BLUELINX HOLDINGS INC.
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
| (Mark One) | ||
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended January 1, 2011 | ||
|
OR
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Commission file number: 1-32383
BLUELINX HOLDINGS
INC.
(Exact name of registrant as
specified in its charter)
| Delaware | 77-0627356 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 4300 Wildwood Parkway, Atlanta, Georgia | 30339 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
770-953-7000
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
Name of Each Exchange on Which Registered
|
|
| Common stock, par value $0.01 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
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
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
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
o
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
The aggregate market value of the registrant’s common stock
held by non-affiliates of the registrant as of July 3, 2010
was $27,993,142, based on the closing price on the New York
Stock Exchange of $2.42 per share on July 3, 2010.
As of February 25, 2011, the registrant had
33,235,376 shares of common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
BLUELINX
HOLDINGS INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended January 1, 2011
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended January 1, 2011
TABLE OF CONTENTS
2
Table of Contents
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate
or imply future results, performance or achievements, and may
contain the words “anticipate,” “believe,”
“could,” “expect,” “estimate,”
“intend,” “may,” “project,”
“plan,” “should,” “will be,”
“will likely continue,” “will likely result”
or words or phrases of similar meaning. You should read
statements containing these words carefully, because they
discuss our future expectations, contain projections of our
future results or state other “forward-looking”
information.
Forward-looking statements are based on estimates and
assumptions made by us that, although believed by us to be
reasonable, involve inherent risks and uncertainties, including,
but not limited to, economic, competitive, governmental and
technological factors outside of our control, that may cause our
business, strategy or actual results to differ materially from
the forward-looking statements. We operate in a changing
environment in which new risks can emerge from time to time. It
is not possible for management to predict all of these risks,
nor can it assess the extent to which any factor, or a
combination of factors, may cause our business, strategy or
actual results to differ materially from those contained in
forward-looking statements. Factors you should consider that
could cause these differences include, among other things:
| • | changes in the prices, supply and/or demand for products which we distribute, especially as a result of conditions in the residential housing market; | |
| • | inventory levels of new and existing homes for sale; | |
| • | general economic and business conditions in the United States; | |
| • | the financial condition and credit worthiness of our customers; | |
| • | the activities of competitors; | |
| • | changes in significant operating expenses; | |
| • | fuel costs; | |
| • | risk of losses associated with accidents; | |
| • | exposure to product liability claims; | |
| • | changes in the availability of capital and interest rates; | |
| • | immigration patterns and job and household formation; | |
| • | our ability to identify acquisition opportunities and effectively and cost-efficiently integrate acquisitions; | |
| • | adverse weather patterns or conditions; | |
| • | acts of war or terrorist activities; | |
| • | variations in the performance of the financial markets, including the credit markets; and | |
| • | the risk factors discussed under Item 1A. Risk Factors and elsewhere in this Form 10-K. |
Forward-looking statements speak only as of the date of this
Form 10-K.
Except as required under federal securities laws and the rules
and regulations of the SEC, we do not have any intention, and do
not undertake, to update any forward-looking statements to
reflect events or circumstances arising after the date of this
Form 10-K,
whether as a result of new information, future events or
otherwise. As a result of these risks and uncertainties, readers
are cautioned not to place undue reliance on the forward-looking
statements included in this
Form 10-K
or that may be made elsewhere from time to time by or on behalf
of us. All forward-looking statements attributable to us are
expressly qualified by these cautionary statements.
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As used herein, unless the context otherwise requires,
“BlueLinx,” the “Company,” “we,”
“us” and “our” refer to BlueLinx Holdings
Inc. and its subsidiaries. BlueLinx Corporation is the
wholly-owned operating subsidiary of BlueLinx Holdings Inc. and
is referred to herein as the “operating company” when
necessary. Reference to “fiscal 2010” refers to the
52-week period ended January 1, 2011. Reference to
“fiscal 2009” refers to the 52-week period ended
January 2, 2010. Reference to “fiscal 2008”
refers to the 53-week period ended January 3, 2009.
| ITEM 1. | BUSINESS. |
Company
Overview
BlueLinx Holdings Inc., operating through our wholly-owned
subsidiary, BlueLinx Corporation, is a leading distributor of
building products in the United States. We operate in all of the
major metropolitan areas in the United States and, as of
January 1, 2011, we distributed approximately 10,000
products from over 750 suppliers to service more than
11,500 customers nationwide, including dealers, industrial
manufacturers, manufactured housing producers and home
improvement retailers. We operate our distribution business from
sales centers in Atlanta and Denver, and our network of
approximately 60 distribution centers.
We distribute products in two principal categories: structural
products and specialty products. Structural products, which
represented approximately 46%, 44% and 50% of our fiscal 2010,
fiscal 2009, and fiscal 2008 gross sales, respectively,
include plywood, oriented strand board (“OSB”), rebar
and remesh, lumber and other wood products primarily used for
structural support, walls and flooring in construction projects.
Specialty products, which represented approximately 54%, 56% and
50% of our fiscal 2010, fiscal 2009, and fiscal 2008 gross
sales, respectively, include roofing, insulation, specialty
panels, moulding, engineered wood products, vinyl products (used
primarily in siding), outdoor living and metal products
(excluding rebar and remesh).
Our customers include building materials dealers, industrial
users of building products, manufactured housing builders and
home improvement centers. We purchase products from over 750
vendors and serve as a national distributor for a number of our
suppliers. We distribute products through our owned and leased
fleet of over 600 trucks and over 1,000 trailers, as well as by
common carrier.
Our principal executive offices are located at 4300 Wildwood
Parkway, Atlanta, Georgia 30339 and our telephone number is
(770) 953-7000.
Our filings with the U.S. Securities and Exchange
Commission, including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements and amendments to those reports, are accessible
free of charge at our official website, www.BlueLinxCo.com. We
have adopted a Code of Ethics within the meaning of
Item 406(b) of
Regulation S-K.
This Code of Ethics applies to our principal executive officer,
principal financial officer and principal accounting officer.
This Code of Ethics, our board committee charters and our
corporate governance guidelines are publicly available without
charge at www.BlueLinxCo.com or without charge upon request by
writing to BlueLinx Holdings Inc., Attn: Corporate Secretary,
4300 Wildwood Parkway, Atlanta, Georgia 30339. If we make
substantial amendments to our Code of Ethics or grant any
waiver, including any implicit waiver, we are required to
disclose the nature of such amendment or waiver on our website
or in a report on
Form 8-K
of such amendment or waiver. The reference to our website does
not constitute incorporation by reference of the information
contained at the site, and our website is not considered part of
this filing.
History
We were created on March 8, 2004 as a Georgia corporation
named ABP Distribution Holdings Inc. (“ABP”). ABP was
owned by Cerberus Capital Management, L.P. (Cerberus Capital
Management, L.P. and its subsidiaries are referred to herein as
“Cerberus”), a private, New York-based investment
firm, and members of our management team. Prior to May 7,
2004, certain of our assets were owned by the distribution
division (the “Division”) of Georgia-Pacific
Corporation (“Georgia-Pacific” or “G-P”).
The Division commenced operations in 1954 with
13 warehouses primarily used as an outlet for G-P’s
plywood. On May 7, 2004, G-P sold
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Table of Contents
the assets of the Division to ABP. ABP subsequently merged into
BlueLinx Holdings Inc. On December 17, 2004, we consummated
an initial public offering of our common stock.
Products
and Services
As of January 1, 2011, we distributed approximately 10,000
different structural and specialty products to more than 11,500
customers nationwide. Our structural products are primarily used
for structural support, walls, flooring and roofing in
construction projects. Additional end-uses of our structural
products include outdoor decks, sheathing, crates and boxes. Our
specialty products include engineered lumber, roofing,
insulation, metal products (excluding rebar and remesh), vinyl
products (used primarily in siding), moulding, outdoor living
and particle board. In some cases, these products are branded by
us.
We also provide a wide range of value-added services and
solutions to our customers and vendors including:
| • | providing “less-than-truckload” delivery services; | |
| • | pre-negotiated program pricing plans; | |
| • | inventory stocking; | |
| • | automated order processing through an electronic data interchange, or EDI, that provides a direct link between us and our customers; | |
| • | inter-modal distribution services, including railcar unloading and cargo reloading onto customers’ trucks; and | |
| • | back-haul services, when otherwise empty trucks are returning from customer deliveries. |
Distribution
Channels
We sell products through three main distribution channels:
Warehouse
Sales
Warehouse sales are delivered from our warehouses to dealers,
home improvement centers and industrial users. We deliver
products primarily using our fleet of over 600 trucks and over
1,000 trailers, but also occasionally use common carriers for
peak load flexibility. We operate in all of the major
metropolitan areas in the United States through our network of
approximately 60 distribution centers. Our warehouses have over
ten million square feet of space under roof plus significant
outdoor storage space. Warehouse sales accounted for
approximately 66% and 64% of our fiscal 2010 and fiscal
2009 gross sales, respectively.
Reload
Sales
Reload sales are similar to warehouse sales but are shipped from
third-party warehouses where we store owned product in order to
expand our geographic reach. This channel is employed primarily
to service strategic customers that would be uneconomical to
service from our warehouses and to distribute large volumes of
imported products such as metal or hardwood plywood from port
facilities. Reload sales accounted for approximately 11% and 10%
of our gross sales in fiscal 2010 and fiscal 2009, respectively.
Direct
Sales
Direct sales are shipped from the manufacturer to the customer
without our taking physical inventory possession. This channel
requires the lowest amount of committed capital and fixed costs.
Direct sales accounted for approximately 23% and 26% of our
fiscal 2010 and fiscal 2009 gross sales, respectively.
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Customers
As of January 1, 2011, our customer base included
approximately 11,500 customers across multiple market segments
and various end-use markets, including the following types of
customers:
| • | building materials dealers; | |
| • | industrial users of building products; | |
| • | manufactured housing builders; and | |
| • | home improvement centers. |
No single customer accounted for 8 percent or more of our
gross sales in fiscal 2010 or fiscal 2009.
Sales and
Marketing
Our sales efforts are directed primarily through our sales force
of approximately 507 sales representatives. Approximately 300 of
our sales representatives are located at our two sales centers
in Denver and Atlanta. Within these sales centers, our sales
representatives interact with our customers over the telephone.
The remaining 207 sales representatives are located throughout
the country and are responsible for maintaining a local dialogue
with our customers, including making frequent, in-person visits.
Our sales force is separated between industrial/dealer sales and
home improvement center sales. Industrial/dealer sales are
managed by regional vice-presidents with sales teams organized
by geographical customer regions. The majority of
industrial/dealer orders are processed by telephone and are
facilitated by our centralized database of customer preferences
and purchasing history. We also have dedicated cross-functional
customer support teams focused on strategic growth with the home
improvement centers.
Suppliers
As of January 1, 2011, our vendor base included over 750
suppliers of both structural and specialty building products. In
some cases, these products are branded. We have supply contracts
in place with many of our vendors. Terms for these agreements
frequently include prompt payment discounts, freight allowances
and occasionally include volume discounts, growth incentives,
marketing allowances, and consigned inventory.
On April 27, 2009, we entered into a Termination and
Modification Agreement (“Modification Agreement”)
related to our Master Purchase, Supply and Distribution
Agreement (the “Supply Agreement”) with G-P. The
Modification Agreement effectively terminated the existing
Supply Agreement with respect to our distribution of G-P
plywood, OSB and lumber. We continue to distribute a variety of
G-P building products, including engineered lumber, which is
covered under a three-year purchase agreement dated
February 12, 2009. As a result of terminating the supply
agreement, we are no longer contractually obligated to make
minimum purchases of products from G-P. As of January 3,
2009, prior to entering into the Modification Agreement, our
minimum purchase requirement had totaled $31.9 million.
G-P agreed to pay us $18.8 million in exchange for our
agreement to terminate the Supply Agreement one year earlier
than May 7, 2010, the termination date previously agreed
upon. Under the terms of the Modification Agreement, we received
four quarterly cash payments of $4.7 million, which began
on May 1, 2009 and ended on February 1, 2010. As a
result of the termination, we recognized a net gain of
$17.8 million in fiscal 2009 as a reduction to operating
expense. The gain was net of a $1.0 million write-off of an
intangible asset associated with the Supply Agreement.
Competition
The U.S. building products distribution market is a highly
fragmented market, served by a small number of multi-regional
distributors, several regionally focused distributors and a
large number of independent local distributors. Local and
regional distributors tend to be closely held and often
specialize in a limited number of segments, such as the roofing
segment, in which they offer a broader selection of products.
Some of our multi-regional competitors are part of larger
companies and therefore have access to greater financial and
other
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resources than we do. We compete on the basis of breadth of
product offering, consistent availability of product, product
price and quality, reputation, service and distribution facility
location.
Our two largest competitors are Weyerhaeuser Company and Boise
Cascade LLC. Most major markets are served by at least one of
these distributors.
Seasonality
We are exposed to fluctuations in quarterly sales volumes and
expenses due to seasonal factors. These seasonal factors are
common in the building products distribution industry. The first
and fourth quarters are typically our slowest quarters due to
the impact of poor weather on the construction market. Our
second and third quarters are typically our strongest quarters,
reflecting a substantial increase in construction due to more
favorable weather conditions. Our working capital and accounts
receivable and payable generally peak in the third quarter,
while inventory generally peaks in the second quarter in
anticipation of the summer building season.
Trademarks
As of January 1, 2011, we had 38 U.S. trademark
applications and registrations, one issued U.S. patent and
one Canadian trademark registration. Depending on the
jurisdiction, trademarks are valid as long as they are in use
and/or
their
registrations are properly maintained and they have not become
generic. Registrations of trademarks generally can be renewed
indefinitely as long as the trademarks are in use. Our patent
expires in September 2013. We do not believe our business is
dependent on any one of our trademarks or on our patent.
Employees
As of January 1, 2011 we employed approximately
1,940 persons on a full-time basis. Approximately 30% of
our employees are represented by labor unions. As of
January 1, 2011, we had 46 collective bargaining
agreements, of which four, representing approximately
40 employees, are up for renewal in 2011 and one collective
bargaining agreement expired in March 2010. We are in active
negotiations with the subject union, and, in the interim, are
operating under the terms and conditions of the expired
agreement. Of the four collective bargaining agreements expiring
in fiscal 2011, three will expire in the second quarter of
fiscal 2011, and one will expire in the fourth quarter of fiscal
2011. We consider our relationship with our employees generally
to be good.
Environmental
and Other Governmental Regulations
Environmental
Regulation and Compliance
Our operations are subject to various federal, state, provincial
and local laws, rules and regulations. We are subject to
environmental laws, rules and regulations that limit discharges
into the environment, establish standards for the handling,
generation, emission, release, discharge, treatment, storage and
disposal of hazardous materials, substances and wastes, and
require cleanup of contaminated soil and groundwater. These
laws, ordinances and regulations are complex, change frequently
and have tended to become more stringent over time. Many of them
provide for substantial fines and penalties, orders (including
orders to cease operations) and criminal sanctions for
violations. They may also impose liability for property damage
and personal injury stemming from the presence of, or exposure
to, hazardous substances. In addition, certain of our operations
require us to obtain, maintain compliance with, and periodically
renew permits.
Certain of these laws, including the Comprehensive Environmental
Response, Compensation, and Liability Act, may require the
investigation and cleanup of an entity’s or its
predecessor’s current or former properties, even if the
associated contamination was caused by the operations of a third
party. These laws also may require the investigation and cleanup
of third-party sites at which an entity or its predecessor sent
hazardous wastes for disposal, notwithstanding that the original
disposal activity accorded with all applicable requirements.
Liability under such laws may be imposed jointly and severally,
and regardless of fault.
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G-P has agreed to indemnify us against any claim arising from
environmental conditions that existed prior to May 7, 2004
in connection with the properties acquired when G-P sold the
assets of the Division to us (see “History” above). In
addition, we carry environmental insurance. While we do not
expect to incur significant costs to BlueLinx arising from
environmental conditions, there can be no assurance that all
such costs will be covered by indemnification or insurance.
We are also subject to the requirements of the
U.S. Department of Labor Occupational Safety and Health
Administration, or OSHA. In order to maintain compliance with
applicable OSHA requirements, we have established uniform safety
and compliance procedures for our operations and implemented
measures to prevent workplace injuries.
The U.S. Department of Transportation, or DOT, regulates
our operations in domestic interstate commerce. We are subject
to safety requirements governing interstate operations
prescribed by the DOT. Vehicle dimensions and driver hours of
service also remain subject to both federal and state regulation.
We incur and will continue to incur costs to comply with the
requirements of environmental, health and safety and
transportation laws, ordinances and regulations. We anticipate
that these requirements could become more stringent in the
future, and we cannot assure you that compliance costs will not
be material.
| ITEM 1A. | RISK FACTORS. |
In addition to the other information contained in this
Form 10-K,
the following risk factors should be considered carefully in
evaluating our business. Our business, financial condition, or
results of operations could be materially adversely affected by
any of these risks. Additional risks not presently known to us
or that we currently deem immaterial may also impair our
business and operations.
Our
industry is highly cyclical, and prolonged periods of weak
demand or excess supply may reduce our net sales and/or margins,
which may reduce our net income or cause us to incur
losses.
The building products distribution industry is subject to
cyclical market pressures. Prices of building products are
determined by overall supply and demand in the market for
building products. Market prices of building products
historically have been volatile and cyclical and we have limited
ability to control the timing and amount of pricing changes for
building products. Demand for building products is driven mainly
by factors outside of our control, such as general economic and
political conditions, interest rates, availability of mortgage
financing, the construction, repair and remodeling and
industrial markets, weather and population growth. The supply of
building products fluctuates based on available manufacturing
capacity, and excess capacity in the industry can result in
significant declines in market prices for those products. To the
extent that prices and volumes experience a sustained or sharp
decline, our net sales and margins likely would decline as well.
Because we have substantial fixed costs, a decrease in sales and
margin generally may have a significant adverse impact on our
financial condition, operating results and cash flows. Our
results in some periods have been affected by market volatility,
including a reduction in gross profits due to a decline in the
resale value of our structural products inventory. All of these
factors make it difficult to forecast our operating results.
Our
industry is dependant on the homebuilding industry which is
suffering from a prolonged significant downturn, and any further
downturn or sustained continuation of the current downturn will
continue to materially affect our business, liquidity and
operating results.
Our sales depend heavily on the strength of national and local
new residential construction and home improvement and remodeling
markets. The strength of these markets depends on new housing
starts and residential renovation projects, which are a function
of many factors beyond our control. Some of these factors
include general economic conditions, employment levels, job and
household formation, interest rates, housing prices, tax policy,
availability of mortgage financing, prices of commodity wood and
steel products, immigration patterns, regional demographics and
consumer confidence.
The downturn in the residential construction market is in its
fifth consecutive year and it has become one of the most severe
housing downturns in United States history. Along with high
unemployment, tighter lending
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standards and general economic uncertainty, there is an
oversupply of unsold homes on the market and the pool of
qualified home buyers has declined significantly. Moreover, the
government’s legislative and administrative measures aimed
at restoring liquidity to the credit markets and providing
relief to homeowners facing foreclosure have had limited
results. In 2009, the government provided eligible home buyers a
tax credit that was extended until April 30, 2010. As a
result of the home buyers’ tax credit, the residential
construction market improved during the first and second
quarters of fiscal 2010, but experienced a decline in the third
and fourth quarters of fiscal 2010 following expiration of the
credits. It is unclear if and to what extent the residential
construction market will improve during fiscal 2011.
Our results of operations have been adversely affected by the
severe downturn in new housing activity in the United States and
we expect the severe downturn in new housing activity to
continue to adversely affect our operating results in 2011. A
prolonged continuation of the current downturn and any future
downturns in the markets that we serve or in the economy
generally will have a material adverse effect on our operating
results, liquidity and financial condition. Reduced levels of
construction activity may result in continued intense price
competition among building materials suppliers, which may
adversely affect our gross margins. We cannot provide assurance
that our responses to the downturn or the government’s
attempts to address the difficulties in the economy will be
successful.
A
significant portion of our sales are on credit to our customers.
Material changes in their credit worthiness or our inability to
forecast deterioration in their credit position could have a
material adverse effect on our operating results, cash flow and
liquidity.
The majority of our sales are on account where we provide credit
to our customers. Continued market disruptions could cause
additional economic downturns, which may lead to lower demand
for our products and increased incidence of customers’
inability to pay their accounts. Bankruptcies by our customers
may cause us to incur bad debt expense at levels higher than
historically experienced. In fiscal 2010, less than .1% in bad
debt expense to total net sales was incurred related to credit
sales. Our customers are generally susceptible to the same
economic business risks as we are. Furthermore, we may not
necessarily be aware of any deterioration in their financial
position. If our customers’ financial position becomes
impaired, it could have a significant impact on our bad debt
exposure and could have a material adverse effect on our
operating results, cash flow and liquidity.
In addition, certain of our suppliers potentially may be
impacted as well, causing disruption or delay of product
availability. These events would adversely impact our results of
operations, cash flows and financial position.
Our
cash flows and capital resources may be insufficient to make
required payments on our substantial indebtedness and future
indebtedness or to maintain our required level of excess
liquidity.
We have a substantial amount of debt. As of January 1,
2011, advances outstanding under our revolving credit facility
were approximately $97.2 million, borrowing availability
was approximately $103.4 million and outstanding letters of
credit on the facility were approximately $5.9 million. We
also have a mortgage loan in the amount of $285.7 million.
Our substantial debt could have important consequences to you.
For example, it could:
| • | make it difficult for us to satisfy our debt obligations; | |
| • | make us more vulnerable to general adverse economic and industry conditions; | |
| • | limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other general corporate requirements as our excess liquidity likely will decrease while our industry and our Company begins its recovery from the historic housing market downturn; | |
| • | expose us to interest rate fluctuations because the interest rate on the debt under our revolving credit facility is variable; |
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| • | require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes; | |
| • | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and | |
| • | place us at a competitive disadvantage compared to competitors that may have proportionately less debt. |
In addition, our ability to make scheduled payments or refinance
our obligations depends on our successful financial and
operating performance, cash flows and capital resources, which
in turn depend upon prevailing economic conditions and certain
financial, business and other factors, many of which are beyond
our control. These factors include, among others:
| • | economic and demand factors affecting the building products distribution industry; | |
| • | pricing pressures; | |
| • | increased operating costs; | |
| • | competitive conditions; and | |
| • | other operating difficulties. |
If our cash flows and capital resources are insufficient to fund
our debt service obligations, we may be forced to reduce or
delay capital expenditures, sell material assets or operations,
obtain additional capital or restructure our debt. Obtaining
additional capital or restructuring our debt could be
accomplished in part through new or additional borrowings or
placements of debt or equity securities. There is no assurance
that we could obtain additional capital or restructure our debt
on terms acceptable to us or at all. In the event that we are
required to dispose of material assets or operations to meet our
debt service and other obligations, the value realized on such
assets or operations will depend on market conditions and the
availability of buyers. Accordingly, any such sale may not,
among other things, be for a sufficient dollar amount. Our
obligations under the amended revolving credit facility are
secured by a first priority security interest in all of our
operating company’s inventories, receivables and proceeds
from those items. In addition, our mortgage loan is secured by
the majority of our real property. The foregoing encumbrances
may limit our ability to dispose of material assets or
operations. We also may not be able to restructure our
indebtedness on favorable economic terms, if at all. We may
incur substantial additional indebtedness in the future,
including under the revolving credit facility. Our incurrence of
additional indebtedness would intensify the risks described
above.
The
instruments governing our indebtedness contain various covenants
limiting the discretion of our management in operating our
business.
Our amended revolving credit facility and mortgage loan contain
various restrictive covenants and restrictions, including
financial covenants customary for asset-based loans that limit
our management’s discretion in operating our business. In
particular, these instruments limit our ability to, among other
things:
| • | incur additional debt; | |
| • | grant liens on assets; | |
| • | make investments, including capital expenditures; | |
| • | sell or acquire assets outside the ordinary course of business; | |
| • | engage in transactions with affiliates; and | |
| • | make fundamental business changes. |
Under our amended revolving credit facility, we are required to
maintain our excess availability above the greater of
$40.0 million or the amount equal to 15% of the lesser of
the borrowing base, as defined therein, or $60.0 million
(subject to increase to $75.0 million if we exercise the
uncommitted accordion provision in the
10
Table of Contents
amended revolving credit facility in full). If we fail to
maintain this minimum excess availability, the amended revolving
credit facility requires us to (i) maintain certain
financial ratios and (ii) limit our capital expenditures.
If we fail to comply with the restrictions in the amended
revolving credit facility, the mortgage loan documents or any
other current or future financing agreements, a default may
allow the creditors under the relevant instruments to accelerate
the related debt and to exercise their remedies under these
agreements, which will typically include the right to declare
the principal amount of that debt, together with accrued and
unpaid interest and other related amounts, immediately due and
payable, to exercise any remedies the creditors may have to
foreclose on assets that are subject to liens securing that debt
and to terminate any commitments they had made to supply further
funds.
We are
dependent upon a single supplier, Georgia-Pacific, for a
significant percentage of our products.
Although we have been working to diversify our supplier base, we
are still dependent on G-P for a significant percentage of our
products. Purchases from G-P accounted for approximately 12% and
16% of our purchases during fiscal 2010 and fiscal 2009,
respectively. We currently operate without a supply agreement
for many of the products that we purchase from G-P. As a result,
our purchases from G-P are subject to greater volatility with
respect to sales terms, including volume and pricing, than when
we had a long-term supply agreement in place. In addition, if we
are unable to agree on supply arrangements for the products not
currently covered by supply agreements or if G-P otherwise
discontinues sales of product to us, we could experience a
product shortage unless and until we obtain a replacement
supplier or suppliers. We may not be able to obtain replacement
products on favorable economic terms. An inability to replace
products on favorable economic terms could adversely impact our
net sales and our costs, which in turn could impact our gross
profit, net income and cash flows.
We continue to distribute a variety of G-P building products,
including Engineered Lumber, which is covered under a three-year
purchase agreement dated February 12, 2009. If G-P and
BlueLinx are unable to agree on supply arrangements for products
other than engineered lumber, if G-P otherwise discontinues
sales of product to us, or if BlueLinx and G-P are unable to
agree on product pricing in accordance with the mechanism set
forth in the purchase agreement for purchases we make from G-P,
we could experience a product shortage unless and until we
obtain a replacement supplier or suppliers. We may not be able
to obtain replacement products on favorable economic terms, or
may not be able to obtain comparable alternative products. An
inability to replace products on favorable economic terms or
with comparable products could adversely impact our net sales
and our costs, which in turn could impact our gross profit, net
income and cash flows.
Our
industry is highly fragmented and competitive. If we are unable
to compete effectively, our net sales and operating results will
be reduced.
The building products distribution industry is highly fragmented
and competitive and the barriers to entry for local competitors
are relatively low. Competitive factors in our industry include
pricing and availability of product, service and delivery
capabilities, ability to assist with problem-solving, customer
relationships, geographic coverage and breadth of product
offerings. Also, financial stability is important to suppliers
and customers in choosing distributors for their products and
affects the favorability of the terms on which we are able to
obtain our products from our suppliers and sell our products to
our customers.
Some of our competitors are part of larger companies and
therefore have access to greater financial and other resources
than us. In addition, certain product manufacturers sell and
distribute their products directly to customers. Additional
manufacturers of products distributed by us may elect to sell
and distribute directly to end-users in the future or enter into
exclusive supply arrangements with other distributors. Finally,
we may not be able to maintain our costs at a level sufficiently
low for us to compete effectively. If we are unable to compete
effectively, our net sales and net income will be reduced.
11
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Integrating
acquisitions may be time-consuming and create costs that could
reduce our operating results and cash flows.
We may elect to selectively pursue
acquisitions.
Any integration process may be
complex and time consuming, may be disruptive to the business
and may cause an interruption of, or a distraction of
management’s attention from, the business as a result of a
number of obstacles, including but not limited to:
| • | the loss of key customers of the acquired company; | |
| • | the incurrence of unexpected expenses and working capital requirements; | |
| • | a failure of our due diligence process to identify significant issues or contingencies; | |
| • | difficulties assimilating the operations and personnel of the acquired company; | |
| • | difficulties effectively integrating the acquired technologies with our current technologies; | |
| • | our inability to retain key personnel of acquired entities; | |
| • | failure to maintain the quality of customer service; | |
| • | our inability to achieve the financial and strategic goals for the acquired and combined businesses; and | |
| • | difficulty in maintaining internal controls, procedures and policies. |
Any of the foregoing obstacles, or a combination of them, could
increase selling, general and administrative expenses in
absolute terms
and/or
as a
percentage of net sales, which could in turn negatively impact
our operating results and cash flows.
We may not be able to consummate acquisitions in the future on
terms acceptable to us, or at all. In addition, future
acquisitions are accompanied by the risk that the obligations
and liabilities of an acquired company may not be adequately
reflected in the historical financial statements of that company
and the risk that those historical financial statements may be
based on assumptions which are incorrect or inconsistent with
our assumptions or approach to accounting policies. Any of these
material obligations, liabilities or incorrect or inconsistent
assumptions could adversely impact our results of operations.
A
significant percentage of our employees are unionized. Wage
increases or work stoppages by our unionized employees may
reduce our results of operations.
As of January 1, 2011, approximately 30% of our employees
were represented by various labor unions. As of January 1,
2011, we had 46 collective bargaining agreements, of which 4,
covering approximately 40 total employees, are up for renewal in
2011, and one collective bargaining agreement expired in March
2010. We are in active negotiations with the subject union, and,
in the interim, are operating under the terms and conditions of
the expired agreement. Although we have historically had good
relations with our unionized employees and expect to renew the
collective bargaining agreements that will expire in 2011 and
the collective bargaining agreement that expired in 2010, no
assurances can be provided that we will be able to reach a
timely agreement as to the renewal of the agreements and their
expiration or continued expired status, as applicable, could
result in a work stoppage. In addition, we may become subject to
material cost increases, or additional work rules imposed by
agreements with labor unions. The foregoing could increase our
selling, general and administrative expenses in absolute terms
and/or
as a
percentage of net sales. In addition, work stoppages or other
labor disturbances may occur in the future, which could
adversely impact our net sales
and/or
selling, general and administrative expenses. All of these
factors could negatively impact our operating results and cash
flows.
Increases
in the cost of employee benefits, such as pension and other
postretirement benefits, could impact our financial results and
cash flow.
Unfavorable changes in the cost of our pension retirement
benefits and current employees’ medical benefits could
materially impact our financial results and cash flow. We
sponsor several defined benefit pension plans covering
substantially all of our hourly employees. Our estimates of the
amount and timing of
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Table of Contents
our future funding obligations for our defined benefit pension
plans are based upon various assumptions. These assumptions
include, but are not limited to, the discount rate, projected
return on plan assets, compensation increase rates, mortality
rates, retirement patterns, and turnover rates. In addition, the
amount and timing of our pension funding obligations can be
influenced by funding requirements that are established by the
Employee Retirement Income and Security Act of 1974 (ERISA), the
Pension Protection Act, Congressional Acts, or other governing
bodies. During fiscal 2010, we met our required contribution to
our defined benefit pension plans. As of January 1, 2011,
the net underfunded status of our benefit plan was
$18.8 million. The Company’s minimum required
contribution in 2011 is $4.1 million, $2.8 million of
which will be funded through a pre-funded balance. The
difference will be funded through a $1.3 million cash
contribution. If the status of our defined benefit plan
continues to be underfunded it will require additional future
cash contributions.
We participate in various multi-employer pension plans in the
United States. The majority of these plans are underfunded. If,
in the future, we choose to withdraw from these plans, we likely
would need to record a withdrawal liability, which may be
material to our financial results.
The
payment of dividends has been suspended, and resumption is
dependant on business conditions, among other factors. Further,
the instruments governing our indebtedness contain various
covenants that may limit our ability to pay
dividends.
We suspended the payment of dividends on our common stock for an
indefinite period of time on December 5, 2007. Resumption
of the payment of dividends will depend on, among other things,
business conditions in the housing industry, our results of
operations, cash requirements, financial condition, contractual
restrictions, provisions of applicable law and other factors
that our board of directors may deem relevant. Accordingly, we
may not be able to resume the payment of dividends at the same
quarterly rate in the future, if at all.
Federal
and state transportation regulations could impose substantial
costs on us which would reduce our net income.
We use our own fleet of over 600 trucks and over 1,000 trailers
to service customers throughout the United States. The
U.S. Department of Transportation, or DOT, regulates our
operations in domestic interstate commerce. We are subject to
safety requirements governing interstate operations prescribed
by the DOT. Vehicle dimensions and driver hours of service also
remain subject to both federal and state regulation. More
restrictive limitations on vehicle weight and size, trailer
length and configuration, or driver hours of service would
increase our costs, which, if we are unable to pass these cost
increases on to our customers, will increase our selling,
general and administrative expenses and reduce our operating
results.
Environmental
laws impose risks and costs on us.
Our operations are subject to federal, state, provincial and
local laws, rules and regulations governing the protection of
the environment, including, but not limited to, those regulating
discharges into the air and water, the use, handling and
disposal of hazardous or toxic substances, the management of
wastes, the cleanup of contamination and the control of noise
and odors. We have made, and will continue to make, expenditures
to comply with these requirements. While we believe, based upon
current information, that we are in substantial compliance with
all applicable environmental laws, rules and regulations, we
could be subject to potentially significant fines or penalties
for any failure to comply. Moreover, under certain environmental
laws, a current or previous owner or operator of real property,
and parties that generate or transport hazardous substances that
are disposed of at that real property, may be held liable for
the cost to investigate or clean up such real property and for
related damages to natural resources. We may be subject to
liability, including liability for investigation and cleanup
costs, if contamination is discovered at one of our current or
former warehouse facilities, or at a landfill or other location
where we have disposed of, or arranged for the disposal of,
wastes. Georgia-Pacific has agreed to indemnify us against any
claim arising from environmental conditions that existed prior
to May 7, 2004 in connection with the properties we
acquired when we purchased the assets of the Division from
Georgia-Pacific (see “History” above). We also carry
environmental insurance. However,
13
Table of Contents
any remediation costs either not related to conditions existing
prior to May 7, 2004 or on properties acquired after
May 7, 2004 may not be covered by indemnification. In
addition, certain remediation costs may not be covered by
insurance. We could also be subject to claims brought pursuant
to applicable laws, rules or regulations for property damage or
personal injury resulting from the environmental impact of our
operations. Increasingly stringent environmental requirements,
more aggressive enforcement actions, the discovery of unknown
conditions or the bringing of future claims may cause our
expenditures for environmental matters to increase, and we may
incur material costs associated with these matters.
Affiliates
of Cerberus control us and may have conflicts of interest with
other stockholders in the future.
Funds and accounts managed by Cerberus or its affiliated
management companies, which are referred to collectively as the
controlling stockholder, collectively own approximately 55% of
our common stock. As a result, the controlling stockholder will
continue to be able to control the election of our directors,
determine our corporate and management policies and determine,
without the consent of our other stockholders, the outcome of
any corporate transaction or other matter submitted to our
stockholders for approval, including potential mergers or
acquisitions, asset sales and other significant corporate
transactions. This concentrated ownership position limits other
stockholders’ ability to influence corporate matters and,
as a result, we may take actions that some of our stockholders
do not view as beneficial.
Five of our ten directors are, or recently were, employees of or
advisors to Cerberus. The controlling stockholder also has
sufficient voting power to amend our organizational documents.
The interests of the controlling stockholder may not coincide
with the interests of other holders of our common stock.
Additionally, the controlling stockholder is in the business of
making investments in companies and may, from time to time,
acquire and hold interests in businesses that compete directly
or indirectly with us. The controlling stockholder may also
pursue, for its own account, acquisition opportunities that may
be complementary to our business, and as a result, those
acquisition opportunities may not be available to us. So long as
the controlling stockholder continues to own a significant
amount of the outstanding shares of our common stock, it will
continue to be able to strongly influence or effectively control
our decisions, including potential mergers or acquisitions,
asset sales and other significant corporate transactions. In
addition, because we are a controlled company within the meaning
of the New York Stock Exchange rules, we are exempt from the
NYSE requirements that our board be composed of a majority of
independent directors, that our compensation committee be
composed entirely of independent directors, and that we maintain
a nominating/corporate governance committee composed entirely of
independent directors.
Even
if Cerberus no longer controls us in the future, certain
provisions of our charter documents and agreements and Delaware
law could discourage, delay or prevent a merger or acquisition
at a premium price.
Our Amended and Restated Certificate of Incorporation and Bylaws
contain provisions that:
| • | permit us to issue, without any further vote or action by the stockholders, up to 30 million shares of preferred stock in one or more series and, with respect to each series, to fix the number of shares constituting the series and the designation of the series, the voting powers (if any) of the shares of such series, and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series; and | |
| • | limit the stockholders’ ability to call special meetings. |
These provisions may discourage, delay or prevent a merger or
acquisition at a premium price.
In addition, we are subject to Section 203 of the General
Corporation Law of the State of Delaware, or the DGCL, which
also imposes certain restrictions on mergers and other business
combinations between us and any holder of 15% or more of our
common stock. Further, certain of our incentive plans provide
for vesting of stock options
and/or
payments to be made to our employees in connection with a change
of control, which could discourage, delay or prevent a merger or
acquisition at a premium price.
14
Table of Contents
We may
incur substantial costs relating to Georgia-Pacific’s
product liability related claims.
Georgia-Pacific is a defendant in suits brought in various
courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to products
containing asbestos. These suits allege a variety of lung and
other diseases based on alleged exposure to products previously
manufactured by Georgia-Pacific. Although the terms of the asset
purchase agreement provide that Georgia-Pacific will indemnify
us against all obligations and liabilities arising out of,
relating to or otherwise in any way in respect of any product
liability claims (including, without limitation, claims,
obligations or liabilities relating to the presence or alleged
presence of asbestos-containing materials) with respect to
products purchased, sold, marketed, stored, delivered,
distributed or transported by Georgia-Pacific and its
affiliates, including the Division prior to the acquisition, it
could be possible that circumstances may arise under which
asbestos-related claims against Georgia-Pacific could cause us
to incur substantial costs.
For example, in the event that Georgia-Pacific is financially
unable to respond to an asbestos product liability claim,
plaintiffs’ lawyers may, in order to obtain recovery,
attempt to sue us, in our capacity as owner of assets sold by
Georgia-Pacific, despite the fact that the assets sold to us did
not contain asbestos. Asbestos litigation has, over the years,
proved unpredictable, as the aggressive and well-financed
asbestos plaintiffs’ bar has been creative, and often
successful, in bringing claims based on novel legal theories and
on expansive interpretations of existing legal theories. These
claims have included claims against companies that did not
manufacture asbestos products. As a result of these factors, a
number of companies have been held liable for amounts far in
excess of their perceived exposure. Although we believe, based
on our understanding of the law as currently interpreted, that
we should not be held liable for any of Georgia-Pacific’s
asbestos-related claims, and, to the contrary, that we would
prevail on summary judgment on any such claims, there is
nevertheless a possibility that new theories could be developed,
or that the application of existing theories could be expanded,
in a manner that would result in liability for us. Any such
liability ultimately could be borne by us if Georgia-Pacific is
unable to fulfill its indemnity obligation under the asset
purchase agreement with us.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
None.
| ITEM 2. | PROPERTIES. |
We operate warehouse facilities serving over 65 markets
nationwide. We own 57 warehouse facilities and lease 5
additional warehouse facilities. The total square footage under
roof at our owned and leased warehouses is approximately
10 million square feet. Our Denver sales center and 55 of
our owned warehouse facilities secure our mortgage loan.
Our corporate headquarters located at 4300 Wildwood Parkway,
Atlanta, Georgia 30339 is approximately 250,000 square
feet. During the fourth quarter of fiscal 2007, as part of a
restructuring effort, we vacated approximately
100,000 square feet of our corporate headquarters space
which we are actively seeking to sublease.
