BLUELINX HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2017~~April 1, 2023

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited ~~Condensed Consolidated Financial Statements~~interim condensed consolidated financial statements include the accounts of BlueLinx Holdings Inc. and its wholly owned subsidiaries (the “Company”). ~~These~~We derived the condensed consolidated balance sheet at April 1, 2023, from the audited consolidated financial statements ~~have been prepared~~included in ~~accordance~~our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Fiscal 2022 Form 10-K”), as filed with the ~~instructions to Form 10-Q~~Securities and ~~do not include all of the information and footnotes required by accounting principles generally accepted~~Exchange Commission (“~~GAAP”~~SEC”) ~~in the United States (“U.S.”) for complete financial statements.~~on February 21, 2023. In the opinion of our management, the condensed consolidated financial statements reflect all adjustments, ~~(consisting~~which are of a normal recurring ~~accruals) considered~~nature, necessary for a fair presentation of our statements of operations and comprehensive income for the three months ended April 1, 2023 and April 2, 2022, our balance sheets at April 1, 2023 and December 31, 2022, our statements of stockholders’ equity for the three months ended April 1, 2023 and April 2, 2022, and our statements of cash flows for the three months ended April 1, 2023 and April 2, 2022.

We have ~~been included. These~~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 ~~Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on~~Fiscal 2022 Form ~~10-K (the “Annual Report on Form 10-K”)~~10-K. The results for the three months ended April 1, 2023 are not necessarily indicative of results that may be expected for the full year ~~ended~~ending December 30, 2023, 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 ~~2016,~~of that fiscal year and may comprise 53 weeks in certain years. Our 2023 fiscal year contains 52 weeks and ends on December 30, 2023. Fiscal 2022 contained 52 weeks and ended on December 31, 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 ~~filed~~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 quarter ended April 2, 2022, 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 ~~Securities~~quarter ended April 1, 2023. Our reclassifications are limited to the operating activities section and ~~Exchange Commission on March 2, 2017.~~include presenting pension contributions, which were previously presented within the change of other assets and liabilities, as an individual item within changes in operating assets and liabilities. These reclassifications, we believe, provide an enhanced level of transparency with regards to the presentation of our statement of cash flows.

~~New~~Recently Adopted Accounting Standards

~~Revenue from Contracts with Customers.~~Credit Impairment Losses. In ~~May 2014,~~June 2016, the Financial Accounting Standards Board ~~(FASB)~~(the “FASB”) issued Accounting Standards Update (“ASU”) ~~2014-09, “Revenue from Contracts with Customers~~No. 2016-13, “Financial Instruments - Credit Losses (Topic ~~606),~~326).” This ASU sets forth a current expected credit loss (“CECL”) model which ~~supersedes~~requires the ~~revenue recognition requirements~~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 ~~Accounting Standards Codification (“ASC”) 605, Revenue Recognition.~~estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. The ~~new revenue recognition~~Company adopted this standard ~~requires entities to recognize revenue in~~on a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective on January 1, 2018. We have elected to adopt the revenue recognition standardmodified retrospective basis in the first quarter of ~~2018 with a cumulative adjustment to retained earnings. We have substantially completed our assessment of~~2022 and the ~~new revenue recognition guidance. Based upon current interpretations, we do~~implementation did not ~~anticipate the adoption of this standard to~~ have a material impact ~~on our~~to the Company’s condensed consolidated financial statements; aside from adding expanded disclosures, which are currently under consideration, as are further considerations of potential additional or expanded internal controls over financial reporting.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, Long-Term Debt, 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.

2. ~~Employee Benefits~~Business Combinations

On October 3, 2022, we acquired all the outstanding stock of Vandermeer Forest Products, Inc. (“Vandermeer”), a premier wholesale distributor of building products, for preliminary total consideration of $69.3 million. The ~~following table shows~~acquisition has been accounted for as a business combination using the ~~components~~acquisition method. The assets acquired and liabilities assumed were recognized at their acquisition date fair values. The acquisition accounting, including fair value estimations, is subject to change as we finalize all assessments of ~~net periodic pension cost (in thousands):~~the assets and liabilities that were acquired on the acquisition date. The primary area of the preliminary acquisition accounting that is not yet finalized relates to settlement of the holdback liability.

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

As of the date of the acquisition, the holdback liability was $6.3 million. During the quarter-ended April 1, 2023, $0.3 million of the holdback liability was returned to the Company for adjustments related to final cash and working capital balances, reducing preliminary total consideration from $69.3 million to $69.0 million. The remaining holdback liability of $6.0 million is scheduled to be settled approximately 18 months after the acquisition date.

3. ~~Assets Held for Sale~~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 ~~Net Gain on Disposition~~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.

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

As of ~~September 30, 2017, two properties were designated as held for sale,~~April 1, 2023, we assessed the carrying value of our inventory and asdetermined it was presented at the lower of cost or net realizable value and that a reserve was not necessary.

As of December 31, ~~2016, four properties had been designated as held for sale. During that nine months ended September 30, 2017, two properties were sold, as further described below. As~~2022, we recorded a lower of ~~September 30, 2017, and December 31, 2016, the~~cost or net ~~book~~realizable value reserve of ~~total assets held for sale was $0.8~~$2.6 million and $2.7 million, respectively, and was included in “other current assets” in our Consolidated Balance Sheets. We are actively marketing the remaining two properties that are designated as held for sale.

For the nine months ended September 30, 2017, we sold two non-operating distribution facilities previously designated as “held for sale,” and a parcel of excess land (the “Property Sales”). We recognized a gain of $6.7 million in the Condensed Consolidated Statements of Income as a result of the ~~Property Sales.~~decrease in the value of our structural lumber and panel inventory related to the decline in wood-based commodity prices as of the end of the period.

4. ~~Fair Value Disclosure~~Goodwill and Other Intangible Assets

ToIn connection with our past merger and acquisition activity, we acquired certain intangible assets. As of April 1, 2023, 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 April 1, 2023, goodwill was $55.4 million.

Goodwill is not subject to amortization but must be tested for impairment at least annually. This test requires us to assign goodwill to a reporting unit and to determine if the fair value of the reporting unit’s goodwill is less than its carrying amount. We evaluate goodwill for impairment during the fourth quarter of each fiscal year. In addition, we willevaluate the carrying value for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such events and indicators may include, without limitation, significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our

market capitalization. No such indicators were present during the first quarter of fiscal 2023. Our one reporting unit has a fair value that exceeds its carrying value as of April 1, 2023.

The following table provides information related to the carrying amount of our goodwill:


	Total Carrying Amount
	(In thousands)
Balance at December 31, 2022	$	55,372
Acquisitions	—
Balance at April 1, 2023	$	55,372

Definite-Lived Intangible Assets

The gross carrying amounts, accumulated amortization, and net carrying amounts of our definite-lived intangible assets at April 1, 2023 were as follows:


Intangible Asset	Weighted Average Remaining Useful Lives (Years)	Gross Carrying Amounts		Accumulated Amortization(1)		Net Carrying Amounts
		(In thousands)
Customer relationships	10	$	48,500	$	(16,084)	$	32,416
Noncompete agreements	5	8,954		(8,324)		630
Trade names	3	7,826		(6,993)		833
Total		$	65,280	$	(31,401)	$	33,879

(1) Intangible assets except customer relationships are amortized on straight line basis. Certain of our customer relationships are amortized on a double declining balance method and certain others are amortized on a straight line basis.

Amortization Expense

Amortization expense for our definite-lived intangible assets was $1.1 million and $1.1 million for the three-month periods ended April 1, 2023 and April 2, 2022, respectively.

Estimated amortization expense for definite-lived intangible assets for the remaining portion of 2023 and the next five fiscal years is as follows:


Fiscal Year	Estimated Amortization
	(In thousands)
2023	$	3,113
2024	3,930
2025	3,765
2026	3,471
2027	3,340
2028	3,340

5. 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 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 Ended
Product type	April 1, 2023		April 2, 2022
	(In thousands)
Specialty products	$	567,838	$	767,907
Structural products	230,066		534,398
Total net sales	$	797,904	$	1,302,305

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 Ended
Sales channel	April 1, 2023		April 2, 2022
	(In thousands)
Warehouse and reload	$	686,632	$	1,077,946
Direct	127,095		246,652
Customer discounts and rebates	(15,823)		(22,293)
Total net sales	$	797,904	$	1,302,305

6. Long-Term Debt

As of April 1, 2023 and December 31, 2022, long-term debt consisted of the following:


	April 1, 2023		December 31, 2022
	(In thousands)
Senior secured notes (1)	$	300,000	$	300,000
Revolving credit facility (2)	—		—

Finance lease obligations (3)	270,764		273,075
	570,764		573,075
Unamortized debt issuance costs	(3,854)		(4,057)
Unamortized bond discount costs	(3,393)		(3,519)
	563,517		565,499
Less: current maturities of long-term debt	5,087		7,089
Long-term debt, net of current maturities	$	558,430	$	558,410

(1)As of April 1, 2023 and December 31, 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 $292.8 million and $292.4 million at April 1, 2023 and December 31, 2022, respectively. This presentation is net of their discount of $3.4 million and $3.5 million and the combined carrying value of our debt issuance costs of $3.9 million and $4.1 million at April 1, 2023 and December 31, 2022, respectively. Our senior secured notes are presented in this table at their face value.

(2) The average effective interest rate for our revolving credit facility was zero percent for the quarters ended April 1, 2023 and April 2, 2022.

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

Senior Secured Notes

In October 2021, we completed a private offering of $300.0 million of our six percent senior secured notes due 2029 (the “2029 Notes”), and in connection therewith we entered into an indenture (the “Indenture”) with the guarantors party thereto and Truist Bank, as trustee and collateral agent. 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.

As of April 1, 2023 and December 31, 2022, the fair value of our ~~mortgage, we use a discounted cash flow model. We believe the mortgage fair value valuation to be~~2029 Notes was approximately $276.8 million and $283.6 million, respectively, which are designated as Level 2 in the fair value ~~hierarchy, as the~~hierarchy. Our valuation ~~model has inputs that are~~technique is based primarily on observable ~~for substantially the full~~market prices in less active markets.

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

~~5. Other Non-Current Liabilities~~

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

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

In the first quarter of 2017, we entered into three sale and leaseback transactions. Our capital lease - real estate obligations arose from sale-leaseback transactions on distribution centers located in Tampa, Florida and Ft. Worth, Texas. As a result of these transactions, we recognized a capital lease asset and obligation originally totaling $8.0 million on these properties. The remaining sale-leaseback property located in Miami, Florida, was classified as an operating lease. We originally recognized a total deferred gain of $13.7 million on these three sale-leaseback transactions, which will be amortized over the life of the applicable lease in the case of the capital leases; or, in the case of the operating lease, will be amortized over the life of the applicable lease until our adoption of ASC 842, at which time the remaining deferred gain will be reclassified as a decrease to stockholders’ deficit.

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

~~6. Earnings per Share~~

We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding, excluding unvested restricted shares. We calculate diluted earnings per share by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including restricted stock awards, restricted stock units, performance shares, and stock options. Antidilutive or out-of-the-money common stock equivalents excluded from the diluted earnings per share calculation for the quarter and year-to-date during fiscal 2017 include all outstanding options and performance shares; and, additionally, for year-to-date only, an immaterial number of restricted stock units.

