cedar, metal products (excluding rebar and remesh) and insulation. In some cases, these products are
branded by us.
We also provide a wide range of value-added services and solutions to our customers and suppliers including:
•
•
•
•
providing “less-than-truckload” delivery services;
pre-negotiated program pricing plans;
inventory stocking;
automated order processing through an electronic data interchange, or “EDI”, that provides a direct link between us
and our customers;
intermodal distribution services, including railcar unloading and cargo reloading onto customers’ trucks;
•
• milling and fabrication services; and
•
backhaul services, when otherwise empty trucks are returning from customer deliveries.
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Distribution Channels
We sell products through three main distribution channels: warehouse sales, direct sales, and reload sales.
Warehouse sales are delivered from our warehouses to dealers, home improvement centers, and industrial users.
Warehouse sales accounted for approximately 78% of our fiscal 2018 gross sales, and 74% of both our fiscal 2017, and fiscal
2016 gross sales.
Direct sales are shipped from the manufacturer to the customer without our taking physical inventory possession. This
channel requires the lowest amount of committed capital and fixed costs. Direct sales accounted for approximately 18%, 19%
and 20% of our fiscal 2018, fiscal 2017, and fiscal 2016 gross sales, respectively.
Reload sales are similar to warehouse sales but are shipped from third-party warehouses where we store owned product to
enhance operating efficiencies. This channel is employed primarily to service strategic customers that would be less economical
to service from our warehouses, and to distribute large volumes of imported products from port facilities. Reload sales
accounted for approximately 4%, 7%, and 6% of our fiscal 2018, fiscal 2017, and fiscal 2016 gross sales, respectively.
Competition
The U.S. building products distribution market is a highly fragmented market, served by national and multi-regional
distributors, regionally focused distributors, and independent local distributors. Local and regional distributors tend to be
closely held and often specialize in a limited number of segments, in which they offer a broader selection of products. Some of
our national and multi-regional competitors are part of larger companies and therefore may have access to greater financial and
other resources than those to which we have access. We compete on the basis of breadth of product offering, consistent
availability of product, product price and quality, reputation, service, and distribution facility location.
Two of our largest competitors are Boise Cascade Company and Weyerhaeuser Company. Most major markets in which we
operate are served by the distribution arm of at least one of these companies.
Seasonality
We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the building
products distribution industry. The first and fourth quarters are typically our slowest quarters due to the impact of unfavorable
weather on the construction market. Our second and third quarters are typically our strongest quarters, reflecting an increase in
construction due to more favorable weather conditions. Our working capital, accounts receivable, and accounts payable
generally peak in the third quarter, while inventory generally peaks in the second quarter in anticipation of the summer building
season.
Employees
As of December 29, 2018, we employed approximately 2,400 employees. We consider our relationship with our employees
generally to be good.
Executive Officers
The following are the executive officers of our Company as of March 13, 2019:
Mitchell B. Lewis, age 57, has served as our President and Chief Executive Officer, and as a Director of BlueLinx Holdings
Inc. since 2014. Mr. Lewis has held numerous leadership positions in the building products industry since 1992. Mr. Lewis
served as President and Chief Executive Officer of Euramax Holdings, Inc., a building products manufacturer, from February
2008, through November 2013. Mr. Lewis also served as Chief Operating Officer in 2005, Executive Vice President in 2002,
and group Vice President in 1997 of Euramax Holdings, Inc. and its predecessor companies. Prior to being appointed group
Vice President, Mr. Lewis served as President of Amerimax Building Products, Inc. Prior to 1992, Mr. Lewis served as
Corporate Counsel with Alumax Inc. and practiced law with Alston & Bird LLP, specializing in mergers and acquisitions. Mr.
Lewis received a Bachelor of Arts degree in Economics from Emory University, and a Juris Doctor degree from the University
of Michigan.
Susan C. O’Farrell, age 55, has served as our Senior Vice President, Chief Financial Officer, Treasurer, and Principal
Accounting Officer since 2014. Prior to joining us, Ms. O’Farrell was a senior financial executive holding several roles with
The Home Depot, Inc. since 1999. As The Home Depot’s Vice President of Finance, she led teams supporting the retail
organization. Ms. O’Farrell was also responsible for the finance function for The Home Depot’s At Home Services Group. Ms.
O’Farrell led the financial operations of The Home Depot, and she served as the VP Finance for the Northern Division of the
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company. Ms. O’Farrell began her career with Andersen Consulting, LLP (now Accenture), leaving as an Associate Partner in
1996 for a strategic information systems role with AGL Resources (now Southern Company Gas). Ms. O’Farrell earned a
Bachelor of Science degree in Business Administration from Auburn University and completed Emory University’s Executive
Leadership program.
Alexander S. Averitt, age 42, has served as our Chief Operating Officer since April 2018. From September 2017 to April
2018, Mr. Averitt was President and Chief Executive Officer at Cedar Creek, LLC. He joined Cedar Creek in 2005 as a sales
manager and served in various roles for the company, including Chief Operating Officer from April 2015 to September 2017,
and Vice President of Information Technology from May 2014 to April 2015. Prior to joining Cedar Creek, Mr. Averitt spent
nine years in various roles with Jeld-Wen Inc., including as a General Manager. Mr. Averitt earned a Bachelor of Professional
Studies degree from Arkansas Tech University.
Justin B. Heineman, age 47, has served as our Vice President, General Counsel, and Corporate Secretary since May 2018.
Mr. Heineman joined us after 8 years with NCR Corporation. At NCR, Mr. Heineman served as Law Vice President, Chief
Corporate Counsel and Assistant Secretary from October 2015 to May 2018, where he was responsible for oversight of the
company’s corporate legal function, including mergers and acquisitions, corporate governance and securities law compliance.
From February 2010 to October 2015, Mr. Heineman served as NCR’s Senior Corporate Counsel and Assistant Secretary. Prior
to joining NCR, Mr. Heineman was a partner in the Atlanta office of Kilpatrick, Townsend & Stockton LLP. Mr. Heineman
received a Bachelor of Arts degree from Duke University, and Juris Doctor degree from The University of North Carolina.
Ronald K. Herrin, age 55, has served as our Vice President, Procurement since April 2018. From January 2014 to April
2018, Mr. Herrin served as our Vice President of National Accounts, from January 2012 to December 2013 he served as our
Director of National Accounts - Pro Dealers & Specialty Distributors, and from September 2007 to January 2012, he served as
a Senior National Account Manager. Prior to joining us, Mr. Herrin held several positions within the building material industry
for U.S. Lumber Group, LLC, Weyerhaeuser, and MacMillan Bloedel Limited. Mr. Herrin earned a Bachelor of Science degree
in Political Science from the University of Florida.
Shyam K. Reddy, age 44, has served as our Senior Vice President and Chief Transformation officer since April 2018. He
served as our Senior Vice President, Chief Administrative Officer, General Counsel, and Corporate Secretary from May 2017 to
April 2018. From June 1, 2015 until May 2017, Mr. Reddy served as our Senior Vice President, General Counsel and Corporate
Secretary. Prior to joining us, Mr. Reddy served as Senior Vice President, Chief Administrative Officer, General Counsel, and
Corporate Secretary of Euramax Holdings, Inc., from March 2013 to March 2015. Prior to joining Euramax Holdings, Inc., Mr.
Reddy was the Regional Administrator of the Southeast Sunbelt Region of the U.S. General Services Administration from
March 2010 to March 2013. Prior to accepting the Presidential Appointment at the U.S. General Services Administration, Mr.
Reddy practiced corporate law as a partner in the Atlanta office of Kilpatrick Townsend & Stockton LLP. Mr. Reddy received a
Bachelor of Arts degree in Political Science, and a Master of Public Health degree from Emory University, and also received a
Juris Doctor degree from the University of Georgia.
Brian J. Sasadu, age 45, has served as our Chief Human Resource Officer since January 2019. Before joining BlueLinx,
from 2003 to December 2018, Mr. Sasadu served in various roles with Coca-Cola Refreshments USA, Inc. (“CCR”), the North
American bottling and distribution arm of The Coca-Cola Company. From July 2016 to December 2018, Mr. Sasadu served as
CCR’s Senior Vice President, Human Resources. Before that, Mr. Sasadu served as CCR’s Vice President, Human Resources -
Supply Chain, US Region and Commercial from April 2014 to July 2016, and as CCR’s Vice President, Labor & Employment
practices from August 2007 to April 2014. Mr. Sasadu began his career in Atlanta at the international law firm of King &
Spalding LLP where he practiced law with the Labor and Employment team. Mr. Sasadu received a Bachelor of Arts degree in
Political Science and a Juris Doctor degree from the University of Florida.
D. Wayne Trousdale, age 55, has served as our Vice President - Operating Companies since April 2018. Before joining us,
Mr. Trousdale served as the Executive Chairman of the Board of Directors for Cedar Creek, LLC from September 2017 to April
2018. Mr. Trousdale joined Cedar Creek in 1985 while still a college student, and served in various roles at Cedar Creek,
including as Chief Executive Officer from March 2015 to September 2017, Chief Operating Officer from 2012 to March 2015,
and in various sales and other roles before that. Mr. Trousdale became an owner of Cedar Creek in 1988. Mr. Trousdale also
serves as a member of the board of directors of First National Bank & Trust Co., and Sigma Nu Fraternity, and as the Secretary
and Treasurer of Citizen Potawatomi Nation. Mr. Trousdale received a Bachelor of Arts degree in Finance from the University
of Oklahoma.
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Environmental and Other Governmental Regulations
The Company is subject to various federal, state, provincial and local laws, rules, and regulations. We are subject to
environmental laws, rules, and regulations that limit discharges into the environment, establish standards for the handling,
generation, emission, release, discharge, treatment, storage and disposal of hazardous materials, substances and wastes, and
require cleanup of contaminated soil and groundwater. These laws, ordinances, and regulations are complex, change frequently
and have tended to become more stringent over time. Many of them provide for substantial fines and penalties, orders
(including orders to cease operations), and criminal sanctions for violations. They may also impose liability for property
damage and personal injury stemming from the presence of, or exposure to, hazardous substances. In addition, certain of our
operations require us to obtain, maintain compliance with, and periodically renew environmental permits.
Certain of these environmental laws, including the Comprehensive Environmental Response, Compensation, and Liability
Act, may require the investigation and cleanup of an entity’s or its predecessor’s current or former properties, even if the
associated contamination was caused by the operations of a third party. These laws also may require the investigation and
cleanup of third-party sites at which an entity or its predecessor sent hazardous wastes for disposal, notwithstanding that the
original disposal activity accorded with all applicable requirements. Liability under such laws may be imposed jointly and
severally, and regardless of fault.
We are also subject to the requirements of the U.S. Department of Labor Occupational Safety and Health Administration
(“OSHA”). In order to maintain compliance with applicable OSHA requirements, we have established uniform safety and
compliance procedures for our operations, and implemented measures to prevent workplace injuries.
The U.S. Department of Transportation (“DOT”) regulates our operations in domestic interstate commerce. We are subject
to safety requirements governing interstate operations prescribed by the DOT. We are also subject to the oversight of the
Federal Motor Carrier Safety Administration (“FMCSA”). Vehicle dimensions and driver hours of service also remain subject
to both federal and state regulation.
We have incurred and will continue to incur costs to comply with the requirements of environmental, health and safety, and
transportation laws, ordinances, and regulations. These requirements could become more stringent in the future, and we cannot
assure you that compliance costs will not be material.
Securities Exchange Act Reports
The Company maintains a website at www.BlueLinxCo.com. The information on the Company’s website is not
incorporated by reference in this Annual Report on Form 10-K. We make available on or through our website certain reports,
and amendments to those reports, that we file with or furnish to the U.S. Securities and Exchange Commission (the “SEC”) in
accordance with the Securities Exchange Act of 1934, as amended. These include our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and proxy statements. Additionally, our code of ethical conduct, the
board committee charter for each of our audit committee, compensation committee, and nominating and governance
committee, and our corporate governance guidelines are available on our website. If we amend our code of ethical conduct, or
grant any waiver, including any implicit waiver, for any board member, our chief executive officer, our chief financial officer,
or any other executive officer, we will disclose such amendment or waiver on our website.
We make information available on our website free of charge as soon as reasonably practicable after we electronically file
the information with, or furnish it to, the SEC. In addition, copies of this information will be made available, free of charge, on
written request, by writing to BlueLinx Holdings Inc., Attn: Corporate Secretary, 1950 Spectrum Circle, Suite 300, Marietta,
Georgia, 30067.
ITEM 1A. RISK FACTORS
In addition to the other information contained in this Form 10-K, including the information set forth in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, the
following risk factors should be considered carefully in evaluating our business. Our business, financial condition, or results of
operations could be materially adversely affected by any of these risks. Additional risks not presently known to us or that we
currently deem immaterial may also impair our business and operations.
We may be unable to successfully integrate the operations of Cedar Creek or future acquisitions.
We may not be able to integrate the operations of Cedar Creek with our own operations in an efficient and cost-effective
manner or without significant disruption to our or Cedar Creek’s existing operations. Moreover, acquisitions, such as the Cedar
Creek acquisition, involve significant risks and uncertainties, including uncertainties as to the future financial performance of
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the acquired business, the achievement of expected synergies, difficulties integrating acquired personnel and corporate cultures
into our business, the potential loss of employees, customers, suppliers or products, difficulty in integrating different computer
and accounting systems, exposure to unforeseen liabilities of acquired companies and the diversion of management attention
and resources from existing operations. Our failure to integrate Cedar Creek’s business effectively and at anticipated costs, or to
manage other consequences of the acquisition, including increased indebtedness, could prevent us from achieving anticipated
synergies from the acquisition, and could adversely affect our financial condition, operating results and cash flows.
As part of our overall strategy, we may make additional acquisitions or investments in the future. These acquisitions or
investments would be subject to the same risks and uncertainties described above. If we do not effectively manage those risks
and uncertainties, or we are unable to successfully integrate newly acquired businesses with ours, we may not be able to
achieve anticipated synergies, and our financial condition, operating results and cash flows may be negatively affected.
Our level of indebtedness could limit our financial and operating activities and adversely affect our ability to incur
additional debt to fund future needs.
At December 29, 2018, we had approximately $333 million of debt outstanding under our revolving credit facility, and
approximately $179 million of debt outstanding under our term loan facility. This level of indebtedness could have considerable
consequences for us. For example, our substantial indebtedness could:
• make us more vulnerable to general adverse economic and industry conditions;
•
limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, and other general
corporate requirements;
expose us to interest rate fluctuations because the interest rate on the debt under our revolving credit facility is
variable;
require us to dedicate a substantial portion of our cash flows to payments on our debt, thereby reducing the availability
of our cash flows for operations and other purposes;
limit our flexibility in planning for, or reacting to, changes in our business, and the industry in which we operate; and
place us at a competitive disadvantage compared to competitors that may have proportionately less debt, and therefore
may be in a better position to obtain favorable credit terms.
•
•
•
•
If compliance with our debt obligations materially limits our financial or operating activities, or hinders our ability to adapt to
changing industry conditions, we may lose market share, our revenue may decline and our operating results may be negatively
affected.
Our cash flows and capital resources may be insufficient to make required payments on our substantial indebtedness or
future indebtedness.
Our ability to make scheduled payments under our revolving credit facility and term loan facility depends on our successful
financial and operating performance, cash flows, and capital resources, which in turn depend upon prevailing economic
conditions and certain financial, business, and other factors, many of which are beyond our control. These factors include,
among others:
•
•
•
•
•
•
economic and demand factors affecting the building products distribution industry;
external factors affecting availability of credit;
pricing pressures;
increased operating costs;
competitive conditions; and
other operating difficulties.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay
capital expenditures, sell material assets or operations, obtain additional capital, or restructure our debt. There is no assurance
that we could obtain additional capital or refinance our debt on terms acceptable to us, or at all. If we are required to dispose of
material assets or operations to meet our debt service and other obligations, the value realized on the disposition of such assets
or operations will depend on market conditions and the availability of buyers. Accordingly, any such sale may not, among other
things, be for a sufficient dollar amount to repay our indebtedness. If we do not make scheduled payments on our debt, we will
be in default and the outstanding principal and interest on our debt could be declared to be due and payable, in which case we
could be forced into bankruptcy or liquidation or required to substantially restructure or alter our business operations or debt
obligations.
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The instruments governing our indebtedness contain various covenants limiting the discretion of our management in
operating our business, including requiring us to maintain a minimum level of excess liquidity.
Our revolving credit facility and term loan facility contain various restrictive covenants and restrictions, including customary
financial covenants that limit management’s discretion in operating our business. In particular, these instruments limit our
ability to, among other things:
incur additional debt;
grant liens on assets;
•
•
• make investments;
•
•
• make fundamental business changes.
sell or acquire assets, including certain real estate assets, outside the ordinary course of business;
engage in transactions with affiliates; and
The term loan facility also contains certain affirmative covenants, and requires us to comply with a financial coverage ratio
regarding our debt relative to our Consolidated EBITDA (as defined in the term loan facility).
Borrowings under the revolving credit facility are subject to availability under the Borrowing Base (as defined in the Credit
Agreement). We are required to repay revolving loans thereunder to the extent that they exceed the Borrowing Base then in
effect. In addition, if availability above the Borrowing Base (i.e., excess availability) falls below the greater of (i) $50.0 million
and (ii) 10% of the lesser of (a) the Borrowing Base, and (b) the maximum permitted credit at such time, the revolving credit
facility requires us to maintain a fixed charge coverage ratio of 1.0 to 1.0 until such time as our excess availability has been at
least (i) $50.0 million and (ii) 10% of the lesser of (a) the Borrowing Base, and (b) the maximum permitted credit at such time
for a period of 30 days.
These covenants and restrictions could affect our ability to operate our business, and may limit our ability to react to market
conditions or take advantage of potential business opportunities as they arise. Additionally, our ability to comply with these
covenants may be affected by events beyond our control, including general economic and credit conditions and industry
downturns.
If we fail to comply with these covenants and restrictions, a default may allow the creditors under the relevant instruments to
accelerate the related debts and to exercise their remedies under these agreements, which typically will include the right to
declare the principal amount of that debt, together with accrued and unpaid interest, and other related amounts, immediately
due and payable, to exercise any remedies the creditors may have to foreclose on assets that are subject to liens securing that
debt, and to terminate any commitments they had made to supply further funds.
Borrowings under our revolving credit facility and term loan facility bear interest at a variable rate, which subjects us to
interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under our revolving credit facility and term loan facility are at variable rates of interest and expose us to interest
rate risk. If interest rates increase, our debt service obligations on this variable rate indebtedness would increase even though
the amount borrowed remained the same. Although we may elect in the future to take certain actions to reduce interest rate
volatility in connection with our variable rate borrowings, we cannot provide assurances that we will be able to do so or that
those actions will be effective.
Despite our current levels of debt, we may still incur more debt, which would increase the risks described in these risk
factors relating to indebtedness.
The agreements relating to our debt significantly limit, but do not prohibit, our ability to incur additional debt. In addition,
certain types of liabilities are not considered “Indebtedness” under the agreements relating to our debt. Accordingly, we could
incur additional debt or similar liabilities in the future. If new debt or similar liabilities are added to our current debt levels, the
related risks that we now face could increase.
Certain of our products are commodities and fluctuations in prices of these commodities could affect our operating results.
Many of the building products which we distribute, including oriented strand board, plywood, lumber, and rebar, are
commodities that are widely available from other distributors or manufacturers, with prices and volumes determined frequently
in an auction market based on participants’ perceptions of short-term supply and demand factors. Prices of commodity products
can also change as a result of national and international economic conditions, labor and freight costs, competition, market
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speculation, government regulation and trade policies, as well as from periodic delays in the delivery of products. Short-term
increases in the cost of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our
customers, but our pricing quotation periods and pricing pressure from our competitors may limit our ability to pass on such
price changes. We may also be limited in our ability to pass on increases in freight costs on our products.
At times, the sale price for any one or more of the products we produce or distribute may fall below our purchase costs,
requiring us to incur losses on product sales. Therefore, our profitability with respect to these commodity products depends, in
significant part, on managing our cost structure. Commodity product prices could be volatile in response to operating rates and
inventory levels in various distribution channels. Commodity price volatility affects our distribution business, with falling price
environments generally causing reduced revenues and margins, potentially resulting in substantial declines in profitability and
possible net losses.
Adverse housing market conditions may negatively impact our business, liquidity and results of operations, and increase the
credit risk from our customers.
Our business depends to a significant degree on the new residential construction market and, in particular, single family home
construction. The homebuilding industry peaked in 2005, and then underwent a significant decline. Although the homebuilding
industry has improved and continues to improve, it is still far below its historical averages. According to the U.S. Census
Bureau, actual single-family housing starts in the United States during 2018 increased 2.6% from 2017 levels, but remain
49.2% below their peak in 2005. The multi-year downturn in the homebuilding industry resulted in a substantial reduction in
demand for the products we provide. We cannot predict the duration of the current housing industry market conditions or the
timing or strength of any continued recovery of housing activity in our markets. The homebuilding industry also may not
recover to historical levels. Continued weakness in the new residential construction market would have a material adverse
effect on our business, financial condition, and operating results. Factors impacting the level of activity in the residential new
construction markets include changes in interest rates, unemployment rates, high foreclosure rates and unsold/foreclosure
inventory, availability of financing, labor costs, vacancy rates, local, state and federal government regulation (including
mortgage interest deductibility and other tax laws), weakening in the U.S. economy or of any regional or local economy in
which we operate and shifts in populations away from the markets that we serve. In addition, the mortgage markets periodically
experience disruption and reduced availability of mortgages for potential homebuyers due to more restrictive standards to
qualify for mortgages, including with respect to new home construction loans. Because of these factors, there may be
fluctuations in our operating results, and the results for any historical period may not be indicative of results for any future
period.
We also rely on residential repair and remodel activity levels. Historically, residential repair and remodeling activity has
decreased in slow economic periods. General economic weakness, elevated unemployment levels, mortgage delinquency and
foreclosure rates, limitations in the availability of mortgage and home improvement financing, and lower housing turnover all
limit consumers’ spending, particularly on discretionary items, and affect their confidence level leading to reduced spending on
home improvement projects. Depressed activity levels in consumer spending for home improvement construction would
adversely affect our business, liquidity, results of operations, and financial position. Furthermore, economic weakness causes
unanticipated shifts in consumer preferences and purchasing practices, and in the business models and strategies of our
customers. Such shifts may alter the nature and prices of products demanded by the end consumer, and, in turn, our customers
and could adversely affect our operating performance.
In addition, we extend credit to numerous customers who are generally susceptible to the same economic business risks that we
are. Unfavorable housing market conditions could result in financial failures of one or more of our significant customers.
Furthermore, we may not necessarily be aware of any deterioration in our customers’ financial position. If our larger customers’
financial positions were to become impaired, our ability to fully collect receivables from such customers could be impaired and
negatively affect our operating results, cash flow and liquidity.
We are subject to disintermediation risk.
As customers continue to consolidate or otherwise increase their purchasing power, they are better able, and may choose, to
purchase products directly from the same suppliers that use us for distribution. In addition, our suppliers may elect to distribute
some or all of their products directly to end-customers in one or more markets. This process of disintermediation can put us at
risk of losing business from a customer, or of losing entire product lines or categories, or distribution territories, from suppliers.
Disintermediation also adversely impacts our ability to obtain favorable pricing from suppliers and optimize margins and
revenue with respect to our customers. As a result, continued disintermediation could have a negative impact on our financial
condition and operating results.
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Our industry is highly cyclical, and prolonged periods of weak demand or excess supply may reduce our net sales and/or
margins, which may cause us to incur losses or reduce our net income.
The building products distribution industry is subject to cyclical market pressures. Prices of building products are determined
by overall supply and demand in the market. Market prices of building products historically have been volatile and cyclical,
and we have limited ability to control the timing and amount of pricing changes. Demand for building products is driven
mainly by factors outside of our control, such as general economic and political conditions, interest rates, availability of
mortgage financing, the construction, repair and remodeling markets, industrial markets, weather, and population growth. The
supply of building products fluctuates based on available manufacturing capacity, and excess capacity in the industry can result
in significant declines in market prices for those products. To the extent that prices and volumes experience a sustained or sharp
decline, our net sales and margins likely would decline as well. Because we have substantial fixed costs, a decrease in sales and
margin generally may have a significant adverse impact on our financial condition, operating results, and cash flows.
We may be unable to effectively manage our inventory as our sales volume increases or the prices of the products we
distribute fluctuate, which could affect our business, financial condition, and operating results.
We purchase many of our products directly from manufacturers, which are then sold and distributed to customers. We must
maintain, and have adequate working capital to purchase, sufficient inventory to meet customer demand. Due to the lead times
required by our suppliers, we order products in advance of expected sales. As a result, we are required to forecast our sales and
purchase accordingly. In periods characterized by significant changes in the overall economy and activity in the residential and
commercial building and home repair and remodel industries, it can be especially difficult to forecast our sales accurately. We
must also manage our working capital to fund our inventory purchases. Such issues and risks can be magnified by the diversity
of product mix our business units carry, with over 50,000 SKUs across multiple major product categories. Excessive increases
in the market prices of certain building products can put negative pressure on our operating cash flows by requiring us to invest
more in inventory. In the future, if we are unable to effectively manage our inventory as we attempt to expand our business, our
cash flows may be negatively affected, which could have a material adverse effect on our business, financial condition, and
operating results.
Our industry is highly fragmented and competitive. If we are unable to compete effectively, our net sales and operating
results may be reduced.
The building and industrial products distribution industry is highly fragmented and competitive, and the barriers to entry for
local competitors are relatively low. Competitive factors in our industry include pricing, availability of product, service,
delivery capabilities, customer relationships, geographic coverage, and breadth of product offerings. Also, financial stability is
important to suppliers and customers in choosing distributors for their products, and affects the favorability of the terms on
which we are able to obtain our products from our suppliers and sell our products to our customers.
