UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~June 27, 2020



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-32383



	~~Commission file number: 1-32383~~

BlueLinx Holdings Inc.
	(Exact name of registrant as specified in its charter)



Delaware		77-0627356
(State of Incorporation)		(I.R.S. Employer Identification No.)

~~4300 Wildwood Parkway, Atlanta, Georgia~~1950 Spectrum Circle, Suite 300		~~30339~~
Marietta	GA	30067
(Address of principal executive offices)		(Zip Code)

(~~770)~~ 770) 953-7000

(Registrant’s telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	BXC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~Yes~~ þYes ☑ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~(Section 232.405 of this chapter) every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ~~Yes~~ þYes ☑No o☐

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~~ o Accelerated Filer	☐	Accelerated ~~filer~~ o Filer	☑	Non-accelerated ~~filer~~ o Filer	☐	Smaller ~~reporting company~~ þ Reporting Company	☑
Emerging Growth Company	☐					~~(Do not check if a smaller reporting company)~~
~~Emerging~~

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. ☐o

(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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑

As of ~~November 2, 2017~~July 31, 2020, there were ~~9,098,221~~ 9,461,412shares of BlueLinx Holdings Inc. common stock, par value $0.01, outstanding.

BLUELINX HOLDINGS INC.

Form 10-Q

For the Quarterly Period Ended ~~September 30, 2017~~June 27, 2020

INDEX



	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements — BlueLinx Holdings Inc. (Unaudited)	21
Condensed Consolidated Statements of ~~Income~~Operations and Comprehensive ~~Income (Loss)~~Loss	1
Condensed Consolidated Balance Sheets	2
Condensed Consolidated ~~Balance Sheets~~Statements of Cash Flows	3
Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Deficit	4
Notes to Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	817
Item 3. Quantitative and Qualitative Disclosures About Market Risk	1426
Item 4. Controls and Procedures	1426

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	1527
Item 1A. Risk Factors	1527
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2629
Item 3. Defaults Upon Senior Securities	2629
Item 4. Mine Safety Disclosures	2629
Item 5. Other Information	2629
Item 6. Exhibits	2730

Signature	2831

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

(Unaudited)


	Three Months Ended					Nine Months Ended						Three Months Ended					Six Months Ended
	September 30, 2017		October 1, 2016			September 30, 2017			October 1, 2016			June 27, 2020		June 29, 2019			June 27, 2020			June 29, 2019
Net sales	$	479,318	$	476,049		$	1,381,927		$	1,459,386		$	698,776	$	706,448		$	1,360,846		$	1,345,149
Cost of sales	418,773		415,999			1,206,402			1,284,354			597,956		612,281			1,166,817			1,164,937
Gross profit	60,545		60,050			175,525			175,032			100,820		94,167			194,029			180,212
Operating expenses (income):
Operating expenses:
Selling, general, and administrative	46,817		49,152			148,742			157,006			69,710		70,150			143,314			139,235
Depreciation and amortization												7,063		7,503			14,698			14,831
Gains from sales of property	—		(13,940		)	(6,700		)	(14,701		)	—		(9,760		)	(525		)	(9,760		)
Depreciation and amortization	2,249		2,220			6,865			7,091
Other operating expenses												1,962		3,951			6,127			9,276
Total operating expenses	49,066		37,432			148,907			149,396			78,735		71,844			163,614			153,582
Operating income	11,479		22,618			26,618			25,636			22,085		22,323			30,415			26,630
Non-operating expenses (income):
Interest expense	5,670		6,105			16,280			19,562
Other income, net	—		(17		)	(2		)	(255		)
Income before provision for income taxes	5,809		16,530			10,340			6,329
Provision for income taxes	123		1,522			832			609
Net income	$	5,686	$	15,008		$	9,508		$	5,720
Interest expense, net												11,535		13,717			25,915			27,118
Other (income) expense, net												417		(45		)	180			105
Income (loss) before provision for (benefit from) income taxes												10,133		8,651			4,320			(593		)
Provision for (benefit from) income taxes												3,438		2,350			(1,588		)	(175		)
Net income (loss)												$	6,695	$	6,301		$	5,908		$	(418	)

Basic earnings per share	$	0.63	$	1.69		$	1.05		$	0.64
Diluted earnings per share	$	0.62	$	1.68		$	1.04		$	0.64
Basic income (loss) per share												$	0.71	$	0.67		$	0.63		$	(0.04	)
Diluted income (loss) per share												$	0.71	$	0.67		$	0.63		$	(0.04	)

Comprehensive income (loss):
Net income	$	5,686	$	15,008		$	9,508		$	5,720
Net income (loss)												$	6,695	$	6,301		$	5,908		$	(418	)
Other comprehensive income (loss):
Foreign currency translation, net of tax	—		(29		)	14			277			17		—			20			7
Amortization of unrecognized pension loss, net of tax	260		340			796			787			114		208			310			431
Pension curtailment, net of tax	—		—			(592		)	(12,185		)	—		(1,486		)	—			(632		)
Other												2		1			(17		)	16
Total other comprehensive income (loss)	260		311			218			(11,121		)	133		(1,277		)	313			(178		)
Comprehensive income (loss)	$	5,946	$	15,319		$	9,726		$	(5,401	)	$	6,828	$	5,024		$	6,221		$	(596	)

See accompanying Notes.

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

September 30, 2017 December 31, 2016
Assets:
Current assets:
Cash $ 5,590
$ 5,540
Receivables, less allowances of $2,738 and $2,733, respectively 173,748
125,857
Inventories, net 206,788
191,287
Other current assets 21,063
23,126
Total current assets 407,189
345,810
Property and equipment:

Land and land improvements 30,715
34,609
Buildings 84,772
80,131
Machinery and equipment 75,133
72,122
Construction in progress 428
3,104
Property and equipment, at cost 191,048
189,966
Accumulated depreciation (105,846 ) (101,644 )
Property and equipment, net 85,202
88,322
Other non-current assets 13,969
10,005
Total assets $ 506,360
$ 444,137
Liabilities:

Current liabilities:

Accounts payable $ 97,606
$ 82,735
Bank overdrafts 21,641
21,696
Accrued compensation 8,491
8,349
Current maturities of long-term debt, net of discount of $480 and $201, respectively 54,521
29,469
Other current liabilities 15,081
12,092
Total current liabilities 197,340
154,341
Non-current liabilities:

Long-term debt, net of discount of $1,766 and $2,544, respectively 258,789
270,792
Pension benefit obligation 31,452
34,349
Other non-current liabilities 37,922
14,496
Total liabilities 525,503
473,978
Stockholders’ deficit:

Common Stock, $0.01 par value, Authorized - 20,000,000 shares, Issued and Outstanding - 9,098,221 and 9,031,263, respectively 91
90
Additional paid-in capital 258,854
257,972
Accumulated other comprehensive loss (36,433 ) (36,651 )
Accumulated stockholders’ deficit (241,655 ) (251,252 )
Total stockholders’ deficit (19,143 ) (29,841 )
Total liabilities and stockholders’ deficit $ 506,360
$ 444,137



	June 27, 2020			December 28, 2019
ASSETS
Current assets:
Cash	$	11,530		$	11,643
Receivables, less allowances of $3,911 and $3,236, respectively	264,642			192,872
Inventories, net	313,979			345,806
Other current assets	26,509			27,718
Total current assets	616,660			578,039
Property and equipment, at cost	308,616			308,067
Accumulated depreciation	(122,123		)	(112,299		)
Property and equipment, net	186,493			195,768
Operating lease right-of-use assets	50,802			54,408
Goodwill	47,772			47,772
Intangible assets, net	22,591			26,384
Deferred tax assets	54,494			53,993
Other non-current assets	20,292			15,061
Total assets	$	999,104		$	971,425
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	158,920		$	132,348
Accrued compensation	11,140			7,639
Current maturities of long-term debt, net of debt issuance costs of $74 and $74, respectively	2,176			2,176
Finance lease liabilities - short-term	5,958			6,486
Operating lease liabilities - short-term	6,633			7,317
Real estate deferred gains - short-term	4,040			3,935
Other current liabilities	11,011			11,222
Total current liabilities	199,878			171,123
Non-current liabilities:
Long-term debt, net of debt issuance costs of $10,915 and $12,481, respectively	377,880			458,439
Finance lease liabilities - long-term	266,622			191,525
Operating lease liabilities - long-term	44,169			47,091
Real estate deferred gains - long-term	79,984			81,886
Pension benefit obligation	22,109			23,420
Other non-current liabilities	26,710			24,024
Total liabilities	1,017,352			997,508
Commitments and Contingencies
STOCKHOLDERS’ DEFICIT:
Common Stock, $0.01 par value, 20,000,000 shares authorized, 9,461,412 and 9,365,768 outstanding on June 27, 2020 and December 28, 2019, respectively	95			94
Additional paid-in capital	262,587			260,974
Accumulated other comprehensive loss	(34,250		)	(34,563		)
Accumulated stockholders’ deficit	(246,680		)	(252,588		)
Total stockholders’ deficit	(18,248		)	(26,083		)
Total liabilities and stockholders’ deficit	$	999,104		$	971,425

See accompanying Notes.

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended
September 30, 2017 October 1, 2016
Net cash used in operating activities $ (38,278 ) $ (170 )

Cash flows from investing activities:
Property and equipment investments (241 ) (511 )
Proceeds from sale of assets 27,461
18,900
Net cash provided by investing activities 27,220
18,389

Cash flows from financing activities:

Repayments on revolving credit facilities (288,841 ) (399,283 )
Borrowings from revolving credit facilities 329,936
401,963
Principal payments on mortgage (28,976 ) (26,041 )
Decrease in bank overdrafts (55 ) (1,733 )
Increase in cash released from escrow related to the mortgage 1,490
9,118
Other, net (2,446 ) (2,347 )
Net cash provided by (used in) financing activities 11,108
(18,323 )

Increase (decrease) in cash 50
(104 )
Cash, beginning of period 5,540
4,808
Cash, end of period $ 5,590
$ 4,704



	Six Months Ended
	June 27, 2020			June 29, 2019
Cash flows from operating activities:
Net income (loss)	$	5,908		$	(418	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operations:
Benefit from income taxes	(1,588		)	(175		)
Depreciation and amortization	14,698			14,831
Amortization of debt issuance costs	1,903			1,614
Gains from sales of property	(525		)	(9,760		)
Amortization of deferred gain	(1,967		)	(1,902		)
Share-based compensation	1,858			1,341
Changes in operating assets and liabilities:
Accounts receivable	(71,770		)	(53,608		)
Inventories	31,827			(16,800		)
Accounts payable	26,572			25,672
Prepaid and other current assets	(3,200		)	(8,078		)
Other assets and liabilities	9,185			(5,766		)
Net cash provided by (used in) operating activities	12,901			(53,049		)

Cash flows from investing activities:
Acquisition of business, net of cash acquired	—			6,009
Proceeds from sale of assets	102			10,758
Property and equipment investments	(1,752		)	(1,784		)
Net cash (used in) provided by investing activities	(1,650		)	14,983

Cash flows from financing activities:
Borrowings on revolving credit facilities	350,236			365,519
Repayments on revolving credit facilities	(354,509		)	(329,683		)
Repayments on term loan	(77,852		)	(31,899		)
Proceeds from real estate financing transactions	78,263			44,822
Debt financing costs	(2,665		)	(2,359		)
Repurchase of shares to satisfy employee tax withholdings	(254		)	(208		)
Principal payments on finance lease liabilities	(4,583		)	(4,403		)
Net cash (used in) provided by financing activities	(11,364		)	41,789

Net change in cash	(113		)	3,723
Cash at beginning of period	11,643			8,939
Cash at end of period	$	11,530		$	12,662

Supplemental Cash Flow Information
Net income tax (refunds) payments during the period	$	(223	)	$	3,057
Interest paid during the period	$	24,416		$	27,278

See accompanying Notes.

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)



	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Deficit Total
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Deficit Total
Balance, December 28, 2019	9,366		$	94	$	260,974		$	(34,563	)	$	(252,588	)	$	(26,083	)
Net loss	—		—		—			—			(787		)	(787		)
Foreign currency translation, net of tax	—		—		—			3			—			3
Unrealized gain from pension plan, net of tax	—		—		—			196			—			196
Vesting of restricted stock units	2		—		—			—			—			—
Compensation related to share-based grants	—		—		1,004			—			—			1,004
Repurchase of shares to satisfy employee tax withholdings	(1	)	—		(7		)	—			—			(7		)
Other	—		—		9			(19		)	—			(10		)
Balance, March 28, 2020	9,367		94		261,980			(34,383		)	(253,375		)	(25,684		)
Net income	—		—		—			—			6,695			6,695
Foreign currency translation, net of tax	—		—		—			17			—			17
Unrealized gain from pension plan, net of tax	—		—		—			114			—			114
Vesting of restricted stock units	122		1		—			—			—			1
Compensation related to share-based grants	—		—		854			—			—			854
Repurchase of shares to satisfy employee tax withholdings	(28	)	—		(247		)	—			—			(247		)
Other	—		—		—			2			—			2
Balance, June 27, 2020	9,461		$	95	$	262,587		$	(34,250	)	$	(246,680	)	$	(18,248	)



	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Deficit Total
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Deficit Total
Balance, December 29, 2018	9,294		$	92	$	258,596		$	(37,129	)	$	(236,222	)	$	(14,663	)
Net loss	—		—		—			—			(6,719		)	(6,719		)
Adoption of ASC 842, net of tax	—		—		—			—			1,291			1,291
Foreign currency translation, net of tax	—		—		—			7			—			7
Unrealized gain from pension plan, net of tax	—		—		—			1,077			—			1,077
Vesting of restricted stock units	49		1		—			—			—			1
Compensation related to share-based grants	—		—		706			—			—			706
Other	—		—		—			15			—			15
Balance, March 30, 2019	9,343		93		259,302			(36,030		)	(241,650		)	(18,285		)
Net income	—		—		—			—			6,301			6,301
Foreign currency translation, net of tax	—		—		—			—			—			—
Unrealized loss from pension plan, net of tax	—		—		—			(1,278		)	—			(1,278		)
Vesting of restricted stock units	32		1		—			—			—			1
Compensation related to share-based grants	—		—		635			—			—			635
Repurchase of shares to satisfy employee tax withholdings	(10	)	—		(208		)	—			—			(208		)
Other	—		—		(2		)	1			—			(1		)
Balance, June 29, 2019	9,365		$	94	$	259,727		$	(37,307	)	$	(235,349	)	$	(12,835	)

See accompanying Notes.

BLUELINX HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2017~~June 27, 2020

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim Condensed Consolidated Financial Statements include the accounts of BlueLinx Holdings Inc. and its wholly owned subsidiaries ~~(the “Company”~~(“the Company”). ~~These~~Our independent registered public accounting firm has not audited the accompanying interim financial statements. We derived the condensed consolidated balance sheet at June 27, 2020, from the audited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted (“GAAP”) in the United States (“U.S.”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in ~~the Company’s~~our Annual Report on Form 10-K ~~(the “Annual Report on Form 10-K”)~~ for the fiscal year ended December ~~31, 2016,~~28, 2019 (the “Fiscal 2019 Form 10-K”), as filed with the Securities and Exchange Commission on March 11, 2020. In the opinion of our management, the condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our statements of operations and comprehensive loss for the three and six months ended June 27, 2020, and June 29, 2019, our balance sheets at June 27, 2020, and December 28, 2019, our statements of cash flows for the six months ended June 27, 2020, and June 29, 2019, and our statements of stockholders’ deficit for the three and six months ended June 27, 2020, and June 29, 2019.

