10-Q 1 bxc-20220702.htm 10-Q bxc-20220702
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 2, 2022
 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-32383
bxc-20220702_g1.jpg
BlueLinx Holdings Inc. 
(Exact name of registrant as specified in its charter) 
 
Delaware77-0627356
(State of Incorporation)(I.R.S. Employer Identification No.)
  
1950 Spectrum Circle, Suite 300
MariettaGA30067
(Address of principal executive offices)(Zip Code)
 
(770) 953-7000
(Registrant’s telephone number, including area code)
 Not applicable
(Former name or former address, if changed since last report.)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No  
Indicate by check mark whether the registrant has submitted electronically (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  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated FilerNon-accelerated FilerSmaller Reporting Company
Emerging Growth Company   
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
                                                                                          
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
As of July 29, 2022, there were 9,282,200 shares of BlueLinx Holdings Inc. common stock, par value $0.01, outstanding.




BLUELINX HOLDINGS INC.
Form 10-Q
For the Quarterly Period Ended July 2, 2022
 
INDEX
 PAGE 
 
  1
 

i


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
 
Three Months EndedSix Months Ended
 July 2, 2022July 3, 2021July 2, 2022July 3, 2021
Net sales$1,239,379 $1,307,913 $2,541,684 $2,333,382 
Cost of sales1,037,971 1,056,741 2,049,225 1,901,818 
Gross profit201,408 251,172 492,459 431,564 
Operating expenses (income): 
Selling, general, and administrative91,338 87,010 182,627 162,569 
Depreciation and amortization6,518 7,080 13,264 14,545 
Amortization of deferred gains on real estate(984)(984)(1,968)(1,967)
Gains from sales of property(144) (144)(1,287)
Other operating expenses626 871 1,464 983 
Total operating expenses97,354 93,977 195,243 174,843 
Operating income104,054 157,195 297,216 256,721 
Non-operating expenses (income):  
Interest expense, net11,255 9,14322,548 25,377
Other expense (income), net139 (314)1,277 (628)
Income before provision for income taxes92,660 148,366 273,391 231,972 
Provision for income taxes21,388 34,908 68,710 56,654 
Net income$71,272 $113,458 $204,681 $175,318 
Basic income per share$7.64 $11.88 $21.49 $18.44 
Diluted income per share$7.48 $11.61 $21.07 $18.15 
Comprehensive income:  
Net income$71,272 $113,458 $204,681 $175,318 
Other comprehensive income:  
Amortization of unrecognized pension gain, net of tax156 246 312 485 
Other(20)6  17 
Total other comprehensive income136 252 312 502 
Comprehensive income$71,408 $113,710 $204,993 $175,820 
 
See accompanying Notes.
 

1



BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 July 2, 2022January 1, 2022
ASSETS
Current assets:  
Cash and cash equivalents$104,952 $85,203 
Receivables, less allowances of $4,419 and $4,024, respectively
422,659 339,637 
Inventories, net577,648 488,458 
Other current assets35,268 31,869 
Total current assets1,140,527 945,167 
Property and equipment, at cost324,786 318,253 
Accumulated depreciation(146,170)(137,099)
Property and equipment, net178,616 181,154 
Operating lease right-of-use assets48,210 49,568 
Goodwill47,772 47,772 
Intangible assets, net11,911 13,603 
Deferred tax assets63,037 60,285 
Other non-current assets19,673 19,905 
Total assets$1,509,746 $1,317,454 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:  
Accounts payable$239,515 $180,000 
Accrued compensation15,895 22,363 
Taxes payable16,600 6,138 
Finance lease liabilities - short-term8,036 7,864 
Operating lease liabilities - short-term6,185 5,145 
Real estate deferred gains - short-term3,935 3,934 
Other current liabilities15,764 18,347 
Total current liabilities305,930 243,791 
Non-current liabilities:  
Long-term debt, net of debt issuance costs of $4,462 and $4,701, respectively
291,764 291,271 
Finance lease liabilities - long-term263,389 266,853 
Operating lease liabilities - long-term42,104 44,526 
Real estate deferred gains - long-term72,304 74,206 
Pension benefit obligation9,982 11,605 
Other non-current liabilities24,556 21,953 
Total liabilities1,010,029 954,205 
Commitments and Contingencies
STOCKHOLDERS’ EQUITY:  
Common Stock, $0.01 par value, 20,000,000 shares authorized,
     9,211,626 and 9,725,760 outstanding on July 2, 2022 and January 1, 2022, respectively
92 97 
Additional paid-in capital199,565 268,085 
Accumulated other comprehensive loss(29,048)(29,360)
Retained earnings329,108 124,427 
Total stockholders’ equity499,717 363,249 
Total liabilities and stockholders’ equity$1,509,746 $1,317,454 

See accompanying Notes.
2



BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
(Unaudited)
Common StockAdditional
Paid-In Capital
Accumulated
Other
Comprehensive Loss
Retained EarningsStockholders’ Equity Total
 SharesAmount
Balance, January 1, 20229,726 $97 $268,085 $(29,360)$124,427 $363,249 
Net income— — — — 133,409 133,409 
Impact of pension plan, net of tax— — — 156 — 156 
Vesting of restricted stock units11 — — — — — 
Compensation related to share-based grants— — 2,162 — — 2,162 
Repurchase of shares to satisfy employee tax withholdings(5)— (393)— — (393)
Common stock repurchase and retirement(81)(1)(6,426)— — (6,427)
Other— — — 20 — 20 
Balance, April 2, 20229,651 96 263,428 (29,184)257,836 492,176 
Net income— — — — 71,272 71,272 
Impact of pension plan, net of tax— — — 156 — 156 
Vesting of restricted stock units181 2 — — — 2 
Compensation related to share-based grants— — 1,775 — — 1,775 
Repurchase of shares to satisfy employee tax withholdings(66)(1)(5,777)— — (5,778)
Common stock repurchase and retirement(554)(5)(38,995)— — (39,000)
Forward contract for accelerated share repurchase agreement— — (21,000)— — (21,000)
Other— — 134 (20)— 114 
Balance, July 2, 20229,212 $92 $199,565 $(29,048)$329,108 $499,717 