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

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

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

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

~~7. Accumulated Other Comprehensive Loss~~

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

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

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

Foreign currency, net
of tax

Defined
benefit pension
plan, net of tax

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

⁽¹⁾

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

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

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

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

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

~~9. Subsequent Event~~

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

~~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 condensed consolidated financial statements and notes to those statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the U.S. Securities and Exchange Commission (the “SEC”). This MD&A section is not a comprehensive discussion and analysis of our financial condition and results of operations, but rather updates disclosures made in the aforementioned filing.

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

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

~~inventory management and commodities pricing;~~

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

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

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

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

~~supply from our key vendors;~~

~~reliability of the technologies we utilize;~~

~~activities of competitors;~~

~~changes in significant operating expenses;~~

~~fuel costs;~~

~~risk of losses associated with accidents;~~

~~exposure to product liability claims;~~

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

~~adverse weather patterns or conditions;~~

~~acts of cyber intrusion;~~

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

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

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

~~Executive Level Overview~~

~~Background~~

We are a leading distributor of building and industrial products in the U.S. The Company is headquartered in Atlanta, Georgia, with executive offices located at 4300 Wildwood Parkway, Atlanta, Georgia, and we operate our distribution business through a broad network of distribution centers. We serve many major metropolitan areas in the U.S., and deliver building and industrial products to a variety of wholesale and retail customers. We distribute products in two principal categories: structural products and specialty products. Structural products include plywood, oriented strand board, rebar and remesh, lumber and other wood products primarily used for structural support, walls, and flooring in construction projects. Structural products

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

~~Industry Conditions~~

Many of the factors that cause our operations to fluctuate are seasonal or cyclical in nature. Our operating results have historically been closely aligned with the level of single family residential housing starts in the U.S. At any time, the demand for new homes is dependent on a variety of factors, including job growth, changes in population and demographics, the availability and cost of mortgage financing, the supply of new and existing homes and, importantly, consumer confidence. While single-family housing starts remain below peak levels, the industry has seen improvement over the past several years. Our opinion is that this trend will continue in the long term, and that we are well-positioned to support our customers.

~~Results of Operations~~

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

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

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

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

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

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


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

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

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

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


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

The following table sets forth a reconciliation of net sales and gross profit to the non-GAAP measures of adjusted same-center net sales and adjusted same-center gross profit versus comparable prior periods ⁽¹⁾:

Quarter Ended Nine Months Ended

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

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

⁽¹⁾

The schedule presented above includes a reconciliation of net sales and gross profit excluding the effect of operational efficiency initiatives; specifically, facility closures and the SKU rationalization initiative. These operational efficiency initiatives were substantially complete as of December 31, 2016. The above schedule is not a presentation made in accordance with GAAP, and is not intended to present a superior measure of the financial condition from those determined under GAAP. Adjusted net sales and adjusted gross profit as used herein, are not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation.

We believe adjusted net sales and adjusted gross profit are helpful in presenting comparability across periods without the effect of our operational efficiency initiatives on the later periods. We also believe that these non-GAAP metrics are used by securities analysts, investors, and other interested parties in their evaluation of our company, to illustrate the effects of these initiatives. We compensate for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than using GAAP results alone.

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

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

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

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

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

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

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

~~Selling, general, and administrative expenses.~~ The decrease of $8.3 million for the nine months of fiscal 2017, compared to the first nine months of fiscal 2017, is primarily related to reductions in payroll and related costs, due to a reduction in force in the prior year in connection with distribution center closures, which also resulted in a decrease in general maintenance and repair costs. Additionally, we have decreased third party freight expense for the comparative period. These overall cost decreases were slightly offset by an increase in strategic costs, year-over-year, as during the first nine months of fiscal 2017, we incurred $5.5 million in pension expense as a result of our withdrawal from a multi-employer pension plan, compared to $3.3 million of refinancing related costs in fiscal 2016.

~~Seasonality~~

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

~~Liquidity and Capital Resources~~

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

~~Mortgage~~

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

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

Revolving Credit Facility

~~As of September 30, 2017, we had outstanding borrowings of $217.7 million and excess availability of $82.7 million under the terms of our previous revolving credit facility and Tranche A Loan.~~

WeOur Revolving Credit Facility, entered into ~~a Credit Agreement, dated as of October 10, 2017, by and among us, certain of our subsidiaries, as borrowers or guarantors;~~with Wells Fargo Bank, National Association, ~~in its capacity~~ as administrative ~~agent;~~agent (“the Agent”), and certain other financial institutions party thereto, ~~(the “Credit Agreement”). The Credit Agreement~~ provides for a senior secured asset-based revolving loan and letter of credit facility of up to $335.0 million (the “Revolving Credit Facility”) and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $75.0 million, subject to certain conditions, including lender consent. If we were to obtain the full amount of the additional increases in commitments,$350.0 million. Our obligations under the Revolving Credit Facility will allow borrowings of up to $410.0 million. The maturity date of the Credit Agreement is October 10, 2022. The Credit Agreement replaced our previous $335.0 million secured revolving credit facility, which consisted of a revolving loan facility of up to $335.0 million and a Tranche A revolving loan facility of up to $16.0 million, which had been made available pursuant to our prior credit agreement, dated August 4, 2006, as amended.

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

Borrowings under our 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.

Our Revolving Credit ~~Agreement~~Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, 2023. Under the terms of the facility, LIBOR will be replaced with the Secured Overnight Financing Rate (“SOFR”) with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023.

Borrowings under our Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the ~~Credit Agreement)~~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. Our 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 April 1, 2023, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $722.7 million under our Revolving Credit Facility. As of December 31, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $645.4 million under our Revolving Credit Facility. Available borrowing capacity under our Revolving Credit Facility was $346.5 million on April 1, 2023 and December 31, 2022. Our average effective interest rate under the facility was zero percent for the quarters ended April 1, 2023 and April 2, 2022.

Our 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 our Revolving Credit Facility as of April 1, 2023.

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 Cost (Benefit)

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


	Three Months Ended
Pension-related items	April 1, 2023		April 2, 2022
	(In thousands)
Service cost (1)	$	—	$	—
Interest cost on projected benefit obligation	1,104		606
Expected return on plan assets	(812)		(1,177)
Amortization of unrecognized gain	302		209
Net periodic pension cost (benefit)	$	594	$	(362)

(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 cost (benefit) is included in other expense, net in our condensed consolidated statement of operations and comprehensive income.

During the three months ended April 1, 2023, we continued our previously announced plan to terminate the BlueLinx Corporation Hourly Retirement Plan (the “plan”) and transfer the management and delivery of continuing benefits associated with the plan to a highly rated and qualified insurance company with pension termination experience. The process for terminating a pension plan involves several regulatory steps and approvals, and typically takes 12 to 18 months to complete. We estimate the plan termination will be completed during fiscal 2023.

8. Stock Compensation

During the three months ended April 1, 2023 and April 2, 2022, we incurred stock compensation expense of $4.6 million and $2.2 million, respectively. The increase in our stock compensation expense for the three-month period is primarily attributable to the acceleration of unrecognized compensation cost in conjunction with our announced leadership transition. Additionally, there was 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.

As of April 1, 2023, we have accrued $1.3 million for tax withholding obligations of our employees upon vesting of restricted stock unit awards. This has been presented as a non-cash transaction in our condensed consolidated statement of cash flows.

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 April 1, 2023 and December 31, 2022:


Lease assets and liabilities		April 1, 2023		December 31, 2022
		(In thousands)
Assets	Classification
Operating lease right-of-use assets	Operating lease right-of-use assets	$	43,548	$	45,717
Finance lease right-of-use assets (1)	Property and equipment, net	130,659		132,748
Total lease right-of-use assets		$	174,207	$	178,465

Liabilities
Current portion
Operating lease liabilities	Operating lease liabilities - short term	$	6,756	$	7,432
Finance lease liabilities	Finance lease liabilities - short term	5,087		7,089
Non-current portion
Operating lease liabilities	Operating lease liabilities - long term	38,142		40,011
Finance lease liabilities	Finance lease liabilities - long term	265,677		265,986
Total lease liabilities		$	315,662	$	320,518

(1) Finance lease right-of-use assets are presented net of accumulated amortization of $88.9 million and $90.1 million as of April 1, 2023 and December 31, 2022, respectively.

The components of lease expense were as follows:


	Three Months Ended
Components of lease expense	April 1, 2023		April 2, 2022
	(In thousands)
Operating lease cost:
Operating lease cost	$	2,918	$	2,517
Sublease income	(578)		(652)
Total operating lease costs	$	2,340	$	1,865

Finance lease cost:
Amortization of right-of-use assets	$	2,089	$	3,710
Interest on lease liabilities	6,044		6,160
Total finance lease costs	$	8,133	$	9,870

Supplemental cash flow information related to leases was as follows:


	Three Months Ended
Cash flow information	April 1, 2023		April 2, 2022
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	3,458	$	2,528
Operating cash flows from finance leases	6,044		6,160
Financing cash flows from finance leases	$	2,133	$	3,722

Non-cash supplemental cash flow information related to leases was as follows:

Three Months Ended

Non-cash information

April 1, 2023

April 2, 2022

(In thousands)

Right-of-use assets obtained in exchange for lease obligations

Operating leases

—

Finance leases

—

Supplemental balance sheet information related to leases was as follows:


Balance sheet information	April 1, 2023			December 31, 2022
	(In thousands)
Finance leases
Property and equipment	$	219,572		$	222,839
Accumulated depreciation	(88,913)			(90,091)
Property and equipment, net	$	130,659		$	132,748
Weighted Average Remaining Lease Term (in years)
Operating leases	9.28			9.21
Finance leases	13.78			13.97
Weighted Average Discount Rate
Operating leases	8.61		%	8.54		%
Finance leases	8.89		%	8.87		%

The major categories of our finance lease liabilities as of April 1, 2023 and December 31, 2022 are as follows:


Category	April 1, 2023		December 31, 2022
	(In thousands)
Equipment and vehicles	$	27,162	$	29,300
Real estate	243,602		243,775
Total finance leases	$	270,764	$	273,075

Under the short-term lease exception provided within ASC 842, we do not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement. Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of April 1, 2023. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the condensed consolidated balance sheets, including options to extend lease terms that are reasonably certain of being exercised.


Fiscal year	Operating leases		Finance leases
	(In thousands)
2023	$	7,724	$	21,147
2024	10,072		31,836
2025	8,756		28,988
2026	5,460		32,553
2027	4,217		26,970
Thereafter	31,519		524,869
Total lease payments	$	67,748	$	666,363
Less: imputed interest	(22,850)		(395,599)
Total	$	44,898	$	270,764

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, our results of operations, or our cash flows.

Collective Bargaining Agreements

As of April 1, 2023, we employed approximately 2,100 associates and less than one percent of our associates are employed on a part-time basis. Approximately 16 percent of our associates are represented by various local labor unions with terms and conditions of employment governed by Collective Bargaining Agreements (“CBAs”). Four CBAs covering approximately four percent of our associates are up for renewal in the remainder of fiscal 2023, which we expect to renegotiate by the end of fiscal 2023.

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 three months ended April 1, 2023, were as follows:


	Defined benefit pension plan, net of tax		Other, net of tax		Total Accumulated Other Comprehensive Loss

December 31, 2022, beginning balance	$	(32,675)	$	1,263	$	(31,412)
Other comprehensive income, net of tax	239		(11)		228
April 1, 2023, ending balance, net of tax	$	(32,436)	$	1,252	$	(31,184)

12. Income Taxes

Effective Tax Rate

Our effective tax rate for the three months ended April 1, 2023 and April 2, 2022 was 26.5 percent and 26.2 percent, respectively.