We have condensed or omitted certain notes and other information from the interim condensed consolidated financial statements presented in this report. Therefore, these condensed consolidated interim financial statements should be read in conjunction with the Fiscal 2019 Form 10-K. In addition, certain prior period amounts have been reclassified to conform to the current period's presentation. These reclassifications did not materially impact operating income or consolidated net income (loss). The results for the three and six months ended June 27, 2020, are not necessarily indicative of results that may be expected for the full year ending January 2, ~~2017.~~2021, or any other interim period.

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

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

On April 13, 2018, we completed the acquisition of Cedar Creek Holdings, Inc. (“Cedar Creek”). Results for Cedar Creek are included in the consolidated financial information presented herein.

Reclassification of Prior Period Presentation

An adjustment has been made to the Condensed Consolidated Statements of Cash Flows for the six months ended June 27, 2020, and June 29, 2019, to include outstanding payments as part of the change in accounts payable within cash flows from operating activities. In previous periods, this change was included within cash flows from financing activities.

We have reclassified certain costs within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months and six months ended June 27, 2020, and June 29, 2019, from selling, general and administrative to other operating expenses. These costs primarily relate to the integration of the acquisition of Cedar Creek.

Recently Adopted Accounting Standards

~~Revenue from Contracts with Customers.~~Leases. In ~~May 2014,~~2016, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued Accounting Standards Update (“ASU”) ~~2014-09, “Revenue~~No. 2016-02, “Leases (Topic 842).” Topic 842 establishes a new lease accounting model. The most significant changes include the clarification of the definition of a lease, the requirement for lessees to recognize for all leases a right-of-use asset and a

corresponding lease liability in the consolidated balance sheet, and additional quantitative and qualitative disclosures which are designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from ~~Contracts~~leases. Expenses are recognized in the consolidated statement of income in a manner similar to prior accounting guidance. Lessor accounting under the new standard is substantially unchanged. We adopted this standard, and all related amendments thereto, effective December 30, 2018, the first day of our 2019 fiscal year, using a modified retrospective approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. We have made an accounting policy election to keep leases with ~~Customers (Topic 606),” which supersedes~~an initial term of 12 months or less off of the ~~revenue~~consolidated balance sheet. We implemented internal controls and a lease accounting information system to enable the preparation of financial information required by the new standard. The adoption of Topic 842 had a material impact on our condensed consolidated balance sheets but did not have a material impact on our condensed consolidated statements of operations and comprehensive loss. The most significant impact was the recognition ~~requirements in~~ of right-of-use assets and lease liabilities of $57.5 million on the condensed consolidated balance sheet as of the adoption date. Additionally, $1.7 million of deferred gains associated with sale-leaseback transactions was recorded as a cumulative-effect adjustment to accumulated deficit.

Accounting Standards ~~Codification~~Effective in Future Periods

Credit Impairment Losses. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” This ASU sets forth a current expected credit loss (“~~ASC”~~CECL”) ~~605,~~model which requires the measurement of all expected credit losses for financial instruments or other assets (e.g., trade receivables), held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model, is applicable to the measurement of credit losses on financial assets measured at amortized cost, and applies to some off-balance sheet credit exposures. The standard also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. ASU 2019-10 extended the effective date of ASU 2016-13 to interim and annual periods beginning after December 22, 2022, for certain public business entities, including smaller reporting companies. We have not completed our assessment of the standard, but we do not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

Defined Benefit Pension Plan. In August 2018, the FASB issued ASU No. 2018-14, “Compensation-Retirement-Benefits-Defined Benefit Plans-General (Subtopic 715-20).” The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing six previously required disclosures and adding two. The amendments also clarify certain other disclosure requirements. The amendments in this standard are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We have not completed our assessment of the standard, but we do not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

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

2. Goodwill and Other Intangible Assets

In connection with the acquisition of Cedar Creek, we acquired certain intangible assets. As of June 27, 2020, our intangible assets consist of goodwill and other intangible assets including customer relationships, noncompete agreements, and trade names.

Goodwill

Goodwill is the excess of the cost of an acquired entity over the fair value of tangible and intangible assets (including customer relationships, noncompete agreements, and trade names) acquired, and liabilities assumed, under acquisition accounting for business combinations. As of June 27, 2020, goodwill was $47.8 million.

Goodwill is not subject to amortization but must be tested for impairment at least annually. This test requires us to assign goodwill to a reporting unit and to determine if the fair value of the reporting unit’s goodwill is less than its carrying amount.

We evaluate goodwill for impairment during the fourth quarter of each fiscal year. In addition, we willevaluate the carrying value for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such events and indicators may include, without limitation, significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our market capitalization. Our 1 reporting unit has a fair value that exceeds its book value, but a negative carrying amount of net assets, as of June 27, 2020.

Definite-Lived Intangible Assets.

On June 27, 2020, the gross carrying amounts, accumulated amortization, and net carrying amounts of our definite-lived intangible assets were as follows:



	Gross carrying amounts		Accumulated Amortization			⁽¹⁾	Net carrying amounts
	(In thousands)
Customer relationships	$	25,500	$	(8,393	)		$	17,107
Noncompete agreements	8,254		(4,564		)		3,690
Trade names	6,826		(5,032		)		1,794
Total	$	40,580	$	(17,989	)		$	22,591

⁽¹⁾ Intangible assets except customer relationships are amortized on a 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, and trade names is approximately 10 years, 2 years, and 1 year, respectively. Amortization expense for the definite-lived intangible assets was $1.8 million and $3.8 million for the three- and six-month periods ended June 27, 2020, respectively. For the three- and six-month periods ended June 30, 2019, amortization expense was $2.0 million and $4.1 million, respectively.

Estimated amortization expense for definite-lived intangible assets for the remaining portion of 2020 and the next four fiscal years is as follows:



	Estimated Amortization
	(In thousands)
2020	$	3,645
2021	4,973
2022	3,111
2023	1,807
2024	1,505

3. Revenue ~~Recognition. The new revenue recognition standard requires entities to~~Recognition

We recognize revenue ~~in a way that depicts the transfer~~when control of promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration ~~to which the entity expects~~we expect to be entitled to in exchange for those goods or services. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective on January 1, 2018. We have elected to adopt the revenue recognition standard

Contracts with our customers are generally in the ~~first quarter~~form of ~~2018~~standard terms and conditions of sale. From time to time, we may enter into specific contracts with some of our larger customers, which may affect delivery terms. Performance obligations in our contracts generally consist solely of delivery of goods. For all sales channel types, consisting of warehouse, direct, and reload sales, we typically satisfy our performance obligations upon shipment. Our customer payment terms are typical for our industry and may vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not deemed to be significant by us. For certain sales channels and/or products, our standard terms of payment may be as early as 10 days.

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

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 ~~retained earnings. We~~earnings resulting from revisions to estimates on discounts and returns have ~~substantially completed our assessment~~been insignificant for each of the new revenue recognition guidance. Based upon current interpretations, we do not anticipate the adoption of this standard to have a material impact on our financial statements; aside from adding expanded disclosures,reported periods. Certain customers may receive cash-based incentives or credits, which are ~~currently under consideration,~~accounted for as ~~are further considerations~~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 ~~potential additional or expanded internal controls over financial reporting.~~

~~2. Employee Benefits~~variable consideration.

The following table ~~shows~~presents our revenues disaggregated by revenue source. Certain prior year amounts have been reclassified to conform to the ~~components~~current year product mix of ~~net periodic pension cost (in thousands):~~structural and specialty products. Sales and usage-based taxes are excluded from revenues.

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Service cost $ 133
$ 246
$ 499
$ 750
Interest cost on projected benefit obligation 1,153
1,179
3,509
3,721
Expected return on plan assets (1,684 ) (1,561 ) (4,852 ) (4,663 )
Amortization of unrecognized loss 260
340
796
787
Net periodic pension (credit) cost $ (138 ) $ 204
$ (48 ) $ 595



	Three Months Ended				Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
	(In thousands)				(In thousands)
Structural products	$	249,571	$	224,528	$	490,349	$	421,314
Specialty products	449,205		481,920		870,497		923,835
Total net sales	$	698,776	$	706,448	$	1,360,846	$	1,345,149

The following table presents our revenues disaggregated by sales channel. Following the acquisition and integration of Cedar Creek, our reload sales were less distinct from warehouse sales, as they have been classified in prior periods. In addition, from time to time we may also make changes to certain intercompany allocations amongst sales channels. As a result, certain prior period amounts have been reclassified to conform to the current period revenues disaggregated by sales channel. Such reclassifications do not have an impact on total net sales as reported in any period. Sales and usage-based taxes are excluded from revenues.



	Three Months Ended						Six Months Ended
	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
	(In thousands)						(In thousands)
Warehouse and reload	$	601,279		$	594,024		$	1,163,472		$	1,117,250
Direct	107,848			121,856			217,129			245,212
Customer discounts and rebates	(10,351		)	(9,432		)	(19,755		)	(17,313		)
Total net sales	$	698,776		$	706,448		$	1,360,846		$	1,345,149

Practical Expedients and Exemptions

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

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

3.4. Assets Held for Sale ~~and Net Gain on Disposition~~

We currently have designated two unoccupied properties as held for sale, due to strategic initiatives. At the time that these properties were designated as “held for sale,” we ceased recognizing depreciation expense on these assets. As

NaN of ~~September 30, 2017, two~~our non-operating properties were designated as held for sale ~~and~~ as of ~~December 31, 2016, four~~June 27, 2020. These properties ~~had been~~consisted of 3 former distribution facilities located in the Midwest and Southeast. We vacated these properties and designated them as held for ~~sale. During that nine months ended September 30, 2017, two properties were sold, as further described below.~~sale during fiscal 2019 due to their proximity to other locations after the Cedar Creek acquisition. As of ~~September 30, 2017,~~June 27, 2020, and December ~~31, 2016,~~28, 2019, the net book value of total assets held for sale was ~~$0.8~~$1.1 million ~~and $2.7 million, respectively,~~ and was included in ~~“other~~“Other current assets” in our Condensed Consolidated Balance Sheets. We ~~are~~continue to actively ~~marketing the remaining two~~market all properties that are designated as held for ~~sale.~~

For the nine months ended September 30, 2017, we sold two non-operating distribution facilities previously designated as “held for sale,” and a parcel of excess land (the “Property Sales”). We recognized a gain of $6.7 million in the Condensed Consolidated Statements of Income as a result of the Property Sales.

~~4. Fair Value Disclosure~~

To determine the fair value of our mortgage, we use a discounted cash flow model. We believe the mortgage fair value valuation to be Level 2 in the fair value hierarchy, as the valuation model has inputs that are observable for substantially the full

term of the liability. As of September 30, 2017, the carrying amount and fair value of our mortgage was $97.8 million and $100.4 million, respectively. The difference between the book value and the fair value is derived from the difference between the period-end market interest rate and the stated rate of our fixed-rate mortgage. The fair value of our debt is not indicative of the amounts at which we could settle our debt.

~~5. Other Non-Current Liabilities~~

~~The following table shows the components of other non-current liabilities (in thousands):~~

September 30, 2017 December 31, 2016
Capital leases - real estate $ 7,940
$ —
Deferred gain on sale-leaseback transactions 10,945
—
Capital leases - logistics equipment 6,930
8,559
Other 12,107
5,937
Total $ 37,922
$ 14,496

~~In the first quarter of 2017, we entered into three~~ sale, and ~~leaseback transactions. Our capital lease - real estate obligations arose from sale-leaseback transactions on distribution centers located in Tampa, Florida and Ft. Worth, Texas. As a result of~~we plan to sell these transactions, we recognized a capital lease asset and obligation originally totaling $8.0 million on these properties. The remaining sale-leaseback property located in Miami, Florida, was classified as an operating lease. We originally recognized a total deferred gain of $13.7 million on these three sale-leaseback transactions, 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 decrease to stockholders’ deficit.

~~The liability for both the capital leases and deferred gain is located in “other current liabilities” (for the portion amortizing~~properties within the next ~~twelve months) and “other non-current liabilities” (as presented in the table, above) on our Condensed Consolidated Balance Sheet.~~

~~6. Earnings per 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 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, restricted stock units, performance shares, and stock options. Antidilutive or out-of-the-money common stock equivalents excluded from the diluted earnings per share calculation for the quarter and year-to-date during fiscal 2017 include all outstanding options and performance shares; and, additionally, for year-to-date only, an immaterial number of restricted stock units.

~~The following table shows the computation of basic and diluted earnings per share (in thousands, except per share data):~~

Three months ended Nine months ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Net income $ 5,686
$ 15,008
$ 9,508
$ 5,720

Basic weighted shares outstanding 9,079
8,900
9,033
8,891
Dilutive effect of share-based awards 164
30
152
72
Diluted weighted average shares outstanding 9,243
8,930
9,185
8,963

Basic earnings per share $ 0.63
$ 1.69
$ 1.05
$ 0.64
Diluted earnings per share $ 0.62
$ 1.68
$ 1.04
$ 0.64

~~7. Accumulated Other Comprehensive Loss~~

Comprehensive income is a measure of income which includes both net income and other comprehensive income. Other comprehensive income results from items deferred from recognition into our Consolidated Statements of Income and

12 months.

~~Comprehensive Income (Loss). Accumulated Other Comprehensive Loss is separately presented on our Consolidated Balance Sheets as part of common stockholders’ deficit.~~

~~The changes in balances for each component of Accumulated Other Comprehensive Loss for the nine months ended September 30, 2017, were as follows (in thousands):~~

Foreign currency, net
of tax

Defined
benefit pension
plan, net of tax

Other,
net of tax
Total Accumulated Other Comprehensive Loss
December 31, 2016, beginning balance $ 660
$ (37,523 ) $ 212
$ (36,651 )
Other comprehensive income, net of tax ⁽¹⁾
14
204
—
218
September 30, 2017, ending balance, net of tax $ 674
$ (37,319 ) $ 212
$ (36,433 )

⁽¹⁾

For the nine months ended September 30, 2017, the actuarial loss recognized in the Condensed Consolidated Statements of Income and Comprehensive Income (Loss) as a component of net periodic pension cost of $0.8 million (see Note 2), was partially offset by the effect of fiscal second quarter pension curtailment of $0.6 million. There was no intraperiod income tax allocation and the deferred tax benefit was fully offset by a valuation allowance.

~~8. Liquidity and ASU 2014-15~~

As of September 30, 2017, we had outstanding borrowings of $217.7 million and excess availability of $82.7 million under the terms of the prior revolving credit facility, including the Tranche A Loan (together, the “prior revolving credit facility”), based on qualifying inventory and accounts receivable. We replaced the prior revolving credit facility on October 10, 2017, as further described in Note 9.

