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BXC > SEC Filings for BXC > Form 10-Q on 31-Oct-2013All Recent SEC Filings

Show all filings for BLUELINX HOLDINGS INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for BLUELINX HOLDINGS INC.


31-Oct-2013

Quarterly Report


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

The information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") has been derived from our historical financial statements and is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. This MD&A section should be read in conjunction with our consolidated financial statements and notes to those statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 29, 2012 as filed with the U.S. Securities and Exchange Commission (the "SEC"). This MD&A section is not a comprehensive discussion and analysis of our financial condition and results of operations, but rather updates disclosures made in the aforementioned filing.

The discussion below contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance, liquidity levels or achievements, and may contain the words "believe," "anticipate," "expect," "estimate," "intend," "project," "plan," "will be," "will likely continue," "will likely result" or words or phrases of similar meaning. All of these forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, strategy or actual results to differ materially from the forward-looking statements. These risks and uncertainties may include those discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 29, 2012 as filed with the SEC and other factors, some of which may not be known to us. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy or actual results to differ materially from those contained in forward-looking statements. Factors you should consider that could cause these differences include, among other things:

? changes in the prices, supply and/or demand for products which we distribute, especially as a result of conditions in the residential housing market;

? the acceptance by our customers of our privately branded products;

? inventory levels of new and existing homes for sale;

? general economic and business conditions in the United States;

? risks associated with doing business globally;

? the financial condition and credit worthiness of our customers;

? the activities of competitors;

? changes in significant operating expenses;

? fuel costs;

? risk of losses associated with accidents;

? limitations on our transportation operations, which are subject to governmental regulation;

? exposure to product liability claims;

? changes in the availability of capital and interest rates;

? our ability to achieve expected operational efficiencies and cost savings as a result of our restructuring initiatives;

? immigration patterns and job and household formation;

? our ability to identify acquisition opportunities and effectively and cost-efficiently integrate acquisitions;

? adverse weather patterns or conditions;

? acts of war or terrorist activities, including acts of cyber intrusion;

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

? the other factors described herein and in our Annual Report on Form 10-K for the year ended December 29, 2012 as filed with the SEC.

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

Overview

Background

We are a leading distributor of building products in the United States. We distribute approximately 10,000 products to more than 11,500 customers through our current network of approximately 50 distribution centers which serve all major metropolitan markets in the United States. We distribute products in two principal categories: structural products and specialty products. Structural products include plywood, oriented strand board ("OSB"), rebar and remesh, lumber and other wood products primarily used for structural support, walls and flooring in construction projects. Structural products represented approximately 43% of our third quarter of fiscal 2013 gross sales. Specialty products include roofing, insulation, moulding, engineered wood, vinyl products (used primarily in siding), outdoor living, and metal products (excluding rebar and remesh). Specialty products accounted for approximately 57% of our third quarter of fiscal 2013 gross sales.

Industry Conditions

We operate in a changing environment in which new risks can emerge from time to time. A number of factors cause our results of operations to fluctuate from period to period. Many of these factors are seasonal or cyclical in nature. Conditions in the United States ("U.S.") housing market, while improving, continue to be at historically low levels. Our operating results have declined during the past several years as they are closely tied to U.S. housing starts. Additionally, over the past several years, the mortgage markets have experienced substantial disruption due to an unprecedented number of defaults. This disruption and the related defaults have increased the inventory of homes for sale in some markets (some markets have sold through excess inventory now) and also have caused lenders to tighten mortgage qualification criteria, which further reduces demand for new homes. While there has been some recent improvement, we expect the lower than historical average level of new housing activity will continue to negatively impact our operating results. We continue to prudently manage our inventories, receivables and spending in this environment. However, along with many forecasters, we believe that we are in the beginning of a housing recovery and that U.S. housing demand will continue to improve in the long term based on population demographics and a variety of other factors.