Our effective tax rates for the three months ended April 1, 2023 and April 2, 2022 were impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, slightly offset by a benefit from the vesting of restricted stock units, which occurred during each period. For additional information about our income taxes, see Note 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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.

The reconciliation of basic net income and diluted net income per common share for the three-month periods ended April 1, 2023 and April 2, 2022 were as follows:


	Three Months Ended
	April 1, 2023		April 2, 2022
	(In thousands, except per share data)

Net income	$	17,812	$	133,409

Weighted-average shares outstanding - basic	9,059		9,720
Dilutive effect of share-based awards	98		393
Weighted-average shares outstanding - diluted	9,157		10,113

Basic income per share	$	1.96	$	13.72
Diluted income per share	$	1.94	$	13.19

Approximately 78,000 and 3,000 weighted-average share-based awards were excluded from the computation of earnings per share assuming dilution during the three months ended April 1, 2023 and April 2, 2022, respectively, as the awards would have been anti-dilutive for the periods presented.

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 panels, 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.

We have a strong market position and a broad geographic coverage footprint servicing all 50 states, where we maintain locations that serve 75 percent of the highest growth metropolitan statistical areas as it relates to forecasted housing starts and repair and remodel spend. 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, Louisiana-Pacific, Oldcastle APG, Ply Gem, Roseburg, Royal and Weyerhaeuser. We supply products to a broad base of 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 these 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 also estimate the remaining 15 percent is accounted for by commercial construction.

Certain developments have led to a more challenging macro-economic environment, such as broad-based inflation, the rapid rise in mortgage rates, and home price appreciation. These developments have impacted the U.S. housing market, including the residential repair and remodel and residential new construction end markets, and have contributed to a recent slowdown in the U.S. housing industry. However, we believe that several factors, including the current high levels of home equity, the fundamental undersupply of housing in the U.S., repair and remodel activity, and demographic shifts, among others, will support demand for our products.

Residential Repair and Remodel

We estimate that demand from the residential repair and remodel market (“R&R”) accounts for approximately 45 percent of our annual sales. Historically, R&R demand has tended to be less cyclical when compared to the residential new construction

market, 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 believe R&R demand is driven by a myriad of factors including, but not limited to: home prices and affordability; raw materials prices; the pace of new household formation; savings rates; employment conditions; and emerging trends, such as the increased popularity of home-based remote working environments. With mortgage rates having risen to multi-year highs, we believe many homeowners who secured a lower interest mortgage will be inclined to stay longer in existing homes, which could benefit R&R demand over the near-to-medium term.

According to the Joint Center For Housing Studies’ LIRA Index, R&R demand is expected to return to more normalized levels, following several consecutive years of elevated R&R activity fueled by pandemic-induced changes in housing and lifestyle decisions. However, the total market size of the U.S. R&R market remains significant, with total U.S. homeowner improvements and repairs spending expected to be approximately $484.0 billion by the end of 2023, up from $363.0 billion at the end of 2020.

Further, as the median age of U.S. housing stock increases over time, we anticipate U.S. R&R spending will also increase. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, the median age of a home in the U.S. increased from 23 years in 1985 to 39 years in 2019. Moreover, approximately 80 percent of the current housing stock was built prior to 1999. We believe the increasing average age of the nation’s approximate 142 million existing homes will continue to drive demand for repair and remodel projects.

Residential New Construction

We estimate that demand from the residential new construction market, including single-family and multi-family units, accounts for approximately 40 percent of our annual sales.

We believe demand for residential new construction is driven by a myriad of factors including, but not limited to: mortgage rates, which recently reached multi-year highs; lending standards; home affordability; employment conditions; savings rates; the rate of population growth and new household formation; builder activity levels; the level of existing home inventory on the market; and consumer sentiment.

According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, during the first quarter of fiscal 2023, single family housing starts in the United States, seasonally adjusted, were approximately 29 percent lower compared to the first quarter of fiscal 2022 and approximately 13 percent lower than that of the first quarter of fiscal 2020, prior to the COVID-19 pandemic, indicating a market slow down following two years of favorable market conditions. As of the end of the first quarter of fiscal 2023, the month’s supply of inventory of new homes was eight months, above the 20-year average of six months. For most of the last decade, housing production has lagged population growth and household formation.

We believe our scale, national footprint, strategic supplier relationships, key national customer relationships, and breadth of market leading products and brands position us to serve the residential new construction end market and navigate the challenges in the macro-economic environment.

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. The first and fourth quarters have historically been our lower volume quarters due to the impact of unfavorable weather on the residential repair and remodel and residential new home construction markets, among other factors. Our second and third quarters have historically been higher volume quarters compared to the first and fourth quarters, reflecting an increase in repair and remodel and residential new home construction activities due to more favorable seasonal conditions.

Our historical patterns of seasonality were impacted by the COVID-19 pandemic which caused supply and demand imbalances impacting our sales volumes. During the first quarter of 2023, we experienced some seasonal impacts to our sales volumes from weather conditions. While there is continued uncertainty surrounding certain macro-economic environment developments that may impact our seasonality trends, we expect to return to more normalized seasonality trends in the near term given recent easing supply constraints and increased manufacturing output.

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. See Note 3, Inventories, to the condensed consolidated financial statements and Results of Operations below for discussion of the impact of fluctuations in commodity markets on results for the periods presented.

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 is pursuing a revenue mix increasingly weighted toward higher-margin, specialty product categories such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products. Additionally, the Company is expanding its value-added service offerings designed to simplify complex customer sourcing requirements and provide enhanced service capabilities 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 is maintaining a disciplined capital structure while at the same time investing in its business to modernize its distribution facilities, as well as its tractor and trailer fleet, 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 $9.0 million in our business during the first quarter of fiscal 2023 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; global pandemics, such as COVID-19, and other widespread public health crises and their potential effects on our business; 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; the potential to incur more debt; 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; a lowering or withdrawal of debt ratings; changes in our product mix; increases in petroleum prices; 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 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; variable interest rate risk under certain indebtedness; changes in, or interpretation of, accounting principles; significant stock price fluctuation; the possibility that we could be the subject of securities class action litigation due to stock price volatility; unfavorable securities or industry analyst publications; activities of activist shareholders; and indebtedness terms that limit our ability to pay dividends on common stock.

Results of Operations

The following table sets forth our results of operations for the first quarter of fiscal 2023 and fiscal 2022:


	First Quarter of Fiscal 2023		% of Net Sales	First Quarter of Fiscal 2022		% of Net Sales
	(In thousands)			(In thousands)
Net sales	$	797,904	100.0%	$	1,302,305	100.0%

Gross profit	133,539		16.7%	291,051		22.3%
Selling, general, and administrative	91,174		11.4%	91,289		7.0%
Depreciation and amortization	7,718		1.0%	6,746		0.5%
Amortization of deferred gains on real estate	(984)		(0.1)%	(984)		(0.1)%

Other operating expenses	3,116		0.4%	838		0.1%
Operating income	32,515		4.1%	193,162		14.8%
Interest expense, net	7,687		1.0%	11,293		0.9%
Other expense, net	594		0.1%	1,138		0.1%
Income before provision for income taxes	24,234		3.0%	180,731		13.9%
Provision for income taxes	6,422		0.8%	47,322		3.6%
Net income	$	17,812	2.2%	$	133,409	10.2%

The following table sets forth net sales by product category for the three-month periods ending April 1, 2023 and April 2, 2022:


	Three Months Ended
	April 1, 2023				April 2, 2022
Net sales by product category	($ in thousands)
Specialty products	$	567,838	71	%	$	767,907	59	%
Structural products	230,066		29	%	534,398		41	%
Total net sales	$	797,904	100	%	$	1,302,305	100	%

The following table sets forth gross profit and gross margin percentages by product category for the three-month periods of fiscal 2023 and 2022:


	Three Months Ended
	April 1, 2023			April 2, 2022
Gross profit by product category	($ in thousands)
Specialty products	$	106,627		$	184,099
Structural products	26,912			106,952
Total gross profit	$	133,539		$	291,051
Gross margin % by product category
Specialty products	18.8		%	24.0		%
Structural products	11.7		%	20.0		%
Total gross margin %	16.7		%	22.3		%

First Quarter of Fiscal 2023 Compared to First Quarter of Fiscal 2022

For the first quarter of fiscal 2023, we generated net sales of $797.9 million, a decrease of $504.4 million when compared to the first quarter of fiscal 2022 and the overall gross margin percentage decreased from 22.3 percent to 16.7 percent year over year. The decline in overall profitability compared to the prior year was primarily due to lower sales volume for our specialty products, particularly our engineered wood products, and year-over-year declines in the average composite prices of our structural products.

Net sales of specialty products, which includes products such as engineered wood, siding, millwork, outdoor living, specialty lumber and panels, and industrial products, decreased $200.1 million to $567.8 million in the first quarter of fiscal 2023. The decline was due to lower sales volume, primarily related to engineered wood products. Specialty products gross profit decreased $77.5 million to $106.6 million, with a year-over-year decline of 520 basis points in specialty gross margin to 18.8 percent for the first quarter of fiscal 2023, compared to 24.0 percent in the first quarter of fiscal 2022. The decrease in specialty gross margin percentage over the prior-year period is attributable to lower sales volume, primarily related to engineered wood products, as well as modest declines in pricing for our specialty products given the change in market conditions.

Net sales of structural products, which includes products such as lumber, plywood, oriented strand board, rebar, and remesh, decreased $304.3 million to $230.1 million in the first quarter of fiscal 2023 due to the decline in the average composite price of framing lumber and structural panels, as well as lower structural panels volume. Our structural gross margin percentage for the first quarter of fiscal 2023 was 11.7 percent, down from 20.0 percent in the prior-year period, primarily attributable to year-over-year declines in the average composite price of framing lumber and structural panels.

Our selling, general, and administrative expenses, which includes approximately $2.0 million of incremental operating expenses related to our Vandermeer acquisition, remained relatively flat overall compared to the first quarter of fiscal 2022. Depreciation and amortization expense increased 14.4 percent, compared to the first quarter of fiscal 2022. The increase in depreciation and amortization is due to a higher base of amortizable and depreciable assets throughout the first quarter of fiscal 2023 when compared the prior-year period, resulting from our continued focus on capital investment and increased intangible assets related to our Vandermeer acquisition. Other operating expenses increased $2.3 million compared to the first quarter of fiscal 2022 primarily due to restructuring related costs, including severance, incurred in the first quarter of fiscal 2023 due to our leadership transition.

Interest expense, net, decreased by 31.9 percent, or $3.6 million, compared to the first quarter of fiscal 2022. The decrease is primarily due to the generation of higher interest income on our cash on hand.

Our effective tax rates were 26.5 percent and 26.2 percent for the first quarter of fiscal 2023 and 2022, respectively. Our effective tax rate for both periods was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, slightly offset by a benefit from the vesting of restricted stock units, which occurred during each period.

Our net income for the first quarter of fiscal 2023 was $17.8 million, or $1.94 per diluted share, versus $133.4 million, or $13.19 per diluted share, in the prior-year period due primarily to a decrease in gross profit driven by lower specialty sales volume, particularly for our engineered wood products, and declines in pricing related to our specialty and structural products, in conjunction with higher operating expenses. This was offset by lower interest expense and income tax expense.

Liquidity and Capital Resources

We expect our primary sources of liquidity to be cash flows from sales and operating activities in the normal course of our operations and availability from our revolving credit facility, as needed. We expect that these sources will be sufficient to fund our ongoing cash requirements for at least the next 12 months and into the foreseeable future.