A portion of our debt is classified as “Current maturities of long-term debt” on our Condensed Consolidated Balance Sheet as of September 30, 2017, since it is due within the next twelve months. This amount consists of a $55.0 million principal reduction of our mortgage, which is due by July 1, 2018. We are actively engaged in marketing certain of our real estate holdings in sale and leaseback transactions in order to meet the principal reduction date specified by our mortgage loan.

As stated in our Annual Report on Form 10-K, Note 1, the FASB previously issued ASU 2014-15, which is codified in ASC 205, “Presentation of Financial Statements,” which requires footnote disclosures concerning, among other matters, an entity’s ability to repay its obligations through normal operational or other sources over the twelve months following the date of financial statement issuance. We have adopted this accounting standard, as disclosed in our Annual Report on Form 10-K, Note 15. As stated above, our mortgage requires a principal payment of $55.0 million due no later than July 1, 2018. We continue to explore monetization opportunities associated with our real estate portfolio, and currently plan to engage in sale leaseback transactions in order to meet this obligation.

~~9. Subsequent Event~~8

We entered into a Credit Agreement, dated as of October 10, 2017, by and among us, certain of our subsidiaries, as borrowers or guarantors; Wells Fargo Bank, National Association, in its capacity as administrative agent; and certain other financial institutions party thereto (the “Credit Agreement”). The Credit Agreement provides for a senior secured revolving loan and letter of credit facility of up to $335.0 million and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $75.0 million, subject to certain conditions, including lender consent. The maturity date of the Credit Agreement is October 10, 2022. The Credit Agreement replaced our previous $335.0 million secured revolving credit facility, which consisted of a revolving loan facility of up to $335.0 million and a Tranche A revolving loan facility of up to $16.0 million. In connection with the execution and delivery of the Credit Agreement, certain of our subsidiaries also entered into a Guaranty and Security Agreement. In addition, we also entered into a Limited Guaranty, pursuant to which we agreed to guarantee obligations under the Credit Agreement and that we would not further pledge the equity interests in certain of our real estate subsidiaries, in each case for so long as any portion of our existing mortgage loan remains outstanding.

5. Long-Term Debt

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~The information contained in this Management’s Discussion~~As of June 27, 2020, and Analysis of Financial Condition and Results of Operations (“MD&A”) has been derived from our historical financial statements and is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. This MD&A section should be read in conjunction with our condensed consolidated financial statements and notes to those statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the U.S. Securities and Exchange Commission (the “SEC”). This MD&A section is not a comprehensive discussion and analysis of our financial condition and results of operations, but rather updates disclosures made in the aforementioned filing.

~~The discussion below contains forward-looking statements within the meaning of Section 27A~~28, 2019, long-term debt consisted of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will be,” “will likely continue,” “will likely result” or words or phrases of similar meaning. All of these forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental, and technological factors outside of our control; that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. These risks and uncertainties may include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC, and other factors, some of which may not be known to us. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Factors you should consider that could cause these differences include, among other things:

~~changes in the prices, supply and/or demand for products which we distribute;~~

~~inventory management and commodities pricing;~~

~~new housing starts and inventory levels of existing homes for sale;~~

~~general economic and business conditions in the U.S.;~~

~~acceptance by our customers of our privately branded products;~~

~~financial condition and creditworthiness of our customers;~~

~~supply from our 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;~~

~~changes in the availability of capital and interest rates;~~

~~adverse weather patterns or conditions;~~

~~acts of cyber intrusion;~~

~~variations in the performance of the financial markets, including the credit markets; and~~

~~other factors described herein and in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC.~~

Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

~~Executive Level Overview~~

~~Background~~

We are a leading distributor of building and industrial products in the U.S. The Company is headquartered in Atlanta, Georgia, with executive offices located at 4300 Wildwood Parkway, Atlanta, 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 and other wood products primarily used for structural support, walls, and flooring in construction projects. Structural products

represented approximately 46% of our year-to-date fiscal 2017 net sales. Specialty products include roofing, insulation, moulding, engineered wood, vinyl products (used primarily in siding), and metal products (excluding rebar and remesh). Specialty products accounted for approximately 54% of our year-to-date fiscal 2017 net sales.

~~Industry Conditions~~

Many of the factors that cause our operations to fluctuate are seasonal or cyclical in nature. Our operating results have historically been closely aligned 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, importantly, consumer confidence. While single-family housing starts remain below peak levels, the industry has seen improvement over the past several years. Our opinion is that this trend will continue in the long term, and that we are well-positioned to support our customers.

~~Results of Operations~~

~~The following table sets forth our results of operations for the third quarter of fiscal 2017 and fiscal 2016:~~following:

Third Quarter of Fiscal 2017 % of
Net
Sales Third Quarter of Fiscal 2016 % of
Net
Sales
(Dollars in thousands)
Net sales $ 479,318
100.0% $ 476,049
100.0%
Gross profit 60,545
12.6% 60,050
12.6%
Selling, general, and administrative 46,817
9.8% 49,152
10.3%
Gains from sales of property —
—% (13,940 ) (2.9)%
Depreciation and amortization 2,249
0.5% 2,220
0.5%
Operating income 11,479
2.4% 22,618
4.8%
Interest expense 5,670
1.2% 6,105
1.3%
Other income, net —
—% (17 ) —%
Income before provision for income taxes 5,809
1.2% 16,530
3.5%
Provision for income taxes 123
—% 1,522
0.3%
Net income $ 5,686
1.2% $ 15,008
3.2%

~~The following table sets forth our results of operations for the first nine months of fiscal 2017 and fiscal 2016:~~

First Nine Months of Fiscal 2017 % of
Net
Sales First Nine Months of Fiscal 2016 % of
Net
Sales
(Dollars in thousands)
Net sales $ 1,381,927
100.0% $ 1,459,386
100.0%
Gross profit 175,525
12.7% 175,032
12.0%
Selling, general, and administrative 148,742
10.8% 157,006
10.8%
Gains from sales of property (6,700 ) (0.5)% (14,701 ) (1.0)%
Depreciation and amortization 6,865
0.5% 7,091
0.5%
Operating income 26,618
1.9% 25,636
1.8%
Interest expense 16,280
1.2% 19,562
1.3%
Other income, net (2 ) —% (255 ) —%
Income before provision for income taxes 10,340
0.7% 6,329
0.4%
Provision for income taxes 832
0.1% 609
—%
Net income $ 9,508
0.7% $ 5,720
0.4%



	June 27, 2020			December 28, 2019
	(In thousands)
Revolving Credit Facility ⁽¹⁾	$	322,223		$	326,496
Term Loan Facility ⁽²⁾	68,822			146,674
Finance lease obligations ⁽³⁾	272,580			198,011
	663,625			671,181
Unamortized debt issuance costs	(10,989		)	(12,555		)
	652,636			658,626
Less: current maturities of long-term debt	8,134			8,662
Long-term debt, net of current maturities	$	644,502		$	649,964

~~The following table sets forth net sales by product category versus comparable prior periods:~~

Quarter Ended Nine Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Sales by category (In millions)
Structural products $ 228
$ 204
$ 633
$ 594
Specialty products 254
272
757
878
Other ⁽¹⁾
(3 ) —
(8 ) (13 )
Total net sales $ 479
$ 476
$ 1,382
$ 1,459


⁽¹⁾	~~“Other” includes unallocated allowances and discounts.~~

~~The following table sets forth gross profit and gross margin percentages by product category versus comparable prior periods:~~

Quarter Ended Nine Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Gross profit by category (Dollars in millions)
Structural products $ 21
$ 17
$ 59
$ 53
Specialty products 39
37
114
117
Other ⁽¹⁾
1
6
3
5
Total gross profit $ 61
$ 60
$ 176
$ 175
Gross margin % by category

Structural products 9.3 % 8.4 % 9.2 % 9.0 %
Specialty products 15.3 % 13.5 % 15.0 % 13.3 %
Total gross margin % 12.6 % 12.6 % 12.7 % 12.0 %


⁽¹⁾	~~“Other” includes 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 ⁽¹⁾:

Quarter Ended Nine Months Ended

September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
(Dollars in thousands)
Net sales $ 479,318
$ 476,049
$ 1,381,927
$ 1,459,386
Less: non-GAAP adjustments —
12,024
—
124,915
Adjusted same-center net sales $ 479,318
$ 464,025
$ 1,381,927
$ 1,334,471
Adjusted year-over-year percentage increase - sales 3.3 % 3.6 %

Gross profit $ 60,545
$ 60,050
$ 175,525
$ 175,032
Less: non-GAAP adjustments —
1,166
50
5,414
Adjusted same-center gross profit $ 60,545
$ 58,884
$ 175,475
$ 169,618

⁽¹⁾

The schedule presented above includes a reconciliation of net sales and gross profit excluding the effect of operational efficiency initiatives; specifically, facility closures and the SKU rationalization initiative. These operational efficiency initiatives were substantially complete as of December 31, 2016. 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.

~~We believe adjusted net sales~~The weighted average interest rate was 2.6 percent and ~~adjusted gross profit are helpful in presenting comparability across periods without the effect~~3.9 percent as of ~~our operational efficiency initiatives on the later periods. We also believe that these non-GAAP metrics are used by securities analysts, investors,~~June 27, 2020 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.

~~Third Quarter of Fiscal 2017 Compared to Third Quarter of Fiscal 2016~~

~~Net sales.~~ For the third quarter of fiscal 2017, net sales were relatively flat, with an increase of 0.7%, or $3.3 million, compared to the third quarter of fiscal 2016. While overall sales were largely flat, adjusted same center sales increased by 3.3%, which was largely driven by seasonal trends in the building industry, as well as a benefit from commodity price increases on our structural products.December 28, 2019, respectively.

~~Gross profit and gross margin.~~ For the third quarter of fiscal 2017, gross profit dollars increased by $0.5 million, or 0.8%, compared to the third quarter of fiscal 2016. Gross profit increased in the third quarter of fiscal 2017 due to increased margin on both specialty and structural products. Gross margin percentage remained flat at 12.6%, primarily due to the sales mix of specialty and structural products.

~~Selling, general, and administrative expenses.~~ The decrease of 4.8%, or $2.3 million, for the third quarter of fiscal 2017, compared to the third quarter of fiscal 2016, is primarily related to decreases in maintenance expense, as well as decreased third party freight expense.

~~First Nine Months of Fiscal 2017 Compared to First Nine Months of Fiscal 2016~~

~~Net sales.~~ For the first nine months of fiscal 2017, net sales decreased by 5.3%, or $77.5 million, compared to the first nine months of fiscal 2016. The year-over-year nine month decrease in sales was primarily driven by planned closures of distribution centers in fiscal 2016, and SKU rationalization, as same center sales increased by $47.5 million for the comparable nine month period, an increase of 3.6%. Sales prices increased on both structural and specialty items.

~~Gross profit and gross margin.~~ For the first nine months of fiscal 2017, gross profit dollars were essentially flat. Total gross margin percentage increased 70 basis points over the comparable prior year period, which was driven largely by a 1.7% increase in specialty product gross margin, in addition to a 20 basis point increase in structural product margin.

~~Selling, general, and administrative expenses.~~⁽²⁾ The ~~decrease~~weighted average interest rate was 8.0 percent and 8.7 percent as of ~~$8.3 million~~June 27, 2020 and December 28, 2019, respectively.

⁽³⁾ Refer to Note 8, Leases, for the nine months of fiscal 2017, compared to the first nine months of fiscal 2017, is primarily related to reductions in payroll and related costs, due to a reduction in force in the prior year in connectioninterest rates associated with distribution center closures, which also resulted in a decrease in general maintenance and repair costs. Additionally, we have decreased third party freight expense for the comparative period. These overall cost decreases were slightly offset by an increase in strategic costs, year-over-year, as during the first nine months of fiscal 2017, we incurred $5.5 million in pension expense as a result of our withdrawal from a multi-employer pension plan, compared to $3.3 million of refinancing related costs in fiscal 2016.finance lease obligations.

~~Seasonality~~

We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the building products distribution industry. The first and fourth fiscal quarters are typically our slowest quarters, due to the impact of poor weather on the construction market. Our second and third fiscal quarters are typically our strongest quarters, reflecting a substantial increase in construction, due to more favorable weather conditions. Our working capital generally increases in the fiscal second and third quarters, reflecting increased seasonal demand.

~~Liquidity and Capital Resources~~

We expect our primary sources of liquidity to be cash flows from sales in the normal course of our operations and borrowings under our revolving credit facility. We expect that these sources will fund our ongoing cash requirements for the foreseeable future. We believe that sales in the normal course of our operations and amounts currently available from our revolving credit facility and other sources will be sufficient to fund our routine operations and working capital requirements for at least the next 12 months.

~~Mortgage~~

As of September 30, 2017, the balance on our mortgage loan was $97.8 million. The mortgage is secured by owned distribution facilities. Our mortgage lender has a first priority pledge of the equity in the Company’s subsidiaries which hold the real property that secures the mortgage loan.

As modified on March 24, 2016, our mortgage is due on July 1, 2019. We pre-paid in its entirety a $60.0 million principal reduction which was due no later than July 1, 2017. The remaining principal reductions include a $55.0 million principal payment due no later than July 1, 2018, with the remaining balance due no later than July 1, 2019. We may perform sale and leaseback transactions on certain of our properties in order to meet the remaining scheduled principal payments, or we may consider other options to monetize our real estate holdings. The mortgage requires monthly interest-only payments, at an annual interest rate of 6.35%.

Revolving Credit Facility

~~As of September 30, 2017, we had outstanding borrowings of $217.7 million and excess availability of $82.7 million under the terms of our previous~~

We have a revolving credit facility ~~and Tranche A Loan.~~

Wethat we entered into ~~a Credit Agreement, dated as of October 10, 2017, by and among us, certain of our subsidiaries, as borrowers or guarantors;~~in April 2018 with Wells Fargo Bank, National Association, ~~in its capacity~~ as administrative ~~agent;~~agent, and certain other financial institutions party thereto (the ~~“Credit Agreement”~~“Revolving Credit Facility”)., with a maturity date of October 10, 2022. The Revolving Credit ~~Agreement provides for~~facility includes a committed senior secured asset-based revolving loan and letter of credit facility of up to ~~$335.0~~$600 million, ~~(the “Revolving Credit Facility”)~~ and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to ~~$75.0 million, subject to certain conditions, including lender consent. If we were to obtain the full amount of the additional increases in commitments,~~$150 million. Our obligations under the Revolving Credit Facility will allow borrowings of up to $410.0 million. The maturity date of the Credit Agreement is October 10, 2022. The Credit Agreement replaced our previous $335.0 million secured revolving credit facility, which consisted of a revolving loan facility of up to $335.0 million and a Tranche A revolving loan facility of up to $16.0 million, which had been made available pursuant to our prior credit agreement, dated August 4, 2006, as amended.

In connection with the execution and delivery of the Credit Agreement, certain of our subsidiaries also entered into a Guaranty and Security Agreement with Wells Fargo (the “Guaranty and Security Agreement”). Pursuant to the Guaranty and Security Agreement, our obligations under the Credit Agreement are secured by a ~~first priority~~ security interest in substantially all of our ~~operating subsidiaries’~~ assets ~~including inventories, accounts receivable,~~other than real ~~property, and proceeds from those items. Borrowings~~property.