Facility Lease Obligation and Related Restructuring

During the second quarter of fiscal 2013, we announced our 2013 restructuring plan (the "2013 restructuring") which included the realignment of headquarters resources and the strategic review of our distribution centers. This review resulted in the Company designating five distribution centers to be sold or closed. These distribution centers were closed or ceased operations during the third quarter of fiscal 2013. In addition to the 2013 restructuring, we announced during the second quarter of fiscal 2013 that George R. Judd no longer would serve as President and Chief Executive Officer of the Company (the "change in executive leadership"). In connection with the 2013 restructuring and the change in executive leadership, the Company has recognized severance related charges of $0.4 million, $0.3 million of related stock compensation charges, a $1.4 million facility lease obligation and $0.7 million of other restructuring related charges in "Selling, general, and administrative" expenses in the Consolidated Statements of Operations and Comprehensive Loss for the third quarter of fiscal 2013. During the first nine months of fiscal 2013, we have recognized severance related charges of $4.7 million, $2.7 million of related stock compensation charges, a $1.4 million facility lease obligation and $2.0 million of other restructuring related charges in "Selling, general, and administrative" expenses in the Consolidated Statements of Operations and Comprehensive Loss. In addition we recognized a $1.0 million inventory reserve charge recorded in "Cost of sales" in the Consolidated Statements of Operations and Comprehensive Loss.

During the first quarter of fiscal 2013, we completed the transition of our Fremont, California operation to our new facility in Stockton, California. We incurred approximately $0.8 million of transition costs related to this move which are recorded in "Selling, general, and administrative" expenses in the Consolidated Statements of Operations in the first nine months of fiscal 2013.

Selected Factors Affecting Our Operating Results

Our operating results are affected by housing starts, mobile home production, industrial production, repair and remodeling spending and non-residential construction. Our operating results are also impacted by changes in product prices. Structural product prices can vary significantly based on short-term and long-term changes in supply and demand. The prices of specialty products can also vary from time to time, although they are generally significantly less variable than structural products.

The following table sets forth changes in net sales by product category, sales variances due to changes in unit volume and dollar and percentage changes in unit volume and price versus comparable prior periods, in each case for the third quarter of fiscal 2013, the third quarter of fiscal 2012, the first nine months of fiscal 2013, the first nine months of fiscal 2012, fiscal 2012 and fiscal 2011.

                          Fiscal         Fiscal          Fiscal         Fiscal        Fiscal        Fiscal
                         Q3 2013        Q3 2012         2013 YTD       2012 YTD        2012          2011
                                                       (Dollars in millions)
                                                            (Unaudited)
Sales by Category
Structural Products     $      243     $      211      $      753     $      610     $     806     $     705
Specialty Products             321            289             925            865         1,114         1,068
Other(1)                        (6 )           (3 )           (12 )           (7 )         (12 )         (18 )
Total Sales             $      558     $      497      $    1,666     $    1,468     $   1,908     $   1,755
Sales Variances
Unit Volume $ Change    $       60     $       (9 )    $      122     $       30     $      42     $     (52 )
Price/Other(1)                   1             33              76             74           111             3
Total $ Change          $       61     $       24      $      198     $      104     $     153     $     (49 )

Unit Volume % Change          11.9 %         (1.9 )%          8.3 %          2.2 %         2.3 %        (2.8 )%
Price/Other(1)                  .4 %          7.0 %           5.2 %          5.4 %         6.4 %         0.1 %
Total % Change                12.3 %          5.1 %          13.5 %          7.6 %         8.7 %        (2.7 )%



(1) "Other" includes unallocated allowances and discounts.

The following table sets forth changes in gross margin dollars and percentage changes by product category, and percentage changes in unit volume growth by product, in each case for the third quarter of fiscal 2013, the third quarter of fiscal 2012, the first nine months of fiscal 2013, the first nine months of fiscal 2012, fiscal 2012 and fiscal 2011.