The following table summarizes our real estate facilities
including their inside square footage:
|
Owned
|
Leased
|
|||||||||||
|
Facility Type
|
Number | Facilities (ft (2) ) | Facilities (ft (2) ) | |||||||||
|
Office Space(1)
|
3 | 68,721 | 251,885 | |||||||||
|
Warehouses
|
62 | 9,897,530 | 399,875 | |||||||||
|
TOTAL
|
65 | 9,966,251 | 651,760 | |||||||||
| (1) | Includes corporate headquarters in Atlanta, the Denver Sales Center and a call center in Vancouver. We are actively marketing 100,000 square feet for sublease at our Atlanta corporate headquarters. |
15
Table of Contents
We also store materials outdoors, such as lumber and rebar, at
all of our warehouse locations, which increases their
distribution and storage capacity. We believe that substantially
all of our property and equipment is in good condition, subject
to normal wear and tear. We believe that our facilities have
sufficient capacity to meet current and projected distribution
needs.
| ITEM 3. | LEGAL PROCEEDINGS. |
BlueLinx, its directors, and Cerberus ABP Investor LLC
(“CAI”) were named as defendants in the following
putative shareholder class actions filed in the Superior Courts
of Fulton and Cobb Counties, Georgia, the United States District
Court for the Northern District of Georgia, the Chancery Court
for the State of Delaware, and the Supreme Court of the State of
New York in connection with the proposed tender offer announced
by CAI on July 21, 2010 and commenced by CAI on
August 2, 2010:
Habiniak, et al. v. Cohen, et
al.
, Fulton County Superior Court, Georgia, filed
July 23, 2010, voluntarily dismissed August 11, 2010;
Hindermann, et al. v. BlueLinx Holdings Inc.
,
et
al.
, Cobb County Superior Court, Georgia, filed
July 27, 2010, dismissed December 14, 2010;
Markich, et al v. BlueLinx Holdings, Inc., et
al.
, Cobb County Superior Court, Georgia, filed
July 30, 2010, dismissed December 14, 2010;
Jerszynski v. BlueLinx Holdings, Inc., et al.
, Cobb
County Superior Court, Georgia, filed August 3, 2010,
dismissed December 14, 2010;
Winter v. Cerberus ABP
Investor LLC
, Cobb County Superior Court, Georgia, filed
August 4, 2010, dismissed December 14, 2010;
Stadium Capital Qualified Partners, LP, et al. v.
Cerberus ABP Investor LLC, etc al.
, Delaware Chancery Court,
filed August 10, 2010, voluntarily dismissed
October 20, 2010;
Habiniak, et al. v. Cohen, et
al.
, Delaware Chancery Court, filed August 13, 2010,
voluntarily dismissed February 10, 2011;
Lang
et al v. Cohen, et al.,
Delaware Chancery Court,
filed August 13, 2010;
Kajaria, et al. v. Cohen, et
al.,
U.S. District Court, Northern District of Georgia,
filed September 30, 2010; and
Centonze, et al. v.
Judd, et al.,
Supreme Court of New York, New York County,
filed on October 4, 2010. Certain of the complaints also
name Cerberus Capital Management L.P. as a defendant. The
complaints sought to enjoin the proposed tender offer, alleging
that the Company’s directors and CAI breached their
fiduciary duties by, among other things, failing to make certain
disclosures and maximize the value to be received by our
stockholders. The complaints also asserted claims of aiding and
abetting breach of fiduciary duty. In addition to an order
enjoining the transaction, the complaints variously sought,
among other things: additional disclosures regarding the
proposed transaction; imposition of a constructive trust in
favor of plaintiffs for any improper benefits received by
defendants; rescission of the transaction, if consummated, or an
award to plaintiffs of rescissory damages; and attorneys’
fees and expenses. In light of the expiration of the tender
offer, we believe that these complaints are now moot.
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. We establish reserves for
pending or threatened proceedings when the costs associated with
such proceedings become probable and can be reasonably estimated.
16
Table of Contents
| ITEM 4. | RESERVED. |
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Our equity securities consist of one class of common stock. The
common stock began trading on December 16, 2004. The common
stock is traded on the New York Stock Exchange under the symbol
“BXC”. The following table sets forth, for the periods
indicated, the range of the high and low sales prices for the
common stock as quoted on the New York Stock Exchange:
| High | Low | |||||||
|
Fiscal Year Ended January 1, 2011
|
||||||||
|
First Quarter
|
$ | 4.11 | $ | 2.51 | ||||
|
Second Quarter
|
$ | 6.32 | $ | 2.30 | ||||
|
Third Quarter
|
$ | 4.10 | $ | 2.24 | ||||
|
Fourth Quarter
|
$ | 4.00 | $ | 2.94 | ||||
|
Fiscal Year Ended January 2, 2010
|
||||||||
|
First Quarter
|
$ | 3.30 | $ | 1.20 | ||||
|
Second Quarter
|
$ | 4.60 | $ | 2.25 | ||||
|
Third Quarter
|
$ | 5.93 | $ | 2.96 | ||||
|
Fourth Quarter
|
$ | 4.12 | $ | 2.60 | ||||
As of February 25, 2011, there were 47 registered
stockholders, and, as of that date we estimate there were
approximately 2,500 beneficial owners holding our common stock
in nominee or “street” name.
In December 2007, we suspended the payment of dividends on our
common stock for an indefinite period of time. Resumption of the
payment of dividends will depend on, among other things,
business conditions in the housing industry, our results of
operations, cash requirements, financial condition, contractual
restrictions, provisions of applicable law and other factors
that our board of directors may deem relevant. See
“Item 8. Financial Statements and Supplementary Data,
Note 10. Revolving Credit Facility” for additional
information regarding limitations on the ability of BlueLinx
Corporation to transfer funds to its parent, BlueLinx Holdings
Inc., which could impact our ability to pay dividends to our
stockholders. Accordingly, we may not be able to resume the
payment of dividends at the same quarterly rate in the future,
if at all.
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Table of Contents
Equity
Compensation Plan Information
The following table provides information about the shares of our
common stock that may be issued upon the exercise of options and
other awards under our existing equity compensation plans as of
January 1, 2011. Our stockholder-approved equity
compensation plans are the 2004 Equity Incentive Plan and the
2006 Long-Term Equity Incentive Plan. We do not have any
non-stockholder approved equity compensation plans.
| (a) | (b) | (c) | ||||||||||
|
Number of Securities
|
Weighted-Average
|
Number of Securities Remaining
|
||||||||||
|
to be Issued Upon
|
Exercise Price of
|
Available for Future Issuance Under
|
||||||||||
|
Exercise of
|
Outstanding
|
Equity Compensation Plans
|
||||||||||
|
Outstanding Options,
|
Options, Warrants
|
(Excluding Securities Reflected in
|
||||||||||
|
Plan Category
|
Warrants and Rights | and Rights | Column (a)) | |||||||||
|
Equity compensation plans approved by security holders
|
924,815 | $ | 6.31 | 1,227,666 | ||||||||
|
Equity compensation plans not approved by security holders
|
— | n/a | — | |||||||||
|
Total
|
924,815 | $ | 6.31 | 1,227,666 | ||||||||
18
Table of Contents
Performance
Graph
The chart below compares the quarterly percentage change in the
cumulative total stockholder return on our common stock with the
cumulative total return on the Russell 2000 Index and a peer
group index for the period commencing December 31, 2005 and
ending January 1, 2011, assuming an investment of $100 and
the reinvestment of any dividends.
Our peer group index was selected by us and is comprised of
reporting companies with lines of business and product offerings
that are comparable to ours and which we believe most accurately
represent our business. Our peer group consists of the following
companies: Beacon Roofing Supply Inc., Builders Firstsource,
Building Materials Holding Corporation (through January 4,
2010), Huttig Building Products Inc., Interline Brands Inc.,
Universal Forest Products Inc. and Watsco Inc.
Comparison
of Cumulative Total Return
Cumulative
Total Return
Years Ending
Years Ending
|
Base Period
|
||||||||||||||||||||||||||||||
| Company Name/Index | 12/31/05 | 12/30/06 | 12/29/07 | 01/03/09 | 01/02/10 | 01/01/11 | ||||||||||||||||||||||||
|
BlueLinx Holdings Inc.
|
100 | 96.44 | 40.04 | 25.58 | 28.22 | 37.29 | ||||||||||||||||||||||||
|
Russell 2000 Index
|
100 | 118.37 | 117.38 | 78.72 | 98.84 | 125.39 | ||||||||||||||||||||||||
|
Peer Group
|
100 | 84.45 | 52.10 | 44.34 | 59.85 | 72.43 | ||||||||||||||||||||||||
Issuer
Purchases of Equity Securities
On December 22, 2008, our Board approved a stock repurchase
program to acquire up to $10,000,000 of our outstanding common
stock through December 22, 2010. The share repurchases were
made from time to time at our discretion in the open market or
privately negotiated transactions as permitted by securities
laws
19
Table of Contents
and other legal requirements, and subject to market conditions
and other factors. The Board was able to modify, suspend, extend
or terminate the program at any time. A total of
971,376 shares were purchased pursuant to the program. No
share repurchases were made during our fourth quarter ended
January 1, 2011.
| ITEM 6. | SELECTED FINANCIAL DATA. |
The following table sets forth certain historical financial data
of our Company. The selected financial data for the fiscal years
ended January 1, 2011, January 2, 2010,
January 3, 2009, December 29, 2007 and
December 30, 2006 have been derived from our audited
financial statements included elsewhere in this Annual Report on
Form 10-K
or from prior financial statements. The following information
should be read in conjunction with our financial statements and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
|
Year Ended
|
Year Ended
|
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||||||||
|
January 1,
|
January 2,
|
January 3,
|
December 29,
|
December 30,
|
||||||||||||||||
| 2011 | 2010 | 2009 | 2007 | 2006 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
|
Statements of Operations Data:
|
||||||||||||||||||||
|
Net sales
|
$ | 1,804,418 | $ | 1,646,108 | $ | 2,779,699 | $ | 3,833,910 | $ | 4,899,383 | ||||||||||
|
Cost of sales
|
1,593,745 | 1,452,947 | 2,464,766 | 3,441,964 | 4,419,576 | |||||||||||||||
|
Gross profit
|
210,673 | 193,161 | 314,933 | 391,946 | 479,807 | |||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Selling, general and administrative
|
221,185 | 210,214 | 303,403 | 372,754 | 381,554 | |||||||||||||||
|
Net gain from terminating the Georgia-Pacific supply agreement
|
— | (17,772 | ) | — | — | — | ||||||||||||||
|
Depreciation and amortization
|
13,365 | 16,984 | 20,519 | 20,924 | 20,724 | |||||||||||||||
|
Total operating expenses
|
234,550 | 209,426 | 323,922 | 393,678 | 402,278 | |||||||||||||||
|
Operating (loss) income
|
(23,877 | ) | (16,265 | ) | (8,989 | ) | (1,732 | ) | 77,529 | |||||||||||
|
Non-operating expenses (income):
|
||||||||||||||||||||
|
Interest expense
|
33,788 | 32,456 | 38,547 | 43,660 | 46,164 | |||||||||||||||
|
Changes associated with the ineffective interest rate swap, net
|
(4,603 | ) | 6,252 | — | — | — | ||||||||||||||
|
Write-off of debt issue costs
|
183 | 1,407 | — | — | 4,864 | |||||||||||||||
|
Other expense (income), net
|
587 | 519 | 601 | (370 | ) | 320 | ||||||||||||||
|
(Loss) income before (benefit from) provision for income taxes
|
(53,832 | ) | (56,899 | ) | (48,137 | ) | (45,022 | ) | 26,181 | |||||||||||
|
(Benefit from) provision for income taxes
|
(589 | ) | 4,564 | (16,434 | ) | (17,077 | ) | 10,349 | ||||||||||||
|
Net (loss) income
|
$ | (53,243 | ) | $ | (61,463 | ) | $ | (31,703 | ) | $ | (27,945 | ) | $ | 15,832 | ||||||
|
Basic weighted average number of common shares outstanding
|
30,688 | 31,017 | 31,083 | 30,848 | 30,618 | |||||||||||||||
|
Basic net (loss) income per share applicable to common stock
|
$ | (1.73 | ) | $ | (1.98 | ) | $ | (1.02 | ) | $ | (0.91 | ) | $ | 0.52 | ||||||
|
Diluted weighted average number of common shares outstanding
|
30,688 | 31,017 | 31,083 | 30,848 | 30,779 | |||||||||||||||
|
Diluted net (loss) income per share applicable to common stock
|
$ | (1.73 | ) | $ | (1.98 | ) | $ | (1.02 | ) | $ | (0.91 | ) | $ | 0.51 | ||||||
|
Dividends declared per share of common stock
|
$ | — | $ | — | $ | — | $ | 0.50 | $ | 0.50 | ||||||||||
20
Table of Contents
|
Year Ended
|
Year Ended
|
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||||||||
|
January 1,
|
January 2,
|
January 3,
|
December 29,
|
December 30,
|
||||||||||||||||
| 2011 | 2010 | 2009 | 2007 | 2006 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
|
Other Financial Data:
|
||||||||||||||||||||
|
Capital expenditures
|
$ | 4,092 | $ | 1,815 | $ | 4,919 | $ | 13,141 | $ | 9,601 | ||||||||||
|
EBITDA(1)
|
(11,099 | ) | 200 | 10,929 | 19,562 | 97,933 | ||||||||||||||
|
Net cash (used in) provided by operating activities
|
(29,909 | ) | (19,853 | ) | 190,390 | 79,842 | 63,204 | |||||||||||||
|
Net cash (used in) provided by investing activities
|
(3,381 | ) | 12,636 | 985 | (9,070 | ) | (18,170 | ) | ||||||||||||
|
Net cash (used in) provided by financing activities
|
18,130 | $ | (113,679 | ) | $ | (56,781 | ) | $ | (82,055 | ) | $ | (42,312 | ) | |||||||
|
Balance Sheet Data (at end of period):
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 14,927 | $ | 29,457 | $ | 150,353 | $ | 15,759 | $ | 27,042 | ||||||||||
|
Working capital
|
236,168 | 247,722 | 320,527 | 448,731 | 520,237 | |||||||||||||||
|
Total assets
|
525,019 | 546,846 | 729,178 | 883,436 | 1,004,362 | |||||||||||||||
|
Total debt(2)
|
382,869 | 341,669 | 444,870 | 478,535 | 532,462 | |||||||||||||||
|
Stockholders’ equity
|
991 | $ | 50,820 | $ | 102,852 | $ | 154,823 | $ | 189,399 | |||||||||||
| (1) | EBITDA is an amount equal to net (loss) income plus interest expense and all interest expense related items (e.g. changes associated with ineffective interest rate swap, write-off of debt issue costs, charges associated with mortgage refinancing), income taxes, and depreciation and amortization. EBITDA is presented herein because we believe it is a useful supplement to cash flow from operations in understanding cash flows generated from operations that are available for debt service (interest and principal payments) and further investment in acquisitions. However, EBITDA is not a presentation made in accordance with U.S. generally accepted accounting principles, (“GAAP”), and is not intended to present a superior measure of the financial condition from those determined under GAAP. EBITDA, as used herein, is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculations. | |
| (2) | Total debt represents long-term debt, including current maturities. |
21
Table of Contents
A reconciliation of net cash (used in) provided by operating
activities, the most directly comparable GAAP measure, to EBITDA
for each of the respective periods indicated is as follows:
|
Year Ended,
|
Year Ended,
|
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||||||||
|
January 1,
|
January 2,
|
January 3,
|
December 29,
|
December 30,
|
||||||||||||||||
| 2011 | 2010 | 2009 | 2007 | 2006 | ||||||||||||||||
|
Net cash (used in) provided by operating activities
|
$ | (29,909 | ) | $ | (19,853 | ) | $ | 190,390 | $ | 79,842 | $ | 63,204 | ||||||||
|
Amortization of debt issue costs
|
(1,963 | ) | (2,459 | ) | (2,479 | ) | (2,431 | ) | (2,628 | ) | ||||||||||
|
Net gain from terminating the Georgia-Pacific supply agreement
|
— | 17,772 | — | — | — | |||||||||||||||
|
Payments from terminating the Georgia-Pacific supply agreement
|
(4,706 | ) | (14,118 | ) | — | — | — | |||||||||||||
|
Vacant property charges, net
|
(53 | ) | (1,222 | ) | (4,441 | ) | (11,037 | ) | — | |||||||||||
|
Deferred income tax benefit (provision)
|
600 | (24,220 | ) | 2,935 | 9,526 | 3,700 | ||||||||||||||
|
Prepayment fees associated with sale of property
|
— | (616 | ) | (1,868 | ) | — | — | |||||||||||||
|
Gain on sale of properties
|
— | 10,397 | 1,936 | — | — | |||||||||||||||
|
Gain from insurance settlement
|
— | — | — | 1,698 | — | |||||||||||||||
|
Share-based compensation
|
(3,978 | ) | (2,922 | ) | (2,614 | ) | (3,500 | ) | (3,137 | ) | ||||||||||
|
Excess tax benefits from share-based arrangements
|
— | — | 81 | 20 | 891 | |||||||||||||||
|
Changes in assets and liabilities
|
(4,289 | ) | 421 | (195,124 | ) | (81,139 | ) | (20,610 | ) | |||||||||||
|
Interest expense
|
33,788 | 32,456 | 38,547 | 43,660 | 46,164 | |||||||||||||||
|
(Benefit from) provision for income taxes
|
(589 | ) | 4,564 | (16,434 | ) | (17,077 | ) | 10,349 | ||||||||||||
|
EBITDA
|
$ | (11,099 | ) | $ | 200 | $ | 10,929 | $ | 19,562 | $ | 97,933 | |||||||||
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion should be read in conjunction with
our consolidated financial statements and related notes and
other financial information appearing elsewhere in this
Form 10-K.
In addition to historical information, the following discussion
and other parts of this
Form 10-K
contain forward-looking information that involves risks and
uncertainties. Our actual results could differ materially from
those anticipated by this forward-looking information due to the
factors discussed under “Risk Factors,”
“Cautionary Statement Concerning Forward-Looking
Statements” and elsewhere in this
Form 10-K.
Overview
Company
Background
BlueLinx is a leading distributor of building products in the
United States. As of January 1, 2011, we distributed
approximately 10,000 products from over 750 suppliers to service
more than 11,500 customers nationwide, including dealers,
industrial manufacturers, manufactured housing producers and
home improvement retailers. We operate our distribution business
from sales centers in Atlanta and Denver, and our network of
approximately 60 distribution centers. We distribute products in
two principal categories: structural products and specialty
products. Structural products include plywood, OSB, rebar and
remesh, lumber and other wood products primarily used for
structural support, walls and flooring in construction projects.
Structural products represented approximately 46% and 44% of our
fiscal 2010 and fiscal 2009 gross sales, respectively.
Specialty products include roofing, insulation, moulding,
engineered wood, vinyl products (used primarily in siding),
22
Table of Contents
outdoor living and metal products (excluding rebar and remesh).
Specialty products accounted for approximately 54% and 56% of
our fiscal 2010 and fiscal 2009 gross sales, respectively.
Industry
Conditions
A number of factors cause our results of operations to fluctuate
from period to period. Many of these factors are seasonal or
cyclical in nature. Conditions in the United States housing
market are at historically low levels. Our operating results are
closely tied to United States housing starts, and therefore
have declined during the past several years. Additionally, the
mortgage markets have experienced substantial disruption due to
a rising number of defaults and historically high levels of
foreclosures. This disruption and the related defaults have
increased the inventory of homes for sale and also have caused
lenders to tighten mortgage qualification criteria which further
reduces demand for new homes. We expect the downturn in new
housing activity will continue to negatively impact our
operating results for the foreseeable future. We continue to
prudently manage our inventories, receivables and spending in
this environment. Along with many forecasters, however, we
believe United States housing demand will improve in the
long term based on population demographics and a variety of
other factors.
Tender
Offer
On July 21, 2010, our Board of Directors (our
“Board”) received notice from our largest stockholder,
Cerberus ABP Investor LLC (“CAI”) that it intended to
make a tender offer for the shares of our stock it does not own
for $3.40 in cash per share. Our Board formed a special
committee (the “Special Committee”) consisting of our
three independent directors, to evaluate the tender offer. The
Special Committee was granted full power and authority to
evaluate the proposal to determine our recommendation to our
stockholders with respect to any tender offer commenced by CAI
and to take any other action it determined to be in our best
interests and the best interests of our stockholders. Completion
of the tender offer was subject to the satisfaction or waiver of
certain conditions, including that as result of the tender
offer, CAI would own 90% of our issued and outstanding shares,
which we refer to as the 90% condition.
On September 22, 2010, CAI and Cerberus increased the
purchase price to be paid in their cash tender offer to $4.00
per share for all our outstanding publicly held shares not owned
by CAI or its affiliates.
On September 27, 2010, the Special Committee unanimously
determined, by all members participating in the deliberations,
that the tender offer was fair, from a financial point of view,
to our stockholders (other than CAI and Cerberus Capital).
Additionally, the Special Committee recommended, on behalf of us
and the Board, that our stockholders accept the tender offer and
tender their shares.
On October 19, 2010
,
CAI announced that the 90%
condition had not been satisfied and, as a result, the tender
offer expired without CAI purchasing any shares.
During fiscal 2010, we incurred charges relating to stock
valuation and legal fees of $3.0 million as a result of the
tender offer. These charges were included in “Selling,
general, and administrative” expenses in our Statements of
Operations.
Supply
Agreement with G-P
On April 27, 2009, we entered into a Modification Agreement
related to our Supply Agreement with G-P. The Modification
Agreement effectively terminated the existing Supply Agreement
with respect to our distribution of G-P plywood, OSB and lumber.
As a result of terminating this agreement, we are no longer
contractually obligated to make minimum purchases of products
from G-P. We continue to distribute a variety of G-P building
products, including engineered lumber, which is covered under a
three-year purchase agreement dated February 12, 2009.
G-P agreed to pay us $18.8 million in exchange for our
agreement to terminate the Supply Agreement one year earlier
than the May 7, 2010 termination date previously agreed
upon. Under the terms of the Modification Agreement, we received
four quarterly cash payments of $4.7 million, which began
on May 1, 2009 and ended on February 1, 2010. As a
result of the termination, we recognized a net gain of
$17.8 million
23
Table of Contents
in 2009, as a reduction to operating expense. The gain was net
of a $1.0 million write-off of an intangible asset
associated with the Supply Agreement. We believe the early
termination of the Supply Agreement contributed to the decline
in our structural panel sales volume during fiscal 2009 and
2010. However, because the majority of these sales are through
the direct sales channel, the lower structural panel sales
volume had an insignificant impact on our gross profit during
these periods. To the extent we are unable to replace these
volumes with structural product from G-P or other suppliers, the
early termination of the Supply Agreement may continue to
negatively impact our sales of structural products which could
impact our net sales and our costs, which in turn could impact
our gross profit, net income, and cash flows.
The three-year purchase agreement for engineered lumber contains
a mechanism for establishing pricing for the products we
purchase under the purchase agreement from G-P. If BlueLinx and
G-P are unable to agree on product pricing in accordance with
this mechanism, we could experience a product shortage unless
and until we obtain a replacement supplier or suppliers. We may
not be able to obtain replacement products on favorable economic
terms, or may not be able to obtain comparable alternative
products. An inability to replace products on favorable economic
terms or with comparable products could adversely impact our net
sales and our costs, which in turn could impact our gross
profit, net income and cash flows.
OSB
Litigation Settlement
Until the third quarter of fiscal 2010, we were a claimant in a
class action lawsuit pending in the United States District
Court for the Eastern District of Pennsylvania alleging that the
following manufacturers of oriented strand board
(“OSB”) conspired in violation of federal antitrust
law to restrict the supply of OSB structural panel products and
raise prices: Louisiana-Pacific Corporation, Weyerhaeuser
Company, Georgia-Pacific LLC (f/k/a Georgia-Pacific
Corporation), Ainsworth Lumber Co. Ltd., Potlatch Corporation,
Norbord Industries Inc., Tolko Industries Ltd., Grant Forest
Products Inc. and Grant Forest Products Sales Inc., and J.M.
Huber Corporation or Huber Engineered Woods LLC (collectively,
the “Defendants”). On September 13, 2010, we
received a cash settlement in the amount of $5.2 million in
satisfaction of our claims under the class action lawsuit. This
$5.2 million was recognized as a gain in “Selling,
general, and administrative” expenses in our Statements of
Operations for fiscal year 2010.
Selected
Factors that Affect our Operating Results
Our operating results are affected by housing starts, mobile
home production, industrial production, repair and remodeling
spending and non-residential construction. We believe a
substantial percentage of our sales are directly related to new
home construction.
Our operating results also are impacted by changes in product
prices. Structural products prices can vary significantly based
on short-term and long-term changes in supply and demand. The
prices of specialty products also can vary from time to time,
although they generally are significantly less variable than
structural products.
24
Table of Contents
The following table sets forth changes in net sales by product
category, sales variances due to changes in unit volume and
dollar and percentage changes in unit volume and price, in each
case for fiscal 2010, fiscal 2009 and fiscal 2008:
Sales
Revenue Variances by Product
| Fiscal 2010 | Fiscal 2009 | Fiscal 2008 | ||||||||||
| (Dollars in millions) | ||||||||||||
|
Sales by Category
|
||||||||||||
|
Structural Products
|
$ | 838 | $ | 738 | $ | 1,422 | ||||||
|
Specialty Products
|
1,005 | 948 | 1,412 | |||||||||
|
Other(1)
|
(39 | ) | (40 | ) | (54 | ) | ||||||
|
Total Sales
|
$ | 1,804 | $ | 1,646 | $ | 2,780 | ||||||
|
Sales Variances
|
||||||||||||
|
Unit Volume $ Change
|
$ | 36 | $ | (1,036 | ) | $ | (1,161 | ) | ||||
|
Price/Other(1)
|
122 | (98 | ) | 107 | ||||||||
|
Total $ Change
|
$ | 158 | $ | (1,134 | ) | $ | (1,054 | ) | ||||
|
Unit Volume % Change
|
2.2 | % | (36.6 | )% | (29.7 | )% | ||||||
|
Price/Other(1)
|
7.4 | % | (4.2 | )% | 2.2 | % | ||||||
|
Total % Change
|
9.6 | % | (40.8 | )% | (27.5 | )% | ||||||
| (1) | “Other” includes unallocated allowances and discounts. |
The following table sets forth changes in gross margin dollars
and percentages by product category, and percentage changes in
unit volume growth by product, in each case for fiscal 2010,
fiscal 2009 and fiscal 2008:
| Fiscal 2010 | Fiscal 2009 | Fiscal 2008 | ||||||||||
| (Dollars in millions) | ||||||||||||
|
Gross Margin $ by Category
|
||||||||||||
|
Structural Products
|
$ | 77 | $ | 73 | $ | 134 | ||||||
|
Specialty Products
|
148 | 132 | 200 | |||||||||
|
Other(1)
|
(14 | ) | (12 | ) | (19 | ) | ||||||
|
Total Gross Margin
|
$ | 211 | $ | 193 | $ | 315 | ||||||
|
Gross Margin % by Category
|
||||||||||||
|
Structural Products
|
9.1 | % | 9.9 | % | 9.4 | % | ||||||
|
Specialty Products
|
14.7 | % | 13.9 | % | 14.2 | % | ||||||
|
Total Gross Margin %
|
11.7 | % | 11.7 | % | 11.3 | % | ||||||
|
Unit Volume Change by Product
|
||||||||||||
|
Structural Products
|
(2.5 | )% | (40.3 | )% | (34.6 | )% | ||||||
|
Specialty Products
|
5.7 | % | (32.8 | )% | (24.0 | )% | ||||||
|
Total Unit Volume Change %
|
2.2 | % | (36.6 | )% | (29.7 | )% | ||||||
| (1) | “Other” includes unallocated allowances and discounts. |
25
Table of Contents
The following table sets forth changes in net sales and gross
margin by channel and percentage changes in gross margin by
channel, in each case for fiscal 2010, fiscal 2009 and fiscal
2008:
| Fiscal 2010 | Fiscal 2009 | Fiscal 2008 | ||||||||||
| (Dollars in millions) | ||||||||||||
|
Sales by Channel
|
||||||||||||
|
Warehouse/Reload
|
$ | 1,429 | $ | 1,251 | $ | 2,044 | ||||||
|
Direct
|
414 | 435 | 790 | |||||||||
|
Other(1)
|
(39 | ) | (40 | ) | (54 | ) | ||||||
|
Total
|
$ | 1,804 | $ | 1,646 | $ | 2,780 | ||||||
|
Gross Margin by Channel
|
||||||||||||
|
Warehouse/Reload
|
$ | 201 | $ | 177 | $ | 284 | ||||||
|
Direct
|
24 | 28 | 50 | |||||||||
|
Other(1)
|
(14 | ) | (12 | ) | (19 | ) | ||||||
|
Total
|
$ | 211 | $ | 193 | $ | 315 | ||||||
|
Gross Margin % by Channel
|
||||||||||||
|
Warehouse/Reload
|
14.1 | % | 14.1 | % | 13.9 | % | ||||||
|
Direct
|
5.8 | % | 6.4 | % | 6.3 | % | ||||||
|
Total
|
11.7 | % | 11.7 | % | 11.3 | % | ||||||
| (1) | “Other” includes unallocated allowances and discounts. |
Fiscal
Year
Our fiscal year is a 52- or 53-week period ending on the
Saturday closest to the end of the calendar year. Fiscal year
2010 and 2009 contained 52 weeks. Fiscal year 2008
contained 53 weeks.
26
Table of Contents
Results
of Operations
Fiscal
2010 Compared to Fiscal 2009
The following table sets forth our results of operations for
fiscal 2010 and fiscal 2009.
|
% of
|
% of
|
|||||||||||||||
|
Net
|
Net
|
|||||||||||||||
| Fiscal 2010 | Sales | Fiscal 2009 | Sales | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Net sales
|
$ | 1,804,418 | 100.0 | % | $ | 1,646,108 | 100.0 | % | ||||||||
|
Gross profit
|
210,673 | 11.7 | % | 193,161 | 11.7 | % | ||||||||||
|
Selling, general and administrative
|
221,185 | 12.3 | % | 210,214 | 12.8 | % | ||||||||||
|
Net gain from terminating the Georgia-Pacific Supply Agreement
|
— | 0 | % | (17,772 | ) | (1.1 | )% | |||||||||
|
Depreciation and amortization
|
13,365 | 0.7 | % | 16,984 | 1.0 | % | ||||||||||
|
Operating loss
|
(23,877 | ) | (1.3 | )% | (16,265 | ) | (1.0 | )% | ||||||||
|
Interest expense, net
|
33,788 | 1.8 | % | 32,456 | 2.0 | % | ||||||||||
|
Changes associated with the ineffective interest rate swap, net
|
(4,603 | ) | (0.3 | )% | 6,252 | 0.4 | % | |||||||||
|
Write-off of debt issue costs
|
183 | 0.0 | % | 1,407 | 0.1 | % | ||||||||||
|
Other expense, net
|
587 | 0.0 | % | 519 | 0.0 | % | ||||||||||
|
Loss before benefit from income taxes
|
(53,832 | ) | (2.9 | )% | (56,899 | ) | (3.5 | )% | ||||||||
|
Provision for (benefit from) provision for income taxes
|
(589 | ) | 0.0 | % | 4,564 | 0.3 | % | |||||||||
|
Net loss
|
$ | (53,243 | ) | (2.9 | )% | $ | (61,463 | ) | (3.7 | )% | ||||||
Net sales.
For the fiscal year ended
January 1, 2011, net sales increased by 9.6%, or
$0.2 billion, to $1.8 billion. Sales during the fiscal
year were positively impacted by a 5.9% increase in housing
starts. New home construction has a significant impact on
our sales. Specialty sales, primarily consisting of roofing,
specialty panels, insulation, moulding, engineered wood
products, vinyl siding, outdoor living and metal products
(excluding rebar and remesh) increased by $0.1 billion or
6% compared to fiscal 2009, due to a 5.7% increase in unit
volume and a 0.3% increase in specialty product prices.
Structural sales, including plywood, OSB, lumber and metal
rebar, increased by $0.1 billion, or 13.6% from a year ago,
as a result of a 16.1% increase in structural product prices
partially offset by a 2.5% decrease in unit volume.
Gross profit.
Gross profit for fiscal 2010 was
$210.7 million, or 11.7% of sales, compared to
$193.2 million, or 11.7% of sales, in fiscal 2009. The
increase in gross profit dollars compared to fiscal 2009 was
driven primarily by an increase in specialty product volumes of
5.7%.
Selling, general and administrative.
Selling,
general and administrative expenses for fiscal 2010 were
$221.2 million, or 12.2% of net sales, compared to
$210.2 million, or 12.8% of net sales, during fiscal 2009.
The increase in selling, general, and administrative expenses is
due to $10.4 million of property sale gains that were
recognized in fiscal 2009, whereas there were no similar gains
in fiscal 2010, coupled with increases in fiscal 2010 fuel
expense and expenses incurred related to the failed tender offer
of $3.5 million and $3.0 million, respectively. These
changes were partially offset by a gain related to the
settlement received on an OSB class action lawsuit in which we
were a claimant and a decrease in bad debt expense of
$5.2 million and $2.9 million, respectively.
Net gain from terminating the Georgia-Pacific Supply
Agreement.
During fiscal 2009, G-P agreed to pay
us $18.8 million in exchange for our agreement to enter
into the Modification Agreement one year earlier than the
previously
agreed-upon
May 7, 2010 termination date of the Supply Agreement. As a
result of the termination, we recognized a net gain of
$17.8 million during fiscal 2009 as a reduction to
operating expense. The gain was net of a $1.0 million
write-off of an intangible asset associated with the Supply
Agreement.
27
Table of Contents
Depreciation and amortization.
Depreciation
and amortization expense was $13.4 million for fiscal 2010,
compared to $17.0 million for fiscal 2009. The
$3.6 million decrease in depreciation and amortization is
primarily related to a portion of our property and equipment
becoming fully depreciated during fiscal 2010 and replenishment
of fixed assets occurring at a slower rate.
Operating loss.
Operating loss for fiscal 2010
was $23.9 million, or 1.3% of sales, compared to an
operating loss of $16.3 million, or 1.0% of sales, for
fiscal 2009, reflecting the $25.1 million increase in
operating expenses offset by a $17.5 million increase in
gross profit.
Interest expense, net.
Interest expense for
fiscal 2010 was $33.8 million compared to
$32.5 million for fiscal 2009. The $1.3 million
increase is due to the $41.2 million increase in debt under
our amended revolving credit facility and the related effect on
interest expense. In fiscal 2010, interest expense related to
our revolving credit facility and mortgage was
$13.3 million and $18.3 million, respectively. In
fiscal 2009, interest expense related to our revolving credit
facility and mortgage was $11.7 million and
$18.4 million (includes a $0.6 million prepayment
penalty), respectively. In addition, interest expense included
$2.1 million and $2.5 million of debt issue cost
amortization for fiscal 2010 and for fiscal 2009, respectively.
Changes associated with the ineffective interest rate swap,
net.
Change associated with the ineffective
interest rate swap recognized for fiscal 2010 was income of
$4.6 million and was comprised of $2.1 million of
expense related to amortization of the accumulated other
comprehensive loss offset by income of $6.7 million related
to fair value changes in the ineffective swap liability.
Write-off of debt issue costs.
During fiscal
2010 and fiscal 2009, we permanently reduced our revolving loan
threshold limit. As a result, we recorded expense of
$0.2 million and $1.4 million, respectively, for the
write-off of deferred financing costs that had been capitalized
associated with the borrowing capacities that were reduced
during these periods.
(Benefit from) provision for income taxes.
Our
effective tax rate was 1.1% and (8.0)% for fiscal 2010 and
fiscal 2009, respectively. The change in our effective tax rate
for fiscal 2010 is largely due to a full valuation allowance
recorded against our benefit related to our 2010 loss and an
allocation of income tax expense to other comprehensive loss
resulting in a benefit to continuing operations. This benefit
was partially offset by gross receipts and other taxes. In
fiscal 2009, we recorded a $29.3 million valuation
allowance charge and other income tax expense items partially
offset by a $20.4 million tax benefit related to 2009
losses that were carried back to offset fiscal 2004 and 2005
income and a $5.6 million allocation of tax expense to
other comprehensive income resulting in a current period tax
benefit to continuing operations.
Net loss.
Net loss for fiscal 2010 was
$53.2 million, compared to $61.5 million for fiscal
2009 as a result of the previous factors.
On a per-share basis, basic and diluted loss applicable to
common stockholders for fiscal 2010 each was $1.73. For fiscal
2009, basic and diluted loss per share each was $1.98.
28
Table of Contents
Fiscal
2009 Compared to Fiscal 2008
The following table sets forth our results of operations for
fiscal 2009 and fiscal 2008.
|
% of
|
% of
|
|||||||||||||||
|
Net
|
Net
|
|||||||||||||||
| Fiscal 2009 | Sales | Fiscal 2008 | Sales | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Net sales
|
$ | 1,646,108 | 100.0 | % | $ | 2,779,699 | 100.0 | % | ||||||||
|
Gross profit
|
193,161 | 11.7 | % | 314,933 | 11.3 | % | ||||||||||
|
Selling, general and administrative
|
210,214 | 12.8 | % | 303,403 | 10.9 | % | ||||||||||
|
Net gain from terminating the Georgia-Pacific Supply Agreement
|
(17,772 | ) | (1.1 | )% | — | 0.0 | % | |||||||||
|
Depreciation and amortization
|
16,984 | 1.0 | % | 20,519 | 0.7 | % | ||||||||||
|
Operating loss
|
(16,265 | ) | (1.0 | )% | (8,989 | ) | (0.3 | )% | ||||||||
|
Interest expense, net
|
32,456 | 2.0 | % | 38,547 | 1.4 | % | ||||||||||
|
Changes associated with the ineffective interest rate swap, net
|
6,252 | 0.4 | % | — | 0.0 | % | ||||||||||
|
Write-off of debt issue costs
|
1,407 | 0.1 | % | — | 0.0 | % | ||||||||||
|
Other expense, net
|
519 | 0.0 | % | 601 | 0.0 | % | ||||||||||
|
Loss before benefit from income taxes
|
(56,899 | ) | (3.5 | )% | (48,137 | ) | (1.7 | )% | ||||||||
|
Provision for (benefit from) income taxes
|
4,564 | 0.3 | % | (16,434 | ) | (0.6 | )% | |||||||||
|
Net loss
|
$ | (61,463 | ) | (3.7 | )% | $ | (31,703 | ) | (1.1 | )% | ||||||
Net sales.
For the fiscal year ended
January 2, 2010, net sales decreased by 40.8%, or
$1.1 billion, to $1.6 billion. Sales during the fiscal
year were negatively impacted by a 38.8% decline in housing
starts. New home construction has a significant impact on our
sales. Specialty sales, primarily consisting of roofing,
specialty panels, insulation, moulding, engineered wood
products, vinyl siding, outdoor living and metal products
(excluding rebar and remesh) decreased by $0.4 billion or
32.9% compared to fiscal 2008, due to a 32.8% decrease in unit
volume and a 0.1% decrease in specialty product prices.
Structural sales, including plywood, OSB, lumber and metal
rebar, decreased by $0.7 billion, or 48.1% from a year ago,
as a result of a 40.3% decrease in unit volume and 7.8% decrease
in structural product prices.
Gross profit.
Gross profit for fiscal 2009 was
$193.2 million, or 11.7% of sales, compared to
$314.9 million, or 11.3% of sales, in fiscal 2008. The
decrease in gross profit dollars compared to fiscal 2008 was
driven primarily by a decrease in specialty and structural
product volumes of 32.9% and 40.3%, respectively, due to the
ongoing slowdown in the housing market. Gross margin percentage
increased by 40 basis points to 11.7% primarily due to an
increase in specialty sales as a proportion of our total sales,
a shift in channel mix, and continued price discipline.