Common StockAdditional
Paid-In Capital
Accumulated
Other
Comprehensive Loss
Retained Earnings (Accumulated Deficit)Stockholders’ Equity Total
 SharesAmount
Balance, January 2, 20219,463 $95 $266,695 $(35,992)$(171,706)$59,092 
Net income— — — — 61,860 61,860 
Impact of pension plan, net of tax— — — 239 — 239 
Vesting of restricted stock units8 — — — — — 
Compensation related to share-based grants— — 1,410 — — 1,410 
Repurchase of shares to satisfy employee tax withholdings(3)— (99)— — (99)
Other— — — 11 — 11 
Balance, April 3, 20219,468 95 268,006 (35,742)(109,846)122,513 
Net income— — — — 113,458 113,458 
Impact of pension plan, net of tax— — — 246 — 246 
Vesting of restricted stock units355 2 — — — 2 
Compensation related to share-based grants— — 1,992 — — 1,992 
Repurchase of shares to satisfy employee tax withholdings(113)— (5,033)— — (5,033)
Other— — (2)6 — 4 
Balance, July 3, 20219,710 $97 $264,963 $(35,490)$3,612 $233,182 
 
See accompanying Notes.

3



BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
 July 2, 2022July 3, 2021
Cash flows from operating activities:
Net income$204,681 $175,318 
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization13,264 14,545 
Amortization of debt discount and issuance costs493 1,032 
Adjustments to debt issuance costs associated with term loan 5,791 
Gains from sales of property(144)(1,287)
Deferred income tax(2,752)(5,844)
Amortization of deferred gains from real estate(1,968)(1,967)
Share-based compensation3,937 3,402 
Changes in operating assets and liabilities:
Accounts receivable(83,022)(143,574)
Inventories(89,190)(83,606)
Accounts payable59,515 61,937 
Taxes payable10,462 10,094 
Other current assets(3,399)(3,699)
Other assets and liabilities(8,447)(9,541)
Net cash provided by operating activities103,430 22,601 
Cash flows from investing activities: 
Proceeds from sale of assets, net531 2,100 
Property and equipment investments(6,882)(2,900)
Net cash used in investing activities(6,351)(800)
Cash flows from financing activities: 
Borrowings on revolving credit facilities 638,183 
Repayments on revolving credit facilities (606,019)
Repayments on term loan (43,204)
Common stock repurchase and retirement(66,427) 
Debt financing costs (861)
Repurchase of shares to satisfy employee tax withholdings(6,170)(5,132)
Principal payments on finance lease liabilities(4,733)(4,671)
Net cash used in financing activities(77,330)(21,704)
Net change in cash and cash equivalents19,749 97 
Cash and cash equivalents at beginning of period85,203 82 
Cash and cash equivalents at end of period$104,952 $179 
Supplemental cash flow information:
Interest paid during the period22,707 18,744 
Taxes paid during the period61,176 52,615 
Non-cash transactions:
Property and equipment acquired under finance leases2,313 10,549 

See accompanying Notes.
4



BLUELINX HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 2, 2022
(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”). We derived the condensed consolidated balance sheet at July 2, 2022 from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (the “Fiscal 2021 Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”) on February 22, 2022. 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 income for the three and six months ended July 2, 2022 and July 3, 2021, our balance sheets at July 2, 2022 and January 1, 2022, our statements of stockholders’ equity for the six months ended July 2, 2022 and July 3, 2021, and our statements of cash flows for the six months ended July 2, 2022 and July 3, 2021.
 
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 2021 Form 10-K. The results for the three and six months ended July 2, 2022 are not necessarily indicative of results that may be expected for the full year ending December 31, 2022, or any other interim period.
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 2022 fiscal year contains 52 weeks and ends on December 31, 2022. Fiscal 2021 contained 52 weeks and ended on January 1, 2022.
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.
Reclassification of Prior Period Presentation
For the six months ended July 3, 2021, we have reclassified certain items within the presentation of our statement of cash flows to align with our statement of cash flows presentation for the six months ended July 2, 2022. Our reclassifications are limited to the operating activities section and include presenting only the impact of deferred income taxes, instead of our full provision for income taxes, as a reconciling item for net income to cash provided by operating activities. We have also reclassified certain items previously presented individually, such as pension expense and pension contributions, to be included in the change of other assets and liabilities. In addition, we are presenting the change in taxes payable, previously included in other assets and liabilities, as a distinct line item in our reconciliation of net income to cash provided by operating activities. These reclassifications, we believe, provide an enhanced level of transparency with regards to the presentation of our statement of cash flows.
Recently Adopted Accounting Standards
Credit Impairment Losses. In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326).” This ASU sets forth a current expected credit loss (“CECL”) model which requires the measurement of all expected credit losses for financial instruments or other assets (e.g., trade receivables), held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model, is applicable to the measurement of credit losses on financial assets measured at amortized cost, and applies to some off-balance sheet credit exposures. The standard also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. The Company adopted this
5