Loans under the ~~Credit Agreement will be subject to availability under the Borrowing Base (as defined in the Credit Agreement). 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 Credit Agreement provides for~~bear interest ~~on the loans~~ at a rate per annum equal to (i) LIBOR plus a margin ranging from ~~2.25%~~1.75 percent to ~~2.75%,~~2.25 percent, with the amount of such margin determined based upon the average of our 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%~~0.75 percent to ~~1.25%,~~1.25 percent, with the amount of such margin determined based upon the average of our excess availability for the immediately preceding fiscal quarter as calculated by the administrative agent, for loans based on the base rate.

We amended the Revolving Credit Facility on January 31, 2020, to provide that (i) the “Seasonal Period” will run from November 15, 2019, through July 15, 2020, for the calendar year 2019, and from December 15 of each calendar year through April 15 of each immediately succeeding calendar year for the calendar year 2020 and thereafter, and (ii) the measurement period in the definition of “Cash Dominion Event” will be five consecutive business days instead of three consecutive business days. The adjustment to the Seasonal Period better aligns advance rates under the Revolving Credit Facility with the seasonality in our business and provided us with an enhanced borrowing base and greater liquidity through July 15, 2020.

As of June 27, 2020, we had outstanding borrowings of $322.2 million, excess availability of $138.1 million, and a weighted average interest rate of 2.6 percent. As of December 28, 2019, our principal balance was $326.5 million, excess availability was $80.0 million, and our weighted average interest rate was 3.9 percent.

The Revolving Credit Facility contains certain financial and other covenants, and our right to borrow under the Revolving Credit Facility is conditioned upon, among other things, our compliance with these covenants. We were in compliance with all covenants under the Revolving Credit Facility as of June 27, 2020.

Term Loan Facility

We have a term loan facility that we entered into in April 2018 with HPS Investments Partners, LLC, as administrative and collateral agent, and certain other financial institutions party thereto (the “Term Loan Facility”), with a maturity date of

October 13, 2023. The Term Loan Facility provides for a senior secured first lien loan facility in an initial aggregate principal amount of $180 million and is secured by a security interest in substantially all of our assets.

The Term Loan Facility requires monthly interest payments, and also requires quarterly principal payments of $402,282, in arrears, with the remaining balance due on the maturity date. The Term Loan Facility also requires certain mandatory prepayments of outstanding loans, subject to certain exceptions. The Term Loan Facility requires maintenance of a total net leverage ratio of 8.75 to 1.00 for the quarter ending June 27, 2020 and the third quarter of 2020, and 5.25 to 1.00 for the fourth quarter of 2020; ratio levels generally reduce over the remaining term of the Term Loan Facility. We were in compliance with all covenants under the Term Loan Facility as of June 27, 2020.

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

We amended the Term Loan Facility on December 31, 2019, to extend the period for satisfying the designated principal balance level required to maintain the modified total net leverage ratio covenant levels for the 2019 fourth and subsequent quarters thereunder, which was satisfied on January 31, 2020, through repayments from proceeds from the real estate financing transactions described in Note 8. On February 28, 2020, we further amended the Term Loan Facility to provide that we would not be subject to the facility’s total net leverage ratio covenant from and after the time, and then for so long as, the principal balance level under the facility is less than $45 million. On April 1, 2020, we amended the Term Loan Facility to, among other things, modify the total net leverage ratio covenant levels for the 2020 second and third quarters. All other total net leverage ratio covenant levels for prior and future quarters were unchanged.

As of June 27, 2020, we had outstanding borrowings of $68.8 million under the Term Loan Facility and an interest rate of 8.0 percent per annum. As of December 28, 2019, our principal balance was $146.7 million with an interest rate of 8.7 percent per annum. The decrease in the outstanding borrowings was due to net proceeds of the real estate financing transactions described in Note 8 being applied to the Term Loan Facility.

Finance Lease Obligations

Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate, with the majority of those finance leases related to real estate. For more information on our finance lease obligations, refer to Note 8, Leases.

6. Net Periodic Pension (Benefit) Cost

The following table shows the components of our net periodic pension (benefit) cost:



	Three Months Ended						Six Months Ended
	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
	(In thousands)						(In thousands)
Service cost	$	—		$	48		$	—		$	161
Interest cost on projected benefit obligation	723			973			1,446			2,018
Expected return on plan assets	(1,210		)	(1,295		)	(2,420		)	(2,489		)
Amortization of unrecognized loss	263			279			526			580
Net periodic pension (benefit) cost	$	(224	)	$	5		$	(448	)	$	270

7. Stock Compensation

Stock Compensation Expense

During the three months ended June 27, 2020, and June 29, 2019, we incurred stock compensation expense of $0.9 million and $0.6 million, respectively. During the six months ended June 27, 2020, and June 29, 2019, we incurred stock compensation

expense of $1.9 million and $1.3 million, respectively. The increase in our stock compensation expense for the three- and six-month periods is attributable to having more outstanding equity-based awards during these periods than in the prior year and the vesting of awards in connection with the departure of certain employees.

8. Leases

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

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

Finance Lease Liabilities

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

During 2017 and 2018, we entered into real estate financing transactions on warehouse facilities in Tampa, FL; Ft. Worth, TX; Bellingham, PA; Frederick, MD; Lawrenceville, GA; and Raleigh, NC. These transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, we entered into long-term leases on the properties for initial terms of 15 years with multiple 5-year renewal options, with one having a single 10-year renewal option. We accounted for these transactions in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 840, which was the lease accounting standard in effect at the inception of these arrangements. We have recorded these transactions as finance lease liabilities on our balance sheet. As of June 27, 2020 and December 28, 2019, total unrecognized deferred gains related to these transactions were $84.0 and $85.8 million, respectively.

On May 19, 2019, we completed a real estate financing transaction on a warehouse facility in University Park, IL for net proceeds of $21.8 million. On June 20, 2019, we completed a real estate financing transaction on a warehouse facility in Yulee, FL for net proceeds of $13.3 million. These two transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, we entered into long-term leases on the properties for initial terms of 15 years with multiple 5-year renewal options. Gross proceeds of these transactions were $45.0 million.

On December 31, 2019, we completed real estate financing transactions on warehouse facilities in Madison, TN; Kansas City, MO; Richmond, VA; and Bridgeton, MO for aggregate net proceeds of $27.2 million. On January 31, 2020, we completed real estate financing transactions on warehouse facilities in Charlotte, NC; Memphis, TN; Independence, KY: San Antonio, TX; Portland, ME; Denville, NJ; Yaphank, NY; Pensacola, FL; and Tallmadge, OH for aggregate net proceeds of $34.1 million. On February 28, 2020, we completed a real estate financing transaction on a warehouse facility in Elkhart, IN for net proceeds of $7.5 million. These transactions were completed pursuant to sale-leaseback arrangements, and upon their completion, we entered into long-term leases on the properties for initial terms from 15 years to 18 years with multiple 5-year renewal options. Gross proceeds of these transactions were $78.3 million.

We determined that the transactions in fiscal 2019 and in the current fiscal year did not qualify as sales in accordance with ASC 842. Therefore, for accounting purposes, the transactions were not accounted for as sale-leaseback transactions, and no gain or loss was recorded. We determined that these leases qualified for finance lease treatment and recorded them accordingly. The net book value of the assets related to these transactions remains on our books as property and equipment and we continue to depreciate the assets over their remaining useful lives.

A portion of our real estate lease cost is generally subject to annual changes in the Consumer Price Index (“CPI”). The known changes to lease payments are included in the lease liability at lease commencement. Unknown changes related to CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. In addition, a subset of our vehicle lease cost is considered variable.

The following table presents our assets and liabilities related to our leases as of June 27, 2020 and December 28, 2019:



		June 27, 2020		December 28, 2019
		(In thousands)
Assets	Classification
Operating lease right-of-use assets	Operating lease right of use assets	$	50,802	$	54,408
Finance lease right-of-use assets ⁽¹⁾	Property and equipment, net	153,176		141,922
Total lease right-of-use assets		$	203,978	$	196,330

Liabilities
Current portion
Operating lease liabilities	Operating lease liabilities - short term	$	6,633	$	7,317
Finance lease liabilities	Finance lease liabilities - short term	5,958		6,486
Non-current portion
Operating lease liabilities	Operating lease liabilities - long term	44,169		47,091
Finance lease liabilities	Finance lease liabilities - long term	266,622		191,525
Total lease liabilities		$	323,382	$	252,419

⁽¹⁾ Finance lease right-of-use assets are presented net of accumulated amortization of $51.3 and $30.8 million as of June 27, 2020 and December 28, 2019, respectively.

The components of lease expense were as follows:



	Three Months Ended				Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
	(In thousands)				(In thousands)
Operating lease cost:	$	2,977	$	2,991	$	6,098	$	6,135
Finance lease cost:
Amortization of right-of-use assets	$	3,513	$	3,220	$	6,878	$	6,117
Interest on lease liabilities	6,557		4,130		12,721		7,378
Total finance lease costs	$	10,070	$	7,350	$	19,599	$	13,495

Supplemental cash flow information related to leases was as follows:



	Three Months Ended				Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
	(In thousands)				(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,860	$	3,064	$	5,633	$	5,967
Operating cash flows from finance leases	6,557		3,236		12,721		6,484
Financing cash flows from finance leases	2,403		2,216		4,583		4,403
Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	—	$	—	$	—	$	—
Finance leases	—		3,462		—		4,250

Supplemental balance sheet information related to leases was as follows:



	June 27, 2020			December 28, 2019
	(In thousands)
Finance leases
Property and equipment	$	204,431		$	172,720
Accumulated depreciation	(51,255		)	(30,798		)
Property and equipment, net	$	153,176		$	141,922
Weighted Average Remaining Lease Term (in years)
Operating leases	11.66			11.71
Finance leases	16.58			17.12
Weighted Average Discount Rate
Operating leases	9.40		%	9.34		%
Finance leases	9.75		%	10.11		%

The major categories of our finance lease liabilities as of June 27, 2020 and December 28, 2019 are as follows:



	June 27, 2020		December 28, 2019
	(In thousands)
Equipment and vehicles	$	29,162	$	32,471
Real estate	243,418		165,540
Total finance leases	$	272,580	$	198,011

As of June 27, 2020, maturities of lease liabilities were as follows:



	Operating leases			Finance leases
	(In thousands)
2020	$	11,109		$	15,385
2021	8,821			29,150
2022	7,876			28,449
2023	6,794			28,121
2024	6,441			27,793
Thereafter	47,514			408,524
Total lease payments	$	88,555		$	537,422
Less: imputed interest	(37,753		)	(264,842		)
Total	$	50,802		$	272,580

On December 28, 2019, maturities of lease liabilities were as follows:



	Operating leases			Finance leases
	(In thousands)
2020	$	11,348		$	24,002
2021	10,111			23,052
2022	8,048			22,230
2023	7,330			21,854
2024	6,413			21,380
Thereafter	50,901			327,439
Total lease payments	$	94,151		$	439,957
Less: imputed interest	(39,743		)	(241,946		)
Total	$	54,408		$	198,011

9. 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 and receivables recorded for expected receipts from settlements. Management further believes that, while the ultimate outcome of one or more of these matters could be material to operating results in any given quarter, it will not have a materially adverse effect on our consolidated financial condition, our results of operations, or our cash flows.

Collective Bargaining Agreements

As of June 27, 2020, we had 2,000 employees on a full-time basis, and approximately 21 percent of our employees were represented by various local labor union Collective Bargaining Agreements (“CBAs”). Approximately 1 percent of our employees are covered by three CBAs that are up for renewal in fiscal 2020. As of June 27, 2020, one of these CBAs was renewed and the remaining two are expected to be renegotiated later this year.

10. Accumulated Other Comprehensive Loss

Comprehensive loss includes both net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) results from items deferred from recognition into our Condensed Consolidated Statements of Operations and Comprehensive Loss. Accumulated other comprehensive loss is separately presented on our Condensed Consolidated Balance Sheets as part of stockholders’ deficit.

The changes in balances for each component of accumulated other comprehensive loss for the six months ended June 27, 2020, were as follows:



	Foreign currency, net of tax		Defined benefit pension plan, net of tax			Other, net of tax			Total Accumulated Other Comprehensive Loss
	(In thousands)
December 28, 2019, beginning balance	$	666	$	(35,441	)	$	212		$	(34,563	)
Other comprehensive income, net of tax ⁽¹⁾	20		310			(17		)	313
June 27, 2020, ending balance, net of tax	$	686	$	(35,131	)	$	195		$	(34,250	)

⁽¹⁾For the six months ended June 27, 2020, the actuarial loss recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss as a component of net periodic pension cost was $0.5 million, net of tax of $0.2 million. Please see Note 6, Net Periodic Pension (Benefit) Cost, for further information.

11. Income Taxes

Our effective tax rate for the three months ended June 27, 2020, and June 29, 2019, was 33.9 percent and 27.2 percent, respectively. Our effective tax rate for the three months ended June 27, 2020 was impacted by (i) recording discrete tax expense of $0.4 million for a shortfall on the vesting of our restricted stock units, (ii) the permanent addback of certain nondeductible expenses, including meals and entertainment and officer’s compensation, and (iii) the effect of the partial valuation allowance for separate company state income tax losses and previously nondeductible interest under 163(j) of the Internal Revenue Code (“IRC”). Our effective tax rate for the three months ended June 29, 2019, was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses. In addition, we recorded discrete tax expense of $0.2 million for a shortfall on the vesting of our restricted stock units, which was offset by a $0.2 million discrete tax benefit for claiming tax credits.

Our effective tax rate was (36.8) percent and 29.5 percent, for the first six months of fiscal 2020 and 2019, respectively. Our effective tax rate for the six months ended June 27, 2020 was impacted by (i) the discrete tax benefit of $3.9 million resulting from the release of the valuation allowance associated with the nondeductible interest expense under Section 163(j) of the IRC as a result of changes under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was enacted on March 27, 2020, and contained, among other things, several tax-based measures meant to counteract the effects of the COVID-19 pandemic, to increase the allowable percentage from 30 percent of adjusted taxable income to 50 percent of adjusted taxable income, (ii) recording discrete tax expense of $0.4 million for a shortfall on the vesting of our restricted stock units, (iii) the permanent addback of certain nondeductible expenses, including meals and entertainment and nondeductible compensation, and (iv) the effect of the partial valuation allowance for separate company state income tax losses and previously nondeductible interest expense under Section 163(j) of the IRC. Our effective tax rate for the six months ended June 29, 2019, was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation and the effect of the valuation allowance for separate company state income tax losses. In addition, during the first six months of fiscal 2019, we recorded discrete tax expense of $0.2 million for a shortfall on vesting of our restricted stock units, which was offset by a $0.2 million discrete tax benefit for claiming state tax credits.

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 forward under tax law. Currently, we have a valuation allowance that covers (i) our separate company state net operating loss carryforwards and (ii) disallowed interest calculated pursuant to the changes made by the Tax Cuts and Jobs Act of 2017, as adjusted by the CARES Act.