                          Fiscal         Fiscal          Fiscal         Fiscal         Fiscal        Fiscal
                         Q3 2013        Q3 2012         2013 YTD       2012 YTD         2012          2011
Gross Margin $'s by                                     (Dollars in millions)
Category                                                     (Unaudited)
Structural Products     $       18     $       21      $       49     $       59     $       77     $      65
Specialty Products              39             38             119            113            146           137
Other (1)                        5              2               6              6              7             8
Total Gross Margin
$'s                     $       62     $       61      $      174     $      178     $      230     $     210
Gross Margin %'s by
Category
Structural Products            7.4 %         10.0 %           6.5 %          9.7 %          9.6 %         9.2 %
Specialty Products            12.1 %         13.1 %          12.9 %         13.1 %         13.1 %        12.8 %
Total Gross Margin
%'s                           11.2 %         12.2 %          10.5 %         12.1 %         12.1 %        12.0 %
Unit Volume Change by
Product
Structural Products           14.2 %         (3.3 )%         10.7 %          2.1 %          1.4 %       (15.1 )%
Specialty Products            10.2 %         (1.0 )%          6.5 %          2.2 %          2.9 %         7.4 %
Total Change in Unit
Volume %'s                    11.9 %         (1.9 )%          8.3 %          2.2 %          2.3 %        (2.8 )%



(1) "Other" includes unallocated allowances and discounts.

The following table sets forth changes in net sales and gross margin by channel and percentage changes in gross margin by channel, in each case for the third quarter of fiscal 2013, the third quarter of fiscal 2012, the first nine months of fiscal 2013, the first nine months of fiscal 2012, fiscal 2012 and fiscal 2011.

                              Fiscal         Fiscal         Fiscal         Fiscal        Fiscal        Fiscal
                             Q3 2013        Q3 2012        2013 YTD       2012 YTD        2012          2011
                                                           (Dollars in millions)
                                                                (Unaudited)
Sales by Channel
Warehouse/Reload            $      463     $      403     $    1,361     $    1,177     $   1,534     $   1,397
Direct                             101             97            317            298           386           376
Other(1)                            (6 )           (3 )          (12 )           (7 )         (12 )         (18 )
Total                       $      558     $      497     $    1,666     $    1,468     $   1,908     $   1,755
Gross Margin by Channel
Warehouse/Reload            $       51     $       53     $      149     $      153     $     199     $     179
Direct                               6              6             19             19            24            23
Other(1)                             5              2              6              6             7             8
Total                       $       62     $       61     $      174     $      178     $     230     $     210
Gross Margin % by Channel
Warehouse/Reload                  11.0 %         13.2 %         10.9 %         13.0 %        13.0 %        12.8 %
Direct                             5.9 %          6.2 %          6.0 %          6.4 %         6.2 %         6.1 %
Total                             11.2 %         12.2 %         10.5 %         12.1 %        12.1 %        12.0 %



(1) "Other" includes unallocated allowances and adjustments.

Fiscal Year

Our fiscal year is a 52- or 53-week period ending on the Saturday closest to the end of the calendar year. Fiscal year 2013 contains 53 weeks and fiscal year 2012 contained 52 weeks.

Results of Operations

Third Quarter of Fiscal 2013 Compared to Third Quarter of Fiscal 2012

The following table sets forth our results of operations for the third quarter
of fiscal 2013 and third quarter of fiscal 2012.

                                                                   % of                                 % of
                                           Third Quarter of         Net         Third Quarter of         Net
                                              Fiscal 2013          Sales           Fiscal 2012          Sales
                                              (Unaudited)                          (Unaudited)
                                                                  (Dollars in thousands)
Net sales                                  $         557,952         100.0 %    $         496,810         100.0 %
Gross profit                                          62,492          11.2 %               60,531          12.2 %
Selling, general, and administrative                  57,255          10.3 %               48,156           9.7 %
Depreciation and amortization                          2,144           0.4 %                2,106           0.4 %
Operating income                                       3,093           0.6 %               10,269           2.1 %
Interest expense                                       6,918           1.2 %                7,294           1.5 %
Other expense (income), net                               17           0.0 %                  (16 )         0.0 %
(Loss) income before benefit from income
taxes                                                 (3,842 )        (0.7 )%               2,991           0.6 %
Benefit from income taxes                               (636 )        (0.1 )%                 (77 )         0.0 %
Net (loss) income                          $          (3,206 )        (0.6 )%   $           3,068           0.6 %

Net sales. For the third quarter of fiscal 2013, net sales increased by 12.3%, or $61.1 million, to $558.0 million. Sales during the quarter were positively impacted by an increase in demand. Structural sales increased by $31.8 million, or 15.1%, compared to the third quarter of fiscal 2012, primarily due to an increase in unit volumes of 14.2% and an increase in structural product prices of 0.9%. Specialty sales increased by $31.7 million, or 11.0% from a year ago, primarily as a result of an increase in specialty unit volumes of 10.2% and an increase in specialty product prices of 0.8%.