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 of April 1, 2023 and December 31, 2022, the fair value of our 2029 Notes was approximately $276.8 million and $283.6 million, respectively, which are designated as Level 2 in the fair value hierarchy. Our valuation technique is based primarily on observable market prices in less active markets.

Revolving Credit ~~Agreement~~Facility

Our Revolving Credit Facility, entered into with Wells Fargo Bank, National Association, as administrative agent (“the Agent”), and certain other financial institutions party thereto, provides for a senior secured asset-based revolving loan and letter of credit facility of up to $350.0 million. Our obligations under the Revolving Credit Facility are secured by a security interest ~~on the loans~~in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items.

Borrowings under our Revolving Credit Facility bear interest at a rate per annum equal to (i) LIBOR plus a margin ranging from ~~2.25%~~1.25 percent to ~~2.75%,~~1.75 percent, with the ~~amount of such~~ margin determined based upon ~~the~~ average ~~of our~~ excess availability for the immediately preceding fiscal quarter ~~as calculated by the administrative agent,~~ for loans based on LIBOR, or (ii) the ~~administrative agent’s~~Agent’s base rate plus a margin ranging from ~~0.75%~~0.25 percent to ~~1.25%,~~0.75 percent, with the ~~amount of such~~ margin ~~determined~~ based upon ~~the~~ average ~~of our~~ excess availability for the immediately preceding fiscal quarter ~~as calculated by the administrative agent,~~ for loans based on the base rate.

Our Revolving Credit Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, 2023. Under the ~~event excess availability falls below the greater of (i) $35.0 million and (ii) 10%~~terms of the ~~lesser of (a)~~facility, LIBOR will be replaced with the Secured Overnight Financing Rate (“SOFR”) with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023.

Borrowings under our Revolving Credit Facility are subject to availability under the Borrowing Base ~~and (b)~~(as that term is defined in the ~~maximum permitted~~revolving credit atagreement). The Borrowers are required to repay revolving loans thereunder to the extent that such ~~time,~~revolving loans exceed the Borrowing Base then in effect. Our Revolving Credit ~~Agreement requires maintenance of a fixed charge coverage ratio of 1.1 to 1.0 (which, subject to satisfying certain conditions though the first fiscal quarter of 2018,~~Facility may be ~~reduced~~prepaid in whole or in part from time to ~~1.0 to 1.0) until such~~ time ~~as our~~without penalty or premium, but including all breakage costs incurred by any lender thereunder.

As of April 1, 2023, we had zero outstanding borrowings and excess availability, ~~has been at least $42.5~~including cash in qualified accounts, of $722.7 million ~~for a period~~under our Revolving Credit Facility. As of ~~60 days. The~~December 31, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $645.4 million under our Revolving Credit ~~Agreement also requires us to limit~~Facility. Available borrowing capacity under our ~~capital expenditures to $30.0~~Revolving Credit Facility was $346.5 million ~~in the aggregate per fiscal year; provided that any unused portion of such amount up to $15.0 million in any fiscal year may be applied to capital expenditures in the next fiscal year.~~

~~The Credit Agreement also contains representations~~on April 1, 2023 and ~~warranties and affirmative and negative covenants customary for financings of this type as well as customary events of default.~~

In connection with the execution and delivery of the Credit Agreement, we also entered into a Limited Guaranty in favor of Wells Fargo (the “Limited Guaranty”), pursuant to which we agreed to guarantee our obligationsDecember 31, 2022. Our average effective interest rate under the facility was zero percent for the quarters ended April 1, 2023 and April 2, 2022.

Our Revolving Credit ~~Agreement~~

~~for so long as~~Facility contains certain financial and other covenants, and our ~~existing mortgage remained outstanding. We also agreed~~right to borrow under the Revolving Credit Facility is conditioned upon, among other things, our compliance with Wells Fargo that we would not pledge the equity interests in certain of our subsidiaries that own real property. This guaranty can only be exercised if we breach our negative pledge obligations. The Limited Guaranty will terminate when we repay our existing mortgage loan in full.

these covenants. We were in compliance with all covenants under ~~the~~our Revolving Credit ~~Agreement~~Facility as of ~~September~~April 1, 2023.

Finance Lease Commitments

Our finance lease liabilities consist of leases related to equipment and vehicles, and to real estate, with the majority of those finance lease commitments relating to the real estate financing transactions that we completed in recent years. Our total finance lease commitments totaled $270.8 million and $273.1 million as of April 1, 2023 and December 31, 2022, respectively. Of the $270.8 million of finance lease commitments as of April 1, 2023, $243.6 million related to real estate and $27.2 million related to equipment. Of the $273.1 million of finance lease commitments as of December 31, 2022, $243.8 million related to real estate and $29.3 million related to equipment.

Interest Rates

Our Revolving Credit Facility includes available interest rate options based on LIBOR, which will be discontinued as an available rate option after June 30, ~~2017.~~2023. Under the terms of our Revolving Credit Facility, LIBOR will be replaced with SOFR with respect to the applicable variable rate interest options thereunder, with effect on or before June 30, 2023. There can be no assurances as to whether SOFR will be a more or less favorable reference rate than LIBOR, and the consequences of replacing LIBOR with SOFR cannot be entirely predicted. However, at this time, we do not believe that the replacement of LIBOR by SOFR as a reference rate in our revolving credit facility will have a material adverse effect on our financial position or materially affect our interest expense.

Sources and Uses of Cash

Operating Activities

Net cash ~~used in~~provided by operating activities for the first ~~nine~~three months of fiscal ~~2017~~2023 was ~~$38.3~~$89.0 million, compared to net cash provided by operating activities of $2.2 million in the first three months of fiscal 2022. The increase in cash provided by operating activities during the first three months of fiscal 2023 was primarily a result of higher cash generated from changes in working capital components, including the decrease in inventory and increase in accounts payable, offset by the increase in accounts receivable in the current-year period. This was partially offset by a decrease in net income for the current-year period compared to the prior-year period.

Investing Activities

Net cash used in investing activities for the first three months of fiscal 2023 was $9.0 million compared to net cash used in ~~operating~~investing activities of ~~$0.2~~$2.5 million in the first ~~nine~~three months of fiscal ~~2016. Accounts receivable increased by $47.9 million during~~2022. The increase in net cash used in investing activities was primarily due to higher spend on property and equipment in the ~~first nine months of fiscal 2017,~~current year-period compared to ~~an increase of $24.8 million in~~ the first nine months of the prior fiscal year, which increase in the 2017 period was largely attributable to timing of sales within the quarter. Inventory increased by $15.5 million in the first nine months of fiscal 2017, which reflects the seasonality of our business, as we are in our historical peak selling season.

~~Investing Activities~~

Net cash provided by investing activities for the first nine months of fiscal 2017 was $27.2 million compared to net cash provided by investing activities of $18.4 million in the first nine months of fiscal 2016. Our cash provided by investing activities in both periods primarily was related to the sales of certain distribution facilities, including sale and leaseback transactions.

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

Financing Activities

Net cash ~~provided by~~used in financing activities ~~of $11.1~~totaled $2.7 million for the first ~~nine~~three months of fiscal ~~2017,~~2023, compared to net cash used in financing activities of $10.5 million for the first three months of fiscal 2022. The decrease in net cash used in financing activities is primarily ~~reflected seasonal net borrowings on~~due to the repurchase our common stock under our announced share repurchase program during the first three months of fiscal 2022, with no such transactions completed in the first three months of fiscal 2023.

Stock Repurchase Program

As of April 1, 2023, we have a remaining authorization amount of $33.6 million under our $100.0 million share repurchase program.

With the remaining availability under the stock repurchase program, we may repurchase our common stock at any time or from time to time, without prior ~~revolving credit facility~~notice, subject to prevailing market conditions and other considerations. Our repurchases may be made through a variety of ~~$41.1 million, offset by principal payments on our mortgage loan of $29.0 million.~~

~~We replaced our prior revolving credit facility, including~~methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the ~~Tranche A Loan, on October 10, 2017. See “Revolving Credit Facility,” above, for additional information regarding our new credit facility.~~Securities and Exchange Commission Rule 10b5-1.

Operating Working Capital

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

Current liabilities:

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

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

Operating working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash. Operating working capital is defined as ~~current assets~~the sum of receivables and inventory, less ~~current liabilities plus the current portion of long-term debt.~~accounts payable. Management of ~~operating~~ working capital helps us monitor our progress in meeting our goals to enhance ~~our return on~~ working capital assets.


Selected financial information
	April 1, 2023		December 31, 2022		April 2, 2022
	(In thousands)
Current assets:
Receivables, less allowance for doubtful accounts	$	298,888	$	251,555	$	497,056
Inventories, net	409,324		484,313		562,555
	$	708,212	$	735,868	$	1,059,611

Current liabilities:
Accounts payable	$	177,046	$	151,626	$	230,072
	$	177,046	$	151,626	$	230,072

Operating working capital	$	531,166	$	584,242	$	829,539

Operating working capital of ~~$264.4~~$531.2 million ~~at September 30, 2017,~~as of April 1, 2023, compared to ~~$220.9~~$584.2 million as of December 31, ~~2016, increased~~2022, decreased on a net basis by approximately $53.1 million. The decrease in operating working capital is primarily driven by the decrease in inventory, which reflects our strategic inventory management efforts, and the increase in accounts payable due to timing of ~~approximately $43.4 million as a result of~~cash disbursements. This was partially offset by the ~~seasonal nature of our business, which typically peaks in the second and third fiscal quarters. This seasonality resulted in a $47.9 million~~ increase in accounts receivable ~~and an increase in inventory of $15.5 million, offset by an increase in accounts payable of $14.9 million.~~from net sales.

Operating working capital of $531.2 million as of April 1, 2023, compared to $829.5 million as of April 2, 2022, decreased ~~from October 1, 2016, to September 30, 2017,~~on a net basis by ~~$7.2 million,~~approximately $298.4 million. The decrease in operating working capital is primarily driven by ~~increases~~the decrease in accounts receivable due to the decrease in net sales and improved collection efforts, as well as the decrease in inventory, which reflects our strategic inventory management efforts and a deflationary pricing environment. This was partially offset by the decrease in accounts payable and bank overdrafts comprising $9.9 million in total. Additionally, other current assets decreased by $4.1 million, primarily reflecting the removal of the net book value of “held for sale” properties, as most of our properties held for sale were sold during the fourth quarter of 2016 and first quarter of 2017. The last component ofdue to the decrease in ~~operating~~inventory and the timing of cash disbursements.

Investments in Property and Equipment

Our investments in capital ~~included increases in all categories~~assets consist of ~~current liabilities~~cash paid for owned assets and the inception of financing lease arrangements for long-lived assets to support our distribution infrastructure. The gross value of these assets are included in property and equipment, at cost on our condensed consolidated balance sheet. For the ~~operating working capital calculation, from October~~first quarter ended April 1, ~~2016,~~2023, we invested $9.0 million in cash investments in long-lived assets primarily related to ~~September 30, 2017.~~investments in our distribution facilities and to a lesser extent, upgrading our fleet.

Critical Accounting Policies

The preparation of our consolidated financial statements and related disclosures in conformity with GAAP requires our management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. There have been no material changes to our critical accounting policies from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2022.