Selling, general and administrative.
Selling,
general and administrative expenses for fiscal 2009 were
$210.2 million, or 12.8% of net sales, compared to
$303.4 million, or 10.9% of net sales, during fiscal 2008.
The decline in selling, general, and administrative expenses
included a $51.8 million decrease in payroll and payroll
related cost due to a decrease in headcount; a $9.6 million
decrease in fuel expense due to a decline in sales volume and
fuel prices; a $10.4 million gain associated with the sale
of certain real properties; and a $21.2 million decrease in
other operating expenses as a result of the sales volume
reduction that resulted in a corresponding reduction in variable
costs.
Net gain from terminating the Georgia-Pacific Supply
Agreement.
During fiscal 2009, G-P agreed to pay
us $18.8 million in exchange for our agreement to enter
into the Modification Agreement one year earlier than the
previously
agreed-upon
May 7, 2010 termination date of the Supply Agreement. As a
result of the termination, we recognized a net gain of
$17.8 million during fiscal 2009 as a reduction to
operating expense. The gain was net of a $1.0 million
write-off of an intangible asset associated with the Supply
Agreement.
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Table of Contents
Depreciation and amortization.
Depreciation
and amortization expense was $17.0 million for fiscal 2009,
compared to $20.5 million for fiscal 2008. The
$3.5 million decrease in depreciation and amortization is
primarily related to a decrease in capital expenditures as a
result of decreased demand coupled with a portion of our
property and equipment becoming fully depreciated during fiscal
2009.
Operating loss.
Operating loss for fiscal 2009
was $16.3 million, or 1.0% of sales, compared to an
operating loss of $9.0 million, or 0.3% of sales, for
fiscal 2008, reflecting the $121.8 million decline in gross
profit that was offset by a $114.5 million decrease in
operating expenses.
Interest expense, net.
Interest expense for
fiscal 2009 was $32.5 million compared to
$38.5 million for fiscal 2008. The $6.1 million
decline is due to the $103.2 million decrease in debt. In
fiscal 2009, interest expense related to our revolving credit
facility and mortgage was $11.0 million and
$19.0 million (includes a $0.6 million prepayment
penalty), respectively. In fiscal 2008, interest expense related
to our revolving credit facility and mortgage was
$14.8 million and $21.2 million (includes a
$1.9 million prepayment penalty), respectively. In
addition, interest expense included $2.5 million of debt
issue cost amortization for both fiscal 2009 and fiscal 2008.
Changes associated with the ineffective interest rate swap,
net.
Changes associated with the ineffective
interest rate swap recognized for fiscal 2009 were
$6.3 million and were comprised of a $9.0 million
charge related to the reduction of our borrowings outstanding
under the revolving credit facility below the interest rate
swap’s notional amount; $2.9 million of amortization
of accumulated other comprehensive loss offset by income of
$5.7 million related to fair value changes since the date
of the reduction of our borrowings at which time we were no
longer in a position to use hedge accounting.
Write-off of debt issue costs.
During fiscal
2009, we permanently reduced our revolving loan threshold limit
from $800.0 million to $500.0 million effective
March 30, 2009. As a result, we recorded expense of
$1.4 million for the write-off of deferred financing costs
that had been capitalized associated with the portion of the
revolver that was reduced in the first quarter of fiscal 2009.
Provision for (benefit from) income taxes.
Our
effective tax rate was (8.0)% and 34.1% for fiscal 2009 and
fiscal 2008, respectively. The change in our effective tax rate
for fiscal 2009 is largely due to a $29.3 million valuation
allowance charge and other income tax expense items partially
offset by a $20.4 million tax benefit related to current
year losses that will be carried back to offset fiscal 2004 and
2005 income and a $5.6 million allocation of tax expense to
other comprehensive income resulting in a current period tax
benefit.
Net loss.
Net loss for fiscal 2009 was
$61.5 million, compared to $31.7 million for fiscal
2008 as a result of the previous factors.
On a per-share basis, basic and diluted loss applicable to
common stockholders for fiscal 2009 were each $1.98. For fiscal
2008, basic and diluted loss per share were each $1.02.
Seasonality
We are exposed to fluctuations in quarterly sales volumes and
expenses due to seasonal factors. These seasonal factors are
common in the building products distribution industry. The first
and fourth quarters are typically our slowest quarters due to
the impact of poor weather on the construction market. Our
second and third quarters are typically our strongest quarters,
reflecting a substantial increase in construction due to more
favorable weather conditions. Our working capital and accounts
receivable and payable generally peak in the third quarter,
while inventory generally peaks in the second quarter in
anticipation of the summer building season.
Liquidity
and Capital Resources
We depend on cash flow from operations and funds available under
our revolving credit facility to finance working capital needs
and capital expenditures. We have approximately
$103.4 million of excess availability under our amended
revolving credit facility as of January 1, 2011. Under our
amended revolving credit facility, we are required to maintain
our excess availability above the greater of $40.0 million
or the amount
30
Table of Contents
equal to 15% of the lesser of the borrowing base, as defined
therein, or $60.0 million (subject to increase to
$75.0 million if we exercise the uncommitted accordion
provision in the amended revolving credit facility in full). If
we fail to maintain this minimum excess availability, the
amended revolving credit facility requires us to
(i) maintain certain financial ratios, which we would not
meet with current operating results, and (ii) limit our
capital expenditures, which would have a negative impact on our
ability to finance working capital needs and capital
expenditures. For additional information regarding our financial
covenants under our revolving credit facility, see the Risk
Factors
“The instruments governing our indebtedness
contain various covenants limiting the discretion of our
management in operating our business”
set forth under
Item 1.A. Risk Factors.
Excess liquidity likely will continue to decrease while our
industry and our company begins its recovery from this historic
housing market downturn, however we believe that the amounts
available from our revolving credit facility and other sources
will be sufficient to fund our routine operations and capital
requirements for the next 12 months. If economic
conditions, especially those related to the housing market, do
not improve, we will need to seek additional sources of capital
to support our operations.
The credit markets have experienced adverse conditions for the
past few years, which may adversely affect our lenders’
ability to fulfill their commitment under our revolving credit
facility. Based on information available to us as of the filing
date of this Annual Report on
Form 10-K,
we have no indications that the financial institutions included
in our revolving credit facility would be unable to fulfill
their commitments.
We may elect to selectively pursue acquisitions. Accordingly,
depending on the nature of the acquisition, we may use cash or
stock, or a combination of both, as acquisition currency. Our
cash requirements may significantly increase and incremental
cash expenditures will be required in connection with the
integration of the acquired company’s business and to pay
fees and expenses in connection with any acquisitions. To the
extent that significant amounts of cash are expended in
connection with acquisitions, our liquidity position may be
adversely impacted. In addition, there can be no assurance that
we will be successful in completing acquisitions in the future.
For a discussion of the risks associated with our acquisition
strategy, see the risk factor “Integrating acquisitions may
be time-consuming and create costs that could reduce our net
income and cash flows
”
set forth under
Item 1A — Risk Factors.
The following tables indicate our working capital and cash flows
for the periods indicated.
|
January 1,
|
January 2,
|
|||||||
| 2011 | 2010 | |||||||
| (Dollars in thousands) | ||||||||
|
Working capital
|
$ | 236,168 | $ | 247,722 | ||||
|
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||
|
January 1,
|
January 2,
|
January 3,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Cash flows (used in) provided by operating activities
|
$ | (29,909 | ) | $ | (19,853 | ) | $ | 190,390 | ||||
|
Cash flows (used in) provided by investing activities
|
(3,381 | ) | 12,636 | 985 | ||||||||
|
Cash flows provided by (used in) financing activities
|
18,130 | (113,679 | ) | (56,781 | ) | |||||||
Working
Capital
Working capital decreased by $11.5 million to
$236.2 million at January 1, 2011 from
$247.7 million at January 2, 2010. The reduction in
working capital reflects a $22.2 million reduction in other
current assets, a $15.2 million decrease in cash, and the
receipt of the last payment related to the termination of the
G-P supply agreement of $4.7 million. The decrease in other
current assets is due to the receipt of our $20.4 million
2009 federal tax refund in fiscal 2010. The decrease in cash is
due to the movement discussed within coupled with our operating
loss adjusted for non-cash items. This reduction is offset by an
increase in inventory of $15.0 million, due to the addition
of a new outdoor living product line and the related build in
inventory, a decrease in accounts payable and bank overdrafts of
$5.9 million. The decrease in, accounts payable and
overdrafts is due to the timing of payments. The remaining
decrease is related to various insignificant changes in other
working capital components.
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Table of Contents
Operating
Activities
During fiscal 2010, cash flows used in operating activities
totaled $29.9 million. The primary driver of cash flow used
in operations was a net loss, as adjusted for non-cash charges
of $38.9 million, an increase in inventory of
$15.1 million due to the addition of a new outdoor living
product line, partially offset by the receipt of our
$20.4 million tax refund in fiscal 2010.
During fiscal 2009, cash flows used in operating activities
totaled $19.9 million. The primary driver of cash flow used
in operations was a net loss, as adjusted for non-cash charges
of $33.6 million and a decrease in accounts payable of
$13.7 million due to a reduction in purchase volume
associated with decreased demand resulting from market
conditions. These cash outflows were offset by a decrease in
inventories of $16.3 million to meet existing demand and a
decrease in accounts receivable of $11.3 million due to an
overall decline in the housing market related to sales volume.
During fiscal 2008, cash flows provided by operating activities
totaled $190.4 million. The primary driver of cash flow
from operations was a decrease in inventories of
$146.4 million to meet existing demand and a decrease in
accounts receivable of $132.5 million due to an overall
decline in the housing market related to sales volume. These
cash inflows were offset by a decrease in accounts payable of
$86.4 million due to a reduction in purchase volume
associated with decreased demand.
Investing
Activities
During fiscal 2010, cash flows used by investing activities
totaled $3.4 million, compared to cash flows provided by
investing activities of $12.6 million in 2009.
During fiscal 2010 and fiscal 2009, our expenditures for
property and equipment were $4.1 million and
$1.8 million, respectively. These expenditures were used
primarily to computer equipment, leasehold improvements, and
certain machinery and equipment. We estimate that capital
expenditures for fiscal 2011 will be approximately
$8 million, which includes approximately $3 million to
purchase the replacement property for Nashville, TN. Our 2011
capital expenditures are anticipated to be paid with borrowings
from our amended revolving credit facility and proceeds from the
sale of our Nashville, TN property.
Proceeds from the disposition of property and equipment were
$0.7 million and $14.5 million during fiscal 2010 and
fiscal 2009, respectively. During fiscal 2009, the proceeds of
$14.5 million included $12.4 million related to the
sale of certain real properties classified as held for sale
assets included in “Other current assets” on our
Consolidated Balance Sheets. Comparable sales of real properties
did not occur during fiscal 2010.
During fiscal 2008, cash flows provided by investing activities
totaled $1.0 million. The primary driver of cash flows used
for investing activities in fiscal 2008 was expenditures for
property and equipment of $4.9 million. The expenditures
for property and equipment were primarily for computer
equipment, leasehold improvements, and underground storage
tanks. Proceeds from the disposition of property totaled
$5.9 million in fiscal 2008. The proceeds of
$5.9 million included $4.7 million of proceeds related
to the sale of certain real properties classified as held for
sale assets included in “Other current assets” on our
Consolidated Balance Sheets.
Financing
Activities
Net cash provided by financing activities was $18.1 million
during fiscal 2010, compared to net cash used of
$113.7 million during fiscal 2009. The net cash provided by
financing activities in fiscal 2010 primarily reflected
additional borrowings on our amended revolving credit facility
of $41.2 million (net of payments made), offset by an
increase in restricted cash related to our mortgage of
$11.2 million.
During fiscal 2009, the net cash used in financing activities
primarily reflected payments on our revolving credit facility of
$100.0 million, principal payments on our mortgage of
$3.2 million, and an increase in restricted cash related to
our mortgage of $10.3 million.
32
Table of Contents
During fiscal 2008, the net cash used in financing activities
primarily reflected payments on our revolving credit facility of
$27.5 million, principal payments on our mortgage of
$6.1 million, prepayment fees associated with principal
payments on our mortgage of $1.9 million, and a decrease in
bank overdrafts of $12.4 million
As of January 1, 2011, we had outstanding borrowings of
$97.2 million and excess availability of
$103.4 million under the terms of our amended revolving
credit facility. We classify the lowest projected balance of the
credit facility over the next twelve months of
$97.2 million as long-term debt. As of January 1, 2011
and January 2, 2010, we had outstanding letters of credit
totaling $5.9 and $6.0 million, respectively, for the
purposes of securing collateral requirements under our interest
rate swap, insurance programs and for guaranteeing payment of
international purchases based on the fulfillment of certain
conditions
On July 7, 2010, we reached an agreement with Wells Fargo
Bank, National Association, successor by merger to Wachovia
Bank, National Association, and the other signatories to our
existing revolving credit facility, dated August 4, 2006,
as amended, to amend the terms thereof. This amendment extends
the date of final maturity of the facility to January 7,
2014 and decreases the maximum availability under the agreement
from $500 million to $400 million. This decrease does
not impact our current available borrowing capacity under the
amended revolving credit facility since the borrowing base,
which is based on eligible accounts receivable and inventory,
currently permits less than $400 million in revolving
credit facility borrowings. This amendment also includes an
additional $100 million uncommitted accordion credit
facility, which will permit us to increase the maximum borrowing
capacity up to $500 million. As a result of reducing our
maximum borrowing capacity from $500 million to
$400 million, we recorded expense of $0.2 million for
the write-off of the existing debt issuance costs associated
with the reduction in borrowing capacity. We incurred
$6.5 million in new debt issuance costs, which we
capitalized and will amortize over the extended debt term to
interest expense.
Under the amended agreement, our revolving credit facility
contains customary negative covenants and restrictions for asset
based loans. Our most significant covenant is a requirement that
we maintain a fixed charge ratio of 1.1 to 1.0 in the event our
excess availability falls below the greater of
$40.0 million or the amount equal to 15% of the lesser of
the borrowing base or $60.0 million (subject to increase to
$75.0 million if we exercise the uncommitted accordion
credit facility in full) (the “Excess Availability
Threshold”). The fixed charge ratio is calculated as EBITDA
over the sum of cash payments for income taxes, interest
expense, cash dividends, principal payments on debt, and capital
expenditures. EBITDA is defined as BlueLinx Corporation’s
net income before interest and tax expense, depreciation and
amortization expense, and other non-cash charges. The fixed
charge ratio requirement only applies to us when excess
availability under our revolving credit facility is less than
the Excess Availability Threshold for three consecutive business
days. As of January 1, 2011 and through the time of the
filing this Annual Report on
Form 10-K,
we were in compliance with all covenants under our revolving
credit facility. We had $103.4 million and
$157.1 million of availability as of January 1, 2011
and January 2, 2010, respectively. Our lowest level of
availability in the last three years was $103.4 million as
of January 1, 2011. We currently do not anticipate our
excess availability in fiscal 2011 will drop below the Excess
Availability Threshold. Should our excess availability fall
below the Excess Availability Threshold for more than three
consecutive business days, however, we would not meet the
required fixed charge ratio with our current operating results.
In addition, we must maintain a springing lock-box arrangement
where customer remittances go directly to a lock-box maintained
by our lenders and then are forwarded to our general bank
accounts. Our outstanding borrowings are not reduced by these
payments unless our excess availability is less than the Excess
Availability Threshold, excluding unrestricted cash, for three
consecutive business days or in the event of default. Our
amended revolving credit facility does not contain a subjective
acceleration clause which would allow our lenders to accelerate
the scheduled maturities of our debt or to cancel our agreement.
During fiscal 2009, we elected to permanently reduce our
revolving loan threshold limit from $800 million to
$500 million. As a result of these actions, we recorded
expense of $1.4 million for the write-off of deferred
financing costs.
33
Table of Contents
On June 12, 2006, we entered into an interest rate swap
agreement, to hedge against interest rate risks related to our
variable rate revolving credit facility. The interest rate swap
has a notional amount of $150.0 million and the terms call
for us to receive interest monthly at a variable rate equal to
the
30-day
LIBOR and to pay interest monthly at a fixed rate of 5.4%. This
interest rate swap was designated as a cash flow hedge.
Through January 9, 2009, the hedge was highly effective in
offsetting changes in expected cash flows. Fluctuations in the
fair value of the ineffective portion, if any, of the cash flow
hedge were reflected in earnings. During fiscal 2009, we reduced
our borrowings under the revolving credit facility by
$100.0 million, which reduced outstanding debt below the
interest rate swap’s notional amount of
$150.0 million, at which point the hedge became ineffective
in offsetting future changes in expected cash flows during the
remaining term of the interest rate swap. We used cash on hand
to pay down this portion of our revolving credit debt during the
first, second, and third quarters of fiscal 2009. As a result,
changes in the fair value of the instrument were recorded
through earnings from the point in time that the revolving
credit facility balance was reduced below the interest rate
swap’s notional amount of $150.0 million, which was during
the first quarter of fiscal 2009.
Changes associated with the ineffective interest rate swap
recognized in the Consolidated Statement of Operations for
fiscal 2010 were approximately $4.6 million of income and
are comprised of amortization of the remaining accumulated other
comprehensive loss over the life of the ineffective swap of
$2.1 million offset by income of $6.7 million related
to fair value changes in the ineffective swap liability. Changes
associated with the ineffective interest rate swap recognized in
the Consolidated Statement of Operations for fiscal 2009 were
approximately $6.3 million and were comprised of a non-cash
$9.0 million pro-rata reduction to accumulated other
comprehensive loss with an offsetting charge to earnings related
to reducing our borrowings outstanding by $100.0 million,
amortization of the remaining accumulated other comprehensive
loss over the life of the ineffective swap of $2.9 million,
and income of $5.7 million related to fair value changes
since the date of the reduction.
The remaining amount of accumulated other comprehensive loss
will be amortized over the remaining 4 month term of the
interest rate swap and recorded as interest expense. Any further
reductions in borrowings under our revolving credit facility
will result in a pro-rata reduction in accumulated other
comprehensive loss at the payment date with a corresponding
charge recorded to interest expense.
The following table presents a reconciliation of the unrealized
losses related to our interest rate swap measured at fair value
in accumulated other comprehensive loss as of January 1,
2011 (in thousands):
|
Balance at January 2, 2010
|
$ | 2,675 | ||
|
Changes associated with ineffective interest rate swap recorded
to interest expense
|
(2,126 | ) | ||
|
Balance at January 1, 2011
|
$ | 549 |
The fair value of our ineffective swap liability at
January 1, 2011 and January 2, 2010 was
$2.2 million and $8.9 million, respectively.
34
Table of Contents
Contractual Commitments.
The following table
represents our contractual commitments associated with our debt
and other obligations disclosed above as of January 1 of each
year set forth below (dollars in millions).
| 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
|
Revolving credit facility
|
$ | — | $ | — | $ | — | $ | 97,200 | $ | — | $ | — | $ | 97,200 | ||||||||||||||
|
Mortgage indebtedness
|
1,190 | 3,054 | 3,309 | 3,529 | 3,763 | 270,825 | 285,670 | |||||||||||||||||||||
|
Interest payments on our revolving credit facility(1)
|
4,665 | 4,374 | 4,374 | 84 | — | — | 13,497 | |||||||||||||||||||||
|
Interest payments on our mortgage(2)
|
18,380 | 18,276 | 18,021 | 17,802 | 17,568 | 10,139 | 100,186 | |||||||||||||||||||||
|
Subtotal
|
24,235 | 25,704 | 25,704 | 118,615 | 21,331 | 280,964 | 496,553 | |||||||||||||||||||||
|
Operating leases(3)
|
6,181 | 5,759 | 5,655 | 5,095 | 4,746 | 13,747 | 41,183 | |||||||||||||||||||||
|
Letters of credit(4)
|
5,935 | — | — | — | — | — | 5,935 | |||||||||||||||||||||
|
Total
|
$ | 36,351 | $ | 31,463 | $ | 31,359 | $ | 123,710 | $ | 26,077 | $ | 294,711 | $ | 543,671 | ||||||||||||||
| (1) | Interest on the revolving credit facility is variable, based on 14-day, one-month, two-month, three-month or six-month LIBOR. The interest rate on the amended revolving credit facility was 4.5% at January 1, 2011. On June 12, 2006, we entered into an interest swap agreement with Goldman Sachs Capital Markets to hedge against interest rate risks on $150 million of our amended revolving credit facility. The terms call for us to pay interest monthly at 5.4%. Interest payments are based on these rates. The final maturity date on our amended revolving credit facility is January 7, 2014. | |
| (2) | Interest payments on the mortgage are based on a fixed rate of 6.35%. | |
| (3) | We lease various facilities and vehicles under non-cancelable operating leases. | |
| (4) | Letters of credit not included above under the credit facilities. |
Purchase orders entered into in the ordinary course of business
are excluded from the above table. Amounts for which we are
liable under purchase orders are reflected on our Consolidated
Balance Sheets (to the extent entered into prior to the end of
the applicable period) as accounts payable and accrued
liabilities.
Critical
Accounting Policies
The preparation of our consolidated financial statements and
related disclosures in conformity with United States
generally accepted accounting principles requires our management
to make judgments and estimates that affect the amounts reported
in our consolidated financial statements and accompanying notes.
Our management believes that we consistently apply these
judgments and estimates and the consolidated financial
statements and accompanying notes fairly represent all periods
presented. However, any differences between these judgments and
estimates and actual results could have a material impact on our
Consolidated Statements of Operations and financial position.
Critical accounting estimates, as defined by the Securities and
Exchange Commission (“SEC”), are those that are most
important to the portrayal of our financial condition and
results of operations and require our management’s most
difficult and subjective judgments and estimates of matters that
are inherently uncertain. Our critical accounting estimates
include those regarding (1) revenue recognition;
(2) allowance for doubtful accounts and related reserves;
(3) inventory valuation; (4) fair value measurements;
(5) impairment of long-lived assets; and (6) income
taxes. Our significant accounting policies are more fully
described in the Notes to the Consolidated Financial Statements.
Revenue
Recognition
We recognize revenue when the following criteria are met:
persuasive evidence of an agreement exists, delivery has
occurred or services have been rendered, our price to the buyer
is fixed and determinable and collectibility is reasonably
assured. Delivery is not considered to have occurred until the
customer takes title and assumes the risks and rewards of
ownership. The timing of revenue recognition is largely
dependent on
35
Table of Contents
shipping terms. Revenue is recorded at the time of shipment for
terms designated as FOB (free on board) shipping point. For
sales transactions designated FOB destination, revenue is
recorded when the product is delivered to the customer’s
delivery site.
All revenues are recorded at gross. The key indicators used to
determine when and how revenue is recorded are as follows:
| • | We are the primary obligor responsible for fulfillment and all other aspects of the customer relationship. | |
| • | Title passes to BlueLinx, and we carry all risk of loss related to warehouse, reload inventory and inventory shipped directly from vendors to our customers. | |
| • | We are responsible for all product returns. | |
| • | We control the selling price for all channels. | |
| • | We select the supplier. | |
| • | We bear all credit risk. |
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 with us.
When the inventory is sold by the customer, we recognize revenue
on a gross basis.
All revenues recognized are net of trade allowances, 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.
Allowance
for Doubtful Accounts and Related Reserves
We evaluate the collectability of accounts receivable based on
numerous factors, including past transaction history with
customers and their creditworthiness. We maintain an allowance
for doubtful accounts for each aging category on our aged trial
balance based on our historical loss experience. This estimate
is periodically adjusted when we become aware of specific
customers’ inability to meet their financial obligations
(e.g., bankruptcy filing or other evidence of liquidity
problems). As we determine that specific balances will
ultimately be uncollectible, we remove them from our aged trial
balance. Additionally, we maintain reserves for cash discounts
that we expect customers to earn as well as expected returns.
Inventory
Valuation
Inventories are carried at the lower of cost or market. The cost
of all inventories is determined by the moving average cost
method. We include all charges directly or indirectly incurred
in bringing inventory to its existing condition and location. We
evaluate our inventory value at the end of each quarter to
ensure that first quality, actively moving inventory, when
viewed by category, is carried at the lower of cost or market.
Additionally, we maintain a reserve for the estimated value
impairment associated with damaged, excess and obsolete
inventory. The damaged, excess and obsolete reserve generally
includes discontinued items or inventory that has turn days in
excess of 270 days, excluding new items during their
product launch.
Fair
Value Measurements
We are exposed to market risks from changes in interest rates,
which may affect our operating results and financial position.
When deemed appropriate, we minimize our risks from interest
rate fluctuations through the use of an interest rate swap. This
derivative financial instrument is used to manage risk and is
not used for trading or speculative purposes. The swap is valued
using a valuation model that has inputs other than quoted market
prices that are both observable and unobservable.
36
Table of Contents
We endeavor to utilize the best available information in
measuring the fair value of the interest rate swap. The interest
rate swap is classified in its entirety based on the lowest
level of input that is significant to the fair value
measurement. To determine fair value of the interest rate swap
we used the discounted estimated future cash flows methodology.
Assumptions critical to our fair value in the period were:
(i) the present value factors used in determining fair
value (ii) projected LIBOR, and (iii) the risk of
counterparty non-performance risk. These and other assumptions
are impacted by economic conditions and expectations of
management. We have determined that the fair value of our
interest rate swap is a level 3 measurement in the fair
value hierarchy as defined in Note 13 of the Consolidated
Financial Statements included in this Annual Report on
Form 10-K.
The level 3 measurement is the risk of counterparty
non-performance on the interest rate swap liability that is not
secured by cash collateral. The affect of counterparty
non-performance was immaterial during fiscal 2009 and 2010.
Impairment
of Long-Lived Assets
Long-lived assets, including property and equipment and
intangible assets with definite useful lives, are reviewed for
possible impairment whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable.
We consider whether there were indicators of potential
impairment on a quarterly basis. Indicators of impairment
include current period losses combined with a history of losses,
management’s decision to exit a facility, reductions in the
fair market value of real properties and changes in other
circumstances that indicate the carrying amount of an asset may
not be recoverable.
Our evaluation of long-lived assets is performed at the lowest
level of identifiable cash flows, which is generally the
individual distribution facility. In the event of indicators of
impairment, the assets of the distribution facility are
evaluated by comparing the facility’s undiscounted cash
flows over the estimated useful life of the asset, which ranges
between 5-40 years, to its carrying value. If the carrying
value is greater than the undiscounted cash flows, an impairment
loss is recognized for the difference between the carrying value
of the asset and the estimated fair market value. Impairment
losses are recorded as a component of “Selling, general and
administrative” expense in the Consolidated Statements of
Operations.
Our estimate of undiscounted cash flows is subject to
assumptions that affect estimated operating income at a
distribution facility level. These assumptions are related to
future sales, margin growth rates, economic conditions, market
competition and inflation. In the event that undiscounted cash
flows does not exceed the carrying value of a facility, our
estimates of fair market value are generally based on market
appraisals and our experience with related market transactions.
We use a two year average of cash flows based on 2010 EBITDA and
2011 projected EBITDA, which includes a small growth factor
assumption, to estimate undiscounted cash flows. These
assumptions used to determine impairment are considered to be
level 3 measurements in the fair value hierarchy as defined
in Note 13 of the Consolidated Financial Statements
included in this Annual Report on
Form 10-K.
We experienced improvement in fiscal 2010 operating income when
compared to fiscal 2009 at the distribution facility. However,
our operating results continue to be negatively impacted by the
ongoing downturn in the housing market. To the extent that
reductions in volume and operating income have resulted in
impairment indicators, in all cases our carrying values continue
to be less than our projected undiscounted cash flows. As such,
we have not identified significant known trends impacting the
fair value of long-lived assets to an extent that would indicate
impairment.
Income
Taxes
As of January 1, 2011, our deferred income tax assets were
$49.3 million with a full valuation allowance. Deferred
income tax assets and income tax benefits are recognized for
temporary differences between amounts recorded for financial
reporting and income tax purposes. In evaluating our ability to
recover our deferred
37
Table of Contents
income tax assets, we considered the four sources of taxable
income that should be considered when determining whether a
valuation allowance is required including (from least to most
subjective):
| • | taxable income in prior carryback years, if carryback is permitted under the tax law; | |
| • | future reversals of existing taxable temporary differences (i.e., offset gross deferred tax assets against gross deferred tax liabilities); | |
| • | tax planning strategies; and | |
| • | future taxable income exclusive of reversing temporary differences and carryforwards. |
In estimating future taxable income, we develop assumptions
including the amount of future state and federal pretax
operating and non-operating income, the reversal of temporary
differences and the implementation of feasible prudent tax
planning strategies. These assumptions require significant
judgment about the forecasts of future taxable income.
Substantial changes in these assumptions could result in changes
in our judgments around our ability to realize future tax
benefit.
Recently
Issued Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (FASB)
issued guidance which will require that the fair value
disclosures required for all financial instruments be included
in interim financial statements. This guidance also requires
entities to disclose the method and significant assumptions used
to estimate the fair value of financial instruments on an
interim and annual basis and to highlight any changes from prior
periods. This guidance was effective for us during the third
quarter of fiscal 2009. The adoption of this guidance did not
have a material impact on our Consolidated Financial Statements.
In May 2009, the FASB issued guidance on subsequent events that
establishes authoritative accounting and disclosure guidance for
recognized and non-recognized subsequent events that occur after
the balance sheet date but before financial statements are
issued. The guidance also requires disclosure of the date
through which an entity has evaluated subsequent events and the
basis for that date. This guidance was effective for us
beginning with our Quarterly Report on
Form 10-Q
for the second quarter and first six months of fiscal 2009, and
was applied prospectively. In February 2010, the FASB issued
guidance which removes the requirement to disclose the date
through which subsequent events were evaluated in both
originally issued and reissued financial statements for
“SEC filers”. We have adopted this amendment, which is
effective immediately.
In July 2009, the FASB established the FASB Accounting Standards
Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with United States GAAP.
The Codification does not change current United
States GAAP, but is intended to simplify user access to all
authoritative United States GAAP by providing all the
authoritative literature related to a particular topic in one
place. The
Form 10-K
beginning in the year ending January 2, 2010 and all
subsequent public filings will reference the Codification as the
sole source of authoritative literature.
In January 2010, the FASB amended fair value measurement
guidance to require a number of additional disclosures regarding
fair value measurement, including the amount of transfers
between Levels 1 and 2 of the fair value hierarchy, the
reasons for transfers in or out of Level 3 of the fair
value hierarchy and activity for recurring Level 3
measures. In addition the amendments clarify certain existing
disclosure requirements related to the level at which fair value
disclosures should be disaggregated, and the requirement to
provide disclosures about valuation techniques and inputs used
in determining the fair value of assets or liabilities
classified as Levels 2 or 3. This guidance is effective for
periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances and settlements in
the rollforward of activity in Level 3 fair value
measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, including interim
periods within those fiscal years. This guidance did not and is
not expected to have a significant impact on our current year
financial statements and disclosures.
In December 2010, the FASB issued guidance which modifies Step 1
of the goodwill impairment test for reporting units with zero or
negative carrying amounts. For those reporting units, an entity
is required to
38
Table of Contents
perform Step 2 of the goodwill impairment test if it is more
likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill
impairment exists, an entity must consider whether there are any
adverse qualitative factors indicating an impairment may exist.
This guidance is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2010. This
guidance is effective for our fiscal year ending
December 31, 2011. We do not have goodwill recorded on the
balance sheet and therefore this guidance does not currently
impact us.
In December 2010, the FASB issued guidance which clarifies that,
when presenting comparative financial statements, SEC
registrants should disclose revenue and earnings of the combined
entity as though the current period business combinations had
occurred as of the beginning of the comparable prior annual
reporting period only. The update also expands the supplemental
pro forma disclosures to include a description of the nature and
amount of material, nonrecurring pro forma adjustments. This
guidance is directly attributable to the business combination
included in the reported pro forma revenue and earnings. This
guidance is effective prospectively for material (either on an
individual or aggregate basis) business combinations entered
into in fiscal years beginning on or after December 15,
2010 with early adoption permitted. This guidance is therefore
effective for acquisitions made after the beginning of our
fiscal year ending December 31, 2011. We expect that this
guidance may impact our disclosures for any future business
combinations, but the effect will depend on acquisitions that
may be made in the future.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
General.
We are exposed to risks such as
changes in interest rates, commodity prices and foreign currency
exchange rates. We employ a variety of practices to manage these
risks including the use of derivative instruments. Derivative
instruments are used only for risk management purposes and not
for speculation or trading, and are not used to address risks
related to foreign currency exchange rates. We record derivative
instruments as assets or liabilities on the balance sheet at
fair value. The following discussion provides additional
information regarding our market risk exposure.
Interest Rates.
Our revolving credit facility
accrues interest based on a floating benchmark rate (the prime
rate or LIBOR rate), plus an applicable margin. A change in
interest rates under the revolving credit facility would have an
impact on our results of operations. However, a change of
100 basis points in the market rate of interest would have
an immaterial impact based on borrowings outstanding at
January 1, 2011. Additionally, to the extent changes in
interest rates impact the housing market, we would be impacted
by such changes.
On June 9, 2006, certain special purpose entities that are
wholly-owned subsidiaries of ours entered into a
$295 million mortgage loan with the German American Capital
Corporation. The mortgage has a term of ten years and a fixed
interest rate of 6.35%. By entering into this fixed rate
mortgage, we insulated ourselves from changes in market interest
rates on a portion of our indebtedness. This mortgage replaced
our previously existing $165 million floating rate
mortgage, which had a 7.4% interest rate when it was terminated.
Foreign Exchange Rates.
Less than 3.0% of our
net sales are denominated in currencies other than the
U.S. dollar, and we do not believe our total exposure to
currency fluctuations to be significant.
Commodity Prices.
We believe that general
inflation did not significantly affect our operating results or
markets in fiscal 2010, fiscal 2009 or fiscal 2008. As discussed
above, our results of operations were both favorably and
unfavorably impacted by increases and decreases in the pricing
of certain commodity-based products. Commodity price
fluctuations have from time to time created cyclicality in our
financial performance and may do so in the future.
39
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
Index to
Financial Statements and Supplemental Data
| Page | ||||
| 41 | ||||
| 42 | ||||
| 44 | ||||
| 45 | ||||
| 46 | ||||
| 47 | ||||
| 48 | ||||
40
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
To the Stockholders of BlueLinx Holdings Inc.:
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended. Our
internal control over financial reporting is designed to provide
reasonable assurance to our management and board of directors
regarding the preparation and fair presentation of published
financial statements.
Our management, including our chief executive officer and our
chief financial officer, does not expect that our internal
controls over financial reporting will prevent all errors and
all fraud. Internal controls, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the internal controls are met. Given the
inherent limitations of internal controls, internal controls
over financial reporting may not prevent or detect all
misstatements or fraud. Therefore, no evaluation of internal
control can provide absolute assurance that all control issues
or instances of fraud will be prevented or detected.
Management assessed the effectiveness of our internal control
over financial reporting as of January 1, 2011. In making
this assessment, management used the criteria established by the
Committee of Sponsoring Organizations of the Treadway Commission
set forth in
Internal Control — Integrated
Framework.
Based on our assessment, our management concluded
that, as of January 1, 2011, our internal control over
financial reporting was effective.
Ernst & Young LLP, an independent registered public
accounting firm that audited our consolidated financial
statements as of and for the year ended January 1, 2011
included in this Annual Report on
Form 10-K,
has issued an attestation report on our internal control over
financial reporting as of January 1, 2011, dated
February 28, 2011.
February 28, 2011
41
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of BlueLinx Holdings
Inc. and subsidiaries
We have audited BlueLinx Holdings Inc. and subsidiaries’
internal control over financial reporting as of January 1,
2011, based on criteria established in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). BlueLinx Holdings Inc. and subsidiaries’
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, BlueLinx Holdings Inc. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of January 1, 2011, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2010 Consolidated Financial Statements of BlueLinx Holdings Inc.
and subsidiaries and our report dated February 28, 2011
expressed an unqualified opinion thereon.
/s/ Ernst &
Young LLP
Atlanta, Georgia
February 28, 2011
42
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
The Board of
Directors and Stockholders of BlueLinx Holdings Inc. and
subsidiaries
We have audited the accompanying consolidated balance sheets of
BlueLinx Holdings Inc. and subsidiaries as of January 1,
2011 and January 2, 2010, and the related consolidated
statements of operations and comprehensive loss,
stockholders’ equity, and cash flows for the fiscal years
ended January 1, 2011, January 2, 2010, and
January 3, 2009. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of BlueLinx Holdings Inc. and subsidiaries at
January 1, 2011 and January 2, 2010, and the
consolidated results of their operations and their cash flows
for the fiscal years ended January 1, 2011, January 2,
2010, and January 3, 2009, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
BlueLinx Holdings Inc. and subsidiaries’ internal control
over financial reporting as of January 1, 2011, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 28, 2011
expressed an unqualified opinion thereon.
