UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended June ~~29, 2019~~27, 2020



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

Commission file number: ~~1-32383~~001-32383



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



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

1950 Spectrum Circle, Suite 300
Marietta	GA	30067
(Address of principal executive offices)		(Zip Code)

(770) 953-7000

(Registrant’s telephone number, including area code)

Not applicable

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

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



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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☐	Accelerated Filer	☑	Non-accelerated Filer	☐	Smaller Reporting Company	☐☑
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of ~~August 5, 2019~~July 31, 2020, there were ~~9,364,959~~9,461,412 shares of BlueLinx Holdings Inc. common stock, par value $0.01, outstanding.

BLUELINX HOLDINGS INC.

Form 10-Q

For the Quarterly Period Ended June ~~29, 2019~~27, 2020

INDEX



	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements — BlueLinx Holdings Inc. (Unaudited)	1
Condensed Consolidated Statements of Operations and Comprehensive Loss	1
Condensed Consolidated Balance Sheets	2
Condensed Consolidated Statements of Cash Flows	3
Condensed Consolidated Statements of ~~Stockholders (Deficit) Equity~~Stockholders’ Deficit	4
Notes to Condensed Consolidated Financial Statements	65
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2726
Item 4. Controls and Procedures	2726

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	2827
Item 1A. Risk Factors	2827
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2829
Item 3. Defaults Upon Senior Securities	2829
Item 4. Mine Safety Disclosures	2829
Item 5. Other Information	2829
Item 6. Exhibits	2930

~~Signatures~~Signature	3031

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended					Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			June 27, 2020		June 29, 2019			June 27, 2020			June 29, 2019
Net sales	$	706,448		$	892,952		$	1,345,149		$	1,330,439		$	698,776	$	706,448		$	1,360,846		$	1,345,149
Cost of sales	612,281			789,301			1,164,937			1,171,463			597,956		612,281			1,166,817			1,164,937
Gross profit	94,167			103,651			180,212			158,976			100,820		94,167			194,029			180,212
Operating expenses:
Selling, general, and administrative	74,101			91,723			148,511			150,963			69,710		70,150			143,314			139,235
Depreciation and amortization													7,063		7,503			14,698			14,831
Gains from sales of property	(9,760		)	—			(9,760		)	—			—		(9,760		)	(525		)	(9,760		)
Depreciation and amortization	7,503			7,444			14,831			10,109
Other operating expenses													1,962		3,951			6,127			9,276
Total operating expenses	71,844			99,167			153,582			161,072			78,735		71,844			163,614			153,582
Operating income (loss)	22,323			4,484			26,630			(2,096		)
Operating income													22,085		22,323			30,415			26,630
Non-operating expenses (income):
Interest expense	13,717			12,194			27,118			20,674
Interest expense, net													11,535		13,717			25,915			27,118
Other (income) expense, net	(45		)	(94		)	105			(188		)	417		(45		)	180			105
Income (loss) before provision for (benefit from) income taxes	8,651			(7,616		)	(593		)	(22,582		)	10,133		8,651			4,320			(593		)
Provision for (benefit from) income taxes	2,350			942			(175		)	(597		)	3,438		2,350			(1,588		)	(175		)
Net income (loss)	$	6,301		$	(8,558	)	$	(418	)	$	(21,985	)	$	6,695	$	6,301		$	5,908		$	(418	)

Basic earnings (loss) per share	$	0.67		$	(0.93	)	$	(0.04	)	$	(2.40	)
Diluted earnings (loss) per share	$	0.67		$	(0.93	)	$	(0.04	)	$	(2.40	)
Basic income (loss) per share													$	0.71	$	0.67		$	0.63		$	(0.04	)
Diluted income (loss) per share													$	0.71	$	0.67		$	0.63		$	(0.04	)

Comprehensive income (loss):
Net income (loss)	$	6,301		$	(8,558	)	$	(418	)	$	(21,985	)	$	6,695	$	6,301		$	5,908		$	(418	)
Other comprehensive income (loss):
Foreign currency translation, net of tax	—			(9		)	7			(3		)	17		—			20			7
Amortization of unrecognized pension loss, net of tax	208			201			431			404			114		208			310			431
Pension curtailment, net of tax	(1,486		)	—			(632		)	—			—		(1,486		)	—			(632		)
Other	1			—			16			—			2		1			(17		)	16
Total other comprehensive income	(1,277		)	192			(178		)	401
Total other comprehensive income (loss)													133		(1,277		)	313			(178		)
Comprehensive income (loss)	$	5,024		$	(8,366	)	$	(596	)	$	(21,584	)	$	6,828	$	5,024		$	6,221		$	(596	)

See accompanying Notes.

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	June 29, 2019			December 29, 2018			June 27, 2020			December 28, 2019
ASSETS
Current assets:
Cash	$	12,662		$	8,939		$	11,530		$	11,643
Receivables, less allowances of $3,811 and $3,656, respectively	262,042			208,434
Receivables, less allowances of $3,911 and $3,236, respectively							264,642			192,872
Inventories, net	358,652			341,851			313,979			345,806
Other current assets	44,066			40,629			26,509			27,718
Total current assets	677,422			599,853			616,660			578,039
Property and equipment, at cost	310,751			308,398			308,616			308,067
Accumulated depreciation	(111,853		)	(103,285		)	(122,123		)	(112,299		)
Property and equipment, net	198,898			205,113			186,493			195,768
Operating lease right-of-use assets	55,240			—			50,802			54,408
Goodwill	47,772			47,772			47,772			47,772
Intangible assets, net	30,324			35,222			22,591			26,384
Deferred tax assets	52,193			52,645			54,494			53,993
Other non-current assets	19,305			19,284			20,292			15,061
Total assets	$	1,081,154		$	959,889		$	999,104		$	971,425
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	174,860		$	149,188		$	158,920		$	132,348
Accrued compensation	7,712			7,974			11,140			7,639
Current maturities of long-term debt, net of discount and debt issuance costs of $64	1,427			1,736
Finance leases - short-term	8,166			7,555
Current maturities of long-term debt, net of debt issuance costs of $74 and $74, respectively							2,176			2,176
Finance lease liabilities - short-term							5,958			6,486
Operating lease liabilities - short-term							6,633			7,317
Real estate deferred gains - short-term	3,935			5,330			4,040			3,935
Operating lease liabilities - short-term	6,690			—
Other current liabilities	18,625			24,985			11,011			11,222
Total current liabilities	221,415			196,768			199,878			171,123
Non-current liabilities:
Long-term debt, net of discount and debt issuance costs of $12,941 and $12,665, respectively	501,909			497,939
Finance leases - long-term	144,116			143,486
Real estate financing obligation	44,822			—
Long-term debt, net of debt issuance costs of $10,915 and $12,481, respectively							377,880			458,439
Finance lease liabilities - long-term							266,622			191,525
Operating lease liabilities - long-term							44,169			47,091
Real estate deferred gains - long-term	83,788			86,011			79,984			81,886
Operating lease liabilities - long-term	48,672			—
Pension benefit obligation	26,089			26,668			22,109			23,420
Other non-current liabilities	23,178			23,680			26,710			24,024
Total liabilities	1,093,989			974,552			1,017,352			997,508
Commitments and Contingencies
STOCKHOLDERS’ DEFICIT:
Common Stock, $0.01 par value, Authorized - 20,000,000 shares, Issued and Outstanding - 9,364,959 and 9,293,794, respectively	94			92
Common Stock, $0.01 par value, 20,000,000 shares authorized, 9,461,412 and 9,365,768 outstanding on June 27, 2020 and December 28, 2019, respectively							95			94
Additional paid-in capital	259,727			258,596			262,587			260,974
Accumulated other comprehensive loss	(37,307		)	(37,129		)	(34,250		)	(34,563		)
Accumulated stockholders’ deficit	(235,349		)	(236,222		)	(246,680		)	(252,588		)
Total stockholders’ deficit	(12,835		)	(14,663		)	(18,248		)	(26,083		)
Total liabilities and stockholders’ deficit	$	1,081,154		$	959,889		$	999,104		$	971,425

See accompanying Notes.

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 27, 2020			June 29, 2019
Net cash used in operating activities	$	(67,688	)	$	(98,470	)
Cash flows from operating activities:
Net income (loss)							$	5,908		$	(418	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operations:
Benefit from income taxes							(1,588		)	(175		)
Depreciation and amortization							14,698			14,831
Amortization of debt issuance costs							1,903			1,614
Gains from sales of property							(525		)	(9,760		)
Amortization of deferred gain							(1,967		)	(1,902		)
Share-based compensation							1,858			1,341
Changes in operating assets and liabilities:
Accounts receivable							(71,770		)	(53,608		)
Inventories							31,827			(16,800		)
Accounts payable							26,572			25,672
Prepaid and other current assets							(3,200		)	(8,078		)
Other assets and liabilities							9,185			(5,766		)
Net cash provided by (used in) operating activities							12,901			(53,049		)

Cash flows from investing activities:
Acquisition of business, net of cash acquired							—			6,009
Proceeds from sale of assets	10,758			107,960			102			10,758
Acquisition of business, net of cash acquired - see Note 2	—			(353,094		)
Property and equipment investments	(1,784		)	(577		)	(1,752		)	(1,784		)
Net cash provided by (used in) investing activities	8,974			(245,711		)
Net cash (used in) provided by investing activities							(1,650		)	14,983

Cash flows from financing activities:
Borrowings on revolving credit facilities	365,519			534,380			350,236			365,519
Repayments on revolving credit facilities	(329,683		)	(267,449		)	(354,509		)	(329,683		)
Borrowings on term loan	—			180,000
Repayments on term loan	(31,899		)	(450		)	(77,852		)	(31,899		)
Principal payments on mortgage	—			(97,847		)
Proceeds from real estate transactions	44,822			—
Change in outstanding payments	19,706			10,919
Debt issuance costs	(1,588		)	(9,775		)
Payments on finance lease obligations	(4,232		)	(3,262		)
Proceeds from real estate financing transactions							78,263			44,822
Debt financing costs							(2,665		)	(2,359		)
Repurchase of shares to satisfy employee tax withholdings	(208		)	(1,821		)	(254		)	(208		)
Net cash provided by financing activities	62,437			344,695
Principal payments on finance lease liabilities							(4,583		)	(4,403		)
Net cash (used in) provided by financing activities							(11,364		)	41,789

Net change in cash	3,723			514			(113		)	3,723
Cash at beginning of period	8,939			4,696			11,643			8,939
Cash at end of period	$	12,662		$	5,210		$	11,530		$	12,662

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

See accompanying Notes.

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ ~~(DEFICIT) EQUITY~~DEFICIT

(In thousands)

(Unaudited)

Common Stock
Additional
Paid-In Capital

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



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


	Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive Loss			Accumulated Deficit				Stockholders’ (Deficit) Equity Total			Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Deficit Total
	Shares		Amount					Shares				Accumulated Deficit			Amount								Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Deficit Total
	(In thousands)
Balance, December 30, 2017	9,101		$	91	Additional Paid-In Capital			$	Accumulated Other Comprehensive Loss	259,588		$	(36,507	)		Stockholders’ (Deficit) Equity Total		$	(188,170	)	$	35,002
Balance, December 29, 2018																			9,294		$	92	$	258,596		$	(37,129	)	$	(236,222	)	$	(14,663	)
Net loss	—		—		—				—			(13,427		)		(13,427		)	—		—		—			—			(6,719		)	(6,719		)
Adoption of ASC 842, net of tax																			—		—		—			—			1,291			1,291
Foreign currency translation, net of tax	—		—		—				6			—				6			—		—		—			7			—			7
Unrealized gain from pension plan, net of tax	—		—		—				203			—				203			—		—		—			1,077			—			1,077
Vesting of restricted stock units	—		—		—				—			—				—			49		1		—			—			—			1
Vesting of performance shares	109		1		—				—			—				1
Compensation related to share-based grants																			—		—		706			—			—			706
Other																			—		—		—			15			—			15
Balance, March 30, 2019																			9,343		93		259,302			(36,030		)	(241,650		)	(18,285		)
Net income																			—		—		—			—			6,301			6,301
Foreign currency translation, net of tax																			—		—		—			—			—			—
Unrealized loss from pension plan, net of tax																			—		—		—			(1,278		)	—			(1,278		)
Vesting of restricted stock units																			32		1		—			—			—			1
Compensation related to share-based grants	—		—		319				—			—				319			—		—		635			—			—			635
Repurchase of shares to satisfy employee tax withholdings	—		—		(1		)		—			—				(1		)	(10	)	—		(208		)	—			—			(208		)
Other	—		—		—				—			(7		)		(7		)	—		—		(2		)	1			—			(1		)
Balance, March 31, 2018	9,210		92		259,906				(36,298		)	(201,604		)		22,096
Net loss	—		—		—				—			(8,558		)		(8,558		)
Foreign currency translation, net of tax	—		—		—				(9		)	—				(9		)
Unrealized gain from pension plan, net of tax	—		—		—				201			—				201
Vesting of restricted stock units	11		—		—				—			—				—
Vesting of performance shares	—		—		—				—			—				—
Compensation related to share-based grants	—		—		338				—			—				338
Repurchase of shares to satisfy employee tax withholdings	(2	)	—		(1,719		)		—			—				(1,719		)
Other	—		—		—				—			7				7
Balance, June 30, 2018	9,219		$	92	$	258,525			$	(36,106	)	$	(210,155	)		$	12,356
Balance, June 29, 2019																			9,365		$	94	$	259,727		$	(37,307	)	$	(235,349	)	$	(12,835	)

See accompanying Notes.