Forward-Looking Statements

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

Forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. These risks and uncertainties include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, and those discussed elsewhere in this report (including Item 1A of Part II of this report) and in future reports that we file with the SEC. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Factors that may cause these differences include, among other things:

•we may experience pricing and product cost variability;

•our earnings are highly dependent on volumes;

•our industry is highly fragmented and competitive and if we are unable to compete effectively, our net sales and operating results may be reduced;

•our industry is highly cyclical, and prolonged periods of weak demand or excess supply may reduce our net sales and/or margins, which may cause us to incur losses or reduce our net income;

•adverse housing market conditions may negatively impact our business, liquidity, and results of operations, and increase the credit risk from our customers;

•consolidation among competitors, suppliers, and customers could negatively impact our business;

•we are subject to disintermediation risk;

•loss of key products or key suppliers and manufacturers could affect our financial health;

•our dependence on international suppliers and manufacturers for certain products exposes us to risks that could affect our financial condition and expose us to certain additional risks;

•our strategy includes pursuing acquisitions, and we may be unsuccessful in making and integrating mergers, acquisitions and investments;

•we may incur business disruptions resulting from a variety of possible causes;

•we may be unable to effectively manage our inventory relative to our sales volume or as the prices of the products we distribute fluctuate, which could affect our business, financial condition, and operating results;

•we are subject to information technology security risks and business interruption risks and may incur increasing costs in an effort to minimize and/or respond to those risks;

•our success depends on our ability to attract, train, and retain highly qualified associates and other key personnel while controlling related labor costs;

•we are exposed to product liability and other claims and legal proceedings related to our business and the products we distribute, which may exceed the coverage of our insurance;

•our business operations could suffer significant losses from climate changes, natural disasters, catastrophes, fire, or other unexpected events;

•our operating results depend on the successful implementation of our strategy and we may not be able to implement our strategic initiatives successfully, on a timely basis, or at all;

•a significant percentage of our employees are unionized, and wage increases or work stoppages by our unionized employees may reduce our results of operations;

•federal, state, local, and other regulations could impose substantial costs and restrictions on our operations that would reduce our net income;

•we are subject to federal, state, and local environmental protection laws and may have to incur significant costs to comply with these laws and regulations in the future;

•the effect of global pandemics, such as COVID-19, and other widespread public health crises and governmental rules and regulations and our policies related to such may adversely affect our business and results from operations;

•our future operating results may fluctuate significantly, and our current operating results may not be a good indication of our future performance;

•fluctuations in our quarterly financial results could affect our stock price in the future;

•our level of indebtedness could limit our financial and operating activities and adversely affect our ability to incur additional debt to fund future needs;

•the instruments governing our indebtedness contain various covenants limiting the discretion of our management in operating our business, including requiring us to maintain a minimum level of excess liquidity;

•despite our current levels of debt, we may still incur more debt, which would increase the risks described in these risk factors relating to indebtedness;

•we have sold and leased back certain of our distribution centers under long-term non-cancelable leases, and we may enter into similar transactions in the future. All of these leases are (or will be) finance leases, and our debt and interest expense may increase as a result;

•many of our distribution centers are leased, and if we close a leased distribution center before expiration of the lease, we will still be obligated under the applicable lease, and we may be unable to renew the leases at the end of their terms;

•we may not have or be able to raise the funds necessary to finance a required repurchase of our senior secured notes;

•a lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital;

•a change in our product mix could adversely affect our results of operations;

•if the cost of fuel, third-party freight or other energy prices increase or availability of third-party freight providers is reduced, our results of operations could be adversely affected;

•we establish insurance-related deductible/retention reserves based on historical loss development factors, which could lead to adjustments in the future based on actual development experience;

•the value of our deferred tax assets could become impaired, which could materially and adversely affect our operating results;

•our expected annual effective tax rate could be volatile and materially change as a result of changes in mix of earnings and other factors;

•changes in actuarial assumptions for our pension plan could impact our financial results, and funding requirements are mandated by the Federal government;

•costs and liabilities related to our participation in multi-employer pension plans could increase;

•our cash flows and capital resources may be insufficient to make required payments on our indebtedness or future indebtedness;

•borrowings under our revolving credit facility bears interest at a variable rate, which subjects us to interest rate risk, which could cause our debt service obligations to increase significantly;

•changes in, or interpretation of, accounting principles could result in unfavorable accounting changes;

•our stock price may fluctuate significantly;

•we could be the subject of securities class action litigation due to stock price volatility, which could divert management’s attention and adversely affect our results of operations;

•if securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline;

•the activities of activist stockholders could have a negative impact on our business and results of operations;

•the terms of our revolving credit facility and senior secured notes place restrictions on our ability to pay dividends on our common stock, so any returns to stockholders may be limited to the value of their stock.

Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~As stated~~We are exposed to certain market risks as part of our on-going business operations. Our exposure includes commodity price risk and interest rate risk.

Commodity Price Risk

Many of the building products that we distribute, including oriented strand board (“OSB”), plywood, lumber, and rebar, are commodities whose price is determined by the market’s supply and demand for such products. Prices of commodity products can also change as a result of national and international economic conditions, labor and freight costs, competition, market speculation, government regulation, and trade policies, as well as from periodic delays in the delivery of products. Short-term increases in the cost of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our customers, but our pricing quotation periods and pricing pressure from our competitors may limit our ability to pass on such price changes. We may also be limited in our ~~Annual Report~~ability to pass on ~~Form 10-K~~increases in freight costs on our products. We may enter into derivative financial instruments to mitigate the potential impact of commodity price fluctuations on our results of operations or cash flows. As of April 1, 2023, we had no such derivative financial instruments in place.

Interest Rate Risk

We may experience changes in interest expense if changes in our debt occur. Changes in market interest rates could also affect our interest expense. We are exposed to interest rate risk arising from fluctuations in variable-rate LIBOR or other applicable benchmark rate, such as SOFR, when we have loan amounts outstanding on our revolving credit facility. We do not believe that a one percent increase in interest rates, for example, would have a material effect on our results of operations or cash flows. As of April 1, 2023, we had no outstanding borrowings on our revolving credit facility. Our senior secured notes bear interest at a fixed rate, therefore, our interest expense related to these notes would not be affected by an increase in market interest rates. We may enter into derivative financial instruments to mitigate the ~~fiscal year ended December 31, 2016, disclosures for Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” are not required, as~~potential impact of interest rate risk on our results of operations or cash flows. As of April 1, 2023, we ~~are a Smaller Reporting Company.~~had no such derivative financial instruments in place.

ITEM 4. CONTROLS AND PROCEDURES

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

~~There were~~

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

During the ~~third~~first quarter of fiscal ~~2017,~~2023, there were no material changes to our legal proceedings as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022. Additionally, we are, and from time to time may be, a party to routine legal proceedings incidental to the operation of our business. The outcome of any pending or threatened proceedings is not expected to have a material adverse effect on our financial condition, operating results, or cash flows, based on our current understanding of the relevant facts. Legal expenses incurred related to these contingencies are generally expensed as incurred.

ITEM 1A. RISK FACTORS

~~Our industry is highly cyclical, and prolonged periods of weak demand or excess supply may reduce our net sales and/or margins, which may cause us~~There have been no material changes to ~~incur losses or reduce our net income~~.

~~The building products distribution industry is subject to cyclical market pressures. Prices of building products are determined by overall supply and demand~~the risk factors disclosed in Part I, "Item 1A.Risk Factors" in the market. Market prices of building products historically have been volatile and cyclical, and we have limited ability to control the timing and amount of pricing changes. Demand for building products is driven mainly by factors outside of our control, such as general economic and political conditions, interest rates, availability of mortgage financing, the construction, repair and remodeling markets, industrial markets, weather, and population growth. The supply of building products fluctuates basedCompany’s Annual Report on available manufacturing capacity, and excess capacity in the industry can result in significant declines in market prices for those products. To the extent that prices and volumes experience a sustained or sharp decline, our net sales and margins likely would decline as well. Because we have substantial fixed costs, a decrease in sales and margin generally may have a significant adverse impact on our financial condition, operating results, and cash flows.

~~Certain of our products are commodities and fluctuations in prices of these commodities could affect our operating results~~.

Many of the building products which we distribute, including OSB, plywood, lumber, and rebar, are commodities that are widely available from other distributors or manufacturers, with prices and volumes determined frequently in an auction market based on participants’ perceptions of short-term supply and demand factors. Prices of commodity products can also change as a result of national and international economic conditions, labor and freight costs, competition, market speculation, government regulation and trade policies, as well as from periodic delays in the delivery of products. Short-term increases in the cost of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our customers, but our pricing quotation periods and pricing pressure from our competitors may limit our ability to pass on such price changes. We may also be limited in our ability to pass on increases in freight costs on our products due to the price of fuel.

At times, the purchase price for any one or more of the products we produce or distribute may fall below our purchase costs, requiring us to incur short-term losses on product sales. Therefore, our profitability with respect to these commodity products depends, in significant part, on managing our cost structure. Commodity product prices could be volatile in response to operating rates and inventory levels in various distribution channels. Commodity price volatility affects our distribution business, with falling price environments generally causing reduced revenues and margins, resulting in substantial declines in profitability and possible net losses.

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

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

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

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

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

~~make us more vulnerable to general adverse economic and industry conditions;~~

~~limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, and other general corporate requirements;~~

~~expose us to interest rate fluctuations because the interest rate on the debt under our new revolving credit facility (the~~

~~“Credit Agreement”) is variable;~~

~~require us to dedicate a substantial portion of our cash flows to payments on our debt, thereby reducing the availability of our cash flows for operations and other purposes;~~

~~limit our flexibility in planning for, or reacting to, changes in our business, and the industry in which we operate; and~~

~~place us at a competitive disadvantage compared to competitors that may have proportionately less debt, and therefore may be in a better position to obtain favorable credit terms.~~

In addition, our ability to make scheduled payments or refinance our obligations depends on our successful financial and operating performance, cash flows, and capital resources, which in turn depend upon prevailing economic conditions and certain financial, business, and other factors, many of which are beyond our control. These factors include, among others:

~~economic and demand factors affecting the building products distribution industry;~~

~~external factors affecting availability of credit;~~

~~pricing pressures;~~

~~increased operating costs;~~

~~competitive conditions; and~~

~~other operating difficulties.~~

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital, or restructure our debt. There is no assurance that we could obtain additional capital or refinance our debt on terms acceptable to us, or at all. In the event that we are required to dispose of material assets or operations to meet our debt service and other obligations, the value realized on the disposition of such assets or operations will depend on market conditions and the availability of buyers. Accordingly, any such sale may not, among other things, be for a sufficient dollar amount to repay our indebtedness. We may incur substantial additional indebtedness in the future. Our incurring additional indebtedness would intensify the risks described above.

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

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

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

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

The instruments governing our indebtedness contain various covenants limiting the discretion of our management in operating our business, including requiring us to maintain a minimum level of excess liquidity.

Our new revolving credit facility and mortgage loan contain various restrictive covenants and restrictions, including financial covenants customary for asset-based loans that limit management’s discretion in operating our business. In particular, these instruments limit our ability to, among other things:

~~incur additional debt;~~

~~grant liens on assets;~~

~~make investments;~~

~~sell or acquire assets outside the ordinary course of business;~~

~~engage in transactions with affiliates; and~~

~~make fundamental business changes.~~

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

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

If we fail to comply with the restrictions in the Credit Agreement, the mortgage loan documents, or any other current or future financing agreements, a default may allow the creditors under the relevant instruments to accelerate the related debts and to exercise their remedies under these agreements, which typically will include the right to declare the principal amount of that debt, together with accrued and unpaid interest, and other related amounts, immediately due and payable, to exercise any remedies the creditors may have to foreclose on assets that are subject to liens securing that debt, and to terminate any commitments they had made to supply further funds.