/s/ Ernst &
Young LLP
Atlanta, Georgia
February 28, 2011
43
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
|
January 1,
|
January 2,
|
|||||||
| 2011 | 2010 | |||||||
| (In thousands, except share data) | ||||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 14,297 | $ | 29,457 | ||||
|
Receivables, less allowances of $5,715 in fiscal 2010 and $8,387
in fiscal 2009
|
119,202 | 119,347 | ||||||
|
Inventories, net
|
188,250 | 173,185 | ||||||
|
Deferred income tax assets, net
|
143 | — | ||||||
|
Other current assets
|
22,768 | 44,970 | ||||||
|
Total current assets
|
344,660 | 366,959 | ||||||
|
Property and equipment:
|
||||||||
|
Land and improvements
|
52,540 | 52,621 | ||||||
|
Buildings
|
96,720 | 96,145 | ||||||
|
Machinery and equipment
|
70,860 | 69,767 | ||||||
|
Construction in progress
|
2,028 | 791 | ||||||
|
Property and equipment, at cost
|
222,148 | 219,324 | ||||||
|
Accumulated depreciation
|
(92,517 | ) | (82,141 | ) | ||||
|
Property and equipment, net
|
129,631 | 137,183 | ||||||
|
Other non-current assets
|
50,728 | 42,704 | ||||||
|
Total assets
|
$ | 525,019 | $ | 546,846 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 62,827 | $ | 64,618 | ||||
|
Bank overdrafts
|
23,089 | 27,232 | ||||||
|
Accrued compensation
|
4,594 | 4,879 | ||||||
|
Current maturities of long term debt
|
1,190 | — | ||||||
|
Other current liabilities
|
16,792 | 22,508 | ||||||
|
Total current liabilities
|
108,492 | 119,237 | ||||||
|
Non-current liabilities:
|
||||||||
|
Long-term debt
|
381,679 | 341,669 | ||||||
|
Deferred income taxes, net
|
192 | — | ||||||
|
Other non-current liabilities
|
33,665 | 35,120 | ||||||
|
Total liabilities
|
524,028 | 496,026 | ||||||
|
STOCKHOLDERS’ EQUITY
|
||||||||
|
Common Stock, $0.01 par value, 100,000,000 shares
authorized; 32,667,504 and 32,179,253 shares issued and
outstanding at January 1, 2011 and January 2, 2010,
respectively
|
327 | 322 | ||||||
|
Additional
paid-in-capital
|
147,427 | 145,035 | ||||||
|
Accumulated other comprehensive loss
|
(7,358 | ) | (8,375 | ) | ||||
|
Accumulated deficit
|
(139,405 | ) | (86,162 | ) | ||||
|
Total stockholders’ equity
|
991 | 50,820 | ||||||
|
Total liabilities and stockholders’ equity
|
$ | 525,019 | $ | 546,846 | ||||
44
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
COMPREHENSIVE LOSS
|
Fiscal Year
|
Fiscal Year
|
Fiscal Year
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 1,
|
January 2,
|
January 3,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In thousands, except per share data) | ||||||||||||
|
Net sales
|
$ | 1,804,418 | $ | 1,646,108 | $ | 2,779,699 | ||||||
|
Cost of sales
|
1,593,745 | 1,452,947 | 2,464,766 | |||||||||
|
Gross profit
|
210,673 | 193,161 | 314,933 | |||||||||
|
Operating expenses:
|
||||||||||||
|
Selling, general, and administrative
|
221,185 | 210,214 | 303,403 | |||||||||
|
Net gain from terminating the Georgia-Pacific supply agreement
|
— | (17,772 | ) | — | ||||||||
|
Depreciation and amortization
|
13,365 | 16,984 | 20,519 | |||||||||
|
Total operating expenses
|
234,550 | 209,426 | 323,922 | |||||||||
|
Operating loss
|
(23,877 | ) | (16,265 | ) | (8,989 | ) | ||||||
|
Non-operating expenses (income):
|
||||||||||||
|
Interest expense
|
33,788 | 32,456 | 38,547 | |||||||||
|
Changes associated with the ineffective interest rate swap, net
|
(4,603 | ) | 6,252 | — | ||||||||
|
Write-off of debt issue costs
|
183 | 1,407 | — | |||||||||
|
Other expense, net
|
587 | 519 | 601 | |||||||||
|
Loss before (benefit from) provision for income taxes
|
(53,832 | ) | (56,899 | ) | (48,137 | ) | ||||||
|
(Benefit from) provision for income taxes
|
(589 | ) | 4,564 | (16,434 | ) | |||||||
|
Net loss
|
$ | (53,243 | ) | $ | (61,463 | ) | $ | (31,703 | ) | |||
|
Basic and diluted weighted average number of common shares
outstanding
|
30,688 | 31,017 | 31,083 | |||||||||
|
Basic and diluted net loss per share applicable to common shares
outstanding
|
$ | (1.73 | ) | $ | (1.98 | ) | $ | (1.02 | ) | |||
|
Dividends declared per common share
|
$ | — | $ | — | $ | — | ||||||
|
Comprehensive loss:
|
||||||||||||
|
Net loss
|
$ | (53,243 | ) | $ | (61,463 | ) | $ | (31,703 | ) | |||
|
Other comprehensive (loss):
|
||||||||||||
|
Foreign currency translation, net of taxes
|
336 | 1,173 | (2,598 | ) | ||||||||
|
Unrealized net (loss) gain from pension plan, net of taxes
|
(616 | ) | 941 | (15,997 | ) | |||||||
|
Unrealized gain (loss) from ineffective interest rate swap, net
of taxes
|
1,297 | 6,431 | (3,751 | ) | ||||||||
|
Comprehensive loss
|
$ | (52,226 | ) | $ | (52,918 | ) | $ | (54,049 | ) | |||
45
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
|
Fiscal Year
|
Fiscal Year
|
Fiscal Year
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 1,
|
January 2,
|
January 3,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In thousands) | ||||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net loss
|
$ | (53,243 | ) | $ | (61,463 | ) | $ | (31,703 | ) | |||
|
Adjustments to reconcile net loss to cash (used in) provided by
operations:
|
||||||||||||
|
Depreciation and amortization
|
13,365 | 16,984 | 20,519 | |||||||||
|
Amortization of debt issue costs
|
1,963 | 2,459 | 2,479 | |||||||||
|
Net gain from terminating the Georgia- Pacific Supply Agreement
|
— | (17,772 | ) | — | ||||||||
|
Payments from terminating the Georgia-Pacific Supply
|
||||||||||||
|
Agreement
|
4,706 | 14,118 | — | |||||||||
|
Gain from sale of properties
|
— | (10,397 | ) | (1,936 | ) | |||||||
|
Prepayment fees associated with principal payments on mortgage
|
— | 616 | 1,868 | |||||||||
|
Changes associated with the ineffective interest rate swap, net
|
(4,603 | ) | 6,252 | — | ||||||||
|
Write-off of debt issue costs
|
183 | 1,407 | — | |||||||||
|
Vacant property charges, net
|
53 | 1,222 | 4,441 | |||||||||
|
Deferred income tax (benefit) provision
|
(600 | ) | 24,220 | (2,935 | ) | |||||||
|
Share-based compensation
|
3,978 | 2,922 | 2,614 | |||||||||
|
Excess tax benefits from share-based compensation arrangements
|
— | — | (81 | ) | ||||||||
|
Decrease (increase) in restricted cash related to the
ineffective interest rate swap, insurance, and other
|
6,556 | (2,511 | ) | (6,210 | ) | |||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Receivables
|
145 | 11,306 | 132,523 | |||||||||
|
Inventories
|
(15,065 | ) | 16,297 | 146,405 | ||||||||
|
Accounts payable
|
(1,791 | ) | (13,749 | ) | (86,350 | ) | ||||||
|
Changes in other working capital
|
15,452 | (13,583 | ) | 20,440 | ||||||||
|
Other
|
(1,008 | ) | 1,819 | (11,684 | ) | |||||||
|
Net cash (used in) provided by operating activities
|
(29,909 | ) | (19,853 | ) | 190,390 | |||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Property and equipment investments
|
(4,092 | ) | (1,815 | ) | (4,919 | ) | ||||||
|
Proceeds from disposition of assets
|
711 | 14,451 | 5,904 | |||||||||
|
Net cash (used in) provided by investing activities
|
(3,381 | ) | 12,636 | 985 | ||||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Repurchase of common stock
|
(583 | ) | (2,042 | ) | — | |||||||
|
Proceeds from stock options exercised
|
— | — | 434 | |||||||||
|
Excess tax benefits from share-based compensation arrangements
|
— | — | 81 | |||||||||
|
Increase (decrease) in the revolving credit facility
|
41,200 | (100,000 | ) | (27,535 | ) | |||||||
|
Principal payments on mortgage
|
— | (3,201 | ) | (6,130 | ) | |||||||
|
Prepayment fees associated with principal payments on mortgage
|
— | (616 | ) | (1,868 | ) | |||||||
|
(Decrease) increase in bank overdrafts
|
(4,143 | ) | 2,517 | (12,437 | ) | |||||||
|
Debt financing costs
|
(6,521 | ) | — | (217 | ) | |||||||
|
Increase in restricted cash related to the mortgage
|
(11,201 | ) | (10,296 | ) | (9,119 | ) | ||||||
|
Payments on capital lease obligations
|
(629 | ) | — | — | ||||||||
|
Other
|
7 | (41 | ) | 10 | ||||||||
|
Net cash provided by (used in) financing activities
|
18,130 | (113,679 | ) | (56,781 | ) | |||||||
|
(Decrease) increase in cash
|
(15,160 | ) | (120,896 | ) | 134,594 | |||||||
|
Cash balance, beginning of period
|
29,457 | 150,353 | 15,759 | |||||||||
|
Cash balance, end of period
|
$ | 14,297 | $ | 29,457 | $ | 150,353 | ||||||
|
Supplemental Cash Flow Information
|
||||||||||||
|
Net income tax refunds during the period
|
$ | 19,983 | $ | 10,299 | $ | 22,762 | ||||||
|
Interest paid during the period
|
$ | 31,675 | $ | 28,288 | $ | 36,854 | ||||||
46
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
|
Accumulated
|
Retained
|
|||||||||||||||||||||||
|
Additional
|
Other
|
Earnings
|
||||||||||||||||||||||
| Common Stock |
Paid-In-
|
Comprehensive
|
(Accumulated
|
|||||||||||||||||||||
|
BlueLinx Holdings Inc.
|
Shares | Amount | Capital | Income (Loss) | Deficit) | Totals | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Balance, December 29, 2007
|
31,224 | $ | 312 | $ | 142,081 | $ | 5,426 | $ | 7,004 | $ | 154,823 | |||||||||||||
|
Net loss
|
— | — | — | — | (31,703 | ) | (31,703 | ) | ||||||||||||||||
|
Foreign currency translation adjustment, net of tax
|
— | — | — | (2,598 | ) | — | (2,598 | ) | ||||||||||||||||
|
Unrealized net loss from pension plan, net of tax
|
— | — | — | (15,997 | ) | — | (15,997 | ) | ||||||||||||||||
|
Unrealized loss from cash flow hedge, net of tax
|
— | — | — | (3,751 | ) | — | (3,751 | ) | ||||||||||||||||
|
Proceeds from stock options exercised
|
116 | 1 | 433 | — | — | 434 | ||||||||||||||||||
|
Issuance of restricted stock
|
1,022 | 10 | — | — | — | 10 | ||||||||||||||||||
|
Excess tax benefits from share-based compensation arrangements
|
— | — | 81 | — | — | 81 | ||||||||||||||||||
|
Excess tax deficiencies from share-based compensation
arrangements
|
— | — | (1,061 | ) | — | — | (1,061 | ) | ||||||||||||||||
|
Compensation related to share-based grants
|
— | — | 2,614 | — | — | 2,614 | ||||||||||||||||||
|
Balance, January 3, 2009
|
32,362 | 323 | 144,148 | (16,920 | ) | (24,699 | ) | 102,852 | ||||||||||||||||
|
Net loss
|
— | — | — | — | (61,463 | ) | (61,463 | ) | ||||||||||||||||
|
Foreign currency translation adjustment, net of tax
|
— | — | — | 1,173 | — | 1,173 | ||||||||||||||||||
|
Unrealized gain from pension plan, net of tax
|
— | — | — | 941 | — | 941 | ||||||||||||||||||
|
Unrealized gain from cash flow hedge, net of tax
|
— | — | — | 6,431 | — | 6,431 | ||||||||||||||||||
|
Issuance of restricted stock, net of forfeitures
|
589 | 6 | — | — | — | 6 | ||||||||||||||||||
|
Repurchase of common stock
|
(772 | ) | (7 | ) | (2,035 | ) | — | — | (2,042 | ) | ||||||||||||||
|
Compensation related to share-based grants
|
— | — | 2,922 | — | — | 2,922 | ||||||||||||||||||
|
Balance, January 2, 2010
|
32,179 | 322 | 145,035 | (8,375 | ) | (86,162 | ) | 50,820 | ||||||||||||||||
|
Net loss
|
— | — | — | — | (53,243 | ) | (53,243 | ) | ||||||||||||||||
|
Foreign currency translation adjustment, net of tax
|
— | — | — | 336 | — | 336 | ||||||||||||||||||
|
Unrealized gain from pension plan, net of tax
|
— | — | — | (616 | ) | — | (616 | ) | ||||||||||||||||
|
Unrealized gain from cash flow hedge, net of tax
|
— | — | — | 1,297 | — | 1,297 | ||||||||||||||||||
|
Issuance of restricted stock, net of forfeitures
|
688 | 7 | — | — | — | 7 | ||||||||||||||||||
|
Repurchase of common stock
|
(199 | ) | (2 | ) | (581 | ) | — | — | (583 | ) | ||||||||||||||
|
Compensation related to share-based grants
|
— | — | 3,876 | — | — | 3,876 | ||||||||||||||||||
|
Reclassification of equity awards to liability
|
— | — | (903 | ) | — | — | (903 | ) | ||||||||||||||||
|
Balance, January 1, 2011
|
32,668 | $ | 327 | $ | 147,427 | $ | (7,358 | ) | $ | (139,405 | ) | $ | 991 | |||||||||||
47
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
| 1. | Basis of Presentation and Background |
Basis
of Presentation
BlueLinx Holdings Inc., operating through our wholly-owned
subsidiary, BlueLinx Corporation (BlueLinx Holdings Inc. and its
subsidiaries are collectively referred to as
“BlueLinx” or the “Company”), is a leading
distributor of building products in the United States. We
operate in all of the major metropolitan areas in the United
States and, as of January 1, 2011, we distributed more than
10,000 products to approximately 11,500 customers through our
network of approximately 60 distribution centers. The
Consolidated Financial Statements include our accounts and those
of our wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Our fiscal year
is a 52 or 53-week period ending on the Saturday closest to the
end of the calendar year. Fiscal 2010 and fiscal 2009 each
contained 52 weeks and fiscal 2008 contained 53 weeks.
Nature
of Operations
We are a wholesale supplier of building products in North
America. We distribute products in two principal categories:
structural products and specialty products. Structural products
include plywood, oriented strand board (“OSB”), rebar
and remesh, lumber and other wood products primarily used for
structural support, walls and flooring in construction projects.
Specialty products include roofing, insulation, moulding,
engineered wood, vinyl products (used primarily in siding),
outdoor living and metal products (excluding rebar and remesh).
These products are sold to a diversified customer base,
including independent building materials dealers, industrial and
manufactured housing builders and home improvement centers. Net
sales by product category are summarized below:
|
Fiscal Year
|
Fiscal Year
|
Fiscal Year
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 1,
|
January 2,
|
January 3,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (Dollars in millions) | ||||||||||||
|
Sales by category
|
||||||||||||
|
Structural products
|
$ | 838 | $ | 738 | $ | 1,422 | ||||||
|
Specialty products
|
1,005 | 948 | 1,412 | |||||||||
|
Unallocated allowances and adjustments
|
(39 | ) | (40 | ) | (54 | ) | ||||||
|
Total sales
|
$ | 1,804 | $ | 1,646 | $ | 2,780 | ||||||
Suppliers
As of January 1, 2011, our vendor base included over 750
suppliers of both structural and specialty building products. In
some cases, these products are branded. We have supply contracts
in place with many of our vendors. Terms for these agreements
frequently include prompt payment discounts and freight
allowances and occasionally include volume discounts, growth
incentives, marketing allowances, consigned inventory and
extended payment terms.
On April 27, 2009, we entered into a Termination and
Modification Agreement (“Modification Agreement”)
related to our Master Purchases, Supply, and Distribution
Agreement (the “Supply Agreement”) with
Georgia-Pacific (“G-P”). The Modification Agreement
effectively terminated the existing Supply Agreement with
respect to our distribution of G-P plywood, OSB and lumber. As
of January 3, 2009, prior to entering into the Modification
Agreement, our minimum purchase requirement totaled
$31.9 million. As a result of terminating this agreement,
we are no longer contractually obligated to make minimum
purchases of products from G-P.
48
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We continue to distribute a variety of G-P building products,
including engineered lumber, which is covered under a three-year
purchase agreement dated February 12, 2009. The three-year
purchase agreement for engineered lumber contains a mechanism
for establishing pricing for the products we purchase under the
purchase agreement from G-P. If BlueLinx and G-P are unable to
agree on product pricing in accordance with this mechanism, we
could experience a product shortage unless and until we obtain a
replacement supplier or suppliers. We may not be able to obtain
replacement products on favorable economic terms, or may not be
able to obtain comparable alternative products. An inability to
replace products on favorable economic terms or with comparable
products could adversely impact our net sales and our costs,
which in turn could impact our gross profit, net income and cash
flows.
G-P agreed to pay us $18.8 million in exchange for our
agreement to terminate the Supply Agreement one year earlier
than May 7, 2010, the termination date previously agreed
upon. Under the terms of the Modification Agreement, we received
four quarterly cash payments of $4.7 million, which began
on May 1, 2009 and ended on February 1, 2010. As a
result of the termination, we recognized a net gain of
$17.8 million in 2009, as a reduction to operating expense.
The gain was net of a $1.0 million write-off of an
intangible asset associated with the Supply Agreement. We
believe the early termination of the Supply Agreement
contributed to the decline in our structural panel sales volume
during fiscal 2010 and during the second, third, and fourth
quarters of fiscal 2009. However, because the majority of these
sales are through the direct sales channel, the lower structural
panel sales volume had an insignificant impact on our gross
profit during these periods. To the extent we are unable to
replace these volumes with structural product from G-P or other
suppliers, the early termination of the Supply Agreement may
continue to negatively impact our sales of structural products
which could impact our net sales and our costs, which in turn
could impact our gross profit, net income, and cash flows.
| 2. | Summary of Significant Accounting Policies |
Revenue
Recognition
We recognize revenue when the following criteria are met:
persuasive evidence of an agreement exists, delivery has
occurred or services have been rendered, our price to the buyer
is fixed and determinable and collectibility is reasonably
assured. Delivery is not considered to have occurred until the
customer takes title and assumes the risks and rewards of
ownership. The timing of revenue recognition is largely
dependent on shipping terms. Revenue is recorded at the time of
shipment for terms designated as FOB (free on board) shipping
point. For sales transactions designated FOB destination,
revenue is recorded when the product is delivered to the
customer’s delivery site.
All revenues are recorded at gross. The key indicators used to
determine when and how revenue is recorded are as follows:
| • | We are the primary obligor responsible for fulfillment and all other aspects of the customer relationship. | |
| • | Title passes to BlueLinx and we carry all risk of loss related to warehouse, reload inventory and inventory shipped directly from vendors to our customers. | |
| • | We are responsible for all product returns. | |
| • | We control the selling price for all channels. | |
| • | We select the supplier. | |
| • | We bear all credit risk. |
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
49
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
risk of loss remains with us. When the inventory is sold by the
customer, we recognize revenue on a gross basis.
All revenues recognized are net of trade allowances, 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.
Cash
and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments
with maturity dates of less than three months when purchased.
Restricted
Cash
We had restricted cash of $42.2 million and
$37.5 million at January 1, 2011 and January 2,
2010, respectively. Restricted cash primarily includes amounts
held in escrow related to our interest rate swap, mortgage, and
insurance for workers’ compensation, auto liability, and
general liability. Restricted cash is included in “Other
current assets” and “Other non-current assets” on
the accompanying Consolidated Balance Sheets.
The table below provides the balances of each individual
component in restricted cash as of January 1, 2011 and
January 2, 2010 (in thousands):
|
At January 1,
|
At January 2,
|
|||||||
| 2011 | 2010 | |||||||
|
Cash in escrow:
|
||||||||
|
Mortgage
|
$ | 30,616 | $ | 19,415 | ||||
|
Insurance
|
9,430 | 9,411 | ||||||
|
Interest rate swap
|
— | 6,690 | ||||||
|
Other
|
2,124 | 2,008 | ||||||
|
Total
|
$ | 42,170 | $ | 37,524 | ||||
During fiscal 2009, we determined it to be appropriate to
classify changes in restricted cash required under our mortgage
in the financing section of our Consolidated Statement of Cash
Flows. In order to conform historical presentation to the
current and future presentations, we reclassified
$9.1 million during fiscal 2009 from net cash provided by
operating activities to net cash used in financing activities
for fiscal 2008 in our Consolidated Statement of Cash Flows.
During fiscal 2010 and 2009, changes in restricted cash required
under our mortgage were classified in the financing section of
our Consolidated Statement of Cash Flows.
Concentrations
of Credit Risk
Our accounts receivable are principally from customers in the
building products industry located in the United States and
Canada. Concentration of credit risk with respect to accounts
receivable; however, is limited due to the large number of
customers comprising our customer base.
Allowance
for Doubtful Accounts and Related Reserves
We evaluate the collectibility of accounts receivable based on
numerous factors, including past transaction history with
customers and their creditworthiness. We maintain an allowance
for doubtful accounts for each aging category on our aged trial
balance, which is aged utilizing contractual terms, based on our
historical loss experience. This estimate is periodically
adjusted when we become aware of specific customers’
inability to
50
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
meet their financial obligations (e.g., bankruptcy filing or
other evidence of liquidity problems). As we determine that
specific balances ultimately will be uncollectible, we remove
them from our aged trial balance. Additionally, we maintain
reserves for cash discounts that we expect customers to earn as
well as expected returns. At January 1, 2011 and
January 2, 2010, these reserves totaled $5.7 million
and $8.4 million, respectively. Adjustments to earnings
resulting from revisions to estimates on discounts and
uncollectible accounts have been insignificant.
Inventory
Valuation
Inventories are carried at the lower of cost or market. The cost
of all inventories is determined by the moving average cost
method. We have included all material charges directly or
indirectly incurred in bringing inventory to its existing
condition and location. We evaluate our inventory value at the
end of each quarter to ensure that first quality, actively
moving inventory, when viewed by category, is carried at the
lower of cost or market. At January 1, 2011 and
January 2, 2010, the market value of our inventory exceeded
its cost. Adjustments to earnings resulting from revisions to
lower of cost or market estimates have been insignificant.
Additionally, we maintain a reserve for the estimated value
impairment associated with damaged, excess and obsolete
inventory. The damaged, excess and obsolete reserve generally
includes discontinued items or inventory that has turn days in
excess of 270 days, excluding new items during their
product launch. At January 1, 2011 and January 2,
2010, our damaged, excess and obsolete inventory reserves were
$1.7 million and $2.6 million, respectively.
Adjustments to earnings resulting from revisions to damaged,
excess and obsolete estimates have been insignificant.
Consignment
Inventory
We enter into consignment inventory agreements with vendors.
This vendor consignment inventory relationship allows us to
obtain and store vendor inventory at our warehouses and
third-party (“reload”) facilities; however, ownership
and risk of loss generally remains with the vendor. When the
inventory is sold, we are required to pay the vendor and we
simultaneously take and transfer ownership from the vendor to
the customer.
Consideration
Received from Vendors and Paid to Customers
Each year, we enter into agreements with many of our vendors
providing for inventory purchase rebates, generally based on
achievement of specified volume purchasing levels and various
marketing allowances that are common industry practice. We
accrue for the receipt of vendor rebates based on purchases, and
also reduce inventory value to reflect the net acquisition cost
(purchase price less expected purchase rebates). At
January 1, 2011 and January 2, 2010, the vendor rebate
receivable totaled $8.0 million and $6.1 million,
respectively. Adjustments to earnings resulting from revisions
to rebate estimates have been insignificant.
In addition, we enter into agreements with many of our customers
to offer customer rebates, generally based on achievement of
specified volume sales levels and various marketing allowances
that are common industry practice. We accrue for the payment of
customer rebates based on sales to the customer, and also reduce
sales value to reflect the net sales (sales price less expected
customer rebates). At January 1, 2011 and January 2,
2010, the customer rebate payable totaled $6.4 million and
$5.3 million, respectively. Adjustments to earnings
resulting from revisions to rebate estimates have been
insignificant.
Shipping
and Handling
Amounts billed to customers in sales transactions related to
shipping and handling are classified as revenue. Shipping and
handling costs included in “Selling, general, and
administrative” expenses were $85.5 million,
$84.4 million, and $118.7 million for fiscal 2010,
fiscal 2009, and fiscal 2008, respectively.
51
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Advertising
Costs
Advertising costs are expensed as incurred. Advertising expenses
of $1.8 million, $1.8 million, and $2.5 million
were included in “Selling, general and administrative”
expenses for fiscal 2010, fiscal 2009, fiscal 2008, respectively.
Earnings
per Common Share
We calculate our basic earnings per share by dividing net income
by the weighted average number of common shares and
participating securities outstanding for the period. Restricted
stock granted by us to certain management level employees
participate in dividends on the same basis as common shares and
are non-forfeitable by the holder. The unvested restricted stock
contains non-forfeitable rights to dividends or dividend
equivalents. As a result, these share-based awards meet the
definition of a participating security and are included in the
weighted average number of common shares outstanding, pursuant
to the two-class method, for the periods that present net
income. The two-class method is an earnings allocation formula
that treats a participating security as having rights to
earnings that would otherwise have been available to common
stockholders. Given that the restricted stockholders do not have
a contractual obligation to participate in the losses, we have
not included these amounts in our weighted average number of
common shares outstanding for periods in which we report a net
loss. In addition, because the inclusion of such unvested
restricted shares in our basic and dilutive per share
calculations would be anti-dilutive, we have not included
1,914,288, 1,539,129, and 1,201,288 of unvested restricted
shares that had the right to participate in dividends in our
basic and dilutive calculations for fiscal 2010, fiscal 2009,
and fiscal 2008, respectively, because all periods reflected net
losses.
Except when the effect would be anti-dilutive, the diluted
earnings per share calculation includes the dilutive effect of
the assumed exercise of stock options using the treasury stock
method. During fiscal 2008, we granted 834,071 performance
shares under our 2006 Long-Term Incentive Plan, under which
shares are issuable upon satisfaction of certain performance
criteria. On December 14, 2010, the Compensation Committee
of our Board decided to settle these awards in cash, and we
classified them as liability awards at the time of the
modification. Our restricted stock units are also settled in
cash upon vesting and are considered liability awards.
Therefore, these performance shares and restricted stock units
are not included in the computation of the basic and diluted
earnings per share.
As we experienced losses in all periods, basic and diluted loss
per share are computed by dividing net loss by the weighted
average number of common shares outstanding for the period. For
fiscal 2010, fiscal 2009, and fiscal 2008, we excluded
2,839,103, 2,648,049, and 2,532,109 unvested share-based awards,
respectively, from the diluted earnings per share calculation
because they were anti-dilutive.
Common
Stock Dividends
In the past we have paid dividends on our common stock at the
quarterly rate of $0.125 per share. However, on December 5,
2007, our Board of Directors suspended the payment of dividends
on our common stock for an indefinite period of time. Resumption
of the payment of dividends will depend on, among other things,
business conditions in the housing industry, our results of
operations, cash requirements, financial condition, contractual
restrictions, provisions of applicable law and other factors
that our Board of Directors may deem relevant. Accordingly, we
may not be able to resume the payment of dividends at the same
quarterly rate in the future, if at all.
Property
and Equipment
Property and equipment are recorded at cost. Lease obligations
for which we assume or retain substantially all the property
rights and risks of ownership are capitalized. Replacements of
major units of
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
property are capitalized and the replaced properties are
retired. Replacements of minor components of property and repair
and maintenance costs are charged to expense as incurred.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Useful lives are 2
to 18 years for land improvements, 5 to 40 years for
buildings, and 3 to 7 years for machinery and equipment,
which includes mobile equipment. Upon retirement or disposition
of assets, cost and accumulated depreciation are removed from
the related accounts and any gain or loss is included in income.
Depreciation expense totaled $12.7 million for fiscal 2010,
$15.3 million for fiscal 2009 and $18.0 million for
fiscal 2008.
As of January 1, 2011 and January 2, 2010, the total
amount capitalized for internally developed software was
$5.9 million and $5.8 million, respectively.
Accumulated depreciation related to internally developed
software totaled $4.7 million and $2.8 million at
January 1, 2011 and January 2, 2010, respectively.
Impairment
of Long-Lived Assets
Long-lived assets, including property and equipment and
intangible assets with definite useful lives, are reviewed for
possible impairment whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable.
We consider whether there were indicators of potential
impairment on a quarterly basis. Indicators of impairment
include current period losses combined with a history of losses,
management’s decision to exit a facility, reductions in the
fair market value of real properties and changes in other
circumstances that indicate the carrying amount of an asset may
not be recoverable.
Our evaluation of long-lived assets is performed at the lowest
level of identifiable cash flows, which is generally the
individual distribution facility. In the event of indicators of
impairment, the assets of the distribution facility are
evaluated by comparing the facility’s undiscounted cash
flows over the estimated useful life of the asset, which ranges
between 5-40 years, to its carrying value. If the carrying
value is greater than the undiscounted cash flows, an impairment
loss is recognized for the difference between the carrying value
of the asset and the estimated fair market value. Impairment
losses are recorded as a component of “Selling, general and
administrative” expenses in the Consolidated Statements of
Operations.
Our estimate of undiscounted cash flows is subject to
assumptions that affect estimated operating income at a
distribution facility level. These assumptions are related to
future sales, margin growth rates, economic conditions, market
competition and inflation. In the event that undiscounted cash
flows do not exceed the carrying value of a facility, our
estimates of fair market value are generally based on market
appraisals and our experience with related market transactions.
We use a two year average of cash flows based on 2010 EBITDA and
2011 projected EBITDA, which includes a small growth factor
assumption, to estimate undiscounted cash flows. These
assumptions used to determine impairment are considered to be
level 3 measurements in the fair value hierarchy as defined
in Note 13 of the Consolidated Financial Statements
included in this Annual Report on
Form 10-K.
We experienced improvement in fiscal 2010 operating income when
compared to fiscal 2009 at the distribution facility. However,
our operating results continue to be negatively impacted by the
ongoing downturn in the housing market. To the extent that
reductions in volume and operating income have resulted in
impairment indicators, in all cases our carrying values continue
to be less than our projected undiscounted cash flows. As such,
we have not identified significant known trends impacting the
fair value of long-lived assets to an extent that would indicate
impairment.
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Intangible
Assets with Definite Useful Lives
We have approximately $0.3 million and $0.9 million of
net basis in intangible assets for fiscal 2010 and fiscal 2009,
respectively. This net balance is comprised of
$12.8 million of gross carrying value in both fiscal 2010
and fiscal 2009, partially offset by $12.5 million and
$11.8 million of accumulated amortization in fiscal 2010
and 2009, respectively. The remaining unamortized basis is
comprised of customer relationships in both periods. In
addition, there are fully amortized intangible assets related to
internally developed software, trade names, and non compete
agreements.
Amortization expense for intangible assets was
$0.6 million, $1.6 million, and $2.5 million for
fiscal 2010, fiscal 2009, and fiscal 2008, respectively. During
fiscal 2009, we wrote-off $1.0 million of customer
relationship intangibles related to the termination of the G-P
supply agreement (see Note 1). This charge, related to the
remaining balance of the amount capitalized in connection with
the Supply Agreement, was recorded against the gain on the
termination of the G-P Supply Agreement in “Selling,
general, and administrative” expenses on our Consolidated
Statements of Operations.
Estimated amortization expense is $0.2 million and
$0.1 million for fiscal 2011 and fiscal 2012.
Stock-Based
Compensation
We recognize compensation expense equal to the grant-date fair
value for all share-based payment awards that are expected to
vest. This expense is recorded on a straight-line basis over the
requisite service period of the entire award, unless the awards
are subject to market or performance conditions, in which case
we recognize compensation expense over the requisite service
period of each separate vesting tranche to the extent market and
performance conditions are considered probable. The calculation
of fair value related to stock compensation is subject to
certain assumptions discussed in more detail in Note 7.
Management updates such estimates when circumstances warrant.
All compensation expense related to our share-based payment
awards is recorded in “Selling, general and
administrative” expense in the Consolidated Statements of
Operations.
Stockholders’
Equity
During the fourth quarter of fiscal 2008, our Board of Directors
authorized the Company to repurchase up to $10.0 million of
our common stock over the next two years. Under the terms of the
repurchase program, we were permitted to repurchase shares in
open market purchases or through privately negotiated
transactions. We used cash on hand to fund repurchases of our
common stock. As of January 1, 2011, we had repurchased
1.0 million shares for $2.6 million.
Income
Taxes
Deferred income taxes are provided using the liability method.
Accordingly, deferred income taxes are recognized for
differences between the income tax and financial reporting bases
of our assets and liabilities based on enacted tax laws and tax
rates applicable to the periods in which the differences are
expected to affect taxable income. We recognize a valuation
allowance, when based on the weight of all available evidence,
we believe it is more likely than not that some or all of our
deferred tax assets will not be realized. Such amounts are
disclosed in Note 5.
We generally believe that the positions taken on previously
filed tax returns are more likely than not to be sustained by
the taxing authorities. We have recorded income tax and related
interest liabilities where we believe our position may not be
sustained. Such amounts are disclosed in Note 5.
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Foreign
Currency Translation
The functional currency for our Canadian operations is the
Canadian dollar. The translation of the applicable currencies
into United States dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Any related translation
adjustments are recorded directly in stockholders’ equity.
Foreign currency transaction gains and losses are reflected in
the Consolidated Statements of Operations. Accumulated other
comprehensive loss at January 1, 2011 and January 2,
2010 included the accumulated gain from foreign currency
translation (net of tax) of $1.8 million and
$1.5 million, respectively.
Derivatives
We are exposed to risks such as changes in interest rates,
commodity prices and foreign currency exchange rates. We employ
a variety of practices to manage these risks including the use
of derivative instruments. Derivative instruments are used only
for risk management purposes and not for speculation or trading,
and are not used to address risks related to foreign currency
exchange rates. We record derivative instruments as assets or
liabilities on the balance sheet at fair value.
Compensated
Absences
We accrue for the costs of compensated absences to the extent
that the employee’s right to receive payment relates to
service already rendered, the obligation vests or accumulates,
payment is probable and the amount can be reasonably estimated.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(“GAAP”) requires management to make certain estimates
and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
these estimates and such differences could be material.
New
Accounting Standards
In April 2009, the Financial Accounting Standards Board (FASB)
issued guidance which will require that the fair value
disclosures required for all financial instruments be included
in interim financial statements. This guidance also requires
entities to disclose the method and significant assumptions used
to estimate the fair value of financial instruments on an
interim and annual basis and to highlight any changes from prior
periods. This guidance was effective for us during the third
quarter of fiscal 2009. The adoption of this guidance did not
have a material impact on our Consolidated Financial Statements.
In May 2009, the FASB issued guidance on subsequent events that
establishes authoritative accounting and disclosure guidance for
recognized and non-recognized subsequent events that occur after
the balance sheet date but before financial statements are
issued. The guidance also requires disclosure of the date
through which an entity has evaluated subsequent events and the
basis for that date. This guidance was effective for us
beginning with our Quarterly Report on
Form 10-Q
for the second quarter and first six months of fiscal 2009, and
was applied prospectively. In February 2010, the FASB issued
guidance which removes the requirement to disclose the date
through which subsequent events were evaluated in both
originally issued and reissued financial statements for
“SEC filers”. We have adopted this amendment, which
was effective immediately.
In July 2009, the FASB established the FASB Accounting Standards
Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with U.S. GAAP. The
Codification does not
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
change current U.S. GAAP, but is intended to simplify user
access to all authoritative U.S. GAAP by providing all the
authoritative literature related to a particular topic in one
place. The
Form 10-K
beginning in the year ending January 2, 2010 and all
subsequent public filings reference the Codification as the sole
source of authoritative literature.
In January 2010, the FASB amended fair value measurement
guidance to require a number of additional disclosures regarding
fair value measurement, including the amount of transfers
between Levels 1 and 2 of the fair value hierarchy, the
reasons for transfers in or out of Level 3 of the fair
value hierarchy and activity for recurring Level 3
measures. In addition the amendments clarify certain existing
disclosure requirements related to the level at which fair value
disclosures should be disaggregated, and the requirement to
provide disclosures about valuation techniques and inputs used
in determining the fair value of assets or liabilities
classified as Levels 2 or 3. This guidance is effective for
periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances and settlements in
the rollforward of activity in Level 3 fair value
measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, including interim
periods within those fiscal years. This guidance did not and is
not expected to have a significant impact on our current year
financial statements and disclosures.
In December 2010, the FASB issued guidance which modifies Step 1
of the goodwill impairment test for reporting units with zero or
negative carrying amounts. For those reporting units, an entity
is required to perform Step 2 of the goodwill impairment test if
it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill
impairment exists, an entity must consider whether there are any
adverse qualitative factors indicating an impairment may exist.
This guidance is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2010. This
guidance is therefore effective for our fiscal year ending
December 31, 2011. We expect that this guidance may impact
our disclosures for any future business combinations, but the
effect will depend on acquisitions that may be made in the
future.
In December 2010, the FASB issued guidance which clarifies that,
when presenting comparative financial statements, SEC
registrants should disclose revenue and earnings of the combined
entity as though the current period business combinations had
occurred as of the beginning of the comparable prior annual
reporting period only. The update also expands the supplemental
pro forma disclosures to include a description of the nature and
amount of material, nonrecurring pro forma adjustments. This
guidance is directly attributable to the business combination
included in the reported pro forma revenue and earnings. This
guidance is effective prospectively for material (either on an
individual or aggregate basis) business combinations entered
into in fiscal years beginning on or after December 15,
2010 with early adoption permitted. This guidance is therefore
effective for acquisitions made after the beginning of our
fiscal year ending December 31, 2011. We expect that this
guidance may impact our disclosures for any future business
combinations, but the effect will depend on acquisitions that
may be made in the future.
| 3. | Restructuring Charges |
We account for exit and disposal costs by recognizing a
liability for costs associated with an exit or disposal activity
at fair value in the period in which it is incurred or when the
entity ceases using the right conveyed by a contract (i.e. the
right to use a leased property). Our restructuring charges
included accruals for estimated losses on facility costs based
on our contractual obligations net of estimated sublease income
based on current comparable market rates for leases. We reassess
this liability periodically based on current market conditions.
Revisions to our estimates of this liability could materially
impact our operating results and financial position in future
periods if anticipated events and key assumptions, such as the
timing and amounts of sublease rental income, either do not
materialize or change. These costs are included in
“Selling, general, and administrative” expenses in the
Consolidated Statements of Operations and “Other current
liabilities” and
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
“Other non-current liabilities” on the Consolidated
Balance Sheets for the fiscal years ended and at January 1,
2011 and January 2, 2010.
We account for severance and outplacement costs by recognizing a
liability for employees’ rights to post-employment
benefits. These costs are included in “Selling, general,
and administrative” expenses in the Consolidated Statements
of Operations and in “Accrued compensation” on the
Consolidated Balance Sheets for the fiscal years ended and at
January 1, 2011 and January 2, 2010.
2007
Facility Consolidation and Severance Costs
During fiscal 2007, we announced a plan to adjust our cost
structure in order to manage our costs more effectively. The
plan included the consolidation of our corporate headquarters
and sales center to one building from two buildings and
reduction in force initiatives which resulted in charges of
$17.1 million during the fourth quarter of fiscal 2007.
Since the inception of this plan, we have recorded additional
charges of $0.8 million, and $2.4 million during
fiscal 2009 and fiscal 2008, respectively, due to a modification
of certain sublease income assumptions related to the sublease
of the vacated headquarters’ building. Assumption changes
during fiscal 2010 did not result in material changes. As of
January 1, 2011, January 2, 2010, and January 3,
2009, there was no remaining accrued severance related to
reduction in force initiatives completed in fiscal 2007.
The table below summarizes the balance of accrued facility
consolidation reserve and the changes in the accrual for fiscal
2010 (in thousands):
|
Balance at January 2, 2010
|
$ | 11,755 | ||
|
Assumption changes
|
— | |||
|
Payments
|
(2,142 | ) | ||
|
Accretion of discount used to calculate liability
|
614 | |||
|
Balance at January 1, 2011
|
$ | 10,227 | ||
2008
Facility Consolidation and Severance Costs
During fiscal 2008, our board of directors approved a plan to
exit our custom milling operations in California primarily due
to the impact of unfavorable market conditions on that business.
The closure of the custom milling facilities resulted in
facility consolidation charges of $2.0 million during
fiscal 2008. In addition, we recorded severance and outplacement
costs of $1.0 million in connection with involuntary
terminations at our custom milling facilities and
$4.2 million related to other reduction in force
initiatives. At January 1, 2011 and January 2, 2010,
there was no severance reserve. During fiscal 2010 and fiscal
2009, we modified certain assumptions related to sublease income
and rental payments that resulted in an immaterial reduction to
the reserve.
The table below summarizes the balances of the accrued facility
consolidation and the changes in the accruals for fiscal 2010
(in thousands):
|
Balance at January 2, 2010
|
$ | 645 | ||
|
Assumption changes
|
(40 | ) | ||
|
Payments
|
(787 | ) | ||
|
Sublease income
|
280 | |||
|
Other Changes
|
(26 | ) | ||
|
Balance at January 1, 2011
|
$ | 72 | ||
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
2009
Facility Consolidations and Severance Costs
During fiscal 2009, we exited our BlueLinx Hardwoods facility in
Austin, Texas to improve overall effectiveness and efficiency by
consolidating these operations with our San Antonio and
Houston branches. Our exit of the Austin facility resulted in a
facility consolidation charge of $0.7 million. In addition,
we recorded severance charges related to reduction in force
initiatives of $1.8 million. During fiscal 2010, we
modified certain assumptions related to sublease income and
rental payments that resulted in an immaterial change to the
reserve.