Some of our competitors have less financial leverage or are part of larger companies, and therefore may have access to greater
financial and other resources than those to which we have access. Finally, we may not be able to maintain our costs at a level
sufficiently low for us to compete effectively. If we are unable to compete effectively, our net sales and net income may be
reduced.
Our competitors continue to consolidate, which could cause markets to become more competitive and could negatively
impact our business.
Our competitors continue to consolidate. This consolidation is being driven by customer needs and supplier capabilities, which
could cause markets to become more competitive as greater economies of scale are achieved by distributors. Customers are
increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations.
We believe these customer needs could result in fewer distributors as the remaining distributors become larger and capable of
being consistent sources of supply. There can be no assurance that we will be able to take advantage effectively of this trend
toward consolidation. The trend in our industry toward consolidation could make it more difficult for us to maintain operating
margins.
Product shortages, loss of key suppliers, our dependence on third-party suppliers and manufacturers, and new tariffs could
affect our financial health.
Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply
from domestic and international manufacturers and other suppliers. Generally, our products are obtainable from various sources
and in sufficient quantities. However, the loss of, or a substantial decrease in the availability of, products from our suppliers or
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the loss of key supplier arrangements could adversely impact our financial condition, operating results, and cash flows. In
addition, many of our suppliers are located outside of the United States. Thus, trade restrictions, including new or increased
tariffs, quotas, embargoes, sanctions, safeguards and customs restrictions, as well as foreign labor strikes, work stoppages or
boycotts, could increase the cost or reduce the supply of the products available to us.
Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party
on limited notice. Failure by our suppliers to continue to supply us with products on commercially reasonable terms, or at all,
could have a material adverse effect on our financial condition, operating results, and cash flows.
We may not be able to monetize real estate assets if we experience adverse market conditions.
We sold substantial amounts of our real estate assets during fiscal 2018, 2017, and 2016, and we have designated certain non-
operating properties as held for sale, which we currently are actively marketing. We believe there will be future opportunities to
monetize our real estate portfolio’s equity value for debt reduction and investment purposes via sale leaseback and other
strategic real estate transactions. However, real estate investments are relatively illiquid. We may not be able to sell the
properties we have targeted for disposition or that we may decide to monetize in the future, due to adverse market conditions.
In addition, the terms of our revolving credit facility and term loan facility contain various restrictions on our ability to sell our
real estate assets, and to use the proceeds of those assets to prepay our debt. This may negatively affect, among other things,
our ability to sell properties on favorable terms and execute our strategic initiatives.
We are subject to pricing pressures.
Large customers have historically been able to exert pressure on their outside suppliers and distributors to keep prices low in
the highly fragmented building materials distribution industry. In addition, continued consolidation among our customers and
their customers (i.e., homebuilders), and changes in their respective purchasing policies and payment practices, could result in
even further pricing pressure. A decline in the prices of the products we distribute could adversely impact our operating results.
When the prices of the products we distribute decline, customer demand for lower prices could result in lower sales prices and,
to the extent that our inventory at the time was purchased at higher costs, lower margins. Alternatively, in a rising price
environment, our suppliers may increase prices or reduce discounts on the products we distribute, and we may be unable to
pass on any cost increase to our customers, thereby resulting in reduced margins and profits. Furthermore, continued
consolidation among our suppliers makes it more difficult for us to negotiate favorable pricing, consignment arrangements, and
discount programs with our suppliers, thereby resulting in reduced margins and profits. Overall, these pricing pressures may
adversely affect our operating results and cash flows.
Customer consolidation could result in the loss of existing customers to our competitors. We typically do not enter into
minimum purchase contracts with our customers. The loss of one or more of our significant customers, or their decision to
purchase our products in significantly lower quantities than they have in the past could significantly affect our financial
condition, operating results and cash flows.
Our operating results depend on the successful implementation of our strategy. We may not be able to implement our
strategic initiatives successfully, on a timely basis, or at all.
We regularly evaluate the performance of our business and, as a result of such evaluations, we have in the past undertaken and
may in the future undertake strategic initiatives within our businesses. Strategic initiatives that we may implement now or in
the future may not result in improvements in future financial performance and could result in additional unanticipated costs. If
we are unable to realize the benefits of our strategic initiatives, our business, financial condition, cash flows, or results of
operations could be adversely affected.
Our future operating results may fluctuate significantly, and our current operating results may not be a good indication of
our future performance. Fluctuations in our quarterly financial results could affect our stock price in the future.
Our revenues and operating results have historically varied from period-to-period and we expect that they will continue to do so
as a result of a number of factors, many of which are outside of our control. If our quarterly financial results or our predictions
of future financial results fail to meet the expectations of securities analysts and investors, our stock price could be negatively
affected. Any volatility in our quarterly financial results may make it more difficult for us to raise capital in the future or pursue
acquisitions that involve issuances of our stock. In addition, because of this variability, our operating results for prior periods
may not be effective predictors of future performance.
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Factors associated with our industry, the operation of our business and the markets for our products may cause our quarterly
financial results to fluctuate, including:
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the commodity nature of many of our products and their price movements, which are driven largely by capacity
utilization rates and industry cycles that affect supply and demand;
general economic conditions, including but not limited to housing starts, construction labor shortages, repair and
remodel activity and commercial construction, foreclosure rates, interest rates, unemployment rates, and mortgage
availability and pricing, as well as other consumer financing mechanisms, that ultimately affect demand for our
products;
supply chain disruptions;
the highly competitive nature of our industry;
disintermediation;
the impact of actuarial assumptions and regulatory activity on pension costs and pension funding requirements;
the financial condition and creditworthiness of our customers;
our substantial indebtedness, including the possibility that we may not generate sufficient cash flows from operations
or that future borrowings may not be available in amounts sufficient to fulfill our debt obligations and fund other
liquidity needs;
cost of compliance with government regulations;
adverse customs and tariff rulings;
protectionist trade policies and import tariffs;
labor disruptions, shortages of skilled and technical labor, or increased labor costs;
increased healthcare costs;
the need to successfully implement succession plans for our senior managers and other associates;
our ability to successfully complete potential acquisitions, achieve expected synergies from acquisitions or integrate
efficiently acquired operations;
disruption in our information technology systems;
significant maintenance issues or failures with respect to our tractors, trailers, forklifts, and other major equipment;
severe weather phenomena such as drought, hurricanes, tornadoes, and fire;
condemnations of all or part of our real property; and
fluctuations in the market for our equity.
Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant
fluctuations in our quarterly financial and other operating results, including fluctuations in our key metrics. The variability and
unpredictability could result in our failing to meet our internal operating plan or the expectations of securities analysts or
investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our
shares could fall substantially and we could face costly lawsuits, including securities class action suits.
We have sold and leased back certain of our distribution centers under long-term non-cancelable leases, and may enter into
similar transactions in the future. Many of these leases are (or will be) capital leases, and our debt and interest expense may
increase as a result.
As a result of sale lease-back transactions involving our real estate assets, certain of our distribution centers are leased under
non-cancelable leases. These leases typically have initial expiration terms ranging from ten to fifteen years, and most provide
options to renew for specified periods of time. We may enter into additional sale and lease-back transactions in the future. The
leases resulting from these transactions are generally recognized and accounted for as capital leases, which may be counted as
indebtedness, including for purposes of financial covenants in the agreements governing our debt, and may significantly
increase the stated interest expense that is recognized in our income statements.
Many of our distribution centers are leased, and if we close a leased distribution center, we will still be obligated under the
applicable lease. In addition, we may be unable to renew the leases at the end of their terms.
If we close a distribution center that is subject to a non-cancelable lease, we would remain committed to perform our
obligations under the applicable lease, which would include, among other things, payment of the base rent, insurance, taxes,
and other expenses on the leased property for the balance of the lease term. Management may explore offsets to remaining
obligations, such as subleasing opportunities or negotiated lease terminations, but there can be no assurance that we can offset
remaining obligations on commercially reasonable terms or at all. Our obligation to continue making rental payments with
respect to leases for closed distribution centers could have a material adverse effect on our business and results of operations.
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In addition, at the end of a lease term and any renewal period for a leased distribution center, or for those locations where we
have no renewal options remaining, we may be unable to renew the lease without additional cost, if at all. If we are unable to
renew our distribution center leases, we may close or, if possible, relocate the distribution center, which could subject us to
additional costs and risks which could have a material adverse effect on our business. Additionally, the revenue and profit
generated at a relocated distribution center may not equal the revenue and profit generated at the previous location.
We are exposed to product liability and other claims and legal proceedings related to our business and the products we
distribute, which may exceed the coverage of our insurance.
The building products industry has been subject to personal injury and property damage claims arising from alleged exposure
to raw materials contained in building products as well as claims for incidents of catastrophic loss, such as building fires. As a
distributor of building materials, we face an inherent risk of exposure to product liability claims in the event that the use of the
products we have distributed in the past or may in the future distribute is alleged to have resulted in economic loss, personal
injury or property damage, or violated environmental, health or safety, or other laws. Such product liability claims may include
allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict
liability, or a breach of warranties. We are also from time to time subject to casualty, contract, tort, and other claims relating to
our business, the products we have distributed in the past or may in the future distribute and the services we have provided in
the past or may in the future provide, either directly or through third parties. We rely on manufacturers and other suppliers,
including manufacturers and suppliers located outside of the United States, to provide us with the products we sell or distribute.
Since we do not have direct control over the quality of products that are manufactured or supplied to us by third parties, we are
particularly vulnerable to risks relating to the quality of such products. In addition, operating hazards, such as unloading heavy
products, operating large machinery and driving hazards, which are inherent in our business and some of which may be outside
of our control, can cause personal injury and loss of life, damage to our destruction of property, plant and equipment and
environmental damage.
We cannot predict or, in some cases, control the costs to defend or resolve such claims. We cannot assure you that we will be
able to maintain suitable and adequate insurance on acceptable terms or that such insurance will provide adequate protection
against potential liabilities, and the cost of any product liability or other proceeding, even if resolved in our favor, could be
substantial. Additionally, we do not carry insurance for all categories of risk that our business may encounter. Any significant
uninsured liability may require us to pay substantial amounts. There can be no assurance that any current or future claims will
not adversely affect our financial position, cash flows, or results of operations.
A change in our product mix could adversely affect our results of operations.
Our results may be affected by a change in our product mix. Our outlook, budgeting, and strategic planning assume a certain
mix of product sales. If actual results vary from this projected mix of product sales, our financial results could be negatively
impacted. Additionally, gross margins vary across our product lines. If the mix of products shifts from higher margin product
categories to lower margin product categories, our overall gross margins and profitability may be adversely affected.
Consequently, changes in our product mix could have a material adverse impact on our financial condition and operating
results.
Relatedly, our product sales to a customer may be dependent on the supplier and the brands we distribute. If we are unable to
supply certain brands to our customers, then our ability to sell to existing customers and acquire new customers will be difficult
to accomplish. As a result, our revenue, operating performance, cash flows, and net income may be adversely affected.
If petroleum prices increase, our results of operations could be adversely affected.
Petroleum prices have fluctuated significantly in recent years, and the prices and availability of petroleum products are subject
to political, economic, and market factors that are outside our control. Political events in petroleum-producing regions as well
as hurricanes and other weather-related events may cause the price of fuel to increase. Within our business units, we deliver
products to our customers primarily via our fleet of trucks. Our operating profit may be adversely affected if we are unable to
obtain the fuel we require or to fully offset the anticipated impact of higher fuel prices through increased prices or fuel
surcharges to our customers. Besides passing fuel costs on to customers, we have at times entered into forward purchase
contracts that protect against fuel price increases. If shortages occur in the supply of necessary petroleum products and we are
not able to pass along the full impact of increased petroleum prices to our customers or otherwise protect ourselves by entering
into forward purchase contracts, then our results of operations would be adversely affected.
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We are subject to information technology security risks and business interruption risks, and may incur increasing costs in
an effort to minimize those risks.
Our business employs information technology systems to secure confidential information, such as employee data, including
social security numbers and personal health data. We may not have the resources or technical sophistication to anticipate or
prevent rapidly evolving types of cyber-attacks. Any compromise of our security could result in a loss or misuse of our
confidential information, violation of applicable privacy and other laws, significant legal and financial exposure, damage to our
reputation, interruption of our business operations, and a loss of confidence in our security measures; any of which could harm
our business. We may also be subject to phishing attacks, wherein individuals may fraudulently purport to be an agent of a
reputable company in order to induce our employees to reveal information or obtain resources. We are also susceptible to
malware, ransomware, denial of service, and other attacks that could adversely affect our information technology systems.
Although we utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that these
procedures and controls will be sufficient to prevent security threats from materializing. As cyber-attacks become more
sophisticated generally, we may incur significant costs to strengthen our systems from outside intrusions, and/or obtain
insurance coverage related to the threat of such attacks.
Additionally, our business is reliant upon information technology systems to, among other things, manage and route our sales
calls, manage inventories and accounts receivable, make purchasing decisions, monitor our results of operations, and place
orders with our vendors and process orders from our customers. These systems may be vulnerable to natural disasters,
telecommunications failures and similar events, employee errors or to intentional acts of misconduct, such as security breaches
or attacks. The occurrence of any of these events or acts, or any other unanticipated problems, could result in damage to or the
unavailability of these systems. Such damage or unavailability could, despite any existing disaster recovery and business
continuity arrangements, interrupt the availability of one or more of our information technology systems. We have from time to
time experienced such disruptions and they may occur in the future. Disruptions in these systems could materially impact our
ability to buy and sell our products, as well as generally operate our business, which could reduce our revenue.
We establish insurance-related deductible/retention reserves based on historical loss development factors, which could lead
to adjustments in the future based on actual development experience.
We retain a significant portion of the accident risk under our vehicle liability and workers’ compensation insurance programs;
and, beginning in fiscal 2018, we are self-insured for health insurance, which is limited by stop-loss coverage. Our self-
insurance accruals are based on actuarially estimated, undiscounted cost of claims, which includes claims incurred but not
reported. While we believe our estimation processes are well designed, every estimation process is inherently subject to
limitations. Fluctuations in the frequency or amount of claims make it difficult to precisely predict the ultimate cost of claims.
The actual cost of claims can be different than the historical selected loss development factors because of safety performance,
payment patterns, and settlement patterns.
Our business operations could suffer significant losses from natural disasters, catastrophes, fire, or other unexpected
events.
While we operate our business out of 62 warehouse facilities and maintain insurance covering our facilities, including business
interruption insurance, our warehouse facilities could be materially damaged by natural disasters, such as floods, tornadoes,
hurricanes, and earthquakes, or by fire, adverse weather conditions, civil unrest, condemnation, or other unexpected events or
disruptions to our facilities. We could incur uninsured losses and liabilities arising from such events, including damage to our
reputation, and/or suffer material losses in operational capacity, which could have a material adverse impact on our business,
financial condition, and results of operations. In addition, war, terrorism, geopolitical uncertainties and public health issues
could cause damage or disruption to the global economy, and thus could have a material adverse effect on us, our suppliers and
out customers.
The activities of activist stockholders could have a negative impact on our business and results of operations.
While we seek to actively engage with stockholders and consider their views on business and strategy, we could be subject to
actions or proposals from stockholders or others that do not align with our business strategies or the interests of our other
stockholders. Responding to these stockholders could be costly and time-consuming, disrupt our business and operations, and
divert the attention of our Board of Directors and senior management. Uncertainties associated with such activities could
interfere with our ability to effectively execute our strategic plan, impact long-term growth, and limit our ability to hire and
retain personnel. In addition, actions of these stockholders may cause periods of fluctuation in our stock price based on
temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and
prospects of our business.
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A significant percentage of our employees are unionized. Wage increases or work stoppages by our unionized employees
may reduce our results of operations.
As of December 29, 2018, we employed approximately 2,400 persons. Approximately 20% of our employees were covered by
collective bargaining agreements (“CBAs”) negotiated between the company and various local unions. Seven of those CBAs
covering approximately 130 employees are up for renewal in fiscal 2019, or are currently expired and under negotiations.
Although we have generally had good relations with our unionized employees, and expect to renew collective bargaining
agreements as they expire, no assurances can be provided that we will be able to reach a timely agreement as to the renewal of
the agreements, and their expiration or continued work under an expired agreement, as applicable, could result in a work
stoppage. In addition, we may become subject to material cost increases, or additional work rules imposed by agreements with
labor unions. The foregoing could increase our selling, general, and administrative expenses in absolute terms and/or as a
percentage of net sales. In addition, work stoppages or other labor disturbances may occur in the future, which could adversely
impact our net sales and/or selling, general, and administrative expenses. All of these factors could negatively impact our
operating results and cash flows.
Our ability to utilize our net operating loss carryovers may be limited.
At December 29, 2018, we had net operating loss (“NOL”) carryforwards of approximately $90.9 million. Under Sections 382
and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the
corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-
change income may be limited. In general, an “ownership change” will be deemed to have occurred if there is a cumulative
change in our ownership by “5-percent stockholders” that exceeds 50 percentage points over a rolling three-year period.
Similar rules may apply under state tax laws.
Sales in the underwritten public offering of 4,443,428 shares of our common stock by our former majority shareholder, an
affiliate of Cerberus Capital Management, L.P. (“Cerberus”), that closed on October 23, 2017 (the “Resale Offering”) caused an
ownership change limitation under Section 382 to be triggered. That limitation could restrict our ability to use our NOL
carryforwards.
In general, the annual use limitation under Section 382 is determined by multiplying the aggregate value of our stock at the
time of the ownership change by a specified tax-exempt interest rate. However, we determined that at the date of the 2017
deemed ownership change, we had a net unrealized built-in gain (“NUBIG”) based primarily on the built-in gains in our owned
real estate. The NUBIG was determined based on the difference between the fair market value of our assets and their tax basis
as of the ownership change date. Under Section 382(h), the Section 382 limitation will be increased if and to the extent that the
NUBIG that existed at the time of the ownership change is recognized for tax purposes after the ownership change during the
recognition period ending on October 23, 2022. Limitations on our ability to use NOL carryforwards to offset future taxable
income, including gains on sales of real estate, could require us to pay U.S. federal income taxes earlier than would be required
if such limitations were not in effect. Similar rules and limitations may apply for state income tax purposes.
Changes in actuarial assumptions for our pension plan could impact our financial results, and funding requirements are
mandated by the Federal government.
We sponsor a defined benefit pension plan. Most of the participants in our pension plan are inactive, with the majority of the
remaining active participants no longer accruing benefits; and the pension plan is closed to new entrants. However, unfavorable
changes in various assumptions underlying the pension benefit obligation could adversely impact our financial results.
Significant assumptions include, but are not limited to, the discount rate, projected return on plan assets, and mortality rates. In
addition, the amount and timing of our pension funding obligations are influenced by funding requirements that are established
by the Employee Retirement Income and Security Act of 1974, the Pension Protection Act, Congressional Acts, or other
governing bodies.
Costs and liabilities related to our participation in multi-employer pension plans could increase.
We participate in various multi-employer pension plans in the U.S. based on obligations arising under collective bargaining
agreements. Some of these plans are significantly underfunded and may require increased contributions in the future. The
amount of any increase or decrease in our required contributions to these multi-employer pension plans will depend upon the
outcome of collective bargaining, actions taken by trustees who manage the plan, governmental regulations, the actual return on
assets held in the plan, the continued viability and contributions of other employers which contribute to the plan, and the
potential payment of a withdrawal liability, among other factors.
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Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a
withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing
employer under very complex actuarial and allocation rules. We have withdrawn from certain multi-employer plans in the past,
including, most recently, in connection with a new collective bargaining agreement that we entered into with the Lumber
Employees Local 786 union at our Chicago facility in the first quarter of 2017 (in which case we recorded a total estimated
withdrawal liability of $5.0 million during fiscal 2017). We may withdraw from other multi-employer plans in the future. If, in
the future, we do choose to withdraw from any additional multi-employer plans or trigger a partial withdrawal, we likely would
need to record a withdrawal liability, which may be material to our financial results. Additionally, a mass withdrawal would
require us to record a withdrawal liability, which may be material to our financial results, and would generally obligate us to
make payments in perpetuity to the particular plan.
One of the plans to which we are obligated to contribute is the Central States, Southeast and Southwest Areas Pension Fund
(the “Central States Plan”). As of January 1, 2017, the plan’s actuary certified that the plan was in critical and declining status,
which, among other things, means the funded percentage of the plan was less than 65%. Furthermore, the plan is projected to
become insolvent in 2025. It is unclear what will happen to this plan in the future. Our required contributions to the plan may
increase, due to potential rehabilitation increases. In addition, if we experience a withdrawal from this plan, we may need to
record a significant withdrawal liability. Our estimated withdrawal liability is $52.5 million if we experience a complete
withdrawal from the plan during fiscal 2019. This number will likely increase if a complete withdrawal occurs in fiscal 2020 or
later, and could be significantly higher if a mass withdrawal were to occur in the future.
In the case of both a complete withdrawal and a mass withdrawal, our payments to the Central States Plan would generally
continue at approximately the current rate; which, even with potential rehabilitation increases, is less than $1.0 million per year.
In a complete withdrawal, the payments would not amortize the liability fully; however, payments for a complete withdrawal
are limited to a 20-year period. In the case of a mass withdrawal, the liability would never amortize, and payments would
continue indefinitely.
Failure to maintain effective internal controls, accounting policies, practices, and information systems necessary to ensure
reliable reporting of our results, could negatively affect our ability to comply with our legal obligations.
We believe that our internal controls, accounting policies and practices, and information systems are adequate to enable us to
capture and process transactions in a timely and accurate manner in compliance with applicable laws, regulations and
standards. However, in connection with our acquisition of Cedar Creek, we are currently in the process of integrating policies,
processes, information technology systems and other components of internal controls over financial reporting of the combined
business. It is also possible that we could experience temporary lapses in internal controls, data integrity issues or unanticipated
and unauthorized actions of employees or contractors that could lead to improprieties and undetected errors. If we do not
successfully integrate the internal controls over financial reporting of the combined business, or if we experience any of these
lapses, issues or actions, our financial condition, results of operations, or compliance with legal obligations could be negatively
impacted. In addition, while management has concluded that the Company’s internal control over financial reporting was
effective as of December 29, 2018, such controls are subject to inherent limitations, such as circumvention of controls or
human error. Due to these inherent limitations, such controls may not prevent or detect misstatements in our financial
statements. Our internal controls over financial reporting are also subject to the risk that controls may become inadequate
because of a failure to remediate control deficiencies, changes in conditions or a deterioration of the degree of compliance with
established policies and procedures.
Our success depends on our ability to attract, train, and retain highly qualified associates and other key personnel while
controlling related labor costs.
To be successful, we must attract, train, and retain a large number of highly qualified associates while controlling related labor
costs. In many of our markets, highly qualified associates are in high demand and we compete with other businesses for these
associates and invest significant resources in training and incentivizing them. There can be no assurance that we will be able to
attract or retain highly qualified associates in the future, including, in particular, those employed by companies we may acquire.
Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and health and other
insurance costs.
In addition, there is significant competition for qualified drivers in the transportation industry. Additionally, interventions and
enforcement under the FMCSA Compliance, Safety, and Accountability program may shrink the industry’s pool of drivers as
those drivers with unfavorable scores may no longer be eligible to drive for us. As a result of driver shortages, we could be
required to increase driver compensation, let trucks sit idle, utilize less experienced drivers, or face difficulty meeting customer
demands, all of which could adversely affect our growth and profitability.
17
Furthermore, our success is highly dependent on the continued services of our management team. The loss of services of one or
more key members of our senior management team could have a material adverse effect on us.
Federal, state, local, and other regulations could impose substantial costs and restrictions on our operations that would
reduce our net income.
We are subject to various federal, state, local, and other laws and regulations, including, among other things, transportation
regulations promulgated by the U.S. Department of Transportation (the “DOT”), work safety regulations promulgated by the
Occupational Safety and Health Administration, employment regulations promulgated by the U.S. Equal Employment
Opportunity Commission, regulations of the U.S. Department of Labor, accounting standards issued by the Financial
Accounting Standards Board (the “FASB”) or similar entities, and state and local zoning restrictions, building codes and
contractors’ licensing regulations. More burdensome regulatory requirements in these or other areas may increase our general
and administrative costs and adversely affect our financial condition, operating results and cash flows. Moreover, failure to
comply with the regulatory requirements applicable to our business could expose us to litigation and substantial fines and
penalties that could adversely affect our financial condition, operating results, and cash flows.
Our transportation operations, upon which we depend to distribute products from our distribution centers, are subject to the
regulatory jurisdiction of the DOT and the FMCSA, which have broad administrative powers with respect to our transportation
operations. Vehicle dimensions and driver hours of service also are subject to both federal and state regulation. More restrictive
limitations on vehicle weight and size, trailer length and configuration, or driver hours of service would increase our costs,
which, if we are unable to pass these cost increases on to our customers, may increase our selling, general and administrative
expenses and adversely affect our financial condition, operating results and cash flows. If we fail to comply adequately with the
DOT and FMCSA regulations or such regulations become more stringent, we could experience increased inspections,
regulatory authorities could take remedial action, including imposing fines or shutting down our operations, or we could be
subject to increased audit and compliance costs. If any of these events were to occur, our financial condition, operating results,
and cash flows could be adversely affected.
In addition, the residential and commercial construction industries are subject to various local, state and federal statutes,
ordinances, codes, rules and regulations concerning zoning, building design and safety, construction, contractor licensing,
energy conservation and similar matters, including regulations that impose restrictive zoning and density requirements on the
residential new construction industry or that limit the number of homes or other buildings that can be built within the
boundaries of a particular area. Regulatory restrictions may increase our operating expenses and limit the availability of
suitable building lots for our customers, any of which could negatively affect our business, financial condition and results of
operations.