BLUELINX HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June ~~29, 2019~~27, 2020

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim Condensed Consolidated Financial Statements include the accounts of BlueLinx Holdings Inc. and its wholly owned subsidiaries ~~(the “Company”~~(“the Company”). ~~These~~Our independent registered public accounting firm has not audited the accompanying interim financial statements. We derived the condensed consolidated balance sheet at June 27, 2020, from the audited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted (“GAAP”) in the United States (“U.S.”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in ~~the Company’s~~our Annual Report on Form 10-K ~~(the “Annual Report on Form 10-K”)~~ for the fiscal year ended December ~~29, 2018,~~28, 2019 (the “Fiscal 2019 Form 10-K”), as filed with the Securities and Exchange Commission on March ~~13, 2019.~~

~~Our~~11, 2020. In the opinion of our management, the condensed consolidated financial ~~condition as~~statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our statements of operations and ~~our operating results~~comprehensive loss for the three and ~~six-month periods~~six months ended June 27, 2020, and June 29, 2019, ~~are not necessarily indicative of the financial condition~~our balance sheets at June 27, 2020, and ~~results that may be expected for the full year ending~~ December 28, 2019, our statements of cash flows for the six months ended June 27, 2020, and June 29, 2019, and our statements of stockholders’ deficit for the three and six months ended June 27, 2020, and June 29, 2019.

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

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

~~Outstanding payments represent outstanding checks~~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, ~~electronic payments~~for some estimates, future economic and market conditions, which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that ~~have not been presented for payment~~actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. Some of our estimates may be affected by the ongoing novel coronavirus (COVID-19) pandemic. The severity, magnitude, and duration, as well as the economic consequences of the ~~end~~COVID-19 pandemic, are uncertain, rapidly changing, and difficult to predict. As a result, our accounting estimates and assumptions may change over time in response to COVID-19.

On April 13, 2018, we completed the acquisition of Cedar Creek Holdings, Inc. (“Cedar Creek”). Results for Cedar Creek are included in the ~~period. These amounts are typically funded within 24 hours. As~~consolidated financial information presented herein.

Reclassification of Prior Period Presentation

An adjustment has been made to the Condensed Consolidated Statements of Cash Flows for the six months ended June 27, 2020, and June 29, 2019, ~~and December 29, 2018~~to include outstanding payments as part of ~~$37.1 million and $17.4 million, respectively, were included~~the change in accounts payable ~~on our condensed consolidated balance sheets.~~within cash flows from operating activities. In previous periods, this change was included within cash flows from financing activities.

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

Recently Adopted Accounting Standards

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

corresponding lease liability in the consolidated balance sheet, and additional quantitative and qualitative disclosures which are designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. ~~Lease expenses will continue to be~~Expenses are recognized in the consolidated statement of income in a manner similar to prior accounting guidance. Lessor accounting under the new standard is substantially unchanged. We adopted this standard, and all related amendments thereto, effective December 30, 2018, the first day of our 2019 fiscal ~~2019~~ year, using a modified retrospective approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. We have made an accounting policy election to keep leases with an initial term of 12 months or less off of the consolidated balance sheet. We implemented internal controls and a lease accounting information system to enable the preparation of financial information required by the new standard. The adoption of Topic 842 had a material impact on our condensed consolidated balance sheets but did not have ana material impact on our condensed consolidated statements of operations and comprehensive loss. The most significant impact was the recognition of right-of-use assets and lease liabilities of $57.5 million inon the condensed consolidated balance ~~sheet.~~sheet as of the adoption date. Additionally, $1.7 million of deferred gains associated with sale-leaseback transactions was recorded as a cumulative-effect adjustment to accumulated deficit. ~~See Note 9 “Leases” for additional disclosures regarding our lease commitments.~~

~~Comprehensive Income~~. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220).” This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard was effective for interim and annual reporting periods beginning after December 15, 2018. We did not exercise the option to make this reclassification.

Accounting Standards Effective in Future ~~Years~~Periods

~~Goodwill.~~Credit Impairment Losses. In ~~January 2017,~~June 2016, the FASB issued ASU ~~No. 2017-04, “Intangibles—Goodwill and Other~~2016-13, “Financial Instruments - Credit Losses (Topic ~~350)~~326).” This ~~standard is intended to simplify the test for goodwill impairments by removing Step 2 of the goodwill impairment test,~~ASU sets forth a current expected credit loss (“CECL”) model which requires ~~a hypothetical purchase price allocation. Under~~ the ~~new~~measurement of all expected credit losses for financial instruments or other assets (e.g., trade receivables), held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model, is applicable to the measurement of credit losses on financial assets measured at amortized cost, and applies to some off-balance sheet credit exposures. The standard also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. ASU ~~a goodwill impairment will now be~~2019-10 extended the ~~amount by which a reporting unit's carrying value exceeds its fair value, not~~effective date of ASU 2016-13 to ~~exceed the carrying amount of goodwill. The accounting standard will be effective for reporting~~interim and annual periods beginning after December 15, 2019, and early adoption is permitted. We do not expect the adoption of the standard to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

~~Fair Value Measurement.~~ In August 2018, the FASB issued ASU No. 2018-13, “Fair Value (“FV”) Measurement (Topic 820).” Among other modifications, the standard removes the requirements to disclose: (i) the amount of and reasons22, 2022, for ~~transfers between Level 1 and Level 2 of the FV hierarchy; (ii) the policy for timing transfers between levels; and (iii) the valuation process for Level 3 FV measurements. The standard will require~~certain public business entities, ~~to disclose: (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 FV measurements held at the end of the~~including smaller reporting period; and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 FV measurements. The additional disclosure requirements should be applied prospectively for the most recent interim or annual period presented in the fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented. The amendments in this standard are effective for fiscal years ending after December 15, 2019. Early adoption is permitted, and an entity may adopt the removed or modified disclosures and delay the adoption of new disclosures until the effective date.companies. We have not completed our assessment of the standard, but we do not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

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

~~2. Acquisition~~

~~On April 13, 2018, we completed~~Income Taxes. In December 2019, the ~~acquisition of Cedar Creek Holdings, Inc. (“Cedar Creek”)~~FASB issued ASU No.2019-12, “Income taxes (Topic 740): Simplifying the Accounting for ~~a purchase price of approximately $361.8 million. The acquisition was completed pursuant~~Income Taxes.” This ASU simplifies the accounting for income taxes by removing certain exceptions to the ~~terms~~general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in this standard are effective for interim periods and fiscal years beginning after December 15, 2020. Early adoption is permitted. We are currently assessing the impact of ~~an Agreement and Plan of Merger (the "Merger Agreement"), dated as of March 9, 2018, by and among BlueLinx Corporation, one of our wholly owned subsidiaries, Panther Merger Sub, Inc.,~~the new guidance, but do not expect the adoption to have a ~~wholly-owned subsidiary of BlueLinx Corporation ("Merger Sub"), Cedar Creek, and CharlesBank Equity Fund VII, Limited Partnership. Upon closing~~material impact on the transactions contemplated by the Merger Agreement, among other things, Merger Sub was merged with and into Cedar Creek, with Cedar Creek surviving the merger as one of our indirect wholly-owned subsidiaries. The merger allowed us to expand our product offerings, while maintaining our existing geographical footprint.

Cedar Creek was established in 1977 as a wholesale building materials distribution company that distributes wood products across the United States. Its products include specialty lumber, oriented strand board, siding, cedar, spruce, engineered wood products and other building products.

~~The acquisition was accounted for under the acquisition method of accounting. The assets acquired, liabilities assumed and~~Company’s consolidated financial position, results of operations, ~~of the acquired business have been included in our consolidated results since April 13, 2018.~~

~~The following unaudited consolidated pro forma information presents consolidated information as if the acquisition had occurred on January 1, 2017:~~

Pro forma
Three Months Ended Six Months Ended
(In thousands, except per share data) June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Net sales $ 706,448
$ 948,555
$ 1,345,149
$ 1,732,822
Net income (loss) 9,425
9,180
6,118
(1,439 )
Earnings (loss) per common share:
Basic $ 1.01
$ 1.00
$ 0.65
$ (0.16 )
Diluted 1.00
0.98
0.65
(0.16 )

The pro forma amounts above have been calculated in accordance with GAAP after applying the Company's accounting policies and adjusting the three and six months ended June 29, 2019 for $4.2 million and $8.8 million, and the three and six months ended June 30, 2018 for $30.4 million and $34.0 million, respectively, for transaction related costs, net of tax. Due to the net loss for the six-month period ended June 30, 2018, 164,550 incremental shares from share-based compensation arrangements were excluded from the computation of diluted weighted average shares outstanding because their effect would be anti-dilutive. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the acquisition, are presented for illustrative purposes only, and are not necessarily indicative of results that would have been achieved had the acquisition occurred as of January 1, 2017, or of future operating performance.

~~The purchase price of Cedar Creek consisted of the following items:~~

(In thousands)
Consideration paid to shareholders and amounts paid to creditors:
Payments to Cedar Creek shareholders^[1]
$ 166,447

Subordinated unsecured note (due to shareholder)^[2]
13,743

Seller’s transaction costs paid by Company 7,349

Add: pay off of Cedar Creek debt^[3]
174,213

Total cash purchase price $ 361,752

~~_____________~~



~~[1]~~	~~Payments to Cedar Creek’s shareholders include the purchase of common stock and certain escrow adjustments.~~



~~[2]~~	~~The Cedar Creek note payable to a shareholder of $13.7 million was paid in full upon the acquisition of Cedar Creek and included $10 million in subordinated debt and $3.7 million in accrued interest.~~



~~[3]~~	To finance the acquisition of Cedar Creek, the Company amended and restated its Revolving Credit Facility to increase the capacity thereunder to $600.0 million and also entered into a new $180.0 million senior secured Term Loan Facility (See Note 6).

~~The excess of total purchase price, which includes the aggregate~~ cash consideration paid in excess of the fair value of the tangible and intangible assets acquired, was recorded as goodwill. The goodwill recognized is attributable to the expected operating synergies and growth potential that the Company expects to realize from the acquisition. None of the goodwill generated from the acquisition is deductible for tax purposes.

~~The following table summarizes the values of the assets acquired and liabilities assumed at the date of the acquisition:~~

(In thousands) Allocation as of December 29, 2018
Cash and net working capital assets
(excluding inventory) $ 88,318
Inventory
159,227
Property and equipment
71,203
Other, net (1,395 )
Intangible assets and goodwill:

Customer relationships
25,500
Non-compete agreements
8,254
Trade names
6,826
Favorable leasehold interests
800
Goodwill
47,772
Finance leases and other liabilities
(44,753 )
Cash purchase price $ 361,752

flows.

3.2. Goodwill and Other Intangible Assets

In connection with the acquisition of Cedar Creek, we acquired certain intangible assets. As of June ~~29, 2019,~~27, 2020, our intangible assets consist of goodwill and other intangible assets including customer relationships, noncompete agreements, and trade names.