The table below summarizes the balances of the accrued facility
consolidation and severance reserves and the changes in the
accruals for fiscal 2010 (in thousands):
|
Facility
|
Severance
|
|||||||||||
| Consolidation | Costs | Total | ||||||||||
|
Balance at January 2, 2010
|
$ | 571 | $ | 151 | $ | 722 | ||||||
|
Assumption changes
|
92 | — | 92 | |||||||||
|
Payments
|
(177 | ) | (151 | ) | (328 | ) | ||||||
|
Accretion of liability
|
37 | — | 37 | |||||||||
|
Balance at January 1, 2011
|
$ | 523 | $ | — | $ | 523 | ||||||
2010
Facility Consolidations and Severance Costs
During fiscal 2010, we had certain reduction in force
activities, which resulted in severance charges of
$1.1 million.
The table below summarizes the balances of the accrued severance
reserves and the changes in the accruals for fiscal 2010 (in
thousands):
|
Balance at January 2, 2010
|
$ | — | ||
|
Charges
|
1,062 | |||
|
Assumption changes
|
(40 | ) | ||
|
Payments
|
(245 | ) | ||
|
Accretion of liability
|
— | |||
|
Balance at January 1, 2011
|
$ | 777 | ||
| 4. | Assets Held for Sale and Net Gain on Disposition |
As part of our restructuring efforts to improve our cost
structure and cash flow, we closed certain facilities and
designated them as assets held for sale. At the time of
designation, we ceased recognizing depreciation expense on these
assets. As of January 1, 2011 and January 2, 2010,
total assets held for sale were $1.6 million and
$1.6 million respectively, and were included in “Other
current assets” in our Consolidated Balance Sheets. During
fiscal 2009, we sold certain real properties held for sale that
resulted in a $10.4 million gain, respectively, recorded in
“Selling, general, and administrative” expenses in the
Consolidated Statements of Operations. We continue to actively
market the remaining properties that are held for sale. Due to
the fact that, as of January 1, 2011, the remaining
properties are all land, depreciation expense is not impacted.
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 5. | Income Taxes |
Our (benefit from) provision for income taxes consists of the
following:
|
Fiscal Year
|
Fiscal Year
|
Fiscal Year
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 1,
|
January 2,
|
January 3,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In thousands) | ||||||||||||
|
Federal income taxes:
|
||||||||||||
|
Current
|
$ | (637 | ) | $ | (19,800 | ) | $ | (12,736 | ) | |||
|
Deferred
|
(556 | ) | 18,475 | (2,149 | ) | |||||||
|
State income taxes:
|
||||||||||||
|
Current
|
(145 | ) | (263 | ) | (973 | ) | ||||||
|
Deferred
|
(100 | ) | 5,745 | (786 | ) | |||||||
|
Foreign income taxes:
|
||||||||||||
|
Current
|
793 | 407 | 210 | |||||||||
|
Deferred
|
56 | — | — | |||||||||
|
Provision for (benefit from) income taxes
|
$ | (589 | ) | $ | 4,564 | $ | (16,434 | ) | ||||
The federal statutory income tax rate was 35%. Our (benefit
from) provision for income taxes is reconciled to the federal
statutory amount as follows:
|
Fiscal Year
|
Fiscal Year
|
Fiscal Year
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 1,
|
January 2,
|
January 3,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In thousands) | ||||||||||||
|
Benefit from income taxes computed at the federal statutory tax
rate
|
$ | (18,841 | ) | $ | (19,912 | ) | $ | (16,893 | ) | |||
|
Benefit from state income taxes, net of federal benefit
|
(2,153 | ) | (2,276 | ) | (1,706 | ) | ||||||
|
Valuation allowance change
|
18,433 | 25,864 | 1,179 | |||||||||
|
Other
|
1,972 | 888 | 986 | |||||||||
|
(Benefit from) provision for income taxes
|
$ | (589 | ) | $ | 4,564 | $ | (16,434 | ) | ||||
Our income before provision for income taxes for our Canadian
operations was $1.6 million, $1.2 million and
$0.7 million for fiscal 2010, fiscal 2009, and fiscal 2008,
respectively.
For fiscal 2010, we recognized tax benefit of $0.6 million.
The benefit recognized for the year is primarily comprised of
$0.6 million of deferred income tax benefit resulting from
the allocation of income tax expense to other comprehensive
income, $0.7 million of current income tax benefit
resulting from a net operating loss carryback and
$0.8 million of current income tax expense resulting from
foreign income taxes.
For fiscal 2009, we recognized tax expense of $4.6 million.
The expense recognized for the year is comprised of
$20.4 million of federal tax benefit, $5.6 million of
deferred income tax benefit resulting from the allocation of
income tax expense to other comprehensive income offset by
$29.3 million of a tax valuation allowance charge related
to the change in judgment regarding the realizability of our net
deferred tax asset. The $20.4 million federal benefit was
recorded as a result of an enacted change in tax law during the
fourth quarter, which allows us to carryback our current year
federal taxable losses against 2004 and 2005 taxable income.
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In accordance with the intraperiod tax allocation provisions of
U.S. GAAP, we are required to consider all items (including
items recorded in other comprehensive income) in determining the
amount of tax benefit that results from a loss from continuing
operations that should be allocated to continuing operations. As
a result, in addition to our federal income tax benefit, we
recorded a $0.6 million and $5.6 million non-cash tax
benefit on the loss from continuing operations for fiscal 2010
and fiscal 2009, which is offset in full by income tax expense
recorded in other comprehensive income. While the income tax
benefit from continuing operations is reported in our
Consolidated Statements of Operations, the income tax expense on
other comprehensive income is recorded directly to accumulated
other comprehensive loss, which is a component of
stockholders’ equity.
Our financial statements contain certain deferred tax assets
which have arisen primarily as a result of tax benefits
associated with the loss before income taxes incurred during
fiscal 2010 and fiscal 2009, 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 our net deferred tax assets will not be
realized.
In our evaluation of the weight of available evidence, we
considered recent reported losses as negative evidence which
carried substantial weight. Therefore, we considered evidence
related to the four sources of taxable income, to determine
whether such positive evidence outweighed the negative evidence
associated with the losses incurred. The positive evidence
considered included:
| • | taxable income in prior carryback years, if carryback is permitted under the tax law; | |
| • | future reversals of existing taxable temporary differences | |
| • | tax planning strategies; and | |
| • | future taxable income exclusive of reversing temporary differences and carryforwards. |
As of January 3, 2009, we relied on projected cumulative
pretax profit for the three year period ended 2010, which was
substantially driven by projected positive results from
operations in 2010 developed using the housing start forecasts
available at that time and operating expense reductions of 15%
in 2009 and 6% in 2010. We develop housing starts assumptions
using internal data, which is validated using external housing
start forecasts published by third party sources. Our business
is closely tied to housing starts and third party estimates of
housing starts are considered when estimating revenue. At the
end of fiscal 2008 and through early March 2009, housing starts
were projected to be 716,000 for 2009 and 950,000 for 2010.
Additionally, expected gains from the disposal of appreciated
real estate in fiscal 2009 and fiscal 2010 impacted our
projections of cumulative pretax income for the three year
period ended 2010. The fair value of our real estate assets
substantially exceed the carrying value, which resulted in us
being in a unique position with the ability to forecast and
consider such gains in our projection of future income.
Based on the weight of the available positive and negative
evidence at the end of fiscal 2008 and through early March 2009,
we concluded that the evidence relative to potential future
income generated from operations and the sale of appreciated
real estate carried enough weight to overcome the weight of the
negative evidence of losses. Therefore, we concluded that the
federal deferred tax assets recorded as of January 3, 2009
were more likely than not realizable.
With regard to our state deferred tax assets, we considered the
positive evidence associated with tax planning strategies that
could be implemented to avoid the loss of these deferred tax
assets. Considering the weight of this evidence, we recorded tax
benefits in the states where the tax planning strategy was
executable. Therefore, we recorded a valuation allowance of
$1.1 million for those states where we would not be able to
execute the strategy as of the end of fiscal 2008. We also
recorded a valuation allowance for $0.3 million related to
non-deductible excess compensation.
60
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
During the first quarter of fiscal 2009, we evaluated the weight
of available positive and negative evidence relative to changes
in the environment during the first quarter of 2009. In late
March and April, subsequent to the filing of the fiscal 2008
10-K,
we
experienced a substantial drop in revenue compared to
expectations. In addition, due to a combination of tighter
lending standards and deteriorating conditions in residential
construction, negotiations stalled or were terminated for
several of our planned sales of real estate. Also, during the
first quarter, external estimates for fiscal 2009 housing starts
dropped from 716,000 to 616,000.
As such, these changes in our internal assumptions and the
revised external expectations of 2009 housing starts resulted in
a change in our projections from cumulative pretax income to
cumulative pretax loss for the three year period ended 2010,
causing us to conclude that, as of April 4, 2009, the
weight of the positive evidence was no longer sufficient to
overcome the weight of the negative evidence of a three year
cumulative loss, therefore, a full valuation allowance for all
deferred income tax assets was necessary at the end of the first
quarter of fiscal 2009.
During fiscal 2010, we weighed all available positive and
negative evidence and concluded the weight of the negative
evidence of a three year cumulative loss continued to outweigh
the positive evidence. Based on the conclusions reached, we
continued to maintain a full valuation allowance during 2010.
The components of our net deferred income tax assets
(liabilities) are as follows:
|
January 1,
|
January 2,
|
|||||||
| 2011 | 2010 | |||||||
| (In thousands) | ||||||||
|
Deferred income tax assets:
|
||||||||
|
Inventory reserves
|
$ | 3,341 | $ | 3,452 | ||||
|
Compensation-related accruals
|
6,441 | 5,435 | ||||||
|
Accruals and reserves
|
356 | 679 | ||||||
|
Accounts receivable
|
1,341 | 2,045 | ||||||
|
Restructuring costs
|
4,212 | 5,056 | ||||||
|
Derivatives
|
814 | 3,440 | ||||||
|
Pension
|
7,332 | 6,039 | ||||||
|
Benefit from NOL carryovers(1)
|
24,867 | 6,234 | ||||||
|
Other
|
558 | 499 | ||||||
|
Total gross deferred income tax assets
|
49,262 | 32,879 | ||||||
|
Less: Valuation allowances
|
(46,528 | ) | (27,226 | ) | ||||
|
Total net deferred income tax assets
|
$ | 2,734 | $ | 5,653 | ||||
|
Deferred income tax liabilities:
|
||||||||
|
Intangible assets
|
(230 | ) | (87 | ) | ||||
|
Property and equipment
|
(1,695 | ) | (3,979 | ) | ||||
|
Pension
|
— | — | ||||||
|
Other
|
(858 | ) | (1,587 | ) | ||||
|
Total deferred income tax liabilities
|
(2,783 | ) | (5,653 | ) | ||||
|
Deferred income tax assets (liabilities), net
|
$ | (49 | ) | $ | — | |||
| (1) | Our federal and state NOL carryovers will expire over 2 to 20 years. |
61
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Activity in our deferred tax asset valuation allowance for
fiscal 2010 and fiscal 2009 was as follows:
|
Fiscal Year
|
Fiscal Year
|
|||||||
|
Ended
|
Ended
|
|||||||
|
January 1,
|
January 2,
|
|||||||
| 2011 | 2010 | |||||||
|
Balance at beginning of the year
|
$ | 27,226 | $ | 1,362 | ||||
|
Valuation allowance removed for taxes related to:
|
||||||||
|
Income before income taxes
|
— | (3,472 | ) | |||||
|
Valuation allowance provided for taxes related to:
|
||||||||
|
Loss before income taxes
|
19,302 | — | ||||||
|
Effect of a change in judgment
|
— | 29,336 | ||||||
|
Balance at end of the year
|
$ | 46,528 | $ | 27,226 | ||||
We have recorded income tax and related interest liabilities
where we believe certain of our tax positions are not more
likely than not to be sustained if challenged. The following
table summarizes the activity related to our unrecognized tax
benefits:
| (In thousands) | ||||
|
Balance at December 29, 2007
|
$ | 150 | ||
|
Increases related to current year tax positions
|
63 | |||
|
Additions for tax positions in prior years
|
48 | |||
|
Reductions for tax positions in prior years
|
— | |||
|
Settlements
|
— | |||
|
Balance at January 3, 2009
|
$ | 261 | ||
|
Increases related to current year tax positions
|
526 | |||
|
Additions for tax positions in prior years
|
— | |||
|
Reductions for tax positions in prior years
|
(25 | ) | ||
|
Settlements
|
(23 | ) | ||
|
Balance at January 2, 2010
|
$ | 739 | ||
|
Increases related to current year tax positions
|
— | |||
|
Additions for tax positions in prior years
|
6 | |||
|
Reductions for tax positions in prior years
|
(62 | ) | ||
|
Settlements
|
— | |||
|
Balance at January 1, 2011
|
$ | 683 | ||
Included in the unrecognized tax benefits of $0.7 million
at January 1, 2011 and January 2, 2010 was
$0.7 million of tax benefits that, if recognized, would
reduce our annual effective tax rate. We also accrued a nominal
amount of interest related to these unrecognized tax benefits
during 2009 and 2010, and this amount is reported in
“Interest expense” in our Consolidated Statements of
Operations. We do not expect our unrecognized tax benefits to
change significantly over the next 12 months.
We file U.S., state, and foreign income tax returns in
jurisdictions with varying statutes of limitations. The 2007
through 2010 tax years generally remain subject to examination
by federal and most state and foreign tax authorities.
62
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 6. | Receivables |
We have a diversified customer base concentrated in the building
products business. Credit risk is monitored and provisions for
expected losses are provided as determined necessary by
management. We generally do not require collateral.
The following reflects our activity in receivables related
reserve accounts:
|
Beginning
|
Expense/
|
Write offs and
|
Ending
|
|||||||||||||
| Balance | (Income) | Other, Net | Balance | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Fiscal 2008
|
||||||||||||||||
|
Allowance for doubtful accounts and related reserves
|
$ | 10,536 | $ | 5,764 | $ | (6,186 | ) | $ | 10,114 | |||||||
|
Fiscal 2009
|
||||||||||||||||
|
Allowance for doubtful accounts and related reserves
|
$ | 10,114 | $ | 3,879 | $ | (5,606 | ) | $ | 8,387 | |||||||
|
Fiscal 2010
|
||||||||||||||||
|
Allowance for doubtful accounts and related reserves
|
$ | 8,387 | $ | 2,222 | $ | (4,894 | ) | $ | 5,715 | |||||||
| 7. | Stock-Based Compensation |
We have two stock-based compensation plans covering officers,
directors and certain employees and consultants: the 2004 Equity
Incentive Plan (the “2004 Plan”) and the 2006 Long
Term Equity Incentive Plan (the “2006 Plan”). The
plans are designed to motivate and retain individuals who are
responsible for the attainment of our primary long-term
performance goals. The plans provide a means whereby our
employees and directors develop a sense of proprietorship and
personal involvement in our development and financial success
and encourage them to devote their best efforts to our business.
Although we do not have a formal policy on the matter, we issue
new shares of our common stock to participants, upon the
exercise of options or vesting of restricted stock, out of the
total amount of common shares authorized for issuance under the
2004 Plan and the 2006 Plan.
The 2004 Plan provides for the grant of nonqualified stock
options, incentive stock options and restricted shares of our
common stock to participants of the plan selected by our Board
of Directors or a committee of the Board that administers the
2004 Plan. We reserved 2,222,222 shares of our common stock
for issuance under the 2004 Plan. The terms and conditions of
awards under the 2004 Plan are determined by the administrator
for each grant.
The 2006 Plan permits the grant of nonqualified stock options,
incentive stock options, stock appreciation rights, restricted
stock, restricted stock units, performance shares, performance
units, cash-based awards, and other stock-based awards to
participants of the 2006 Plan selected by our Board of Directors
or a committee of the Board that administers the 2006 Plan. We
reserved 3,200,000 shares of our common stock for issuance
under the 2006 Plan. The terms and conditions of awards under
the 2006 Plan are determined by the administrator for each
grant. Awards issued under the 2006 Plan are subject to
accelerated vesting in the event of a change in control as such
event is defined in the 2006 Plan. On January 12, 2010,
March 23, 2010, and May 17, 2010, the Compensation
Committee granted 652,737, 45,000, and 50,000, respectively,
restricted shares of our common stock to certain members of our
management.
We recognize compensation expense equal to the grant-date fair
value for all share-based payment awards that are expected to
vest. This expense is recorded on a straight-line basis over the
requisite service period of the entire award, unless the awards
are subject to market or performance conditions, in which case
we recognize compensation expense over the requisite service
period of each separate vesting tranche to the extent
63
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the occurrence of such conditions are probable. All compensation
expense related to our share-based payment awards is recorded in
“Selling, general and administrative” expense in the
Consolidated Statements of Operations.
Compensation expense arising from stock-based awards granted to
employees and non-employee directors is recognized as expense
using the straight-line method over the vesting period. As of
January 1, 2011, there was $0.1 million and
$2.5 million of total unrecognized compensation expense
related to stock options and restricted stock, respectively. The
unrecognized compensation expense for stock options and
restricted stock is expected to be recognized over a period of
0.2 years and 1.6 years, respectively. As of
January 1, 2011, the weighted average remaining contractual
term for our options and restricted stock is 6.8 years and
1.4 years. As of January 2, 2010, there was
$0.8 million, $2.9 million, and $0.2 million of
total unrecognized compensation expense related to stock
options, restricted stock, and performance shares, respectively.
The unrecognized compensation expense for stock options,
restricted stock, and performance shares was expected to be
recognized over a period of 1.1 years, 1.4 years, and
1.0 year, respectively. As of January 2, 2010, the
weighted average remaining contractual term for our options and
restricted stock is 7.8 years and 1.6 years.
For fiscal 2010, fiscal 2009 and fiscal 2008, our total
stock-based compensation expense was $4.0 million,
$3.0 million, and $2.6 million, respectively. We also
recognized related income tax benefits of $1.5 million,
$1.2 million and $1.0 million, respectively, which has
been offset by a valuation allowance.
The total fair value of the options vested in fiscal 2010,
fiscal 2009 and fiscal 2008 was $1.0 million,
$0.6 million and $0.8 million, respectively. For
restricted stock, the total fair value vested in fiscal 2010,
fiscal 2009, and fiscal 2008 was $1.5 million,
$1.2 million and $0.8 million, respectively.
Cash proceeds from the exercise of stock options for fiscal 2008
totaled $0.4 million. There were no stock option exercises
during fiscal 2009 or fiscal 2010. In our Consolidated Statement
of Cash Flows, we present the benefits of tax deductions in
excess of recognized compensation expense as both a financing
cash inflow and an operating cash outflow. For fiscal 2008, we
included $0.08 million, of excess tax benefits in cash
flows from financing activities. There were no excess tax
benefits in fiscal 2009 or fiscal 2010.
On December 14, 2010, the Compensation Committee approved
an amendment to the 2008 Performance Share Award Agreement under
the 2006 Plan. The Amendment provides that the Company may, at
the discretion of the Compensation Committee, settle grants
pursuant to Performance Share Award Agreements either in
(i) one share of common stock of the Company for each
Performance Share (as defined in the 2006 Plan) earned or
(ii) a lump sum cash payment equal to the Fair Market Value
(as defined in the 2006 Plan) of one share of common stock of
the Company for each Performance Share earned. The Amendment was
determined to be a modification of the award and the difference
in fair value, of approximately $0.02 million, was
recorded. The award, which impacts eight employees, was
classified as a liability award and was marked to market. On
January 1, 2011, the fair value of these awards was based
on the closing price of our common stock on December 31,
2010 of $3.66. These awards were settled in cash on
January 7, 2011.
64
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table depicts the weighted average assumptions
used in connection with the Black-Scholes option pricing model
to estimate the fair value of time-based options and
performance-based options granted during fiscal 2008 (there were
no options granted during fiscal 2010 or 2009):
|
Time-Based
|
Performance-Based
|
Performance-Based
|
||||||||||
| Options(1) | Options(2) | Options(3) | ||||||||||
|
Risk free interest rate
|
2.70 | % | 2.62 | % | 2.11 | % | ||||||
|
Expected dividend yield
|
0.0 | % | 0.0 | % | 0.0 | % | ||||||
|
Expected life
|
6 years | 4 years | 1 year | |||||||||
|
Expected volatility
|
48 | % | 48 | % | 48 | % | ||||||
|
Weighted average fair value
|
$ | 2.27 | $ | 0.67 | $ | 1.31 | ||||||
| (1) | Exercise price equaled the market price at date of grant. | |
| (2) | Exercise price exceeded the market price at date of grant. | |
| (3) | Exercise price was less than the market price at date of grant (the date the performance criteria were established is considered the grant date for accounting purposes). |
In determining the expected life, we followed a simplified
method based on the vesting term and contractual term. The range
of risk-free rates for fiscal 2008, fiscal 2007 and fiscal 2006
was from 2.11% to 2.70%, 4.78% to 5.10% and 4.34% to 5.05%,
respectively. The expected volatility is based on the historical
volatility of our common stock.
The tables below summarize activity and include certain
additional information related to our outstanding employee stock
options for the three years ended January 1, 2011.
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Exercise
|
||||||||
| Shares | Price | |||||||
|
Options outstanding at December 29, 2007
|
1,490,295 | $ | 12.24 | |||||
|
Options granted
|
798,884 | 4.64 | ||||||
|
Options exercised
|
(113,138 | ) | 3.75 | |||||
|
Options forfeited
|
(693,815 | ) | 12.50 | |||||
|
Options expired
|
(443,711 | ) | 13.07 | |||||
|
Options outstanding at January 3, 2009
|
1,038,515 | 6.78 | ||||||
|
Options granted
|
— | — | ||||||
|
Options exercised
|
— | — | ||||||
|
Options forfeited
|
(30,268 | ) | 13.67 | |||||
|
Options expired
|
(79,932 | ) | 9.39 | |||||
|
Options outstanding at January 2, 2010
|
928,315 | 6.34 | ||||||
|
Options granted
|
— | — | ||||||
|
Options exercised
|
— | — | ||||||
|
Options forfeited
|
(2,300 | ) | 14.01 | |||||
|
Options expired
|
(1,200 | ) | 14.01 | |||||
|
Options outstanding at January 1, 2011
|
924,815 | 6.31 | ||||||
|
Options exercisable at January 1, 2011
|
646,953 | $ | 6.62 | |||||
65
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Outstanding | Exercisable | |||||||||||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||||||||||
|
Average
|
Remaining
|
Average
|
Remaining
|
|||||||||||||||||||||
|
Number of
|
Exercise
|
Contractual Life
|
Number of
|
Exercise
|
Contractual Life
|
|||||||||||||||||||
|
Price Range
|
Options | Price | (in Years) | Options | Price | (in Years) | ||||||||||||||||||
|
$4.66
|
750,000 | $ | 4.66 | 7.2 | 500,000 | $ | 4.66 | 7.2 | ||||||||||||||||
|
$10.29-$14.01
|
174,815 | $ | 13.39 | 5.3 | 146,953 | $ | 13.30 | 5.3 | ||||||||||||||||
| 924,815 | 6.8 | 646,953 | 6.8 | |||||||||||||||||||||
The following tables summarize activity for our performance
shares, restricted stock awards and restricted stock unit awards
during fiscal 2010, fiscal 2009, and fiscal 2008:
|
Performance
|
Restricted
|
|||||||||||||||
| Restricted Stock | Shares | Stock Units | ||||||||||||||
|
Weighted
|
||||||||||||||||
|
Number of
|
Average Fair
|
Number of
|
Number of
|
|||||||||||||
| Awards | Value | Awards(1) | Awards(1) | |||||||||||||
|
Outstanding at December 29, 2007
|
330,840 | $ | 11.89 | 224,719 | 188,125 | |||||||||||
|
Granted
|
1,396,609 | 4.36 | 834,071 | — | ||||||||||||
|
Vested
|
(166,604 | ) | 5.05 | — | — | |||||||||||
|
Forfeited
|
(359,557 | ) | 6.81 | (766,484 | ) | (23,425 | ) | |||||||||
|
Outstanding at January 3, 2009
|
1,201,288 | 5.62 | 292,306 | 164,700 | ||||||||||||
|
Granted
|
681,151 | 2.64 | — | — | ||||||||||||
|
Vested
|
(250,000 | ) | 4.86 | — | — | |||||||||||
|
Forfeited
|
(93,310 | ) | 5.58 | (111,701 | ) | (20,150 | ) | |||||||||
|
Outstanding at January 2, 2010
|
1,539,129 | 4.42 | 180,605 | 144,550 | ||||||||||||
|
Granted
|
747,737 | 3.07 | — | — | ||||||||||||
|
Increase due to assumption changes
|
— | — | 112,955 | — | ||||||||||||
|
Vested
|
(340,578 | ) | 4.49 | — | — | |||||||||||
|
Forfeited
|
(32,000 | ) | 3.47 | (52,725 | ) | (16,600 | ) | |||||||||
|
Outstanding at January 1, 2011
|
1,914,288 | $ | 2.67 | 240,835 | 127,950 | |||||||||||
| (1) | As the performance shares were settled in cash on January 7, 2011 and the restricted stock units will be settled in cash, the fair value of these awards is marked-to-market each reporting period through the date of settlement. |
| 8. | Employee Benefits |
Defined
Benefit Pension Plans
Most of our hourly employees participate in noncontributory
defined benefit pension plans, which include a plan that is
administered solely by us (the “hourly pension plan”)
and union-administered multiemployer plans. Our funding policy
for the hourly pension plan is based on actuarial calculations
and the applicable requirements of federal law. We met our
required contribution to the hourly pension plan in fiscal 2010.
Contributions to multiemployer plans are generally based on
negotiated labor contracts. We contributed $1.1 million,
$1.0 million, and $1.1 million to union administered
multiemployer pension plans for fiscal 2010, fiscal 2009, and
fiscal 2008, respectively. Benefits under the majority of plans
for hourly employees (including multiemployer plans) are
primarily related to years of service.
66
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following tables set forth the change in projected benefit
obligation and the change in plan assets for the hourly pension
plan:
|
January 1,
|
January 2,
|
|||||||
| 2011 | 2010 | |||||||
| (In thousands) | ||||||||
|
Change in projected benefit obligation:
|
||||||||
|
Projected benefit obligation at beginning of period
|
$ | 79,500 | $ | 72,015 | ||||
|
Service cost
|
1,992 | 1,808 | ||||||
|
Interest cost
|
4,744 | 4,511 | ||||||
|
Actuarial loss
|
4,868 | 4,844 | ||||||
|
Curtailment
|
— | — | ||||||
|
Benefits paid
|
(3,594 | ) | (3,678 | ) | ||||
|
Projected benefit obligation at end of period
|
87,510 | 79,500 | ||||||
|
Change in plan assets:
|
||||||||
|
Fair value of assets at beginning of period
|
61,563 | 55,049 | ||||||
|
Actual return (loss) on plan assets
|
8,288 | 10,192 | ||||||
|
Employer contributions
|
2,466 | — | ||||||
|
Benefits paid
|
(3,592 | ) | (3,678 | ) | ||||
|
Fair value of assets at end of period
|
68,725 | 61,563 | ||||||
|
Unfunded Status of Plan
|
$ | (18,785 | ) | $ | (17,937 | ) | ||
We recognize the unfunded status (i.e., the difference between
the fair value of plan assets and the projected benefit
obligations) of our pension plan in our Consolidated Balance
Sheets, with a corresponding adjustment to accumulated other
comprehensive loss, net of tax. On January 1, 2011, we
measured the fair value of our plan assets and benefit
obligations. As of January 1, 2011 and January 2,
2010, the net unfunded status of our benefit plan was
$18.8 million and $17.9 million, respectively. These
amounts were included in “Other non-current
liabilities” on our Consolidated Balance Sheets. The net
adjustment to other comprehensive loss for fiscal 2010, fiscal
2009, and fiscal 2008 was $1.0 million loss
($0.6 million loss, net of tax), $1.5 million gain
($0.9 million gain, net of tax), and $26.0 million
loss ($15.9 million loss, net of tax), respectively, which
represents the net unrecognized actuarial gain (loss) and
unrecognized prior service cost.
The funded status and the amounts recognized on our Consolidated
Balance Sheets for the hourly pension plan are set forth in the
following table:
|
January 1,
|
January 2,
|
|||||||
| 2011 | 2010 | |||||||
| (In thousands) | ||||||||
|
Funded status
|
$ | (18,785 | ) | $ | (17,937 | ) | ||
|
Unrecognized prior service cost
|
3 | 3 | ||||||
|
Unrecognized actuarial loss
|
14,244 | 13,231 | ||||||
|
Net amount recognized
|
$ | (4,538 | ) | $ | (4,703 | ) | ||
|
Amounts recognized on the balance sheet consist of:
|
||||||||
|
Accrued pension liability
|
(18,785 | ) | (17,937 | ) | ||||
|
Accumulated other comprehensive loss (pre-tax)
|
14,247 | 13,234 | ||||||
|
Net amount recognized
|
$ | (4,538 | ) | $ | (4,703 | ) | ||
67
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The portion of estimated net loss for the hourly pension plan
that is expected to be amortized from accumulated other
comprehensive loss into net periodic cost over the next fiscal
year is $0.6 million. The expected amortization of prior
service cost recognized into net periodic cost over the next
fiscal year is nominal.
The accumulated benefit obligation for the hourly pension plan
was $85.2 million and $77.4 million at January 1,
2011 and January 2, 2010, respectively.
Net periodic pension cost for our pension plans included the
following:
|
Fiscal Year Ended
|
Fiscal Year Ended
|
Fiscal Year Ended
|
||||||||||
|
January 1,
|
January 2,
|
January 3,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
| (In thousands) | ||||||||||||
|
Service cost
|
$ | 1,992 | $ | 1,808 | $ | 2,245 | ||||||
|
Interest cost on projected benefit obligation
|
4,744 | 4,511 | 4,435 | |||||||||
|
Expected return on plan assets
|
(4,926 | ) | (4,531 | ) | (6,002 | ) | ||||||
|
Amortization of unrecognized loss (gain)
|
494 | 723 | (365 | ) | ||||||||
|
Amortization of unrecognized prior service cost
|
— | — | 2 | |||||||||
|
Net periodic pension cost
|
$ | 2,304 | $ | 2,511 | $ | 315 | ||||||
The following assumptions were used to determine the projected
benefit obligation at the measurement date and the net periodic
pension cost:
|
January 1,
|
January 2,
|
|||||||
| 2011 | 2010 | |||||||
|
Projected benefit obligation:
|
||||||||
|
Discount rate
|
5.39 | % | 6.11 | % | ||||
|
Average rate of increase in future compensation levels
|
4.00 | % | 4.00 | % | ||||
|
Net periodic pension cost
|
||||||||
|
Discount rate
|
6.11 | % | 6.42 | % | ||||
|
Average rate of increase in future compensation levels
|
4.00 | % | 4.00 | % | ||||
|
Expected long-term rate of return on plan assets
|
8.25 | % | 8.50 | % | ||||
Our estimates of the amount and timing of our future funding
obligations for our defined benefit pension plans are based upon
various assumptions specified above. These assumptions include,
but are not limited to, the discount rate, projected return on
plan assets, compensation increase rates, mortality rates,
retirement patterns, and turnover rates.
Determination
of expected long-term rate of return
In developing expected return assumptions for our pension plan,
the most influential decision affecting long-term portfolio
performance is the determination of overall asset allocation. An
asset class is a group of securities that exhibit similar
characteristics and behave similarly in the marketplace. The
three main asset classes are equities, fixed income, and cash
equivalents.
Upon calculation of the historical risk premium for each asset
class, an expected rate of return can be established based on
assumed
90-day
Treasury bill rates. Based on the normal asset allocation
structure of the portfolio (65% equities, 30% fixed income, and
5% cash) with historical compound annualized risk free rate of
4.49%, the expected overall portfolio return is 8.42% as of
January 1, 2011. In an effort to reduce volatility
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in this assumption, we have elected to use a more conservative
return assumption of 8.25%, as long as it is warranted by the
analysis performed for the process of establishing pension
expected returns assumptions.
Our percentage of fair value of total assets by asset category
as of our measurement date is as follows:
|
January 1,
|
January 2,
|
|||||||
|
Asset Category
|
2011 | 2010 | ||||||
|
Equity securities — domestic
|
45 | % | 53 | % | ||||
|
Equity securities — international
|
15 | % | 14 | % | ||||
|
Fixed income
|
32 | % | 32 | % | ||||
|
Other
|
8 | % | 1 | % | ||||
|
Total
|
100 | % | 100 | % | ||||
The fair value of our plan assets by asset category as of
January 1, 2011 was as follows:
|
Asset Category
|
Level 1 | |||
|
Equity securities — domestic
|
$ | 30,891 | ||
|
Equity securities — international
|
10,389 | |||
|
Fixed income
|
22,248 | |||
|
Other
|
5,197 | |||
|
Total
|
$ | 68,725 | ||
The fair value of our plan assets by asset category as of
January 2, 2010 was as follows:
|
Asset Category
|
Level 1 | |||
|
Equity securities — domestic
|
$ | 29,528 | ||
|
Equity securities — international
|
8,499 | |||
|
Fixed income
|
19,870 | |||
|
Other
|
3,666 | |||
|
Total
|
$ | 61,563 | ||
The plan assets are valued using quoted market prices in active
markets and we consider the investments to be Level 1 in
the fair value hierarchy. See Note 13 for a discussion of
the levels of inputs to determine fair value.
Investment
policy and strategy
Plan assets are managed as a balanced portfolio comprised of two
major components: an equity portion and a fixed income portion.
The expected role of plan equity investments will be to maximize
the long-term real growth of fund assets, while the role of
fixed income investments will be to generate current income,
provide for more stable periodic returns, and provide some
downside protection against the possibility of a prolonged
decline in the market value of equity investments. We review
this investment policy statement at least once per year. In
addition, the portfolio will be reviewed quarterly to determine
the deviation from target weightings and will be rebalanced as
necessary. Target allocations for fiscal 2011 are 50% domestic
and 15% international equity investments, 30% fixed income
investments, and 5% cash. The expected long-term rate of return
for the plan’s total assets is based on the expected return
of each of the above categories, weighted based on the target
allocation for each class.
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Our estimated future benefit payments reflecting expected future
service are as follows:
|
Fiscal Year Ending
|
(In thousands) | |||
|
December 31, 2011
|
$ | 4,071 | ||
|
December 29, 2012
|
4,214 | |||
|
December 28, 2013
|
4,492 | |||
|
January 3, 2015
|
4,666 | |||
|
January 2, 2016
|
4,879 | |||
|
Thereafter
|
29,069 | |||
During fiscal 2011, we are required to make a minimum required
contribution of $4.1 million, $2.8 million of which
will be funded through a pre funded balance. The difference will
be funded through a $1.3 million cash contribution.
Defined
Contribution Plans
Our employees also participate in several defined contribution
plans. Contributions to the plans are based on employee
contributions and compensation. Contributions to these plans
totaled $0.1 million, $0.1 million, and
$4.1 million for fiscal 2010, fiscal 2009, and fiscal 2008,
respectively. During fiscal 2009, we suspended the Company
matching contributions to our defined salaried contribution plan
as part of our cost reduction initiatives.
| 9. | Inventory Reserve Accounts |
The following reflects our activity for inventory reserve
accounts:
|
Beginning
|
Write-offs and
|
Ending
|
||||||||||||||
| Balance | Expense | Other, net | Balance | |||||||||||||
|
Fiscal 2008
|
||||||||||||||||
|
Obsolescence/damaged inventory reserve
|
$ | 4,364 | $ | 1,892 | $ | (2,225 | ) | $ | 4,031 | |||||||
|
Lower of cost or market reserve
|
$ | 21 | $ | 3,400 | $ | (21 | ) | $ | 3,400 | |||||||
|
Fiscal 2009
|
||||||||||||||||
|
Obsolescence/damaged inventory reserve
|
$ | 4,031 | $ | 909 | $ | (2,367 | ) | $ | 2,573 | |||||||
|
Lower of cost or market reserve
|
$ | 3,400 | $ | 419 | $ | (3,819 | ) | $ | — | |||||||
|
Fiscal 2010
|
||||||||||||||||
|
Obsolescence/damaged inventory reserve
|
$ | 2,573 | $ | 667 | $ | (1570 | ) | $ | 1,670 | |||||||
|
Lower of cost or market reserve
|
$ | — | $ | 722 | $ | (722 | ) | $ | — | |||||||
| 10. | Revolving Credit Facility |
As of January 1, 2011, we had outstanding borrowings of
$97.2 million and excess availability of
$103.4 million under the terms of our amended revolving
credit facility. Based on the borrowing base limitations, we
classify the lowest projected balance of the credit facility
over the next twelve months of $97.2 million as long-term
debt. The interest rate on the amended revolving credit facility
was 4.5% at January 1, 2011. As of January 1, 2011 and
January 2, 2010, we had outstanding letters of credit
totaling $5.9 million and $6.0, respectively, for the
purposes of securing collateral requirements under our interest
rate swap, insurance programs and for guaranteeing payment of
international purchases based on the fulfillment of certain
conditions.
On July 7, 2010, we reached an agreement with Wells Fargo
Bank, National Association, successor by merger to Wachovia
Bank, National Association, and the other signatories to our
existing revolving credit facility, dated August 4, 2006,
as amended, to amend the terms thereof. This amendment extends
the date of
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
final maturity of the facility to January 7, 2014 and
decreases the maximum availability under the agreement from
$500 million to $400 million. This decrease does not
impact our current available borrowing capacity under the
amended revolving credit facility since the borrowing base,
which is based on eligible accounts receivable and inventory,
currently permits less than $400 million in revolving
credit facility borrowings. This amendment also includes an
additional $100 million uncommitted accordion credit
facility, which will permit us to increase the maximum borrowing
capacity up to $500 million. As a result of reducing our
maximum borrowing capacity from $500 million to
$400 million, we recorded expense of $0.2 million for
the write-off of the old debt issuance costs associated with the
reduction in borrowing capacity. We incurred $6.5 million
in new debt issuance costs, which we capitalized and will
amortize over the renewed debt term to interest expense.
Under the amended agreement, our revolving credit facility
contains customary negative covenants and restrictions for asset
based loans. Our most significant covenant is a requirement that
we maintain a fixed charge ratio of 1.1 to 1.0 in the event our
excess availability falls below the greater of
$40.0 million or the amount equal to 15% of the lesser of
the borrowing base or $60.0 million (subject to increase to
$75.0 million if we exercise the uncommitted accordion
credit facility in full) (the “Excess Availability
Threshold”). The fixed charge ratio is calculated as EBITDA
over the sum of cash payments for income taxes, interest
expense, cash dividends, principal payments on debt, and capital
expenditures. EBITDA is defined as BlueLinx Corporation’s
net income before interest and tax expense, depreciation and
amortization expense, and other non-cash charges. The fixed
charge ratio requirement only applies to us when excess
availability under our amended revolving credit facility is less
than the Excess Availability Threshold for three consecutive
business days. As of January 1, 2011 and through the time
of the filing of this Annual Report on
Form 10-K,
we were in compliance with all covenants. We had
$103.4 million and $157.1 million of availability as
of January 1, 2011 and January 2, 2010, respectively.
Our lowest level of availability in the last three years was
$103.4 million as of January 1, 2011. We do not
anticipate our excess availability in fiscal 2011 will drop
below the Excess Availability Threshold. Should our excess
availability fall below the Excess Availability Threshold for
more than three consecutive business days, however, we would not
meet the required fixed charge ratio with our current operating
results. In addition, we must maintain a springing lock-box
arrangement where customer remittances go directly to a lock-box
maintained by our lenders and then are forwarded to our general
bank accounts. Our outstanding borrowings are not reduced by
these payments unless our excess availability is less than the
Excess Availability Threshold, excluding unrestricted cash, for
more than three consecutive business days or in the event of
default. Our amended revolving credit facility does not contain
a subjective acceleration clause which would allow our lenders
to accelerate the scheduled maturities of our debt or to cancel
our agreement.