At the end of each quarter, we evaluate the weight of available evidence (both positive and negative). We considered the recent reported income generated in the current quarter and prior years (adjusted for unusual one-time items) and income generated in 2017, including the prior year income from Cedar Creek. 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 the first two fiscal quarters of 2020 and 2019, in our evaluation of the weight of available evidence, we concluded that the weight of the positive evidence outweighed the negative evidence. In addition to the evidence discussed above, we considered as positive evidence forecasted future taxable income, the detail scheduling of the timing of the reversal of our deferred tax assets and liabilities, and the evidence from business and tax planning strategies described below. 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 IRC Section 382 resulting from the completion of the secondary offering on October 23, 2017, will not cause any of our federal net operating losses to expire unused because management has been effectively implementing a real estate strategy involving the sale and leaseback of real estate. This strategy is further supported by the transactions involving four warehouses in January 2018 and two warehouses during 2019. In the ~~event~~first quarter of 2020, the Company executed three more sale and leaseback transactions, involving a total of fourteen warehouse locations. Additionally, the acquisition of Cedar Creek did not generate any limitations under IRC Section 382 on Cedar Creek’s tax assets. We will continue to monitor any changes to our results of operations that may affect our estimates, including any impact of COVID-19 if applicable.

12. Income (Loss) per Share

We calculate basic income (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding. We calculate diluted income (loss) per share using the treasury stock method, by dividing net income (loss) by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including restricted stock units, and performance units. Due to the financial results for the six month period ended June 27, 2019, 0.1 million of incremental shares were excluded from the computation of diluted weighted averages outstanding, because their effect would be anti-dilutive.

The reconciliation of basic net income (loss) and diluted net income (loss) per common share for the three- and six-month periods ended June 27, 2020, and June 29, 2019, were as follows:



	Three Months Ended				Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
	(In thousands, except per share data)				(In thousands, except per share data)
Net income (loss)	$	6,695	$	6,301	$	5,908	$	(418	)

Weighted-average shares outstanding - basic	9,395		9,351		9,381		9,344
Dilutive effect of share-based awards	7		8		2		—
Weighted-average shares outstanding - diluted	9,402		9,359		$	9,383	$	9,344

Basic income (loss) per share	$	0.71	$	0.67	$	0.63	$	(0.04	)
Diluted income (loss) per share	$	0.71	$	0.67	$	0.63	$	(0.04	)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading distributor of building and industrial products in the U.S with a combination of market position and geographic coverage, the buying power of certain centralized procurement, and the strength of a locally focused sales force. BlueLinx is able to provide a wide range of value-added services and solutions to our customers and suppliers. We are headquartered in Marietta, Georgia, and we operate our distribution business through a broad network of distribution centers. We serve many major metropolitan areas in the U.S. and deliver building and industrial products to a variety of wholesale and retail customers. We distribute products in two principal categories: structural products and specialty products. Structural products include primarily plywood, oriented strand board, rebar and remesh, lumber, spruce and other wood products primarily used for structural support in construction projects. Structural products represented between 31 percent and 37 percent of our net sales over the past twelve months. Specialty products include primarily engineered wood products, moulding, siding and trim, cedar, metal products (excluding rebar and remesh), and insulation. Specialty products represented between 63 percent and 69 percent of our net sales over the past twelve months.

On April 13, 2018, we completed the acquisition of Cedar Creek. Cedar Creek was established in 1977 as a wholesale building materials distribution company that distributed wood products across the United States. Its products included specialty lumber, oriented strand board, siding, cedar, spruce, engineered wood products, and other building products. This acquisition allowed us to expand our product offerings, while maintaining our existing geographical footprint.

Recent Developments - Update on Impact of COVID-19 Pandemic

A novel strain of coronavirus (COVID-19) was first identified in December 2019 in certain Far East and European countries. On March 11, 2020, the spread of COVID-19 was declared a global pandemic by the World Health Organization, with a high concentration of cases in the United States. In response to the pandemic, governmental authorities around the world implemented numerous measures to combat the virus, such as travel bans and restrictions, quarantines, “shelter-in-place” orders, and business shutdowns. Over the course of the second quarter, these measures were successful in containing and reducing the spread of the COVID-19 virus in many locations, and many governmental authorities have begun to ease restrictions and execute plans to re-open businesses. However, the rates of infection, hospitalization, and mortality associated with the virus continue to fluctuate, and in some cases, they have increased, in many U.S. states. The pandemic and these containment measures have had, and are expected to continue to have, a substantial negative impact on businesses around the world and on global, regional, and national economies.

We began preparations for the pandemic in late February, and in early March we implemented policies and procedures to protect our associates, serve our customers, and support our suppliers. We also moved quickly to develop plans and take actions designed to give us financial and operating flexibility during the pandemic and over the course of the second quarter we continued to execute on those plans. To date, our business has been designated as “essential” in all states in which we operate, and we have continued to operate and provide service to our customers and suppliers. Also, notably, we have not experienced any significant supply chain disruptions as a result of the pandemic, and our supply chain has remained intact in all material respects.

During the quarter, our cross-functional COVID-19 Disaster Response Team implemented safety and hygiene protocols consistent with the Centers for Disease Control and Prevention (“CDC”) and local guidance, including mandating the use of face coverings where their use is required by local order; implementing enhanced cleaning and disinfecting procedures; using social distancing guidelines and physical separation where required; establishing more restrictive travel policies; implementing no-contact rules and visitor guidelines; implementing enhanced safety procedures for our drivers such as including contactless delivery procedures; using mobile work arrangements for employees whose work can be done remotely; and developing rapid response procedures for presumptive and confirmed COVID-19 cases at any of our locations.

We also took action on plans designed to reduce our cost structure, strengthen our balance sheet, and further increase liquidity in response to the pandemic. We took steps to reduce operating costs and optimize liquidity by pausing new hiring; limiting non-essential spending; closely monitoring and reviewing credit lines, open orders, overpaid accounts, and receivables aging; making substantial headcount and variable operating expense reductions in local markets correlating to demand declines; closely assessing and monitoring inventory availability and purchasing; placing approximately 15 percent of our corporate workforce on furlough, and making targeted reductions in corporate headcount; utilizing certain provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act; and ongoing review and monitoring of payroll and branch expenses. While

some of these actions are temporary in nature, we expect to sustain many of the cost reduction actions long-term, and we continue to remain focused on our cost structure and liquidity as the pandemic continues.

Overall, the impact of the pandemic on our business during the second quarter of 2020 was not as significant as we originally anticipated. Net sales and gross margin declined in April relative to the prior year period, but the commodity market for structural products began to stabilize and rebound in May and June. For the second quarter of 2020, net sales declined $7.7 million, primarily driven by the 2019 discontinuation of a siding product, and net income improved $0.4 million compared to the second quarter of 2019. For the first six months of 2020, net sales increased $15.7 million and net income improved $6.3 million as we moved from a net loss for the first six months of 2019 to net income for the first six months of 2020.

The extent of the impact of the pandemic on our business and sales for the second half of 2020 will depend on future developments, including, among others, the duration of the pandemic, the success of actions taken by governmental authorities to contain the pandemic and address its impact, the success of local return to work and business reopening plans, and the impact the COVID-19 pandemic has on demand in the markets we service. The trajectory of the pandemic continues to evolve rapidly, and we cannot predict the extent to which our financial condition, results of operations, or cash flows will ultimately be impacted. We are closely monitoring the impact of the pandemic on industry conditions, the progress of local return to work and reopening plans, and any pandemic-related restrictions that may have an impact on our business.

Industry Conditions

Many of the factors that cause our operations to fluctuate have historically been seasonal or cyclical in nature and we expect that to continue. Our operating results have historically been generally correlated with the level of single-family residential housing starts in the U.S. However, 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.

The COVID-19 pandemic had a significant negative effect on single family housing starts during the second quarter of 2020. The U.S. Census Bureau reported that single family housing starts were down 13 percent for the second quarter of 2020 compared to the second quarter of 2019. However, the trend showed strong improvement over the course of the quarter. Housing starts declined 23 percent in April, 15 percent in May, and 2 percent in June, all compared to the same months in 2019. Additionally, July data from the National Association of Home Builders/Wells Fargo Housing Market Index shows a positive outlook in builder confidence in the market for newly built single-family homes. Low interest rates, shortages in existing home inventory, and a growing trend toward relocating away from populated metropolitan areas to areas with single-family homes may help drive long-term improvement in single-family housing starts.

Our operating results are also affected by commodity pricing, primarily the markets for wood-based commodities that we classify as structural products. After declining in the early part of April, lumber and panel prices increased for the balance of the quarter, staying at or above price levels from the second quarter of 2019. These market trends resulted in favorable revenue comparisons and enhanced gross margins in the second quarter of 2020 for many of the structural products that we sell.

Factors That Affect Our Operating Results

Our results of operations and financial performance are influenced by a variety of factors, including the following: the COVID-19 pandemic and other contagious illness outbreaks and their potential effects on our industry, suppliers and supply chains, and customers, our business, results of operations, cash flows, financial condition, and future prospects; changes in the prices, supply and/or demand for products that we distribute; inventory management and commodities pricing; new housing starts; repair and remodeling activity; general economic and business conditions in the U.S.; disintermediation by our customers and suppliers; acceptance by our customers of our branded and privately branded products; financial condition and credit worthiness of our customers; supply from key vendors; reliability of the technologies we utilize; activities of competitors; changes in significant operating expenses; fuel costs; risk of losses associated with accidents; exposure to product liability claims and other legal proceedings; changes in the availability of capital and interest rates; adverse weather patterns or conditions; acts of cyber intrusion or other disruptions to our information technology systems; tariffs, anti-dumping and counter-vailing duties, anti-dumping charges, and similar import costs and restrictions; and variations in the performance of the financial markets, including the credit markets.

Results of Operations

The following table sets forth our results of operations for the second quarter of fiscal 2020 and fiscal 2019:



	Second Quarter of Fiscal 2020		% of Net Sales	Second Quarter of Fiscal 2019			% of Net Sales
	(In thousands)			(In thousands)
Net sales	$	698,776	100.0%	$	706,448		100.0%
Gross profit	100,820		14.4%	94,167			13.3%
Selling, general, and administrative	69,710		10.0%	70,150			9.9%
Depreciation and amortization	7,063		1.0%	7,503			1.1%
Gains from sales of property	—		0.0%	(9,760		)	(1.4)%
Other operating expenses	1,962		0.3%	3,951			0.6%
Operating income	22,085		3.2%	22,323			3.2%
Interest expense, net	11,535		1.7%	13,717			1.9%
Other expense (income), net	417		0.1%	(45		)	0.0%
Income before provision for income taxes	10,133		1.5%	8,651			1.2%
Provision for income taxes	3,438		0.5%	2,350			0.3%
Net income	$	6,695	1.0%	$	6,301		0.9%

The following table sets forth our results of operations for the six-month periods of fiscal 2020 and fiscal 2019:



	First Six Months of Fiscal 2020			% of Net Sales	First Six Months of 2019			% of Net Sales
	(In thousands)				(In thousands)
Net sales	$	1,360,846		100.0%	$	1,345,149		100.0%
Gross profit	194,029			14.3%	180,212			13.4%
Selling, general, and administrative	143,314			10.5%	139,235			10.4%
Depreciation and amortization	14,698			1.1%	14,831			1.1%
Gains from sales of property	(525		)	0.0%	(9,760		)	(0.7)%
Other operating expenses	6,127			0.5%	9,276			0.7%
Operating income	30,415			2.2%	26,630			2.0%
Interest expense, net	25,915			1.9%	27,118			2.0%
Other expense, net	180			0.0%	105			0.0%
Income (loss) before benefit from income taxes	4,320			0.3%	(593		)	0.0%
Benefit from income taxes	(1,588		)	(0.1)%	(175		)	0.0%
Net income (loss)	$	5,908		0.4%	$	(418	)	0.0%

The following table sets forth net sales by product category for the three and six-month periods ending June 27, 2020, and June 29, 2019:



	Three Months Ended				Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
	(In thousands)				(In thousands)
Structural products	$	249,571	$	224,528	$	490,349	$	421,314
Specialty products	449,205		481,920		870,497		923,835
Net sales	$	698,776	$	706,448	$	1,360,846	$	1,345,149

The following table sets forth gross profit and gross margin percentages by product category for the three and six-month periods of fiscal 2020 and 2019:



	Three Months Ended						Six Months Ended
	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
	(Dollars in thousands)						(Dollars in thousands)
Structural products	$	23,100		$	17,388		$	47,334		$	36,121
Specialty products	77,720			76,779			146,695			144,091
Gross profit	$	100,820		$	94,167		$	194,029		$	180,212
Gross margin percentage by category
Structural products	9.3		%	7.7		%	9.7		%	8.6		%
Specialty products	17.3		%	15.9		%	16.9		%	15.6		%
Total	14.4		%	13.3		%	14.3		%	13.4		%

Second Quarter of Fiscal 2020 Compared to Second Quarter of Fiscal 2019

Net sales. For the second quarter of fiscal 2020, net sales decreased 1.1 percent, or $7.7 million, compared to the second quarter of fiscal 2019. The sales decrease was driven by the loss of $15.9 million of sales related to a siding program that was discontinued in conjunction with our Cedar Creek integration activities in the prior year, partially offset by an increase in sales volume for our structural products and commodity price inflation.

Gross profit and gross margin. For the second quarter of fiscal 2020, gross profit increased by $6.7 million, or 7.1 percent, compared to the second quarter of fiscal 2019, primarily due to improved gross margins on both our specialty and structural products businesses. Gross margin during the same period was 14.4 percent, an increase compared to 13.3 percent in the second quarter of fiscal 2019.

Selling, general, and administrative expenses. The decrease in selling, general, and administrative expenses of 0.6 percent, or $0.4 million, for the second quarter of fiscal 2020, compared to the second quarter of fiscal 2019, is primarily due to decreases in our operational and logistics expenses, along with reductions in our fixed cost structure, partially offset by an increase in incentive compensation of approximately $4.0 million.

Depreciation and amortization expense. For the second quarter of fiscal 2020, depreciation and amortization expense decreased by $0.4 million to $7.1 million due to a lower base of depreciable assets.

Gains from sales of property. Gains from sales of property decreased by $9.8 million for the second quarter of fiscal 2020, compared to the second fiscal quarter of 2019, as we sold no property during the second quarter of 2020.

Other operating expenses. For the second quarter of fiscal 2020, other operating expenses decreased by $2.0 million, or 50.3 percent, compared to the second quarter of fiscal 2019, primarily due to a decrease in spending related to the integration of the Cedar Creek acquisition, partially offset by severance expense incurred in relation to headcount reductions that occurred during the quarter.

Interest expense, net. Interest expense decreased by $2.2 million for the second quarter of fiscal 2020, compared to the second quarter of fiscal 2019. The decrease was largely attributable to a decrease in the average debt balance, as well as a reduction in the variable LIBOR rate that is a component of the interest rate on the Revolving Credit Facility and Term Loan Facility.