We could be the subject of securities class action litigation due to future stock price volatility, which could divert
management’s attention and adversely affect our results of operations.
The stock market in general, and market prices for the securities of companies like ours in particular, have from time to time
experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad
market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating
performance. In certain situations in which the market price of a stock has been volatile, holders of that stock have instituted
securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a similar
lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our
management and harm our operating results.
We are subject to federal, state, and local environmental protection laws and may have to incur significant costs to comply
with these laws and regulations in the future.
Environmental liabilities could arise on the land that we have owned, own or lease, including as a result of the use of
underground fuel storage tanks, and these liabilities could have a material adverse effect on our financial condition and
performance. Federal, state, and local laws and regulations relating to the protection of the environment, including those
regulating the use and maintenance of underground storage tanks, may require a current or previous owner or operator of real
estate to investigate and remediate hazardous materials, substances and waste releases at or from the property. They may also
impose liability for property damage and personal injury stemming from the presence of, or exposure to, hazardous substances.
In addition, we could incur costs to comply with such environmental laws and regulations, the violation of which could lead to
substantial fines and penalties.
18
We do not expect to pay dividends on our common stock, and the terms of our loan agreements place restrictions on our
ability to pay dividends on our common stock, so any returns to stockholders will be limited to the value of their stock.
We have not declared or paid any cash dividends on our common stock since 2007, and we are restricted from doing so under
the terms of our revolving credit facility and term loan facility. In addition, our term loan facility requires us to make certain
future payments from our available cash flow. Regardless of the restrictions in and requirements under our loan agreements, or
the terms of any potential future indebtedness, for the foreseeable future we anticipate that we will retain all available funds and
earnings to support our operations and finance the growth and development of our business. Therefore, we do not expect to pay
cash dividends in the foreseeable future, so any return to stockholders will be limited to the appreciation of their stock.
Changes in, or interpretation of, accounting principles could result in unfavorable accounting changes.
Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles and
accompanying accounting pronouncements, implementation guidelines, and interpretations. These rules are subject to
interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. Changes in these
rules or their interpretation, such as recent changes regarding revenue recognition and lease accounting standards, could
significantly change our reported results and may even retroactively affect previously reported transactions. Changes resulting
from the adoption of new or revised accounting principles may result in materially different financial results and may require
that we make changes to our systems, processes, and controls.
Transfers of our common stock may constitute a change of control under the instruments governing our indebtedness,
which may trigger an event of default.
The agreements governing our debt provide that if at any time any person or group of persons acquires 35% or more of our
common stock, whether inadvertently or not, then a change of control would be triggered that would result in an event of
default under the facilities. In the event of an event of default as a result of such transfers, we may be required to repay any
outstanding amounts earlier than anticipated, and the lenders may foreclose on their security interests in our assets or otherwise
exercise their remedies with respect to such interests.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for
substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us.
Our second amended and restated certificate of incorporation, as amended, provides that the Court of Chancery of the State of
Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of
fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our second
amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against
us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a
claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may
discourage such lawsuits against us and our directors, officers, and other employees. If a court were to find the choice of forum
provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action,
we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and
financial condition.
Any issuance of preferred stock could make it difficult for another company to acquire us or could otherwise adversely
affect holders of our common stock, which could adversely affect the price of our common stock.
Our board of directors has the authority to issue preferred stock and to determine the preferences, limitations, and relative rights
of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without
any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend, and other
rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in
control of us, discouraging bids for our common stock at a premium over the market price, and adversely affect the market
price and the voting and other rights of the holders of our common stock.
19
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
20
ITEM 2. PROPERTIES
We operate our business out of 64 office and warehouse facilities, 39 of which are leased, and 25 of which are owned. The
total square footage of our owned real property is approximately 5.4 million square feet, and the total square footage of our
leased real property is approximately 9.1 million square feet. Owned land in Connecticut is held for sale, as are warehouse
facilities located in Birmingham, Alabama; Des Moines, Iowa; Grand Rapids, Michigan; Maple Grove, Minnesota; New
Orleans, Louisiana; Springfield, Missouri; and Tulsa, Oklahoma.
Certain of our owned warehouse facilities secured our term loan facility at December 29, 2018. Additionally, we lease two
warehouse facilities owned by our pension plan. The following table summarizes our real estate facilities as of March 1, 2019,
including their inside square footage, where applicable:
Property Type
Office Space (1)
Warehouses and other real property (2)
TOTAL
Number
2
69
71
Owned
Facilities
(sq. ft.)
15,423
5,362,813
5,378,236
Leased
Facilities
(sq. ft.)
68,023
9,015,465
9,083,488
(1) Consists of our corporate headquarters in Marietta, Georgia and a sales center in Denver, Colorado.
(2)
Includes properties held for sale.
We also store materials in secured outdoor areas at many of our warehouse locations, which increases warehouse
distribution and storage capacity. We believe that the majority of our facilities have sufficient capacity to meet current and
projected distribution needs.
ITEM 3. LEGAL PROCEEDINGS
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 generally are expensed as incurred. We establish reserves for pending or threatened proceedings when the
costs associated with such proceedings become probable and reasonably can be estimated.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
21
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our equity securities consist of one class of common stock, which is traded on the New York Stock Exchange under the
symbol “BXC”.
As of December 29, 2018, there were 11 shareowner accounts of record, and, as of that date, we estimate there were
approximately 3,300 beneficial owners holding our common stock in nominee or “street” name.
We do not pay dividends on our common stock. Any future dividend payments would be subject to contractual restrictions
under our revolving credit facility and our term loan facility.
We did not repurchase any of our equity securities during the period covered by this report pursuant to any publicly
announced plan or program, and no such plan or program is presently in effect. From time to time, we withhold shares upon the
vesting of employee equity awards to satisfy certain tax obligations due in connection therewith, and the withholding of shares
may be deemed to be repurchases of our equity securities. No such withholding occurred during the fourth quarter of 2018.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide this information.
22
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and related notes and
other financial information appearing elsewhere in this Form 10-K. In addition to historical information, the following
discussion and other parts of this Form 10-K contain forward-looking information that involves risks and uncertainties. Our
actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed
under “Risk Factors,” “Cautionary Statement Concerning Forward-Looking Statements,” and elsewhere in this Form 10-K.
Executive Level Overview
Company Background
BlueLinx is a leading distributor of building and industrial products in the U.S. With a combination of market position and
geographic coverage, the buying power of certain centralized procurement, and the strength of a locally-focused sales force,
BlueLinx is able to provide a wide range of value-added services and solutions to our customers and suppliers.
We are headquartered in Georgia, with executive offices located at 1950 Spectrum Circle, Suite 300, Marietta, Georgia,
and we operate our distribution business through a broad network of distribution centers. We serve many major metropolitan
areas in the U.S. and deliver building and industrial products to a variety of wholesale and retail customers.
We distribute products in two principal categories: structural products and specialty products. Structural products include
plywood, oriented strand board, rebar and remesh, lumber, spruce and other wood products primarily used for structural
support, walls, and flooring in construction projects. Structural products represented approximately 45% of our fiscal 2018 net
sales. Specialty products include engineered wood products, moulding, siding (including vinyl products), cedar, metal products
(excluding rebar and remesh) and insulation. Specialty products accounted for approximately 55% of our fiscal 2018 net sales.
Recent Developments
Acquisition of Cedar Creek
On April 13, 2018, we completed our previously announced acquisition of Cedar Creek for a preliminary aggregate
purchase price of approximately $361.8 million. As a result of the acquisition, we increased the number of our distribution
facilities to over 70 facilities, and increased the number of our full-time employees to over 2,600.
The assets acquired and liabilities assumed and the results of operations of the acquired business are included in our
consolidated results since April 13, 2018.
Revolving Credit Facility
On April 13, 2018, in connection with the acquisition of Cedar Creek, we amended and restated our Revolving Credit
Facility to increase the aggregate commitments to $600.0 million (an increase of $265.0 million). The amended Revolving
Credit Facility also provides for an uncommitted accordion feature that permits us to increase the facility by an aggregate
additional principal amount of up to $150.0 million, subject to certain conditions, including lender consent. A portion of the
proceeds from the Revolving Credit Facility were used to fund the purchase price for Cedar Creek, transaction costs in
connection with the amendment and restatement of the Revolving Credit Facility, and transaction costs in connection with the
acquisition of Cedar Creek.
Term Loan Facility
On April 13, 2018, in connection with the acquisition of Cedar Creek, we entered into a Credit and Guaranty Agreement
with HPS Investment Partners, LLC, and other financial institutions as party thereto, that provides for a $180.0 million Term
Loan Facility secured substantially by all our assets. The proceeds from the Term Loan Facility were used to fund a portion of
the purchase price for Cedar Creek, and to fund transaction costs of the Term Loan and transaction costs in connection with the
acquisition of Cedar Creek.
23
Sale-leaseback Transactions
On January 10, 2018, we completed sale-leaseback transactions on four distribution centers. We sold these properties for
gross proceeds of $110.0 million. As a result of these sale-leaseback transactions, we recognized capital lease assets and
obligations totaling $95.1 million on these properties, and a total deferred gain of $83.9 million, which will be amortized over
the lives of the applicable leases, in accordance with generally accepted accounting principles in the United States (“U.S.
GAAP”). The net proceeds received from the sale-leaseback transactions were used to pay the remaining balance of our 2006
CMBS mortgage in its entirety in the first quarter of 2018. For tax purposes, the gain on the sale-leaseback transactions is fully
recognized in the year of sale. Our NOLs were sufficient to offset the taxable gain on the sale of these properties.
Industry Conditions
Many of the factors that cause our operations to fluctuate are seasonal or cyclical in nature. Our operating results have
historically been correlated with the level of single-family residential housing starts in the U.S. At any time, the demand for
new homes is dependent on a variety of factors, including job growth, changes in population and demographics, the availability
and cost of mortgage financing, the supply of new and existing homes, and consumer confidence. Since 2011, the U.S. housing
market has generally shown improvement. Recent data on single-family residential housing starts and permits continue to
suggest potential near-term challenges, but we continue to believe the housing market improvement trend will continue in the
long term, and that we are well-positioned to support our customers.
Our operating results are also affected by commodity pricing, and during the third and fourth quarters of 2018, the industry
experienced a rapid and continued decline in commodity prices,which included panels and framing lumber. The decline
negatively impacted our financial results, particularly our margins. We continue to closely monitor these pricing trends, and
work to manage our business, inventory levels, and costs, accordingly.
Factors That Affect Our Operating Results
Our results of operations and financial performance are influenced by a variety of factors, including the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the integration of the Cedar Creek business with ours;
changes in the prices, supply and/or demand for products which we distribute;
inventory management and commodities pricing;
new housing starts;
general economic and business conditions in the U.S.;
disintermediation by our customers and suppliers;
acceptance by our customers of our branded and privately branded products;
financial condition and credit worthiness of our customers;
supply from key vendors;
reliability of the technologies we utilize;
activities of competitors;
changes in significant operating expenses;
fuel costs;
risk of losses associated with accidents;
exposure to product liability claims and other legal proceedings;
changes in the availability of capital and interest rates;
adverse weather patterns or conditions;
acts of cyber intrusion or other disruptions to our information technology systems;
variations in the performance of the financial markets, including the credit markets; and
the risk factors discussed under Item 1A Risk Factors and elsewhere in this Annual Report on Form 10-K.
Key Business Metrics
Net Sales
Net sales result primarily from the distribution of products to dealers, industrial manufacturers, manufactured housing
producers, and home improvement retailers. All revenues recognized are net of trade allowances, cash discounts, and sales
returns. In addition, we provide inventory to certain customers through pre-arranged agreements on a consignment basis. When
the consigned inventory is sold by the customer, we recognize revenue on a gross basis. Net sales may not be comparable year-
over-year due to acquisitions, closed facilities, and market-driven fluctuations in the prices of the inventories we sell.
24
Gross Profit
Gross profit primarily represents revenues less the product cost from our suppliers (net of earned rebates and discounts),
including the cost of inbound freight. The costs of outbound freight, purchasing, receiving, and warehousing are included in
selling, general, and administrative expenses within operating expenses. Our gross profit may not be comparable to that of other
companies, as other companies may include all or some of the costs related to their distribution network in cost of sales. Market
price fluctuations, particularly on structural products vulnerable to commodity price variability, may impact our gross profit.
Results of Operations
Fiscal 2018 Compared to Fiscal 2017
The following table sets forth our results of operations for fiscal 2018 and fiscal 2017, which both comprised 52 weeks.
Net sales
Gross profit
Selling, general, and administrative
Gains from sales of property
Depreciation and amortization
Operating (loss) income
Interest expense, net
Other income, net
(Loss) income before benefit from income taxes
Benefit from income taxes
Net (loss) income
Fiscal 2018
$ 2,862,850
331,854
319,314
—
25,826
(13,286)
47,301
(380)
(60,207)
(12,154)
(48,053)
$
% of
Net
Sales
Fiscal 2017
(Dollars in thousands)
100.0%
11.6%
11.2%
—%
0.9%
(0.5)%
1.7%
—%
(2.1)%
(0.4)%
(1.7)%
$ 1,815,535
231,029
198,709
(6,700)
9,032
29,988
21,225
(822)
9,585
(53,409)
62,994
$
% of
Net
Sales
100.0%
12.7%
10.9%
(0.4)%
0.5%
1.7%
1.2%
—%
0.5%
(2.9)%
3.5%
The following table sets forth changes in net sales by product category. Certain prior year amounts have been reclassified
to conform to the current year product mix of structural and specialty products.
Sales by category
Structural products
Specialty products
Other (1)
Total sales
(1) “Other” includes service revenue, unallocated allowances, and/or discounts.
Fiscal 2018
Fiscal 2017
(In thousands)
$ 1,286,119
1,593,969
(17,238)
$ 2,862,850
$
841,862
988,824
(15,151)
$ 1,815,535
25
The following table sets forth gross margin dollars and percentages by product category versus comparable prior periods.
Certain prior year amounts have been reclassified to conform to the current year product mix of structural and specialty
products.
Gross Profit $ by category
Structural products
Specialty products
Other (1)
Total gross profit
Gross margin % by category
Structural products
Specialty products
Total gross margin %
Fiscal 2018
Fiscal 2017
(Dollars in thousands)
$
95,867
247,134
(11,147)
$ 331,854
$
77,431
151,428
2,170
$ 231,029
7.5%
15.5%
11.6%
9.2%
15.3%
12.7%
(1) “Other” includes service revenue, unallocated allowances, and discounts.
Discussion of Results of Operations:
Net sales. Net sales of $2.9 billion in fiscal 2018 increased by 57.7%, or $1.0 billion, from fiscal 2017. Sales growth was
driven by the acquisition of Cedar Creek and the inclusion of Cedar Creek’s sales revenue from April 13, 2018, to
December 29, 2018, versus the exclusion of such sales results during the comparable period of the prior year.
Gross profit. Total gross profit for fiscal 2018 was $331.9 million, compared to $231.0 million in fiscal 2017. Gross margin
decreased to 11.6% in fiscal 2018, compared to 12.7% in fiscal 2017. Gross margin was negatively impacted by the acquisition
related inventory step-up charge of $11.8 million, and declines in commodity pricing during the third and fourth quarter of
fiscal 2018.
Selling, general, and administrative. Selling, general, and administrative expenses (“SG&A”) for fiscal 2018 were $319.3
million, compared to $198.7 million, during fiscal 2017; which, on a percentage of sales basis, increased to 11.2% of net sales
from 10.9% for fiscal 2017. The increase was primarily due to: (i) the acquisition of Cedar Creek and the inclusion of expenses
from the acquired business from April 13, 2018, to December 29, 2018, versus the comparable period of the prior year; (ii)
$25.4 million in charges for legal, professional and other integration costs related to the Cedar Creek acquisition; and (iii) $15.3
million in expenses related to cash-settled stock appreciation rights and other share based compensation in fiscal 2018.
Gains from sales of property. Gains from sales and leaseback of property in fiscal 2018 were deferred, due to the
accounting rules for sale and leaseback transactions, and are amortized as a credit to SG&A expenses in the amount of
approximately $1.3 million per fiscal quarter. The accounting treatment of gains from sale and leaseback transactions differs
from that of outright sale transactions, as sales of property without leaseback are allowed immediate and full gain recognition
in the period of the sale. Outright sales of property in fiscal 2017 resulted in gains recognized of $6.7 million.
Depreciation and amortization expense. For fiscal 2018, depreciation and amortization expense increased by $16.8 million
to $25.8 million primarily due to the acquisition of Cedar Creek, which resulted in a higher depreciable asset base and the
addition of depreciable intangible assets. During fiscal 2018, Cedar Creek added $15.4 million to our depreciation and
amortization expense.
Interest expense, net. Interest expense for fiscal 2018 was $47.3 million, compared to $21.2 million for fiscal 2017. The
increase of $26.1 million was largely attributable to a higher average debt balance over the period due to the acquisition of
Cedar Creek, coupled with a higher average interest rate on outstanding debt. We also incurred transaction costs associated
with the increased debt that are amortized as interest expense. During fiscal 2018, we incurred debt modification fees of $2.2
million related to the satisfaction of our 2006 CMBS mortgage, and capital lease interest of $13.1 million during fiscal 2018
versus $1.4 million during the comparable period of fiscal 2017, partially offset by a decrease in mortgage interest expense of
$3.0 million.
26
Benefit from income taxes. Our effective tax rate was 20.2% and (557.2)% for fiscal 2018 and fiscal 2017, respectively.
Our effective tax rate for fiscal 2018 was impacted by (i) the permanent addback of certain nondeductible expenses including
transaction costs related to the Cedar Creek acquisition, executive compensation, and excess tax benefits on share-based
compensation; (ii) the tax benefit related to the lapse of statute of limitations for uncertain tax positions; (iii) the effect of the
valuation allowance for separate company state income tax losses; and (iv) changes in the state effective tax rate used to value
deferred tax assets.
The effective tax rate for fiscal 2017 was impacted by the release of a substantial portion of our valuation allowance, as the
positive evidence outweighed the negative evidence in considering the recoverability of our deferred tax assets. See Note 8 of
the Notes to Consolidated Financial Statements.
Fiscal 2017 Compared to Fiscal 2016
The following table sets forth our results of operations for fiscal 2017 and fiscal 2016, which both comprised 52 weeks.
Net sales
Gross profit
Selling, general, and administrative
Gains from sales of property
Depreciation and amortization
Operating income
Interest expense, net
Other income, net
Income before (benefit from) provision for income taxes
(Benefit from) provision for income taxes
Net income
Fiscal 2017
$ 1,815,535
231,029
198,709
(6,700)
9,032
29,988
21,225
(822)
9,585
(53,409)
62,994
$
% of
Net
Sales
Fiscal 2016
(Dollars in thousands)
100.0%
12.7%
10.9%
(0.4)%
0.5%
1.7%
1.2%
—%
0.5%
(2.9)%
3.5%
$ 1,881,043
227,406
204,509
(28,097)
9,342
41,652
24,898
(452)
17,206
1,121
16,085
$
% of
Net
Sales
100.0%
12.1%
10.9%
(1.5)%
0.5%
2.2%
1.3%
—%
0.9%
0.1%
0.9%
The following table sets forth changes in net sales by product category.
Sales by category
Structural products
Specialty products
Other (1)
Total sales
(1) “Other” includes service revenue, unallocated allowances, and/or discounts.
Fiscal 2017
Fiscal 2016
(Dollars in thousands)
$
842,182
985,902
(12,549)
$ 1,815,535
$
775,425
1,122,731
(17,113)
$ 1,881,043
27
The following table sets forth gross margin dollars and percentages by product category versus comparable prior periods.
Gross Profit $ by category
Structural products
Specialty products
Other (1)
Total gross profit
Gross margin % by category
Structural products
Specialty products
Total gross margin %
Fiscal 2017
Fiscal 2016
(Dollars in thousands)
$
77,462
148,815
4,752
$ 231,029
$
67,983
153,541
5,882
$ 227,406
9.2%
15.1%
12.7%
8.8%
13.7%
12.1%
(1) “Other” includes service revenue, unallocated allowances, and discounts.
The following table sets forth a reconciliation of net sales and gross profit to the non-GAAP measures of adjusted same
center net sales and adjusted same-center gross profit versus comparable prior periods. The schedule includes a reconciliation
of net sales and gross profit excluding the effect of operational efficiency initiatives (specifically, facility closures and a SKU
rationalization initiative) that were substantially complete as of December 31, 2016.(1)
Net sales
Less: non-GAAP adjustments
Adjusted same-center net sales
Adjusted year-over-year percentage increase
Fiscal 2017
Fiscal 2016
(Dollars in thousands)
$ 1,815,535
—
$ 1,815,535
3.6%
$ 1,881,043
129,184
$ 1,751,859
Gross profit
Less: non-GAAP adjustments
Adjusted same-center gross profit
227,406
7,617
219,789
(1) The above schedule is not a presentation made in accordance with GAAP, and is not intended to present a superior
measure of the financial condition from those determined under GAAP. Adjusted net sales and adjusted gross profit
as used herein, are not necessarily comparable to other similarly titled captions of other companies due to
differences in methods of calculation.
231,029
50
230,979
$
$
$
$
We believe adjusted net sales and adjusted gross profit are helpful in presenting comparability across periods
without the effect of our operational efficiency initiatives on the later periods. We also believe that these non-GAAP
metrics are used by securities analysts, investors, and other interested parties in their evaluation of our company, to
illustrate the effects of these initiatives. We compensate for the limitations of using non-GAAP financial measures
by using them to supplement GAAP results to provide a more complete understanding of the factors and trends
affecting the business than using GAAP results alone.
Discussion of Results of Operations:
Net sales. Net sales of $1.8 billion in fiscal 2017 decreased by 3.5%, or $65.5 million from fiscal 2016. The non-GAAP
measure of adjusted same center net sales in fiscal 2017 increased by 3.6% from fiscal 2016, as we optimized the sales
performance of our existing facilities.
Gross profit. Total gross profit for fiscal 2017 was $231.0 million, compared to $227.4 million in fiscal 2016. Gross margin
increased to 12.7% in fiscal 2017, compared to 12.1% in fiscal 2016. This was due to higher margins on both our structural and
specialty products, including margin increases of 140 basis points on specialty products and 40 basis points on structural
products. Adjusted same-center gross profit, which is a non-GAAP measure, increased by $11.2 million in fiscal 2017 from
fiscal 2016.
28
Selling, general, and administrative. SG&A for fiscal 2017 was $198.7 million, compared to $204.5 million, during fiscal
2016; which, on a percentage of sales basis, remained flat at 10.9% of net sales. The decrease of $5.8 million was largely
comprised of decreases in payroll and related costs, general maintenance, and property taxes, and a decrease in third party
freight costs; as cost benefits were realized during fiscal 2017 from the operational efficiency initiatives that were substantially
completed during fiscal 2016.
Interest expense, net. Interest expense for fiscal 2017 was $21.2 million, compared to $24.9 million for fiscal 2016. The
decrease of $3.7 million related largely to our decreased principal balance of both our 2006 CMBS mortgage loan and
revolving credit facility. Additionally, in fiscal 2016, we paid the remaining balance of our previous Canadian revolving credit
facility, which related to our operations in Canada, that have since ceased.
(Benefit from) provision for income taxes. Our effective tax rate was (557.2)% and 6.5% for fiscal 2017 and fiscal 2016,
respectively. Our effective tax rate for fiscal 2017 primarily was a result of a release of a substantial portion of our valuation
allowance, as the positive evidence outweighed the negative evidence in considering the recoverability of our deferred tax
assets (See Note 8 of the Notes to Consolidated Financial Statements). Our remaining valuation allowance is approximately
$10.4 million, which primarily relates to state NOL carryforwards.
The effective tax rate for fiscal 2016 was reduced by the utilization of our net operating loss deferred tax asset and the
corresponding release of the valuation allowance due to net income generated during fiscal 2016. The effect of the valuation
allowance for fiscal 2016 was impacted by alternative minimum tax, state income taxes, gross receipts taxes, and foreign
income taxes recorded on a separate company basis.
Liquidity and Capital Resources
We expect our primary sources of liquidity to be cash flows from sales in the normal course of our operations and
borrowings under our Revolving Credit Facility. We expect that these sources will fund our ongoing cash requirements for the
foreseeable future. We believe that sales in the normal course of our operations and amounts currently available from our
Revolving Credit Facility and other sources will be sufficient to fund our routine operations and working capital requirements
for at least the next 12 months.
Sources and Uses of Cash
Operating Activities
During fiscal 2018, cash flows provided by operating activities totaled $41.6 million. This cash activity was primarily
driven by changes in working capital components, including an increase in cash provided by accounts payable of $25.0 million,
and an increase in cash provided by accounts receivable of $60.0 million, partially offset by a net loss of $48.1 million. The
changes in working capital components reflected in our Consolidated Balance Sheets include the acquisition of Cedar Creek.
In the prior year, fiscal 2017 cash flows used in operating activities totaled $2.5 million. This cash activity was primarily
driven by changes in working capital components, including a decrease in accounts payable of $12.1 million, and an increase in
accounts receivable, partially offset by a decrease in inventory.
Investing Activities
During fiscal 2018, our net cash used in investing activities was $242.7 million, which was substantially driven by the cash
paid for the acquisition of Cedar Creek, net of cash acquired, of $348.1 million, offset by cash received from property sales and
sale-leaseback transactions of $108.1 million.