During fiscal 2009, we elected to permanently reduce our
revolving loan threshold limit from $800.0 million to
$500.0 million. As a result of these actions, we recorded
expense during fiscal 2009 of $1.4 million for the
write-off of deferred financing costs.
| 11. | Mortgage |
On June 9, 2006, certain special purpose entities that are
wholly-owned subsidiaries of ours entered into a
$295 million mortgage loan with the German American Capital
Corporation. The mortgage has a term of ten years and is secured
by 55 distribution facilities and 1 office building owned by the
special purpose entities. The stated interest rate on the
mortgage is fixed at 6.35%. German American Capital Corporation
assigned half of its interest in the mortgage loan to Wachovia
Bank, National Association.
During fiscal 2009, we sold certain real properties that ceased
operations. As a result of the sale of these properties during
these periods, we reduced our mortgage loan by
$3.2 million. In addition, during fiscal 2009, we incurred
a mortgage prepayment penalty of $0.6 million, recorded in
“Interest expense” on the Consolidated Statements of
Operations. We did not sell any properties subject to the
mortgage in 2010.
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The mortgage loan requires interest-only payments through June
2011. The balance of the loan outstanding at the end of ten
years will then become due and payable. The principal will be
paid in the following increments (in thousands):
|
2011
|
$ | 1,190 | ||
|
2012
|
3,054 | |||
|
2013
|
3,309 | |||
|
2014
|
3,529 | |||
|
2015
|
3,763 | |||
|
Thereafter
|
270,825 |
| 12. | Derivatives |
We are exposed to risks such as changes in interest rates,
commodity prices and foreign currency exchange rates. We employ
a variety of practices to manage these risks, including
operating and financing activities and, where deemed
appropriate, the use of derivative instruments. Derivative
instruments are used only for risk management purposes and not
for speculation or trading, and are not used to address risks
related to foreign currency rates. We record derivative
instruments as assets or liabilities on the balance sheet at
fair value.
On June 12, 2006, we entered into an interest rate swap
agreement with Goldman Sachs Capital Markets, to hedge against
interest rate risks related to our variable rate revolving
credit facility. The interest rate swap has a notional amount of
$150.0 million and the terms call for us to receive
interest monthly at a variable rate equal to the
30-day
LIBOR
and to pay interest monthly at a fixed rate of 5.4%. This
interest rate swap was designated as a cash flow hedge.
Through January 9, 2009, the hedge was highly effective in
offsetting changes in expected cash flows. Fluctuations in the
fair value of the ineffective portion, if any, of the cash flow
hedge were reflected in earnings. During fiscal 2009, we reduced
our borrowings under the revolving credit facility by
$100.0 million, which reduced outstanding debt below the
interest rate swap’s notional amount of
$150.0 million, at which point the hedge became ineffective
in offsetting future changes in expected cash flows during the
remaining term of the interest rate swap. We used cash on hand
to pay down this portion of our revolving credit debt during the
first, second, and third quarters of fiscal 2009. As a result,
changes in the fair value of the instrument were recorded
through earnings from the point in time that the revolving
credit facility balance was reduced below the interest rate
swap’s notional amount of $150.0 million, which was
during the first quarter of fiscal 2009.
Changes associated with the ineffective interest rate swap
recognized in the Consolidated Statement of Operations for
fiscal 2010 were approximately $4.6 million of income and
are comprised of amortization of the remaining accumulated other
comprehensive loss over the life of the ineffective swap of
$2.1 million offset by income of $6.7 million related
to current year changes in the fair value of the ineffective
interest rate swap liability. Changes associated with the
ineffective interest rate swap recognized in the Consolidated
Statement of Operations for fiscal 2009 were approximately
$6.3 million and were comprised of a non-cash
$9.0 million pro-rata reduction to accumulated other
comprehensive loss with an offsetting charge to earnings related
to reducing our borrowings outstanding by $100.0 million,
amortization of the remaining accumulated other comprehensive
loss over the life of the ineffective swap of $2.9 million,
and income of $5.7 million related to fair value changes
since the date of the reduction.
The remaining amount of accumulated other comprehensive loss
will be amortized over the remaining 4 month term of the
interest rate swap and recorded as interest expense. Any further
reductions in borrowings under our revolving credit facility
will result in a pro-rata reduction in accumulated other
comprehensive loss at the payment date with a corresponding
charge recorded to interest expense.
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents a reconciliation of the unrealized
losses related to our interest rate swap measured at fair value
in accumulated other comprehensive loss as of January 1,
2011 (in thousands):
|
Balance at January 2, 2010
|
$ | 2,675 | ||
|
Changes associated with ineffective interest rate swap recorded
to interest expense
|
(2,126 | ) | ||
|
Balance at January 1, 2011
|
$ | 549 | ||
| 13. | Fair Value Measurements |
We determine a fair value measurement based on the assumptions a
market participant would use in pricing an asset or liability.
The fair value measurement guidance established a three level
hierarchy making a distinction between market participant
assumptions based on (i) unadjusted quoted prices for
identical assets or liabilities in an active market
(Level 1), (ii) quoted prices in markets that are not
active or inputs that are observable either directly or
indirectly for substantially the full term of the asset or
liability (Level 2), and (iii) prices or valuation
techniques that require inputs that are both unobservable and
significant to the overall fair value measurement (Level 3).
We are exposed to market risks from changes in interest rates,
which may affect our operating results and financial position.
We minimize our risks from interest rate fluctuations through
the use of an interest rate swap. This derivative financial
instrument is used to manage risk and is not used for trading or
speculative purposes. The swap is valued using a valuation model
that has inputs other than quoted market prices that are both
observable and unobservable.
We endeavor to utilize the best available information in
measuring the fair value of the interest rate swap. The interest
rate swap is classified in its entirety based on the lowest
level of input that is significant to the fair value
measurement. To determine fair value of the interest rate swap
we used the discounted estimated future cash flows methodology.
Assumptions critical to our fair value in the period were:
(i) the present value factors used in determining fair
value (ii) projected LIBOR, and (iii) the risk of
non-performance. These and other assumptions are impacted by
economic conditions and expectations of management. We have
determined that the fair value of our interest rate swap is a
level 3 measurement in the fair value hierarchy. The
level 3 measurement is the risk of counterparty
non-performance on the interest rate swap liability that is not
secured by cash collateral. The risk of counterparty
non-performance did not affect the fair value at January 1,
2011 and at January 2, 2010 due to the fact that the risk
of counterparty non-performance was nominal. The fair value of
the interest rate swap was a liability of $2.2 million and
$8.9 million at January 1, 2011 and January 2,
2010, respectively. These balances are included in “Other
current liabilities” and “Other non-current
liabilities” on the Consolidated Balance Sheets.
The following table presents a reconciliation of the
level 3 interest rate swap liability measured at fair value
on a recurring basis as of January 1, 2011 (in thousands):
|
Fair value at January 2, 2010
|
$ | (8,924 | ) | |
|
Unrealized gains included in earnings, net
|
6,729 | |||
|
Fair value at January 1, 2011
|
$ | (2,195 | ) | |
The $6.7 million unrealized gain is included in
“Interest expense” in the Consolidated Statements of
Operations.
Carrying amounts for our financial instruments are not
significantly different from their fair value, with the
exception of our mortgage. To determine the fair value of our
mortgage, we used a discounted cash flow model. Assumptions
critical to our fair value in the period were present value
factors used in determining fair value and an interest rate. At
January 1, 2011, the carrying value and fair value of our
mortgage was $285.7 million and $285.8 million,
respectively.
73
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HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 14. | Related Party Transactions |
Cerberus Capital Management, L.P., our equity sponsor, retains
consultants that specialize in operations management and support
and who provide Cerberus with consulting advice concerning
portfolio companies in which funds and accounts managed by
Cerberus or its affiliates have invested. From time to time,
Cerberus makes the services of these consultants available to
Cerberus portfolio companies. We believe that the terms of these
consulting arrangements are favorable to us, or, alternatively,
are materially consistent with those terms that would have been
obtained by us in an arrangement with an unaffiliated third
party. We have normal service, purchase and sales arrangements
with other entities that are owned or controlled by Cerberus. We
believe that these transactions are not material to our results
of operations or financial position.
| 15. | Commitments and Contingencies |
Self-Insurance
It is our policy to self-insure, up to certain limits,
traditional risks including workers’ compensation,
comprehensive general liability, and auto liability. Our
self-insured deductible for each claim involving workers’
compensation, comprehensive general liability (including product
liability claims), and auto liability is limited to
$0.8 million, $0.8 million, and $2.0 million,
respectively. We are also self-insured up to certain limits for
certain other insurable risks, primarily physical loss to
property ($0.1 million per occurrence), Director and
Officer ($0.8 million per occurrence) and the majority of
our medical benefit plans ($0.3 million per occurrence).
Insurance coverage is maintained for catastrophic property and
casualty exposures as well as those risks required to be insured
by law or contract. A provision for claims under this
self-insured program, based on our estimate of the aggregate
liability for claims incurred, is revised and recorded annually.
The estimate is derived from both internal and external sources
including but not limited to actuarial estimates. The actuarial
estimates are subject to uncertainty from various sources,
including, among others, changes in claim reporting patterns,
claim settlement patterns, judicial decisions, legislation, and
economic conditions. Although, we believe that the actuarial
estimates are reasonable, significant differences related to the
items noted above could materially affect our self-insurance
obligations, future expense and cash flow. At January 1,
2011 and January 2, 2010, the self-insurance reserves
totaled $7.6 million and $9.2 million, respectively.
Operating
Leases
Total rental expense was approximately $5.0 million,
$5.8 million, and $7.4 million for fiscal 2010, fiscal
2009, and fiscal 2008, respectively.
At January 1, 2011, our total commitments under long-term,
non-cancelable operating leases were as follows (in thousands):
|
2011
|
$ | 6,181 | ||
|
2012
|
5,759 | |||
|
2013
|
5,655 | |||
|
2014
|
5,095 | |||
|
2015
|
4,746 | |||
|
Thereafter
|
13,747 | |||
|
Total
|
$ | 41,183 | ||
Certain of our operating leases have extension options and
escalation clauses.
74
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Environmental
and Legal Matters
We are involved in various proceedings incidental to our
businesses and 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. Management further believes that the ultimate
outcome of these matters could be material to operating results
in any given quarter but will not have a materially adverse
effect on our long-term financial condition, our results of
operations, or our cash flows.
Collective
Bargaining Agreements
Approximately 30% of our total work force is covered by
collective bargaining agreements. Collective bargaining
agreements representing approximately 1% of our hourly work
force will expire within one year, and one collective bargaining
agreement expired in March 2010. We are in active negotiations
with the subject union, and, in the interim, are operating under
the terms and conditions of the expired agreement. Of the four
collective bargaining agreements expiring in fiscal 2011, three
will expire in the second quarter of fiscal 2011, and one will
expire in the fourth quarter of fiscal 2011.
| 16. | Subsequent Events |
In the first quarter of 2011, we sold our Nashville, Tennessee
property to an unrelated third party, for a sales price of
approximately $6.9 million. We subsequently purchased a
replacement Nashville, Tennessee property for approximately
$3.0 million.
We are not aware of any other significant events that occurred
subsequent to the balance sheet date but prior to the filing of
this report that would have a material impact on our
Consolidated Financial Statements.
| 17. | Accumulated Other Comprehensive Loss |
Comprehensive income (loss) is a measure of income which
includes both net income and other comprehensive income (loss).
Other comprehensive income (loss) results from items deferred
from recognition into our income statement. Accumulated other
comprehensive loss is separately presented on our balance sheet
as part of common stockholders’ equity. Other comprehensive
income (loss) was $1.0 million, $8.5 million, and
$(22.3) million for fiscal 2010, fiscal 2009, and fiscal
2008, respectively.
Other comprehensive loss for fiscal 2010, fiscal 2009, and
fiscal 2008 included tax (expense) benefits of $0.8 million
$(4.1) million, and $2.4 million, respectively,
related to our interest rate swap (see Note 12). For fiscal
2010, fiscal 2009, and fiscal 2008, other comprehensive income
(loss) included tax (expense) benefits of $(0.4) million,
$(0.6) million, and $10.2 million related to our
pension plan (see Note 8). Income tax expense recorded in
other comprehensive income (loss) related to foreign currency
translation was $0.2 million and $0.8 million for
fiscal 2010 and 2009, respectively.
The accumulated balances for each component of other
comprehensive income (loss) were as follows:
|
Fiscal Year
|
Fiscal Year
|
Fiscal Year
|
||||||||||
|
Ended
|
Ended
|
Ended
|
||||||||||
|
January 1,
|
January 2,
|
January 3,
|
||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Foreign currency translation adjustment, net of tax
|
$ | 1,786 | $ | 1,450 | $ | 279 | ||||||
|
Unrealized net (loss) gain from pension plan, net of tax
|
(8,837 | ) | (8,220 | ) | (9,158 | ) | ||||||
|
Unrealized loss from cash flow hedge, net of tax
|
(307 | ) | (1,605 | ) | (8,041 | ) | ||||||
|
Accumulated other comprehensive (loss) income
|
$ | (7,358 | ) | $ | (8,375 | ) | $ | (16,920 | ) | |||
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | Unaudited Selected Quarterly Financial Data |
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||||||||||||
|
Three Months
|
Three Months
|
Three Months
|
Three Months
|
Three Months
|
Three Months
|
Three Months
|
Three Months
|
|||||||||||||||||||||||||
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
Ended
|
|||||||||||||||||||||||||
|
April 3,
|
April 4,
|
July 3,
|
July 4,
|
October 2,
|
October 3,
|
January 1,
|
January 2,
|
|||||||||||||||||||||||||
| 2010(a) | 2009(b) | 2010(c) | 2009(d) | 2010(e) | 2009(f) | 2011(g) | 2010(h) | |||||||||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||||||||||||||
|
Net sales
|
$ | 431,050 | $ | 407,111 | $ | 540,781 | $ | 423,526 | $ | 464,690 | $ | 449,363 | $ | 367,897 | $ | 366,108 | ||||||||||||||||
|
Gross profit
|
52,278 | 44,276 | 64,119 | 48,300 | 49,942 | 55,305 | 44,334 | 45,280 | ||||||||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||||||||||
|
Selling, general and administrative
|
56,514 | 56,587 | 57,089 | 54,015 | 55,985 | 55,396 | 52,741 | 52,460 | ||||||||||||||||||||||||
|
OSB lawsuit settlement gain
|
— | — | — | — | (5,236 | ) | — | — | — | |||||||||||||||||||||||
|
Tender offer expenses
|
— | — | — | — | 3,030 | — | — | — | ||||||||||||||||||||||||
|
Net gain from terminating the Georgia-Pacific Supply Agreement
|
— | — | — | (17,351 | ) | — | (203 | ) | — | (218 | ) | |||||||||||||||||||||
|
Gain from sale of properties
|
— | — | — | (4,237 | ) | — | (169 | ) | — | (5,990 | ) | |||||||||||||||||||||
|
Restructuring and other charges
|
— | 1,078 | — | 1,074 | 342 | — | 720 | — | ||||||||||||||||||||||||
|
Depreciation and amortization
|
3,744 | 5,030 | 3,434 | 4,241 | 3,111 | 3,882 | 3,076 | 3,831 | ||||||||||||||||||||||||
|
Operating (loss) income
|
(7,980 | ) | (18,419 | ) | 3,596 | 10,558 | (7,290 | ) | (3,601 | ) | (12,203 | ) | (4,803 | ) | ||||||||||||||||||
|
Non-operating expenses:
|
||||||||||||||||||||||||||||||||
|
Interest expense
|
7,315 | 8,117 | 8,205 | 7,890 | 9,121 | 7,987 | 9,147 | 7,846 | ||||||||||||||||||||||||
|
Changes associated with ineffective interest rate swap, net
|
(805 | ) | 4,832 | (1,256 | ) | 1,078 | (1,156 | ) | 1,431 | (1,386 | ) | (1,089 | ) | |||||||||||||||||||
|
Prepayment fees associated with principal payments on mortgage
|
— | — | — | 616 | — | — | — | — | ||||||||||||||||||||||||
|
Write-off of debt issue costs
|
— | 1,407 | — | — | 183 | — | — | — | ||||||||||||||||||||||||
|
Other (income) expense
|
233 | (157 | ) | 18 | 315 | 192 | 324 | 144 | 37 | |||||||||||||||||||||||
|
(Benefit from) provision for income taxes
|
(5,667 | ) | (1,301 | ) | (1,265 | ) | 31 | (6,811 | ) | 120 | (7,624 | ) | (23,622 | ) | ||||||||||||||||||
|
Tax valuation allowance
|
5,683 | 29,336 | 1,301 | — | 6,033 | — | 7,761 | — | ||||||||||||||||||||||||
|
Net (loss) income
|
$ | (14,739 | ) | $ | (60,653 | ) | $ | (3,407 | ) | $ | 628 | $ | (14,852 | ) | $ | (13,463 | ) | $ | (20,245 | ) | $ | 12,025 | ||||||||||
| (a) | During the three months ended April 3, 2010, basic and diluted weighted average shares were 30,587,258. Total share-based awards of 3,162,006 were excluded from our diluted earnings per share calculation because they were anti-dilutive. | |
| (b) | During the three months ended April 4, 2009, basic and diluted weighted average shares were 31,083,451. Total share-based awards of 2,748,826 were excluded from our diluted earnings per share calculation because they were anti-dilutive. | |
| (c) | During the three months ended July 3, 2010, basic and diluted weighted average shares were 30,698,973. Total share-based awards of 3,178,306 were excluded from our diluted earnings per share calculation because they were anti-dilutive. | |
| (d) | During the three months ended July 4, 2009, basic and diluted weighted average shares were 32,565,601 and 32,663,997, respectively. Total share-based awards of 928,315 were excluded from our diluted earnings per share calculation because they were anti-dilutive. | |
| (e) | During the three months ended October 2, 2010, basic and diluted weighted average shares were 30,714,191. Total share-based awards of 3,128,691 were excluded from our diluted earnings per share calculation because they were anti-dilutive. | |
| (f) | During the three months ended October 3, 2009, basic and diluted weighted average shares were 30,948,318. Total share-based awards of 2,671,158 were excluded from our diluted earnings per share calculation because they were anti-dilutive. |
76
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| (g) | During the three months ended January 1, 2011, basic and diluted weighted average shares were 30,753,705, respectively. Total share-based awards of 2,839,103 were excluded from our diluted earnings per share calculation because they were anti-dilutive. | |
| (h) | During the three months ended January 2, 2010, basic and diluted weighted average shares were 32,550,129 and 32,666,189, respectively. Total share-based awards of 928,315 were excluded from our diluted earnings per share calculation because they were anti-dilutive. |
| 19. | Supplemental Condensed Consolidating Financial Statements |
The condensed consolidating financial information as of
January 1, 2011 and January 2, 2010 and for fiscal
2010, fiscal 2009, and fiscal 2008 is provided due to
restrictions in our revolving credit facility that limit
distributions by BlueLinx Corporation, our operating company and
our wholly-owned subsidiary, to us, which, in turn, may limit
our ability to pay dividends to holders of our common stock (see
Note 10, Revolving Credit Facility, for a more detailed
discussion of these restrictions and the terms of the facility).
Also included in the supplemental condensed
consolidated/combining financial statements are sixty-two single
member limited liability companies, which are wholly owned by us
(the “LLC subsidiaries”). The LLC subsidiaries own
certain warehouse properties that are occupied by BlueLinx
Corporation, each under the terms of a master lease agreement.
The warehouse properties collateralize a mortgage loan and are
not available to satisfy the debts and other obligations of
either us or BlueLinx Corporation.
77
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The condensed consolidating statement of operations for BlueLinx
Holdings Inc. for the fiscal year ended January 1, 2011
follows (in thousands):
|
BlueLinx
|
||||||||||||||||||||
|
BlueLinx
|
Corporation
|
LLC
|
||||||||||||||||||
| Holdings | and Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
Net sales
|
$ | — | $ | 1,804,418 | $ | 29,825 | $ | (29,825 | ) | $ | 1,804,418 | |||||||||
|
Cost of sales
|
— | 1,593,745 | — | — | 1,593,745 | |||||||||||||||
|
Gross profit
|
— | 210,673 | 29,825 | (29,825 | ) | 210,673 | ||||||||||||||
|
Operating expenses (income):
|
||||||||||||||||||||
|
Selling, general and administrative
|
9,663 | 241,152 | 195 | (29,825 | ) | 221,185 | ||||||||||||||
|
Net gain from terminating the Georgia-Pacific supply agreement
|
— | — | — | — | — | |||||||||||||||
|
Depreciation and amortization
|
— | 9,524 | 3,841 | — | 13,365 | |||||||||||||||
|
Total operating expenses (income)
|
9,663 | 250,676 | 4,036 | (29,825 | ) | 234,550 | ||||||||||||||
|
Operating (loss) income
|
(9,663 | ) | (40,003 | ) | 25,789 | — | (23,877 | ) | ||||||||||||
|
Non-operating expenses:
|
||||||||||||||||||||
|
Interest expense
|
— | 14,780 | 19,008 | — | 33,788 | |||||||||||||||
|
Changes associated with ineffective interest rate swap
|
— | (4,603 | ) | — | — | (4,603 | ) | |||||||||||||
|
Write-off of debt issuance costs
|
— | 183 | — | — | 183 | |||||||||||||||
|
Other expense (income), net
|
— | 576 | 11 | — | 587 | |||||||||||||||
|
(Loss) income before (benefit from) provision for income taxes
|
(9,663 | ) | (50,939 | ) | 6,770 | — | (53,832 | ) | ||||||||||||
|
(Benefit from) provision for income taxes
|
(2,533 | ) | (696 | ) | 2,640 | — | (589 | ) | ||||||||||||
|
Equity in (loss) income of subsidiaries
|
(46,113 | ) | — | — | 46,113 | — | ||||||||||||||
|
Net (loss) income
|
$ | (53,243 | ) | $ | (50,243 | ) | $ | 4,130 | $ | 46,113 | $ | (53,243 | ) | |||||||
78
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The condensed consolidating statement of operations for BlueLinx
Holdings Inc. for the fiscal year ended January 2, 2010
follows (in thousands):
|
BlueLinx
|
||||||||||||||||||||
|
BlueLinx
|
Corporation
|
LLC
|
||||||||||||||||||
| Holdings | and Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
Net sales
|
$ | — | $ | 1,646,108 | $ | 29,916 | $ | (29,916 | ) | $ | 1,646,108 | |||||||||
|
Cost of sales
|
— | 1,452,947 | — | — | 1,452,947 | |||||||||||||||
|
Gross profit
|
— | 193,161 | 29,916 | (29,916 | ) | 193,161 | ||||||||||||||
|
Operating expenses (income):
|
||||||||||||||||||||
|
Selling, general and administrative
|
5,809 | 244,378 | (10,057 | ) | (29,916 | ) | 210,214 | |||||||||||||
|
Net gain from terminating the Georgia-Pacific supply agreement
|
— | (17,772 | ) | — | — | (17,772 | ) | |||||||||||||
|
Depreciation and amortization
|
— | 13,060 | 3,924 | — | 16,984 | |||||||||||||||
|
Total operating expenses (income)
|
5,809 | 239,666 | (6,133 | ) | (29,916 | ) | 209,426 | |||||||||||||
|
Operating (loss) income
|
(5,809 | ) | (46,505 | ) | 36,049 | — | (16,265 | ) | ||||||||||||
|
Non-operating expenses:
|
||||||||||||||||||||
|
Interest expense
|
— | 13,223 | 19,233 | — | 32,456 | |||||||||||||||
|
Changes associated with ineffective interest rate swap
|
— | 6,252 | — | — | 6,252 | |||||||||||||||
|
Write-off of debt issuance costs
|
— | 1,407 | — | — | 1,407 | |||||||||||||||
|
Other expense (income), net
|
— | 767 | (248 | ) | — | 519 | ||||||||||||||
|
(Loss) income before (benefit from) provision for income taxes
|
(5,809 | ) | (68,154 | ) | 17,064 | — | (56,899 | ) | ||||||||||||
|
(Benefit from) provision for income taxes
|
(2,261 | ) | 170 | 6,655 | — | 4,564 | ||||||||||||||
|
Equity in (loss) income of subsidiaries
|
(57,915 | ) | — | — | 57,915 | — | ||||||||||||||
|
Net (loss) income
|
$ | (61,463 | ) | $ | (68,324 | ) | $ | 10,409 | $ | 57,915 | $ | (61,463 | ) | |||||||
79
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The condensed consolidating statement of operations for BlueLinx
Holdings Inc. for the fiscal year ended January 3, 2009
follows (in thousands):
|
BlueLinx
|
||||||||||||||||||||
|
BlueLinx
|
Corporation
|
LLC
|
||||||||||||||||||
| Holdings Inc. | and Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
Net sales
|
$ | — | $ | 2,779,699 | $ | 30,470 | $ | (30,470 | ) | $ | 2,779,699 | |||||||||
|
Cost of sales
|
— | 2,464,766 | — | — | 2,464,766 | |||||||||||||||
|
Gross profit
|
— | 314,933 | 30,470 | (30,470 | ) | 314,933 | ||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Selling, general and administrative
|
4,191 | 329,199 | 483 | (30,470 | ) | 303,403 | ||||||||||||||
|
Depreciation and amortization
|
— | 16,180 | 4,339 | — | 20,519 | |||||||||||||||
|
Total operating expenses
|
4,191 | 345,379 | 4,822 | (30,470 | ) | 323,922 | ||||||||||||||
|
Operating (loss) income
|
(4,191 | ) | (30,446 | ) | 25,648 | — | (8,989 | ) | ||||||||||||
|
Non-operating expenses:
|
||||||||||||||||||||
|
Interest expense
|
— | 16,765 | 21,782 | — | 38,547 | |||||||||||||||
|
Other expense (income), net
|
— | 720 | (119 | ) | — | 601 | ||||||||||||||
|
(Loss) income before (benefit from) provision for income taxes
|
(4,191 | ) | (47,931 | ) | 3,985 | — | (48,137 | ) | ||||||||||||
|
(Benefit from) provision for income taxes
|
(1,222 | ) | (16,766 | ) | 1,554 | — | (16,434 | ) | ||||||||||||
|
Equity in loss of subsidiaries
|
(28,734 | ) | — | — | 28,734 | — | ||||||||||||||
|
Net (loss) income
|
$ | (31,703 | ) | $ | (31,165 | ) | $ | 2,431 | $ | 28,734 | $ | (31,703 | ) | |||||||
80
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The condensed consolidating balance sheet for BlueLinx Holdings
Inc. as of January 1, 2011 follows (in thousands):
|
BlueLinx
|
||||||||||||||||||||
|
Corporation
|
||||||||||||||||||||
|
BlueLinx
|
and
|
LLC
|
||||||||||||||||||
| Holdings Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash
|
$ | 384 | $ | 13,913 | $ | — | $ | — | $ | 14,297 | ||||||||||
|
Receivables
|
— | 119,202 | — | — | 119,202 | |||||||||||||||
|
Inventories
|
— | 188,250 | — | — | 188,250 | |||||||||||||||
|
Deferred income tax assets, current
|
— | 143 | — | — | 143 | |||||||||||||||
|
Other current assets
|
669 | 20,500 | 1,599 | — | 22,768 | |||||||||||||||
|
Intercompany receivable
|
57,208 | 8,759 | — | (65,967 | ) | — | ||||||||||||||
|
Total current assets
|
58,261 | 350,767 | 1,599 | (65,967 | ) | 344,660 | ||||||||||||||
|
Property and equipment:
|
||||||||||||||||||||
|
Land and land improvements
|
— | 3,027 | 49,513 | — | 52,540 | |||||||||||||||
|
Buildings
|
— | 8,069 | 88,651 | — | 96,720 | |||||||||||||||
|
Machinery and equipment
|
— | 70,860 | — | — | 70,860 | |||||||||||||||
|
Construction in progress
|
— | 2,028 | — | — | 2,028 | |||||||||||||||
|
Property and equipment, at cost
|
— | 83,984 | 138,164 | — | 222,148 | |||||||||||||||
|
Accumulated depreciation
|
— | (65,564 | ) | (26,953 | ) | — | (92,517 | ) | ||||||||||||
|
Property and equipment, net
|
— | 18,420 | 111,211 | — | 129,631 | |||||||||||||||
|
Investment in subsidiaries
|
(47,943 | ) | — | — | 47,943 | — | ||||||||||||||
|
Other non-current assets
|
— | 19,602 | 31,126 | — | 50,728 | |||||||||||||||
|
Total assets
|
$ | 10,318 | $ | 388,789 | $ | 143,936 | $ | (18,024 | ) | $ | 525,019 | |||||||||
|
Liabilities:
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Accounts payable
|
$ | 59 | $ | 62,768 | $ | — | $ | — | 62,827 | |||||||||||
|
Bank overdrafts
|
— | 23,089 | — | — | 23,089 | |||||||||||||||
|
Accrued compensation
|
— | 4,594 | — | — | 4,594 | |||||||||||||||
|
Current maturities of long-term debt
|
— | — | 1,190 | — | 1,190 | |||||||||||||||
|
Other current liabilities
|
— | 15,065 | 483 | 1,244 | 16,792 | |||||||||||||||
|
Intercompany payable
|
9,264 | 57,947 | — | (67,211 | ) | — | ||||||||||||||
|
Total current liabilities
|
9,323 | 163,463 | 1,673 | (65,967 | ) | 108,492 | ||||||||||||||
|
Non-current liabilities:
|
||||||||||||||||||||
|
Long-term debt
|
— | 97,200 | 284,479 | — | 381,679 | |||||||||||||||
|
Non current deferred income tax liabilities
|
— | 192 | — | — | 192 | |||||||||||||||
|
Other non-current liabilities
|
4 | 33,661 | — | — | 33,665 | |||||||||||||||
|
Total liabilities
|
9,327 | 294,516 | 286,152 | (65,967 | ) | 524,028 | ||||||||||||||
|
Stockholders’ Equity/Parent’s Investment
|
991 | 94,273 | (142,216 | ) | 47,943 | 991 | ||||||||||||||
|
Total liabilities and equity
|
$ | 10,318 | $ | 388,789 | $ | 143,936 | $ | (18,024 | ) | $ | 525,019 | |||||||||
81
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The condensed consolidating balance sheet for BlueLinx Holdings
Inc. as of January 2, 2010 follows (in thousands):
|
BlueLinx
|
||||||||||||||||||||
|
Corporation
|
||||||||||||||||||||
|
BlueLinx
|
and
|
LLC
|
||||||||||||||||||
| Holdings Inc. | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash
|
$ | 32 | $ | 29,129 | $ | 296 | $ | — | $ | 29,457 | ||||||||||
|
Receivables
|
— | 119,347 | — | — | 119,347 | |||||||||||||||
|
Inventories
|
— | 173,185 | — | — | 173,185 | |||||||||||||||
|
Deferred income tax assets
|
275 | (910 | ) | — | 635 | — | ||||||||||||||
|
Other current assets
|
925 | 42,172 | 1,873 | — | 44,970 | |||||||||||||||
|
Intercompany receivable
|
63,905 | 5,793 | — | (69,698 | ) | — | ||||||||||||||
|
Total current assets
|
65,137 | 368,716 | 2,169 | (69,063 | ) | 366,959 | ||||||||||||||
|
Property and equipment:
|
||||||||||||||||||||
|
Land and land improvements
|
— | 3,134 | 49,487 | — | 52,621 | |||||||||||||||
|
Buildings
|
— | 7,494 | 88,651 | — | 96,145 | |||||||||||||||
|
Machinery and equipment
|
— | 69,767 | — | — | 69,767 | |||||||||||||||
|
Construction in progress
|
— | 791 | — | — | 791 | |||||||||||||||
|
Property and equipment, at cost
|
— | 81,186 | 138,138 | — | 219,324 | |||||||||||||||
|
Accumulated depreciation
|
— | (59,030 | ) | (23,111 | ) | — | (82,141 | ) | ||||||||||||
|
Property and equipment, net
|
— | 22,156 | 115,027 | — | 137,183 | |||||||||||||||
|
Investment in subsidiaries
|
(11,755 | ) | — | — | 11,755 | — | ||||||||||||||
|
Non-current deferred income tax assets
|
— | 5,075 | 2,227 | (7,302 | ) | — | ||||||||||||||
|
Other non-current assets
|
— | 19,016 | 23,688 | — | 42,704 | |||||||||||||||
|
Total assets
|
$ | 53,382 | $ | 414,963 | $ | 143,111 | $ | (64,610 | ) | $ | 546,846 | |||||||||
|
Liabilities:
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Accounts payable
|
$ | 38 | $ | 64,580 | $ | — | $ | — | 64,618 | |||||||||||
|
Bank overdrafts
|
— | 27,232 | — | — | 27,232 | |||||||||||||||
|
Accrued compensation
|
16 | 4,863 | — | — | 4,879 | |||||||||||||||
|
Deferred income tax liabilities
|
(635 | ) | — | — | 635 | — | ||||||||||||||
|
Other current liabilities
|
— | 20,637 | 1,871 | — | 22,508 | |||||||||||||||
|
Intercompany payable
|
3,143 | 61,644 | 4,911 | (69,698 | ) | — | ||||||||||||||
|
Total current liabilities
|
2,562 | 178,956 | 6,782 | (69,063 | ) | 119,237 | ||||||||||||||
|
Non-current liabilities:
|
||||||||||||||||||||
|
Long-term debt
|
— | 56,000 | 285,669 | — | 341,669 | |||||||||||||||
|
Non-current deferred income tax liabilities
|
— | 2,524 | 4,778 | (7,302 | ) | — | ||||||||||||||
|
Other non-current liabilities
|
— | 35,120 | — | — | 35,120 | |||||||||||||||
|
Total liabilities
|
2,562 | 272,600 | 297,229 | (76,365 | ) | 496,026 | ||||||||||||||
|
Stockholders’ Equity/Parent’s Investment
|
50,820 | 142,363 | (154,118 | ) | 11,755 | 50,820 | ||||||||||||||
|
Total liabilities and equity
|
$ | 53,382 | $ | 414,963 | $ | 143,111 | $ | (64,610 | ) | $ | 546,846 | |||||||||
82
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BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The condensed consolidating statement of cash flows for BlueLinx
Holdings Inc. for the fiscal year ended January 1, 2011
follows (in thousands):
|
BlueLinx
|
BlueLinx
|
LLC
|
||||||||||||||||||
| Holdings Inc. | Corporation | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||||||
|
Net (loss) income
|
$ | (53,243 | ) | $ | (50,243 | ) | $ | 4,130 | $ | 46,113 | $ | (53,243 | ) | |||||||
|
Adjustments to reconcile net (loss) income to cash (used in)
provided by operations:
|
||||||||||||||||||||
|
Depreciation and amortization
|
— | 9,854 | 3,511 | — | 13,365 | |||||||||||||||
|
Amortization of debt issue costs
|
— | 1,298 | 665 | — | 1,963 | |||||||||||||||
|
Net gain from terminating the Georgia-Pacific supply agreement
|
— | — | — | — | — | |||||||||||||||
|
Payments from terminating the Georgia-Pacific supply agreement
|
— | 4,706 | — | — | 4,706 | |||||||||||||||
|
Gain from sale properties
|
— | — | — | — | — | |||||||||||||||
|
Prepayment penalty associated with sale of facility
|
— | — | — | — | — | |||||||||||||||
|
Changes associated with ineffective interest rate swap, net
|
— | (4,603 | ) | — | — | (4,603 | ) | |||||||||||||
|
Write-off of debt issuance costs
|
— | 183 | — | — | 183 | |||||||||||||||
|
Vacant property charges, net
|
— | 53 | — | — | 53 | |||||||||||||||
|
Deferred income tax (benefit) provision
|
910 | 1,041 | (2,551 | ) | — | (600 | ) | |||||||||||||
|
Share-based compensation expense
|
1,856 | 2,122 | — | — | 3,978 | |||||||||||||||
|
Increase in restricted cash related to the ineffective interest
swap, insurance, and other
|
— | 6,556 | — | — | 6,556 | |||||||||||||||
|
Equity in earnings of subsidiaries
|
46,113 | — | — | (46,113 | ) | — | ||||||||||||||
|
Changes in assets and liabilities:
|
||||||||||||||||||||
|
Receivables
|
— | 145 | — | — | 145 | |||||||||||||||
|
Inventories
|
— | (15,065 | ) | — | — | (15,065 | ) | |||||||||||||
|
Accounts payable
|
21 | (1,812 | ) | — | — | (1,791 | ) | |||||||||||||
|
Changes in other working capital
|
279 | 15,267 | (1,338 | ) | 1,244 | 15,452 | ||||||||||||||
|
Intercompany receivable
|
6,697 | (2,966 | ) | — | (3,731 | ) | — | |||||||||||||
|
Intercompany payable
|
6,121 | (3,697 | ) | (4,911 | ) | 2,487 | — | |||||||||||||
|
Other
|
(47 | ) | (4,588 | ) | 3,627 | — | (1,008 | ) | ||||||||||||
|
Net cash provided by (used in) operating activities
|
8,707 | (41,749 | ) | 3,133 | — | (29,909 | ) | |||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Investment in subsidiaries
|
(7,772 | ) | — | — | 7,772 | — | ||||||||||||||
|
Property, plant and equipment investments
|
— | (4,092 | ) | — | — | (4,092 | ) | |||||||||||||
|
Proceeds from sale of assets
|
— | 711 | — | — | 711 | |||||||||||||||
|
Net cash provided by (used in) investing activities
|
(7,772 | ) | (3,381 | ) | — | 7,772 | (3,381 | ) | ||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Net transactions with Parent
|
— | — | 7,772 | (7,772 | ) | — | ||||||||||||||
|
Repurchase of common stock
|
(583 | ) | — | — | — | (583 | ) | |||||||||||||
|
Decrease in revolving credit facility
|
— | 41,200 | — | — | 41,200 | |||||||||||||||
|
Debt financing costs
|
— | (6,521 | ) | — | — | (6,521 | ) | |||||||||||||
|
Payment of principal on mortgage
|
— | — | — | — | — | |||||||||||||||
|
Prepayment fees associated with sale of facility
|
— | — | — | — | — | |||||||||||||||
|
Increase in bank overdrafts
|
— | (4,143 | ) | — | — | (4,143 | ) | |||||||||||||
|
Increase in restricted cash related to the mortgage
|
— | — | (11,201 | ) | — | (11,201 | ) | |||||||||||||
|
Intercompany receivable
|
— | — | — | — | — | |||||||||||||||
|
Intercompany payable
|
— | — | — | — | — | |||||||||||||||
|
Payments on capital lease obligations
|
— | (622 | ) | — | — | (622 | ) | |||||||||||||
|
Net cash (used in) provided by financing activities
|
(583 | ) | 29,914 | (3,429 | ) | (7,772 | ) | 18,130 | ||||||||||||
|
(Decrease) increase in cash
|
352 | (15,216 | ) | (296 | ) | — | (15,160 | ) | ||||||||||||
|
Balance, beginning of period
|
32 | 29,129 | 296 | — | 29,457 | |||||||||||||||
|
Balance, end of period
|
$ | 384 | $ | 13,913 | $ | — | $ | — | $ | 14,297 | ||||||||||
|
Supplemental cash flow information:
|
||||||||||||||||||||
|
Net income tax refunds (income taxes paid) during the period
|
$ | — | $ | 20,098 | $ | (115 | ) | $ | — | $ | 19,983 | |||||||||
|
Interest paid during the period
|
$ | — | $ | 13,280 | $ | 18,395 | $ | — | $ | 31,675 | ||||||||||
83
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The condensed consolidating statement of cash flows for BlueLinx
Holdings Inc. for the fiscal year ended January 2, 2010
follows (in thousands):
|
BlueLinx
|
BlueLinx
|
LLC
|
||||||||||||||||||
| Holdings Inc. | Corporation | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||||||
|
Net (loss) income
|
$ | (61,463 | ) | $ | (68,324 | ) | $ | 10,409 | $ | 57,915 | $ | (61,463 | ) | |||||||
|
Adjustments to reconcile net (loss) income to cash (used in)
provided by operations:
|
||||||||||||||||||||
|
Depreciation and amortization
|
— | 13,059 | 3,925 | — | 16,984 | |||||||||||||||
|
Amortization of debt issue costs
|
— | 1,806 | 653 | — | 2,459 | |||||||||||||||
|
Net gain from terminating the Georgia-Pacific supply agreement
|
— | (17,772 | ) | — | — | (17,772 | ) | |||||||||||||
|
Payments from terminating the Georgia-Pacific supply agreement
|
— | 14,118 | — | — | 14,118 | |||||||||||||||
|
Gain from sale of properties
|
— | (169 | ) | (10,228 | ) | — | (10,397 | ) | ||||||||||||
|
Prepayment penalty associated with sale of facility
|
— | — | 616 | — | 616 | |||||||||||||||
|
Changes associated with ineffective interest rate swap, net
|
— | 6,252 | — | — | 6,252 | |||||||||||||||
|
Write-off of debt issuance costs
|
— | 1,407 | — | — | 1,407 | |||||||||||||||
|
Vacant property charges, net
|
— | 1,222 | — | — | 1,222 | |||||||||||||||
|
Deferred income tax (benefit) provision
|
(620 | ) | 22,565 | 2,275 | — | 24,220 | ||||||||||||||
|
Share-based compensation expense
|
1,773 | 1,149 | — | — | 2,922 | |||||||||||||||
|
Increase in restricted cash related to the ineffective interest
swap, insurance, and other
|
— | (2,511 | ) | — | — | (2,511 | ) | |||||||||||||
|
Equity in earnings of subsidiaries
|
57,915 | — | — | (57,915 | ) | — | ||||||||||||||
|
Changes in assets and liabilities:
|
||||||||||||||||||||
|
Receivables
|
— | 11,306 | — | — | 11,306 | |||||||||||||||
|
Inventories
|
— | 16,297 | — | — | 16,297 | |||||||||||||||