~~We may not be able to monetize real estate assets if we experience adverse market conditions~~.

We sold substantial amounts of our real estate assets during 2016 and early 2017, and we have designated certain non-operating properties as held for sale, which we currently are actively marketing. In addition, we believe there will be future opportunities to monetize our real estate portfolio’s equity value for debt reduction and investment purposes via sale leaseback and other strategic real estate transactions. However, real estate investments are relatively illiquid. We may not be able to sell the properties we have targeted for disposition or that we may decide to monetize in the future, due to adverse market conditions. This may negatively affect, among other things, our ability to sell properties on favorable terms, execute our strategic initiatives and repay our mortgage loan, which has a $55.0 million principal payment due no later than July 1, 2018, with the remaining balance due no later than July 1, 2019.

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

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

~~Adverse housing market conditions may negatively impact our business, liquidity and results of operations, as well as increase the credit risk from our customers~~.

Our business depends to a significant degree on the new residential construction market and, in particular, single family home construction. The homebuilding industry underwent a significant decline from its peak in 2005. Although the homebuilding industry has improved over the last few years, it is still far below its historical averages. According to the U.S. Census Bureau, actual single family housing starts in the United States during 2016 increased 9.4% from 2015 levels, but remain 54.4% below their peak in 2005. The multi-year downturn in the homebuilding industry resulted in a substantial reduction in demandForm 10-K for the products we provide. We cannot predict the duration of the current housing industry market conditions or the timing or strength of any continued recovery of housing activity in our markets. The homebuilding industry also may not recover to historical levels. Continued weakness in the new residential construction market would have a material adverse effect on our business, financial condition and operating results. Factors impacting the level of activity in the residential new construction markets include changes in interest rates, unemployment rates, high foreclosure rates and unsold/foreclosure inventory, availability of financing, labor costs, vacancy rates, local, state and federal government regulation, and shifts in populations away from the markets that we serve. In addition, the mortgage markets periodically experience disruption and reduced availability of mortgages for potential homebuyers due to more restrictive standards to qualify for mortgages, including with respect to new home construction loans. Because of these factors, there may be fluctuations in our operating results, and the results for any historical period may not be indicative of results for any future period.

We also rely on residential repair and remodel activity levels. Historically, residential repair and remodeling activity has decreased in slow economic periods. General economic weakness, elevated unemployment levels, mortgage delinquency and foreclosure rates, limitations in the availability of mortgage and home improvement financing, and lower housing turnover all limit consumers’ spending, particularly on discretionary items, and affect their confidence level leading to reduced spending on home improvement projects. Depressed activity levels in consumer spending for home improvement construction would adversely affect our business, liquidity, results of operations, and financial position. Furthermore, economic weakness causes unanticipated shifts in consumer preferences and purchasing practices and in the business models and strategies of our customers. Such shifts may alter the nature and prices of products demanded by the end consumer, and, in turn, our customers and could adversely affect our operating performance.

In addition, we extend credit to numerous customers who are generally susceptible to the same economic business risks as we are. Unfavorable housing market conditions could result in financial failures of one or more of our significant customers. Furthermore, we may not necessarily be aware of any deterioration in our customers’ financial position. If our larger customers’ financial positions become impaired, our ability to fully collect receivables from such customers could be impaired and negatively affect our operating results, cash flow and liquidity.year ended December 31, 2022.

~~We are exposed to product liability and other claims and legal proceedings related to our business and the products we distribute, which may exceed the coverage of our insurance~~.

The building products industry has been subject to personal injury and property damage claims arising from alleged exposure to raw materials contained in building products as well as claims for incidents of catastrophic loss, such as building fires. As a distributor of building materials, we face an inherent risk of exposure to product liability claims in the event that the use of the products we have distributed in the past or may in the future distribute is alleged to have resulted in economic loss, personal injury or property damage, or violated environmental, health or safety, or other laws. Such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, or a breach of warranties. We are also from time to time subject to casualty, contract, tort, and other claims relating to our business, the products we have distributed in the past or may in the future distribute and the services we have provided in the past or may in the future provide, either directly or through third parties. We rely on manufacturers and other suppliers to provide us with the products we sell or distribute. Since we do not have direct control over the quality of products that are manufactured or supplied to us by third parties, we are particularly vulnerable to risks relating to the quality of such products.

We cannot predict or, in some cases, control the costs to defend or resolve such claims. We cannot assure you that we will be able to maintain suitable and adequate insurance on acceptable terms or that such insurance will provide adequate protection against potential liabilities, and the cost of any product liability or other proceeding, even if resolved in our favor, could be substantial. Additionally, we do not carry insurance for all categories of risk that our business may encounter. Any significant uninsured liability may require us to pay substantial amounts. There can be no assurance that any current or future claims will not adversely affect our financial position, cash flows, or results of operations.

~~Product shortages, loss of key suppliers, our dependence on third-party suppliers and manufacturers and new tariffs could affect our financial health~~.

~~Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply~~

from domestic and international manufacturers and other suppliers. Generally, our products are obtainable from various sources and in sufficient quantities. However, the loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our financial condition, operating results, and cash flows. In addition, many of our suppliers are located outside of the United States. Thus, trade restrictions, including new or increased tariffs, quotas, embargoes, sanctions, safeguards and customs restrictions, as well as foreign labor strikes, work stoppages or boycotts, could increase the cost or reduce the supply of the products available to us.

Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Failure by our suppliers to continue to supply us with products on commercially reasonable terms, or at all, could have a material adverse effect on our financial condition, operating results, and cash flows.

~~A change in our product mix could adversely affect our results of operations~~.

Our results may be affected by a change in our product mix. Our outlook, budgeting, and strategic planning assume a certain product mix of sales. If actual results vary from this projected product mix of sales, our financial results could be negatively impacted. Additionally, gross margins vary across our product lines. If the mix of products shifts from higher margin product categories to lower margin product categories, our overall gross margins and profitability may be adversely affected. Consequently, changes in our product mix could have a material adverse impact on our financial condition and operating results.

Relatedly, our product sales to a customer may be dependent on the supplier and the brands we distribute. If we are unable to supply certain brands to our customers, then our ability to sell existing customers and acquire new customers will be difficult to accomplish. As a result, our revenue, operating performance, cash flows, and net income may be adversely affected.

We may be unable to effectively manage our inventory as our sales volume increases or the prices of the products we distribute fluctuate, which could affect our business, financial condition, and operating results.

We purchase many of our products directly from manufacturers, which are then sold and distributed to customers. We must maintain, and have adequate working capital to purchase, sufficient inventory to meet customer demand. Due to the lead times required by our suppliers, we order products in advance of expected sales. As a result, we are required to forecast our sales and purchase accordingly. In periods characterized by significant changes in economic growth and activity in the residential and commercial building and home repair and remodel industries, it can be especially difficult to forecast our sales accurately. We must also manage our working capital to fund our inventory purchases. Such issues and risks can be magnified by the diversity of product mix our business units carry, with over 10,000 SKUs across multiple major product categories. Excessive increases in the market prices of certain building products can put negative pressure on our operating cash flows by requiring us to invest more in inventory. In the future, if we are unable to effectively manage our inventory as we attempt to expand our business, our cash flows may be negatively affected, which could have a material adverse effect on our business, financial condition, and operating results.

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

Petroleum prices have fluctuated significantly in recent years, including recent periods of historically low prices. Prices and availability of petroleum products are subject to political, economic, and market factors that are outside our control. Political events in petroleum-producing regions as well as hurricanes and other weather-related events may cause the price of fuel to increase. Within our business units, we deliver products to our customers primarily via our fleet of trucks. Our operating profit may be adversely affected if we are unable to obtain the fuel we require or to fully offset the anticipated impact of higher fuel prices through increased prices or fuel surcharges to our customers. Besides passing fuel costs on to customers, we have entered into forward purchase contracts that protect against fuel price increases. However, if fuel prices decrease, then such hedging arrangements would result in us spending more money on fuel. If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers or otherwise protect ourselves by entering into hedging arrangements, then our results of operations would be adversely affected.

~~We establish insurance-related deductible/retention reserves based on historical loss development factors, which could lead to adjustments in the future based on actual development experience.~~

We retain a significant portion of the accident risk under vehicle liability and workers’ compensation insurance programs. Our self-insurance accruals are based on actuarially estimated, undiscounted cost of claims, which includes claims incurred but not reported. While we believe that our estimation processes are well designed, every estimation process is inherently subject to limitations. Fluctuations in the frequency or severity of accidents make it difficult to precisely predict the ultimate cost of claims. The actual cost of claims can be different than the historical selected loss development factors because of safety performance, payment patterns, and settlement patterns.

~~Our business operations could suffer significant losses from natural disasters, catastrophes, fire, or other unexpected events~~.

While we operate our business out of 39 warehouse facilities and maintain insurance covering our facilities, including business interruption insurance, our warehouse facilities could be materially damaged by natural disasters, such as floods, tornadoes, hurricanes, and earthquakes, or by fire, adverse weather conditions, civil unrest, condemnation, or other unexpected events or disruptions to our facilities. We could incur uninsured losses and liabilities arising from such events, including damage to our reputation, and/or suffer material losses in operational capacity, which could have a material adverse impact on our business, financial condition, and results of operations.

~~We are subject to disintermediation risk.~~

As customers continue to consolidate or otherwise increase their purchasing power, they are better able to purchase products directly from the same suppliers that use us for distribution. In addition to the threat of losing business from a customer, disintermediation puts us at risk of losing entire product lines or categories from suppliers. It also adversely impacts our ability to obtain favorable pricing from suppliers and optimize margins and revenue with respect to our customers. As a result, continued disintermediation could have a negative impact on our financial condition and operating results.

~~We are subject to pricing pressures~~.

Large customers have historically been able to exert pressure on their outside suppliers and distributors to keep prices low in the highly fragmented building materials distribution industry. In addition, continued consolidation among our customers and their customers (i.e., homebuilders), and changes in their respective purchasing policies and payment practices could result in even further pricing pressure. A decline in the prices of the products we distribute could adversely impact our operating results. When the prices of the products we distribute decline, customer demand for lower prices could result in lower sales prices and, to the extent that our inventory at the time was purchased at higher costs, lower margins. Alternatively, in a rising price environment, our suppliers may increase prices or reduce discounts on the products we distribute and we may be unable to pass on any cost increase to our customers, thereby resulting in reduced margins and profits. Furthermore, continued consolidation among our suppliers makes it more difficult for us to negotiate favorable pricing, consignment arrangements, and discount programs with our suppliers, thereby resulting in reduced margins and profits. Overall, these pricing pressures may adversely affect our operating results and cash flows.

Customer consolidation could result in the loss of existing customers to our competitors. We typically do not enter into minimum purchase contracts with our customers. The loss of one or more of our significant customers, or their decision to purchase our products in significantly lower quantities than they have in the past could significantly affect our financial condition, operating results and cash flows.

~~Our industry is highly fragmented and competitive. If we are unable to compete effectively, our net sales and operating results may be reduced~~.

The building and industrial products distribution industry is highly fragmented and competitive, and the barriers to entry for local competitors are relatively low. Competitive factors in our industry include pricing, availability of product, service, delivery capabilities, customer relationships, geographic coverage, and breadth of product offerings. Also, financial stability is important to suppliers and customers in choosing distributors for their products, and affects the favorability of the terms on which we are able to obtain our products from our suppliers and sell our products to our customers.