Provision for income taxes. Our effective tax rate was 33.9 percent and 27.2 percent for the second quarter of fiscal 2020 and 2019, respectively. Our effective tax rate for the second quarter of fiscal 2020 was impacted by (i) discrete tax expense of $0.4 million for a shortfall on restricted stock unit vesting, (ii) the permanent addback of certain nondeductible expenses, including meals and entertainment and officer’s compensation, and (iii) the effect of the partial valuation allowance for separate company state income tax losses and previously nondeductible interest under 163(j) of the IRC. Our effective tax rate for the second quarter of fiscal 2019 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses. In addition, we recorded discrete tax expense of $0.2 million for a shortfall on vesting of our restricted stock units, which was offset by a $0.2 million discrete tax benefit for claiming state tax credits.

Net income. Our net income improved over the prior year period due to increased gross margins and reduced costs.

First Six Months of Fiscal 2020 Compared to First Six Months of Fiscal 2019

Net sales. For the first six months of fiscal 2020, net sales increased 1.2 percent, or $15.7 million, compared to the first six months of fiscal 2019. The sales increase was driven by higher sales volumes and commodity price inflation, partially offset by the loss of $47.8 million of sales related to a siding program that was discontinued in conjunction with our Cedar Creek integration activities in the prior year.

Gross profit and gross margin. For the first six months of fiscal 2020, gross profit increased by $13.8 million, or 7.7 percent, compared to the first six months of fiscal 2019, primarily due to increased sales revenue and improved gross margins on both our specialty and structural products businesses. Gross margin during the same period was 14.3 percent, an increase compared to 13.4 percent in the first six months of fiscal 2019.

Selling, general, and administrative expenses. The increase in selling, general, and administrative expenses of 2.9 percent, or $4.1 million, for the first six months of fiscal 2020, compared to the first six months of fiscal 2019, is primarily due to an increase in incentive compensation of approximately $4.0 million.

Depreciation and amortization expense. For the first six months of fiscal 2020, depreciation and amortization expense decreased by $0.1 million to $14.7 million compared to the first six months of fiscal 2019, due to a lower base of depreciable assets.

Gains from sales of property. Gains from sales of property decreased by $9.2 million for the first six months of fiscal 2020, compared to the first six months of fiscal 2019, due to only minor adjustments to previous transactions being recorded in 2020.

Other operating expenses. For the first six months of fiscal 2020, other operating expenses decreased by $3.1 million, or 33.9 percent, compared to the first six months of fiscal 2019, primarily due to a decrease in spending related to the integration of the Cedar Creek acquisition, partially offset by severance expense incurred in relation to headcount reductions that occurred during the quarter.

Interest expense. Interest expense decreased by $1.2 million for the first six months of fiscal 2020, compared to the first six months of fiscal 2019. The decrease was largely attributable to a decrease in the average debt balance, as well as a reduction in the variable LIBOR rate that is a component of the interest rate on the Revolving Credit Facility and Term Loan Facility.

Benefit from income taxes. Our effective tax rate was (36.8) percent and 29.5 percent for the first six months of fiscal 2020 and 2019, respectively. Our effective tax rate for the first six months of fiscal 2020 was impacted by (i) the discrete tax benefit of $3.9 million resulting from the release of the valuation allowance associated with the nondeductible interest expense under IRC Section 163(j) as a result of the CARES Act changing the allowable percentage from 30 percent of adjusted taxable income to 50 percent of adjusted taxable income, (ii) recording discrete tax expense of $0.4 million for a shortfall on vesting of our restricted stock units, (iii) the permanent addback of certain nondeductible expenses, including meals and entertainment and nondeductible compensation, and (iv) the effect of the partial valuation allowance for separate company state income tax losses and previously nondeductible interest expense under Section 163(j) of the IRC. Our effective tax rate for the first six months of fiscal 2019 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses. In addition, we recorded discrete tax expense of $0.2 million for a shortfall on vesting of our restricted stock units, which was offset by a $0.2 million discrete tax benefit for claiming state tax credits.

Net income (loss). Our net loss improved to net income from the prior year period due to higher sales, increased gross margins, and reduced costs associated with the acquisition of Cedar Creek.

Seasonality

We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the building products distribution industry. The first and fourth fiscal quarters are typically our lower volume quarters, due to the impact of poor weather on the construction market. Our second and third fiscal quarters are typically our higher volume quarters, reflecting an increase in construction, due to more favorable weather conditions. Assuming no change in underlying inventory costs, our working capital generally increases in the fiscal second and third quarters, reflecting increased seasonal demand. However, due to the COVID-19 pandemic, we could experience disruptions to our typical seasonality trends during the rest of 2020.

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, assuming that our operations are not significantly impacted by the COVID-19 pandemic for a prolonged period, our sales in the normal course of our operations, and amounts currently available from our Revolving Credit Facility and other sources, will be sufficient to fund our routine operations, including working capital requirements, for at least the next twelve months.

Revolving Credit Facility

In April 2018, we amended and restated our Revolving Credit Facility to provide for a senior secured revolving loan and letter of credit facility of up to $600 million and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $150 million. If we obtain the full amount of the additional increases in commitments, the Revolving Credit Facility will allow borrowings of up to $750 million. Borrowings under the Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the Revolving Credit Facility). Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit Facility, which would reduce the amount of the revolving loans available thereunder. Borrowings under the Revolving Credit Facility bear 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) ~~$35.0~~$50 million and (ii) ~~10%~~10 percent of the lesser of (a) the ~~Borrowing Base~~borrowing base and (b) the maximum permitted credit at such time, the Revolving Credit ~~Agreement~~Facility requires maintenance of a fixed charge coverage ratio of ~~1.1~~1.0 to 1.0 ~~(which, subject to satisfying certain conditions though the first fiscal quarter of 2018, may be reduced to 1.0 to 1.0)~~ until ~~such time as our~~ excess availability has been at least ~~$42.5~~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 6030 consecutive days. ~~The~~

We amended the Revolving Credit ~~Agreement also requires us~~Facility on January 31, 2020, to ~~limit our capital expenditures to $30.0 million~~provide that (i) the “Seasonal Period” will run from November 15, 2019, through July 15, 2020, for the calendar year 2019, and from December 15 of each calendar year through April 15 of each immediately succeeding calendar year for the calendar year 2020 and thereafter, and (ii) the measurement period in the ~~aggregate per fiscal year; provided that any unused portion~~definition of ~~such amount up to $15.0~~“Cash Dominion Event” will be five consecutive business days instead of three consecutive business days.

As of June 27, 2020, we had outstanding borrowings of $322.2 million, ~~in any fiscal year may be applied to capital expenditures in the next fiscal year.~~

~~The Credit Agreement also contains representations~~excess availability of $138.1 million, and ~~warranties and affirmative and negative covenants customary for financings~~a weighted average interest rate of ~~this type as well as customary events of default.~~

In connection with the execution and delivery of the Credit Agreement, we also entered into a Limited Guaranty in favor of Wells Fargo (the “Limited Guaranty”), pursuant to which we agreed to guarantee our obligations2.6 percent under the Revolving Credit ~~Agreement~~

~~for so long as~~Facility. As of December 28, 2019, our ~~existing mortgage remained outstanding. We also agreed with Wells Fargo that we would not pledge the equity interests in certain of~~principal balance was $326.5 million, excess availability was $80.0 million, and our subsidiaries that own real property. This guaranty can only be exercised if we breach our negative pledge obligations. The Limited Guaranty will terminate when we repay our existing mortgage loan in full.weighted average interest rate was 3.9 percent.

We were in compliance with all covenants under the Revolving Credit ~~Agreement~~Facility as of ~~September 30, 2017.~~June 27, 2020.

Term Loan Facility

In April 2018, we entered into our Term Loan Facility with HPS Investment Partners, LLC, and other financial institutions as party thereto, which 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 annum equal to (i) the greatest of the (a) U.S. prime lending rate published in The Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum; plus (ii) 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.

things, modifying the total net leverage ratio covenant levels for the 2020 second and third quarters. All other total net leverage ratio covenant levels for prior and future quarters were unchanged.

The Term Loan Facility permits us to enter into real estate sale leaseback transactions with the net proceeds therefrom to be used for repayment of indebtedness under the facility, subject to payment of an applicable prepayment premium. In addition, proceeds from the sale of “Specified Properties” will be used for the repayment of indebtedness under the Term Loan Facility, subject to payment of an applicable prepayment premium, or, under certain circumstances, repayment of indebtedness under our Revolving Credit Facility.

Unless and until the total net leverage ratio covenant is eliminated, the Term Loan Facility requires maintenance of a total net leverage ratio of 8.75 to 1.00 for the quarter ending June 27, 2020, and the third quarter of 2020, and 5.25 to 1.00 for the fourth quarter of 2020, with ratio levels generally reducing over the remaining term of the Term Loan Facility.

The calculation of the total net leverage ratio for any period is generally determined by taking our “Consolidated Total Debt” and dividing it by our “Consolidated EBITDA,” as those terms are defined in the Term Loan Facility. “Consolidated Total Debt” is generally determined by adding the balance of our term loan, the prior month’s average balance of our Revolving Credit Facility, and our equipment finance lease liability, and reducing that amount by unrestricted cash up to $10.0 million. On June 27, 2020, the Term Loan Facility balance was $68.8 million, the average balance of the Revolving Credit Facility for the prior month was $320.1 million, our equipment finance lease liability was $29.2 million, and unrestricted cash was $10.0 million. Liabilities related to sale-leaseback transactions are excluded from the calculation. “Consolidated EBITDA” is generally determined by taking the Adjusted EBITDA that we report for the most recent four consecutive quarters and adjusting items specified under the Term Loan Facility. The adjustments to Adjusted EBITDA for calculating Consolidated EBITDA under the Term Loan Facility as of the end of the second quarter of 2020 for the most recent four consecutive quarters were approximately $3.0 million.

We were in compliance with all covenants under the Term Loan Facility as of June 27, 2020.

As of June 27, 2020, we had outstanding borrowings of $68.8 million under our Term Loan Facility and an interest rate of 8.0 percent per annum. As of December 28, 2019, our principal balance was $146.7 million with an interest rate of 8.7 percent per annum. The decrease in the outstanding borrowings was due to net proceeds of the real estate financing transactions described in Note 8 being applied to the Term Loan Facility.

Finance Lease Commitments

Our finance lease liabilities consist of leases related to equipment and vehicles, and to real estate, with the majority of those finance lease commitments relating to the real estate financing transactions that we have completed in recent years. During fiscal 2017 and 2018, we completed real estate financing transactions on six warehouse facilities; during 2019, we completed real estate financing transactions on two warehouse facilities; and, to date in fiscal 2020, we completed real estate financing transactions on fourteen warehouse facilities. We recognized finance lease assets and obligations as a result of each of these transactions. Our total finance lease commitments, including the properties associated with these transactions, totaled $272.6 million as of June 27, 2020.

Interest Rates

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

Sources and Uses of Cash

Operating Activities

Net cash ~~used in~~provided by operating activities for the first ~~nine~~six months of fiscal ~~2017~~2020 was ~~$38.3~~$12.9 million, compared to net cash used in operating activities of ~~$0.2~~$53.0 million in the first ~~nine~~six months of fiscal ~~2016. Accounts receivable increased~~2019. The increase in cash provided by ~~$47.9 million~~operating activities during the first ~~nine~~six months of fiscal ~~2017,~~2020 was a result of reporting net income for the current period and a decrease in working capital compared to ~~an increase of $24.8 million in the first nine months of~~ the prior ~~fiscal~~ year which increase in the 2017 period was largely attributable to timing of sales within the quarter. Inventory increased by $15.5 million in the first nine months of fiscal 2017, which reflects the seasonality of our business, as we are in our historical peak selling season.period.

Investing Activities

Net cash ~~provided by~~used in investing activities for the first ~~nine~~six months of fiscal ~~2017~~2020 was ~~$27.2~~$1.7 million compared to net cash provided by investing activities of ~~$18.4~~$15.0 million in the first ~~nine~~six months of fiscal ~~2016. Our~~2019. The net cash provided by investing activities in the prior year was due to $6.0 million that was returned from escrow after the Cedar Creek acquisition was finalized and $10.8 million of proceeds from asset sales, offset by cash paid for property and equipment investments of $1.8 million; cash paid for property and equipment investments was consistent in both ~~periods primarily was related to the sales of certain distribution facilities, including sale and leaseback transactions.~~

~~In the future, we may perform further sale and lease back transactions of certain of our owned properties.~~periods.

Financing Activities

Net cash used in financing activities totaled $11.4 million for the first six months of fiscal 2020, compared to net cash provided by financing activities of ~~$11.1~~$41.8 million for the first ~~nine~~six months of fiscal ~~2017,~~2019. The decrease in net cash provided by financing activities is primarily ~~reflected seasonal net~~due to an increase in repayments on our Revolving Credit Facility and Term Loan Facility of $70.8 million and a reduction in borrowings on our ~~prior revolving credit facility~~Revolving Credit Facility of ~~$41.1~~$15.3 million, offset by ~~principal payments on our mortgage loan~~an increase in proceeds from real estate financing transactions of ~~$29.0~~$33.4 million.

We replaced our prior revolving credit facility, including the Tranche A Loan, on October 10, 2017. See “Revolving Credit Facility,” above, for additional information regarding our new credit facility.

Operating Working Capital⁽¹⁾

Selected financial information (in thousands)
September 30, 2017 December 31, 2016 October 1, 2016
Current assets:
Cash $ 5,590
$ 5,540
$ 4,704
Receivables, less allowance for doubtful accounts 173,748
125,857
163,388
Inventories, net 206,788
191,287
207,909
Other current assets 21,063
23,126
25,176
Total current assets $ 407,189
$ 345,810
$ 401,177

Current liabilities:

Accounts payable $ 97,606
$ 82,735
$ 93,777
Bank overdrafts 21,641
21,696
15,554
Accrued compensation 8,491
8,349
7,581
Current maturities of long-term debt, net of discount 54,521
29,469
44,909
Other current liabilities 15,081
12,092
12,728
Total current liabilities $ 197,340
$ 154,341
$ 174,549

Operating working capital $ 264,370
$ 220,938
$ 271,537



Selected financial information
	June 27, 2020		December 28, 2019		June 29, 2019
	(In thousands)
Current assets:
Cash	$	11,530	$	11,643	$	12,662
Receivables, less allowance for doubtful accounts	264,642		192,872		262,042
Inventories, net	313,979		345,806		358,652
	$	590,151	$	550,321	$	633,356

Current liabilities:
Accounts payable ⁽²⁾	$	158,920	$	132,348	$	174,860
	$	158,920	$	132,348	$	174,860

Operating working capital	$	431,231	$	417,973	$	458,496

⁽¹⁾ Operating working capital is defined as the sum of cash, receivables, and inventory less accounts payable.

⁽²⁾Accounts payable includes outstanding payments of $19.5 million, $16.1 million, and $37.1 million as of June 27, 2020, December 28, 2019, and June 29, 2019, respectively. Outstanding payments represent outstanding checks and electronic payments that have not been presented for payment as of the end of the period; these amounts are typically funded within 24 hours.

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.