|
Accounts payable
|
(79 | ) | (13,670 | ) | — | — | (13,749 | ) | ||||||||||||
|
Changes in other working capital
|
(1,225 | ) | (10,585 | ) | (1,773 | ) | — | (13,583 | ) | |||||||||||
|
Intercompany receivable
|
(1,039 | ) | 248 | 3,229 | (2,438 | ) | — | |||||||||||||
|
Intercompany payable
|
(2,898 | ) | — | 460 | 2,438 | — | ||||||||||||||
|
Other
|
— | 2,017 | (198 | ) | — | 1,819 | ||||||||||||||
|
Net cash (used in) provided by operating activities
|
(7,636 | ) | (21,585 | ) | 9,368 | — | (19,853 | ) | ||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Investment in subsidiaries
|
32,392 | — | — | (32,392 | ) | — | ||||||||||||||
|
Property, plant and equipment investments
|
— | (1,815 | ) | — | — | (1,815 | ) | |||||||||||||
|
Proceeds from sale of assets
|
— | 2,027 | 12,424 | — | 14,451 | |||||||||||||||
|
Net cash provided by (used in) investing activities
|
32,392 | 212 | 12,424 | (32,392 | ) | 12,636 | ||||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Net transactions with Parent
|
— | (24,994 | ) | (7,398 | ) | 32,392 | — | |||||||||||||
|
Repurchase of common stock
|
(2,042 | ) | — | — | — | (2,042 | ) | |||||||||||||
|
Decrease in revolving credit facility
|
— | (100,000 | ) | — | — | (100,000 | ) | |||||||||||||
|
Payment of principal on mortgage
|
— | — | (3,201 | ) | — | (3,201 | ) | |||||||||||||
|
Prepayment fees associated with sale of facility
|
— | — | (616 | ) | — | (616 | ) | |||||||||||||
|
Increase in bank overdrafts
|
— | 2,517 | — | — | 2,517 | |||||||||||||||
|
Increase in restricted cash related to the mortgage
|
— | — | (10,296 | ) | (10,296 | ) | ||||||||||||||
|
Intercompany receivable
|
(22,720 | ) | — | — | 22,720 | — | ||||||||||||||
|
Intercompany payable
|
— | 22,720 | — | (22,720 | ) | — | ||||||||||||||
|
Other
|
6 | — | (47 | ) | — | (41 | ) | |||||||||||||
|
Net cash (used in) provided by financing activities
|
(24,756 | ) | (99,757 | ) | (21,558 | ) | 32,392 | (113,679 | ) | |||||||||||
|
(Decrease) increase in cash
|
— | (121,130 | ) | 234 | — | (120,896 | ) | |||||||||||||
|
Balance, beginning of period
|
32 | 150,259 | 62 | — | 150,353 | |||||||||||||||
|
Balance, end of period
|
$ | 32 | $ | 29,129 | $ | 296 | $ | — | $ | 29,457 | ||||||||||
|
Supplemental cash flow information:
|
||||||||||||||||||||
|
Net income tax refunds (income taxes paid) during the period
|
$ | — | $ | 10,797 | $ | (498 | ) | $ | — | $ | 10,299 | |||||||||
|
Interest paid during the period
|
$ | — | $ | 11,373 | $ | 16,915 | $ | — | $ | 28,288 | ||||||||||
84
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The condensed consolidating statement of cash flows for BlueLinx
Holdings Inc. for the fiscal year ended January 3, 2009
follows (in thousands):
|
BlueLinx
|
||||||||||||||||||||
|
BlueLinx
|
Corporation
|
LLC
|
||||||||||||||||||
| Holdings Inc. | and Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
Cash flows from operating activities:
|
||||||||||||||||||||
|
Net (loss) income
|
$ | (31,703 | ) | $ | (31,165 | ) | $ | 2,431 | $ | 28,734 | $ | (31,703 | ) | |||||||
|
Adjustments to reconcile net (loss) income to cash (used in)
provided by operations:
|
||||||||||||||||||||
|
Depreciation and amortization
|
— | 16,181 | 4,338 | — | 20,519 | |||||||||||||||
|
Amortization of debt issue costs
|
— | 1,839 | 640 | — | 2,479 | |||||||||||||||
|
Non-cash vacant property charges
|
— | 4,441 | — | — | 4,441 | |||||||||||||||
|
Deferred income tax benefit
|
(368 | ) | (1,445 | ) | (1,122 | ) | — | (2,935 | ) | |||||||||||
|
Prepayment fees associated with principal payments on new
mortgage
|
— | — | 1,868 | — | 1,868 | |||||||||||||||
|
Gain from sale of properties
|
— | — | (1,936 | ) | — | (1,936 | ) | |||||||||||||
|
Share-based compensation
|
1,482 | 1,132 | — | — | 2,614 | |||||||||||||||
|
Excess tax benefits from share-based compensation arrangements
|
— | (81 | ) | — | — | (81 | ) | |||||||||||||
|
Increase in restricted cash related to the interest swap,
insurance, and other
|
— | (6,210 | ) | — | — | (6,210 | ) | |||||||||||||
|
Equity in earnings of subsidiaries
|
28,734 | — | — | (28,734 | ) | — | ||||||||||||||
|
Changes in assets and liabilities:
|
||||||||||||||||||||
|
Receivables
|
— | 132,523 | — | — | 132,523 | |||||||||||||||
|
Inventories
|
— | 146,405 | — | — | 146,405 | |||||||||||||||
|
Accounts payable
|
97 | (86,447 | ) | — | — | (86,350 | ) | |||||||||||||
|
Changes in other working capital
|
587 | 20,577 | (724 | ) | — | 20,440 | ||||||||||||||
|
Intercompany receivable
|
(751 | ) | (5,430 | ) | — | 6,181 | — | |||||||||||||
|
Intercompany payable
|
5,430 | — | 751 | (6,181 | ) | — | ||||||||||||||
|
Other
|
— | (11,539 | ) | (145 | ) | — | (11,684 | ) | ||||||||||||
|
Net cash (used in) provided by operating activities
|
3,508 | 180,781 | 6,101 | — | 190,390 | |||||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Investment in subsidiaries
|
17,288 | — | — | (17,288 | ) | — | ||||||||||||||
|
Property and equipment investments
|
— | (4,919 | ) | — | — | (4,919 | ) | |||||||||||||
|
Proceeds from disposition of assets
|
— | 1,211 | 4,693 | — | 5,904 | |||||||||||||||
|
Net cash provided by (used in) investing activities
|
17,288 | (3,708 | ) | 4,693 | (17,288 | ) | 985 | |||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Net transactions with Parent
|
— | (23,833 | ) | 6,545 | 17,288 | — | ||||||||||||||
|
Proceeds from stock options exercised
|
434 | — | — | — | 434 | |||||||||||||||
|
Excess tax benefits from stock-based compensation arrangements
|
81 | — | — | — | 81 | |||||||||||||||
|
Decrease in revolving credit facility
|
— | (27,535 | ) | — | — | (27,535 | ) | |||||||||||||
|
Debt financing costs
|
— | — | (217 | ) | — | (217 | ) | |||||||||||||
|
Principal payments on new mortgage
|
— | — | (6,130 | ) | — | (6,130 | ) | |||||||||||||
|
Prepayment fees associated with principal payments on new
mortgage
|
— | — | (1,868 | ) | — | (1,868 | ) | |||||||||||||
|
Decrease in bank overdrafts
|
— | (12,437 | ) | — | — | (12,437 | ) | |||||||||||||
|
Increase in restricted cash related to the mortgage
|
— | — | (9,119 | ) | — | (9,119 | ) | |||||||||||||
|
Intercompany receivable
|
(21,292 | ) | — | — | 21,292 | — | ||||||||||||||
|
Intercompany payable
|
21,292 | — | (21,292 | ) | — | |||||||||||||||
|
Other
|
10 | — | — | — | 10 | |||||||||||||||
|
Net cash provided by (used in) financing activities
|
(20,767 | ) | (42,513 | ) | (10,789 | ) | 17,288 | (56,781 | ) | |||||||||||
|
Increase in cash
|
29 | 134,560 | 5 | — | 134,594 | |||||||||||||||
|
Balance, beginning of period
|
3 | 15,699 | 57 | — | 15,759 | |||||||||||||||
|
Balance, end of period
|
$ | 32 | $ | 150,259 | $ | 62 | $ | — | $ | 150,353 | ||||||||||
|
Supplemental cash flow information:
|
||||||||||||||||||||
|
Net income tax refunds (income taxes paid) during the period
|
$ | — | $ | 23,100 | $ | (338 | ) | $ | — | $ | 22,762 | |||||||||
|
Interest paid during the period
|
$ | — | $ | 16,196 | $ | 20,658 | $ | — | $ | 36,854 | ||||||||||
85
Table of Contents
BLUELINX
HOLDINGS INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The condensed consolidating statement of stockholders’
equity for BlueLinx Holdings Inc. for fiscal 2008, fiscal 2009
and fiscal 2010 follows (in thousands):
|
BlueLinx
|
||||||||||||||||||||
|
BlueLinx
|
Corporation
|
LLC
|
||||||||||||||||||
| Holdings Inc. | and Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
Balance, December 29, 2007
|
$ | 154,823 | $ | 303,260 | $ | (166,105 | ) | $ | (137,155 | ) | $ | 154,823 | ||||||||
|
Net income (loss)
|
(31,703 | ) | (31,165 | ) | 2,431 | 28,734 | (31,703 | ) | ||||||||||||
|
Foreign currency translation adjustment, net of tax
|
(2,598 | ) | (2,598 | ) | — | 2,598 | (2,598 | ) | ||||||||||||
|
Unrealized net loss from pension plan, net of tax
|
(15,997 | ) | (15,997 | ) | — | 15,997 | (15,997 | ) | ||||||||||||
|
Unrealized loss from cash flow hedge, net of tax
|
(3,751 | ) | (3,751 | ) | — | 3,751 | (3,751 | ) | ||||||||||||
|
Proceeds from stock options exercised
|
434 | — | — | — | 434 | |||||||||||||||
|
Issuance of restricted stock
|
10 | — | — | — | 10 | |||||||||||||||
|
Excess tax benefits from share-based compensation arrangements
|
81 | — | — | — | 81 | |||||||||||||||
|
Excess tax deficiencies from share-based compensation
arrangements
|
(1,061 | ) | — | — | — | (1,061 | ) | |||||||||||||
|
Compensation expense related to share-based grants
|
2,614 | — | — | — | 2,614 | |||||||||||||||
|
Net transactions with the parent
|
— | (23,762 | ) | 6,545 | 17,217 | — | ||||||||||||||
|
Balance, January 3, 2009
|
$ | 102,852 | $ | 225,987 | $ | (157,129 | ) | $ | (68,858 | ) | $ | 102,852 | ||||||||
|
Net income (loss)
|
(61,463 | ) | (68,324 | ) | 10,409 | 57,915 | (61,463 | ) | ||||||||||||
|
Foreign currency translation adjustment, net of tax
|
1,173 | 1,173 | — | (1,173 | ) | 1,173 | ||||||||||||||
|
Unrealized net gain from pension plan, net of tax
|
941 | 941 | — | (941 | ) | 941 | ||||||||||||||
|
Unrealized gain from cash flow hedge, net of tax
|
6,431 | 6,431 | — | (6,431 | ) | 6,431 | ||||||||||||||
|
Issuance of restricted stock
|
6 | — | — | — | 6 | |||||||||||||||
|
Repurchase of restricted stock
|
(2,042 | ) | — | — | — | (2,042 | ) | |||||||||||||
|
Compensation expense related to share-based grants
|
2,922 | — | — | — | 2,922 | |||||||||||||||
|
Net transactions with the Parent
|
— | (23,845 | ) | (7,398 | ) | 31,243 | — | |||||||||||||
|
Balance, January 2, 2010
|
$ | 50,820 | $ | 142,363 | $ | (154,118 | ) | $ | 11,755 | $ | 50,820 | |||||||||
|
Net income (loss)
|
(53,243 | ) | (50,243 | ) | 4,130 | 46,113 | (53,243 | ) | ||||||||||||
|
Foreign currency translation adjustment, net of tax
|
336 | 336 | — | (336 | ) | 336 | ||||||||||||||
|
Unrealized net gain from pension plan, net of tax
|
(616 | ) | (616 | ) | — | 616 | (616 | ) | ||||||||||||
|
Unrealized gain from cash flow hedge, net of tax
|
1,297 | 1,297 | — | (1,297 | ) | 1,297 | ||||||||||||||
|
Issuance of restricted stock
|
7 | — | — | — | 7 | |||||||||||||||
|
Repurchase of restricted stock
|
(583 | ) | — | — | — | (583 | ) | |||||||||||||
|
Compensation expense related to share-based grants
|
3,876 | — | — | — | 3,876 | |||||||||||||||
|
Reclassification of equity award to liability
|
(903 | ) | (903 | ) | ||||||||||||||||
|
Net transactions with the Parent
|
— | 1,136 | 7,772 | (8,908 | ) | — | ||||||||||||||
|
Balance, January 1, 2011
|
$ | 991 | $ | 94,273 | $ | (142,216 | ) | $ | 47,943 | $ | 991 | |||||||||
86
Table of Contents
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES. |
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures designed to
ensure that information required to be disclosed in our reports
pursuant to the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is recorded, processed, summarized
and reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and
communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure. Management
necessarily applied its judgment in assessing the costs and
benefits of such controls and procedures that, by their nature,
can provide only reasonable assurance regarding
management’s control objectives.
Our management performed an evaluation, as of the end of the
period covered by this Annual Report on
Form 10-K,
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 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.
Management’s
Report on Internal Control over Financial Reporting
Management’s Report on Internal Control Over Financial
Reporting and the Report of Independent Registered Public
Accounting Firm thereon are set out in Item 8 of this
Annual Report on
Form 10-K.
Changes
in Internal Control over Financial Reporting
No change in our internal control over financial reporting
occurred during the fiscal quarter ended January 1, 2011
that materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
The certifications of our Chief Executive Officer and Chief
Financial Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and
31.2 to this Annual Report on
Form 10-K.
Additionally, as required by Section 303A.12 (a) of
the NYSE Listed Company Manual, our Chief Executive Officer
filed a certification with the NYSE on June 10, 2010
reporting that he was not aware of any violation by us of the
NYSE’s Corporate Governance listing standards.
| ITEM 9B. | OTHER INFORMATION. |
None.
87
Table of Contents
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The following table contains the name, age and position with our
company of each of our executive officers and directors as of
February 28, 2011. Their respective backgrounds are
described in the text following the table.
|
Name
|
Age
|
Position
|
||||
|
Howard S. Cohen
|
64 | Chairman of the Board of Directors (Director since September 2007, Chairman since March 2008) | ||||
|
George R. Judd
|
49 | President and Chief Executive Officer Director (since October 2008) | ||||
|
H. Douglas Goforth
|
47 | Senior Vice President, Chief Financial Officer and Treasurer | ||||
|
Dean A. Adelman
|
45 | Chief Administrative Officer | ||||
|
Richard S. Grant
|
64 | Director (since 2005) | ||||
|
Richard B. Marchese
|
69 | Director (since 2005) | ||||
|
Steven F. Mayer
|
51 | Director (since 2004) | ||||
|
Charles H. McElrea
|
60 | Director (since 2004) | ||||
|
Alan H. Schumacher
|
64 | Director (since 2004) | ||||
|
Mark A. Suwyn
|
68 | Director (since 2005) | ||||
|
Robert G. Warden
|
38 | Director (since 2004) | ||||
|
M. Richard Warner
|
59 | Director (since 2008) | ||||
Executive
Officers
George R. Judd
has served as our Chief Executive Officer
since November 2008 and as our President since May 2004. Prior
to that time, he worked for Georgia-Pacific Corporation in a
variety of positions managing both inside and outside sales,
national accounts and most recently as Vice President of Sales
and Eastern Operations from
2002-2004.
From 2000 until 2002, Mr. Judd worked as Vice President of
the North and Midwest regions of the Distribution Division.
He served as Vice President of the Southeast region from 1999 to
2000. Mr. Judd serves on the board of the Girl Scouts of
Greater Atlanta and leads its design and construction committee.
He graduated from Western Connecticut State University in 1984
with a Bachelor’s degree in Marketing.
H. Douglas Goforth
has served as our Senior Vice
President, Chief Financial Officer and Treasurer since February
2008. From November 2006 until February 2008, Mr. Goforth
served as Vice President and Corporate Controller for Armor
Holdings, Inc. which was acquired by BAE Systems in July 2007.
Previously he served as Corporate Controller for BlueLinx from
May 2004 until October 2006, where he played a key role in our
2004 IPO. From 2002 until 2004 he served as Controller for the
Distribution Division of Georgia-Pacific Corporation.
Mr. Goforth has 25 years of combined accounting,
finance, treasury, acquisition and management experience with
leading distribution and manufacturing companies including
Mitsubishi Wireless Communications, Inc., Yamaha Motor
Manufacturing, Inc. and Ingersoll-Rand. Mr. Goforth serves
on the board of directors for the Arthritis Foundation of
Georgia. Mr. Goforth is a North Carolina State Board
Certified Public Accountant and earned a Bachelor of Science in
Accounting from Mars Hill College in North Carolina.
Dean A. Adelman
has served as our Chief Administrative
Officer since May 2008 and as our Vice President, Human
Resources since October 2005. Prior to that time, he served as
Vice President Human Resources, Staff Development &
Training for Corrections Corporation of America. Previously,
Mr. Adelman served as Vice President Human Resources for
Arby’s Inc. (formerly RTM Restaurant Group) from 1998 to
2002. From 1991 to 1998, Mr. Adelman served as senior
counsel for Georgia-Pacific Corporation. Mr. Adelman
received his Masters of Business Administration from the Kellogg
School of Management at Northwestern
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University, a Juris Doctor degree from the University of Georgia
School of Law, and a Bachelor of Arts degree from the University
of Georgia.
Directors
Howard S. Cohen
has served as Chairman of our Board since
March 2008 and as a member of our Board since September 2007. He
is a Senior Advisor to Cerberus. Mr. Cohen served as our
Interim Chief Executive Officer from March 2008 through October
2008 and as our Executive Chairman from March 2008 through March
2009. Mr. Cohen possesses 33 years of leadership
experience, including service as President and CEO of four
publicly-traded companies: GTECH Corporation, from 2001 to 2002;
Bell & Howell, from 2000 to 2001; Sidus Systems Inc.,
from 1998 to 1999; and Peak Technologies Group, Inc., from 1996
to 1998. Mr. Cohen has also managed independent divisions
of three Fortune 500 companies. Mr. Cohen serves as
the Chairman of the Board of Directors of Albertsons LLC and
Equable Ascent Financial, LLC, both of which are Cerberus
portfolio companies. Mr. Cohen previously served on the
Board of SSA Global Technologies, Inc. from 2005 until 2007.
Mr. Cohen’s past experience as our interim Chief
Executive Officer and Executive Chairman, financial expertise,
management advisory expertise, experience as a director and
officer of public companies, relationship with our largest
stockholder and his performance as one of our Board members make
him a valuable member of our Board.
George R. Judd
has served as a member of our Board since
October 2008. As an executive officer of our Company,
Mr. Judd’s background is described above.
Mr. Judd’s experience as our Chief Executive Officer,
years of experience with Georgia-Pacific Corporation and
BlueLinx in a variety of leadership roles, institutional
knowledge, management skills, industry knowledge and his
performance as one of our Board members make him a valuable
member of our Board.
Richard S. Grant
has served as a member of our Board
since December 2005. Previously, Mr. Grant served as a
director of The BOC Group plc, until his retirement in 2002.
Over 30 years of service with The BOC Group, Mr. Grant
held various management positions, most recently as Chief
Executive of BOC Process Gas Solutions, Chairman of CNC sa, a
Mexican joint venture company, and he had group responsibility
for Technology, Latin America and Continental Europe. Previous
responsibilities included service as the BOC Regional Director
for South Pacific/South Asia, Chairman of Elgas Ltd, an
Australian LPG distributor, and before that as President of
Ohmeda Medical Devices and Chief Executive Officer of Glasrock
Home Healthcare Inc. Mr. Grant currently serves on the
Board of Compass Minerals International Inc, where he is lead
director, a member of the audit committee and the nominating
corporate governance committee, of which he was previously
Chairman. Mr. Grant previously served as a director of
Distributed Energy Systems Corporation from 2006 to 2007.
Mr. Grant’s experience managing distribution
businesses, leadership experience, international board
experience, transactional experience, financial expertise,
experience as an officer and director of public companies,
independence and his performance as one of our Board members
make him a valuable member of our Board.
Richard B. Marchese
has served as a member of our Board
since May 2005. He served as Vice President Finance, Chief
Financial Officer and Treasurer of Georgia Gulf Corporation
since 1989 before retiring at the end of 2003. Prior to 1989,
Mr. Marchese served as the Controller of Georgia Gulf
Corporation, and prior to that he served as the Controller of
the Resin Division of Georgia-Pacific Corporation.
Mr. Marchese is a member of the board of directors of Nalco
Holding Company, Quality Distribution Inc. and TPC Group Inc.
and a member of the board of managers of Quality Distribution
LLC.
Mr. Marchese’s extensive finance and operations
experience, experience in the oversight of financial reporting
and internal controls, experience as an officer and director of
public companies, independence and his performance as one of our
Board members make him a valuable member of our Board.
Steven F. Mayer
has served as a member of our Board since
May 2004. He has been Managing Director of Cerberus California,
LLC and predecessor entities since November 2002 and also serves
as Co-Head of
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Private Equity at Cerberus. Prior to joining Cerberus in 2002
and since 2001, Mr. Mayer was an Executive Managing
Director of Gores Technology Group. Prior to joining Gores, from
1996 to 2001, Mr. Mayer was a Managing Director of Libra
Capital Partners, L.P. From 1994 until 1996, Mr. Mayer was
a Managing Director of Aries Capital Group, LLC, a private
equity investment firm that he co-founded. From 1992 until 1994,
Mr. Mayer was a principal with Apollo Advisors, L.P. and
Lion Advisors, L.P., affiliated private investment firms. Prior
to that time, Mr. Mayer was an attorney with
Sullivan & Cromwell. Mr. Mayer is a member of the
boards of directors of Spyglass Entertainment Holdings, LLC and
Talecris Biotherapeutics Holdings Corp. Mr. Mayer received
his A.B., cum laude, from Princeton University and his juris
doctor degree, magna cum laude, from Harvard Law School.
Mr. Mayer’s financial expertise, management advisory
expertise, experience as a director of public companies,
relationship with our largest stockholder and his performance as
one of our Board members make him a valuable member of our Board.
Charles H. (Chuck) McElrea
served as our Chief Executive
Officer from May 2004 until his retirement from that position in
October 2005, and has served as a member of our Board since May
2004. Prior to that time, Mr. McElrea worked at
Georgia-Pacific for 26 years, most recently as President of
the Distribution Division for four years and as Vice President
of Finance, Information Technology and Strategy of
Containerboard and Packaging for one year. Mr. McElrea held
several other senior management positions including Vice
President of Distribution Division Integrated Business
Systems, Vice President of Packaging Division Business
Planning & Logistics, Vice President of
Pulp & Paper Logistics, Vice President of Purchasing
and Vice President of the Bleached Board Division. He also held
company positions in both manufacturing and finance/accounting.
Mr. McElrea received a Bachelor’s degree in Business
from California Polytechnic State University in 1977.
Mr. McElrea’s past experience as our Chief Executive
Officer, years of experience with Georgia-Pacific Corporation
and BlueLinx in a variety of leadership roles, institutional
knowledge, industry knowledge and his performance as one of our
Board members make him a valuable member of our Board.
Alan H. Schumacher
has served as a member of our Board
since May 2004. He is a director of Noranda Aluminum Holding
Corporation, Equable Ascent Financial, LLC, North American Bus
Industries, Inc., School Bus Holdings Inc. and Quality
Distribution Inc. He is also a member of the board of managers
of Quality Distribution LLC. Mr. Schumacher was a director
of Anchor Glass Container Inc. from 2003 to 2006.
Mr. Schumacher is a member of the Federal Accounting
Standards Advisory Board and has served on that board since
2002. Mr. Schumacher has 23 years of experience
working in various positions at American National Can
Corporation and American National Can Group, where, from 1997
until his retirement in 2000, he served as Executive Vice
President and Chief Financial Officer and, from 1988 through
1996, he served as Vice President, Controller and Chief
Accounting Officer.
Mr. Schumacher’s financial expertise (including his
qualification as an audit committee financial expert),
experience in the oversight of financial reporting and internal
controls, experience as an officer and director of public
companies, independence and his performance as one of our Board
members make him a valuable member of our Board.
Mark A. Suwyn
has served as a member of our Board since
May 2005. Mr. Suwyn has served as the Chairman of NewPage
Corporation and NewPage Holding Corporation from May 2005 to
June 2010. Mr. Suwyn was the interim Chief Executive
Officer of NewPage from January 2010 to February 2010, was the
Chief Executive Officer of NewPage from March 2006 until March
2009. Previously, he served as the Chairman and Chief Executive
Officer of Louisiana-Pacific Corporation from 1996 to 2004. From
1992 to 1995, Mr. Suwyn served as Executive Vice President
of International Paper Co. Mr. Suwyn has also served as
Senior Vice President of E.I. du Pont de Nemours and Company.
Mr. Suwyn served on the boards of United Rentals Inc.
from 2004 to 2007 and Unocal Corporation from 2004 to 2005.
Mr. Suwyn currently serves on the board of Ballard Power
Systems Inc. and Contech Construction Products Inc.
Mr. Suwyn has previously served as a senior member of the
operations team of Cerberus and as an advisor to Cerberus.
Cerberus is the indirect holder of a majority of the outstanding
shares of our common stock.
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Mr. Suwyn’s leadership, extensive managerial
experience, management advisory expertise, experience as a
director and officer of public companies, industry knowledge and
experience, relationship with our largest stockholder and his
performance as one of our Board members make him a valuable
member of our Board.
Robert G. Warden
has served as a member of our Board
since May 2004. Mr. Warden is a Managing Director of
Cerberus, which he joined in February 2003. Prior to joining
Cerberus, Mr. Warden was a Vice President at J.H. Whitney
from May 2000 to February 2003, a principal at Cornerstone
Equity Investors LLC from July 1998 to May 2000 and an associate
at Donaldson, Lufkin & Jenrette from July 1995 to July
1998. Mr. Warden graduated with an AB from Brown University
in 1995. Mr. Warden also serves on the boards of Aercap
Holdings N.V., Equable Ascent Financial, LLC and Four Points
Media Group LLC.
Mr. Warden’s financial expertise, management advisory
expertise, experience as a director of public companies,
relationship with our largest stockholder and his performance as
one of our Board members make him a valuable member of our Board.
M. Richard Warner
has served as a member of our
Board since March 2008. Mr. Warner is a consultant for
Cerberus. He served as the Interim Chief Financial Officer of
Equable Ascent Financial, LLC, a Cerberus portfolio company,
from February 2009 until June 2009. Prior to his work with
Cerberus, Mr. Warner was employed for more than
20 years in a variety of capacities at Temple-Inland Inc.,
most recently as a Senior Advisor during 2006, President from
2003 to 2005, Vice President & Chief Administrative
Officer from 1999 to 2003 and Vice President & General
Counsel from 1994 to 2002. Prior to joining Temple-Inland,
Mr. Warner was a commercial lawyer in private practice.
Mr. Warner currently serves on the boards of Balcones
Resources Inc. and Equable Ascent Financial, LLC.
Mr. Warner received his BBA degree, magna cum laude, from
Baylor University and his Juris Doctor degree from Baylor
University Law School.
Mr. Warner’s financial expertise, management advisory
expertise, experience as a director and officer of public
companies, industry knowledge and experience, relationship with
our largest stockholder and his performance as one of our Board
members make him a valuable member of our Board.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors
and officers, and beneficial owners of more than 10% of our
equity securities, to file initial reports of ownership and
reports of changes in ownership with the SEC. Based solely on
our review of the copies of such reports received by us with
respect to transactions during 2010, or written representations
from certain reporting persons, we believe that our directors,
officers and persons who own more than 10% of our equity
securities have complied with all applicable filing requirements
for 2010, except that one late Form 3 and one late
Form 4 were filed late with respect to grants of restricted
stock to Mr. Scott Phillips in connection with his
appointment as principal accounting officer.
Corporate
Governance Guidelines and Code of Ethics
Our corporate governance guidelines, as in effect from time to
time, may be found on our website,
www.bluelinxco.com
.
Our Board intends to review its corporate governance principles,
committee charters and other aspects of governance as often as
necessary to remain current in all aspects of corporate
governance for similarly situated companies.
Our Board has adopted a policy to self-evaluate its performance
on an annual basis.
Our code of conduct and ethics, applicable to all employees and
officers as well as members of our Board, as in effect from time
to time, may be found on our website,
www.bluelinxco.com
.
Any amendment to or waiver of our code of conduct and ethics for
any Board member, our Chief Executive Officer, our Chief
Financial Officer as well as any other executive officer will be
disclosed on our website,
www.bluelinxco.com
.
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Additionally, our corporate governance guidelines and code of
conduct and ethics are available in print to any stockholder who
requests them by writing to BlueLinx Holdings Inc., attn:
Corporate Secretary, 4300 Wildwood Parkway, Atlanta, Georgia
30339.
Our code of conduct and ethics provides a procedure by which
employees and others may directly or anonymously, through a
secure toll-free phone number, inform our management
and/or
the
Audit Committee of any alleged violation of our code of conduct
and ethics, including any allegations of accounting fraud.
Reporting employees are protected from retaliation and any other
form of adverse action.
Communications
with the Board of Directors
Stockholders and other interested parties who wish to send
communications, including recommendations for director nominees,
to our Board or any individual director may do so by writing to
the Board of Directors, in care of our secretary, at our
principal executive offices, BlueLinx Holdings Inc., attn:
Corporate Secretary, 4300 Wildwood Parkway, Atlanta, Georgia
30339. Your letter should indicate whether you are a
stockholder. Depending on the subject matter, our Corporate
Secretary will, as appropriate:
| • | forward the communication to the director to whom it is addressed or, in the case of communications addressed to the Board of Directors generally, to the chairman; | |
| • | attempt to handle the inquiry directly where it is a request for information about us; or | |
| • | not forward the communication if it is primarily commercial in nature or if it relates to an improper topic. |
Communications from interested parties that are complaints or
concerns relating to financial and accounting methods, internal
accounting controls or auditing matters should be sent to the
chairman of the Audit Committee, following the procedures set
forth above. Director nominations will be reviewed for
compliance with the requirements identified under
“Submission of Stockholder Proposals” in our 2009
Proxy Statement and if they meet such requirements, will be
promptly forwarded to the director or directors identified in
the communication.
All communications will be summarized for our Board on a
periodic basis and each letter will be made available to any
director upon request.
Audit
Committee
Our Board established a separately-designated standing Audit
Committee in accordance with Section 3(a)(58)(A) of the
Exchange Act. The purpose of the Audit Committee is to assist
our Board in fulfilling its responsibilities to oversee our
financial reporting process, including monitoring the integrity
of our financial statements and the independence and performance
of our internal and external auditors. The Audit Committee is
directly responsible for the appointment, compensation,
retention and oversight of our independent registered public
accounting firm.
The Audit Committee met eight times in 2010. The Audit Committee
currently consists of Messrs. Grant, Marchese and
Schumacher. As discussed below in Item 13 (Certain
Relationships and Related Transactions, and Director
Independence), our Board has affirmatively determined that
Messrs. Grant, Marchese and Schumacher are each
“independent,” as such term is defined under the rules
of the SEC and the listing standards of the NYSE applicable to
audit committee membership, and each meets the NYSE’s
financial literacy requirements. Our Board has determined that
Mr. Schumacher is an “audit committee financial
expert,” as such term is defined under the applicable rules
of the SEC.
The Audit Committee operates pursuant to a written charter, a
copy of which can be found on our website at
www.bluelinxco.com
. Additionally, the audit committee
charter is available in print to any stockholder who requests it
by writing to BlueLinx Holdings Inc., attn: Corporate Secretary,
4300 Wildwood Parkway, Atlanta, Georgia 30339.
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The Audit Committee has adopted a procedure to receive
allegations on any fraudulent accounting issues through a
toll-free telephone number as set out in our code of conduct and
ethics. See “Corporate Governance Guidelines and Code of
Ethics” above.
| ITEM 11. | EXECUTIVE COMPENSATION. |
The Compensation Committee of our Board of Directors, referred
to in this discussion as the Committee, is responsible for
reviewing, establishing and approving the compensation of our
named executive officers. Compensation paid to our Chief
Executive Officer, Chief Financial Officer and the other named
executive officers identified in the Summary Compensation Table
is set forth under “Compensation of Executive
Officers” below. The following discussion and analysis
focuses on compensation to our named executive officers for 2010.
The Committee regularly consults with management regarding
employee compensation matters. Mr. Judd’s compensation
was adjusted on November 1, 2008 when he entered into an
employment agreement with the Company to serve as our Chief
Executive Officer. Our Board of Directors established a Search
Committee in March 2008 to lead and coordinate the search for a
permanent chief executive officer. The Search Committee included
Messrs. Suwyn, Schumacher, Grant, and Cohen. The Search
Committee engaged an executive search firm to assist in
identifying qualified candidates for the chief executive officer
role. The Search Committee members interviewed internal and
external candidates for the role before ultimately recommending
Mr. Judd for the position. The terms of his employment
agreement were established based on a review of the compensation
he was receiving in his capacity as our President and Chief
Operating Officer, the compensation necessary to hire a
qualified chief executive officer from outside of the Company,
as well as our review of the market data for chief executive
officer compensation at comparator companies which was provided
to the Committee by its outside compensation consultant, Hewitt
Associates, in its 2008 compensation benchmarking survey.
Our Chief Executive Officer makes compensation recommendations
to the Committee for the other named executive officers. The
Committee also considers market factors in making decisions
about our compensation program. In this regard, in 2005, the
Committee retained Hewitt Associates to advise it on executive
compensation matters and to provide compensation recommendations
as to our executive officers. The Committee and the Company
periodically discuss compensation issues and solicit
compensation advice and data from Hewitt. At the request of the
Committee, Hewitt provided an updated compensation benchmarking
study to the Company in October 2008. The following discussion
and analysis, which was reviewed and approved by the Committee,
analyzes the objectives and results for 2010 of our named
executive officer compensation policies and procedures.
Compensation
Policies and Objectives
Our primary goal is to establish a compensation program that
serves the long-term interests of the Company and our
stockholders by aligning management’s interests with that
of our stockholders through equity ownership and by promoting
the attainment of certain individual and corporate goals. In
addition, our compensation program is designed to attract and
retain top quality executives with the qualifications necessary
for the long-term financial success of the Company.
Our executive compensation program is based on the following
principles:
| • | Compensation decisions are driven by a pay-for-performance philosophy, which takes into account performance by both the Company and the individual; | |
| • | Performance is determined with reference to pre-established goals, both with respect to the Company and the individual, which we believe enhances the individual executive’s performance; | |
| • | Where possible, a significant component of total direct compensation should consist of variable compensation; |
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| • | Total compensation opportunity should be comparable to the median ranges in the marketplace within which we compete; and | |
| • | Increased compensation can be earned through an individual’s increased contribution to the Company. |
Compensation programs in which our named executive officers
participate are designed to be competitive with the compensation
programs of companies with which we compete for executive talent
in order to enhance our ability to attract and retain key
executive leadership. In this regard, the Committee directed the
Company to engage Hewitt Associates to perform a benchmark study
of the Company’s compensation structure in 2008. In
evaluating our compensation program, the Committee considered
the level of compensation paid to executive officers in
comparable executive positions within a comparator group
consisting of eighteen distribution companies and two building
products companies selected by BlueLinx with annual revenues
between $645 million and $10.8 billion. The companies
within the group were selected based on size, industry focus and
organizational status and we believe as a group they represent
the appropriate comparable labor market for executive talent.
This group comprised the following companies: Amcon Distributing
Company; Andersons Inc.; Applied Industrial Technologies Inc.;
Beacon Roofing Supply Inc.; Building Materials Holding
Corporation; Builders FirstSource Inc.; Fastenal Company; GATX
Corp.; Genuine Parts Company; Huttig Building Products Inc.;
Interline Brands Inc.; MSC Industrial Direct; Nash Finch Co.;
RSC Holdings Inc.; Rush Enterprises Inc.; United Rentals Inc.;
Universal Forest Products; Watsco Inc.; Wesco International
Inc.; and WW Grainger Inc.
Hewitt’s comprehensive benchmarking study focused on a
number of elements to compare the Company to companies within
these comparator groups, including base salaries, target bonuses
and actual bonuses paid, actual annual equity awards, total cash
compensation, benefits and total compensation. The Company and
the Committee reviewed information from these comparator
companies and used the data as a reference point to assist them
in establishing the compensation program for the Company,
setting our executive officers’ compensation and benefits
to be competitive with those of executive officers in similar
positions at these comparator companies and to achieve a balance
of incentives to help achieve our performance objectives.
Although the Committee does not tie executive compensation to a
single reference benchmark or target within the comparator
group, the Committee generally considers the 50th and 75th
percentiles of companies within the comparator group. The
benchmarking study is used as a comparative tool in the
Committee’s evaluation of the Company’s executive
compensation in relation to companies believed to represent the
appropriate comparable labor market for executive talent.