standard in the first quarter of 2022 and the implementation did not have a material impact to the Company’s condensed consolidated financial statements.
Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The standard provides temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of the publication of certain tenors of the London Inter-bank Offered Rate (“LIBOR”) on December 31, 2021, with complete elimination of the publication of the LIBOR by June 30, 2023. The amendments in this ASU are elective and apply to all entities that have contracts referencing the LIBOR.
The Company’s revolving credit agreement, as further discussed in Note 6 to these condensed consolidated financial statements, currently references the LIBOR for determining interest payable on current and future borrowings and includes provisions for the use of alternative rates if the LIBOR is unavailable. The guidance in this ASU provides a practical expedient which simplifies accounting analyses under current U.S. GAAP for contract modifications if the change is directly related to a change from the LIBOR to a new interest rate index. The Company adopted this standard prospectively in the first quarter of 2022. The implementation did not have a material impact to the Company’s condensed consolidated financial statements or to any key terms of our revolving credit agreement other than the discontinuation of the LIBOR.
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 Accounting Standards Codification (“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. We adopted this standard effective for fiscal year 2021. The adoption of the standard did not have a material impact on the Company's condensed consolidated financial statements.
2. Inventories
Our inventories consist almost entirely of finished goods inventory, with an immaterial amount of work-in-process inventory. The cost of all inventories is determined by the moving average cost method. We have included all material charges directly incurred in bringing inventory to its existing condition and location. We evaluate our inventory value at the end of each quarter to ensure that inventory, when viewed by category, is carried at the lower of cost or net realizable value, which also considers items that may be considered damaged, excess, and obsolete inventory. During the second quarter of fiscal 2021, we recorded a lower of cost or net realizable value reserve of $16.7 million resulting from the decrease in the value of our structural lumber inventory related to the decline in wood-based commodity prices as of the end of the period. In addition, during the second quarter of fiscal 2022, we recorded a lower of cost or net realizable value reserve of $9.8 million as of the end of the period, also resulting from the decline in wood-based commodity prices.
3. Goodwill and Other Intangible Assets
In connection with our past merger and acquisition activity, we acquired certain intangible assets. As of July 2, 2022, 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 July 2, 2022, 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 will evaluate the carrying value for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such events and indicators may include, without limitation, significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our market capitalization. No such indicators were present during the second quarter of fiscal 2022. Our one reporting unit has a fair value that exceeds its carrying value as of July 2, 2022.
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Definite-Lived Intangible Assets
On July 2, 2022, the gross carrying amounts, accumulated amortization, and net carrying amounts of our definite-lived intangible assets were as follows:
Intangible AssetWeighted Average Remaining Useful Lives (Years)Gross Carrying Amounts
Accumulated
Amortization(1)
Net Carrying Amounts
     (In thousands)
Customer relationships8$25,500 $(13,589)$11,911 
Noncompete agreements— 8,254 (8,254) 
Trade names— 6,826 (6,826) 
Total$40,580 $(28,669)$11,911 

(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
Amortization expense for our definite-lived intangible assets was $0.6 million and $1.7 million for the three and six month periods ended July 2, 2022, respectively. For the three and six month periods ended July 3, 2021, amortization expense was $1.2 million and $3.1 million, respectively.
Estimated amortization expense for definite-lived intangible assets for the remaining portion of 2022 and the next five fiscal years is as follows:
Fiscal YearEstimated Amortization
(In thousands)
2022$1,025 
20231,807 
20241,505 
20251,423 
20261,423 
20271,423 

4. Revenue Recognition
We recognize revenue when the following criteria are met: (1) Contract with the customer has been identified; (2) Performance obligations in the contract have been identified; (3) Transaction price has been determined; (4) Transaction price has been allocated to the performance obligations; and (5) When (or as) performance obligations are satisfied.

Contracts with our customers are generally in the form of standard terms and conditions of sale. From time to time, we may enter into specific contracts, which may affect delivery terms. Performance obligations in our contracts generally consist solely of delivery of goods. For all sales channel types, consisting of warehouse, direct, and reload sales, we typically satisfy our performance obligations upon shipment. Our customer payment terms are typical for our industry, and may vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not deemed to be significant by us. For certain sales channels and/or products, our standard terms of payment may be as early as ten days.
In addition, we provide inventory to certain customers through pre-arranged agreements on a consignment basis. Customer consigned inventory is maintained and stored by certain customers; however, ownership and risk of loss remain with us.
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
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experience. Adjustments to earnings resulting from revisions to estimates on discounts and returns have been insignificant for each of the reported periods. Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration.
The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues.
Three Months EndedSix Months Ended
Product typeJuly 2, 2022July 3, 2021July 2, 2022July 3, 2021
(In thousands)(In thousands)
Specialty products$787,860 $675,189 $1,555,767 $1,237,811 
Structural products451,519 632,724 985,917 1,095,571 
Total net sales$1,239,379 $1,307,913 $2,541,684 $2,333,382 

The following table presents our revenues disaggregated by sales channel. Warehouse sales are delivered from our warehouses. Reload sales are similar to warehouse sales but are shipped from warehouses, most of which are operated by third-parties, where we store owned products to enhance our operating efficiencies. This channel is employed primarily to service strategic customers that would be less economical to service from our warehouses, and to distribute large volumes of imported products from port facilities. Direct sales are shipped from the manufacturer to the customer without our taking physical possession of the inventory and, as a result, typically generate lower margins than our warehouse and reload distribution channels. This distribution channel requires the lowest amount of committed capital and fixed costs. Sales and usage-based taxes are excluded from revenues.
Three Months EndedSix Months Ended
Sales channelJuly 2, 2022July 3, 2021July 2, 2022July 3, 2021
(In thousands)(In thousands)
Warehouse and reload$1,020,341 $1,062,149 $2,098,287 $1,911,569 
Direct240,235 265,280 486,887 456,409 
Customer discounts and rebates(21,197)(19,516)(43,490)(34,596)
Total net sales$1,239,379 $1,307,913 $2,541,684 $2,333,382 


5. Assets Held for Sale

As of July 2, 2022, we had no assets or liabilities classified as “held for sale”. As of January 1, 2022, the net book value of total assets classified as “held for sale” was $2.6 million and was included in other current assets in our condensed consolidated balance sheet. As of January 1, 2022, the book value of total liabilities classified as “held for sale” was $1.9 million and was included in other current liabilities in our condensed consolidated balance sheet.