During fiscal 2017, our net cash provided by investing activities was $26.8 million, which was substantially driven by
property sales and sale-leaseback transactions of $27.6 million. Gains recognized on these sales were $6.7 million, and
included in adjustments to net income in operating activities on the Statements of Cash Flows. Additionally, we performed sale-
leaseback transactions on three distribution centers, and recognized a total deferred gain of $13.7 million on the three sale-
leaseback properties, which will generally amortize into net income over the terms of the leases, and, as such, will generally be
reflected at each reporting period as adjustments to net income (loss) in operating activities on the Statements of Cash Flows.
Financing Activities
Net cash provided by financing activities was $205.4 million during fiscal 2018, which primarily reflected the addition of
our new Term Loan Facility of $180.0 million, and net borrowings on our Revolving Credit Facility of $150.6 million, offset by
29
payments of principal on our 2006 CMBS mortgage of $97.8 million, which were largely derived from sales of property and
sale-leaseback transactions. The addition of our Term Loan Facility and increased borrowings on our Revolving Credit Facility
is due to our acquisition of Cedar Creek.
Net cash used in financing activities was $25.2 million during fiscal 2017, which primarily reflected payments of principal
on our 2006 CMBS mortgage of $29.0 million. Payments of principal on our 2006 CMBS mortgage in fiscal 2017 were largely
derived from sales of property and sale-leaseback transactions.
Operating Working Capital
Operating working capital is an important measurement we use to determine the efficiencies of our operations and our
ability to readily convert assets into cash. Operating working capital is defined as current assets less current liabilities plus the
current portion of long-term debt. Management of operating working capital helps us monitor our progress in meeting our goals
to enhance our return on working capital assets.
Selected financial information (in thousands)
December 29, 2018
December 30, 2017
Current assets:
Cash
Receivables, less allowance for doubtful accounts
Inventories, net
Other current assets
Total current assets
Current liabilities:
Accounts payable
Bank overdrafts
Accrued compensation
Current maturities of long-term debt, net of discount
Capital leases - short-term
Real estate deferred gains - short-term
Other current liabilities
Total current liabilities
Operating working capital
$
$
$
$
$
8,939
208,434
341,851
40,629
599,853
131,771
17,417
7,974
1,736
7,555
5,330
24,985
196,768
404,821
$
$
$
$
$
4,696
134,072
187,512
17,124
343,404
70,623
21,593
9,229
—
3,552
1,836
10,772
117,605
225,799
Operating working capital increased to $404.8 million as of December 29, 2018, from $225.8 million as of December 30,
2017. The increase in operating working capital is primarily due to our acquisition of Cedar Creek; reflecting an increase of
$61.1 million in accounts payable, along with an increase in accounts receivable of $74.4 million, partially offset by an increase
in other current liabilities, along with an increase in inventories and other current assets.
30
Debt and Credit Sources
As of December 29, 2018 and December 30, 2017, long-term debt consisted of the following:
(In thousands)
Revolving Credit Facility (net of discounts and debt issuance
costs of $6.0 million and $3.1 million at December 29, 2018
and December 30, 2017, respectively)
Mortgage Note Payable (net of discounts and debt issuance
costs of $0.8 million at December 30, 2017)
Term Loan Facility (net of discounts and debt issuance costs of
$6.7 million at December 29, 2018)
October 13, 2023
Total debt
Less: current portion of long-term debt
Long-term debt, net
Revolving Credit Facility
Maturity Date
December 29,
2018
December 30,
2017
October 10, 2022
$
327,319
$
179,569
—
97,108
172,356
499,675
(1,736)
—
276,677
—
$
497,939
$
276,677
On April 13, 2018, in connection with the acquisition Cedar Creek, we amended and restated our Revolving Credit Facility
to provide for a senior secured revolving loan and letter of credit facility of up to $600 million and an uncommitted accordion
feature that permits us to increase the facility by an aggregate additional principal amount of up to $150 million. If we obtain
the full amount of the additional increases in commitments, the Revolving Credit Facility will allow borrowings of up to $750
million. Borrowings under the Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is
defined in the Revolving Credit Agreement). Letters of credit in an aggregate amount of up to $30 million are also available
under the Revolving Credit Agreement, which would reduce the amount of the revolving loans available under the Revolving
Credit Facility. The Revolving Credit Agreement provides for interest at a rate per annum equal to (i) LIBOR plus a margin
ranging from 1.75 percent to 2.25 percent, with the margin determined based upon average excess availability for the
immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the administrative agent’s base rate plus a margin
ranging from 0.75 percent to 1.25 percent, with the margin based upon average excess availability for the immediately
preceding fiscal quarter for loans based on the base rate.
If excess availability falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and
(b) the maximum permitted credit at such time, the Revolving Credit Agreement requires maintenance of a fixed charge
coverage ratio of 1.0 to 1.0 until excess availability has been at least the greater of (i) $50 million and (ii) 10 percent of the
lesser of (a) the borrowing base and (b) the maximum permitted credit at such time for a period of 30 consecutive days.
As of December 29, 2018, we had outstanding borrowings of $333.3 million, excess availability of $91.7 million, and a
weighted average interest rate of 4.6% under our Revolving Credit Facility. As of December 30, 2017, prior to the acquisition
of Cedar Creek, we had outstanding borrowings of $182.7 million, excess availability of $63.3 million and a weighted average
interest rate of 4.2%.
We were in compliance with all covenants under the Revolving Credit Facility as of December 29, 2018.
Term Loan Facility
On April 13, 2018, we entered into our Term Loan Facility with HPS Investment Partners, LLC, and the other financial
institutions party thereto. The Term Loan Facility provides for a term loan of $180 million secured by substantially all of our
assets. Borrowings under the Term Loan Facility may be made as Base Rate Loans or Eurodollar Rate Loans. The Base Rate
Loans will bear interest at the rate per annual equal to (i) the greatest of the (a) U.S. prime lending rate published in The Wall
Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one
month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum; and (ii) plus the
Applicable Margin, as described below. Eurodollar Rate Loans will bear interest at the rate per annum equal to (i) the ICE
Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent
per annum; plus (ii) the Applicable Margin. The Applicable Margin will be 6.00 percent with respect to Base Rate Loans and
7.00 percent with respect to Eurodollar Rate Loans.
31
The Term Loan Facility required maintenance of a total net leverage ratio of 6.75 to 1.00 for the fiscal quarter ending
December 29, 2018, and such required covenant level reduces on a quarterly basis over the term of the Term Loan Facility.
As of December 29, 2018, we had outstanding borrowings of $179.1 million under our Term Loan Facility and a stated
interest rate of 9.3 percent per annum.
We were in compliance with all covenants under the Term Loan Facility as of December 29, 2018.
2006 CMBS Mortgage Loan
Our 2006 CMBS mortgage loan, which was paid in full in the first quarter of 2018, was secured by substantially all of the
Company’s owned distribution facilities and a first priority pledge of the equity in the Company’s subsidiaries which held the
real property that secured the mortgage loan.
Pension Funding Obligations
We currently are required to make four quarterly cash contributions during 2019 and 2020 totaling approximately $2.2
million, relating to our pension fiscal 2019 funding year pension contributions. In 2012, we obtained a funding waiver for that
plan year, which was repaid over the successive five-year period, through the 2017 funding year ending September 15, 2018,
with principal and interest payments totaling approximately $0.7 million each year. In 2013, we contributed real property to the
pension plan to satisfy minimum contribution requirements. Although such real property contribution was recognized for
funding purposes, it was not recognized under GAAP, as this transaction did not meet the requirements to qualify as a sale
under GAAP. We continue to evaluate pension funding obligations and requirements in order to meet our obligations while
maintaining flexibility for working capital requirements. See Note 11 to our Consolidated Financial Statements.
Off-Balance Sheet Arrangements
As of December 29, 2018, we did not have any material off-balance sheet arrangements.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
U.S., which require management to make estimates, judgments, and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. We believe that our most critical accounting policies and estimates
relate to (1) revenue recognition; (2) our defined benefit pension plan; and (3) income taxes.
Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an
understanding of our financial statements because they involve significant judgments and uncertainties. All of these estimates
reflect our best judgment about current, and for some estimates future, economic and market conditions and their potential
effects based on information available as of the date of these financial statements. If these conditions change from those
expected, it is reasonably possible that the judgments and estimates described below could change, which may result in our
recording additional pension liabilities, or increased tax liabilities, among other effects.
Management has discussed the development, selection, and disclosure of critical accounting policies and estimates with the
Audit Committee of the Company’s Board of Directors. While our estimates and assumptions are based on our knowledge of
current events and actions we may undertake in the future, actual results ultimately may differ from these estimates and
assumptions. For a discussion of the Company’s significant accounting policies, refer to Note 1 of the Notes to Consolidated
Financial Statements.
32
Revenue Recognition
We recognize revenue when the following criteria are met: 1) Contract with the customer has been identified; 2)
Performance obligations in the contract have been identified; 3) Transaction price has been determined; 4) The transaction price
has been allocated to the performance obligations; and 5) When (or as) performance obligations are satisfied. For us, this
generally means that we recognize revenue when title to our products is transferred to our customers. Title usually transfers
upon shipment to, or receipt at, our customers’ locations, as determined by the specific sales terms of each transaction. Our
customers can earn certain incentives including, but not limited to, cash discounts and rebates. These incentives are deducted
from revenue recognized. In preparing the financial statements, management must make estimates related to the contractual
terms, customer performance, and sales volume to determine the total amounts recorded as deductions from revenue.
Management also considers past results in making such estimates. The actual amounts ultimately paid may be different from
our estimates, and recorded once they have been determined.
Defined Benefit Pension Plan
We sponsor and contribute to a defined benefit pension plan. Most of the participants in the plan are inactive, with the
majority of the remaining active participants no longer accruing benefits; and the plan is closed to new entrants. Management is
required to make certain critical estimates related to actuarial assumptions used to determine our pension expense and related
obligation. We believe the most critical assumptions are related to (1) the discount rate used to determine the present value of
the liabilities and (2) the expected long-term rate of return on plan assets. All of our actuarial assumptions are reviewed
annually, or upon any mid-year curtailment or settlement, should any such event occur. Changes in these assumptions could
have a material impact on the measurement of our pension expense and related obligation. At each measurement date, we
determine the discount rate by reference to rates of high-quality, long-term corporate bonds that mature in a pattern similar to
the future payments we anticipate making under the plan. As of December 29, 2018, and December 30, 2017, the weighted-
average discount rate used to compute our benefit obligation was 4.37% and 3.69%, respectively. The expected long-term rate
of return on plan assets is based upon the long-term outlook of our investment strategy as well as our historical returns and
volatilities for each asset class. We also review current levels of interest rates and inflation to assess the reasonableness of our
long-term rates. Our pension plan investment objective is to ensure our plan has sufficient funds to meet its benefit obligations
when they become due. As a result, we periodically revise asset allocations, where appropriate, to improve returns and manage
risk. The weighted-average expected long-term rate of return used to calculate our pension expense was 6.00% and 8.10% for
fiscal 2018 and fiscal 2017, respectively.
The impact of a 0.25% change in these critical assumptions is as follows:
Change in Assumption
0.25% decrease in discount rate
0.25% increase in discount rate
0.25% decrease in expected long-term rate of return on assets
0.25% increase in expected long-term rate of return on assets
Effect on 2019
Pension Expense
Effect on Accrued
Pension Liability at
December 29, 2018
$
$
$
$
(In thousands)
3
$
(20) $
199
$
(199) $
3,011
(2,881)
—
—
As almost all of the participants in the pension plan are inactive, we amortize actuarial gains and losses over the estimated
average remaining life expectancy of the inactive participants, rather than the estimated average remaining service period of the
active participants. The sensitivity analysis presented above reflects these assumptions.
33
Income Taxes
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various
jurisdictions in which we operate. Significant judgment is required in determining our annual tax expense and in evaluating our
tax positions. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine
that the positions become uncertain based upon one of the following: (1) the tax position is not “more likely than not” to be
sustained; (2) the tax position is “more likely than not” to be sustained, but for a lesser amount; or (3) the tax position is “more
likely than not” to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of
evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing
authority that has full knowledge of all relevant information, (2) the technical merits of a tax position are derived from
authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts
and circumstances of the tax position, and (3) each tax position is evaluated without considerations of the possibility of offset
or aggregation with other tax positions taken. We adjust these reserves, including any impact on the related interest and
penalties, in light of changing facts and circumstances, such as the progress of a tax audit. Refer to Note 8 of the Notes to
Consolidated Financial Statements.
A number of years may elapse before a particular matter for which we have established a reserve is audited and finally
resolved. The number of years with open tax audits varies depending on the tax jurisdiction. The tax benefit that has been
previously reserved because of a failure to meet the “more likely than not” recognition threshold would be recognized in our
income tax expense in the first interim period when the uncertainty disappears under any one of the following conditions: (1)
the tax position is “more likely than not” to be sustained; (2) the tax position, amount, and/or timing is ultimately settled
through negotiation or litigation; or (3) the statute of limitations for the tax position has expired. Settlement of any particular
issue would usually require the use of cash.
On December 22, 2017, the U.S. government enacted tax legislation commonly known as the Tax Cuts and Jobs Act of
2017 (the “Tax Act”). The Tax Act provides for significant changes to tax law for tax years beginning after December 31, 2017,
including, but not limited to, the reduction of the U.S. federal corporate income tax rate from 35% to 21%, repeal of the
corporate alternative minimum tax (“AMT”), and additional limitations on the deductibility of interest expense and executive
compensation.
In order to determine the income tax effects of the Tax Act, we were required to re-measure our deferred tax balances
as of the enactment date of the Tax Act, based on the rates at which the balances are expected to reverse in the future. The
reduction in the federal corporate income tax rate from 35% to 21% resulted in a reduction in our deferred tax asset of $28.8
million with an offsetting adjustment to the valuation allowance of $28.6 million resulting in deferred income tax expense of
$0.2 million in fiscal 2017. Furthermore, the Tax Act repealed the AMT and provided that taxpayers with AMT credit
carryovers in excess of their regular tax liability may have the credits refunded over a period from 2018-2021. As a result, we
released our valuation allowance on AMT credits due to the Tax Act of $0.8 million and recorded a corresponding deferred
income tax benefit. In addition, we reclassed our AMT credit carryforward of $0.8 million to a non-current receivable. Once
reclassed, we reduced the estimated refund and recorded a current income tax expense of $0.1 million to account for the effects
of the sequester. During 2018, the IRS changed its position on whether the AMT credit was subject to sequester so we reversed
the previous expense taken of $0.1 million
Tax law requires items to be included in the tax return at different times than when these items are reflected in the
consolidated financial statements. As a result, the annual tax rate reflected in our consolidated financial statements is different
from that reported in our tax return (our cash tax rate). Some of these differences are permanent, such as expenses that are not
deductible in our tax return, and some differences reverse over time, such as depreciation expense. These timing differences
create deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences
between the financial reporting and tax bases of assets and liabilities. The tax rates used to determine deferred tax assets or
liabilities are the enacted tax rates in effect for the year and manner in which the differences are expected to reverse. Based on
the evaluation of all available information, we recognize future tax benefits, such as net operating loss carryforwards, to the
extent that realizing these benefits is considered more likely than not.
We evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing our forecasted taxable
income using both historical and projected future operating results, the reversal of existing taxable temporary differences,
taxable income in prior carryback years (if permitted), and the availability of tax planning strategies. A valuation allowance is
required to be established unless management determines that it is more likely than not that we will ultimately realize the tax
benefit associated with a deferred tax asset. As of December 30, 2017, we had determined that positive evidence outweighed
the negative evidence in considering the recoverability of our deferred tax assets, and we therefore released a substantial
portion of our valuation allowance of $53.5 million after considering tax reform implications. As of December 29, 2018,
34
positive evidence continues to outweigh negative evidence, so no valuation allowance was deemed necessary except to the
extent of state NOLs which approximates $12.3 million.. See Note 8 of the Notes to Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
For a summary of recent accounting pronouncements applicable to our consolidated financial statements, see Note 1 of the
Notes to Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity (Deficit)
Notes to Consolidated Financial Statements
Page
37
38
39
40
41
42
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
BlueLinx Holdings Inc. and subsidiaries
Marietta, Georgia
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of BlueLinx Holdings Inc. and subsidiaries (the “Company”) as
of December 29, 2018 and December 30, 2017, the related consolidated statements of operations and comprehensive (loss) income,
cash flows, and stockholders’ (deficit) equity for each of the periods ended December 29, 2018, December 30, 2017, and December
31, 2016, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2018 and
December 30, 2017, and the results of their operations and their cash flows for each of the periods ended December 29, 2018,
December 30, 2017, and December 31, 2016, in conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company's internal control over financial reporting as of December 29, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and our report dated March 13, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2015.
Atlanta, Georgia
March 13, 2019
/s/ BDO USA, LLP
37
BLUELINX HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
Current assets:
Cash
Receivables, less allowances of $3,656 and $2,762, respectively
ASSETS
Inventories
Other current assets
Total current assets
Property and equipment:
Land and improvements
Buildings
Machinery and equipment
Construction in progress
Property and equipment, at cost
Accumulated depreciation
Property and equipment, net
Goodwill
Intangible assets, net
Deferred tax asset
Other non-current assets
Total assets
Current liabilities:
Accounts payable
Bank overdrafts
Accrued compensation
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current maturities of long-term debt, net of discount of $64 and $0, respectively
Capital leases - short-term
Real estate deferred gains - short-term
Other current liabilities
Total current liabilities
Non-current liabilities:
Long-term debt, net of discount of $12,665 and $3,792, respectively
Capital leases - long-term
Real estate deferred gains - long-term
Pension benefit obligation
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 16)
STOCKHOLDERS’ (DEFICIT) EQUITY
Common Stock, $0.01 par value, Authorized - 20,000,000 shares, Issued and Outstanding - 9,293,794 and 9,100,923,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ (deficit) equity
Total liabilities and stockholders’ (deficit) equity
38
December 29,
2018
December 30,
2017
(In thousands, except share
data)
$
8,939
$
208,434
341,851
40,629
599,853
21,454
174,138
111,680
1,126
308,398
(103,285)
205,113
47,772
35,222
52,645
19,284
4,696
134,072
187,512
17,124
343,404
30,802
84,781
70,596
570
186,749
(102,977)
83,772
—
—
53,853
13,066
$
$
959,889
$
494,095
131,771
$
17,417
7,974
1,736
7,555
5,330
24,985
196,768
497,939
143,486
86,011
26,668
23,680
70,623
21,593
9,229
—
3,552
1,836
10,772
117,605
276,677
14,007
10,485
30,360
9,959
974,552
459,093
92
258,596
(37,129)
(236,222)
(14,663)
91
259,588
(36,507)
(188,170)
35,002
$
959,889
$
494,095
BLUELINX HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
Fiscal Year
Ended
December 29,
2018
Fiscal Year
Ended
December 30,
2017
Fiscal Year
Ended
December 31,
2016
(In thousands, except per share data)
$ 1,815,535
1,584,506
231,029
$ 1,881,043
1,653,637
227,406
$ 2,862,850
2,530,996
331,854
319,314
—
25,826
345,140
(13,286)
47,301
(380)
(60,207)
(12,154)
(48,053) $
198,709
(6,700)
9,032
201,041
29,988
21,225
(822)
9,585
(53,409)
62,994
(5.21) $
(5.21) $
6.96
6.81
$
$
$
204,509
(28,097)
9,342
185,754
41,652
24,898
(452)
17,206
1,121
16,085
1.80
1.77
$
$
$
$
(48,053) $
62,994
$
16,085
(14)
(608)
(622)
(48,675) $
14
130
144
63,138
$
$
264
(2,141)
(1,877)
14,208
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general, and administrative
Gains from sales of property
Depreciation and amortization
Total operating expenses
Operating (loss) income
Non-operating expenses:
Interest expense
Other (income) expense, net
(Loss) income before (benefit from) provision for income taxes
(Benefit from) provision for income taxes
Net (loss) income
Basic (loss) earnings per share
Diluted (loss) earnings per share
Comprehensive (loss) income:
Net (loss) income
Other comprehensive (loss) income :
Foreign currency translation, net of tax
Amortization of unrecognized pension (loss) gain, net of tax
Total other comprehensive (loss) income
Comprehensive (loss) income
39
BLUELINX HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net income (loss) to cash provided by (used in)
operations:
(Benefit from) provision for income taxes
Depreciation and amortization
Amortization of debt issuance costs
Gains from sales of property
Pension expense (credit)
Share-based compensation
Capital lease interest expense
Amortization of deferred gain
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Accounts payable
Prepaid assets
Quarterly pension contributions
Payments on operational efficiency initiatives and/or restructuring
Other assets and liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Acquisition of business, net of cash acquired
Property and equipment investments
Proceeds from disposition of assets
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Repurchase of shares to satisfy employee tax withholdings
Repayments on revolving credit facilities
Borrowings from revolving credit facilities
Repayments on term loan
Borrowings on term loan
Principal payments on mortgage
Payments on capital lease obligations
Decrease in bank overdrafts
Increase in cash in escrow related to the mortgage
Debt financing costs
Other
Net cash provided by (used in) financing activities
Increase (decrease) in cash
Cash, beginning of period
Cash, end of period
Supplemental Cash Flow Information
Net income tax payments during the period
Interest paid during the period
Noncash transactions:
Property and equipment under capital leases
40
Fiscal Year
Ended
December 29,
2018
Fiscal Year
Ended
December 30,
2017
(In thousands)
Fiscal Year
Ended
December 31,
2016
$
(48,053) $
62,994
$
16,085
(12,154)
25,826
2,884
—
7,660
8,474
12,893
(5,069)
835
60,007
4,887
24,982
3,515
(3,986)
—
(41,145)
41,556
(348,060)
(2,724)
108,051
(242,733)
(3,020)
(729,423)
880,042
(900)
180,000
(97,847)
(7,497)
(4,177)
—
(11,758)
—
205,420
4,243
4,696
8,939
2,643
37,326
95,820
$
$
$
$
(53,409)
9,032
1,990
(6,700)
4,814
2,480
1,417
(1,389)
(378)
(8,214)
3,775
(12,112)
(1,058)
(2,996)
—
(2,749)
(2,503)
—
(797)
27,635
26,838
(226)
(435,708)
441,779
—
—
(28,976)
(3,429)
(103)
1,490
—
(6)
(25,179)
(844)
5,540
4,696
1,577
19,825
11,828
$
$
$
$
1,121
9,342
2,688
(28,097)
799
2,339
608
—
(508)
12,687
35,374
(5,352)
632
(4,666)
(4,812)
3,157
41,397
—
(631)
37,476
36,845
(178)
(519,873)
475,112
—
—
(41,377)
(2,908)
4,409
7,628
(602)
279
(77,510)
732
4,808
5,540
627
21,236
3,433
$
$
$
$
BLUELINX HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Stockholders’
(Deficit)
Equity Total
Balance, January 2, 2016
8,943
$
Net loss
Foreign currency translation, net of tax
Unrealized gain from pension plan, net of tax
Issuance of restricted stock, net of forfeitures
Vesting of performance shares
Compensation related to share-based grants
Repurchase of shares to satisfy employee tax
withholdings
Other
Balance, December 31, 2016
Net income
Foreign currency translation, net of tax
Unrealized loss from pension plan, net of tax
Vesting of restricted stock units
Vesting of performance shares
Compensation related to share-based grants
Repurchase of shares to satisfy employee tax
withholdings
Other
Balance, December 30, 2017
Net loss
Foreign currency translation, net of tax
Unrealized gain from pension plan, net of tax
Vesting of restricted stock units
Vesting of performance shares
Compensation related to share-based grants
Repurchase of shares to satisfy employee tax
withholdings
Other
—
—
—
66
55
—
(31)
(2)
9,031
—
—
—
100
—
—
(30)
—
9,101
—
—
—
287
—
—
(94)
—
Balance, December 29, 2018
9,294
$
(In thousands)
$
255,905
$
(34,774) $
(267,116) $
(45,896)
—
—
—
—
—
1,818
(178)
427
—
264
(2,141)
—
—
—
—
—
16,085
—
—
—
—
—
—
(221)
257,972
(36,651)
(251,252)
—
—
—
—
—
1,842
(226)
—
—
14
130
—
—
—
—
—
259,588
(36,507)
—
—
—
—
—
1,900
(2,879)
(13)
—
(14)
(608)
—
—
—
—
—
62,994
—
—
—
—
—
—
88
(188,170)
(48,053)
—
—
—
—
—
—
1
16,085
264
(2,141)
1
—
1,818
(178)
206
(29,841)
62,994
14
130
1
—
1,842
(226)
88
35,002
(48,053)
(14)
(608)
—
1
1,900
(2,879)
(12)
$
258,596
$
(37,129) $
(236,222) $
(14,663)
89
—
—
—
1
—
—
—
—
90
—
—
—
1
—
—
—
—
91
—
—
—
—
1
—
—
—
92
41
BLUELINX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
BlueLinx is a wholesale distributor of building and industrial products in the U.S. Our Consolidated Financial Statements
include the accounts of BlueLinx Holdings Inc. and its wholly owned subsidiaries. These financial statements have been
prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). All significant
intercompany accounts and transactions have been eliminated.
Fiscal years 2018, 2017, and 2016 were each comprised of 52 weeks. Our fiscal year ends on the Saturday closest to
December 31 of that fiscal year, and may comprise 53 weeks in certain years.
Use of Estimates
We are required to make estimates and assumptions when preparing our Consolidated Financial Statements in accordance
with U.S. GAAP. These estimates and assumptions affect the amounts reported in our Consolidated Financial Statements and
the accompanying notes. Actual results could differ materially from those estimates.
Subsequent Events
We evaluated subsequent events through the date that our Consolidated Financial Statements were issued. Except as
described in Note 19, no matters were identified that required adjustment of the Consolidated Financial Statements or
additional disclosure.