Goodwill

Goodwill is the excess of the cost of an acquired entity over the fair value of tangible and intangible assets (including customer relationships, noncompete agreements, and trade names) acquired, and liabilities assumed, under acquisition accounting for business combinations.

As of June ~~29, 2019,~~27, 2020, goodwill was $47.8 million.

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

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

Definite-Lived Intangible Assets.

AtOn June ~~29, 2019, in connection with the acquisition of Cedar Creek, we had definite-lived intangible assets that related to customer relationships, noncompete agreements, and trade names.~~

~~At June 29, 2019,~~27, 2020, the gross carrying amounts, ~~the~~ accumulated amortization, and ~~the~~ net carrying amounts of our definite-lived intangible assets were as ~~follows (in thousands):~~follows:


									Gross carrying amounts		Accumulated Amortization			⁽¹⁾	Net carrying amounts
	Gross carrying amounts		Accumulated Amortization			^[1]	Net carrying amounts		(In thousands)
Customer relationships	$	25,500	$	(4,999	)		$	20,501	$	25,500	$	(8,393	)		$	17,107
Noncompete agreements	8,254		(2,500		)		5,754		8,254		(4,564		)		3,690
Trade names	6,826		(2,757		)		4,069		6,826		(5,032		)		1,794
Total	$	40,580	$	(10,256	)		$	30,324	$	40,580	$	(17,989	)		$	22,591

~~____________________~~

^[1](1) Intangible assets except customer relationships are amortized on ~~straight line~~a straight-line basis. Customer relationships are amortized on a double declining balance method.

Amortization Expense

The weighted average estimated useful life remaining for customer relationships, noncompete agreements, and trade names is approximately 1110 years, 32 years, and ~~2 years,~~1 year, respectively. Amortization expense for the definite-lived intangible assets was $1.8 million and $3.8 million for the three- and six-month periods ended June 27, 2020, respectively. For the three- and six-month periods ended June 30, 2019, amortization expense was $2.0 million and $4.1 million, ~~for the three and six month periods ended June 29, 2019,~~ respectively. ~~For the three and six month periods ended June 30, 2018, amortization expense was $1.9 million.~~

Estimated ~~annual~~ amortization expense for definite-lived intangible assets ~~over~~for the remaining portion of 2020 and the next ~~five~~four fiscal years is as ~~follows (in thousands):~~follows:


	Estimated Amortization		Estimated Amortization
2019	$	8,085
			(In thousands)
2020	7,461		$	3,645
2021	4,973		4,973
2022	3,111		3,111
2023	1,807		1,807
2024			1,505

3. Revenue Recognition

We recognize revenue when control of promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Contracts with our customers are generally in the form of standard terms and conditions of sale. From time to time, we may enter into specific contracts with some of our larger customers, which may affect delivery terms. Performance obligations in 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~~10 days.

In addition, we provide inventory to certain customers through pre-arranged agreements on a consignment basis. Customer consigned inventory is maintained and stored by certain customers; however, ownership and risk of loss ~~remains~~remain with us. ~~When the consigned inventory is sold by the customer, we recognize revenue, net of trade allowances.~~

All revenues recognized are net of trade allowances (i.e., rebates), cash discounts, and sales returns. Cash discounts and sales returns are estimated using historical experience. Trade allowances are based on the estimated obligations and historical experience. Adjustments to earnings resulting from revisions to estimates on discounts and returns have been insignificant for each of the reported periods. Certain customers may receive cash-based incentives or credits, ~~(rebates),~~ 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.

~~With the acquisition and integration of Cedar Creek, we changed our internal product hierarchy.~~ The following table presents our revenues disaggregated by revenue ~~source (in thousands).~~source. Certain prior year amounts have been reclassified to conform to the current year product mix of structural and specialty products. Sales and usage-based taxes are excluded from revenues.


									Three Months Ended				Six Months Ended
	Three Months Ended				Six Months Ended				June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018		(In thousands)				(In thousands)
Structural products	$	225,056	$	345,878	$	422,551	$	522,359	$	249,571	$	224,528	$	490,349	$	421,314
Specialty products and other	481,392		547,074		922,598		808,080
Specialty products									449,205		481,920		870,497		923,835
Total net sales	$	706,448	$	892,952	$	1,345,149	$	1,330,439	$	698,776	$	706,448	$	1,360,846	$	1,345,149

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


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Warehouse	$	577,000		$	704,328		$	1,081,274		$	1,037,634
													(In thousands)						(In thousands)
Warehouse and reload													$	601,279		$	594,024		$	1,163,472		$	1,117,250
Direct	122,262			165,630			245,667			248,573			107,848			121,856			217,129			245,212
Reload and service revenue	16,617			34,914			35,522			63,184
Customer discounts and rebates	(9,431		)	(11,920		)	(17,314		)	(18,952		)	(10,351		)	(9,432		)	(19,755		)	(17,313		)
Total net sales	$	706,448		$	892,952		$	1,345,149		$	1,330,439		$	698,776		$	706,448		$	1,360,846		$	1,345,149

Practical Expedients and Exemptions

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

We have made an accounting policy election to treat ~~any common carrier~~outbound shipping and handling activities as ~~a fulfillment cost, rather than as a separate obligation or separate promised service.~~an expense.

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

~~In fiscal 2018, we designated certain non-operating properties as held for sale due to strategic realignments~~NaN of our ~~business. At the time of designation, we ceased recognizing depreciation expense on these assets. As of December 29, 2018, six~~non-operating properties were designated as held for sale ~~with an additional property~~as of June 27, 2020. These properties consisted of 3 former distribution facilities located in the Midwest and Southeast. We vacated these properties and designated them as held for sale during fiscal 2019 due to their proximity to other locations after the ~~first quarter of 2019. During the six months ended June 29, 2019, two properties were sold, as further described below.~~Cedar Creek acquisition. As of June ~~29, 2019~~27, 2020, and December ~~29, 2018,~~28, 2019, the net book value of total assets held for sale was ~~$3.3~~$1.1 million ~~and $3.1 million, respectively,~~ and was included in “Other current assets” in our Condensed Consolidated Balance Sheets. ~~Properties held for sale as of June 29, 2019, consisted of land in Connecticut, and five warehouses located in the Midwest and South. We plan to sell these properties within the next 12 months.~~ We continue to actively market all properties that are designated as held for ~~sale.~~sale, and we plan to sell these properties within the next 12 months.

~~During the six months ended June 29, 2019, we sold two non-operating distribution facilities previously designated as “held for sale”. We recognized a gain of~~ ~~$9.8 million in the Condensed Consolidated Statements of Operations as a result of these sales.~~

6.5. Long-Term Debt

As of June ~~29, 2019,~~27, 2020, and December ~~29, 2018,~~28, 2019, long-term debt consisted of the following:

      June 29, December 29,
(In thousands) Maturity Date    2019 2018
Revolving Credit Facility (net of discounts and debt issuance
costs of $5.2 million and $6.0 million at June 29, 2019
and December 29, 2018, respectively) October 10, 2022     $ 363,898
$ 327,319
Term Loan Facility (net of discounts and debt issuance costs
of $7.7 million and $6.7 million at June 29, 2019
and December 29, 2018, respectively) October 13, 2023     139,438
172,356
Total debt     503,336
499,675
Less: current portion of long-term debt     (1,427 ) (1,736 )
Long-term debt, net     $ 501,909
$ 497,939



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

⁽¹⁾The weighted average interest rate was 2.6 percent and 3.9 percent as of June 27, 2020 and December 28, 2019, respectively.

⁽²⁾ The weighted average interest rate was 8.0 percent and 8.7 percent as of June 27, 2020 and December 28, 2019, respectively.

⁽³⁾ Refer to Note 8, Leases, for interest rates associated with finance lease obligations.

Revolving Credit Facility

~~On April 13, 2018,~~

We have a revolving credit facility that we entered into ~~an Amended and Restated Credit Agreement~~in April 2018 with ~~certain of our subsidiaries as borrowers (together with us, the “Borrowers”) or guarantors thereunder,~~ Wells Fargo Bank, National Association, ~~in its capacity~~ as administrative agent, and certain other financial institutions party thereto (the “Revolving Credit ~~Agreement”~~Facility”)., with a maturity date of October 10, 2022. The Revolving Credit ~~Agreement provides for~~facility includes a committed senior secured asset-based revolving loan and letter of credit facility ~~(the “Revolving Credit Facility”)~~ of up to $600 million, and an uncommitted accordion feature that permits ~~the Borrowers~~us to increase the facility by an aggregate additional principal amount of up to $150 million, which would allow borrowings of up to $750 million under the Revolving Credit Facility. Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit Agreement, which would reduce the amount of the revolving loans available under the Revolving Credit Facility. The maturity date of the Revolving Credit Agreement is October 10, 2022. The Borrowers’million. Our obligations under the Revolving Credit ~~Agreement~~Facility are secured by a security interest in substantially all of our ~~and our subsidiaries’~~ assets ~~(other~~other than real ~~property), including inventories, accounts receivable, and proceeds from those items.~~property.

~~Borrowings~~

Loans under the Revolving Credit Agreement are subject to availability under the Borrowing Base (as that term is defined in the Revolving Credit Agreement). The Borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. The Revolving Credit Facility ~~may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder.~~

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

~~In the event excess availability falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the Borrowing Base and (b) the maximum permitted credit at such time,~~We amended the Revolving Credit ~~Agreement requires maintenance~~Facility on January 31, 2020, to provide that (i) the “Seasonal Period” will run from November 15, 2019, through July 15, 2020, for the calendar year 2019, and from December 15 of ~~a fixed charge coverage ratio~~each calendar year through April 15 of ~~1.0 to 1.0 until such time as~~each immediately succeeding calendar year for the ~~Borrowers’ excess availability has been at least the greater of (i) $50 million~~calendar year 2020 and thereafter, and (ii) ~~10 percent~~the measurement period in the definition of “Cash Dominion Event” will be five consecutive business days instead of three consecutive business days. The adjustment to the ~~lesser of (a)~~Seasonal Period better aligns advance rates under the ~~Borrowing Base and (b) the maximum permitted credit at such time for a period of 30 consecutive days.~~

~~The~~ Revolving Credit ~~Agreement also contains representations~~Facility with the seasonality in our business and ~~warranties~~provided us with an enhanced borrowing base and ~~affirmative and negative covenants customary for financings of this type, as well as customary events of default.~~greater liquidity through July 15, 2020.

As of June ~~29, 2019,~~27, 2020, we had outstanding borrowings of ~~$369.1~~$322.2 million, excess availability of ~~$100.8~~$138.1 million, and a weighted average interest rate of ~~4.5 percent under our Revolving Credit Facility.~~2.6 percent. As of December ~~29, 2018,~~28, 2019, our principal balance was ~~$333.3~~$326.5 million, excess availability was ~~$91.7~~$80.0 million, and our weighted average interest rate was ~~4.2 percent under our~~3.9 percent.

The Revolving Credit ~~Facility.~~

Facility contains certain financial and other covenants, and our right to borrow under the Revolving Credit Facility is conditioned upon, among other things, our compliance with these covenants. We were in compliance with all covenants under the Revolving Credit ~~Agreement~~Facility as of June ~~29, 2019.~~27, 2020.

Term Loan Facility

~~On April 13, 2018, in connection with the acquisition of Cedar Creek,~~

We have a term loan facility that we entered into ~~a credit and guaranty agreement~~in April 2018 with HPS ~~Investment~~Investments Partners, LLC, as administrative ~~agent~~ and collateral agent, ~~(“HPS”)~~ and certain other financial institutions as party thereto. On February 28, 2019, the credit and guaranty agreement was amended to, among other things, permit certain real estate sale leaseback transactions and modify the total net leverage ratio beginning in the first quarter of 2019 (as amended, thethereto (the “Term Loan ~~Agreement”~~Facility”)., with a maturity date of

October 13, 2023. The Term Loan ~~Agreement~~Facility provides for a senior secured first lien loan facility in an initial aggregate principal amount of $180 million ~~(the “Term Loan Facility”). The maturity date of the Term Loan Agreement~~and is October 13, 2023. The proceeds from the Term Loan Facility were used to fund a portion of the cash consideration payable in connection with the acquisition of Cedar Creek and to fund transaction costs in connection with the acquisition and the Term Loan Facility.