Assets classified as “held for sale” as of January 1, 2022, consisted of fixed assets, at net book value, and current assets, including raw material and work in process inventory, affiliated with one of our business locations in the Midwest. Liabilities classified as “held for sale” as of January 1, 2022 included current liabilities, such as accounts payable, directly associated with those assets held for sale that will be transferred with the assets held for sale. As of January 1, 2022, we planned to sell these assets and transfer these liabilities within the next 12 months. During the second quarter of 2022, we completed the sale of assets and liabilities previously classified as held for sale.


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6. Long-Term Debt

As of July 2, 2022 and January 1, 2022, long-term debt consisted of the following:
July 2, 2022January 1, 2022
(In thousands)
Senior secured notes (1)
$300,000 $300,000 
Revolving credit facility (2)
  
Finance lease obligations (3)
271,425 274,717 
571,425 574,717 
Unamortized debt issuance costs(4,462)(4,701)
Unamortized bond discount costs(3,774)(4,028)
563,189 565,988 
Less: current maturities of long-term debt8,036 7,864 
Long-term debt, net of current maturities$555,153 $558,124 

(1)As of July 2, 2022 and January 1, 2022, our long-term debt was comprised of $300.0 million of senior secured notes issued in October 2021. These notes are presented under the “Long-term debt” caption of our condensed consolidated balance sheets at $291.8 million and $291.3 million at July 2, 2022 and January 1, 2022, respectively. This presentation is net of their discount of $3.8 million and $4.0 million and the combined carrying value of our debt issuance costs of $4.5 million and $4.7 million at July 2, 2022 and January 1, 2022, respectively. Our senior secured notes are presented in this table at their face value.

(2) The average effective interest rate was zero percent and 2.5 percent for the quarters ended July 2, 2022 and July 3, 2021, respectively.

(3) Refer to Note 9, Leases, for interest rates associated with finance lease obligations.

Senior Secured Notes

In October 2021, we entered into an indenture (the “Indenture”) with the guarantors party thereto and Truist Bank, as trustee and collateral agent, in connection with a private offering of $300 million of our six percent senior secured notes due 2029 (the “2029 Notes”). The 2029 Notes were issued to investors at 98.625 percent of their principal amount and will mature on November 15, 2029. The majority of net proceeds from the offering of the 2029 Notes were used to repay borrowings under our revolving credit facility, as defined below.

Revolving Credit Facility

In April 2018, we entered into a revolving credit facility with Wells Fargo Bank, National Association, as administrative agent (“the Agent”), and certain other financial institutions party thereto. In August 2021, we entered into a second amendment to our revolving credit facility to, among other things, extend the maturity date of the facility to August 2, 2026, and reduce the interest rate on borrowings under the facility (as amended, the “Revolving Credit Facility”). As amended, the Revolving Credit Facility provides for a senior secured asset-based revolving loan and letter of credit facility of up to $350 million. The Borrowers’ obligations under the Revolving Credit Facility are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items.

Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the Agent’s base rate plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.

Borrowings under the Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the revolving credit agreement). The Borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. The Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.
As of July 2, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $451.4 million under our Revolving Credit Facility. As of January 1, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $431.7 million under our Revolving Credit Facility. Our average effective
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interest rate under the facility was zero percent and 2.5 percent for the quarters ended July 2, 2022 and July 3, 2021, respectively.
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 July 2, 2022.

Term Loan Facility

On April 2, 2021, we repaid the remaining outstanding principal balance of the term loan facility, and, as a result, as of January 1, 2022 and July 2, 2022, we had zero outstanding borrowings under the term loan facility, which has been extinguished. In connection with our repayment of the outstanding principal balance in full on April 2, 2021, we expensed $5.8 million of debt issuance costs that we were amortizing in connection with our former term loan facility. These costs are included within interest expense, net on the condensed consolidated statements of operations and reported separately as an adjustment to net income in our condensed consolidated statements of cash flows.

As the facility was paid in full as of April 2, 2021, our average effective interest rate under the facility, exclusive of fees and prepayment premiums, was zero percent for the quarters ended July 2, 2022 and July 3, 2021, respectively.

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 9, Leases.