Recent Accounting Standards - Recently Issued
Leases. In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2016-02, “Leases (Topic 842).” Topic 842 establishes a new lease accounting model for leases. The most significant changes
include the clarification of the definition of a lease, the requirement for lessees to recognize for all leases a right-of-use asset
and a lease liability in the consolidated balance sheet, and additional quantitative and qualitative disclosures which are designed
to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases.
Expenses are recognized in the consolidated statement of income in a manner similar to current accounting guidance. Lessor
accounting under the new standard is substantially unchanged. We adopted this standard, and all related amendments thereto,
effective December 30, 2018, the first day of our fiscal 2019 year, using a prospective transition approach, which applies the
provisions of the new guidance at the effective date without adjusting the comparative periods presented. We have elected the
package of practical expedients permitted under the transition guidance within the new standard, which among other things,
allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon
adoption. We have made an accounting policy election to keep leases with an initial term of 12 months or less off of the
consolidated balance sheet. We are finalizing our evaluation of the impacts that the adoption of this accounting guidance will
have on the consolidated financial statements, and estimate approximately $60 - $65 million of additional right-of-use assets
and liabilities will be recognized in our consolidated balance sheet upon adoption. Additionally, approximately $1.7 million of
deferred gains associated with sale-leaseback transactions will be recorded as a cumulative-effect adjustment to accumulated
deficit.
Goodwill. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350).” This
standard is intended to simplify the test for goodwill impairments by removing Step 2 of the goodwill impairment test, which
requires a hypothetical purchase price allocation. Under the new ASU, a goodwill impairment will now be the amount by which
a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The accounting standard
will be effective for reporting periods beginning after December 15, 2019, and early adoption is permitted. We have not
completed our assessment of the standard but we do not expect the adoption to have a material impact on the Company's
consolidated financial position, results of operations and cash flows.
Comprehensive Income. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting
Comprehensive Income (Topic 220).” This standard provides an option to reclassify stranded tax effects within accumulated
other comprehensive income (loss) (“AOCI”) to retained earnings due to the U.S. federal corporate income tax rate change in
the Tax Cuts and Jobs Act of 2017. This standard is effective for interim and annual reporting periods beginning after
42
December 15, 2018, and early adoption is permitted. We have not completed our assessment, but the adoption of the standard
may impact tax amounts stranded in AOCI related to our pension plans. We adopted this standard effective December 30, 2018,
the first day of our fiscal 2019 year.
Fair Value Measurement. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value (“FV”) Measurement (Topic
820).” In addition to making certain modifications, the standard removes the requirements to disclose: (i) the amount of and
reasons for transfers between Level 1 and Level 2 of the FV hierarchy; (ii) the policy for timing transfers between levels; and
(iii) the valuation process for Level 3 FV measurements. The standard will require public entities to disclose: (i) the changes in
unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 FV measurements held
at the end of the reporting period; and (ii) the range and weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu
of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational
method to reflect the distribution of unobservable inputs used to develop Level 3 FV measurements. The additional disclosure
requirements should be applied prospectively for the most recent interim or annual period presented in the fiscal year of
adoption. All other amendments should be applied retrospectively to all periods presented. The amendments in this standard
are effective for fiscal years ending after December 15, 2019. Early adoption is permitted, and an entity may early adopt the
removed or modified disclosures and delay the adoption of new disclosures until the effective date. We have not completed our
assessment of the standard but we do not expect the adoption to have a material impact on the Company's consolidated
financial position, results of operations and cash flows.
Defined Benefit Pension Plan. In August 2018, the FASB issued ASU No. 2018-14, “Compensation-Retirement-Benefits-
Defined Benefit Plans-General (Subtopic 715-20).” The amendments in this update modify the disclosure requirements for
employers that sponsor defined benefit pension or other postretirement plans by removing six previously required disclosures
and adding two. The amendments also clarify certain disclosure requirements. The amendments in this standard are effective
for fiscal years ending after December 15, 2020. Early adoption is permitted. We have not completed our assessment of the
standard but we do not expect the adoption to have a material impact on the Company's consolidated financial position, results
of operations and cash flows.
Recent Accounting Standards - Recently Adopted
Revenue from Contracts with Customers. In 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with
Customers (Topic 606)” (“ASC 606”) that superseded existing revenue recognition guidance. Under this ASU and subsequently
issued amendments, revenue is recognized at the time a good or service is transferred to a customer for the amount of
consideration received. The standard was effective for the first interim period within annual periods beginning after December
15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. Entities were permitted to adopt
the standard using a “full retrospective” approach (retrospectively to each prior reporting period presented) or a “modified
retrospective” approach (reporting the cumulative effect as of the date of adoption).
On December 31, 2017, the first day of our fiscal 2018 year, we adopted ASC 606 using the modified retrospective method
applied to those contracts which were not completed as of that date. Results for reporting periods beginning after the first day
of fiscal 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in
accordance with our historic accounting under the previous accounting standard, ASC 605.
There was no adjustment due to the cumulative impact of adopting ASC 606 (See Note 3).
Revenue Recognition
We recognize revenue when control of the promised goods or services is transferred to the Company’s customers in an
amount that reflects the consideration we expected to be entitled to in exchange for those goods or services. The timing of
revenue recognition largely is dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated
free on board (“FOB”) shipping point. For sales transactions designated FOB destination, revenue is recorded when the product
is delivered to the customer’s delivery site.
In addition, we provide inventory to certain customers through pre-arranged agreements on a consignment basis. Customer
consigned inventory is maintained and stored by certain customers; however, ownership and risk of loss remains with us. When
the consigned inventory is sold by the customer, we recognize revenue on a gross basis.
All revenues recognized are net of trade allowances, cash discounts, and sales returns. Cash discounts and sales returns are
estimated using historical experience. Trade allowances are based on the estimated obligations and historical experience.
43
Adjustments to earnings resulting from revisions to estimates on discounts and returns have been insignificant for each of the
reported periods.
Accounts Receivable
Accounts receivable are stated at net realizable value, do not bear interest, and consist of amounts owed for orders shipped
to customers. Management establishes an overall credit policy for sales to customers. The allowance for doubtful accounts is
determined based on a number of factors including specific customer account reviews, historical loss experience, current
economic trends, and the creditworthiness of significant customers based on ongoing credit evaluations.
Inventory Valuation
The cost of all inventories is determined by the moving average cost method. We have included all material charges
directly or indirectly incurred in bringing inventory to its existing condition and location. We evaluate our inventory value at
the end of each quarter to ensure that inventory, when viewed by category, is carried at the lower of cost and net realizable
value, which also considers items that may be damaged, excess, and obsolete inventory.
Consideration Received from Vendors and Paid to Customers
Each year, we enter into agreements with many of our vendors providing for inventory purchase rebates, generally based
on achievement of specified volume purchasing levels. We also receive rebates related to price protection and various
marketing allowances that are common industry practice. We accrue for the receipt of vendor rebates based on purchases, and
also reduce inventory to reflect the net acquisition cost (purchase price less expected purchase rebates).
In addition, we enter into agreements with many of our customers to offer customer rebates, generally based on
achievement of specified sales levels and various marketing allowances that are common industry practice. We accrue for the
payment of customer rebates based on sales to the customer, and also reduce sales to reflect the net sales (sales price less
expected customer rebates). Adjustments to earnings resulting from revisions to rebate estimates have been immaterial.
Shipping and Handling
Shipping and handling costs included in “Selling, general, and administrative” expenses were $121.8 million, $83.1
million, and $89.0 million for fiscal 2018, fiscal 2017, and fiscal 2016, respectively.
Property and Equipment
Property and equipment are recorded at cost. Lease obligations for which we assume or retain substantially all the property
rights and risks of ownership are capitalized. Amortization of assets recorded under capital leases is included in “Depreciation
and amortization” expense. Replacements of major units of property are capitalized and the replaced properties are retired.
Replacements of minor components of property and repair and maintenance costs are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Upon
retirement or disposition of assets, cost and accumulated depreciation are removed from the related accounts and any gain or
loss is included in income.
Income Taxes
We account for deferred income taxes using the liability method. Accordingly, we recognize deferred tax assets and
liabilities based on the tax effects of temporary differences between the financial statement and tax bases of assets and
liabilities, as measured by current enacted tax rates. All deferred tax assets and liabilities are classified as noncurrent in our
consolidated balance sheet. A valuation allowance is recorded to reduce deferred tax assets when necessary. For additional
information about our income taxes, see Note 8, “Income Taxes.”
Insurance and Self-Insurance
For fiscal 2018, 2017, and 2016, the Company purchased an insurance policy for its non-union and certain unionized
employee health benefits, and was fully insured for this obligation. Health benefits for some unionized employees for fiscal
2018, 2017, and 2016 were paid directly to a union trust, depending upon the union-negotiated benefit arrangement.
For fiscal 2018, 2017, and 2016, the Company was self-insured, up to certain limits, for most workers’ compensation
losses, general liability, and automotive liability losses, all subject to varying “per occurrence” retentions or deductible limits.
The Company provides for estimated costs to settle both known claims and claims incurred but not yet reported. Liabilities
associated with these claims are estimated, in part, by considering the frequency and severity of historical claims, both specific
to us, as well as industry-wide loss experience and other actuarial assumptions. We determine our insurance obligations with
the assistance of actuarial firms. Since there are many estimates and assumptions involved in recording insurance liabilities and
in the case of workers’ compensation, a significant period of time elapses before the ultimate resolution of claims, differences
between actual future events and prior estimates and assumptions could result in adjustments to these liabilities.
44
2. Acquisition
On April 13, 2018, we completed the acquisition of Cedar Creek Holdings, Inc. (“Cedar Creek”) for a purchase price of
approximately $361.8 million. The acquisition was completed pursuant to the terms of an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of March 9, 2018, by and among BlueLinx Corporation, one of our wholly owned subsidiaries,
Panther Merger Sub, Inc., a wholly-owned subsidiary of BlueLinx Corporation ("Merger Sub"), Cedar Creek, and CharlesBank
Equity Fund VII, Limited Partnership (“CharlesBank”). Upon closing the transactions contemplated by the Merger Agreement,
among other things, Merger Sub was merged with and into Cedar Creek, with Cedar Creek surviving the acquisition as one of
our indirect wholly-owned subsidiaries. As a result of the acquisition, we increased the number of our distribution facilities to
approximately 70 facilities, and increased the number of our full-time employees to approximately 2,600. The merger allowed
us to expand our product offerings while expanding our existing geographical footprint.
Cedar Creek was established in 1977 as a wholesale building materials distribution company that distributes wood products
across the United States. Its products include specialty lumber, oriented strand board, siding, cedar, spruce, engineered wood
products and other building products.
The acquisition is being accounted for under the acquisition method of accounting. The assets acquired, liabilities assumed and
the results of operations of the acquired business are included in our consolidated results since April 13, 2018.
We estimate that the acquired business contributed net sales and a net loss of approximately $1.0 billion and approximately
$2.5 million, respectively, to the Company for the period from April 13, 2018, to December 29, 2018. The net income for the
period from April 13, 2018, to December 29, 2018, included integration-related costs and the negative impact of selling a
higher cost Cedar Creek inventory recorded at fair value. The following unaudited consolidated pro forma information presents
consolidated information as if the acquisition had occurred on January 1, 2017:
Pro forma
(In thousands, except per share data)
Fiscal 2018
Fiscal 2017
Net sales
Net income (loss)
Earnings (loss) per common share:
Basic
Diluted
$
$
3,262,433
(18,129)
$
(1.83) $
(1.83)
3,235,923
32,690
3.61
3.54
The pro forma amounts above have been calculated in accordance with U.S. GAAP after applying the Company's accounting
policies and adjusting the fiscal years ended December 29, 2018, and December 30, 2017 to reflect charges related to an
inventory step-up adjustment for $11.8 million and transaction costs for $44.3 million. Due to the net loss for fiscal year ended
December 29, 2018, 61,894 incremental shares from share-based compensation arrangements were excluded from the
computation of diluted weighted average shares outstanding because their effect would be anti-dilutive. The pro forma amounts
do not include any potential synergies, cost savings or other expected benefits of the acquisition, are presented for illustrative
purposes only, and are not necessarily indicative of results that would have been achieved had the acquisition occurred as of
January 1, 2017, or of future operating performance.
45
The purchase price of Cedar Creek consisted of the following items:
Consideration paid to shareholders and amounts paid to creditors:
Payments to Cedar Creek shareholders[1]
Subordinated unsecured note (due to shareholder)[2]
Seller’s transaction costs paid by Company
Add: pay off of Cedar Creek debt[3]
Total preliminary cash purchase price
_____________
(In thousands)
$
$
166,447
13,743
7,349
174,213
361,752
[1]
[2]
[3]
Payments to Cedar Creek’s shareholders include the purchase of common stock and certain escrow adjustments.
The Cedar Creek note payable to a shareholder of $13.7 million was paid in full upon the acquisition of Cedar Creek
and included $10 million in subordinated debt and $3.7 million in accrued interest.
To finance the acquisition of Cedar Creek, the Company amended and restated its Revolving Credit Facility to increase
the availability thereunder to $600.0 million and also entered into a new $180.0 million senior secured Term Loan
Facility (See Note 9).
The excess of total purchase price, which includes the aggregate cash consideration paid in excess of the fair value of the
tangible and intangible assets acquired, was recorded as goodwill. The goodwill recognized is attributable to the expected
operating synergies and growth potential that the Company expects to realize from the acquisition. None of the goodwill
generated from the acquisition is deductible for tax purposes.
When determining the fair values of assets acquired and liabilities assumed, management made significant estimates,
judgments and assumptions. The following table summarizes the values of the assets acquired and liabilities assumed at the
date of the acquisition:
(In thousands)
Cash and net working capital assets
(excluding inventory)
Inventory
Property and equipment
Other, net
Intangible assets and goodwill:
Customer relationships
Non-compete agreements
Trade names
Favorable leasehold interests
Goodwill
Capital leases and other liabilities
Cash purchase price
3. Revenue Recognition
Preliminary
Allocation as of
December 29,
2018
$
88,318
159,227
71,203
(1,395)
25,500
8,254
6,826
800
47,772
(44,753)
$
361,752
We recognize revenue when the following criteria are met: 1) Contract with the customer has been identified; 2) Performance
obligations in the contract have been identified; 3) Transaction price has been determined; 4) The transaction price has been
allocated to the performance obligations; and 5) When (or as) performance obligations are satisfied.
Contracts with our customers are generally in the form of standard terms and conditions of sale. From time to time, we may
enter into specific contracts with some of our larger customers, which may affect delivery terms. Performance obligations in
46
our contracts generally consist solely of delivery of goods. For all sales channel types, consisting of warehouse, direct, and
reload sales, we typically satisfy our performance obligations upon shipment. Our customer payment terms are typical for our
industry, and may vary by the type and location of our customer and the products or services offered. The term between
invoicing and when payment is due is not deemed to be significant by us. For certain sales channels and/or products, our
standard terms of payment may be as early as ten days.
In addition, we provide inventory to certain customers through pre-arranged agreements on a consignment basis. Customer
consigned inventory is maintained and stored by certain customers; however, ownership and risk of loss remains with us. When
the consigned inventory is sold by the customer, we recognize revenue, net of trade allowances.
All revenues recognized are net of trade allowances (i.e., rebates), cash discounts and sales returns. Cash discounts and sales
returns are estimated using historical experience. Trade allowances are based on the estimated obligations and historical
experience. Adjustments to earnings resulting from revisions to estimates on discounts and returns have been insignificant for
each of the reported periods. Certain customers may receive cash-based incentives or credits, which are accounted for as
variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce
revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration.
The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from
revenues.
(In thousands)
Structural products
Specialty products
Other[1]
Total net sales
Fiscal Year Ended
December 29, 2018
December 30, 2017
$
$
1,286,119
1,593,969
(17,238)
2,862,850
$
$
841,862
988,824
(15,151)
1,815,535
____________________________________
[1]“Other” includes unallocated allowances and discounts. Beginning in the third quarter of 2018 allowances and discounts are
allocated to product categories where identifiable. Prior year numbers in the table have been updated for this presentation.
The following table presents our revenues disaggregated by sales channel. Sales and usage-based taxes are excluded from revenues.
(In thousands)
Warehouse
Direct
Reload and service revenue
Cash discounts and rebates
Total net sales
Practical Expedients and Exemptions
Fiscal Year Ended
December 29, 2018
December 30, 2017
$
$
2,239,883
526,900
134,045
(37,978)
2,862,850
$
$
1,366,241
354,278
125,108
(30,092)
1,815,535
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These
costs are recorded within selling, general, and administrative expense.
We have made an accounting policy election to treat any shipping and handling costs after control has transferred to the customer
(primarily common carrier costs) as fulfillment costs, rather than as a separate obligation or separate promised service.
4. Goodwill and Other Intangible Assets
In connection with the acquisition of Cedar Creek, we acquired certain intangible assets. As of December 29, 2018, our
intangible assets consist of goodwill and other intangible assets including customer relationships, noncompete agreements,
trade names, and favorable leasehold interests.
47
Goodwill
Goodwill is the excess of the cost of an acquired entity over the fair value of tangible and intangible assets (including
customer relationships, noncompete agreements, trade names and favorable lease interests) acquired and liabilities assumed
under acquisition accounting for business combinations.
During the year ended December 29, 2018, we preliminarily allocated the fair values of assets acquired and liabilities
assumed in the acquisition of Cedar Creek and recognized $47.8 million in goodwill.
Goodwill is not subject to amortization but must be tested for impairment at least annually. This test requires us to assign
goodwill to a reporting unit and to determine if the implied fair value of the reporting unit’s goodwill is less than its carrying
amount. We evaluate goodwill for impairment during the fourth quarter of each fiscal year and no impairment was indicated
for fiscal 2018. In addition, we will evaluate the carrying values of these assets for impairment between annual impairment
tests if an event occurs or circumstances change that would indicate the carrying amounts may be impaired. Such events and
indicators may include, without limitation, significant declines in the industries in which our products are used, significant
changes in capital market conditions and significant changes in our market capitalization.
Definite-Lived Intangible Assets.
At December 29, 2018, in connection with the acquisition of Cedar Creek, we had definite-lived intangible assets that
related to customer relationships, noncompete agreements, trade names, and favorable leasehold interests.
At December 29, 2018, the gross carrying amounts, the accumulated amortization and the net carrying amounts of our
definite-lived intangible assets were as follows:
(In thousands)
Customer relationships
Noncompete agreements
Trade names
Favorable leasehold interests[1]
Total
____________________
[1] Amortized to rent expense
Gross
Carrying
Amounts
$
$
25,500
8,254
6,826
800
41,380
Accumulated
Amortization [2]
$
(3,024)
(1,468)
(1,619)
(47)
(6,158)
$
Net
Carrying
Amounts
$
$
22,476
6,786
5,207
753
35,222
[2] Intangible assets except customer relationships are amortized on straight line basis. Customer relationships are amortized on a double
declining balance method.
Amortization Expense
The weighted average estimated useful life remaining for customer relationships, noncompete agreements, trade names and
favorable leasehold interest is approximately 11 years, 3 years, 2 years and 11 years respectively. Amortization expense for the
definite-lived intangible assets was $6.2 million for the year ended December 29, 2018, respectively. There were no
amortization charges for the comparative periods of the prior year.
Estimated annual amortization expense for definite-lived intangible assets over the next five fiscal years is as follows:
(In thousands)
2019
2020
2021
2022
2023
48
Estimated
Amortization
8,152
$
7,527
5,035
3,183
1,873
5. Assets Held for Sale
In fiscal 2018, we designated certain non-operating properties as held for sale, due to strategic realignments of our
business. At the time of designation, we ceased recognizing depreciation expense on these assets. As of December 29, 2018,
seven properties were designated as held for sale, and as of December 30, 2017, two properties had been designated as held for
sale. During the fiscal year ended December 29, 2018, in connection with the integration of Cedar Creek, one property
designated as held for sale in fiscal 2017 was returned to operations. As of December 29, 2018, and December 30, 2017, the net
book value of total assets held for sale was $3.1 million and $0.8 million, respectively, and was included in “Other current
assets” in our Consolidated Balance Sheets. Properties held for sale as of December 29, 2018, consisted of land in Connecticut,
and six warehouses located in the Midwest and Southeast. We plan to sell these properties within the next 12 months. We
continue to actively market all properties that are designated as held for sale.
6. Cash Held in Escrow
Cash held in escrow 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 of cash held in escrow:
Cash in escrow
Workers compensation insurance
Acquisition-related
Property taxes and insurance
Benefits-related
Total
7. Other Current Liabilities
December 29, 2018
December 30, 2017
(In thousands)
$
$
10,194
$
6,009
—
358
16,561
$
8,074
—
2,904
240
11,218
The following table shows the components of other current liabilities:
December 29, 2018
December 30, 2017
$
(In thousands)
7,286
4,909
3,429
2,485
1,281
5,595
24,985
$
495
3,226
4,070
1,674
14
1,293
10,772
Stock compensation liability awards
Property, sales, and other non-income taxes payable
Insurance reserves and retention
401(k) match
State income taxes payable
Accrued interest and other
Total
$
$
49
8. Income Taxes
Our (benefit from) provision for income taxes consisted of the following:
Federal income taxes:
Current
Deferred
State income taxes:
Current
Deferred
Foreign income taxes:
Current
Deferred
(Benefit from) provision for income taxes
Fiscal Year
Ended
December 29,
2018
Fiscal Year
Ended
December 30,
2017
(In thousands)
Fiscal Year
Ended
December 31,
2016
$
(99) $
(659) $
(13,092)
(45,868)
3,786
(2,749)
1,054
(7,985)
232
—
962
—
—
—
(12,154) $
49
—
(53,409) $
$
(70)
(3)
1,121
The federal statutory income tax rate was 21%. Our (benefit from) provision for income taxes is reconciled to the federal
statutory amount as follows:
Fiscal Year
Ended
December 29,
2018
Fiscal Year
Ended
December 30,
2017
Fiscal Year
Ended
December 31,
2016
Expense (benefit) from income taxes computed at the federal statutory tax rate
Expense (benefit) from state income taxes, net of federal benefit
Valuation allowance change
Transaction costs
Nondeductible executive compensation
Share-based compensation - excess tax benefit
Other nondeductible items
Uncertain tax positions
Tax rate change used to measure deferred taxes
Alternative minimum tax
Tax Cuts and Jobs Act of 2017
Other
(Benefit from) provision for income taxes
$
$
$
(12,643) $
(2,498)
1,974
1,327
936
(1,494)
344
(951)
681
—
—
170
(12,154) $
(In thousands)
3,355
253
(87,137)
—
280
(47)
431
—
—
—
29,387
69
(53,409) $
6,022
595
(6,319)
—
132
—
271
—
—
232
—
188
1,121
The change in valuation allowance is exclusive of items that do not impact income from continuing operations, but are
reflected in the balance sheet change in deferred income tax assets and liabilities as disclosed in the components of net deferred
income tax assets table below.
In accordance with the intraperiod tax allocation provisions of U.S. GAAP, we are required to consider all items (including
items recorded in other comprehensive income) in determining the amount of tax expense or benefit that should be allocated
between continuing operations and other comprehensive income. In fiscal 2018, there was no intraperiod tax allocation since
there was a loss in continuing operations along with a loss in other comprehensive income for that period. In fiscal 2017, there
was no intraperiod tax allocation since there was income from continuing operations and income in other comprehensive
income. In fiscal 2016, there was no intraperiod tax allocation because there were sufficient loss carryforwards to offset income
from continuing operations. While the income tax provision from continuing operations is reported in our Consolidated
Statements of Operations and Comprehensive Income (Loss), the income tax expense on other comprehensive income is
recorded directly to accumulated other comprehensive loss, which is a component of stockholders’ equity (deficit).
50
On December 22, 2017, the U.S. government enacted tax legislation commonly known as the Tax Cuts and Jobs Act of
2017 (the “Tax Act”). The Tax Act provides for significant changes to tax law for tax years beginning after December 31, 2017,
including, but not limited to, the reduction of the U.S. federal corporate income tax rate from 35% to 21%, repeal of the
corporate alternative minimum tax (“AMT”), and additional limitations on the deductibility of interest expense and executive
compensation. The reduction in the federal corporate income tax rate from 35% to 21% resulted in a reduction in our deferred
tax asset of $28.8 million with an offsetting adjustment to the valuation allowance of $28.6 million resulting in deferred income
tax expense of $0.2 million in fiscal 2017. Furthermore, the Tax Act repealed the AMT and provided that taxpayers with AMT
credit carryovers in excess of their regular tax liability may have the credits refunded over a period from 2018 - 2021. As a
result, we released our valuation allowance on AMT credits due to the Tax Act of $0.8 million, and recorded a corresponding
deferred income tax benefit. In addition, we reclassified our AMT credit carryforward of $0.8 million to a non-current
receivable.
On December 22, 2017, Staff Accounting Bulletin No. 118 was issued by the Securities and Exchange Commission, which
allows companies to record provisional amounts to reflect the income tax effects for the Tax Act during a measurement period
that does not extend beyond one year from the enactment date. No additional changes were recorded to tax expense for
executive compensation or any other deferred tax asset during fiscal 2018.
Our financial statements contain certain deferred tax assets which primarily resulted from tax benefits associated with the
loss before income taxes in prior years, as well as net deferred income tax assets resulting from other temporary differences
related to certain reserves, pension obligations, and differences between book and tax depreciation and amortization. We record
a valuation allowance against our net deferred tax assets when we determine that, based on the weight of available evidence, it
is more likely than not that our net deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences can be carried
under tax law.
In our evaluation of the weight of available evidence at the end of fiscal 2018, we considered the recent reported loss
generated in the current year and income generated in the prior two fiscal years, including the prior year income from Cedar
Creek, which resulted in a three-year cumulative income situation as positive evidence which carried substantial weight. While
this was substantial, it was not the only evidence we evaluated. We also considered evidence related to the four sources of
taxable income, to determine whether such positive evidence outweighed the negative evidence. The evidence considered
included:
•
•
•
•
future reversals of existing taxable temporary differences;
future taxable income exclusive of reversing temporary differences and carryforwards;
taxable income in prior carryback years, if carryback is permitted under the tax law; and
tax planning strategies.