Operating working capital of ~~$264.4~~$431.2 million ~~at September 30, 2017,~~on June 27, 2020, compared to ~~$220.9~~$418.0 million as of December ~~31, 2016,~~28, 2019, increased on a net basis ofby approximately ~~$43.4 million as a result of the~~$13.3 million. The increase in operating working capital is primarily driven by seasonal ~~nature of our business, which typically peaks in the second and third fiscal quarters. This seasonality resulted in a $47.9 million increase~~increases in accounts receivable, ~~and an~~offset by decreases in inventory due to the company’s tighter management of inventory levels. The net increase in ~~inventory of $15.5 million,~~current assets was offset by an increase in accounts payable due to recent inventory purchases during the month of ~~$14.9 million.~~June.

Operating working capital of $431.2 million on June 27, 2020, compared to $458.5 million as of June 29, 2019, decreased ~~from October 1, 2016, to September 30, 2017,~~ by ~~$7.2~~$27.3 million, ~~primarily~~ driven by ~~increases~~decreases in the company’s inventory level, offset by a decrease in accounts payable and bank overdrafts comprising $9.9 million in total. Additionally, other current assets decreased by $4.1 million, primarily reflecting the removal of the net book value of “held for sale” properties, as most of our properties held for sale were sold during the fourth quarter of 2016 and first quarter of 2017. The last component of the decrease in operating capital included increases in all categories of current liabilities included in the operating working capital calculation, from October 1, 2016, to September 30, 2017.payable.

Critical Accounting Policies

The preparation of our consolidated financial statements and related disclosures in conformity with GAAP requires our management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. There have been no material changes to our critical accounting policies from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016.~~28, 2019.

Forward-Looking Statements

This report contains forward-looking statements. Forward-looking statements include, without limitation, any statement that predicts, forecasts, indicates or implies future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will be,” “will likely continue,” “will likely result” or words or phrases of similar meaning. The forward-looking statements in this report include statements about the COVID-19 pandemic, its duration and effects, and its potential effects on our business and results of operations; anticipated effects of adopting certain accounting standards; estimated future annual amortization expense; potential changes to estimates made in connection with revenue recognition; the expected outcome of legal proceedings; industry conditions; seasonality; and liquidity and capital resources.

Forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. These risks and uncertainties include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 28, 2019, and those discussed elsewhere in this report (including Item 1A of Part II of this report) and in future reports that we file with the SEC. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Factors that may cause these differences include, among other things: the COVID-19 pandemic and other contagious illness outbreaks and their potential effects on our industry, suppliers and supply chain, and customers, and our business, results of operations, cash flows, financial condition, and future prospects; our ability to integrate and realize anticipated synergies from acquisitions; loss of material customers, suppliers, or product lines in connection with acquisitions; operational disruption in connection with the integration of acquisitions; our indebtedness and its related limitations; sufficiency of cash flows and capital resources; our ability to monetize real estate assets; fluctuations in commodity prices; adverse housing market conditions; disintermediation by customers and suppliers; changes in prices, supply and/or demand for our products; inventory management; competitive industry pressures; industry consolidation; product shortages; loss of and dependence on key suppliers and manufacturers; import taxes and costs, including new or increased tariffs, anti-dumping duties, countervailing duties or similar duties; our ability to successfully implement our strategic initiatives; fluctuations in operating results; sale-leaseback transactions and their effects; real estate leases; changes in interest rates; exposure to product liability claims; our ability to complete offerings under our shelf registration statement on favorable terms, or at all; changes in our product mix; petroleum prices; information technology security and business interruption risks; litigation and legal proceedings; natural disasters and unexpected events; activities of activist stockholders; labor and union matters; limits on net operating loss carryovers; pension plan assumptions and liabilities; risks related to our internal controls; retention of associates and key personnel; federal, state, local and other regulations, including environmental laws and regulations; and changes in accounting principles. Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As stated in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, disclosures for Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” are not required, as we are a Smaller Reporting Company.Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Our management performed an evaluation, as of the end of the period covered by this report on Form 10-Q, under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

~~There were~~

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

During the ~~third~~second quarter of fiscal ~~2017,~~2020, there were no material changes to our legal proceedings as disclosed in our Annual Report on Form 10-K for the year ended December ~~31, 2016.~~28, 2019. Additionally, we are, and from time to time may be, a party to routine legal proceedings incidental to the operation of our business. The outcome of any pending or threatened proceedings is not expected to have a material adverse effect on our financial condition, operating results, or cash flows, based on our current understanding of the relevant facts. Legal expenses incurred related to these contingencies are generally expensed as incurred.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A.Risk Factors" in our Annual Report on Form 10-K for the year ended December 28, 2019, as updated and supplemented below, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Our ~~industry is highly cyclical,~~business, results of operations, and ~~prolonged periods~~financial condition may be materially adversely impacted by the COVID-19 pandemic.

A novel strain of ~~weak demand~~coronavirus (COVID-19) was first identified in December 2019 in certain Far East and European countries. On March 11, 2020, the spread of COVID-19 was declared a global pandemic by the World Health Organization, with a high concentration of cases in the United States. On March 13, 2020, the United States declared a national emergency concerning the pandemic, and many U.S. states and municipalities have declared public health emergencies. In response, U.S. federal, state, and local governments and agencies have enacted wide-ranging actions to combat the pandemic, including “shelter-in-place” orders and quarantines, social distancing mandates, and face covering and hygiene protocols. In addition, some U.S. states and municipalities have placed significant limits on non-essential construction projects. These actions have substantially restricted daily activities for individuals and businesses, and have caused many businesses to curtail or ~~excess supply may reduce our net sales and/or margins, which may cause us to incur losses or reduce our net income~~.cease normal operations.

The ~~building products distribution industry is subject~~widespread health crisis created by the COVID-19 pandemic and the actions taken to ~~cyclical market pressures. Prices of building products are determined by overall supply and demand in the market. Market prices of building products historically~~combat it 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 havehad a significant adverse ~~impact~~effect on the economies and financial markets of the U.S. and many other countries. The U.S. has experienced deteriorating economic conditions in many major markets, including increased unemployment, decreases in disposable income, declines in consumer confidence, general economic slowdowns, and significant volatility in financial markets. These deteriorating economic conditions may reduce demand for our products, which could materially reduce our sales and profitability. In addition, any bankruptcy or financial ~~condition, operating results, and cash flows.~~

~~Certain~~distress of our ~~products are commodities and fluctuations~~customers or suppliers due to deterioration in ~~prices of these commodities could affect our operating results~~.

Many of the building products which we distribute, including OSB, 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 speculation, government regulation and trade policies, as well as from periodic delays~~could result in ~~the delivery of products. Short-term increases in the cost of these materials, some of which are subject to~~other significant ~~fluctuations, are sometimes passed on~~negative impacts to our ~~customers, but our pricing quotation periods and pricing pressure~~business including reduced sales, decreased collectability of accounts receivable, impaired credit, an ineffective supply chain, loss of credit from our ~~competitors may~~suppliers, and a reduction in certain key product brands. Deteriorating economic conditions and reduced sales and profitability could also 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 due to the price of fuel.~~

At times, the purchase price for any one or more of the products we produce or distribute may fall below our purchase costs, requiring us to incur short-term 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, resulting in substantial declines in profitability and possible net losses.

The wood products industry supply is influenced primarily by price-induced changes in the operating rates of existing facilities, but is also influenced over time by the introduction of new product technologies, capacity additions and closures, restart of idled capacity, and log availability. The balance of wood products supply and demand in the United States is also heavily influenced by imported products.

We have very limited control of the foregoing, and as a result, our profitability and cash flow may fluctuate materially in response to changes in the supply and demand balance for our primary products.

~~Our cash flows and capital resources may be insufficient to make required payments on our substantial indebtedness, future indebtedness, or to maintain our required level of excess liquidity~~.

~~We have a substantial amount of debt which could have important consequences for us. For example, our substantial indebtedness could:~~

~~make it difficult for us to satisfy our debt obligations;~~

~~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 new revolving credit facility (the~~

~~“Credit Agreement”) is variable;~~

~~require us to dedicate a substantial portion of our cash flows to payments on our debt, thereby reducing~~ the availability of credit, or increase 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.~~

In addition, our ability to make scheduled payments or refinance our obligations 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~~borrowing costs, including by requiring 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. In the event that 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.collateral. We ~~may incur substantial additional indebtedness in the future. Our incurring additional indebtedness would intensify the risks described above.~~

~~The instruments governing our indebtedness restrict our ability to dispose of assets and the use of proceeds from any such disposition~~.

Our obligations under the Credit Agreement are secured by a first priority security interest in all of our operating subsidiaries’ assets, including inventories, accounts receivable, real property, and proceeds from those items. Furthermore, the equity interest in all of our real estate subsidiaries which hold the real estate secured by our mortgage are subject to first priority interests in favor of our mortgage lenders. In addition, pursuant to a limited guaranty entered into in connection with the Credit Agreement, we agreed that we would not further pledge the equity interests in certain of our real estate subsidiaries for as long as any portion of our existing mortgage loan remains outstanding.

As of September 30, 2017, we had outstanding borrowings of $217.7 million and excess availability of $82.7 million, based on qualifying inventory and accounts receivable, under the terms of our prior revolving credit facility, including the Tranche A loan, which we replaced on October 10, 2017, with the Credit Agreement. In addition, our mortgage loan is secured by the majority of our real property. As amended on March 24, 2016, our mortgage loan requires us to make a $55.0 million principal payment due no later than July 1, 2018, with the remainder of the mortgage due on July 1, 2019. Pursuant to the mortgage loan, and except as expressly permitted thereunder, the net proceeds from any mortgaged properties sold by us must be used to pay down mortgage principal, and these net proceeds will be included in the aforementioned principal payments. We may incur substantial additional indebtedness in the future, and our incurring additional indebtedness would intensify the risks described above.

Accordingly, we may not be able to consummate any disposition of assets or obtain the net proceeds which we could realize from such disposition, and these proceeds may not be adequate to meet the debt service obligations then due. In the event of our breach of our new revolving credit facility or our mortgage loan, wealso may be required to ~~repay any outstanding amounts earlier than anticipated, and the lenders may foreclose on their security interest in our assets or otherwise exercise their remedies~~record impairment charges with respect to ~~such interests.~~assets whose fair values may be negatively affected by the effects of the pandemic on our operations.

~~The instruments governing~~

In addition, although our ~~indebtedness contain various covenants limiting the discretion~~operations and those of most of our ~~management~~direct customers and suppliers are currently considered “essential” and are therefore exempt from state and local business closure orders, these exemptions may not mitigate the impact to our markets caused by the COVID-19 pandemic, and they may be curtailed or revoked in ~~operating~~the future. If these exemptions are curtailed or revoked, it could require us, or our customers or suppliers, to further limit our operations or suspend them altogether, which would adversely impact our business, ~~including requiring us~~operating results, and financial condition. The pandemic has also caused, and may continue to ~~maintain a minimum level of excess liquidity~~.

Our new revolving credit facility and mortgage loan contain various restrictive covenants and restrictions, including financial covenants customary for asset-based loans that limit management’s discretion in operating our business. In particular, these instruments limitcause, disruption to the global supply chain, which could impact our ability to ~~among other things:~~source products from our suppliers, many of whom are located outside of the United States, including China.

~~incur additional debt;~~

~~grant liens on assets;~~

~~make investments;~~

~~sell or acquire assets outside~~In response to the ~~ordinary course~~pandemic, we have instituted a number of ~~business;~~

~~engage~~actions to protect our workforce, including restricting business travel, imposing mandatory quarantine periods for employees who have traveled to areas impacted by the pandemic, modifying office functions to allow employees to work remotely, and modifying our warehouse and delivery operations to enforce enhanced safety protocols around social distancing, hygiene, and health screening. While all of these steps are necessary and appropriate in ~~transactions with affiliates; and~~

~~make fundamental business changes.~~

The Credit Agreement provides for a senior secured revolving loan and letter of credit facility of up to $335.0 million and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $75.0 million, subject to certain conditions, including lender consent. The maturity datelight of the ~~Credit Agreement is October 10, 2022.~~

Borrowings under the Credit Agreement will be subject to availability under the Borrowing Base (as defined in the Credit Agreement). We will be required to repay revolving loans thereunder to the extent that such revolving loans exceed the borrowing base then in effect. Furthermore, in the event excess availability falls below the greater of (i) $35.0 millionpandemic, they, coupled with state and ~~(ii) 10% of the lesser of (a) the Borrowing Base~~local business closure orders and (b) the maximum permitted credit at such time, the Credit Agreement requires maintenance of a fixed charge coverage ratio of 1.1 to 1.0 (which, subject to satisfying certain conditions though the first fiscal quarter of 2018, may be reduced to 1.0 to 1.0) until such time as our excess availability has been at least $42.5 million for a period of 60 days.

If we fail to comply with the restrictions in the Credit Agreement, the mortgage loan documents, or any other current or future financing agreements, 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.

~~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 2016 and early 2017, and we have designated certain non-operating properties as held for sale, which we currently are actively marketing. In addition, 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. This may negatively affect, among other things,regulations, do impact our ability to ~~sell properties on favorable terms, execute~~operate our ~~strategic initiatives~~business in its ordinary and ~~repay~~traditional course, and they have and may continue to cause us to experience reductions in productivity and disruptions to our ~~mortgage loan, which has a $55.0 million principal payment due no later than July 1, 2018,~~business routines while they remain in place.

While many states have begun the process of lifting or curtaining shelter-in-place, business closure, and related orders, the rates of infection, hospitalization, and mortality associated with the ~~remaining balance due no later than July 1, 2019.~~

~~Instruments governing our indebtedness limit transfers of our common stock~~.

~~Our new revolving credit facility that we closed~~COVID-19 virus continue to fluctuate, and funded on October 10, 2017 (to replace our prior revolving credit facility, including Tranche A Loan) and our mortgage loan contain limitations on transfers of our common stock under various conditions describedhave increased in the respective instruments. As of September 30, 2017, we had outstanding borrowings of $217.7 million under our new revolving credit facility, and a balance of $97.8 million under our mortgage loan. Sales by Cerberus ABP Investor LLC, an affiliate of Cerberus Capital Management, L.P. (“Cerberus”), outside of the public offering of shares of our common stock that closed on October 23, 2017 could under some circumstances violate transfer restrictions in our mortgage loan that would result in an event of default under such facility. Although Cerberus has indicated that it does not intend to cause transfers of its shares to be effected in a manner that would knowingly violate these restrictions, we may not be able to prevent Cerberus from doing so. In addition, if at any time any personlocalities. The potential magnitude or group of persons acquires 35% or more of our common stock, whether or not inadvertently, then a change of control would be triggered under our revolving credit facility that would result in an event of default under such facility. Our mortgage loan contains restrictions on transfers of our shares to certain transferees, including persons convicted of certain crimes or subject to certain insolvency related proceedings as defined in the mortgage loan, that are applicable under certain circumstances. A violation of any applicable restrictions could result in an event of default under the mortgage. In the event of any breach of our revolving credit facility or mortgage loan as a result of such transfers, we may be required to repay any outstanding amounts under such facilities 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.