~~The obligations under the Term Loan Agreement are~~ secured by a security interest in substantially all of our ~~and our subsidiaries’ assets, including inventories, accounts receivable, real property, and proceeds from those items.~~assets.

The Term Loan ~~Agreement~~Facility requires monthly interest payments, and also requires quarterly principal payments of ~~$450,000,~~$402,282, in ~~arrears.~~arrears, with the remaining balance due on the maturity date. The Term Loan ~~Agreement~~Facility also requires certain mandatory prepayments of outstanding loans, subject to certain exceptions, including prepayments commencing with the fiscal year ending December 28, 2019, based on a percentage of excess cash flow (as defined in the Term Loan Agreement for such fiscal year). The remaining balance is due on the loan maturity date of October 13, 2023.

exceptions. The Term Loan Facility ~~may be prepaid in whole or in part from time~~requires maintenance of a total net leverage ratio of 8.75 to ~~time, subject~~1.00 for the quarter ending June 27, 2020 and the third quarter of 2020, and 5.25 to ~~payment~~1.00 for the fourth quarter of 2020; ratio levels generally reduce over the ~~“Prepayment Premium” (as such~~remaining term ~~is defined in~~of the Term Loan ~~Agreement) if such voluntary prepayment does not otherwise constitute an exception to the Prepayment Premium~~Facility. We were in compliance with all covenants under the Term Loan ~~Agreement and is made on or prior to February 28, 2023, and all breakage costs incurred by any lender thereunder. We used approximately $30 million~~Facility as of ~~the proceeds from the sale-leaseback transactions described in Note 9, Leases, to prepay the Term Loan Facility, resulting in adjusted quarterly principal payments of $372,661.~~June 27, 2020.

Borrowings under the Term Loan ~~Agreement~~Facility may be made as Base Rate Loans or Eurodollar Rate Loans. The Base Rate Loans will bear interest at the rate per annum equal to (i) the greatest of the (a) U.S. prime lending rate published in The Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum; ~~and~~plus (ii) ~~plus~~ the Applicable Margin, as described below. Eurodollar Rate Loans will bear interest at the rate per annum equal to (i) the ICE Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent per annum; plus (ii) the Applicable Margin. The Applicable Margin will be 6.00 percent with respect to Base Rate Loans and 7.00 percent with respect to Eurodollar Rate Loans.

~~The~~We amended the Term Loan ~~Agreement~~Facility on December 31, 2019, to extend the period for satisfying the designated principal balance level required ~~maintenance of a~~to maintain the modified total net leverage ratio ~~of 8.25 to 1.00~~covenant levels for the ~~fiscal quarter ending June 29,~~ 2019 fourth and ~~such required covenant level generally reduces over~~subsequent quarters thereunder, which was satisfied on January 31, 2020, through repayments from proceeds from the ~~term of~~real estate financing transactions described in Note 8. On February 28, 2020, we further amended the Term Loan Facility to provide that we would not be subject to the facility’s total net leverage ratio covenant from and after the time, and then for so long as, ~~set forth in~~the principal balance level under the facility is less than $45 million. On April 1, 2020, we amended the Term Loan ~~Agreement.As of June 29, 2019, we were in compliance with~~Facility to, among other things, modify the total net leverage ~~ratio.~~

~~The Term Loan Agreement also contains representations, warranties, affirmative~~ratio covenant levels for the 2020 second and ~~negative covenants customary~~third quarters. All other total net leverage ratio covenant levels for ~~financing transactions of this type,~~prior and ~~customary events of default.~~

future quarters were unchanged.

As of June ~~29, 2019,~~27, 2020, we had outstanding borrowings of ~~$147.2~~$68.8 million under ~~our~~the Term Loan ~~Credit~~ Facility and an interest rate of ~~9.4~~8.0 percent per annum. AtAs of December ~~29, 2018,~~28, 2019, our principal balance was ~~$179.1~~$146.7 million with an interest rate of ~~9.3~~8.7 percent per annum.

~~We were~~ The decrease in ~~compliance with all covenants under~~the outstanding borrowings was due to net proceeds of the real estate financing transactions described in Note 8 being applied to the Term Loan ~~Agreement as~~Facility.

Finance Lease Obligations

Our finance lease liabilities consist of ~~June 29, 2019.~~leases related to equipment and vehicles, and real estate, with the majority of those finance leases related to real estate. For more information on our finance lease obligations, refer to Note 8, Leases.

~~Our remaining principal payment schedule for each of the next four years and thereafter is as follows:~~

(In thousands)
2019 $ 373
2020 1,863
2021 1,491
2022 1,491
Thereafter 141,984

7.6. Net Periodic Pension (Benefit) Cost

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


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
(In thousands)	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
													June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
													(In thousands)						(In thousands)
Service cost	$	48		$	133		$	161		$	266		$	—		$	48		$	—		$	161
Interest cost on projected benefit obligation	973			963			2,018			1,926			723			973			1,446			2,018
Expected return on plan assets	(1,295		)	(1,327		)	(2,489		)	(2,654		)	(1,210		)	(1,295		)	(2,420		)	(2,489		)
Amortization of unrecognized loss	279			271			580			542			263			279			526			580
Net periodic pension cost	$	5		$	40		$	270		$	80
Net periodic pension (benefit) cost													$	(224	)	$	5		$	(448	)	$	270

During the first six months of fiscal 2019, we renegotiated our collective bargaining agreement with 3 unionized locations. This collective bargaining agreement covers a number of specific items such as wages, medical coverage, and certain other benefit programs, including pension plan participation. As a result of these renegotiations, 38 of the participants in the plan are no longer accruing future years of service under the applicable pension plan, which triggered a curtailment. As a result of the curtailment, we performed a revaluation of plan assets and liabilities. The related pension benefit obligation decreased $0.3 million for the six months ended June 29, 2019, as a result of changes in valuation assumptions. An overall increase in plan asset valuation was accompanied by a decrease to accumulated other comprehensive income of $0.2 million, which was recorded in other comprehensive loss on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). No intraperiod income tax effect was required to be recorded as a result of the curtailment.

8.7. Stock Compensation

~~Cash-Settled Stock Appreciation Rights (“SARs”)~~

During fiscal 2016, we granted certain executives and employees cash-settled SARs. The cash-settled SARs vested on July 16, 2018. On the vesting date, half of the vested value of the cash-settled SARs became payable within thirty days of the vesting date, and the remainder payable within one year of the vesting date. The exercise price for the cash-settled SARs was amended so that it was based on a 20 day trading average of the Company’s common stock through the vesting date, in excess of the $7.00 grant date valuation.

~~On June 29, 2019, the total liability was approximately $7.2 million, which reflected the remaining payable balance.~~

Stock Compensation Expense

During the three months ended June ~~29, 2019~~27, 2020, and June ~~30, 2018,~~29, 2019, we incurred stock compensation expense of ~~$0.6~~$0.9 million and ~~$3.8~~$0.6 million, respectively. During the six months ended June ~~29, 2019~~27, 2020, and June ~~30, 2018,~~29, 2019, we incurred stock compensation

expense of ~~$1.3~~$1.9 million and ~~$13.0~~$1.3 million, respectively. The ~~decrease~~increase in our stock compensation expense for the ~~three~~three- and six-month periods ~~of fiscal 2019~~ is attributable to ~~cash-settled SARs expense~~having more outstanding equity-based awards during these periods than in the prior ~~year.~~year and the vesting of awards in connection with the departure of certain employees.

9.8. Leases

Effective December 30, 2018, we adopted ASU No. 2016-02, “Leases (Topic 842)” using the modified retrospective method, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. We have elected the package of practical expedients permitted under the transition guidance within the new standard. This election allowed us to carry forward our historical lease classification. The adoption of this standard resulted in the recording of operating lease right-of-use (“ROU”) assets and corresponding operating lease liabilities of $57.5 million on the condensed consolidated balance sheet as of December 30, 2018, which amortizes over the lease term.

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

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

Finance Lease Liabilities

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

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

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

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

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

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

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



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

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

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

The components of lease expense were as follows:


(In thousands)	Three Months Ended June 29, 2019		Six Months Ended June 29, 2019
(In thousands)	Three Months Ended June 29, 2019		Six Months Ended June 29, 2019
Operating lease cost	$	2,991	$	6,135
					Three Months Ended				Six Months Ended
					June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
					(In thousands)				(In thousands)
Operating lease cost:					$	2,977	$	2,991	$	6,098	$	6,135
Finance lease cost:
Amortization of right-of-use assets	$	2,995	5,892		$	3,513	$	3,220	$	6,878	$	6,117
Interest on lease liabilities	4,049		7,297		6,557		4,130		12,721		7,378
Total finance lease costs	$	7,044	$	13,189	$	10,070	$	7,350	$	19,599	$	13,495

Supplemental cash flow information related to leases was as follows:

(In thousands) Three Months Ended June 29, 2019 Six Months Ended June 29, 2019

Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases $ 3,064
$ 5,967
   Operating cash flows from finance leases 3,155
6,403
   Financing cash flows from finance leases 2,045
4,232
Right-of-use assets obtained in exchange for lease obligations
   Operating leases $ —
$ —
   Finance leases 3,462
4,250



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

Supplemental balance sheet information related to leases was as follows:

(In thousands) June 29, 2019

Finance leases
   Property and equipment $ 156,050
   Accumulated depreciation (19,835 )
Property and equipment, net $ 136,215
Weighted Average Remaining Lease Term (in years)
   Operating leases 12.17
   Finance leases 20.34
Weighted Average Discount Rate
   Operating leases 9.41 %
   Finance leases 10.91 %



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

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



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

As of June ~~29,~~27, 2020, maturities of lease liabilities were as follows:



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

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

(In thousands) Operating leases Finance leases
2019 $ 9,519
$ 10,849
2020 8,790
20,814
2021 6,930
18,140
2022 6,243
17,153
2023 5,276
16,625
Thereafter 50,716
298,650
Total lease payments $ 87,474
$ 382,231
Less: imputed interest (32,112 ) (229,949 )
Total $ 55,362
$ 152,282

~~At December 29, 2018, our total operating lease commitments were as follows:~~

(In thousands)
2019 $ 11,980
2020 9,928
2021 8,435
2022 8,066
2023 7,539
Thereafter 60,847
Total $ 106,795

~~Real Estate Transactions~~

~~During the three months ended~~ ~~June 29, 2019~~ we completed sale-leaseback transactions on two distribution centers. The aggregate gross proceeds for these real estate transactions were $45 million. We determined that the transactions did not qualify as sales in accordance with ASC Topic 842 and, for accounting purposes, the transactions were not accounted for as sale-leaseback transactions. When this occurs, the real estate transaction is accounted for as a financing transaction whereby the cash received is recorded as a financing obligation in our condensed consolidated balance sheets.

~~At June 29, 2019, our future minimum payments related to the financing obligations under these real estate transactions were as follows:~~


	(In thousands)		Operating leases			Finance leases
2019	$	1,833
			(In thousands)
2020	3,711		$	11,348		$	24,002
2021	3,794		10,111			23,052
2022	3,880		8,048			22,230
2023	3,997		7,330			21,854
2024			6,413			21,380
Thereafter	47,187		50,901			327,439
Total lease payments			$	94,151		$	439,957
Less: imputed interest			(39,743		)	(241,946		)
Total	$	64,402	$	54,408		$	198,011

~~10.~~9. Commitments and Contingencies

Environmental and Legal Matters

From time to time, we are involved in various proceedings incidental to our businesses, and we are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. Although the ultimate outcome of these proceedings cannot be determined with certainty, based on presently available information management believes that adequate reserves have been established for probable losses with respect ~~thereto.~~thereto and receivables recorded for expected receipts from settlements. Management further believes that, while the ultimate outcome of one or more of these matters could be material to operating results in any given quarter, it will not have a materially adverse effect on our ~~long-term~~consolidated financial condition, our results of operations, or our cash flows.

Collective Bargaining Agreements

As of June ~~29, 2019,~~27, 2020, we had ~~over 2,200~~2,000 employees on a full-time basis, and approximately 2021 percent of our employees were represented by various local labor union Collective Bargaining Agreements (“CBAs”). ~~As of June 29, 2019, approximately 4~~Approximately 1 percent of our employees are covered by three CBAs that are up for renewal in fiscal ~~2019 or~~2020. As of June 27, 2020, one of these CBAs was renewed and the remaining two are ~~currently expired and under negotiation.~~expected to be renegotiated later this year.