At the end of fiscal 2018 and 2017, we concluded that the weight of the positive evidence outweighed the negative
evidence. In addition to the positive evidence discussed above, we considered as positive evidence forecasted future taxable
income and the evidence from business and tax planning strategies described below. Further positive evidence that occurred
during the fourth quarter of 2017 was the refinancing of our revolving credit facility to a new five-year period with more
favorable terms, the positive market reaction to our former majority shareholder’s underwritten secondary offering to sell its
shares of our common stock, and the continued improvement of projected housing starts. As a result, we recorded a partial
release of our valuation allowance of $53.5 million during the fourth quarter of 2017. The remaining valuation allowance of
$12.3 million as of fiscal 2018 was primarily related to separate company state net operating loss carryforwards. Although we
believe our estimates are reasonable, the ultimate determination of the appropriate amount of valuation allowance involves
significant judgments. We believe that the change in control under Internal Revenue Code Section 382, resulting from the
completion of the secondary offering on October 23, 2017 (as described above), will not cause any of our federal net operating
losses to expire unused as management has been effectively implementing a real estate strategy involving sales and leaseback
of real estate that is further supported by the sale-leaseback of four warehouses in January 2018 (See Note 15 for more detail).
Additionally, the acquisition of Cedar Creek did not generate any limitations under Section 382 on Cedar Creek’s tax assets.
51
The components of our net deferred income tax assets are as follows:
Deferred income tax assets:
Inventory reserves
Compensation-related accruals
Accruals and reserves
Accounts receivable
Interest expense limitation
Property and equipment
Pension
Benefit from NOL carryovers (1)
Other
Total gross deferred income tax assets
Less: valuation allowances
Total net deferred income tax assets
Deferred income tax liabilities:
Intangible assets
Other
Total deferred income tax liabilities
Deferred income tax asset, net
December 29,
2018
December 30,
2017
(In thousands)
$
$
2,826
4,717
339
586
3,169
21,547
8,031
32,325
418
73,958
(12,348)
61,610
(8,665)
(300)
(8,965)
52,645
$
$
1,654
3,692
72
443
—
4,614
7,011
46,873
285
64,644
(10,415)
54,229
—
(376)
(376)
53,853
(1) Our federal NOL carryovers are $90.9 million and will expire in 12 to 17 years. Our state NOL carryovers are $249.3
million and will expire in 1 to 20 years.
Activity in our deferred tax asset valuation allowance for fiscal 2018 and 2017 was as follows:
Balance as of beginning of the year
Valuation allowance provided for taxes related to:
Loss (income) before income taxes
Tax Cuts and Jobs Act of 2017
Release of valuation allowance
Balance as of end of the year
Fiscal Year
Ended
December 29,
2018
Fiscal Year
Ended
December 30,
2017
(In thousands)
$
10,415
$
97,552
1,933
—
—
12,348
$
(4,300)
(29,387)
(53,450)
10,415
$
We have recorded income tax and related interest liabilities where we believe certain of our tax positions are not more
likely than not to be sustained if challenged. The following table summarizes the activity related to our gross unrecognized tax
benefits:
(In thousands)
Balance at beginning of fiscal year
Additions for tax positions in prior years
Reductions due to lapse of applicable statute of limitations
Balance at end of fiscal year
2018
2017
2016
$
$
184
6,663
(1,004)
5,843
$
$
184
—
—
184
$
$
184
—
—
184
Included in the unrecognized tax benefits as of December 29, 2018, and December 30, 2017, were $5.5 million and $0.2
million, respectively, of tax benefits that, if recognized, would reduce our annual effective tax rate. We also accrued interest
related to these unrecognized tax benefits of $0.9 million during fiscal 2018, of which $0.3 million of this amount is reported in
“Interest expense” in our Consolidated Statements of Operations and Comprehensive Income (Loss). The remaining $0.6
52
million of interest, as well as the gross addition for tax positions in prior years of $6.7 million disclosed above in the tabular
reconciliation, were recorded through goodwill as part of the purchase accounting for the acquisition of Cedar Creek. No
interest was accrued in fiscal 2017 and no penalties were accrued for either fiscal 2018 or 2017. We believe that it is reasonably
possible that approximately $1.1 million of our remaining unrecognized tax benefit may be recognized by the end of fiscal
2019 as a result of a lapse of statute of limitations.
We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2015 through
2018 tax years generally remain subject to examination by federal and most state and foreign tax authorities.
9. Long-Term Debt
As of December 29, 2018 and December 30, 2017, long-term debt consisted of the following:
(In thousands)
Revolving Credit Facility (net of discounts and debt issuance
costs of $6.0 million and $3.1 million at December 29, 2018
and December 30, 2017, respectively)
Mortgage Note Payable (net of discounts and debt issuance
costs of $0.8 million at December 30, 2017)
Term Loan Facility (net of discounts and debt issuance costs of
$6.7 million at December 29, 2018)
October 13, 2023
Total debt
Less: current portion of long-term debt
Long-term debt, net
Revolving Credit Facility
Maturity Date
December 29,
2018
December 30,
2017
October 10, 2022
$
327,319
$
179,569
—
97,108
172,356
499,675
(1,736)
—
276,677
—
$
497,939
$
276,677
On April 13, 2018, in connection with the acquisition Cedar Creek, we entered into an Amended and Restated Credit
Agreement, with certain of our subsidiaries as borrowers (together with us, the “Borrowers”) or guarantors thereunder, Wells
Fargo Bank, National Association, in its capacity as administrative agent (“Wells Fargo”), and certain other financial
institutions party thereto (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for a senior secured
asset-based revolving loan and letter of credit facility (the “Revolving Credit Facility”) of up to $600 million and an
uncommitted accordion feature that permits the Borrowers, with consent of the lenders, to increase the facility by an aggregate
additional principal amount of up to $150 million, which will allow borrowings of up to $750 million under the Revolving
Credit Facility. Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit
Agreement, which would reduce the amount of the revolving loans available under the Revolving Credit Facility. The maturity
date of the Revolving Credit Agreement is October 10, 2022. The Revolving Credit Agreement amended and restated the
Borrowers’ existing $335 million secured revolving credit facility, dated October 10, 2017. The proceeds from the Revolving
Credit Facility were used to repay outstanding obligations under the Borrowers’ existing revolving credit facility, to fund a
portion of the cash consideration payable in connection with the acquisition of Cedar Creek, to fund transaction costs in
connection with the acquisition and the amendment of the Revolving Credit Facility, to provide working capital and for other
general corporate purposes.
In connection with the execution and delivery of the Revolving Credit Agreement, we also entered into, with certain of our
subsidiaries, a Guaranty and Security Agreement with Wells Fargo (the “Revolving Guaranty and Security Agreement”).
Pursuant to the Revolving Guaranty and Security Agreement, the Borrowers’ obligations under the Revolving Credit
Agreement are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property),
including inventories, accounts receivable, and proceeds from those items.
Borrowings under the Revolving Credit Agreement will be subject to availability under the Borrowing Base (as that term is
defined in the Revolving Credit Agreement). The Borrowers will be required to repay revolving loans thereunder to the extent
that such revolving loans exceed the Borrowing Base then in effect. The Revolving Credit Facility may be prepaid in whole or
in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.
The Revolving Credit Agreement provides for interest on the loans at a rate per annum equal to (i) LIBOR plus a margin
ranging from 1.75 percent to 2.25 percent, with the amount of such margin determined based upon the average of the
Borrowers’ excess availability for the immediately preceding fiscal quarter as calculated by the administrative agent, for loans
based on LIBOR, or (ii) the administrative agent’s base rate plus a margin ranging from 0.75 percent to 1.25 percent, with the
53
amount of such margin determined based upon the average of the Borrowers’ excess availability for the immediately preceding
fiscal quarter as calculated by the administrative agent, for loans based on the base rate.
In the event excess availability falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the
Borrowing Base; and (b) the maximum permitted credit at such time, the Revolving Credit Agreement requires maintenance of
a fixed charge coverage ratio of 1.0 to 1.0 until such time as the Borrowers’ excess availability has been at least the greater of
(i) $50 million and (ii) 10 percent of the lesser of (a) the Borrowing Base; and (b) the maximum permitted credit at such time
for a period of 30 consecutive days.
The Revolving Credit Agreement also contains representations and warranties and affirmative and negative covenants
customary for financings of this type as well as customary events of default.
As of December 29, 2018, we had outstanding borrowings of $333.3 million, excess availability of $91.7 million, and a
weighted average interest rate of 4.6% under our Revolving Credit Facility. As of December 30, 2017, prior to the acquisition
of Cedar Creek, we had outstanding borrowings of $182.7 million, excess availability of $63.3 million and a weighted average
interest rate of 4.2%.
We were in compliance with all covenants under the Revolving Credit Agreement as of December 29, 2018.
Term Loan Facility
On April 13, 2018, in connection with the acquisition of Cedar Creek, we entered into a new Credit and Guaranty
Agreement (the “Term Loan Agreement”) by and among the Company, as borrower, certain of our subsidiaries, as guarantors,
HPS Investment Partners, LLC, as administrative agent and collateral agent (“HPS”) and certain other financial institutions as
parties thereto. The Term Loan Agreement provides for a senior secured term loan facility in an aggregate principal amount of
$180 million (the “Term Loan Facility”). The maturity date of the Term Loan Agreement is October 13, 2023. The proceeds
from the Term Loan Facility were used to fund a portion of the cash consideration payable in connection with the acquisition of
Cedar Creek and to fund transaction costs in connection with the acquisition and the Term Loan Facility.
In connection with the execution and delivery of the Term Loan Agreement, the Company and certain of our subsidiaries
also entered into a Pledge and Security Agreement with HPS (the “Term Loan Security Agreement”). Pursuant to the Term
Loan Security Agreement and other “Collateral Documents” (as such term is defined in the Term Loan Agreement), the
obligations under the Term Loan Agreement are secured by a security interest in substantially all of our and our subsidiaries’
assets, including inventories, accounts receivable, real property, and proceeds from those items.
The Term Loan Agreement requires monthly interest payments, and quarterly principal payments of $450,000, in arrears.
The Term Loan Agreement also requires certain mandatory prepayments of outstanding loans, subject to certain exceptions,
including prepayments commencing with the fiscal year ending December 28, 2019, based on a percentage of excess cash flow
(as defined in the Term Loan Agreement for such fiscal year). The remaining balance is due on the loan maturity date of
October 13, 2023.
The Term Loan Facility may be prepaid in whole or in part from time to time after the first anniversary thereof, subject to
payment of the “Prepayment Premium” (as such term is defined in the Term Loan Agreement) if such voluntary prepayment
does not otherwise constitute an exception to the Prepayment Premium under the Term Loan Agreement and is made prior to
the fourth anniversary of the closing date of the Term Loan Agreement, and all breakage costs incurred by any lender
thereunder.
Borrowings under the Term Loan Agreement may be made as Base Rate Loans or Eurodollar Rate Loans. The Base Rate
Loans will bear interest at the rate per annual equal to (i) the greatest of the (a) U.S. prime lending rate published in The Wall
Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one
month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum; and (ii) plus the
Applicable Margin, as described below. Eurodollar Rate Loans will bear interest at the rate per annum equal to (i) the ICE
Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent
per annum; plus (ii) the Applicable Margin. The Applicable Margin will be 6.00 percent with respect to Base Rate Loans and
7.00 percent with respect to Eurodollar Rate Loans.
The Term Loan Agreement requires maintenance of a total net leverage ratio of 6.75 to 1.00 for the quarter ending
December 29, 2018, and such required covenant level reduces over the term of the Term Loan Facility as set forth in the Term
Loan Agreement.
54
The Term Loan Agreement also contains representations, warranties, affirmative and negative covenants customary for
financing transactions of this type, and customary events of default.
As of December 29, 2018, we had outstanding borrowings of $179.1 million under our Term Loan Credit Facility and a
stated interest rate of 9.3% per annum. At December 30, 2017, there were no outstanding borrowings under our Term Loan
Credit Facility.
We were in compliance with all covenants under the Term Loan Agreement as of December 29, 2018.
Our remaining principal payment schedule for each of the next five years is as follows:
(In thousands)
2019
2020
2021
2022
2023
$
1,800
2,250
1,800
1,800
171,450
2006 Commercial Mortgage-Backed Securities (“CMBS”) Mortgage Loan
Our 2006 CMBS mortgage loan, which was paid in full in January 2018, was secured by substantially all of the Company’s
owned distribution facilities and a first priority pledge of the equity in the Company’s subsidiaries which held the real property
that secured the mortgage loan.
10. Fair Value Measurements
We determine a fair value measurement based on the assumptions a market participant would use in pricing an asset or
liability, in accordance with Accounting Standards Codification (“ASC”) 820 - Fair Value Measurement (“ASC 820”). The fair
value measurement guidance established a three level hierarchy making a distinction between market participant assumptions
based on (i) unadjusted quoted prices for identical assets or liabilities in an active market (Level 1), (ii) quoted prices in
markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset or
liability (Level 2), and (iii) prices or valuation techniques that require inputs that are both unobservable and significant to the
overall fair value measurement (Level 3).
Fair value measurements for defined benefit pension plan
The fair value hierarchy discussed above not only is applicable to assets and liabilities that are included in our consolidated
balance sheets, but also is applied to certain other assets that indirectly impact our consolidated financial statements. For
example, we sponsor and contribute to a single-employer defined benefit pension plan (see Note 11). Assets contributed by us
become the property of the pension plan. Even though the Company no longer has control over these assets, we are indirectly
impacted by subsequent fair value adjustments to these assets. The actual return on these assets impacts our future net periodic
benefit cost, as well as amounts recognized in our consolidated balance sheets. The Company uses the fair value hierarchy to
measure the fair value of assets held by our pension plan. We believe the pension plan asset fair value valuation to comprise
Level 2 in the fair value hierarchy. Level 2 assets held in the pension plan under GAAP consist of collective investment trust
assets.
Fair value measurements for financial instruments
Carrying amounts for our financial instruments are not significantly different from their fair value.
11. Employee Benefits
Single-Employer Defined Benefit Pension Plan
We sponsor a noncontributory defined benefit pension plan administered solely by us (the “pension plan”). Most of the
participants in the plan are inactive, with the majority of the remaining active participants no longer accruing benefits, and the
plan is closed to new entrants. Our funding policy for the pension plan is based on actuarial calculations and the applicable
requirements of federal law. Benefits under the pension plan primarily are related to years of service.
55
The following tables set forth the change in projected benefit obligation and the change in plan assets for the pension plan:
Change in projected benefit obligation:
Projected benefit obligation at beginning of period
Service cost
Interest cost
Actuarial (gain) loss
Curtailment gain
Benefits paid
Projected benefit obligation at end of period
Change in plan assets:
Fair value of assets at beginning of period
Actual (loss) return on plan assets
Employer contributions
Benefits paid
Fair value of assets at end of period
Net unfunded status of plan
December 29,
2018
December 30,
2017
(In thousands)
$
$
$
118,812
534
3,853
(9,732)
—
(5,558)
107,909
88,452
(6,321)
4,668
(5,558)
81,241
(26,668) $
113,436
633
4,663
5,808
(310)
(5,418)
118,812
79,087
11,109
3,674
(5,418)
88,452
(30,360)
We recognize the unfunded status (i.e., the difference between the fair value of plan assets and the projected benefit
obligations) of our pension plan in our Consolidated Balance Sheets, with a corresponding adjustment to AOCI, net of tax. On
December 29, 2018, we measured the fair value of our plan assets and benefit obligations. As of December 29, 2018, and
December 30, 2017, the net unfunded status of our benefit plan was $26.7 million and $30.4 million, respectively.
Historically, we estimated the service and interest cost components utilizing a single-weighted average discount rate
derived from the yield curve used to measure the benefit obligation at the beginning of the period. At the end of fiscal 2017, we
changed the approach we use to determine the service and interest components of net periodic pension cost for our pension
plan. This change was effective for pension (income)/expense recognized during fiscal 2018 and future fiscal years. We have
elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the
yield curve used in determination of the benefit obligation to the relevant projected cash flows. We have made this change to
provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash
flows to the corresponding spot yield curve rates. This change does not affect the measurement of our total benefit obligations.
Actuarial gains and losses occur when actual experience differs from the estimates used to determine the components of
net periodic pension cost, and when certain assumptions used to determine the fair value of the plan assets or projected benefit
obligation are updated, including but not limited to, changes in the discount rate, plan amendments, differences between actual
and expected returns on plan assets, mortality assumptions, and plan re-measurement.
We amortize a portion of unrecognized actuarial gains and losses for the pension plan into our Consolidated Statements of
Operations and Comprehensive Income (Loss). The amount recognized in the current year’s operations is based on amortizing
the unrecognized gains or losses for the pension plan that exceed the larger of 10% of the projected benefit obligation or the fair
value of plan assets, also known as the corridor. In the current fiscal year, the amount representing the unrecognized gain or
loss that exceeds the corridor is amortized over the estimated average remaining life expectancy of participants, as almost all
the participants in the plan are inactive.
The net adjustment to other comprehensive income (loss) for fiscal 2018, fiscal 2017, and fiscal 2016 was a $0.6 million
loss, $0.1 million gain, and a $2.1 million loss, respectively, primarily from the net recognized and unrecognized actuarial gain
(loss) for those fiscal periods.
The decrease in the unfunded obligation for the fiscal year was approximately $3.7 million and was comprised of $9.7
million of actuarial gains, $6.3 million of investment losses including an asset gain, $4.7 million of pension contributions, and a
charge of $4.4 million due to current year service and interest cost. The net periodic pension cost increased to $0.2 million in
fiscal 2018, from a credit of $0.2 million in fiscal 2017, driven primarily by a reduction in investment returns.
In fiscal 2017, a freeze of certain unionized participants in the pension plan due to renegotiation of union contracts resulted
in a reduction in future years of service for the remaining active participants in the plan, which triggered a curtailment. As a
56
result, there was an immaterial curtailment gain from the event which resulted in an immaterial decrease to the projected
benefit obligation in fiscal 2017.
The unfunded status recorded as Pension Benefit Obligation on our Consolidated Balance Sheets for the pension plan is set
forth in the following table, along with the unrecognized actuarial loss, which is presented as part of Accumulated Other
Comprehensive Loss:
Unfunded status
Unrecognized prior service cost
Unrecognized actuarial loss
Net amount recognized
Amounts recognized on the balance sheet consist of:
Accrued pension liability
Accumulated other comprehensive loss (pre-tax)
Net amount recognized
December 29,
2018
December 30,
2017
(In thousands)
(26,668) $
—
34,699
8,031
$
(30,360)
—
33,884
3,524
(26,668) $
34,699
8,031
$
(30,360)
33,884
3,524
$
$
$
$
The portion of estimated net loss for the pension plan that is expected to be amortized from accumulated other
comprehensive loss into net periodic cost over the next fiscal year is approximately $1.0 million.
The accumulated benefit obligation for the pension plan was $107.4 million and $118.2 million at December 29, 2018, and
December 30, 2017, respectively.
Net periodic pension cost (credit) for the pension plan included the following:
Fiscal Year
Ended
December 29,
2018
Fiscal Year
Ended
December 30,
2017
Fiscal Year
Ended
December 31,
2016
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of unrecognized loss
Net periodic pension cost (credit)
$
$
534
3,853
(5,309)
1,084
162
$
(In thousands)
633
$
4,663
(6,538)
1,056
(186) $
$
996
4,901
(6,224)
1,126
799
The following assumptions were used to determine the projected benefit obligation at the measurement date and the net
periodic pension cost:
Projected benefit obligation:
Discount rate
December 29, 2018
December 30, 2017
4.37%
3.69%
Average rate of increase in future compensation levels
Graded 5.5-2.5%
Graded 5.5-2.5%
Net periodic pension cost:
Discount rate
3.69%
4.26%
Average rate of increase in future compensation levels
Graded 5.5-2.5%
Graded 5.5-2.5%
Expected long-term rate of return on plan assets
6.00%
8.10%
Our estimates of the amount and timing of our future funding obligations for our defined benefit pension plan are based
upon various assumptions specified above. These assumptions include, but are not limited to, the discount rate, projected return
on plan assets, and mortality rates. The rate of increase in future compensation levels has a minimal effect on both the projected
benefit obligation and net periodic pension cost, as almost all the participants in the plan are inactive, the majority of the
remaining active participants are no longer accruing benefits, and the plan is closed to new entrants.
57
Projected return on plan assets. Historically, pension plan assets were managed under an investment strategy comprising
two major components: equities, to generate long-term growth; and fixed income securities, to provide current income and
stable periodic returns. As also discussed below, during fiscal 2017, the pension plan’s Investment Committee conducted a
broad strategic review of portfolio construction and investment allocation policies for the pension plan. Pension plan assets are
now managed under a new balanced portfolio allocation policy comprised of two major components: a return-seeking portion
and a liability-matching portion. The expected role of return-seeking investments is to achieve a reasonable long-term growth
of pension assets with a prudent level of risk, while the role of liability-matching investments is to provide a partial hedge
against liability performance associated with changes in interest rates. The objective within return-seeking investments is to
achieve asset diversity in order to balance return and volatility.
The discount rate. Historically, we estimated the service and interest cost components utilizing a single-weighted average
discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. At the end of
fiscal 2017, we changed our approach, and elected to utilize a full yield curve approach in the estimation of these components
by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant projected
cash flows. We have made this change to provide a more precise measurement of service and interest costs by improving the
correlation between projected benefit cash flows to the corresponding spot yield curve rates.
Mortality rates. The valuations and assumptions reflect adoption of the Society of Actuaries updated RP-2014 mortality
tables, with a “blue collar employee” adjustment for non-annuitants and a BlueLinx custom adjustment for annuitants.
Additionally, we use the most current generational projection scales, which were MP-2018 as of December 30, 2018 and
MP-2017 as of December 31, 2017.
Plan Assets and Long-Term Rate of Return
Fiscal 2018
We base the asset return assumption on current and expected asset allocations, as well as historical and expected returns on
the plan asset categories. The allocation of the plan’s assets impacts our expected return on plan assets. The expected return on
plan assets is based on a targeted allocation consisting of return-seeking securities (including public equity, real assets and
diversified credit investment strategies), liability-matching securities (fixed income), and cash and cash equivalents. Our net
benefit cost increases as the expected return on plan assets decreases. We believe that our actual long-term asset allocations on
average will approximate our targeted allocation. Our targeted allocation is driven by our investment strategy to earn a
reasonable rate of return while maintaining risk at acceptable levels through the diversification of investments across and
within various asset categories. For fiscal 2018, we used a 6.00% expected return on plan assets.
During fiscal 2017, the pension plan’s Investment Committee conducted a broad strategic review of portfolio construction
and investment allocation policies for the pension plan. Pension assets are now managed under a new balanced portfolio
allocation policy comprised of two major components: a return-seeking portion and a liability-matching portion. The expected
role of return-seeking investments is to achieve a reasonable long-term growth of pension assets with a prudent level of risk,
while the role of liability-matching investments is to provide a partial hedge against liability performance associated with
changes in interest rates. The objective within return-seeking investments is to achieve asset diversity in order to balance return
and volatility.
The investment policy for the pension plan, in general, is to achieve a reasonable long-term rate of return on plan assets
with an acceptable level of risk in order to maintain adequate funding levels. The pension plan’s Investment Committee
establishes risk mitigation policies and regularly monitors investment performance and investment allocation policies, with a
third party investment advisor executing on these strategies.
The current targets, adjusted to exclude non-GAAP BlueLinx real-estate holdings, and actual investment allocation, by
asset category as of December 30, 2018, consisted of the following:
Return-seeking securities
Liability-matching securities
Cash and cash equivalents
Total
Current Target
Allocation
Actual Allocation,
December 29, 2018
70%
28%
2%
100%
69%
30%
1%
100%
58
The following table sets forth by level, within the fair value hierarchy (as defined in Note 10), pension plan assets at their
fair values as of December 29, 2018:
Quoted prices in
active markets of
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant other
unobservable inputs
(Level 3)
Total
Return-seeking securities
Corporate bonds (a)
Global equity securities (b)
Collective investment trust (c)
Liability-matching securities
Corporate bonds (d)
Collective investment trusts (e)
Cash and cash equivalents
Total
$
$
(In thousands)
— $
—
55,766
—
24,649
—
— $
—
—
—
—
—
$
80,415
$
— $
— $
—
—
—
—
853
853
—
—
55,766
—
24,649
853
81,268
(a) This category comprises high yield and global bond funds.
(b) This category consists of a diversified global mutual fund.
(c) This category is comprised of a collective investment trust of equity funds that track the MCSI World Index, and a
collective investment trust that holds publicly traded listed infrastructure securities.
(d) This category comprises fixed income funds primarily invested in U.S. Treasury notes and bonds, along with high-
quality mortgage-backed securities and corporate bonds.
(e) This category is consists of a collective investment trust investing in Treasury STRIPS.
The fair value of the Level 1 assets was based on quoted prices in active markets for the identical assets. The fair value of
the Level 2 assets was determined by management based on an assessment of valuations provided by asset management entities
and was calculated by aggregating market prices for all underlying securities.
Investment objectives for our pension plan assets are:
• Matching Plan liability performance
• Diversifying risk
• Achieving a target investment return
We believe that there are no significant concentrations of risk within our plan assets as of December 29, 2018. We comply
with the rules and regulations promulgated under the Employee Retirement Income Security Act of 1974 (“ERISA”) and we
prohibit investments and investment strategies not allowed by ERISA.