7. Net Periodic Pension Benefit
The following table shows the components of our net periodic pension benefit:
Three Months EndedSix Months Ended
Pension-related itemsJuly 2, 2022July 3, 2021July 2, 2022July 3, 2021
(In thousands)(In thousands)
Service cost (1)
$ $ $ $ 
Interest cost on projected benefit obligation606 505 1,212 1,010 
Expected return on plan assets(1,177)(1,140)(2,354)(2,280)
Amortization of unrecognized gain209 321 418 642 
Net periodic pension benefit$(362)$(314)$(724)$(628)
(1) Service cost is not a part of our net periodic pension benefit as our pension plan is frozen for all participants.
The net periodic pension benefit is included in other expense (income), net in our condensed consolidated statement of operations and comprehensive income.
8. Stock Compensation
During the three and six month periods ended July 2, 2022, we incurred stock compensation expense of $1.8 million and $3.9 million, respectively. For the three and six month periods ended July 3, 2021, we incurred stock compensation expense of $2.0 million and $3.4 million, respectively. The decrease in our stock compensation expense for the three month period ended July 2, 2022 compared to the prior-year period is primarily attributable to the timing of award vesting and associated expense recognition. The increase in our stock compensation expense for the six month period ended July 2, 2022 compared to the prior-year period is primarily attributable to an increase in the number of awards granted, as well as the increase in the grant-date fair value, or the Company’s stock price, of awards currently vesting compared to the prior year.
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9. 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 to renew at our election for specified periods of time. The majority of our leases have remaining lease terms of one to 15 years, some of which include one or more options to extend the leases for five 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”). 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. 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 sheets. 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.
The following table presents our assets and liabilities related to our leases as of July 2, 2022 and January 1, 2022:
Lease assets and liabilitiesJuly 2, 2022January 1, 2022
(In thousands)
AssetsClassification
Operating lease right-of-use assetsOperating lease right-of-use assets$48,210 $49,568 
Finance lease right-of-use assets (1)
Property and equipment, net136,574 143,851 
Total lease right-of-use assets$184,784 $193,419 
Liabilities
Current portion
Operating lease liabilitiesOperating lease liabilities - short term$6,185 $5,145 
Finance lease liabilitiesFinance lease liabilities - short term8,036 7,864 
Non-current portion
Operating lease liabilitiesOperating lease liabilities - long term42,104 44,526 
Finance lease liabilitiesFinance lease liabilities - long term263,389 266,853 
Total lease liabilities$319,714 $324,388 
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $82.3 million and $73.7 million as of July 2, 2022 and January 1, 2022, respectively.
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The components of lease expense were as follows:
Three Months EndedSix Months Ended
Components of lease expenseJuly 2, 2022July 3, 2021July 2, 2022July 3, 2021
(In thousands)(In thousands)
Operating lease cost:$2,578 $2,934 $5,095 $5,984 
Finance lease cost:
   Amortization of right-of-use assets$4,890 $4,210 $8,600 $8,197 
   Interest on lease liabilities6,120 6,241 12,280 12,399 
Total finance lease costs$11,010 $10,451 $20,880 $20,596 
Cash flow information related to leases was as follows:
Three Months EndedSix Months Ended
Cash flow informationJuly 2, 2022July 3, 2021July 2, 2022July 3, 2021
(In thousands)(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$2,623 $2,807 $5,151 $5,372 
   Operating cash flows from finance leases6,120 6,241 12,280 12,399 
   Financing cash flows from finance leases$1,011 $2,542 $4,733 $4,671 
Non-cash supplemental cash flow information related to leases was as follows:
Three Months EndedSix Months Ended
Non-cash informationJuly 2, 2022July 3, 2021July 2, 2022July 3, 2021
(In thousands)(In thousands)
Right-of-use assets obtained in exchange for lease obligations
Operating leases$591 $5,106 $1,127 $5,106 
Finance leases$2,313 $338 $2,313 $10,549 
Supplemental balance sheet information related to leases was as follows:
Balance sheet informationJuly 2, 2022January 1, 2022
(In thousands)
Finance leases
   Property and equipment$218,914 $217,592 
   Accumulated depreciation(82,340)(73,741)
Property and equipment, net$136,574 $143,851 
Weighted Average Remaining Lease Term (in years)
   Operating leases10.1710.75
   Finance leases15.0215.06
Weighted Average Discount Rate
   Operating leases8.82 %9.01 %
   Finance leases9.47 %10.00 %
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The major categories of our finance lease liabilities as of July 2, 2022 and January 1, 2022 are as follows:
CategoryJuly 2, 2022January 1, 2022
(In thousands)
Equipment and vehicles$27,577 $30,710 
Real estate243,848 244,007 
Total finance leases$271,425 $274,717 
As of July 2, 2022, maturities of lease liabilities were as follows:
Fiscal yearOperating leasesFinance leases
(In thousands)
2022$5,507 $15,745 
20239,701 32,430 
20248,939 31,835 
20258,534 28,292 
20266,090 31,779 
Thereafter39,565 349,937 
Total lease payments$78,336 $490,018 
Less: imputed interest(30,047)(218,593)
Total$48,289 $271,425 

On January 1, 2022, maturities of lease liabilities were as follows:
Fiscal yearOperating leasesFinance leases
(In thousands)
2022$9,376 $32,495 
20239,134 32,115 
20248,329 31,521 
20258,329 27,994 
20266,050 31,439 
Thereafter40,711 348,149 
Total lease payments$81,929 $503,713 
Less: imputed interest(32,258)(228,996)
Total$49,671 $274,717 

10. Commitments and Contingencies
Environmental and Legal Matters
From time to time, we are involved in various proceedings incidental to our businesses, and we are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. Although the ultimate outcome of these proceedings cannot be determined with certainty, based on presently available information management believes that adequate reserves have been established for probable losses with respect thereto and receivables have been 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 our operating results in any given quarter, it will not have a materially adverse effect on our consolidated financial condition, results of operations, or cash flows.
Collective Bargaining Agreements
As of July 2, 2022, we employed approximately 2,053 associates and less than one percent of our associates are employed on a part-time basis. Approximately 19 percent of our associates are represented by various local labor unions with terms and
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conditions of employment governed by Collective Bargaining Agreements (“CBAs”). Two CBAs covering approximately three percent of our associates are up for renewal in fiscal 2022, both of which we expect to renegotiate by the end of the year.
11. Accumulated Other Comprehensive Loss
Comprehensive income includes both net income and other comprehensive income. Other comprehensive income results from items deferred from recognition into our condensed consolidated statements of operations and comprehensive income. Accumulated other comprehensive loss is separately presented on our condensed consolidated balance sheets as part of stockholders’ equity.
The changes in balances for each component of accumulated other comprehensive loss for the six months ended July 2, 2022 were as follows:
Defined
benefit pension
plan, net of tax
Other,
net of tax
Total Accumulated Other Comprehensive Loss
January 1, 2022, beginning balance, net of tax$(30,245)$885 $(29,360)
Other comprehensive income, net of tax312  312 
July 2, 2022, ending balance, net of tax$(29,933)$885 $(29,048)

12. Income Taxes

Effective Tax Rate

Our effective tax rate for the three months ended July 2, 2022 and July 3, 2021 was 23.1 percent and 23.5 percent, respectively. Our effective tax rate for the six months ended July 2, 2022 and July 3, 2021 was 25.1 percent and 24.4 percent, respectively.