Gross profit. Gross profit for the third quarter of fiscal 2013 was $62.5 million, or 11.2% of sales, compared to $60.5 million, or 12.2% of sales, in the prior year period. The increase in gross profit dollars compared to the third quarter of fiscal 2012 was driven by an increase in volume partially offset by an unfavorable variance in our gross margin percentage. Our overall gross margin percentage was lower due to a greater percentage of our sales being comprised of lower gross margin structural products coupled with a highly competitive pricing environment. In addition, we experienced lower margin sales as we sold through inventory at the five distribution centers we closed during the third quarter of fiscal 2013.

Selling, general, and administrative expenses. Selling, general, and administrative expenses were $57.3 million, or 10.3% of net sales, for the third quarter of fiscal 2013, compared to $48.2 million, or 9.7% of net sales, a $9.1 million increase compared to the third quarter of fiscal 2012. This increase in selling, general, and administrative expenses primarily was due to a reduction in real estate related gains, which were $3.7 million during the third quarter of fiscal 2013 compared to $9.2 million during the third quarter of fiscal 2012. In addition, there were $2.8 million of restructuring charges associated with the 2013 restructuring recorded during the third quarter of fiscal 2013. Variable costs such as payroll related costs, third party freight and third party handling and storage also increased due to an increase in unit volume of 11.9%.

Depreciation and amortization. Depreciation and amortization expense totaled $2.1 million for the third quarter of fiscal 2013 and the third quarter of fiscal 2012.

Operating income. Operating income for the third quarter of fiscal 2013 was $3.1 million, or 0.6% of sales, compared to operating income of $10.3 million, or 2.1% of sales, in the third quarter of fiscal 2012, reflecting an increase in selling, general, and administrative expense of $9.1 million offset by an increase in gross profit dollars of $2.0 million.

Interest expense. Interest expense totaled $6.9 million for the third quarter of fiscal 2013 compared to $7.3 million for the third quarter of fiscal 2012. The $0.4 million decrease is largely due to a $0.6 million decrease in interest expense incurred on our mortgage as a result of principal reductions and a $0.2 million decrease in amortization of debt fees partially offset by a $0.4 million increase in interest expense incurred on our revolving credit facilities. Interest expense included $0.7 million of debt issue cost amortization for the third quarter of fiscal 2013 and $0.9 million for the third quarter of fiscal 2012. During the third quarter of fiscal 2013, interest expense related to our revolving credit facilities and mortgage was $3.0 million and $3.2 million, respectively. During the third quarter of fiscal 2012, interest expense related to our revolving credit facilities and mortgage was $2.6 million and $3.8 million, respectively. See "Liquidity and Capital Resources" below for a description of agreements for the revolving credit facilities and the mortgage.

Benefit from income taxes. The effective tax rate was 16.6% and (2.6)% for the third quarter of fiscal 2013 and the third quarter of fiscal 2012, respectively. The unusual effective tax rate in both periods is primarily driven by a full valuation allowance recorded against our year to date federal and state tax benefit. In addition, we recorded tax expense related to gross receipts, Canadian and certain state taxes. Also, during the third quarter of fiscal 2013, we allocated income tax expense to accumulated other comprehensive loss to the extent income was recorded related to the pension plan, which resulted in a higher tax benefit to continuing operations. Finally, during the third quarter of fiscal 2013, we recorded a benefit related to the reversal of a $0.6 million reserve for an uncertain tax position due to the expiration of the statute of limitations.

Net income (loss). Net loss for the third quarter of fiscal 2013 was $3.2 million compared to net income of $3.1 million for the third quarter of fiscal 2012 as a result of the above factors.