59
Fiscal 2017
The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair values as of
December 30, 2017:
Quoted prices in
active markets of
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant other
unobservable inputs
(Level 3)
Total
$
10,393
$
25
—
20,711
—
1,674
32,803
$
$
(In thousands)
— $
—
43,910
—
11,739
—
55,649
$
— $
—
—
—
—
—
— $
10,393
25
43,910
20,711
11,739
1,674
88,452
Return-seeking securities
Corporate bonds (a)
Global equity securities (b)
Collective investment trust (c)
Liability-matching securities
Corporate bonds (d)
Collective investment trusts (e)
Cash and cash equivalents
Total
Pension Plan Cash Flows
Our estimated normal future benefit payments to pension plan participants are as follows:
Fiscal Year Ending
2019
2020
2021
2022
2023
Thereafter
(In thousands)
$
6,345
6,585
6,844
6,965
7,080
35,800
We fund the pension plan liability in accordance with the limits imposed by ERISA, federal income tax laws, and the
funding requirements of the Pension Protection Act of 2006. We are required to make four quarterly cash contributions to the
pension plan totaling approximately $2.2 million for fiscal funding year 2019.
Multiemployer Pension Plans
We participate in several multiemployer pension plans (“MEPPs”) that provide retirement benefits to certain union
employees in accordance with certain CBAs. As one of many participating employers in these MEPPs, we are generally
responsible with the other participating employers for any plan underfunding. Our contributions to a particular MEPP are
established by the applicable CBAs; however, our required contributions may increase based on the funded status of an MEPP
and legal requirements such as those of the Pension Protection Act of 2006 (“Pension Act”), which requires substantially
underfunded MEPPs to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve their funded
status. Factors that could impact funded status of an MEPP include, without limitation, investment performance, changes in the
participant demographics, decline in the number of contributing employers, changes in actuarial assumptions and the utilization
of extended amortization provisions. A FIP or RP requires a particular MEPP to adopt measures to correct its underfunded
status. These measures may include, but are not limited to: an increase in our contribution rate to the applicable CBA, a
reallocation of the contributions already being made by participating employers for various benefits to individuals participating
in the MEPP, and/or a reduction in the benefits to be paid to future and/or current retirees.
We could also be obligated to make future payments to MEPPs if we either cease to have an obligation to contribute to the
MEPP or significantly reduce our contributions to the MEPP because we reduce our number of employees who are covered by
the relevant MEPP for various reasons, including, but not limited to, layoffs or closures, assuming the MEPP has unfunded
60
vested benefits. The amount of such payments (known as a complete or partial withdrawal liability) generally would equal our
proportionate share of the plan’s unfunded vested benefits.
The following table lists our participation in our multiemployer plans which we deem significant. “Contributions”
represent the amounts contributed to the plan during the fiscal years presented:
Pension Fund:
EIN/
Pension
Plan
Number
Pension Act Zone
Status
FIP/RP
Status
Surcharge
2018
2017
2016
Contributions (in millions)
Lumber Employees Local 786
Retirement Fund (1)
516067407
Central States, Southeast and
Southwest Areas Pension Fund (2) 366044243
Green
(September 1,
2015)
Critical and
Declining
(January 1, 2018)
N/A
RP
No
No
Other
Total
n/a
0.4
0.1
0.5
$
n/a
$
0.7
0.2
0.9
$
$
0.4
0.6
0.4
1.4
(1) We withdrew from this plan in fiscal 2017, and recorded an estimated $5.0 million withdrawal liability on the
Consolidated Balance Sheet in “other non-current liabilities,” and recorded an offsetting non-cash expense in the Consolidated
Statement of Operations in “selling, general, and administrative” costs. We expect the liability to be paid over a 19-year period,
with payments substantially similar on a total annual basis to those disclosed above.
Our contributions for fiscal 2016 exceeded 5% of total plan contributions, and we were deemed to be a significant
contributor to this plan.
(2) Our contributions to this plan are approximately 0.06% of total contributions, which is less than the required
disclosure threshold of 5% of total plan contributions. However, this plan is deemed significant for disclosure as it is severely
underfunded. Additionally, we recorded an estimated partial withdrawal liability of $7.1 million in fiscal 2018, related to the
closure of certain facilities. We may, in the future, record an additional liability if required by an event of our withdrawal from
the plan or a mass withdrawal. Our most recent contingent withdrawal liability was estimated at approximately $52.5 million,
for a complete withdrawal occurring in fiscal 2019. In the case of both a complete withdrawal and a mass withdrawal, our
payments to the Central States Plan would generally continue at approximately the current rate, which, even with potential
rehabilitation increases, is less than $1.0 million per year. In a complete withdrawal, the payments would not amortize the
liability fully; however, payments for a complete withdrawal are limited to a 20-year period. In the case of a mass withdrawal,
the liability would never amortize, and payments would continue indefinitely.
Defined Contribution Plans
Our employees also participate in two defined contribution plans: the “hourly savings plan” covering hourly employees,
and the “salaried savings plan” covering salaried employees. Discretionary contributions to the plans are based on employee
contributions and compensation, and, in certain cases, participants in the hourly savings plan also receive employer
contributions based on union negotiated match amounts. Employer contributions to the hourly savings plan for fiscal 2018,
fiscal 2017, and fiscal 2016 were $0.6 million and $0.3 million, and $0.2 million, respectively.
Employer contributions totaling $1.8 million for the salaried savings plan for fiscal 2018 have been deferred until the first
quarter of 2019. Employer contributions to the salaried savings plan for fiscal 2017 of $1.0 million were deferred and paid in
the first quarter of fiscal 2018, and the fiscal 2016 employer contributions to this plan of $0.9 million were deferred and paid in
the first quarter of fiscal 2017.
12. Share-Based Compensation
We have three stock-based compensation plans covering officers, directors, certain employees, and consultants: the 2004
Equity Incentive Plan (the “2004 Plan”), the 2006 Long-Term Equity Incentive Plan (the “2006 Plan”), and the 2016 Amended
and Restated Long-Term Incentive Plan (the “2016 Plan”). The plans are designed to motivate and retain individuals who are
responsible for the attainment of our primary long-term performance goals. The plans provide a means whereby the participants
develop a further sense of proprietorship and personal involvement in our development and financial success, thereby
advancing the interests of the Company and its stockholders. Although we do not have a formal policy on the matter, we issue
new shares of our common stock to participants upon the exercise of options or upon the vesting of restricted stock, restricted
61
stock units, or performance shares, out of the total amount of common shares applicable for issuance or vesting under the
aforementioned plans. Shares are available for new issuance only under the 2016 Plan. The 2006 and 2004 Plans have no shares
remaining for issuance. Remaining 2006 Plan shares are outstanding only for the vesting of outstanding equity awards and the
exercise of currently outstanding options, and 2004 Plan shares are outstanding only for the exercise of currently outstanding
options.
The 2016 Plan permits the grant of nonqualified stock options, incentive stock options, stock appreciation rights (“SARs”),
restricted stock, restricted stock units, performance shares, performance units, cash-based awards, and other share-based awards
to participants of the 2016 Plan selected by our Board of Directors or a committee of the Board that administers the 2016 Plan.
We reserved 810,200 shares of our common stock for issuance under the 2016 Plan. The terms and conditions of awards under
the 2016 Plan are determined by the Compensation Committee. Some of the awards issued under both the 2016 and 2006 Plans
are subject to accelerated vesting in the event of a change in control as such an event is defined in the respective Plan
documents.
For all awards designated as equity awards, we recognize compensation expense equal to the grant-date fair value for all
share-based payment awards that are expected to vest, as described further below, in “Compensation Expense”. This expense is
recorded on a straight-line basis over the requisite service period of the entire award, unless the awards are subject to market or
performance conditions, in which case we recognize compensation expense over the requisite service period of each separate
vesting tranche, to the extent the occurrence of such conditions are probable.
Outstanding awards designated as liability awards primarily consisted of Cash-Settled Stock Appreciation Rights (“cash-
settled SARs”), where we intend to settle the remaining portion of the awards in cash on or before the August 15, 2019
payment deadline. To value the cash-settled SARs, we utilized the Black-Scholes-Merton option pricing model (“Black-
Scholes”), and recorded quarterly expense attributions of the awards based on estimates of the fair market value of the awards
at the end of each quarter during the service period. The Black-Scholes model required the input of highly subjective
assumptions such as the expected stock price volatility. Additionally, we amended an award agreement for 1,500 performance
shares for which the service component of the agreement was waived, which required reclassification as liability awards. These
performance shares are marked to market on a quarterly basis, based on the closing price of our common stock on the last
trading day of the quarter.
All compensation expense related to our share-based payment awards is recorded in “Selling, general, and administrative”
expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Cash-Settled SARs
During fiscal 2016, we granted certain executives and employees cash-settled SARs. The cash-settled SARs vested on July
16, 2018. On the vesting date, half of the vested value of the cash-settled SARs became payable within thirty days of the
vesting date, and the remainder payable not later than August 15, 2019. The exercise price for the cash-settled SARs was
amended so that it was based on a 20-day trading average of the Company’s common stock through the vesting date, in excess
of the $7.00 grant date valuation. The accrued liability for the remaining half payable in fiscal 2019 was $6.8 million.
During fiscal 2017, certain individuals were no longer employed with the Company, and their cash-settled SAR
agreements allowed for a partial accelerated vesting (of 27,385 cash-settled SARs); and a partial forfeiture (of 20,615 cash-
settled SARs), pro-rated based on employment dates. At that time, half the accelerated vested value of the cash-settled SARs, as
valued at the closing stock price on the deemed exercise date, was paid to those participants, with the remaining half payable on
July 16, 2019. These payments, and the accrued liability for the remaining half payable in fiscal 2019, were immaterial.
At December 29, 2018, there were 445,000 cash-settled SARs issued and outstanding, and we recognized expense of
approximately $13.2 million, $0.6 million and $0.4 million in fiscal 2018, 2017, and 2016, respectively, related to these awards.
62
The following table summarizes the assumptions used to compute the current fair value of our cash-settled SARs:
Expected volatility
Risk-free interest rate
Expected term (in years)
Expected dividend yield
December 29, 2018
December 30, 2017
Not applicable
Not applicable
Not applicable
Not applicable
33.80%
1.55%
0.54
Not applicable
Restricted Stock, Restricted Stock Units, Performance Shares, and Stock Options
Restricted Stock
During fiscal 2018, we did not grant any restricted stock awards. Our sole remaining outstanding restricted stock award as
of December 29, 2018, was due to vest and/or vested in equal annual increments over three years, of which January 13, 2018
was the final date of incremental vesting. Restricted stock awards that vested during fiscal 2017 had either vested in equal
annual increments over three years, or had cliff-vested three years after the date of grant. These awards were time-based and
were not based upon attainment of performance goals.
As of December 29, 2018, there was no remaining unrecognized compensation expense related to restricted stock. As of
December 29, 2018, the weighted average remaining contractual term for our restricted stock was zero, due to final incremental
vesting on January 13, 2018, and the maximum contractual term was 3.0 years.
The following table summarizes activity for our restricted stock awards during fiscal 2018:
Outstanding as of December 30, 2017
Granted
Vested (1)
Forfeited
Outstanding as of December 29, 2018
Restricted Stock Awards
Number of
Awards
Weighted
Average Fair
Value
$
16,667
—
(16,667)
—
— $
9.90
—
9.90
—
—
(1) The total fair value vested in fiscal 2018, fiscal 2017, and fiscal 2016 was $0.2 million, $1.2 million, and $1.1 million,
respectively.
Restricted Stock Units
During fiscal 2018, and in prior years, the Board of Directors was granted restricted stock units with a one-year vesting
period, although a pro-rated portion may vest prior to the one-year period, with the remainder forfeited, if a Director chooses
not to stand for re-election before the one-year vesting period has elapsed. All vested director grants settle at the earlier of ten
years from the vesting date or retirement from the Board of Directors. These awards are time-based and are not based upon
attainment of performance goals.
During fiscal year 2018, the Board of Directors granted restricted stock units to certain of our employees and executive
officers. Certain of the restricted stock units vest in equal annual increments over the three years after the date of grant, and the
remaining restricted stock units vest on the third anniversary of the date of grant if certain performance conditions are met prior
to the vesting date.One tranche of restricted stock units was granted to an executive officer during fiscal 2017, with a vesting
date three years after the date of grant. Outstanding restricted stock units granted prior to fiscal 2017 to employees and
executive officers vest either in equal annual increments over three years or between two and three years after the date of grant.
As of December 29, 2018, there was approximately $4.9 million of total unrecognized compensation expense related to
restricted stock units. The unrecognized compensation expense is expected to be recognized over a weighted average term of
1.8 years. As of December 29, 2018, the weighted average remaining contractual term for our restricted stock units was 1.8
years, and the maximum contractual term was 3.0 years.
63
The following table summarizes activity for our restricted stock units during fiscal 2018:
Outstanding as of December 30, 2017
Granted
Vested (1)
Forfeited
Outstanding as of December 29, 2018
Restricted Stock Units
Number of
Awards
Weighted
Average Fair
Value
242,362
198,487
(228,029)
(18,598)
194,222
$
$
7.41
33.46
7.42
15.06
33.29
(1) The total fair value of restricted stock units vested in fiscal 2018, 2017, and 2016 was $1.7 million, $0.7 million and
$0.6 million, respectively.
Performance shares
During fiscal year 2015, the Board of Directors granted certain of our executive officers and employees awards of
performance shares of our common stock. The performance shares were released upon the successful achievement of specific,
measurable performance criteria approved by the Compensation Committee, and the satisfaction of a service condition in fiscal
2018. There were no performance shares granted during fiscal 2018.
The following table summarizes activity for our performance share awards during fiscal 2018:
Outstanding as of December 30, 2017
Granted
Vested (1)
Forfeited
Outstanding at December 29, 2018
Performance Shares
Number of
Awards
Weighted
Average Fair
Value
$
60,000
—
(59,000)
(1,000)
— $
9.29
—
9.28
9.80
—
(1) No performance share awards vested in fiscal 2017. The total fair value vested in fiscal 2018 and 2016 was $0.5
million and $1.6 million, respectively.
Stock Options
The tables below summarize activity and include certain additional information related to our outstanding stock options
granted under the 2004 Plan and 2006 Plan for the year ended December 29, 2018. The maximum contractual term for stock
options was ten years from the grant date, and the remaining outstanding final tranche of options as of December 29, 2018,
presented below, expired on March 10, 2018. There were no new employee stock option grants and no stock option exercises
during fiscal years 2018, 2017, and 2016.
Outstanding as of December 30, 2017
Granted
Exercised
Forfeited
Expired
Outstanding and exercisable as of December 29, 2018
64
Options
Weighted
Average
Exercise
Price
46.60
—
—
—
46.60
—
$
Shares
75,000
—
—
—
(75,000)
— $
Compensation Expense
Total share-based compensation expense from our share-based awards was as follows:
Restricted Stock and Restricted Stock Units
Performance Shares
Cash-settled Stock Appreciation Rights
Stock Options
Total
December 29,
2018
December 30,
2017
December 31,
2016
$
$
1,350
788
13,173
—
15,311
(In thousands)
1,406
$
452
622
—
2,480
$
$
$
1,872
92
375
—
2,339
We recognized related income tax benefits in fiscal years 2018, 2017, and 2016 of $3.9 million, $1.0 million, and $0.9
million, respectively, which were fully realized in fiscal 2018 and 2017, and offset by a valuation allowance during fiscal 2016.
We present the benefits of tax deductions in excess of recognized compensation expense as a net operating cash outflow in our
Consolidated Statements of Cash Flows when present. There was an excess tax benefit of $1.5 million in fiscal 2018, and were
no material excess tax benefits in fiscal years 2017 and 2016.
13. Earnings per Common Share
We calculate basic earnings per share by dividing net income by the weighted average number of common shares
outstanding, excluding unvested restricted shares. We calculate diluted earnings per share using the treasury stock method, by
dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding
share-based awards, including restricted stock awards and units, performance shares, and stock options.
The following table shows the computation of basic and diluted earnings per share:
Fiscal Year Ended
December 29,
2018(1)
December 30,
2017
December 31,
2016
(In thousands, except per share data)
Net income (loss)
$
(48,053) $
62,994
$
16,085
Basic weighted average shares outstanding
Dilutive effect of share-based awards
Diluted weighted average shares outstanding
9,230
—
9,230
9,045
201
9,246
Basic earnings (loss) per share
Diluted earnings (loss) per share
$
$
(5.21) $
(5.21) $
6.96
6.81
$
$
8,913
156
9,069
1.80
1.77
(1) Basic and diluted earnings per share are equivalent for the fiscal 2018, due to net losses for the period, and all
outstanding share-based awards would be antidilutive.
For fiscal years 2018, 2017, and 2016, we excluded 194,222, 80,000, and 289,333 unvested (or unexercised, in the case of
options) share-based awards, respectively, from the diluted earnings per share calculation because they were either anti-dilutive
or “out of the money”. Outstanding share based awards not included in diluted earnings per share consisted of the following
securities:
65
Unvested restricted stock awards
Performance shares
Restricted stock units
Unexercised stock options outstanding
Total excluded from diluted earnings per share
14. Related Party Transactions
Fiscal Year Ended
December 29,
2018
December 30,
2017
December 31,
2016
—
58,818
135,404
—
194,222
—
—
5,000
75,000
80,000
78,333
67,000
69,000
75,000
289,333
D. Wayne Trousdale, our Vice Chairman, Operating Companies, owns approximately 33.33% of a limited liability
company that owns and leases six facilities to us. During 2018, approximately $1.5 million in aggregate rent and related
amounts was paid to the limited liability company for these properties. Mr. Trousdale’s interest in these amounts was
approximately $0.5 million.
15. Lease Commitments
Operating Leases
The Company leases real property, logistics equipment, and office equipment under long-term, non-cancelable operating
leases. Our real property operating leases have customary extension options and escalation clauses. Our real estate leases also
provide for payments of other costs such as real estate taxes, insurance, and common area maintenance, which are not included
in rental expense or the future minimum rental payments as set forth below. Total rental expense was approximately $13.6
million, $6.1 million, and $4.2 million for fiscal 2018, 2017, and 2016, respectively.
At December 29, 2018, our total operating lease commitments were as follows:
2019
2020
2021
2022
2023
Thereafter
Total
Capital Leases
(In thousands)
11,980
$
9,928
8,435
8,066
7,539
60,847
106,795
$
We have entered into certain long-term, non-cancelable capital leases for real estate, along with certain logistics equipment
and vehicles. The real estate leases contain customary extension option periods and annual fixed rent escalations. As of
December 29, 2018, the acquisition value and net book value of assets under capital leases was $159.6 million and $139.2
million, respectively. As of December 30, 2017, the acquisition value and net book value of assets under capital leases was
$30.3 million and $16.4 million, respectively.
66
At December 29, 2018, our total commitments under capital leases recorded in the Consolidated Balance Sheets in “other
current liabilities” and “other non-current liabilities” were as follows:
Principal
Interest
2019
2020
2021
2022
2023
Thereafter
Total
$
$
$
(In thousands)
7,487
6,741
4,403
3,602
3,206
125,602
151,041
$
13,803
13,426
13,129
12,920
12,727
170,028
236,033
Sale Leaseback Transactions
During fiscal 2018, we completed sale-leaseback transactions on distribution centers located in Bellingham,
Massachusetts; Raleigh, North Carolina; Frederick, Maryland; and Lawrenceville, Georgia. As a result of these transactions, we
recognized a capital lease asset and obligation totaling $95.1 million. During fiscal 2017, we completed sale-leaseback
transactions on distribution centers located in Tampa, Florida; Ft. Worth, Texas; and Miami, Florida and recognized a capital
lease asset and obligation totaling $8.0 million on two of these properties. The remaining sale-leaseback property was classified
as an operating lease.
We originally recognized deferred gains of $83.9 million and $13.7 million on the sale-leaseback properties in fiscal 2018
and fiscal 2017, respectively, which will be amortized over the life of the applicable lease in the case of the capital leases, or, in
the case of the operating lease, will be amortized over the life of the applicable lease until our adoption of ASC 842, at which
time the remaining deferred gain will be reclassified as a increase to stockholders’ equity. The liability for the capital leases and
deferred gain is located in “other current liabilities” (for the portion amortizing within the next twelve months) and “other non-
current liabilities” on our Consolidated Balance Sheet.
16. Commitments and Contingencies
Environmental and Legal Matters
From time to time, we are involved in various proceedings incidental to our businesses, and we are subject to a variety of
environmental and pollution control laws and regulations in all jurisdictions in which we operate. Although the ultimate
outcome of these proceedings cannot be determined with certainty, based on presently available information management
believes that adequate reserves have been established for probable losses with respect thereto. Management further believes
that 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 (“CBAs”)
As of December 29, 2018, we employed approximately 2,400 persons on a full-time basis. Approximately 20% of our
employees were covered by CBAs negotiated between the company and various local unions. Seven of those CBAs covering
approximately 130 employees are up for renewal in fiscal 2019, or are currently expired and under negotiations.
17. Accumulated Other Comprehensive Loss
Comprehensive income (loss) is a measure of income which includes both net income (loss) and other comprehensive
income (loss). Our other comprehensive income (loss) results from items deferred from recognition into our Consolidated
Statements of Operations and Comprehensive Loss. Accumulated other comprehensive loss is separately presented on our
Consolidated Balance Sheets as part of common stockholders’ equity (deficit). Other comprehensive (loss) income was $(0.6)
million, $0.1 million, and $(1.9) million for fiscal 2018, fiscal 2017, and fiscal 2016, respectively.
67
The changes in accumulated balances for each component of other comprehensive loss for fiscal 2016, 2017, and 2018
were as follows:
Foreign
currency
translation,
net
of tax
Amortization of
unrecognized
pension gain
(loss), net of tax
Other, net
of tax
Total
January 2, 2016, beginning balance
Other comprehensive income (loss), net of tax (1)
Amounts reclassified from accumulated other comprehensive income
(loss), net of tax (1)
December 31, 2016, ending balance, net of tax
Other comprehensive income (loss), net of tax (2)
Amounts reclassified from accumulated other comprehensive income
(loss), net of tax (2)
December 30, 2017, ending balance, net of tax
Other comprehensive income (loss), net of tax (3)
Amounts reclassified from accumulated other comprehensive income
(loss), net of tax (3)
December 29, 2018, ending balance, net of tax
$
$
$
$
$
396
264
—
660
$
14
—
$
674
(14)
—
660
$
(In thousands)
(35,382) $
(2,927)
786
(37,523) $
1,186
(1,056)
(37,393) $
(608)
—
(38,001) $
212
—
—
212
—
—
212
—
—
212
$ (34,774)
(2,663)
786
$ (36,651)
1,200
(1,056)
$ (36,507)
(622)
—
$ (37,129)
(1) For fiscal 2016, there was $0.8 million of actuarial loss recognized in the statements of operations as a component of net
periodic pension cost. There was $2.9 million of unrecognized actuarial gain based on updated actuarial assumptions. There
was no intraperiod income tax allocation and the deferred tax benefit was fully offset by a valuation allowance.
(2) For fiscal 2017, there was $1.1 million of actuarial loss recognized in the statements of operations as a component of net
periodic pension cost. There was $1.2 million of unrecognized actuarial gain based on updated actuarial assumptions. There
was no intraperiod income tax allocation and the deferred tax benefit was realized in 2017.
(3) For fiscal 2018, there was $0.0 million of actuarial loss recognized in the statements of operations as a component of net
periodic pension cost. There was $0.6 million of unrecognized actuarial loss based on updated actuarial assumptions. There was
no intraperiod income tax allocation and the deferred tax benefit was realized in 2018.
18. Reverse Stock Split
Pursuant to the authorization granted by our stockholders at our Annual Meeting of Stockholders held on May 19, 2016,
our board of directors approved a 1-for-10 Reverse Stock Split of our common stock, and a corresponding reduction in the
number of authorized shares of common stock, from 200,000,000 to 20,000,000. Our authorized number of shares of preferred
stock remained unchanged at 30,000,000. The Reverse Stock Split was effected on the close of business as of June 13, 2016,
and our stock began trading on a reverse split-adjusted basis on June 14, 2016. All references made to share or per share
amounts have been restated to reflect the effect of this 1-for-10 reverse stock split for all periods presented.
68
19. Subsequent Event
On February 28, 2019, we entered into a Second Amendment to Credit and Guaranty Agreement with certain of our
subsidiaries, as guarantors, HPS, as administrative agent and collateral agent, and the other financial institutions party thereto,
as lenders. Pursuant to the amendment:
• We are permitted to enter into up to $50 million in real estate sale leaseback transactions prior to the nine-month
anniversary of the date of the amendment, with the first $30 million in net proceeds therefrom to be used for
repayment of indebtedness under the Term Loan Facility, and the remaining net proceeds to be used to repay
indebtedness under the Revolving Credit Facility;
• Repayment of indebtedness from net proceeds of the sale leaseback transactions described above made prior to the
deadline for delivery of our first and second quarter 2019 financial statements to the lenders under the Term Loan
Facility will be deemed to have been made as of the end of our fiscal first and second quarters, respectively;
• The total net leverage ratio was increased beginning in the first quarter of 2019, and subsequent quarterly reductions in
the covenant level were modified over the term of the Term Loan Facility; and
• The “Prepayment Premium” and related breakage costs applicable to certain prepayments of the Term Loan Facility
were modified to extend until the fourth anniversary of the date of the Amendment, and to exclude from the
“Applicable Make-Whole Amount” any prepayments made after the first anniversary of the date of the Term Loan
Facility from the proceeds of the sale of “Specified Properties” (as such terms are defined under the Term Loan
Facility).
The amendment is described in further detail in the Company's Current Report on Form 8-K, as filed with the Securities
and Exchange Commission on March 4, 2019.