Some of our competitors have less financial leverage or are part of larger companies, and therefore may have access to greater financial and other resources than those to which we have access. Finally, we may not be able to maintain our costs at a level sufficiently low for us to compete effectively. If we are unable to compete effectively, our net sales and net income may be reduced.

~~Our competitors continue to consolidate, which could cause markets to become more competitive and could negatively impact our business~~.

Our competitors continue to consolidate. This consolidation is being driven by customer needs and supplier capabilities, which could cause markets to become more competitive as greater economies of scale are achieved by distributors. Customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations. We believe these customer needs could result in fewer distributors as the remaining distributors become larger and capable of being consistent sources of supply. There can be no assurance that we will be able to take advantage effectively of this trend toward consolidation. The trend in our industry toward consolidation could make it more difficult for us to maintain operating margins.

Our future operating results may fluctuate significantly and our current operating results may not be a good indication of our future performance. Fluctuations in our quarterly financial results could affect our stock price in the future.

Our revenues and operating results have historically varied from period-to-period and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control. If our quarterly financial results or our predictions of future financial results fail to meet the expectations of securities analysts and investors, our stock price could be negatively affected. Any volatility in our quarterly financial results may make it more difficult for us to raise capital in the future or pursue acquisitions that involve issuances of our stock. Our operating results for prior periods may not be effective predictors of future performance.

~~Factors associated with our industry, the operation of our business and the markets for our products may cause our quarterly financial results to fluctuate, including:~~

~~the commodity nature of our products and their price movements, which are driven largely by capacity utilization rates and industry cycles that affect supply and demand;~~

general economic conditions, including but not limited to housing starts, construction labor shortages, repair and remodel activity and commercial construction, inventory levels of new and existing homes for sale, foreclosure rates, interest rates, unemployment rates, and mortgage availability and pricing, as well as other consumer financing mechanisms, that ultimately affect demand for our products;

~~supply chain disruptions;~~

~~the highly competitive nature of our industry;~~

~~disintermediation;~~

~~the impact of actuarial assumptions and regulatory activity on pension costs and pension funding requirements;~~

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

our substantial indebtedness, including the possibility that we may not generate sufficient cash flows from operations or that future borrowings may not be available in amounts sufficient to fulfill our debt obligations and fund other liquidity needs;

~~cost of compliance with government regulations;~~

~~adverse customs and tariff rulings;~~

~~labor disruptions, shortages of skilled and technical labor, or increased labor costs;~~

~~increased healthcare costs;~~

~~the need to successfully implement succession plans for our senior managers;~~

~~our ability to successfully complete potential acquisitions or integrate efficiently acquired operations;~~

~~disruption in our information technology systems;~~

~~significant maintenance issues or failures with respect to our tractors, trailers, forklifts, and other major equipment;~~

~~severe weather phenomena such as drought, hurricanes, tornadoes, and fire;~~

~~condemnations of all or part of our real property; and~~

~~fluctuations in the market for our equity.~~

Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our quarterly financial and other operating results, including fluctuations in our key metrics. The variability and unpredictability could result in our failing to meet our internal operating plan or the expectations of securities analysts or investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits.

~~A significant percentage of our employees are unionized. Wage increases or work stoppages by our unionized employees may reduce our results of operations~~.

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

Although we have generally had good relations with our unionized employees, and expect to renew collective bargaining agreements as they expire, no assurances can be provided that we will be able to reach a timely agreement as to the renewal of the agreements, and their expiration or continued work under an expired agreement, as applicable, could result in a work stoppage. In addition, we may become subject to material cost increases, or additional work rules imposed by agreements with labor unions. The foregoing could increase our selling, general, and administrative expenses in absolute terms and/or as a percentage of net sales. In addition, work stoppages or other labor disturbances may occur in the future, which could adversely impact our net sales and/or selling, general, and administrative expenses. All of these factors could negatively impact our operating results and cash flows.

~~Our ability to utilize our net operating loss carryovers may be limited~~.

At September 30, 2017, we had net operating loss (“NOL”) carryforwards of approximately $163.7 million. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent stockholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws.

Sales in the underwritten public offering of 4,443,428 shares of our common stock by Cerberus that closed on October 23, 2017 (the “Resale Offering”) caused an ownership change limitation to be triggered. That limitation could restrict our ability to use our NOL carryforwards if our anticipated real estate sales over the next five years are not realized for any reason. Limitations on our ability to use NOL carryforwards to offset future taxable income, including gains on sales of real estate, could require us to pay U.S. federal income taxes earlier than would be required if such limitations were not in effect. Similar rules and limitations may apply for state income tax purposes.

~~Changes in actuarial assumptions for our pension plan could impact our financial results, and funding requirements are mandated by the Federal government~~.

We sponsor a defined benefit pension plan. Most of the participants in our pension plan are inactive, with the majority of the remaining active participants no longer accruing benefits; and the pension plan is closed to new entrants. However, unfavorable changes in various assumptions underlying the pension benefit obligation could adversely impact our financial results. Significant assumptions include, but are not limited to, the discount rate, projected return on plan assets, and mortality rates. In addition, the amount and timing of our pension funding obligations are influenced by funding requirements that are established by the Employee Retirement Income and Security Act of 1974 (“ERISA”), the Pension Protection Act, Congressional Acts, or other governing bodies.

~~Costs and liabilities related to our participation in multi-employer pension plans could increase~~.

We participate in various multi-employer pension plans in the U.S. based on obligations arising under collective bargaining agreements. Some of these plans are significantly underfunded and may require increased contributions in the future. The amount of any increase or decrease in our required contributions to these multi-employer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plan, governmental regulations, the actual return on assets held in the plan, the continued viability and contributions of other employers which contribute to the plan, and the potential payment of a withdrawal liability, among other factors.

Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. We have withdrawn from certain multi-employer plans in the past, including, most recently, in connection with a new collective bargaining agreement that we entered into with the Lumber Employees Local 786 union at our Chicago facility in the first quarter of 2017 (in which case we recorded a total estimated withdrawal liability of $4.5 million in the first quarter of 2017, and increased the estimated liability by $1.0 million in the second quarter of 2017). We may withdraw from other multi-employer plans in the future. If, in the future, we do choose to withdraw from any additional multi-employer plans or trigger a partial withdrawal, we likely would need to record a withdrawal liability, which may be material to our financial results. Additionally, a mass withdrawal would require us to record

~~a withdrawal liability, which may be material to our financial results, and would generally obligate us to make payments in perpetuity to the particular plan.~~

One of the plans to which we are obligated to contribute is the Central States, Southeast and Southwest Areas Pension Fund. As of March 30, 2016, the plan’s actuary certified that the plan was in critical and declining status, which, among other things, means the funded percentage of the plan was less than 65% and the plan is projected to become insolvent in 2025. It is unclear what will happen to this plan in the future. At a minimum, we expect that our required contributions to the plan may increase. In addition, if we experience a withdrawal from this plan, we may need to record a significant withdrawal liability. Our estimated withdrawal liability is $33.9 million if we experience a complete withdrawal from the plan during 2017. This number will likely increase if a withdrawal occurs in 2018 or later, and could be significantly higher if a mass withdrawal were to occur in the future.

~~We are subject to information technology security risks and business interruption risks, and may incur increasing costs in an effort to minimize those risks~~.

Our business employs information technology systems to secure confidential information, such as employee data. Security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber attacks. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business. As cyber attacks become more sophisticated generally, we may be required to incur significant costs to strengthen our systems from outside intrusions, and/or obtain insurance coverage related to the threat of such attacks.

Additionally, our business is reliant upon information technology systems to, among other things, manage inventories and accounts receivable, make purchasing decisions, monitor our results of operations, and place orders with our vendors and process orders from our customers. Disruption in these systems could materially impact our ability to buy and sell our products.

~~Our success depends on our ability to attract, train, and retain highly qualified associates and other key personnel while controlling related labor costs~~.

To be successful, we must attract, train, and retain a large number of highly qualified associates while controlling related labor costs. In many of our markets, highly qualified associates are in high demand and we compete with other businesses for these associates and invest significant resources in training and incentivizing them. There can be no assurance that we will be able to attract or retain highly qualified associates in the future, including, in particular, those employed by companies we may acquire. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates and health and other insurance costs.

In addition, there is significant competition for qualified drivers in the transportation industry. Additionally, interventions and enforcement under the Federal Motor Carrier Safety Administration (“FMCSA”) Compliance, Safety, and Accountability program may shrink the industry’s pool of drivers as those drivers with unfavorable scores may no longer be eligible to drive for us. As a result of driver shortages, we could be required to increase driver compensation, let trucks sit idle, utilize lower quality drivers, or face difficulty meeting customer demands, all of which could adversely affect our growth and profitability.

Furthermore, our success is highly dependent on the continued services of our management team. The loss of services of one or more key members of our senior management team could have a material adverse effect on us.

~~Federal, state, local, and other regulations could impose substantial costs and restrictions on our operations that would reduce our net income~~.

We are subject to various federal, state, local, and other laws and regulations, including, among other things, transportation regulations promulgated by the U.S. Department of Transportation (the “DOT”), work safety regulations promulgated by the Occupational Safety and Health Administration, employment regulations promulgated by the U.S. Equal Employment Opportunity Commission, regulations of the U.S. Department of Labor, accounting standards issued by the Financial Accounting Standards Board (the “FASB”) or similar entities, and state and local zoning restrictions, building codes and contractors’ licensing regulations. More burdensome regulatory requirements in these or other areas may increase our general and administrative costs and adversely affect our financial condition, operating results and cash flows. Moreover, failure to comply with the regulatory requirements applicable to our business could expose us to litigation and substantial fines and penalties that could adversely affect our financial condition, operating results, and cash flows.

Our transportation operations, upon which we depend to distribute products from our distribution centers, are subject to the regulatory jurisdiction of the DOT and the FMCA, which have broad administrative powers with respect to our transportation

operations. Vehicle dimensions and driver hours of service also are subject to both federal and state regulation. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driver hours of service would increase our costs, which, if we are unable to pass these cost increases on to our customers, may increase our selling, general and administrative expenses and adversely affect our financial condition, operating results and cash flows. If we fail to comply adequately with the DOT and FMCSA regulations or such regulations become more stringent, we could experience increased inspections, regulatory authorities could take remedial action, including imposing fines or shutting down our operations, or we could be subject to increased audit and compliance costs. If any of these events were to occur, our financial condition, operating results, and cash flows could be adversely affected.

In addition, the residential and commercial construction industries are subject to various local, state and federal statutes, ordinances, codes, rules and regulations concerning zoning, building design and safety, construction, contractor licensing, energy conservation and similar matters, including regulations that impose restrictive zoning and density requirements on the residential new construction industry or that limit the number of homes or other buildings that can be built within the boundaries of a particular area. Regulatory restrictions may increase our operating expenses and limit the availability of suitable building lots for our customers, any of which could negatively affect our business, financial condition and results of operations.

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

Our common stock is currently listed for trading on the NYSE, and the continued listing of our common stock on the NYSE is subject to our compliance with the listing standards. We are currently in compliance with the continued listing standards of the NYSE; however, in 2015 and 2016 we were notified by the NYSE that we had failed to meet the NYSE’s minimum average share price requirement and the NYSE’s minimum average global market capitalization and stockholders’ equity requirement. We have since regained compliance with each of those requirements. If we are unable to maintain compliance with the NYSE criteria for continued listing, our common stock may be subject to delisting. Delisting may have an adverse effect on the liquidity of our common stock and, as a result, the market price for our common stock might decline.