~~11.~~10. Accumulated Other Comprehensive Loss

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

The changes in balances for each component of accumulated other comprehensive loss for the six months ended June ~~29, 2019,~~27, 2020, 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 29, 2018, beginning balance $ 660
$ (38,001 ) $ 212
$ (37,129 )
Other comprehensive income, net of tax ^[1]
7
(201 ) 16
(178 )
June 29, 2019, ending balance, net of tax $ 667
$ (38,202 ) $ 228
$ (37,307 )



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

^____^{____________________________}

^[1](1)For the six months ended June ~~29, 2019,~~27, 2020, the actuarial loss recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss as a component of net periodic pension cost was ~~$0.3~~$0.5 million, net of tax of ~~$0.1 million.~~$0.2 million. Please see Note 7, 6, Net Periodic Pension (Benefit) Cost, for further information.

1711. Income Taxes

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

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

Our financial statements contain certain deferred tax assets which primarily resulted from tax benefits associated with the loss before income taxes in prior years, as well as net deferred income tax assets resulting from other temporary differences related to certain reserves, pension obligations, and differences between book and tax depreciation and amortization. We record a valuation allowance against our net deferred tax assets when we determine that, based on the weight of available evidence, it is more likely than not that our net deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences can be carried forward under tax law. Currently, we have a valuation allowance that covers (i) our separate company state net operating loss carryforwards and (ii) disallowed interest calculated pursuant to the changes made by the Tax Cuts and Jobs Act of 2017, as adjusted by the CARES Act.

At the end of each quarter, we evaluate the weight of available evidence (both positive and negative). We considered the recent reported income generated in the current quarter and prior years (adjusted for unusual one-time items) and income generated in 2017, including the prior year income from Cedar Creek. We also considered evidence related to the four sources of taxable income to determine whether such positive evidence outweighed the negative evidence. The evidence considered included:

future reversals of existing taxable temporary differences;

future taxable income exclusive of reversing temporary differences and carryforwards;

taxable income in prior carryback years if carryback is permitted under the tax law; and

tax planning strategies.

At the end of the first two fiscal quarters of 2020 and 2019, in our evaluation of the weight of available evidence, we concluded that the weight of the positive evidence outweighed the negative evidence. In addition to the evidence discussed above, we considered as positive evidence forecasted future taxable income, the detail scheduling of the timing of the reversal of our deferred tax assets and liabilities, and the evidence from business and tax planning strategies described below. Although we believe our estimates are reasonable, the ultimate determination of the appropriate amount of valuation allowance involves significant judgments. We believe that the change in control under IRC Section 382 resulting from the completion of the secondary offering on October 23, 2017, will not cause any of our federal net operating losses to expire unused because management has been effectively implementing a real estate strategy involving the sale and leaseback of real estate. This strategy is further supported by the transactions involving four warehouses in January 2018 and two warehouses during 2019. In the first quarter of 2020, the Company executed three more sale and leaseback transactions, involving a total of fourteen warehouse locations. Additionally, the acquisition of Cedar Creek did not generate any limitations under IRC Section 382 on Cedar Creek’s tax assets. We will continue to monitor any changes to our results of operations that may affect our estimates, including any impact of COVID-19 if applicable.

12. ~~Earnings~~Income (Loss) per Share

We calculate basic ~~earnings~~income (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding. We calculate diluted ~~earnings~~income (loss) per share using the treasury stock method, by dividing net income (loss) by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including restricted stock units, and performance units. Due to the financial results for the six month period ended June ~~29,~~27, 2019, ~~and the three and six month periods ended June 30, 2018,~~ 0.1 million ~~and 0.2 million, respectively,~~ of incremental shares ~~from share-based compensation arrangements~~ were excluded from the computation of diluted weighted ~~average shares~~averages outstanding, because their effect would be anti-dilutive.

The reconciliation of basic ~~loss~~net income (loss) and diluted ~~loss~~net income (loss) per common share for the three- and six-month periods ~~of fiscal~~ended June 27, 2020, and June 29, 2019, ~~and 2018~~ were as follows:


	Three Months Ended					Six Months Ended						Three Months Ended				Six Months Ended
(in thousands, except per share data)	June 29, 2019		June 30, 2018			June 29, 2019			June 30, 2018
												June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
												(In thousands, except per share data)				(In thousands, except per share data)
Net income (loss)	$	6,301	$	(8,558	)	$	(418	)	$	(21,985	)	$	6,695	$	6,301	$	5,908	$	(418	)

Weighted-average shares outstanding - basic	9,351		9,215			9,344			9,176			9,395		9,351		9,381		9,344
Dilutive effect of share-based awards	8		—			—			—			7		8		2		—
Weighted-average shares outstanding - diluted	9,359		9,215			$	9,344		$	9,176		9,402		9,359		$	9,383	$	9,344

Basic earnings (loss) per share	$	0.67	$	(0.93	)	$	(0.04	)	$	(2.40	)
Diluted earnings (loss) per share	$	0.67	$	(0.93	)	$	(0.04	)	$	(2.40	)
Basic income (loss) per share												$	0.71	$	0.67	$	0.63	$	(0.04	)
Diluted income (loss) per share												$	0.71	$	0.67	$	0.63	$	(0.04	)

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

Overview

We are a leading distributor of building and industrial products in the ~~U.S. With~~U.S with a combination of market position and geographic coverage, the buying power of certain centralized procurement, and the strength of a ~~locally-focused~~locally focused sales ~~force,~~force. BlueLinx is able to provide a wide range of value-added services and solutions to our customers and suppliers. We are headquartered in ~~Georgia, with executive offices located at 1950 Spectrum Circle, Suite 300,~~ Marietta, Georgia, and we operate our distribution business through a broad network of distribution centers. We serve many major metropolitan areas in the U.S. and deliver building and industrial products to a variety of wholesale and retail customers. We distribute products in two principal categories: structural products and specialty products. Structural products include primarily plywood, oriented strand board, rebar and remesh, lumber, spruce and other wood products primarily used for structural support ~~walls, and flooring~~ in construction projects. Structural products represented ~~approximately 32%~~between 31 percent and 37 percent of our ~~second quarter 2019~~ net ~~sales.~~sales over the past twelve months. Specialty products include primarily engineered wood products, moulding, siding and trim, cedar, metal products (excluding rebar and remesh), and insulation. Specialty products ~~accounted for approximately 68%~~represented between 63 percent and 69 percent of our ~~second quarter 2019~~ net ~~sales.~~sales over the past twelve months.

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

Recent Developments - Update on Impact of COVID-19 Pandemic

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

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

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

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

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

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

The extent of the impact of the pandemic on our business and sales for the second half of 2020 will depend on future developments, including, among others, the duration of the pandemic, the success of actions taken by governmental authorities to contain the pandemic and address its impact, the success of local return to work and business reopening plans, and the impact the COVID-19 pandemic has on demand in the markets we service. The trajectory of the pandemic continues to evolve rapidly, and we cannot predict the extent to which our financial condition, results of operations, or cash flows will ultimately be impacted. We ~~sold two non-operating distribution facilities previously designated as “held for sale” for a gain~~are closely monitoring the impact of ~~$9.8 million. We also completed sale-leaseback transactions~~the pandemic on ~~two distribution centers. Please see Note 9, Leases for further information regarding~~industry conditions, the progress of local return to work and reopening plans, and any pandemic-related restrictions that may have an impact on our ~~sale-leaseback transactions.~~business.

Industry Conditions

Many of the factors that cause our operations to fluctuate ~~are~~have historically been seasonal or cyclical in ~~nature.~~nature and we expect that to continue. Our operating results have historically been generally correlated with the level of single-family residential housing starts in the U.S. AtHowever, at any time, the demand for new homes is dependent on a variety of factors, including job growth, changes in population and demographics, the availability and cost of mortgage financing, the supply of new and existing homes, and consumer confidence. ~~Since 2011, the U.S. housing market has generally shown improvement. However,~~

The COVID-19 pandemic had a significant negative effect on single family housing starts ~~continued a recent trend of unexpected softness, declining 6.2% in~~during the second quarter of ~~2019, but~~2020. The U.S. Census Bureau reported that single family housing starts were down 13 percent for the ~~builders~~second quarter of 2020 compared to the second quarter of 2019. However, the trend showed strong improvement over the course of the quarter. Housing starts declined 23 percent in April, 15 percent in May, and 2 percent in June, all compared to the same months in 2019. Additionally, July data from the National Association of Home Builders/Wells Fargo Housing Market Index shows a positive outlook in builder confidence ~~index remains high, and we continue to believe the housing market improvement trend will continue~~ in the ~~long term,~~market for newly built single-family homes. Low interest rates, shortages in existing home inventory, and ~~that we are well-positioned~~a growing trend toward relocating away from populated metropolitan areas to ~~support our customers.~~areas with single-family homes may help drive long-term improvement in single-family housing starts.

Our operating results are also affected by commodity pricing, ~~and during~~primarily the third and fourth quarters of 2018, the industry experienced a significant decline in wood based commodity prices, which included panels and framing lumber. After a modest recovery during the first quarter of 2019, prices trended downward during the second quarter, impacting gross marginsmarkets for wood-based commodities that we classify as structural products. ~~Pricing remains low relative to historical averages, creating sales realizations significantly below~~After declining in the ~~prior year~~early part of April, lumber and panel prices increased for the balance of the quarter, staying at or above price levels ~~and resulting in revenue declines compared to~~from the second quarter of ~~2018. We continue to closely monitor these pricing~~2019. These market trends resulted in favorable revenue comparisons and ~~work to manage our business, inventory levels, and costs, accordingly.~~enhanced gross margins in the second quarter of 2020 for many of the structural products that we sell.

Factors That Affect Our Operating Results

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

1918

Results of Operations

The following table sets forth our results of operations for the second quarter of fiscal ~~2019~~2020 and fiscal ~~2018:~~2019:

(Dollars in thousands) Second Quarter of Fiscal 2019 % of
Net
Sales Second Quarter of Fiscal 2018 % of
Net
Sales
Net sales $ 706,448
100.0% $ 892,952
100.0%

Gross profit 94,167
13.3% 103,651
11.6%
Selling, general, and administrative 74,101
10.5% 91,723
10.3%
Gains from sales of property (9,760 ) (1.4)% —
—%
Depreciation and amortization 7,503
1.1% 7,444
0.8%
Operating income (loss) 22,323
3.2% 4,484
0.5%
Interest expense 13,717
1.9% 12,194
1.4%
Other income, net (45 ) —% (94 ) —%
Income (loss) before provision for (benefit from) income taxes 8,651
1.2% (7,616 ) (0.9)%
Provision for (benefit from) income taxes 2,350
0.3% 942
0.1%
Net income (loss) $ 6,301
0.9% $ (8,558 ) (1.0)%



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

The following table sets forth our results of operations for the six-month periods of fiscal ~~2019~~2020 and fiscal ~~2018:~~2019:

(Dollars in thousands) First Six Months of Fiscal 2019 % of
Net
Sales First Six Months of Fiscal 2018 % of
Net
Sales
Net sales $ 1,345,149
100.0% $ 1,330,439
100.0%

Gross profit 180,212
13.4% 158,976
11.9%
Selling, general, and administrative 148,511
11.0% 150,963
11.3%
Gains from sales of property (9,760 ) (0.7)% —
—%
Depreciation and amortization 14,831
1.1% 10,109
0.8%
Operating income (loss) 26,630
2.0% (2,096 ) (0.2)%
Interest expense 27,118
2.0% 20,674
1.6%
Other expense (income), net 105
—% (188 ) —%
Income (loss) before provision for (benefit from) income taxes (593 ) 0.0% (22,582 ) (1.7)%
Provision for (benefit from) income taxes (175 ) —% (597 ) —%
Net income (loss) $ (418 ) 0.0% $ (21,985 ) (1.7)%



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

The following table sets forth net sales by product category for the three and six-month periods ~~of fiscal 2019~~ending June 27, 2020, and ~~2018 (in thousands):~~June 29, 2019:


									Three Months Ended				Six Months Ended
	Three Months Ended				Six Months Ended				June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018		(In thousands)				(In thousands)
Structural products	$	225,056	$	345,878	$	422,551	$	522,359	$	249,571	$	224,528	$	490,349	$	421,314
Specialty products and other	481,392		547,074		922,598		808,080
Specialty products									449,205		481,920		870,497		923,835
Net sales	$	706,448	$	892,952	$	1,345,149	$	1,330,439	$	698,776	$	706,448	$	1,360,846	$	1,345,149

The following table sets forth gross profit and gross margin percentages by product category for the three and six-month periods of fiscal ~~2019~~2020 and ~~2018 (dollars in thousands):~~2019:


													Three Months Ended						Six Months Ended
	Three Months Ended						Six Months Ended						June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018			(Dollars in thousands)						(Dollars in thousands)
Structural products	$	17,419		$	32,785		$	36,193		$	50,039		$	23,100		$	17,388		$	47,334		$	36,121
Specialty products and other	76,748			81,784			144,019			119,855
Inventory step-up adjustment	—			(10,918		)	—			(10,918		)
Specialty products													77,720			76,779			146,695			144,091
Gross profit	$	94,167		$	103,651		$	180,212		$	158,976		$	100,820		$	94,167		$	194,029		$	180,212
Gross margin percentage by category
Structural products	7.7		%	9.5		%	8.6		%	9.6		%	9.3		%	7.7		%	9.7		%	8.6		%
Specialty products	15.9		%	14.9		%	15.6		%	14.8		%	17.3		%	15.9		%	16.9		%	15.6		%
Total gross margin percentage	13.3		%	11.6		%	13.4		%	11.9		%
Total													14.4		%	13.3		%	14.3		%	13.4		%

Second Quarter of Fiscal ~~2019~~2020 Compared to Second Quarter of Fiscal ~~2018~~2019

Net sales. For the second quarter of fiscal ~~2019,~~2020, net sales decreased ~~20.9~~1.1 percent, or ~~$186.5~~$7.7 million, compared to the second quarter of fiscal ~~2018.~~2019. The sales decrease was driven by ~~declines~~the loss of $15.9 million of sales related to a siding program that was discontinued in ~~wood-based commodity prices, reduced levels of single-family housing starts and sales and supplier disruption in connection~~conjunction with our Cedar Creek integration ~~activities.~~activities in the prior year, partially offset by an increase in sales volume for our structural products and commodity price inflation.

Gross profit and gross margin. For the second quarter of fiscal ~~2019,~~2020, gross profit ~~decreased~~increased by ~~$9.5~~$6.7 million, or ~~9.1~~7.1 percent, compared to the second quarter of fiscal ~~2018,~~2019, primarily due to ~~the decrease in sales. During~~improved gross margins on both our specialty and structural products businesses. Gross margin during the same period ~~gross margin~~ was ~~13.3~~14.4 percent, an increase compared to ~~11.6~~13.3 percent in the second quarter of fiscal ~~2018, driven by synergies from the acquisition of Cedar Creek. Gross margin was also negatively impacted in the prior year by the acquisition related inventory step-up charge of $10.9 million.~~2019.

Selling, general, and administrative expenses. The decrease in selling, general, and administrative expenses of ~~19.2~~0.6 percent, or ~~$17.6~~$0.4 million, for the second quarter of fiscal ~~2019,~~2020, compared to the second quarter of fiscal ~~2018,~~2019, is primarily due to ~~acquisition synergies, a $3.1 million decrease~~decreases in ~~stock~~our operational and logistics expenses, along with reductions in our fixed cost structure, partially offset by an increase in incentive compensation ~~expense and cost controls for the lower rate of sales.~~

~~Gains from sales of property.~~ Sales of property with no leaseback in the second quarter of fiscal 2019 resulted in gains recognized of $9.8 million. Gains from the sale and leaseback of property in the second quarter of fiscal 2018 were deferred, due to the rules of accounting for sale and leaseback transactions, and are amortized as a credit to selling, general, and administrative expenses in the amount of approximately ~~$1.3 million per fiscal quarter.~~$4.0 million.

Depreciation and amortization expense. For the second quarter of fiscal ~~2019,~~2020, depreciation and amortization expense ~~increased~~decreased by ~~$0.1~~$0.4 million to ~~$7.5~~$7.1 million due to ~~increased capital expenditures in the current year.~~a lower base of depreciable assets.

~~Interest expense.~~Gains from sales of property. ~~Interest expense increased~~Gains from sales of property decreased by ~~$1.5~~$9.8 million for the second quarter of fiscal 2020, compared to the second fiscal quarter of 2019, as we sold no property during the second quarter of 2020.

Other operating expenses. For the second quarter of fiscal 2020, other operating expenses decreased by $2.0 million, or 50.3 percent, compared to the second quarter of fiscal ~~2018.~~2019, primarily due to a decrease in spending related to the integration of the Cedar Creek acquisition, partially offset by severance expense incurred in relation to headcount reductions that occurred during the quarter.

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

Provision for income taxes. Our effective tax rate was ~~27.2~~33.9 percent and ~~(12.4)~~27.2 percent for the second quarter of fiscal 2020 and 2019, respectively. Our effective tax rate for the second quarter of fiscal 2020 was impacted by (i) discrete tax expense of $0.4 million for a shortfall on restricted stock unit vesting, (ii) the permanent addback of certain nondeductible expenses, including meals and ~~2018, respectively.~~entertainment and officer’s compensation, and (iii) the effect of the partial valuation allowance for separate company state income tax losses and previously nondeductible interest under 163(j) of the IRC. Our effective tax rate for the second quarter of fiscal 2019 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses. In addition, ~~during the second quarter of fiscal 2019,~~ we recorded discrete tax expense of $0.2 million for a shortfall on vesting of our restricted stock ~~vesting~~units, which was offset by a $0.2 million discrete tax benefit for claiming state tax credits.

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

2120

tax credits. Our effective tax rate for the second quarter of fiscal 2018 was impacted by: (i) the inclusion of Cedar Creek’s operations from April 13, 2018, to June 30, 2018; (ii) the permanent addback of certain nondeductible expenses including transaction costs related to the Cedar Creek acquisition; and (iii) the effect of the valuation allowance for separate company state income tax losses generated during the second quarter of fiscal 2018.

~~Net income (loss).~~ Our net income (loss) improved over the prior year due to gain on sale of properties and reduced costs associated with the acquisition of Cedar Creek, partially offset by the following: (i) lower gross profit due to the decrease in net sales; and (ii) increased interest expense due to higher average interest rates and the increase in finance leases.

First Six Months of Fiscal ~~2019~~2020 Compared to First Six Months of Fiscal ~~2018~~2019

Net sales. For the first six months of fiscal ~~2019,~~2020, net sales increased ~~1.1~~1.2 percent, or ~~$14.7~~$15.7 million, compared to the first six months of fiscal ~~2018. Sales growth~~2019. The sales increase was ~~largely~~ driven by higher sales volumes and commodity price inflation, partially offset by the ~~acquisition~~loss of $47.8 million of sales related to a siding program that was discontinued in conjunction with our Cedar Creek ~~and the inclusion of Cedar Creek’s sales revenue for the full six months in 2019, as opposed to only during the period of April 13, 2018, to June 30, 2018,~~integration activities in the prior ~~year period.~~year.

Gross profit and gross margin. For the first six months of fiscal ~~2019,~~2020, gross profit increased by ~~$21.2~~$13.8 million, or 13.4 percent, with gross margin of 13.4 percent, compared to 11.9 percent for the first six months of fiscal 2018. Gross margin was negatively impacted in the prior year by the acquisition related inventory step-up charge of $10.9 million.

~~Selling, general, and administrative expenses.~~ ~~For the first six months of fiscal 2019, selling, general, and administrative expenses decreased $2.5 million, or 1.6~~7.7 percent, compared to the first six months of fiscal ~~2018. The inclusion of~~2019, primarily due to increased sales revenue and improved gross margins on both our specialty and structural products businesses. Gross margin during the ~~Cedar Creek business for the full six months in 2019 as opposed~~same period was 14.3 percent, an increase compared to the period of April 13, 2018, to June 30, 2018, in the prior year period increased expenses on a year-over-year basis. This was more than offset by an $11.7 million decrease in stock compensation expense, synergies from the acquisition of Cedar Creek and cost decreases related to the year-over-year sales decline.

~~Gains from sales of property.~~ ~~Sales of property with no leaseback~~13.4 percent in the first six months of fiscal ~~2019 resulted~~2019.

Selling, general, and administrative expenses. The increase in ~~gains recognized~~selling, general, and administrative expenses of ~~$9.8 million. Gains from the sale and leaseback of property in~~2.9 percent, or $4.1 million, for the first six months of fiscal ~~2018 were deferred,~~2020, compared to the first six months of fiscal 2019, is primarily due to ~~the rules of accounting for sale and leaseback transactions, and are amortized as a credit to selling, general, and administrative expenses~~an increase in ~~the amount~~incentive compensation of approximately ~~$1.3 million per fiscal quarter.~~$4.0 million.

Depreciation and amortization expense. For the first six months of fiscal ~~2019,~~2020, depreciation and amortization expense ~~increased~~decreased by ~~$4.7~~$0.1 million to ~~$14.8~~$14.7 million ~~due to the acquisition of Cedar Creek, which resulted in a higher depreciable asset base and the addition of depreciable intangible assets.~~

~~Interest expense.~~ ~~Interest expense increased by $6.4 million for the first six months of fiscal 2019,~~ compared to the first six months of fiscal ~~2018.~~2019, due to a lower base of depreciable assets.

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

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

Interest expense. Interest expense decreased by $1.2 million for the first six months of fiscal 2020, compared to the first six months of fiscal 2019. The ~~increase~~decrease was largely attributable to a ~~higher~~decrease in the average debt balance, ~~over~~as well as a reduction in the ~~period, coupled with~~variable LIBOR rate that is a ~~higher average~~component of the interest rate on ~~outstanding debt. We increased our outstanding debt to finance~~ the ~~acquisition of Cedar Creek in the prior year~~Revolving Credit Facility and ~~incurred transaction costs that are amortized as interest expense.~~Term Loan Facility.

~~Provision for~~Benefit from income taxes. Our effective tax rate was ~~29.5~~(36.8) percent and ~~2.6~~29.5 percent for the first six months of fiscal 2020 and 2019, respectively. Our effective tax rate for the first six months of fiscal 2020 was impacted by (i) the discrete tax benefit of $3.9 million resulting from the release of the valuation allowance associated with the nondeductible interest expense under IRC Section 163(j) as a result of the CARES Act changing the allowable percentage from 30 percent of adjusted taxable income to 50 percent of adjusted taxable income, (ii) recording discrete tax expense of $0.4 million for a shortfall on vesting of our restricted stock units, (iii) the permanent addback of certain nondeductible expenses, including meals and ~~2018, respectively.~~entertainment and nondeductible compensation, and (iv) the effect of the partial valuation allowance for separate company state income tax losses and previously nondeductible interest expense under Section 163(j) of the IRC. Our effective tax rate for the first six months of fiscal 2019 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses. In addition, ~~during the first six months of fiscal 2019,~~ we recorded discrete tax expense of $0.2 million for a shortfall on vesting of our restricted stock ~~vesting~~units, which was offset by a $0.2 million discrete tax benefit for claiming state tax credits. The effective tax rate for the first six months of fiscal 2018 was impacted by: (i) the inclusion of Cedar Creek’s operations from April 13, 2018, to June 30, 2018; (ii) the permanent addback of certain nondeductible expenses including transaction costs related to the Cedar Creek acquisition; (iii) the effect of the valuation allowance for separate company state losses; and (iv) the impact of discrete tax expense of $0.4 million for stock options that expired unexercised during the first quarter of fiscal 2018.

Net income (loss). ~~Net~~Our net loss improved to net income ~~(loss) was substantially impacted by~~from the ~~factors described above including: (i) gain on sale in fiscal 2019 of $9.8 million, (ii)~~prior year period due to higher ~~selling, general~~sales, increased gross margins, and ~~administrative expenses in fiscal 2018 resulting from~~reduced costs associated with the acquisition of Cedar Creek and related transaction fees totaling $15.2 million, along with an inventory valuation step-up of $10.9 million; (iii) increased interest expense due to higher interest rates on outstanding debt; and (iv) $13.0 million of additional expense recognized for cash-settled stock appreciation rights and other share based compensation in fiscal 2018.Creek.