69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our
disclosure controls and procedures, which have been designed to permit us to record, process, summarize and report, within
time periods specified by the SEC’s rules and forms, information required to be disclosed. Our management, including our
Chief Executive Officer and Chief Financial Officer, concluded that the controls and procedures were effective as of
December 29, 2018, to ensure that material information was accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control
During the three months ended December 29, 2018, we did not make any changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting principles generally accepted in the United States of
America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of
December 29, 2018 using the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in the 2013 Internal Control-Integrated Framework. Based on that evaluation, management believes that our internal
control over financial reporting was effective as of December 29, 2018.
On April 13, 2018, we acquired Cedar Creek Holdings Inc. in a business combination. We are currently in the process of
integrating policies, processes, information technology systems and other components of internal controls over financial
reporting of the combined business. We believe that we will be able to maintain sufficient controls over the substantive results
of financial reporting of Cedar Creek and its subsidiaries, but because of the size, complexity and timing of the integration, the
internal controls over financial reporting of Cedar Creek have been excluded from management’s assessment of the Company’s
internal control over financial reporting associated with 49.8% of total assets as of December 29, 2018, and 35.7% and 5.2% of
revenues and net loss, respectively, for the year then ended.
The effectiveness of our internal control over financial reporting as of December 29, 2018, has been audited by BDO USA,
LLP, an independent registered public accounting firm, which also audited our Consolidated Financial Statements for the year
ended December 29, 2018. BDO, USA, LLP’s report on our internal control over financial reporting is set forth below.
70
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Board of Directors and Stockholders
BlueLinx Holdings Inc. and subsidiaries
Marietta, Georgia
Opinion on Internal Control over Financial Reporting
We have audited BlueLinx Holdings Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of
December 29, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 29, 2018, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the Company as of December 29, 2018 and December 30, 2017, the related
consolidated statements of operations and comprehensive (loss) income, cash flows and stockholders’ (deficit) equity,for each of
the periods ended December 29, 2018, December 30, 2017 and December 31, 2016, and the related notes and our report dated
March 13, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, “Management’s Report
on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
As indicated in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting”, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls
of Cedar Creek Holdings, Inc. (“Cedar Creek”) which was acquired on April 13, 2018, and which is included in consolidated
balance sheets of the Company as of December 29, 2018, and the related consolidated statements of operations and comprehensive
(loss) income , cash flows, and stockholders’ (deficit) equity, for the year then ended. Cedar Creek constituted 49.8% of total assets
as of December 29, 2018, and 35.7% and 5.2% of revenues and net loss, respectively, for the year then ended. Management did
not assess the effectiveness of internal control over financial reporting of Cedar Creek because of the timing of the acquisition
which was completed on April 13, 2018. Our audit of internal control over financial reporting of the Company also did not include
an evaluation of the internal control over financial reporting of Cedar Creek.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
71
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Atlanta, Georgia
March 13, 2019
ITEM 9B. OTHER INFORMATION
None.
72
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Certain information required by this Item will be set forth in our definitive proxy statement for the 2019 Annual Meeting of
Stockholders of BlueLinx Holdings Inc. (the “Proxy Statement”) to be filed within 120 days after the end of our 2018 fiscal
year, and is incorporated herein by reference. Information regarding executive officers is included under Item 1 of this report
and is incorporated herein by reference.
On November 29, 2018, the Board of Directors of the Company adopted and approved, effective immediately, the Second
Amended and Restated Bylaws of the Company (the “Bylaws”). The Bylaws, among other things, added a new Section 2.14
(Nomination of Directors) of the Bylaws (“Section 2.14”), which provides for updated director nomination procedures. Only
individuals nominated in accordance with Section 2.14 will be eligible for election as a director. Section 2.14 generally
provides that nominations may only be made by stockholders who hold common stock of the Company both (i) at the time they
give notice of the director nomination to the Company and (ii) at the time of the applicable stockholders meeting. To submit a
director nomination, the stockholder must also be entitled to vote at such meeting and must otherwise comply with the
procedures set forth in Section 2.14. The stockholder must provide notice of the director nomination to the Company in writing
and in proper form, by first class mail. The notice must be received by the Company within certain deadlines as set forth in
Section 2.14. To be in proper form, Section 2.14 requires that the stockholder’s notice must include certain information
regarding the proposed director nominee, including a completed questionnaire from the nominee (which questionnaire may be
obtained from the Company), as well as certain information regarding the stockholder giving the notice. The Company may
also require any proposed nominee to furnish any additional information as may reasonably be required by the Company to
determine the eligibility of such proposed nominee to serve as a director.
The foregoing description is qualified in its entirety by the Bylaws, which are incorporated by reference as Exhibit 3.3 to
this Form 10-K and are incorporated in this Item 10 by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of officers and directors of BlueLinx Holdings Inc. will be set forth under the
captions entitled “Compensation Discussion and Analysis,” “Compensation Committee Report,” and “Compensation of
Executive Officers” in the Proxy Statement, to be filed within 120 days after the end of our 2018 fiscal year, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners, Management, and Related Stockholders Matters Information regarding
ownership of BlueLinx Holdings Inc. common stock will be set forth under the captions entitled “Security Ownership of
Management and Certain Beneficial Owners” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy
Statement, to be filed within 120 days after the end of our 2018 fiscal year, and is incorporated herein by reference.
73
Equity Compensation Plan Information
The following table provides information about the shares of our common stock that may be issued upon the exercise of
options and other awards under our existing equity compensation plans as of December 29, 2018. Our stockholder-approved
equity compensation plans consist of the 2004 Plan, the 2006 Plan, and the 2016 Plan. Shares are available for issuance under
the 2016 Plan. We do not have any non-stockholder approved equity compensation plans.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(a)
(b)
(c)
Number of
Securities
to be Issued
Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
Weighted-
Average
Exercise Price
of
Outstanding
Options,
Warrants
and Rights
Number of Securities
Remaining
Available for Future
Issuance Under
Equity Compensation
Plans
(Excluding Securities
Reflected in
Column (a))
— $
—
— $
—
n/a
—
798,936
—
798,936
Other information required by this item is set forth under the heading “Security Ownership of Management and Certain
Beneficial Owners” in the Proxy Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships, Related Transactions, and Director Independence Information regarding certain relationships,
related transactions with BlueLinx Holdings Inc., and director independence will be set forth under the captions entitled
“Certain Relationships and Related Transactions,” in the Proxy Statement, to be filed within 120 days after the end of our 2018
fiscal year, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this item will be set forth under the heading “Proposal 2 - Ratification of Independent Registered
Public Accounting Firm” in our Proxy Statement, to be filed within 120 days after the end of our 2018 fiscal year, and is
incorporated by reference.
74
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements, Schedules, and Exhibits
PART IV
1. Financial Statements. The Financial Statements of BlueLinx Holdings Inc. and subsidiaries and the Report of Independent
Registered Public Accounting Firm are presented under Item 8 of this Form 10-K.
2. Financial Statement Schedules. Not applicable.
3. Exhibits.
Exhibit Number
2.1
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Item
Agreement and Plan of Merger, dated as of March 9, 2018, by and among BlueLinx Corporation, Panther
Merger Sub, Inc., Cedar Creek Holdings, Inc. and Charlesbank Equity Fund VII, Limited Partnership
(incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed with the Securities and Exchange
Commission on March 12, 2018)
Second Amended and Restated Certificate of Incorporation of BlueLinx, as amended (incorporated by
reference to Appendix A to the Company’s Definitive Proxy Statement for the 2015 Annual Meeting of
Stockholders, filed with the Securities and Exchange Commission on April 20, 2015)
Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of BlueLinx
Holdings Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Securities
and Exchange Commission on June 13, 2016)
Second Amended and Restated ByLaws of BlueLinx (incorporated by reference to Exhibit 3.1 to the
Company’s Form 8-K filed with the Securities and Exchange Commission on December 4, 2018)
Registration Rights Agreement, dated as of May 7, 2004, by and among BlueLinx and the initial holders
specified on the signature pages thereto (A)
Asset Purchase Agreement, dated as of March 12, 2004, by and among Georgia-Pacific Corporation,
Georgia-Pacific Building Materials Sales, Ltd. and BlueLinx Corporation (A)
First Amendment to Asset Purchase Agreement, dated as of May 6, 2004, by and among Georgia-Pacific
Corporation, Georgia-Pacific Building Materials Sales, Ltd. and BlueLinx Corporation (A)
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed with the Securities and Exchange Commission on January 13, 2011) ±
BlueLinx Holdings Inc. 2004 Long Term Equity Incentive Plan (A) ±
Amended and Restated BlueLinx Holdings Inc. 2006 Long-Term Equity Incentive Plan (as amended
through May 17, 2012 and restated solely for purposes of filing pursuant to Item 601 of Regulation S-K)
(incorporated by reference to Appendix A to the Definitive Proxy Statement for the 2012 Annual Meeting of
Stockholders, filed with the Securities and Exchange Commission on April 16, 2012) ±
BlueLinx Holdings Inc. 2006 Long-Term Equity Incentive Plan Restricted Stock Unit Award Agreement for
Non-Employee Directors (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with
the Securities and Exchange Commission on December 17, 2014) ±
BlueLinx Holdings Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed with the Securities and Exchange Commission on May 27, 2015) ±
Form of Executive Restrictive Covenant Agreement (incorporated by reference to Exhibit 10.2 to the
Company’s Form 8-K filed with the Securities and Exchange Commission on May 27, 2015) ±
BlueLinx Holdings Inc. 2006 Long-Term Equity Incentive Plan Restricted Stock Unit Award Agreement for
Executives and Employees (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with
the Securities and Exchange Commission on May 27, 2015) ±
BlueLinx Holdings Inc. 2016 Amended and Restated Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.1 to the Company’s Form S-8 Registration Statement filed with the Securities and Exchange
Commission on June 3, 2016) ±
First Amendment to BlueLinx Holdings Inc. 2016 Amended and Restated Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on May 18, 2018) ±
BlueLinx Holdings Inc. 2016 Amended and Restated Long-Term Incentive Plan Form of Stock Appreciation
Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form S-8Registration
Statement filed with the Securities and Exchange Commission on June 3, 2016) ±
75
Exhibit Number
Item
10.13
10.14
10.15
10.16
10.17†
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
Form of Amendment to BlueLinx Holdings Inc. 2016 Amended and Restated Long-Term Incentive Plan
Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Form 8-K filed with the Securities and Exchange Commission on January 5, 2018) ±
BlueLinx Holdings Inc. 2016 Amended and Restated Long-Term Equity Incentive Plan Restricted Stock
Unit Award Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.19 to the
Company’s Form 10-K filed with the Securities and Exchange Commission on March 2, 2017) ±
Form of 2018 Time Based Restricted Stock Unit Award Agreement under the BlueLinx Holdings, Inc. 2016
Amended and Restated Long-Term Incentive Plan, as amended (incorporated by reference to Exhibit 10.13
to the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 9, 2018) ±
Form of 2018 Performance Based Restricted Stock Unit Award Agreement under the BlueLinx Holdings,
Inc. 2016 Amended and Restated Long-Term Incentive Plan, as amended (incorporated by reference to
Exhibit 10.14 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on August
9, 2018) ±
Loan and Security Agreement, dated as of June 9, 2006, between the entities set forth therein collectively as
borrower and German American Capital Corporation as Lender (incorporated by reference to Exhibit 10.1 to
the Company’s Form 10-Q filed with the Securities and Exchange Commission on November 6, 2009)
Twelfth Amendment to Loan and Security Agreement, dated as of September 19, 2012, between the entities
set forth therein collectively as borrower and German American Capital Corporation as Lender
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on September 20, 2012)
Guaranty of Recourse Obligations, dated as of June 9, 2006, by BlueLinx Holdings Inc. for the benefit of
German American Capital Corporation (incorporated by reference to Exhibit 10.3 to the Company’s Form
8-K filed with the Securities and Exchange Commission on June 15, 2006)
Environmental Indemnity Agreement, dated as of June 9, 2006, by BlueLinx Holdings Inc. in favor of
German American Capital Corporation (incorporated by reference to Exhibit 10.4 to the Company’s Form
8-K filed with the Securities and Exchange Commission on June 15, 2006)
Seventeenth Amendment to Loan and Security Agreement, dated as of March 24, 2016, between the entities
set forth therein collectively as borrower and German American Capital Corporation as Lender
(incorporated by reference to Exhibit 10.24 to the Company’s Form 10-K filed on March 28, 2016)
Lender Joinder Agreement in favor of U.S. Bank, N.A., as Trustee, and Wells Fargo Bank, as Trustee; by
BlueLinx Holdings Inc., dated March 24, 2016 (incorporated by reference to Exhibit 10.25 to the
Company’s Form 10-K filed on March 28, 2016)
Pledge Agreement in favor of U.S. Bank, N.A., as Trustee, and Wells Fargo Bank, N.A., as Trustee; by
BlueLinx Holdings Inc., dated March 24, 2016 (incorporated by reference to Exhibit 10.26 to the
Company’s Form 10-K filed on March 28, 2016)
Fifth Amendment to Loan and Security Agreement, dated July 14, 2011, by and between BlueLinx
Corporation and certain of its subsidiaries and U.S. Bank National Association in its capacity as trustee for
the registered holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass Through
Certificates, Series 2006-C 27, as successor in interest to German American Capital Corporation
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on July 14, 2011)
Credit Agreement, dated as of October 10, 2017, by and among BlueLinx Holding Inc., certain subsidiaries
of BlueLinx Holding Inc., Wells Fargo Bank, National Association, Wells Fargo Capital Finance, LLC,
Bank of America, N.A., and the other financial institutions party thereto (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October
10, 2017)
Guaranty and Security Agreement, dated as of October 10, 2017, by and among BlueLinx Corporation,
BlueLinx Florida LP, BlueLinx Florida Holding No. 1 Inc., BlueLinx Florida Holding No. 2 Inc., and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K
filed with the Securities and Exchange Commission on October 10, 2017)
Limited Guaranty, dated as of October 10, 2017, by BlueLinx Holdings Inc. in favor of Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the
Securities and Exchange Commission on October 10, 2017)
Employment Agreement between BlueLinx Corporation and Mitchell Lewis, dated January 15, 2014
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on January 17, 2014) ±
First Amendment, effective June 8, 2018, to Employment Agreement between BlueLinx Corporation and
Mitchell Lewis (incorporated by reference to Exhibit 10.12 to the Company’s Form 10-Q filed with the
Securities and Exchange Commission on August 9, 2018)
76
Exhibit Number
Item
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
Employment Agreement between BlueLinx Corporation and Susan C. O’Farrell, dated May 5, 2014
(incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed with the Securities and
Exchange Commission on May 8, 2014) ±
First Amendment, effective June 1, 2018, to Employment Agreement between BlueLinx Corporation and
Susan C. O’Farrell (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q filed with the
Securities and Exchange Commission on August 9, 2018) ±
Employment Agreement between BlueLinx Corporation and Shyam K. Reddy, dated May 3, 2017
(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the Securities and
Exchange Commission on August 10, 2017) ±
First Amendment, effective June 8, 2018, to Employment Agreement between BlueLinx Corporation and
Shyam K. Reddy (incorporated by reference to Exhibit 10.10 to the Company’s Form 10-Q filed with the
Securities and Exchange Commission on August 9, 2018) ±
Employment Agreement, dated as of April 13, 2018, between BlueLinx Corporation and Alex Averitt
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8 K filed with the Securities and
Exchange Commission on April 19, 2018) ±
First Amendment, effective June 1, 2018, to Employment Agreement between BlueLinx Corporation and
Alex Averitt (incorporated by reference to Exhibit 10.11 to the Company’s Form 10-Q filed with the
Securities and Exchange Commission on August 9, 2018) ±
BlueLinx Holdings Inc, Amended and Restated Short-Term Incentive Plan (incorporated by reference to
Appendix A to the Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders, filed with the
Securities and Exchange Commission on April 18, 2017)±
BlueLinx Corporation Integration Incentive Plan (incorporated by reference to Exhibit 10.2 to the
Company’s Form 8 K filed with the Securities and Exchange Commission on April 19, 2018) ±
BlueLinx Corporation Integration Incentive Plan Form of Participation Agreement (incorporated by
reference to Exhibit 10.3 to the Company’s Form 8 K filed with the Securities and Exchange Commission
on April 19, 2018) ±
Form of Purchase and Sale Agreement with USIPA-Brennan Ventures II, LLC, dated as of November 6,
2017 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed with the Securities and
Exchange Commission on May 3, 2018)
Form of Amendment to Purchase and Sale Agreement with USIPA-Brennan Ventures II, LLC, dated as of
December 7, 2017 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed with the
Securities and Exchange Commission on May 3, 2018)
Commitment Letter, dated as of March 9, 2018, by and among Wells Fargo Bank, N.A., Bank of America,
N.A. and BlueLinx Holdings Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed with the Securities and Exchange Commission on March 12, 2018)
Commitment Letter, dated as of March 9, 2018, by and between HPS Investment Partners, LLC and
BlueLinx Holdings Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with
the Securities and Exchange Commission on March 12, 2018)
Amended and Restated Credit Agreement, dated April 13, 2018, by and among BlueLinx Holdings Inc.,
certain subsidiaries of BlueLinx Holdings Inc. as borrowers or guarantors thereunder, Wells Fargo Bank,
National Association, as administrative agent, and certain other financial institutions party thereto
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on April 16, 2018)
Amended and Restated Guaranty and Security Agreement, dated April 13, 2018, by and among BlueLinx
Holdings Inc., certain subsidiaries of BlueLinx Holdings Inc., and Wells Fargo Bank, National Association
(incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and
Exchange Commission on April 16, 2018)
Credit and Guaranty Agreement, dated April 13, 2018, by and among BlueLinx Holdings Inc., certain
subsidiaries of BlueLinx Holdings Inc. as guarantors thereunder, HPS Investment Partners, LLC, as
administrative agent and collateral agent, and certain other financial institutions party thereto (incorporated
by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange
Commission on April 16, 2018)
Pledge and Security Agreement, dated April 13, 2018, by and among BlueLinx Holdings Inc., certain
subsidiaries of BlueLinx Holdings Inc., and HPS Investment Partners, LLC (incorporated by reference to
Exhibit 10.4 to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 16,
2018)
77
Exhibit Number
10.47
First Amendment, dated as of June 12, 2018, to that certain Credit and Guaranty Agreement, dated as of
April 13, 2018, by and among BlueLinx Holdings Inc., certain subsidiaries of BlueLinx Holdings Inc. as
guarantors thereunder, HPS Investment Partners, LLC, as administrative agent and collateral agent, and
certain other financial institutions party thereto*
Item
21.1
23.1
31.1
31.2
32.1
32.2
101.Def
101.Pre
101.Lab
101.Cal
101.Sch
101.Ins
List of subsidiaries of the Company*
Consent of BDO USA, LLP*
Certification of Mitchell B. Lewis, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
Certification of Susan C. O’Farrell, Chief Financial Officer and Treasurer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
Certification of Mitchell B. Lewis, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002**
Certification of Susan C. O’Farrell, Chief Financial Officer and Treasurer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002**
Definition Linkbase Document*
Presentation Linkbase Document*
Labels Linkbase Document*
Calculation Linkbase Document*
Schema Document*
Instance Document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
†
*
**
Portions of this document were omitted and filed separately with the SEC pursuant to a request for
confidential treatment in accordance with Rule 24b-2 of the Exchange Act.
Filed herewith.
Exhibit is being furnished and shall not deemed to be “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subjected to liability under that Section. this
exhibit shall not be incorporated by reference into any registration statement or other document
pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific
reference.
±
Management contract or compensatory plan or arrangement.
(A)
Previously filed as an exhibit to Amendment No. 1 to the Company’s Registration Statement on Form
S-1 (Reg. No. 333-118750) filed with the Securities and Exchange Commission on October 1, 2004.
78
ITEM 16. FORM 10-K SUMMARY
None.
79
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Signatures
BlueLinx Holdings Inc.
(Registrant)
By: /s/ Mitchell B. Lewis
Mitchell B. Lewis
President and Chief Executive Officer
Date: March 13, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
Name
/s/ Mitchell B. Lewis
Mitchell B. Lewis
/s/ Susan C. O’Farrell
Susan C. O’Farrell
/s/ Kim S. Fennebresque
Kim S. Fennebresque
/s/ Karel K. Czanderna
Karel K. Czanderna
/s/ Dominic DiNapoli
Dominic DiNapoli
/s/ Alan H. Schumacher
Alan H. Schumacher
/s/ J. David Smith
J. David Smith
President, Chief Executive Officer, and
Director
March 13, 2019
Senior Vice President, Chief Financial Officer,
Treasurer (Principal Accounting Officer)
March 13, 2019
Chairman
March 13, 2019
Director
Director
Director
March 13, 2019
March 13, 2019
March 13, 2019
Director
March 13, 2019
80
LIST OF SUBSIDIARIES
Name of Subsidiary
Jurisdiction of
Organization
Exhibit 21.1
BLUELINX CORPORATION
BLUELINX FLORIDA LP
BLUELINX FLORIDA HOLDING NO. 1 INC.
BLUELINX FLORIDA HOLDING NO. 2 INC.
Georgia
Florida
Georgia
Georgia
BLUELINX BUILDING PRODUCTS CANADA LTD.
British Columbia, Canada
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
BLX REAL ESTATE LLC
CEDAR CREEK HOLDINGS, INC.
CEDAR CREEK LLC
CEDAR CREEK CORP.
ASTRO BUILDINGS, INC.
LAKE STATES LUMBER, INC.
VENTURE DEVELOPMENT & CONSTRUCTION, LLC
ABP AL (MIDFIELD) LLC
14.
ABP CO II (DENVER) LLC
15.
ABP FL (LAKE CITY) LLC
16.
ABP FL (MIAMI) LLC
17.
ABP FL (PENSACOLA) LLC
18.
ABP FL (TAMPA) LLC
19.
ABP FL (YULEE) LLC
20.
ABP GA (LAWRENCEVILLE) LLC
21.
ABP IA (DES MOINES) LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Minnesota
Oklahoma
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
22.
ABP IL (UNIVERSITY PARK) LLC
23.
ABP IN (ELKHART) LLC
24.
ABP KY (INDEPENDENCE) LLC
25.
ABP LA (NEW ORLEANS) LLC
26.
ABP MA (BELLINGHAM) LLC
27.
ABP MD (BALTIMORE) LLC
28.
ABP ME (PORTLAND) LLC
29.
ABP MI (DETROIT) LLC
30.
ABP MI (GRAND RAPIDS) LLC
31.
ABP MN (MAPLE GROVE) LLC
32.
ABP MO (BRIDGETON) LLC
33.
ABP MO (KANSAS CITY) LLC
34.
ABP MO (SPRINGFIELD) LLC
35.
ABP NC (BUTNER) LLC
36.
ABP NC (CHARLOTTE) LLC
37.
ABP NJ (DENVILLE) LLC
38.
ABP NY (YAPHANK) LLC
39.
ABP OH (TALMADGE) LLC
40.
ABP OK (TULSA) LLC
41.
ABP PA (ALLENTOWN) LLC
42.
ABP PA (STANTON) LLC
43.
ABP SC (CHARLESTON) LLC
44.
ABP TN (ERWIN) LLC
45.
ABP TN (MEMPHIS) LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
46.
ABP TN (MADISON) LLC
47.
ABP TX (SAN ANTONIO) LLC
48.
ABP VA (RICHMOND) LLC
49.
ABP VA (VIRGINIA BEACH) LLC
50.
ABP VT (SHELBURNE) LLC
51.
ABP WI (WAUSAU) LLC
52.
ELKHART IMH LLC
53.
INDUSTRIAL REDEVELOPMENT FUND LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Georgia
Georgia
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Stockholder Information
BlueLinx Holdings Inc. Headquarters:
1950 Spectrum Circle, Suite 300
Marietta, Georgia 30339
770-953-7000
Board of Directors: Executive Officers:
Kim S. Fennebresque Mitchell B. Lewis
Chairman
President and CEO
Annual Meeting:
The Company’s 2019 Annual Meeting of
Stockholders will be held at 11:00 a.m., EDT, on Director
Friday, May 17, at the Hyatt Regency Hotel, 2999
Windy Hill Road, Marietta, Georgia 30067
Mitchell B. Lewis
President, CEO, and Senior Vice President,
Susan C. O’Farrell
CFO, Treasurer and
Principal Accounting
Officer
Karel K. Czanderna
Director
Common Stock:
The common stock of BlueLinx Holdings Inc. is Dominic DiNapoli
traded on the New York Stock Exchange. The
trading symbol is “BXC.”
Director
Shyam K. Reddy
Senior Vice President and
Chief Transformation
Officer
Alexander S. Averitt
Chief Operating Officer
Justin B. Heineman
Vice President,
General Counsel, and
Corporate Secretary
Ronald K. Herrin
Vice President,
Procurement
Brian J. Sasadu
Chief Human Resource
Officer
D. Wayne Trousdale
Vice President - Operating
Companies
Alan H. Schumacher
Director
J. David Smith
Director
Inquiries:
Inquiries from stockholders, securities analysts,
interested investors, and the news media
regarding Company information should be
directed to Investor Relations, Mary Moll,
Director, Treasury and Investor Relations,
BlueLinx Holdings Inc., (866) 671-5138 or email:
Investor@BlueLinxCo.com. Additional
information can be found on the Company’s
website: www.BlueLinxCo.com.
Registrar and Transfer Agent:
Stockholder inquiries regarding change of
address, transfer of stock certificates, and lost
certificates should be directed to:
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
Overnight deliveries:
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Call center 1-855-449-0975
Website: https://investor.broadridge.com/
Independent Auditors:
BDO USA, LLP
1100 Peachtree Street, Suite 700
Atlanta, Georgia 30309
www.bluelinxco.com