Our effective tax rate for the three and six months ended July 2, 2022 and July 3, 2021 were impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation. Each period also includes a benefit from the vesting of restricted stock units, which had a greater impact on the three months ended July 2, 2022 and July 3, 2021 due to the timing of the vesting of our restricted stock awards. Our effective tax rate for the three and six months ended July 3, 2021 also benefited from the partial release of our valuation allowance for state net operating loss carryforwards we anticipated being able to utilize based on our taxable income through the end of the first and second quarters of fiscal 2021.

Deferred Tax Assets

Quarterly, we assess the carrying value of our deferred tax assets for impairment by evaluating the weight of available evidence at the end of each fiscal quarter. In our evaluation of the weight of available evidence at the end of the current quarter, we considered the recent reported income in the current quarter, as well as the reported income for 2021 and 2020 and the reported losses for 2019, which resulted in a three-year cumulative income situation as positive evidence which carried substantial weight. While this was substantial, it was not the only evidence we evaluated. We also considered evidence related to the four sources of taxable income to determine whether such positive evidence outweighed the negative evidence. The evidence considered included:

future reversals of existing taxable temporary differences;
future taxable income exclusive of reversing temporary differences and carryforwards;
taxable income in prior carryback years, if carryback is permitted under the tax law; and
tax planning strategies.

In addition to the positive evidence discussed above, we considered as positive evidence forecasted taxable income, the detail scheduling of timing of the reversal of our deferred tax assets and liabilities, and the evidence from business and tax planning strategies. As of July 2, 2022, in our evaluation of the weight of available evidence, we concluded that our net deferred tax assets were not impaired.

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13. Income per Share
We calculate basic income per share by dividing net income by the weighted average number of common shares outstanding. We calculate diluted income per share using the treasury stock method, by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including restricted stock units.
On May 3, 2022, we announced that our Board of Directors increased our share repurchase authorization to $100.0 million, up $75.0 million from the previous program, and that we entered into an Accelerated Share Repurchase Agreement (“ASR Agreement”) with Jefferies LLC (“Jefferies”) to repurchase $60.0 million of our common stock. Under the ASR Agreement, we received initial delivery of 553,584 shares of common stock on May 3, 2022 (the “Transaction Date”) representing approximately 65 percent of the total number of shares of common stock initially underlying the ASR Agreement based on our closing stock price of $70.45 on May 2, 2022. The initial delivery of 553,584 shares reduced the number of common shares outstanding on the Transaction Date and, as a result, reduced the weighted average number of common shares outstanding used to calculate basic income per share and diluted income per share for the three and six month periods ended July 2, 2022.
The total number of shares repurchased under the ASR Agreement is based on the average of the daily volume-weighted average price of our common stock during the repurchase period under the ASR Agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreement. At settlement, under certain circumstances, Jefferies may be required to deliver additional shares of common stock to us, or, under certain circumstances, we may be required to make a cash payment or to deliver shares of our common stock to Jefferies. Final settlement of the shares of common stock repurchased under the ASR Agreement could occur as early as the third quarter of 2022.
Management has performed an analysis of the average of the daily volume-weighted average price of our common stock since the Transaction Date and has determined, as of July 2, 2022, that the final settlement of shares of common stock under the ASR Agreement is not anticipated to have a dilutive impact upon final settlement.
The reconciliation of basic net income and diluted net income per common share for the three and six month periods ended July 2, 2022 and July 3, 2021 were as follows:
Three Months EndedSix Months Ended
July 2, 2022July 3, 2021July 2, 2022July 3, 2021
(In thousands, except per share data)(In thousands, except per share data)
Net income$71,272 $113,458 $204,681 $175,318 
Weighted-average shares outstanding - basic9,324 9,549 9,522 9,507 
Dilutive effect of share-based awards196 226 188 150 
Weighted-average shares outstanding - diluted9,520 9,775 9,710 9,657 
Basic income per share$7.64 $11.88 $21.49 $18.44 
Diluted income per share$7.48 $11.61 $21.07 $18.15 
Approximately 21,000 and 55,000 weighted-average share-based awards were excluded from the computation of earnings per share assuming dilution during the three months ended July 2, 2022 and July 3, 2021, respectively, as the awards would have been anti-dilutive for the periods presented.
Approximately 13,000 and 27,000 weighted-average share-based awards were excluded from the computation of earnings per share assuming dilution during the six months ended July 2, 2022 and July 3, 2021, respectively, as the awards would have been anti-dilutive for the periods presented.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
About Our Business
BlueLinx is a leading wholesale distributor of residential and commercial building products in the United States. We are a “two-step” distributor. Two-step distributors purchase products from manufacturers and distribute those products to dealers and other suppliers in local markets, who then sell those products to end users. We carry a broad portfolio of both branded and private-label stock keeping units (“SKUs”) across two principal product categories: specialty products and structural products. Specialty products include items such as engineered wood, siding, millwork, outdoor living, specialty lumber and industrial products. Structural products include items such as lumber, plywood, oriented strand board, rebar, and remesh. We also provide a wide range of value-added services and solutions aimed at relieving distribution and logistics challenges for our customers and suppliers, while enhancing their marketing and inventory management capabilities.
We sell products through three main distribution channels, consisting of warehouse sales, reload sales, and direct sales. Warehouse sales, which generate the majority of our sales, are delivered from our warehouses to our customers. Reload sales are similar to warehouse sales but are shipped from warehouses, most of which are operated by third-parties, where we store owned products to enhance operating efficiencies. This channel is employed primarily to service strategic customers that would be less economical to service from our warehouses, and to distribute large volumes of imported products from port facilities. Direct sales are shipped from the manufacturer to the customer without our taking physical possession of the inventory and, as a result, typically generate lower margins than our warehouse and reload distribution channels. This distribution channel, however, requires the lowest amount of committed capital and fixed costs.
With a strong market position, a broad geographic coverage footprint servicing over 45 states, where our locations are in approximately 75 percent of the highest growth metropolitan statistical areas, combined with the strength of a locally focused sales force, we distribute a comprehensive range of products from over 750 suppliers. Our suppliers include some of the leading manufacturers in the industry, such as Allura, Arauco, Fiberon, Georgia-Pacific, Huber Engineered Woods, James Hardie, Louisiana-Pacific, Oldcastle APG, Ply Gem, Roseburg, Royal and Weyerhaeuser. We supply products to a broad base of over 15,000 total customers including national home centers, pro dealers, cooperatives, specialty distributors, regional and local dealers and industrial manufacturers. Many of our customers serve residential and commercial builders, contractors and remodelers in their respective geographic areas and local markets.
As a value-added partner in a complex and demanding building products supply chain, we play a critical role in enabling our customers to offer a broad range of products and brands, as most of our customers do not have the capability to purchase and warehouse products directly from manufacturers for such a large set of SKUs. The depth of our geographic footprint supports meaningful customer proximity across all the markets in which we operate, enabling faster and more efficient service. Similarly, we provide value to our supplier partners by enabling access to the large and fragmented network of lumber yards and dealers that those suppliers could not adequately serve directly. Our position in this distribution model for building products provides easy access to the marketplace for our suppliers and a value proposition of rapid delivery on an as-needed basis to our customers from our network of warehouse facilities.
Industry Overview
Our products are available across large and attractive end markets, including residential repair and remodel and residential new construction, which together account for approximately 85 percent of the end market mix for our addressable building material market served via two-step distribution based on our estimates. We estimate the remaining approximately 15 percent of end market mix is accounted for by commercial construction.