Seasonality

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

Liquidity and Capital Resources

We expect our primary sources of liquidity to be cash flows from sales in the normal course of our operations and borrowings under our Revolving Credit Facility. We expect that these sources will fund our ongoing cash requirements for the foreseeable future. We believe that, assuming that our operations are not significantly impacted by the COVID-19 pandemic for a prolonged period, our sales in the normal course of our operations, and amounts currently available from our Revolving Credit Facility and other sources, will be sufficient to fund our routine operations, including working capital requirements, for at least the next 12twelve months.

~~Long-Term Debt~~

~~As of June 29, 2019, and December 29, 2018, long-term debt consisted of the following:~~

June 29, December 29,
(In thousands) Maturity Date 2019 2018
Revolving Credit Facility (net of discounts and debt issuance
costs of $5.2 million and $6.0 million at June 29, 2019
and December 29, 2018, respectively) October 10, 2022 $ 363,898
$ 327,319
Term Loan Facility (net of discounts and debt issuance costs
of $7.7 million and $6.7 million at June 29, 2019
and December 29, 2018, respectively) October 13, 2023 139,438
172,356
Total debt 503,336
499,675
Less: current portion of long-term debt (1,427 ) (1,736 )
Long-term debt, net $ 501,909
$ 497,939

Revolving Credit Facility

OnIn April ~~13,~~ 2018, we amended and restated our Revolving Credit Facility to provide for a senior secured revolving loan and letter of credit facility of up to $600 million and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $150 million. If we obtain the full amount of the additional increases in commitments, the Revolving Credit Facility will allow borrowings of up to $750 million. Borrowings under the Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the Revolving Credit ~~Agreement)~~Facility). Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit ~~Agreement,~~Facility, which would reduce the amount of the revolving loans available thereunder. Borrowings under the Revolving Credit ~~Facility. The Revolving Credit Agreement provides for~~Facility bear interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.75 percent to 2.25 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the administrative agent’s base rate plus a margin ranging from 0.75 percent to 1.25 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate.

If excess availability falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time, the Revolving Credit ~~Agreement~~Facility requires maintenance of a fixed charge coverage ratio of 1.0 to 1.0 until excess availability has been at least the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time for a period of 30 consecutive days.

We amended the Revolving Credit Facility on January 31, 2020, to provide that (i) the “Seasonal Period” will run from November 15, 2019, through July 15, 2020, for the calendar year 2019, and from December 15 of each calendar year through April 15 of each immediately succeeding calendar year for the calendar year 2020 and thereafter, and (ii) the measurement period in the definition of “Cash Dominion Event” will be five consecutive business days instead of three consecutive business days.

As of June ~~29, 2019,~~27, 2020, we had outstanding borrowings of ~~$369.1~~$322.2 million, ~~and~~ excess availability of ~~$100.8~~$138.1 million, ~~under our Revolving Credit Facility with~~and a weighted average interest rate of ~~4.5 percent.~~2.6 percent under the Revolving Credit Facility. As of December ~~29, 2018~~28, 2019, our principal balance was ~~$333.3~~$326.5 million, excess availability was ~~$91.7~~$80.0 million, and our ~~stated~~weighted average interest rate was ~~4.2 percent~~3.9 percent.

We were in compliance with all covenants under ~~our~~the Revolving Credit ~~Facility.~~

Facility as of June 27, 2020.

Term Loan Facility

OnIn April ~~13,~~ 2018, we entered into ~~the~~our Term Loan ~~Agreement~~Facility with HPS Investment Partners, LLC, and ~~certain~~ other financial institutions as party thereto, ~~and on February 28, 2019, we amended the Term Loan Agreement. The Term Loan Agreement~~which provides for a ~~Term Loan Facility~~term loan of $180 million secured by substantially all of our assets. Borrowings under the Term Loan ~~Agreement~~Facility may be made as Base Rate Loans or Eurodollar Rate Loans. The Base Rate Loans will bear interest at the rate per annum equal to (i) the greatest of the (a) U.S. prime lending rate published in The Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent, and (c) the sum of the Adjusted Eurodollar Rate of one month plus 1.00 percent, provided that the Base Rate shall at no time be less than 2.00 percent per annum; ~~and~~plus (ii) ~~plus~~ the Applicable Margin, as described below. Eurodollar Rate Loans will bear interest at the rate per annum equal to (i) the ICE Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent per annum; plus (ii) the Applicable Margin. The Applicable Margin will be 6.00 percent with respect to Base Rate Loans and 7.00 percent with respect to Eurodollar Rate Loans.

~~Under~~

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

The Term Loan ~~Agreement, we are permitted~~Facility permits us to enter into ~~up to $50 million in certain~~ real estate sale leaseback transactions ~~prior to December 2019,~~ with the ~~first $30 million in~~ net proceeds therefrom to be used for repayment of indebtedness under the facility, subject to payment of an applicable prepayment premium. In addition, proceeds from the sale of “Specified Properties” will be used for the repayment of indebtedness under the Term Loan Facility, subject to payment of an applicable prepayment premium, or, under certain circumstances, repayment of indebtedness under our Revolving Credit Facility.

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

The calculation of the total net ~~proceeds~~leverage ratio for any period is generally determined by taking our “Consolidated Total Debt” and dividing it by our “Consolidated EBITDA,” as those terms are defined in the Term Loan Facility. “Consolidated Total Debt” is generally determined by adding the balance of our term loan, the prior month’s average balance of our Revolving Credit Facility, and our equipment finance lease liability, and reducing that amount by unrestricted cash up to ~~be used to repay indebtedness under~~$10.0 million. On June 27, 2020, the Term Loan Facility balance was $68.8 million, the average balance of the Revolving Credit Facility for the prior month was $320.1 million, our equipment finance lease liability was $29.2 million, and unrestricted cash was $10.0 million. Liabilities related to sale-leaseback transactions are excluded from the calculation. “Consolidated EBITDA” is generally determined by taking the Adjusted EBITDA that we report for the most recent four consecutive quarters and adjusting items specified under the Term Loan Facility. ~~During~~The adjustments to Adjusted EBITDA for calculating Consolidated EBITDA under the Term Loan Facility as of the end of the second quarter of ~~2019, we used~~2020 for the most recent four consecutive quarters were approximately ~~$30 million of proceeds from real estate transactions to prepay~~$3.0 million.

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

As of June ~~29, 2019,~~27, 2020, we had outstanding borrowings of ~~$147.2~~$68.8 million under our Term Loan Facility and ~~a stated~~an interest rate of ~~9.4~~8.0 percent per annum. AtAs of December ~~29, 2018,~~28, 2019, our principal balance was ~~$179.1~~$146.7 million with ~~a stated~~an interest rate of ~~9.3~~8.7 percent per ~~annum under our~~annum. The decrease in the outstanding borrowings was due to net proceeds of the real estate financing transactions described in Note 8 being applied to the Term Loan Facility.

~~Mortgage Payoff and~~ Finance Lease Commitments

~~On January 10,~~Our finance lease liabilities consist of leases related to equipment and vehicles, and to real estate, with the majority of those finance lease commitments relating to the real estate financing transactions that we have completed in recent years. During fiscal 2017 and 2018, we completed ~~sale-leaseback~~real estate financing transactions on ~~four distribution centers.~~six warehouse facilities; during 2019, we completed real estate financing transactions on two warehouse facilities; and, to date in fiscal 2020, we completed real estate financing transactions on fourteen warehouse facilities. We ~~sold these properties for gross proceeds of $110.0 million. As a result of the transactions, we~~ recognized finance lease assets and obligations ~~totaling $95.1 million on~~as a result of each of these properties, and a total deferred gain of $83.9 million, which will be amortized over the lives of the applicable leases, in accordance with U.S. GAAP. The net proceeds received from the transactions were used to pay the remaining balance of our mortgage of $97.8 million, in its entirety, in the first quarter of fiscal 2018.

transactions. Our total finance lease commitments, ~~which substantially relate to leases of property,~~including the properties associated with these transactions, totaled ~~$152.3~~$272.6 million as of June ~~29, 2019.~~27, 2020.

Interest Rates

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

Sources and Uses of Cash

Operating Activities

Net cash ~~used in~~provided by operating activities for the first six months of fiscal ~~2019~~2020 was ~~$67.7~~$12.9 million, compared to net cash used in operating activities of ~~$98.5~~$53.0 million in the first six months of fiscal ~~2018. During~~2019. The increase in cash provided by operating activities during the first six months of fiscal ~~2019, cash used in operating activities decreased primarily from~~2020 was a result of reporting net income for the current period and a decrease in working capital ~~from~~compared to the prior ~~year.~~

year period.

Investing Activities

Net cash ~~provided by~~used in investing activities for the first six months of fiscal ~~2019~~2020 was ~~$9.0~~$1.7 million compared to net cash ~~used in~~provided by investing activities of ~~$245.7~~$15.0 million in the first six months of fiscal ~~2018.~~2019. The net cash provided ~~in the current year primarily related to the proceeds from the sale of assets of $10.8 million. Net cash used~~by investing activities in the prior year ~~primarily related~~was due to $6.0 million that was returned from escrow after the ~~$353.1~~Cedar Creek acquisition was finalized and $10.8 million of ~~net~~proceeds from asset sales, offset by cash paid for ~~the acquisition~~property and equipment investments of ~~Cedar Creek during the second quarter of 2018, offset by the proceeds from the sale-leaseback transactions~~$1.8 million; cash paid for property and equipment investments was consistent in ~~the first quarter of 2018.~~both periods.

Financing Activities

Net cash ~~provided by~~used in financing activities totaled ~~$62.4~~$11.4 million for the first six months of fiscal ~~2019,~~2020, compared to ~~$344.7~~net cash provided by financing activities of $41.8 million for the first six months of fiscal ~~2018.~~2019. The decrease in net cash provided by financing activities is primarily due to ~~the decrease~~an increase in repayments on our Revolving Credit Facility and Term Loan Facility of $70.8 million and a reduction in borrowings on our Revolving Credit Facility of $15.3 million, offset by an increase in ~~the current year relative to borrowings in the prior year, which included borrowings for the acquisition~~proceeds from real estate financing transactions of ~~Cedar Creek.~~$33.4 million.

Operating Working Capital ^[1](1)

Selected financial information (in thousands)
June 29, 2019 December 29, 2018 June 30, 2018
Current assets:
Cash $ 12,662
$ 8,939
$ 5,210
Receivables, less allowance for doubtful accounts 262,042
208,434
329,980
Inventories, net 358,652
341,851
409,713
Other current assets 44,066
40,629
43,734
Total current assets $ 677,422
$ 599,853
$ 788,637

Current liabilities:

Accounts payable $ 174,860
$ 149,188
$ 188,580
Accrued compensation 7,712
7,974
11,502
Current maturities of long-term debt, net of discount 1,427
1,736
1,736
Finance leases - short-term 8,166
7,555
8,239
Real estate deferred gains - short-term 3,935
5,330
5,330
Operating lease liabilities - short-term 6,690
—
—
Other current liabilities 18,625
24,985
21,905
Total current liabilities $ 221,415
$ 196,768
$ 237,292

Operating working capital $ 457,434
$ 404,821
$ 553,081



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

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

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

^{___________________________}

^[1](1) Operating working capital is defined as ~~current assets~~the sum of cash, receivables, and inventory less ~~current liabilities plus~~accounts payable.

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

Operating working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash. ~~Management of operating working capital helps us monitor our progress in meeting our goals to enhance our return on working capital assets.~~

Operating working capital of ~~$457.4~~$431.2 million aton June ~~29, 2019,~~27, 2020, compared to ~~$404.8~~$418.0 million as of December ~~29, 2018,~~28, 2019, increased on a net basis by approximately ~~$52.6~~$13.3 million. The increase in operating working capital is primarily driven by seasonal increases in accounts receivable, ~~and~~offset by decreases in inventory due to ~~support expected increases~~the company’s tighter management of inventory levels. The net increase in ~~sales activity~~current assets was offset by an increase in accounts payable due to recent inventory purchases during the ~~summer building season,~~month of June.

Operating working capital of $431.2 million on June 27, 2020, compared to $458.5 million as of June 29, 2019, decreased by $27.3 million, driven by decreases in the company’s inventory level, offset by ~~increases~~a decrease in accounts payable.