~~Adverse housing market conditions may negatively impact our business, liquidity and results of operations, as well as 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 underwent a significant decline from its peak in 2005. Although the homebuilding industry has improved over the last few years, 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 2016 increased 9.4% from 2015 levels, but remain 54.4% 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~~business and economic impacts from this pandemic continue to remain uncertain, and many of the associated negative trends may continue through fiscal 2020. While the initial negative impact on our business from the COVID-19 pandemic has not been as significant as we initially expected, it could become more severe. Any of the negative impacts of the COVID-19 pandemic, including those described above, alone or ~~the timing or strength of any continued recovery of housing activity~~ in ~~our markets. The homebuilding industry also~~combination with others, 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, 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 as 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 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 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 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.

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.

~~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 the loss of key supplier arrangements could adversely impact our financial condition, ~~operating results,~~ and cash flows. In addition, any of these negative impacts, alone or in combination with others, could exacerbate 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~~risks described 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.

~~A change~~Part I, “Item 1A. Risk Factors”, in our ~~product mix could adversely~~Annual Report on Form 10-K for the year ended December 28, 2019, and the other risks described in this report. The full extent to which the COVID-19 pandemic will negatively 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 product mix of sales. If actual results vary from this projected product mix of 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 existing customers and acquire new customers will be difficult to accomplish. As a result, our revenue, operating performance, cash flows will depend on future developments that are highly uncertain and ~~net income may~~cannot be ~~adversely affected.~~predicted.

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 economic growth 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 10,000 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.

~~If petroleum prices increase, our results of operations could be adversely affected~~.

Petroleum prices have fluctuated significantly in recent years, including recent periods of historically low prices. Prices and availability of petroleum products are subject to political, economic, and market factorsbeen notified 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 entered into forward purchase contracts that protect against fuel price increases. However, if fuel prices decrease, then such hedging arrangements would result in us spending more money on fuel. 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 hedging arrangements, then our results of operations would be adversely affected.

~~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~~compliance with certain listing standards of the accident risk under vehicle liability and workers’ compensation insurance programs. Our self-insurance accruals are based on actuarially estimated, undiscounted cost of claims, which includes claims incurred but not reported. While we believe that our estimation processes are well designed, every estimation process is inherently subject to limitations. Fluctuations in the frequency or severity of accidents 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 39 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.

~~We are subject to disintermediation risk.~~

As customers continue to consolidate or otherwise increase their purchasing power, they are better able to purchase products directly from the same suppliers that use us for distribution. In addition to the threat of losing business from a customer, disintermediation puts us at risk of losing entire product lines or categories from suppliers. It 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.

~~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.New York Stock Exchange (NYSE), 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 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.

regain compliance.

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. Our operating results for prior periods may not be effective predictors of future performance.

~~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:~~

~~the commodity nature 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, inventory levels of new and existing homes for sale, 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;~~

~~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;~~

~~our ability to successfully complete potential 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.

~~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 September 30, 2017, we employed approximately 1,500 persons. Approximately 35% of our employees were represented by various local labor union collective bargaining agreements (“CBAs”), with one CBA up for renewal before the end of fiscal 2017.

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 September 30, 2017, we had net operating loss (“NOL”) carryforwards of approximately $163.7 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 occur 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 Cerberus that closed on October 23, 2017 (the “Resale Offering”) caused an ownership change limitation to be triggered. That limitation could restrict our ability to use our NOL carryforwards if our anticipated real estate sales over the next five years are not realized for any reason. 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 (“ERISA”), 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.

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 $4.5 million in the first quarter of 2017, and increased the estimated liability by $1.0 million in the second quarter of 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. As of March 30, 2016, 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% and the plan is projected to become insolvent in 2025. It is unclear what will happen to this plan in the future. At a minimum, we expect that our required contributions to the plan may increase. In addition, if we experience a withdrawal from this plan, we may need to record a significant withdrawal liability. Our estimated withdrawal liability is $33.9 million if we experience a complete withdrawal from the plan during 2017. This number will likely increase if a withdrawal occurs in 2018 or later, and could be significantly higher if a mass withdrawal were to occur in the future.

~~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. Security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. 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 violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business. As cyber attacks become more sophisticated generally, we may be required to 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 inventories and accounts receivable, make purchasing decisions, monitor our results of operations, and place orders with our vendors and process orders from our customers. Disruption in these systems could materially impact our ability to buy and sell our products.

~~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 Federal Motor Carrier Safety Administration (“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 lower quality drivers, or face difficulty meeting customer demands, all of which could adversely affect our growth and profitability.

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 FMCA, 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 are subject to continuing compliance monitoring by the New York Stock Exchange (the “NYSE”). If we do not continue to meet the NYSE continued listing standards, our common stock may be delisted~~.

Our common stock is currently listed for trading on the NYSE, and the continued listing of our common stock on the NYSE is subject to our compliance with the listing standards. We are currently in compliance with the continued listing standards of the NYSE; however, in 2015 and 2016On April 22, 2020, we were notified by the NYSE that we ~~had failed to meet~~were not in compliance with the ~~NYSE’s minimum average share price requirement and~~continued listing standards set forth in Section 802.01B of the ~~NYSE’s minimum~~New York Stock Exchange Listed Company Manual because our average global market capitalization over a consecutive 30 trading-day period was less than $50 million, and, at the same time, our stockholders’ equity ~~requirement. We have since regained~~was less than $50 million.

On April 28, 2020, we submitted, and on May 14, 2020, the NYSE accepted, our plan to regain conformity with this NYSE listing standard by January 1, 2022, in accordance with NYSE rules. Our common stock will continue to be listed and traded on the NYSE during the cure period, subject to our compliance with ~~each of those requirements. If~~other continued listing standards, and we ~~are unable~~will be subject to ~~maintain~~quarterly monitoring by the NYSE for compliance with the plan. The NYSE ~~criteria for~~will deem us to have regained compliance if, during the cure period, we comply with the relevant continued listing standards, or qualify under an original listing standard, for a period of two consecutive quarters. Until the NYSE determines that we have regained compliance, our common stock ~~may~~trading symbol of “BXC” will have an added designation of “.BC” to indicate that the status of the common stock is “below compliance” with the NYSE continued listing standards. If we fail to comply with the plan, do not meet continued listing standards at the end of the allowed cure period, or in the event that our common stock trades at levels viewed to be abnormally low by the NYSE, our common stock will be subject to ~~delisting. Delisting may~~the prompt initiation of NYSE suspension and delisting procedures. There can be no assurance that our plans to regain compliance will be successful.

We believe that the erosion of our average market capitalization was a direct result of the effects of the COVID-19 pandemic on the stock market, and we expect that a return to normalcy in the stock market should return our market capitalization to a compliant level. Our 30 trading-day average global market capitalization was $69.8 million and $91.0 million at June 27, 2020, and July 31, 2020, respectively, in each case in excess of the $50 million required by the listing standard; however, a delisting would have an adverse effect on the liquidity of our common stock and, as a result, the market price for our common stock might ~~decline.~~

~~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 ofdecline if 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 wereis delisted. Delisting could also make it more difficult for us 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.~~

~~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 inraise 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.~~

~~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 and 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 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.

capital.

~~We do not expect 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 Credit Agreement. Regardless of the restrictions in our Credit Agreement 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.

Although we no longer qualify as a “controlled company” within the meaning of the NYSE, we may continue to rely on exemptions from certain corporate governance requirements during a one-year transition period.

As a result of the Resale Offering, we are no longer a “controlled company” within the meaning of the NYSE rules. Prior to the Resale Offering, more than 50% of the voting power for the election of our directors was held by Cerberus, which allowed us to rely on exemptions from certain corporate governance requirements that would otherwise provide protection to stockholders of other companies. However, as a result of the Resale Offering, Cerberus no longer holds a majority of our common stock. Thus, we no longer qualify as a controlled company and have to comply with such NYSE requirements within certain transition periods. Prior to the Resale Offering, we relied on our status as a controlled company for exemptions from (i) the requirement that our board consist of a majority of independent directors and (ii) the requirement that our nominating and corporate governance committee consist entirely of independent directors. Although we have ceased to be a controlled company, we may continue to rely on these exemptions for a one-year transition period from the closing date of the Resale Offering, after which we will be required to have a board consisting of a majority of independent directors and a nominating and corporate governance committee consisting entirely of independent directors.

~~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 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.

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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~The following table summarizes the Company’s common stock repurchase activity for each month of the quarter ended June 27, 2020:



		Total Number
		Shares	Average Price
Period		Purchased⁽¹⁾	Paid Per Share
March 29 - May 2, 2020		—	$	—
May 3 - May 30, 2020		—	$	—
May 31 - June 27, 2020		27,522	$	8.98
Total		27,522

(1)	The Company did not repurchase any of its 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. All purchases reflected in the table above pertain to purchases of common stock by the Company in connection with tax withholding obligations of the Company’s employees upon the vesting of such employees’ restricted stock awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~On August 3, 2020, in light of the performance by the Company during its 2020 second fiscal quarter and July, the Compensation Committee of the Company’s Board of Directors (the “Committee”) rescinded the voluntary reduction of the base salary of the Company’s President and Chief Executive Officer, Mitchell B. Lewis, and reinstated his annual base salary of $850,000 effective August 1, 2020. Mr. Lewis’s base salary had been reduced to, and paid at, $1 per month for the months of April through July 2020 at the request of Mr. Lewis and pursuant to the Committee’s previous approval.

ITEM 6. EXHIBITS




Exhibit Number		Description

10.1		~~Fourteenth~~Sixth Amendment to ~~the Amended~~Credit and ~~Restated Loan and Security~~Guaranty Agreement, dated ~~August 24, 2017,~~April 1, 2020, by and ~~between~~among BlueLinx Holdings Inc., as borrower, certain subsidiaries of BlueLinx Holdings Inc., as guarantors, the ~~Company, certain of the Company’s subsidiaries, Wells Fargo Bank, National Association,~~lenders party thereto, and ~~the other lenders signatory thereto~~HPS Investment Partners, LLC, in its capacity as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Form ~~8-K~~8‑K filed with the Securities and Exchange Commission on ~~August 28, 2017).~~

~~10.2~~		Credit Agreement, dated as of October 10, 2017, by and among the Company, certain of the Company’s subsidiaries, Wells Fargo Bank, National Association, 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).

~~10.3~~		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)April 7, 2020).
10.2
~~10.4~~	*	~~Limited Guaranty,~~Letter Agreement, dated ~~as of October 10, 2017, by the Company 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~~March 30, 2020, between BlueLinx Corporation and ~~Exchange Commission on October 10, 2017).~~Alexander Averitt.

31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
32.1*	**	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
32.2*	**	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.Def		Definition Linkbase ~~Document~~Document.
101.Pre		Presentation Linkbase ~~Document~~Document.
101.Lab		Labels Linkbase ~~Document~~Document.
101.Cal		Calculation Linkbase ~~Document~~Document.
101.Sch		Schema ~~Document~~Document.
101.Ins		Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.


	*	Filed herewith.
	**	Exhibit is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.




		BlueLinx Holdings Inc.
		(Registrant)

Date: ~~November 2, 2017~~August 3, 2020	By:	/s/ ~~Susan~~Kelly C. ~~O’Farrell~~Janzen
		~~Susan~~Kelly C. ~~O’Farrell~~Janzen
		Senior Vice President and Chief Financial Officer ~~Treasurer, and Principal Accounting Officer~~

2831



	September 30, 2017			December 31, 2016
Assets:
Current assets:
Cash	$	5,590		$	5,540
Receivables, less allowances of $2,738 and $2,733, respectively	173,748			125,857
Inventories, net	206,788			191,287
Other current assets	21,063			23,126
Total current assets	407,189			345,810
Property and equipment:
Land and land improvements	30,715			34,609
Buildings	84,772			80,131
Machinery and equipment	75,133			72,122
Construction in progress	428			3,104
Property and equipment, at cost	191,048			189,966
Accumulated depreciation	(105,846		)	(101,644		)
Property and equipment, net	85,202			88,322
Other non-current assets	13,969			10,005
Total assets	$	506,360		$	444,137
Liabilities:
Current liabilities:
Accounts payable	$	97,606		$	82,735
Bank overdrafts	21,641			21,696
Accrued compensation	8,491			8,349
Current maturities of long-term debt, net of discount of $480 and $201, respectively	54,521			29,469
Other current liabilities	15,081			12,092
Total current liabilities	197,340			154,341
Non-current liabilities:
Long-term debt, net of discount of $1,766 and $2,544, respectively	258,789			270,792
Pension benefit obligation	31,452			34,349
Other non-current liabilities	37,922			14,496
Total liabilities	525,503			473,978
Stockholders’ deficit:
Common Stock, $0.01 par value, Authorized - 20,000,000 shares, Issued and Outstanding - 9,098,221 and 9,031,263, respectively	91			90
Additional paid-in capital	258,854			257,972
Accumulated other comprehensive loss	(36,433		)	(36,651		)
Accumulated stockholders’ deficit	(241,655		)	(251,252		)
Total stockholders’ deficit	(19,143		)	(29,841		)
Total liabilities and stockholders’ deficit	$	506,360		$	444,137



	September 30, 2017		December 31, 2016
Capital leases - real estate	$	7,940	$	—
Deferred gain on sale-leaseback transactions	10,945		—
Capital leases - logistics equipment	6,930		8,559
Other	12,107		5,937
Total	$	37,922	$	14,496



	Third Quarter of Fiscal 2017		% of Net Sales	Third Quarter of Fiscal 2016			% of Net Sales
	(Dollars in thousands)
Net sales	$	479,318	100.0%	$	476,049		100.0%
Gross profit	60,545		12.6%	60,050			12.6%
Selling, general, and administrative	46,817		9.8%	49,152			10.3%
Gains from sales of property	—		—%	(13,940		)	(2.9)%
Depreciation and amortization	2,249		0.5%	2,220			0.5%
Operating income	11,479		2.4%	22,618			4.8%
Interest expense	5,670		1.2%	6,105			1.3%
Other income, net	—		—%	(17		)	—%
Income before provision for income taxes	5,809		1.2%	16,530			3.5%
Provision for income taxes	123		—%	1,522			0.3%
Net income	$	5,686	1.2%	$	15,008		3.2%



	First Nine Months of Fiscal 2017			% of Net Sales	First Nine Months of Fiscal 2016			% of Net Sales
	(Dollars in thousands)
Net sales	$	1,381,927		100.0%	$	1,459,386		100.0%
Gross profit	175,525			12.7%	175,032			12.0%
Selling, general, and administrative	148,742			10.8%	157,006			10.8%
Gains from sales of property	(6,700		)	(0.5)%	(14,701		)	(1.0)%
Depreciation and amortization	6,865			0.5%	7,091			0.5%
Operating income	26,618			1.9%	25,636			1.8%
Interest expense	16,280			1.2%	19,562			1.3%
Other income, net	(2		)	—%	(255		)	—%
Income before provision for income taxes	10,340			0.7%	6,329			0.4%
Provision for income taxes	832			0.1%	609			—%
Net income	$	9,508		0.7%	$	5,720		0.4%



	Quarter Ended					Nine Months Ended
	September 30, 2017			October 1, 2016		September 30, 2017			October 1, 2016
Sales by category	(In millions)
Structural products	$	228		$	204	$	633		$	594
Specialty products	254			272		757			878
Other ⁽¹⁾	(3		)	—		(8		)	(13		)
Total net sales	$	479		$	476	$	1,382		$	1,459