On a per-share basis, basic and diluted (loss) income applicable to common stockholders for the third quarter of fiscal 2013 and for the third quarter of fiscal 2012 was ($0.04) and $ 0.04 , respectively. On March 27, 2013, we completed a rights offering (the "2013 Rights Offering") of common stock to our stockholders at a subscription price that was lower than the market price of our common stock. The 2013 Rights Offering was deemed to contain a bonus element that is similar to a stock dividend requiring us to adjust the weighted average number of common shares used to calculate basic and diluted earnings per share in prior periods retrospectively by a factor of 1.0894. Weighted average shares for the quarter ended September 29, 2012 prior to giving effect to the 2013 Rights Offering were 60,098,691 and were 65,472,685 after application of the adjustment factor of 1.0894.

First Nine Months of Fiscal 2013 Compared to First Nine Months of Fiscal 2012

The following table sets forth our results of operations for the first nine
months of fiscal 2013 and the first nine months of fiscal 2012.

                                            First Nine Months        % of          First Nine Months        % of
                                                   of                 Net                 of                 Net
                                               Fiscal 2013           Sales            Fiscal 2012           Sales
                                               (Unaudited)                            (Unaudited)
                                                                    (Dollars in thousands)
Net sales                                  $         1,665,697         100.0 %    $         1,467,544         100.0 %
Gross profit                                           174,134          10.5 %                177,951          12.1 %
Selling, general, and administrative                   185,184          11.1 %                161,358          11.0 %
Depreciation and amortization                            6,547           0.4 %                  6,553           0.4 %
Operating (loss) income                                (17,597 )        (1.1 )%                10,040           0.7 %
Interest expense                                        21,026           1.3 %                 21,401           1.5 %
Other expense (income), net                                252           0.0 %                    (29 )        (0.0 )%
Loss before (benefit from) provision for
income taxes                                           (38,875 )        (2.3 )%               (11,332 )        (0.8 )%
(Benefit from) provision for income
taxes                                                     (714 )         0.0 %                    325           0.0 %
Net loss                                   $           (38,161 )        (2.3 )%   $           (11,657 )        (0.8 )%

Net sales. For the first nine months of fiscal 2013, net sales increased by 13.5%, or $198.2 million, to $1.7 billion. Sales during the period were positively impacted by an increase in demand. Specialty sales increased by $60.1 million, or 7.0% compared to the first nine months of fiscal 2012, reflecting a 6.6% increase in unit volume and a 0.4% increase in prices. Structural sales increased by $143.2 million, or 23.5%, from a year ago, primarily due to a 10.7% increase in unit volume and a 12.8% increase in product prices.

Gross profit. Gross profit for the first nine months of fiscal 2013 was $174.1 million, or 10.5% of sales, compared to $178 million, or 12.1% of sales, in the prior year period. The decrease in gross profit dollars compared to the first nine months of fiscal 2012 was driven by an unfavorable variance in our gross margin percentage. Structural product prices have increased, when compared to the prior period, which resulted in an increase in revenue. However, we experienced a decline during the second quarter of fiscal 2013 in the market prices of lumber, OSB and plywood. The decline in market prices negatively impacted our gross margin percentage as we sold through the affected inventory. In addition, the overall gross margin percentage was lower due to a greater percentage of our sales being comprised of lower gross margin structural products.

Selling, general, and administrative. Selling, general, and administrative expenses for the first nine months of fiscal 2013 were $185.2 million, or 11.1% of net sales, compared to $161.4 million, or 11.0% of net sales, during the first nine months of fiscal 2012. The increase in selling, general, and administrative expenses primarily was due to $11.0 million of restructuring and other charges associated with the 2013 restructuring and the change in executive leadership. Also contributing to the increase was a reduction in real estate related gains, which were $3.9 million in the first nine months of fiscal 2013 as compared to real estate related gains of $10.2 million in the first nine months of fiscal 2012. In addition, variable costs such as payroll related costs, third party freight and operating supplies increased due to an increase in unit volume of 8.3%.

Depreciation and amortization. Depreciation and amortization expense totaled $6.5 million for the first nine months of fiscal 2013, and $6.6 million for the first nine months of fiscal 2012.

Operating (loss) income. Operating (loss) income for the first nine months of . . .

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