~~Operating working capital decreased from June 30, 2018, to June 29, 2019, by $95.6 million, primarily driven by the decrease in sales.~~

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 ~~29, 2018.~~28, 2019.

Forward-Looking Statements

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

Forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. These risks and uncertainties include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December ~~29, 2018,~~28, 2019, and those discussed elsewhere in this report (including Item 1A of Part II of this report) and in future reports that we file with the SEC. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Factors that may cause these differences include, among other things: the COVID-19 pandemic and other contagious illness outbreaks and their potential effects on our industry, suppliers and supply chain, and customers, and our business, results of operations, cash flows, financial condition, and future prospects; our ability to integrate and realize anticipated synergies from acquisitions; loss of material customers, suppliers, or product lines in connection with acquisitions; operational disruption in connection with the integration of acquisitions; our indebtedness and its related limitations; sufficiency of cash flows and capital resources; ~~changes in interest rates;~~our ability to monetize real estate assets; fluctuations in commodity prices; adverse housing market conditions; disintermediation by customers and suppliers; changes in prices, supply and/or demand for our products; inventory management; competitive industry pressures; industry consolidation; product shortages; loss of and dependence on key suppliers and manufacturers; import taxes and costs, including new ~~tariffs; our ability to monetize real estate assets;~~or increased tariffs, anti-dumping duties, countervailing duties or similar duties; our ability to successfully implement our strategic initiatives; fluctuations in operating results; sale-leaseback transactions and their effects; real estate leases; changes in interest rates; exposure to product liability claims; our ability to complete offerings under our shelf registration statement on favorable terms, or at all; changes in our product mix; petroleum prices; information technology security and business interruption risks; litigation and legal proceedings; natural disasters and unexpected events; activities of activist stockholders; labor and union matters; limits on net operating loss carryovers; pension plan assumptions and liabilities; risks related to our internal controls; retention of associates and key personnel; federal, state, local and other regulations, including environmental laws and ~~retulations;~~regulations; and changes in accounting principles. Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

2625

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

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

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

On April 13, 2018, we acquired Cedar Creek Holdings, Inc. in a business combination. The Company is in the process of integrating the policies, processes, information technology systems and other components of internal controls over financial reporting of the combined business. Management’s assessment of the Company’s internal control over financial reporting for the fiscal year 2019 will include the internal controls over financial reporting of Cedar Creek.

2726

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

During the second quarter of fiscal ~~2019,~~2020, there were no material changes to our legal proceedings as disclosed in our Annual Report on Form 10-K for the year ended December ~~29, 2018.~~28, 2019. Additionally, we are, and from time to time may be, a party to routine legal proceedings incidental to the operation of our business. The outcome of any pending or threatened proceedings is not expected to have a material adverse effect on our financial condition, operating results, or cash flows, based on our current understanding of the relevant facts. Legal expenses incurred related to these contingencies are generally expensed as incurred.

ITEM 1A. RISK FACTORS

~~There have been no material changes~~In addition to the ~~risk~~other information set forth in this report, you should carefully consider the factors ~~disclosed~~discussed in ~~Item 1A, “Risk Factors,” of the Company’s~~Part I, "Item 1A.Risk Factors" in our Annual Report on Form 10-K for the year ended December ~~29, 2018.~~28, 2019, as updated and supplemented below, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Our business, results of operations, and financial condition may be materially adversely impacted by the COVID-19 pandemic.

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

The widespread health crisis created by the COVID-19 pandemic and the actions taken to combat it have had a significant adverse effect on the economies and financial markets of the U.S. and many other countries. The U.S. has experienced deteriorating economic conditions in many major markets, including increased unemployment, decreases in disposable income, declines in consumer confidence, general economic slowdowns, and significant volatility in financial markets. These deteriorating economic conditions may reduce demand for our products, which could materially reduce our sales and profitability. In addition, any bankruptcy or financial distress of our customers or suppliers due to deterioration in economic conditions could result in other significant negative impacts to our business including reduced sales, decreased collectability of accounts receivable, impaired credit, an ineffective supply chain, loss of credit from our suppliers, and a reduction in certain key product brands. Deteriorating economic conditions and reduced sales and profitability could also limit the availability of credit, or increase our borrowing costs, including by requiring additional collateral. We also may be required to record impairment charges with respect to assets whose fair values may be negatively affected by the effects of the pandemic on our operations.

In addition, although our operations and those of most of our direct customers and suppliers are currently considered “essential” and are therefore exempt from state and local business closure orders, these exemptions may not mitigate the impact to our markets caused by the COVID-19 pandemic, and they may be curtailed or revoked in the future. If these exemptions are curtailed or revoked, it could require us, or our customers or suppliers, to further limit our operations or suspend them altogether, which would adversely impact our business, operating results, and financial condition. The pandemic has also caused, and may continue to cause, disruption to the global supply chain, which could impact our ability to source products from our suppliers, many of whom are located outside of the United States, including China.

In response to the pandemic, we have instituted a number of actions to protect our workforce, including restricting business travel, imposing mandatory quarantine periods for employees who have traveled to areas impacted by the pandemic, modifying office functions to allow employees to work remotely, and modifying our warehouse and delivery operations to enforce enhanced safety protocols around social distancing, hygiene, and health screening. While all of these steps are necessary and appropriate in light of the pandemic, they, coupled with state and local business closure orders and regulations, do impact our ability to operate our business in its ordinary and traditional course, and they have and may continue to cause us to experience reductions in productivity and disruptions to our business routines while they remain in place.

While many states have begun the process of lifting or curtaining shelter-in-place, business closure, and related orders, the rates of infection, hospitalization, and mortality associated with the COVID-19 virus continue to fluctuate, and have increased in some localities. The potential magnitude or duration of the business and economic impacts from this pandemic continue to remain uncertain, and many of the associated negative trends may continue through fiscal 2020. While the initial negative impact on our business from the COVID-19 pandemic has not been as significant as we initially expected, it could become more severe. Any of the negative impacts of the COVID-19 pandemic, including those described above, alone or in combination with others, may have a material adverse effect on our results of operations, financial condition, and cash flows. In addition, any of these negative impacts, alone or in combination with others, could exacerbate many of the risks described in Part I, “Item 1A. Risk Factors”, in our Annual Report on Form 10-K for the year ended December 28, 2019, and the other risks described in this report. The full extent to which the COVID-19 pandemic will negatively affect our results of operations, financial condition, and cash flows will depend on future developments that are highly uncertain and cannot be predicted.

We have been notified that we are not in compliance with certain listing standards of the New York Stock Exchange (NYSE), and we may be unable to regain compliance.

On April 22, 2020, we were notified by the NYSE that we were not in compliance with the continued listing standards set forth in Section 802.01B of the New York Stock Exchange Listed Company Manual because our average global market capitalization over a consecutive 30 trading-day period was less than $50 million, and, at the same time, our stockholders’ equity was less than $50 million.

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

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

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

The following table summarizes the Company’s common stock repurchase activity for each month of the quarter ended June ~~29, 2019:~~27, 2020:

     Total Number
Shares Average Price
Period
Purchased^[1]
  Paid Per Share
March 31 - May 4, 2019 5,420
   $ 25.19
May 5 - June 1, 2019 —
   $ —
June 2 - June 29, 2019 26,868
   $ 19.44
Total 32,288


[1] The Company did not repurchase any of its equity securities during the period covered by this report pursuant to any publicly announced plan or program, and no such plan or program is presently in effect. All purchases reflected in the table above pertain to purchases of common stock by the Company in connection with tax withholding obligations of the Company’s employees upon the vesting of such employees’ restricted stock awards.



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

(1)	The Company did not repurchase any of its equity securities during the period covered by this report pursuant to any publicly announced plan or program, and no such plan or program is presently in effect. All purchases reflected in the table above pertain to purchases of common stock by the Company in connection with tax withholding obligations of the Company’s employees upon the vesting of such employees’ restricted stock awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

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

2829

ITEM 6. EXHIBITS



Exhibit Number		Description
10.1		Sixth Amendment to Credit and Guaranty Agreement, dated April 1, 2020, by and among BlueLinx Holdings Inc., as borrower, certain subsidiaries of BlueLinx Holdings Inc., as guarantors, the lenders party thereto, and HPS Investment Partners, LLC, in its capacity as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Form ~~of Purchase~~8‑K filed with the Securities and ~~Sale Agreement for Sale-Leaseback Transactions with Big Acquisitions LLC~~Exchange Commission on April 7, 2020).
10.2	*	~~Third Amendment to Purchase and Sale~~Letter Agreement, dated ~~as of May 1, 2019, by~~March 30, 2020, between BlueLinx Corporation and ~~between ABP FL (Yulee) LLC and Big Acquisitions LLC~~
~~10.3~~		~~Third Amendment to Purchase and Sale Agreement, dated as of May 1, 2019, by and between ABP IL (University Park) and Big Acquisitions LLC~~Alexander Averitt.
31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	**	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	**	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.Def		Definition Linkbase Document.
101.Pre		Presentation Linkbase Document.
101.Lab		Labels Linkbase Document.
101.Cal		Calculation Linkbase Document.
101.Sch		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.


	*	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.

2930

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: August ~~7, 2019~~3, 2020	By:	/s/ ~~Susan~~Kelly C. ~~O’Farrell~~Janzen
		~~Susan~~Kelly C. ~~O’Farrell~~Janzen
		Senior Vice President and Chief Financial Officer ~~Treasurer, and Principal Accounting Officer~~

3031



	Pro forma
	Three Months Ended				Six Months Ended
(In thousands, except per share data)	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Net sales	$	706,448	$	948,555	$	1,345,149	$	1,732,822
Net income (loss)	9,425		9,180		6,118		(1,439		)
Earnings (loss) per common share:
Basic	$	1.01	$	1.00	$	0.65	$	(0.16	)
Diluted	1.00		0.98		0.65		(0.16		)



	(In thousands)
Consideration paid to shareholders and amounts paid to creditors:
Payments to Cedar Creek shareholders^[1]	$	166,447
Subordinated unsecured note (due to shareholder)^[2]		13,743
Seller’s transaction costs paid by Company		7,349
Add: pay off of Cedar Creek debt^[3]		174,213
Total cash purchase price	$	361,752



(In thousands)	Allocation as of December 29, 2018
Cash and net working capital assets (excluding inventory)	$	88,318
Inventory		159,227
Property and equipment		71,203
Other, net		(1,395	)
Intangible assets and goodwill:
Customer relationships		25,500
Non-compete agreements		8,254
Trade names		6,826
Favorable leasehold interests		800
Goodwill		47,772
Finance leases and other liabilities		(44,753	)
Cash purchase price	$	361,752



		June 29,			December 29,
(In thousands)	Maturity Date	2019			2018
Revolving Credit Facility (net of discounts and debt issuance costs of $5.2 million and $6.0 million at June 29, 2019 and December 29, 2018, respectively)	October 10, 2022	$	363,898		$	327,319
Term Loan Facility (net of discounts and debt issuance costs of $7.7 million and $6.7 million at June 29, 2019 and December 29, 2018, respectively)	October 13, 2023		139,438			172,356
Total debt			503,336			499,675
Less: current portion of long-term debt			(1,427	)		(1,736	)
Long-term debt, net		$	501,909		$	497,939



	(In thousands)
2019	$	11,980
2020	9,928
2021	8,435
2022	8,066
2023	7,539
Thereafter	60,847
Total	$	106,795



(Dollars in thousands)	First Six Months of Fiscal 2019			% of Net Sales	First Six Months of Fiscal 2018			% of Net Sales
Net sales	$	1,345,149		100.0%	$	1,330,439		100.0%

Gross profit	180,212			13.4%	158,976			11.9%
Selling, general, and administrative	148,511			11.0%	150,963			11.3%
Gains from sales of property	(9,760		)	(0.7)%	—			—%
Depreciation and amortization	14,831			1.1%	10,109			0.8%
Operating income (loss)	26,630			2.0%	(2,096		)	(0.2)%
Interest expense	27,118			2.0%	20,674			1.6%
Other expense (income), net	105			—%	(188		)	—%
Income (loss) before provision for (benefit from) income taxes	(593		)	0.0%	(22,582		)	(1.7)%
Provision for (benefit from) income taxes	(175		)	—%	(597		)	—%
Net income (loss)	$	(418	)	0.0%	$	(21,985	)	(1.7)%