Certain recent changes in macro-economic factors, such as escalating home prices, may put pressure on the overall housing market, including the residential repair and remodel and residential new construction end markets. Given these developments, we anticipate a slowdown of the housing industry over the coming quarters. However, we believe that several factors, including the current high levels of home equity, recent work from home trends, the undersupply of housing in the United States, and the strength of housing starts compared to pre-COVID levels, among others, will continue to support demand for our products and drive long-term growth across the end markets in which we operate.
Residential Repair and Remodel
We estimate that residential repair and remodel spending accounts for approximately 45 percent of the end market mix for our addressable building material market served via two-step distribution. Repair and remodel sales tend to be less cyclical than
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new construction, particularly for exterior products that are exposed to the elements and where maintenance is less likely to be deferred for long periods of time. We expect that current factors including the total installed base of U.S. homes, overall age of the U.S. housing stock, rising home prices supporting increased underlying home equity and availability of consumer capital will drive continued growth in repair and remodel spending.

According to the U.S. Census Bureau and Department of Housing and Urban Development, the median home age in the U.S. increased from 23 years in 1985 to 39 years in 2019 and approximately 80 percent of the current housing stock was built prior to 1999. We believe the increasing average age of the nation’s 142 million existing homes will continue to drive demand for repair and remodel projects. The annual U.S. homes installed base is projected to continue to increase through 2025, which is positive for both residential repair and remodel spending, as well as for residential construction.

Increased home improvement spending has also benefited from the COVID-19 pandemic, as homeowners are spending more time at home and are investing more in their homes as a result. Outdoor and exterior projects make heavy use of outdoor living products like composite decking and fencing, and other aesthetically focused exterior products like siding and trim, which are key and growing product categories for us.
Residential New Construction
We estimate that residential new home construction (including single-family and multi-family homes) accounts for approximately 40 percent of the end market mix for our addressable building material market served via two-step distribution. The pace of housing starts, with which a portion of our business is correlated, is driven by demographic and population shifts, mortgage interest rates (which are low compared to the 40-year average), the ability of builders to obtain skilled labor, and builders’ economic outlook. U.S. single family housing starts peaked in 2005, before experiencing a downturn through 2011. Since 2011, we have experienced the continuing recovery of residential new construction, which has translated into increased demand for the products we sell. We believe our large footprint, strong customer relationships, and comprehensive offering of leading products and brands position us to capitalize on continued growth in the new housing market.

According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, June 2022 single family housing starts in the United States were approximately two percent lower compared to that of May 2022, but approximately 28 percent higher than that of February 2020, prior to the COVID-19 pandemic. The monthly single family residential home supply is in line with the 25-year average and significantly below the peak levels observed in 2008 and 2009. For most of the last decade, housing production has lagged population growth and household formation and Freddie Mac estimates that the housing supply at the end of 2020 was 3.8 million units short of the level needed to match long-term demand. Harvard University’s Joint Center for Housing Studies estimates total annual housing construction through 2028 should be on the order of 1.5 million units, or about 120,000 higher than in 2020. Based on these data points, we believe there are fundamental factors driving opportunity in the residential new home construction end-market for building products of which we are well positioned to serve.