~~We could be the subject of securities class action litigation due to future stock price volatility, which could divert management’s attention and adversely affect our results of operations~~.

The stock market in general, and market prices for the securities of companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In certain situations in which the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a similar lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

~~Our operating results depend on the successful implementation of our strategy. We may not be able to implement our strategic initiatives successfully, on a timely basis, or at all~~.

We regularly evaluate the performance of our business and, as a result of such evaluations, we have in the past undertaken and may in the future undertake strategic initiatives within our businesses. Strategic initiatives that we may implement now or in the future may not result in improvements in future financial performance and could result in additional unanticipated costs. If we are unable to realize the benefits of our strategic initiatives, our business, financial condition, cash flows, or results of operations could be adversely affected.

~~We are subject to federal, state, and local environmental protection laws and may have to incur significant costs to comply with these laws and regulations in the future~~.

Environmental liabilities could arise on the land that we have owned, own or lease and have a material adverse effect on our financial condition and performance. Federal, state, and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real estate to investigate and remediate hazardous materials, substances and waste releases at or from the property. They may also impose liability for property damage and personal injury stemming from the presence of, or exposure to, hazardous substances. In addition, we could incur costs to comply with such environmental laws and regulations, the violation of which could lead to substantial fines and penalties.

~~We do not expect to pay dividends on our common stock so any returns to stockholders will be limited to the value of their stock~~.

We have not declared or paid any cash dividends on our common stock since 2007, and we are restricted from doing so under the terms of our Credit Agreement. Regardless of the restrictions in our Credit Agreement or the terms of any potential future indebtedness, for the foreseeable future we anticipate that we will retain all available funds and earnings to support our operations and finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future, so any return to stockholders will be limited to the appreciation of their stock.

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

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

~~Changes in, or interpretation of, accounting principles could result in unfavorable accounting changes~~.

Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles and accompanying accounting pronouncements, implementation guidelines, and interpretations. These rules are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. Changes in these rules or their interpretation could significantly change our reported results and may even retroactively affect previously reported transactions. Changes resulting from the adoption of new or revised accounting principles may result in materially different financial results and may require that we make changes to our systems, processes, and controls.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our second amended and restated certificate of incorporation, as amended, provides that the Court of Chancery of the State of Delaware is the exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our second amended and restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees. If a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.

Any issuance of preferred stock could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could adversely affect the price of our common stock.

Our board of directors has the authority to issue preferred stock and to determine the preferences, limitations, and relative rights of shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend, and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium over the market price, and adversely affect the market price and the voting and other rights of the holders of our common stock.

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

~~None.~~The following table presents our share repurchase activity for each month of the quarter ended April 1, 2023:


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - February 4	6,102	$	79.12	—	$	33,572,690
February 5 - March 4	—	$	—	—	$	33,572,690
March 5 - April 1	20,824	$	68.49	—	$	33,572,690
Total	26,926			—

(1) Includes shares withheld by us in connection with tax withholding obligations of our employees upon vesting of such employees’ restricted stock unit awards.

(2) On May 3, 2022, our Board of Directors increased our share repurchase authorization to $100.0 million, and as of April 1, 2023, we had a remaining authorization amount of $33.6 million under the program. With the remaining availability under the stock repurchase program, we may repurchase our common stock at any time or from time to time, without prior notice, subject to prevailing market conditions and other considerations. Our repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



Exhibit Number				Description
~~Exhibit~~ ~~Number~~ 10.1				~~Description~~

~~10.1~~		~~Fourteenth Amendment to the Amended~~Separation and ~~Restated Loan and Security~~Release Agreement, dated ~~August 24, 2017, by~~March 21, 2023, between BlueLinx Corporation and ~~between the Company, certain of the Company’s subsidiaries, Wells Fargo Bank, National Association, and the other lenders signatory thereto~~Dwight Gibson (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on ~~August 28, 2017).~~March 21, 2023) ±.
10.2
~~10.2~~		~~Credit~~Employment Agreement, dated ~~as of October 10, 2017, by and among~~March 21, 2023, between the Company, certain of the Company’s subsidiaries, Wells Fargo Bank, National Association, and the other financial institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 10, 2017).

~~10.3~~		~~Guaranty and Security Agreement, dated as of October 10, 2017, by and among~~ BlueLinx Corporation ~~BlueLinx Florida LP, BlueLinx Florida Holding No. 1 Inc., BlueLinx Florida Holding No. 2 Inc.,~~ and ~~Wells Fargo Bank, National Association~~Shyam Reddy (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on ~~October 10, 2017).~~March 21, 2023) ±.
10.3
~~10.4~~	*	~~Limited Guaranty,~~Offer Letter dated ~~as of October 10, 2017, by the Company in favor of Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities~~February 9, 2022, between BlueLinx Corporation and ~~Exchange Commission on October 10, 2017).~~Kevin Henry ±.
31.1
~~31.1~~	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
~~31.2~~	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
32.1*	**	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
32.2*	**	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.Def				Definition Linkbase Document.
~~101.Def~~101.Pre				~~Definition~~Presentation Linkbase ~~Document~~Document.
~~101.Pre~~101.Lab				~~Presentation~~Labels Linkbase ~~Document~~Document.
~~101.Lab~~101.Cal				~~Labels~~Calculation Linkbase ~~Document~~Document.
~~101.Cal~~101.Sch				~~Calculation Linkbase Document~~Schema Document.
~~101.Sch~~101.Ins				~~Schema Document~~
~~101.Ins~~		Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104				The cover page from this Quarterly Report on Form 10-Q for the quarter ended April 1, 2023, formatted in Inline XBRL.
			*
			*	Filed herewith.
			**	Exhibit is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.
			±	Management contract or compensatory plan or arrangement.

SIGNATURE

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




		BlueLinx Holdings Inc.
		(Registrant)

Date: ~~November~~May 2, ~~2017~~2023	By:	/s/ ~~Susan~~Kelly C. ~~O’Farrell~~	Janzen
		~~Susan~~Kelly C. ~~O’Farrell~~	Janzen
		Senior Vice President and Chief Financial Officer ~~Treasurer,~~
		(Principal Financial Officer)

Date: May 2, 2023	By:	/s/ Adam K. Bowen
		Adam K. Bowen
		Vice President and Chief Accounting Officer
		(Principal Accounting ~~Officer~~Officer)



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

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


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



			PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements — BlueLinx Holdings Inc. (Unaudited)			21
Condensed Consolidated Statements of ~~Income~~Operations and Comprehensive Income ~~(Loss)~~			21
Condensed Consolidated Balance Sheets			32
Condensed Consolidated Statements of Stockholders' Equity			3
Condensed Consolidated Statements of Cash Flows			4
Notes to Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			816
Item 3. Quantitative and Qualitative Disclosures About Market Risk			1427
Item 4. Controls and Procedures			1427

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			1528
Item 1A. Risk Factors			1528
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2629
Item 3. Defaults Upon Senior Securities			2629
Item 4. Mine Safety Disclosures			2629
Item 5. Other Information			2629
Item 6. Exhibits			2730

Signature			2831


	April 1, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	376,234	$	298,943
Receivables, less allowances of $3,733 and $3,449, respectively	298,888		251,555
Inventories, net	409,324		484,313
Other current assets	29,295		42,121
Total current assets	1,113,741		1,076,932
Property and equipment, at cost	365,667		360,869
Accumulated depreciation	(157,807)		(155,260)
Property and equipment, net	207,860		205,609
Operating lease right-of-use assets	43,548		45,717
Goodwill	55,372		55,372
Intangible assets, net	33,879		34,989
Deferred tax assets	55,956		56,169
Other non-current assets	15,374		15,254
Total assets	$	1,525,730	$	1,490,042
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	177,046	$	151,626
Accrued compensation	13,115		22,556


Finance lease liabilities - short-term	5,087		7,089
Operating lease liabilities - short-term	6,756		7,432
Real estate deferred gains - short-term	3,935		3,935
Pension benefit obligation - short-term	1,795		1,521
Other current liabilities	20,619		16,518
Total current liabilities	228,353		210,677
Non-current liabilities:
Long-term debt, net of debt issuance costs of $3,854 and $4,057, respectively	292,753		292,424
Finance lease liabilities - long-term	265,677		265,986
Operating lease liabilities - long-term	38,142		40,011
Real estate deferred gains - long-term	69,452		70,403

Other non-current liabilities	20,604		20,512
Total liabilities	914,981		900,013
Commitments and Contingencies
STOCKHOLDERS’ EQUITY:
Common Stock, $0.01 par value, 20,000,000 shares authorized, 9,088,972 and 9,048,603 outstanding on April 1, 2023 and December 31, 2022, respectively	91		90
Additional paid-in capital	203,427		200,748

Accumulated other comprehensive loss	(31,184)		(31,412)
Accumulated stockholders’ equity	438,415		420,603
Total stockholders’ equity	610,749		590,029
Total liabilities and stockholders’ equity	$	1,525,730	$	1,490,042



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



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



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



			~~Commission file number: 1-32383~~

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



	Three Months Ended					Nine Months Ended
	September 30, 2017		October 1, 2016			September 30, 2017			October 1, 2016
Net sales	$	479,318	$	476,049		$	1,381,927		$	1,459,386
Cost of sales	418,773		415,999			1,206,402			1,284,354
Gross profit	60,545		60,050			175,525			175,032
Operating expenses (income):
Selling, general, and administrative	46,817		49,152			148,742			157,006
Gains from sales of property	—		(13,940		)	(6,700		)	(14,701		)
Depreciation and amortization	2,249		2,220			6,865			7,091
Total operating expenses	49,066		37,432			148,907			149,396
Operating income	11,479		22,618			26,618			25,636
Non-operating expenses (income):
Interest expense	5,670		6,105			16,280			19,562
Other income, net	—		(17		)	(2		)	(255		)
Income before provision for income taxes	5,809		16,530			10,340			6,329
Provision for income taxes	123		1,522			832			609
Net income	$	5,686	$	15,008		$	9,508		$	5,720

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

Comprehensive income (loss):
Net income	$	5,686	$	15,008		$	9,508		$	5,720
Other comprehensive income (loss):
Foreign currency translation, net of tax	—		(29		)	14			277
Amortization of unrecognized pension loss, net of tax	260		340			796			787
Pension curtailment, net of tax	—		—			(592		)	(12,185		)
Total other comprehensive income (loss)	260		311			218			(11,121		)
Comprehensive income (loss)	$	5,946	$	15,319		$	9,726		$	(5,401	)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Equity		Stockholders’ Equity Total
	Shares	Amount
Balance, December 31, 2022	9,049	$	90	$	200,748	$	(31,412)	$	420,603	$	590,029
Net income	—	—		—		—		17,812		17,812
Impact of pension plan, net of tax	—	—		—		239		—		239
Vesting of restricted stock units	67	1		(1)		—		—		—
Compensation related to share-based grants	—	—		4,569		—		—		4,569
Repurchase of shares to satisfy employee tax withholdings	(8)	—		(570)		—		—		(570)
Obligation for repurchase of shares to satisfy employee tax withholdings	(19)			(1,319)		—		—		(1,319)

Other	—	—		—		(11)		—		(11)
Balance, April 1, 2023	9,089	$	91	$	203,427	$	(31,184)	$	438,415	$	610,749



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



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



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



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



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