Seasonality

We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the building products distribution industry, such as weather conditions and other seasonal factors. As a result, our quarterly sales volumes may trend higher in quarters when weather conditions and other seasonal factors are more favorable, reflecting an increase in activity in the residential repair and remodel and residential new home construction markets. Conversely, when weather conditions and other seasonal factors are less favorable, we may experience declines in sales volumes.

Commodity Markets

Our operating results are sensitive to fluctuations in commodity markets, specifically commodity markets for wood-based commodities that we classify as structural products. When prices fluctuate in the commodity markets which impact us, we may immediately adjust the end price of our products to compensate for the changes in market prices, which is common for businesses with inventories impacted by commodity price fluctuations. When we change our prices in response to market fluctuations, we will often see immediate impacts in our operating results. When market prices increase, this impact can be beneficial. Conversely, when market prices decrease, the impact can be negative because we are adjusting the selling prices for inventory often purchased at higher market prices. Fluctuations in the commodity markets during the last two years have had a significant impact on our operating results for the periods presented in this quarterly report, of which we discuss in more detail elsewhere in this report.

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Supply Constraints

Our operating results are impacted by the availability of the products we sell in the markets in which we do business. When our inventory supply is constrained, our operating results may be impacted by lower sales volumes. While supply constraints may negatively impact our sales volumes, they may also have a positive impact on our net sales and overall profitability. This is because supply constraints can cause prices to increase. Under these circumstances, we may sell less product by volume, but at a higher price which could have a positive impact on our levels of sales and profitability. Conversely, rapid changes in supply levels, such as the sudden increase in availability of a product where the supply was previously constrained, may have a negative impact on our operating results especially in situations where the demand does not also increase proportionally with supply increases.

Our Culture and Management Focus

We remain committed to driving a culture of profitable growth within new and existing product lines and geographies, while positioning the Company for long-term value creation. The following initiatives represent key areas of our management team’s focus:

1.Foster a performance-driven culture committed to profitable growth. This includes enhancing the customer experience; accelerating organic growth within specific product and solutions offerings where the Company is uniquely advantaged; and deploying capital to drive sustained margin expansion, grow cash flow and maintain continued profitable growth.
2.Migrate sales mix toward higher-margin specialty product categories. The Company intends to pursue a revenue mix increasingly weighted toward higher-margin, specialty product categories such as engineered wood, siding, millwork, outdoor living, specialty lumber and industrial products. Additionally, the Company intends to expand its value-added service offerings designed to simplify complex customer sourcing requirements, together with marketing, inventory and pricing services afforded by the Company’s national platform.
3.Maintain a disciplined capital structure and pursue high-return investments that increase the value of the Company. The Company intends to maintain a disciplined capital structure while at the same time investing in its business to modernize its tractor fleet and distribution facilities and to improve operational performance. The Company also continues to evaluate potential acquisition targets that complement its existing capabilities, grow its specialty products business, increase customer exposure, expand its geographic reach, or a combination thereof. We invested $4.4 million and $6.9 million in capital for our business during the three and six month periods ending July 2, 2022, respectively, to improve operational performance and productivity.

Factors That Affect Operating Results
Our results of operations and financial performance are influenced by a variety of factors, including the following: pricing and product cost variability; volumes of product sold; competition; changes in the supply and/or demand for products that we distribute; the cyclical nature of the industry in which we operate; housing market conditions; consolidation among competitors, suppliers, and customers; disintermediation risk; loss of products or key suppliers and manufacturers; our dependence on international suppliers and manufacturers for certain products; potential acquisitions and the integration and completion of such acquisitions; business disruptions; effective inventory management relative to our sales volume or the prices of the products we produce; information technology security risks and business interruption risks; the ability to attract, train, and retain highly qualified associates and other key personnel while controlling related labor costs; exposure to product liability and other claims and legal proceedings related to our business and the products we distribute; natural disasters, catastrophes, fire, wars or other unexpected events; successful implementation of our strategy; wage increases or work stoppages by our union employees; costs imposed by federal, state, local, and other regulations; compliance costs associated with federal, state, and local environmental protection laws; the COVID-19 pandemic and other contagious illness outbreaks and their potential effects on our industry; regulations concerning mandatory COVID-19 vaccines; fluctuations in our operating results; our level of indebtedness and our ability to incur additional debt to fund future needs; the covenants of the instruments governing our indebtedness limiting the discretion of our management in operating the business; variable interest rate risk under certain indebtedness; the fact that we have consummated certain sale leaseback transactions with resulting long-term non-cancelable leases, many of which are or will be finance leases; the fact that we lease many of our distribution centers, and we would still be obligated under these leases even if we close a leased distribution center; inability to raise funds necessary to finance a required repurchase of our senior secured notes; inability to successfully execute the ASR; a lowering or withdrawal of debt ratings; changes in our product mix; increases in petroleum prices; shareholder activism; changes in insurance-related deductible/retention reserves based on actual loss experience; the possibility that the value of our deferred tax assets could become impaired; changes in our expected annual effective tax rate could be volatile; changes in actuarial assumptions for our pension plan; the costs and liabilities related to our
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participation in multi-employer pension plans could increase; the risk that our cash flows and capital resources may be insufficient to service our existing or future indebtedness; the possibility that we could be the subject of securities class action litigation due to stock price volatility; activities of activist shareholders; indebtedness terms that limit our ability to pay dividends on common stock; and changes in, or interpretation of, accounting principles.
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Results of Operations
The following table sets forth our results of operations for the second quarter of fiscal 2022 and fiscal 2021:
Second Quarter of Fiscal 2022% of
Net
Sales
Second Quarter of Fiscal 2021% of
Net
Sales
(In thousands)(In thousands)
Net sales$1,239,379 100.0%$1,307,913 100.0%
Gross profit201,408 16.3%251,172