The Committee periodically consults with Hewitt on compensation
issues and may periodically engage consultants in the future to
advise on the ongoing competitiveness of our compensation
programs as warranted. In addition, the Committee periodically
reviews and revises salary ranges and total compensation
programs to develop compensation ranges that it believes will
position us within the same range as market salaries for similar
positions in our industry based on market information obtained
from consultation with Hewitt, informal market surveys, various
trade group publications and other publicly available
information.
Elements
of Compensation
Compensation for our named executive officers consists of four
general components:
| • | Base salary; | |
| • | Annual performance-based cash awards; | |
| • | Long-term equity incentive compensation; and | |
| • | Other perquisite and benefit programs. |
The appropriate mix and amount of compensation for each named
executive officer varies based on the level of the
executive’s responsibilities, as determined by the
Committee in consultation with our Chief Executive Officer. The
compensation structure for each of our named executive officers
is largely established by his employment agreement. The
Committee may increase any component of compensation provided by
an employment agreement to any of our named executive officers.
There is no established policy or formula for
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allocating any individual’s total compensation between cash
and non-cash, or between short-term and long-term incentives.
This approach is designed to provide the Company with
flexibility to respond to marketplace and individual factors in
attracting and retaining executive talent and encouraging
performance.
The Committee typically reviews and adjusts base salaries and
awards of cash bonuses and equity-based compensation on an
annual basis. Our Chief Executive Officer presents
recommendations and proposals on compensation, which are
developed in consultation with our Chief Administrative Officer
and other Company representatives, to the Committee, including
recommended base salaries, recommended structure, target levels
and payout levels for the annual cash bonus program under the
Company’s short term incentive plan (“STIP”), and
recommended equity awards to executive officers, and
management’s rationale for its recommendations. The
Committee considers these recommendations before determining
compensation.
Base
Salary
Base salaries represent a fixed portion of named executive
officer compensation and vary by job responsibility. We provide
base salary because it is standard in the marketplace and
provides a stable part of compensation to encourage retention.
Named executive officer salaries generally are reviewed and
approved annually by the Committee. Additionally, periodic
salary adjustments are considered upon a promotion, change in
job responsibility or when otherwise necessary for equitable
reasons. The Chief Executive Officer’s base salary was
established in his employment agreement, and the Committee
consults with the Chief Executive Officer regarding the salaries
of the other named executive officers. The Committee then
considers such matters and approves base salary as to the named
executive officers. The Committee primarily considers the
recommendations of the Chief Executive Officer, market data, a
general review of the executive’s compensation
(individually and relative to the other executives), and the
individual performance of the executive.
As a result of the continued difficult economic environment and
its impact on the Company’s results from operations, the
Committee decided to freeze the named executive officers’
base salaries for 2010. However, as discussed in our 2009 Proxy
Statement, the Committee recommended that
Mr. Goforth’s base salary be increased to $375,000
beginning in January 2009. Mr. Goforth requested this
recommended salary increase be deferred and his annual base
salary remained unchanged during 2009. Beginning on
January 1, 2010, Mr. Goforth’s annual base salary
was adjusted to the $375,000 level previously recommended by the
Committee in 2008.
Annual
Bonuses
We utilize cash bonuses as an incentive to promote achievement
of individual and Company performance goals. This component of
compensation places more emphasis on our annual financial
performance and the potential rewards associated with future
performance of the Company and the individual executive. Annual
bonuses are determined based on agreements with the individual
executive as well as pursuant to the Company’s STIP. Cash
incentives are designed to:
| • | Support our strategic business objectives; | |
| • | Promote the attainment of specific financial goals; | |
| • | Reward achievement of specific performance objectives; and | |
| • | Encourage teamwork. |
Under the STIP, an annual bonus pool is established and funded
based solely on performance as measured against established
business
and/or
financial goals at different levels of the Company’s
operating structure. The Committee establishes the bonus pool
based on Company performance. In general, the bonus pool is
allocated to each participant based on the participant’s
“target bonus percentage” (a percentage of such
participant’s current base salary) and the extent to which
the Company
and/or
such
participant’s operating group(s) meets the established
business
and/or
financial goals. Each of the named executive officers is a
participant in the STIP, and each of their annual bonuses are
subject to adjustment by the Committee, in its discretion, based
on the executive’s individual performance and contribution
to the Company during the year. The threshold, target
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and maximum bonus percentages for 2010 for each of the named
executive officers as a percentage of each executive’s base
salary were as follows:
| Threshold | Target | Maximum | ||||||||||
|
George R. Judd
|
50 | % | 100 | % | 200 | % | ||||||
|
H. Douglas Goforth
|
32.5 | % | 65 | % | 130 | % | ||||||
|
Dean A. Adelman
|
25 | % | 50 | % | 100 | % | ||||||
In February 2010, the Committee approved the STIP goals for
2010, which provide for cash incentives upon the achievement of
pre-established corporate goals. At such time, the Committee
established the financial goals used in establishing bonus
targets for 2010 under the STIP.
Generally, the Committee sets the target levels for financial
performance metrics for the STIP in alignment with the
Company’s strategic plan. In making the annual
determination of the threshold, target and maximum levels, the
Committee may consider specific circumstances facing the Company
during the year. For 2010, 100% of a named executive
officer’s potential STIP award was based on corporate
earnings before interest, tax, depreciation and amortization
(EBITDA) targets. This objective is measured separately against
a threshold, target and maximum goal. For 2010, these goals were
as follows:
| Threshold ($) | Target ($) | Maximum ($) | ||||||||||
| (In millions) | ||||||||||||
|
EBITDA
|
0 | 4.5 | 12 | |||||||||
We define EBITDA for these purposes as net earnings plus
interest, taxes, depreciation and amortization, as adjusted for
non-cash items and other items that are allowed at the
discretion of the Committee. We define free cash flow as
operating cash flow minus capital expenditures.
For purposes of STIP calculations, during fiscal 2010 the
Company achieved EBITDA of ($11.9) million, which was below
the threshold payout levels for the named executive officers.
The Company determined that the Company’s EBITDA
achievement primarily was due to a slower than anticipated sales
pace caused by the continued low numbers of new housing starts
during the year. Therefore, management made a recommendation to
the Committee that it was not appropriate to compensate the
named executive officers based on the Company’s EBITDA
performance for fiscal 2010. The Committee agreed with
management’s recommendation and the named executive
officers were not awarded any bonus compensation under the
Company’s STIP in connection with fiscal 2010. The table
below illustrates how we calculate STIP payments and the fact no
such payments were made to our named executive officers in
connection with fiscal 2010.
|
Portion of
|
||||||||||||||||||||||||
|
Target
|
Actual
|
|||||||||||||||||||||||
|
Payout
|
Payout
|
|||||||||||||||||||||||
|
Total
|
Related to
|
Related to
|
Actual
|
|||||||||||||||||||||
|
Base
|
Target
|
EBITDA
|
EBITDA
|
Total
|
||||||||||||||||||||
|
Salary
|
Target
|
Payout
|
Goal (100%)
|
Goal (0%)
|
Payout
|
|||||||||||||||||||
|
Officer
|
($) | Bonus % | ($) | ($) | ($) | ($) | ||||||||||||||||||
|
George R. Judd
|
600,000 | 100 | 600,000 | 600,000 | 0 | 0 | ||||||||||||||||||
|
H. Douglas Goforth
|
375,000 | 65 | 243,750 | 243,750 | 0 | 0 | ||||||||||||||||||
|
Dean A. Adelman
|
315,000 | 50 | 157,500 | 157,500 | 0 | 0 | ||||||||||||||||||
For 2011, the Committee established the named executive
officers’ STIP financial performance objective as based
solely on EBITDA. Due to the continued weak outlook for the
housing market, we believe it will be a challenge to achieve the
target financial goal in 2011 for funding of the STIP at its
target funding level. The maximum financial goals were designed
to be difficult to achieve, and we believe they will be.
Long
Term Equity Incentive Plans
The purpose of our Long Term Equity Incentive Plans, or LTIP, is
to provide an incentive to our employees to work towards the
achievement of our long term performance goals. A further
purpose of the LTIP is to provide a means through which we may
better attract able individuals to become employees of the
Company by providing these individuals with stock ownership. We
also consider the program a key retention
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Table of Contents
tool. For all of these reasons, we believe this component of
compensation further advances and aligns the interests of the
Company and its stockholders. LTIP grants are made annually. On
May 29, 2007, the Compensation Committee resolved to set
the date on which annual LTIP grants would be made to executive
officers and certain members of management as the second Tuesday
of each fiscal year. The Committee has the discretion to make
additional LTIP grants at any time during the year. Such grants
generally will be in connection with new hires or promotions
within the Company.
In making decisions regarding long-term equity incentive awards
for named executive officers, the Committee reviews the
comparable equity award data for similar positions in our
industry, market data and data from our compensation consultant,
and also considers other relevant factors.
On January 12, 2010, the Committee awarded a total of
652,737 shares of restricted stock to the Company’s
executives, which included the following grants to the named
executive officers: Mr. Judd (214,194 restricted shares);
Mr. Goforth (124,946 restricted shares); and
Mr. Adelman (107,097 restricted shares). The restricted
stock awards vest three years from the date of the grant. The
value of these awards was based on the market price of our
common stock at the date of the grant. The Committee considered
the total dollar value of each named executive officer’s
award when approving each grant.
Further information on equity ownership can be found below in
“Executive Compensation.”
Defined
Contribution Plan
The Company historically provides retirement benefits to the
named executive officers, including matching contributions,
under the terms of its tax-qualified 401(k) defined contribution
plan. In 2009, the Company suspended its matching contributions
to the 401(k) plan for all employees until business conditions
improve. This suspension continued in effect for 2010. The named
executive officers participate in the plan on substantially the
same terms as our other participating employees. We believe that
these benefits are comparable to those provided by comparable
companies. The Company does not maintain any defined benefit or
supplemental retirement plans for its executive officers.
Perquisites
and Other Personal Benefits
The Company provides the named executive officers with
perquisites and other personal benefits that the Company
believes are reasonable, competitive in the market and
consistent with its overall compensation program to better
enable the Company to attract and retain superior employees for
key positions. The named executive officers generally are
provided a car allowance, payment of certain club dues, life
insurance and reimbursement for relocation expenses, if
applicable. The Committee periodically reviews the levels of
perquisites and other personal benefits provided to named
executive officers.
Costs of the perquisites and personal benefits described above
for the named executive officers for 2010 that meet the
threshold established by SEC regulations are included in the
Summary Compensation Table in this Annual Report on
Form 10-K
in the “All Other Compensation” column. See
“Executive Compensation.”
Employment
Agreements
We use employment agreements to attract
and/or
retain executive officers to BlueLinx. We primarily serve the
housing and remodeling industries which are historically
cyclical industries. Employment agreements enhance our ability
to attract and retain top executive talent by providing some
degree of certainty in light of these major cycles. The
Committee, with assistance from our human resources department
and legal counsel both inside and outside of the Company,
establish and negotiate the terms of the employment agreements.
The Committee believes multi-year employment agreements are
necessary to secure executive talent for the long-term benefit
of the Company and our stockholders. The Committee further
believes that not utilizing employment agreements would put us
at a competitive disadvantage to our peers in recruiting
executives. Our employment agreements also include
confidentiality, non-competition and non-solicitation
provisions, all for the benefit of the Company. Consistent with
our compensation philosophy, the employment agreements provide
for a significant component of each executive’s annual
compensation to be variable, as cash bonuses
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Table of Contents
under our STIP are awarded based on Company performance against
pre-established financial or operational goals. For example, no
cash bonuses were paid to our named executive officers based on
our fiscal 2010 financial performance. Additionally, the value
of annual equity compensation is determined by our common stock
price so our executives’ interests are aligned with those
of our stockholders in this regard.
Amended
and Restated Employment Agreement with Chief Executive
Officer
On January 21, 2011, we entered into an Amended and
Restated Employment Agreement with George R. Judd, our Chief
Executive Officer. The Amended and Restated Employment Agreement
expires on January 20, 2013, except that it will be renewed
automatically for an additional one-year period unless ninety
days prior written notice is given by either party in advance of
the expiration date of any such extended term. The Amended and
Restated Employment Agreement provides that Mr. Judd will
receive a base salary at the rate of $600,000 per year.
Mr. Judd shall also be eligible to receive an annual bonus
pursuant to the terms of our annual bonus plan, with the annual
bonus potential to be a target of 100% of his base salary up to
a maximum of 200% of base salary, based upon satisfaction of
performance goals and bonus criteria to be defined and approved
by the Compensation Committee in advance for each fiscal year in
accordance with the terms of the applicable bonus plan. In
addition, the Amended and Restated Employment Agreement provides
that Mr. Judd is eligible to participate in all benefit
programs for which senior executives are generally eligible. The
Committee reviewed the Hewitt Associates benchmark study and
considered the level of compensation paid to chief executive
officers within the comparator group of companies as a factor in
establishing his compensation.
Under his Amended and Restated Employment Agreement, the Company
may terminate Mr. Judd’s employment for cause or
without cause. If Mr. Judd’s employment is terminated
without cause or he resigns for good reason, the Amended and
Restated Employment Agreement provides Mr. Judd with, among
other things, payment equal to one time his annual base salary
in effect immediately prior to the date of termination, plus one
time the cash bonus amount equal to the target bonus amount
Mr. Judd was eligible to receive for the fiscal year prior
to the year of the termination of his employment. Such sum is
payable in twelve equal monthly installments commencing on the
earlier to occur of the first business day of the seventh month
after the date of termination or Mr. Judd’s death. The
Amended and Restated Employment Agreement also contains
confidentiality provisions, as well as a covenant not to compete
during the employment term and continuing for a period of one
year following his date of termination in the event executive is
terminated without cause, he voluntarily resigns or resigns for
good reason, or the employment period ends. The Amended and
Restated Employment Agreement supercedes and replaces
Mr. Judd’s Employment Agreement with the Company dated
October 30, 2008.
Amended
and Restated Employment Agreement with Chief Financial
Officer
On January 21, 2011, we entered into an Amended and
Restated Employment Agreement with H. Douglas Goforth, our
Senior Vice President, Chief Financial Officer and Treasurer.
The Amended and Restated Employment Agreement expires on
January 20, 2013, except that it will be renewed
automatically for an additional one-year period unless ninety
days prior written notice is given by either party in advance of
the expiration date of any such extended term. The Amended and
Restated Employment Agreement provides that
Mr. Goforth’s annual base salary shall be paid at the
rate of $375,000 per year, prorated for the portion of any
partial year during which he is employed by the Company.
Mr. Goforth shall also be eligible to receive an annual
bonus pursuant to the terms of the Company’s annual bonus
plan, with the annual bonus potential to be a target of 65% of
his base salary up to a maximum of 130% of base salary, based
upon satisfaction of performance goals and bonus criteria to be
defined and approved by the Compensation Committee in advance
for each fiscal year in accordance with the terms of the bonus
plan. In addition, the Amended and Restated Employment Agreement
provides that Mr. Goforth is eligible to participate in all
benefit programs for which senior executives are generally
eligible.
Mr. Goforth also received 60,000 restricted shares of the
Company’s common stock on February 18, 2008 as part of
his incentive package to join the Company. The shares were
issued pursuant to the Company’s 2004 Long Term Equity
Incentive Plan. The shares vested effective as of
February 18, 2011. The Compensation Committee reviewed the
Hewitt Associates benchmark study and considered the level of
compensation paid to
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Table of Contents
executive officers in comparable executive positions to
Mr. Goforth within the comparator group of companies to
establish his compensation under the Amended and Restated
Employment Agreement.
Under his Amended and Restated Employment Agreement, the Company
may terminate Mr. Goforth’s employment for cause or
without cause. If Mr. Goforth’s employment is
terminated without cause or he resigns for good reason, the
Agreement provides Mr. Goforth with, among other things,
payment equal to one time his annual base salary in effect
immediately prior to the date of termination, plus one time the
cash bonus amount equal to the target bonus amount
Mr. Goforth was eligible to receive for the fiscal year
prior to the year of the termination of his employment. Such sum
is payable in twelve equal monthly installments commencing on
the earlier to occur of the first business day of the seventh
month after the date of termination or Mr. Goforth’s
death. The Employment Agreement also contains confidentiality
provisions, as well as a covenant not to compete during the
employment term and continuing for a period of one year
following his date of termination. The Amended and Restated
Employment Agreement supercedes and replaces
Mr. Goforth’s Employment Agreement with the Company
dated February 11, 2008.
Amended
and Restated Employment Agreement with Chief Administrative
Officer
On January 21, 2011, we entered into an Amended and
Restated Employment Agreement with Dean A. Adelman, our Chief
Administrative Officer. The Amended and Restated Employment
Agreement expires on January 20, 2013, except that it will
be renewed automatically for an additional one-year period
unless ninety days prior written notice is given by either party
in advance of the expiration date of any such extended term.
Mr. Adelman’s annual base salary shall be paid at the
rate of $315,000 per year. Mr. Adelman shall also be
eligible to receive an annual bonus pursuant to the terms of our
annual bonus plan, with the annual bonus potential to be a
target of 50% of his base salary up to a maximum of 100% of base
salary, based upon satisfaction of performance goals and bonus
criteria to be defined and approved by the Compensation
Committee in advance for each fiscal year in accordance with the
terms of the applicable bonus plan. In addition, the Amended and
Restated Employment Agreement provides that Mr. Adelman is
eligible to participate in all benefit programs for which senior
executives are generally eligible. The Compensation Committee
reviewed the Hewitt Associates benchmark study and considered
the level of compensation paid to executive officers in
comparable executive positions to Mr. Adelman within the
comparator group of companies to establish his compensation
under the Amended and Restated Employment Agreement.
Under his Amended and Restated Employment Agreement, the Company
may terminate Mr. Adelman’s employment for cause or
without cause. If Mr. Adelman’s employment is
terminated without cause or he resigns for good reason, the
Amended and Restated Employment Agreement provides
Mr. Adelman with, among other things, payment equal to one
time his annual base salary in effect immediately prior to the
date of termination, plus one time the cash bonus amount equal
to the target bonus amount Mr. Adelman was eligible to
receive for the fiscal year prior to the year of the termination
of his employment, payable in twelve equal monthly installments
commencing on the earlier to occur of the first business day of
the seventh month after the date of termination or
Mr. Adelman’s death. The Employment Agreement also
contains confidentiality provisions, as well as a covenant not
to compete during the employment term and continuing for a
period of one year following his date of termination in the
event executive is terminated without cause, he voluntarily
resigns or resigns for good reason, or the employment period
ends. The Amended and Restated Employment Agreement supercedes
and replaces Mr. Adelman’s Employment Agreement with
the Company dated June 4, 2009.
Risk
Analysis of Compensation Program
The Compensation Committee has reviewed our compensation program
to determine if the elements encourage excessive or unnecessary
risk taking that reasonably could have a material adverse effect
on the Company. There is no objective way to measure risk
resulting from a company’s compensation program; therefore,
such analysis is subjective in nature. After reviewing our
compensation program, the Compensation Committee believes that
the only elements that could incentivize risk taking are the
annual cash incentives under the STIP and awards made under the
LTIP with payouts dependent on the achievement of certain
performance levels by the Company. Since base salaries are
fixed, they do not encourage risk taking. The same is true of
awards under the LTIP that include only time-based vesting.
Based upon the value of each of
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these elements to the overall compensation mix and the relative
value each has to the other, the Compensation Committee believes
that the Company’s compensation program is appropriately
balanced. The Compensation Committee believes that the mix of
short- and long-term awards minimizes risks that may be taken,
as any risks taken for short-term gains ultimately could
jeopardize not only the Company’s ability to meet the
long-term performance objectives, but also appreciation in the
Company’s stock price. In addition, the Compensation
Committee believes that the establishment of reasonable
performance goals, the capping of payouts and the avoidance of
any steep payout changes at the various payout levels of the
performance-based STIP and LTIP compensation components further
reduce any risk-taking incentive that may be associated with
these compensation elements. As a result, the Compensation
Committee does not believe that our compensation program
incentivizes unreasonable risk taking.
Internal
Revenue Code Section 162(m)
In making compensation decisions, the Compensation Committee
also considers the potential impact of Section 162(m) of
the Internal Revenue Code of 1986, as amended
(“Section 162(m)”). Section 162(m) disallows
a tax deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for
the Chief Executive Officer and the other executive officers,
other than compensation that is performance-based under a plan
that is approved by the stockholders of the Company and meets
other technical requirements. However, the Committee reserves
the right to provide for compensation to executive officers that
may not be deductible if it believes such compensation is in the
best interests of the Company and its stockholders.
Compensation
Committee Report
The Compensation Committee reviewed and discussed the
“Compensation Discussion and Analysis” set forth above
with management. Based on such review and discussions, the
Compensation Committee recommended to the Board that such
Compensation Discussion and Analysis be included in this Annual
Report on
Form 10-K.
Mark Suwyn, Chairman
Alan Schumacher
Richard Marchese
Alan Schumacher
Richard Marchese
Executive
Compensation
2010
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash
compensation for 2010, 2009 and 2008, awarded to or earned by
our Chief Executive Officer, our Chief Financial Officer, and
our Chief Administrative Officer during 2010. We refer to these
individuals as our “named executive officers.”
|
Non-Equity
|
||||||||||||||||||||||||||||||||
|
Stock
|
Stock
|
Incentive
|
All Other
|
|||||||||||||||||||||||||||||
|
Salary
|
Bonus
|
Awards
|
Options
|
Plan Comp.
|
Comp.
|
Total
|
||||||||||||||||||||||||||
|
Name and Principal Position
|
Year | ($) | ($) | ($)(1) | ($)(1) | ($)(2) | ($) | ($) | ||||||||||||||||||||||||
|
George R. Judd,
|
2010 | 600,000 | 0 | 631,872 | 0 | 0 | 16,089 | 1,247,961 | ||||||||||||||||||||||||
|
President and Chief
|
2009 | 600,000 | 0 | 603,794 | 0 | 0 | 17,275 | 1,221,069 | ||||||||||||||||||||||||
|
Executive Officer(4)
|
2008 | 473,077 | 0 | 661,140 | 0 | 546,172 | 29,630 | 1,710,019 | ||||||||||||||||||||||||
|
H. Douglas Goforth,
|
2010 | 375,000 | 0 | 368,592 | 0 | 0 | 18,537 | 762,129 | ||||||||||||||||||||||||
|
CFO & Treasurer(5)
|
2009 | 326,923 | 0 | 352,214 | 0 | 0 | 16,530 | 695,667 | ||||||||||||||||||||||||
| 2008 | 281,250 | 0 | 641,840 | 0 | 390,781 | 110,623 | 1,424,494 | |||||||||||||||||||||||||
|
Dean A. Adelman,
|
2010 | 315,000 | 0 | 315,936 | 0 | 0 | 2,047 | 632,983 | ||||||||||||||||||||||||
|
Chief Administrative
|
2009 | 315,000 | 0 | 301,897 | 0 | 0 | 3,030 | 619,927 | ||||||||||||||||||||||||
|
Officer(6)
|
2008 | 233,034 | 82,871 | 176,141 | 0 | 247,129 | 14,808 | 753,983 | ||||||||||||||||||||||||
| (1) | The amounts in this column were calculated based on the grant date fair value of our common stock, in accordance with FASB ASC Topic 718. The value of performance based shares included in this column |
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Table of Contents
| was calculated based on the probable outcome of the performance conditions as of the grant date of the performance shares. Stock and performance share awards generally vest in various increments over multi-year periods. As a result, this grant date fair value may not be indicative of the ultimate value the executive may receive under these grants. | ||
| The amounts in this column for 2008 include performance shares valued as follows: Mr. Judd, 2008: $347,609; Mr. Goforth 2008: $189,840; Mr. Adelman, 2008: $92,610. If the maximum performance metrics were achieved the same performance shares would be valued as follows: Mr. Judd, 2008: $521,414; Mr. Goforth 2008: $284,760; Mr. Adelman, 2008: $138,915. | ||
| The performance shares issued in 2008 vested on December 31, 2010 at 97% of the target number of performance shares issued. | ||
| (2) | For fiscal 2010, the Committee determined that the Company’s EBITDA achievement fell below the threshold payout levels for the named executive officers. Management made a recommendation to the Committee that it was not appropriate to compensate the named executive officers based on the Company’s EBITDA achievement for fiscal 2010. The Committee agreed with management’s recommendation and the named executive officers were not awarded any bonus compensation based on the Company’s financial performance in fiscal 2010. Any guaranteed bonuses or discretionary bonuses paid to a named executive officer are reflected separately in the column titled “Bonus.” | |
| (3) | The amounts in this column were calculated based on the grant date fair value of stock options computed using the Black-Scholes model, in accordance with FASB ASC Topic 718. For additional information regarding the assumptions used in determining fair value using the Black Scholes pricing model, see Note 7, “Stock-Based Compensation,” to our audited consolidated financial statements. | |
| (4) | Mr. Judd’s “All Other Compensation” for 2010 includes an auto allowance of $7,620; a club dues allowance of $6,000 and health benefits paid by the Company of $2,469. | |
| (5) | Mr. Goforth’s “All Other Compensation” for 2010 includes an auto allowance of $7,500; a club dues allowance of $6,000 and health benefits paid by the Company of $5,037. | |
| (6) | Mr. Adelman’s “All Other Compensation” for 2010 includes health benefits paid by the Company. |
GRANTS OF
PLAN-BASED AWARDS FOR 2010
The table below sets forth information regarding all grants of
awards made to the named executive officers during 2010. For
further information regarding the terms of certain of these
grants pursuant to employment agreements with the named
executive officers, see “Compensation Discussion and
Analysis — Employment Agreements.”
|
Grant Date
|
||||||||||||||||||||||||||||||||||||||||||||
|
Estimated Possible Payouts
|
All Other
|
Exercise or
|
Fair Value
|
|||||||||||||||||||||||||||||||||||||||||
|
Under Non-Equity Incentive
|
Estimated Future Payouts Under
|
All Other
|
Option Awards
|
Base Price
|
of Stock
|
|||||||||||||||||||||||||||||||||||||||
| Plan Awards(1) | Equity Incentive Plan Awards |
Stock Awards
|
# of Shares
|
of Option
|
and Option
|
|||||||||||||||||||||||||||||||||||||||
|
Grant
|
Threshold
|
Target
|
Max
|
Threshold
|
Target
|
Max
|
# of
|
Underlying
|
Awards
|
Awards
|
||||||||||||||||||||||||||||||||||
|
Name
|
Date | ($) | ($) | ($) | (#) | (#) | (#) | Shares(2) | Option | ($/sh) | ($) | |||||||||||||||||||||||||||||||||
|
George R. Judd
|
N/A | 300,000 | 600,000 | 1,200,000 | — | — | — | — | — | N/A | ||||||||||||||||||||||||||||||||||
| 1/12/10 | 214,194 | 631,872 | ||||||||||||||||||||||||||||||||||||||||||
|
Howard D. Goforth
|
N/A | 121,875 | 243,750 | 487,500 | — | — | — | — | — | N/A | ||||||||||||||||||||||||||||||||||
| 1/12/10 | 124,946 | 368,592 | ||||||||||||||||||||||||||||||||||||||||||
|
Dean A. Adelman
|
N/A | 78,750 | 157,500 | 315,000 | — | — | — | — | — | N/A | ||||||||||||||||||||||||||||||||||
| 1/12/10 | 107,097 | 315,936 | ||||||||||||||||||||||||||||||||||||||||||
| (1) | These columns show the range of possible payouts which were targeted for 2010 performance under the Company’s STIP as described in the section titled “Annual Bonuses” in the Compensation Discussion and Analysis and are based on the named executive officer’s base salary for 2009. The Company recommended and the Committee agreed no bonuses would be paid to the named executive officers based on the Company’s financial results for 2010. | |
| (2) | The restricted stock grants disclosed in the table were all issued pursuant to the Company’s 2004 or 2006 LTIP. Each of the restricted stock awards vest three years from the date of grant. |
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Table of Contents
2010
OUTSTANDING EQUITY AWARDS AT YEAR END
The following table sets forth certain information with respect
to unexercised stock options and unvested shares of restricted
stock held on January 1, 2011 by each of our named
executive officers.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
|
Equity
|
||||||||||||||||||||||||||||||||
|
Equity
|
Incentive
|
|||||||||||||||||||||||||||||||
|
Incentive
|
Plan Awards:
|
|||||||||||||||||||||||||||||||
|
Plan Awards:
|
Market or
|
|||||||||||||||||||||||||||||||
|
Market
|
Number of
|
Payout Value
|
||||||||||||||||||||||||||||||
|
Number of
|
Number of
|
Value of
|
Unearned
|
of Unearned
|
||||||||||||||||||||||||||||
|
Securities
|
Securities
|
Number of
|
Shares of
|
Shares, Units,
|
Shares, Units
|
|||||||||||||||||||||||||||
|
Underlying
|
Underlying
|
Shares of
|
Stock That
|
or Other
|
or Other
|
|||||||||||||||||||||||||||
|
Unexercised
|
Unexercised
|
Option
|
Option
|
Stock That
|
Have Not
|
Rights That
|
Rights That
|
|||||||||||||||||||||||||
|
Options
|
Options
|
Exercise
|
Expiration
|
Have Not
|
Vested
|
Have Not
|
Have Not
|
|||||||||||||||||||||||||
|
Name
|
Exercisable | Unexercisable | Price ($) | Date | Vested | ($)(1) | Vested (#)(3) | Vested ($)(1) | ||||||||||||||||||||||||
|
George R. Judd
|
62,918 | 15,729 | (2) | 14.01 | 6/5/16 | 574,894 | 2,104,112 | — | — | |||||||||||||||||||||||
|
Howard D. Goforth
|
0 | 0 | — | — | 349,736 | 1,280,034 | — | — | ||||||||||||||||||||||||
|
Dean A. Adelman
|
14,000 | 0 | 10.29 | 11/9/15 | 258,592 | 946,447 | — | — | ||||||||||||||||||||||||
| 16,935 | 4,234 | (2) | 14.01 | 6/5/16 | ||||||||||||||||||||||||||||
| (1) | Computed based on the closing price of our common stock on January 1, 2011 of $3.66. | |
| (2) | These options became fully vested on January 3, 2011. | |
| (3) | The 2008 performance shares vested in December of 2010 at 97%. The performance shares granted to the named executive officers in March 2007 were forfeited at the end of fiscal 2009 because the Company did not achieve the required financial metrics. There are no unvested performance shares as of January 1, 2011. |
OPTION
EXERCISES AND STOCK VESTED
| Stock Awards | ||||||||
|
Number of Shares
|
Value Realized
|
|||||||
| Acquired on Vesting | on Vesting | |||||||
|
George R. Judd
|
— | — | ||||||
|
H. Douglas Goforth
|
— | — | ||||||
|
Dean A. Adelman
|
— | — | ||||||
Payments
upon Certain Events of Termination or
Change-in-Control
As described above under “Employment Agreements,”
certain of our named executive officers are entitled to receive
payments in connection with the termination of their employment
by the Company for certain reasons or in connection with a
change in control of the Company. Additionally, our named
executive officers hold equity awards issued pursuant to our
2004 LTIP and our 2006 LTIP. Options and restricted stock issued
pursuant to these plans generally vest automatically upon a
change in control of the Company.
The following table describes the estimated present value of
unvested stock options and restricted stock awards that would
have immediately vested in the event that the named executive
officer’s employment was terminated by reason of death or
disability on January 1, 2011 or if a change in control of
the Company occurred on such date.
|
Value of
|
Value of
|
|||||||||||||||
|
Value of
|
Restricted
|
Performance
|
||||||||||||||
| Options(1) | Stock(1) | Shares(1) | Total(1) | |||||||||||||
|
George R. Judd
|
$ | — | $ | 2,104,112 | $ | — | $ | 2,104,112 | ||||||||
|
H. Douglas Goforth
|
$ | — | $ | 1,280,034 | $ | — | $ | 1,280,034 | ||||||||
|
Dean A. Adelman
|
$ | — | $ | 946,447 | $ | — | $ | 946,447 | ||||||||
| (1) | Computed based on the closing price of our common stock on January 1, 2011 of $3.66. |
102
Table of Contents
In addition to accelerated vesting of outstanding equity awards,
our named executive officers are entitled to receive certain
other payments in connection with certain termination events. In
the case of Messrs. Judd, Goforth and Adelman, any of the
Company’s obligations to make cash payments following the
termination of their respective employment is contingent upon
the executive complying with the restrictive covenants contained
in their respective employment agreements. These restrictive
covenants prohibit, during periods defined in the agreements and
subject to certain limited exceptions, (i) competing with
the Company, (ii) employing or soliciting Company
employees, (iii) interfering with Company relationships
with its customers or vendors and (iv) disclosing or using
in an unauthorized manner any of the Company’s confidential
or proprietary information. These restrictive covenants
generally limit the employee’s competitive activities for a
period of one year following the later of the expiration or
termination of employment under the employment agreement.
In the event that any of the named executive officers’
employment is terminated by the Company “for cause”,
we are only obligated to pay the executive his salary and
provide the executive with fringe benefits through the date of
termination.
As described above under “Employment Agreements,”
certain of our named executive officers are entitled to receive
payments in connection with their termination by the Company.
The following table describes the estimated present value of
payments that would have been due to the named executive
officers in the event that certain termination events described
below had occurred on January 1, 2011. Such amounts would
be payable pursuant to the terms of their agreements with the
Company as described in the footnotes to the table as well as
above under “Employment Agreements”. Such amounts
would be the same under the Amended and Restated Employment
Agreements described under “Employment Agreements” and
the agreements the Amended and Restated Employment Agreements
replaced.
|
Continuing
|
Outplacement
|
|||||||||||
|
Salary and
|
Medical
|
Services
|
||||||||||
| Bonus | Coverage | Allowance | ||||||||||
|
George R. Judd(1)
|
$ | 600,000 | $ | 11,891 | $ | 25,000 | ||||||
|
H. Douglas Goforth(1)
|
$ | 618,750 | $ | 18,853 | $ | 25,000 | ||||||
|
Dean A. Adelman(1)
|
$ | 472,500 | $ | 18,498 | $ | 25,000 | ||||||
| (1) | The named executive officer would be entitled to these payments only in the event his employment was terminated either by the Company without “cause” or by the named executive officer for “good reason” (as such terms are defined in each of the named executive officers’ respective employment agreements). |
Director
Compensation
Shown below is information concerning the compensation for each
member of the Board for 2010. Mr. Judd’s compensation
is reported above in the 2010 Summary Compensation Table.
|
Fees Earned
|
||||||||
|
or Paid
|
||||||||
|
in Cash
|
Total
|
|||||||
|
Name
|
($)(1) | ($) | ||||||
|
Howard S. Cohen(6)
|
246,000 | 246,000 | ||||||
|
Richard S. Grant(2)
|
131,250 | 131,250 | ||||||
|
Richard B. Marchese(3)
|
158,750 | 158,750 | ||||||
|
Charles H. McElrea
|
58,750 | 58,750 | ||||||
|
Steven F. Mayer
|
— | — | ||||||
|
Alan H. Schumacher(4)
|
155,000 | 155,000 | ||||||
|
Mark A. Suwyn(5)
|
83,750 | 83,750 | ||||||
|
Robert G. Warden
|
— | — | ||||||
|
M. Richard Warner
|
— | — | ||||||
103
Table of Contents
| (1) | Our directors who are not current employees of the Company, current employees or members of Cerberus’ operations team, or the Chairman of our Board, referred to as our outside directors, receive an annual director’s fee of $50,000. The Chairman of our Board receives and annual fee of $240,000 in consideration of the additional time and commitment attendant to the duties of the position of Chairman of the Board. In addition, each outside director receives a fee of $1,250 for each directors’ meeting attended. Outside directors also receive a fee of $20,000 for serving as chairperson of a committee or $10,000 for being a member of a committee. Other than our Chairman of the Board, directors who are currently employed by the Company or Cerberus, or who are members of Cerberus’ operations team, do not receive additional consideration for serving as directors, except that all directors are entitled to reimbursement for travel and out-of-pocket expenses in connection with their attendance at board and committee meetings. | |
| (2) | Mr. Grant serves as a member of the Audit Committee of the Board. As of January 1, 2011, Mr. Grant had fully vested options to purchase 10,000 shares of the Company’s common stock at the exercise price of $11.40 per share, which was the closing price of the stock on the New York Stock Exchange on the date preceding the grant. | |
| (3) | Mr. Marchese serves as a member of the Audit Committee and the Compensation Committee of the Board. As of January 1, 2011, Mr. Marchese had fully vested options to purchase 10,000 shares of the Company’s common stock at the exercise price of $11.69 per share, which was the closing price of the stock on the New York Stock Exchange on the date preceding the grant. | |
| (4) | Mr. Schumacher serves as the Chairman of the Audit Committee of the Board and as a member of the Compensation Committee of the Board of Directors. | |
| (5) | Mr. Suwyn serves as Chairman of the Compensation Committee. | |
| (6) | Mr. Cohen serves as non-executive Chairman of the Board. Mr. Cohen was granted options to purchase 750,000 shares of the Company’s common stock at the exercise price of $4.66 per share, which was the closing price of the stock on the New York Stock Exchange (“NYSE”) on the date of grant. Two-thirds of these options have vested as of January 1, 2011. Mr. Cohen was granted 166,667 restricted shares of the Company’s common stock at a fair value of $4.66 per share, which was the closing price of the stock on the NYSE on the date of grant. Mr. Cohen was granted 83,333 restricted shares of the Company’s common stock at a fair value of $5.25 per share, which was the closing price of the stock on the on the NYSE on the date of grant. Two-thirds of Mr. Cohen’s restricted shares have vested. |
Compensation
Committee Interlocks and Insider Participation
Messrs. Marchese, Schumacher and Suwyn are the current
members of the Compensation Committee. None of the current
members of the Compensation Committee are current or former
officers or employees of the Company. Mr. Suwyn was
formerly an advisor to Cerberus.
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Table of Contents
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of February 25, 2011
(unless otherwise indicated in the footnotes), certain
information with respect to our common stock owned beneficially
by (1) each director or director nominee, (2) each
named executive officer, (3) all executive officers and
directors as a group, and (4) each person known by us to be
a beneficial owner of more than 5% of our outstanding common
stock. Unless otherwise noted, each of the persons listed has
sole investment and voting power with respect to the shares of
common stock included in the table. Beneficial ownership has
been determined in accordance with
Rule 13d-3
of the Exchange Act. Pursuant to the rules of the SEC, shares of
our common stock that a beneficial owner has a right to acquire
within 60 days pursuant to the exercise of stock options
are deemed to be outstanding for the purpose of computing
percentage ownership of such owner.
|
Number of Shares
|
Percentage of Shares
|
|||||||
|
Name of Beneficial Owner
|
Beneficially Owned | Outstanding(10) | ||||||
|
Stephen Feinberg(1)(2)
|
18,100,000 | 54.46 | % | |||||
|
Stadium Capital Management, LLC(3)
|
1,960,687 | 5.90 | % | |||||
|
Howard S. Cohen(4)
|
1,650,000 | 4.21 | % | |||||
|
George R. Judd(5)
|
1,354,735 | 4.07 | % | |||||
|
Howard D. Goforth
|
480,845 | 1.45 | % | |||||
|
Dean A. Adelman(6)
|
395,303 | 1.19 | % | |||||
|
Richard S. Grant(7)
|
22,801 | * | ||||||
|
Richard B. Marchese(8)
|
12,801 | * | ||||||
|
Steven F. Mayer(9)
|
0 | 0 | ||||||
|
Charles H. McElrea
|
350,000 | 1.05 | % | |||||
|
Alan H. Schumacher
|
11,951 | * | ||||||
|
Mark A. Suwyn
|
0 | 0 | ||||||
|
Robert G. Warden(2)
|
0 | 0 | ||||||
|
M. Richard Warner
|
0 | 0 | ||||||
|
Directors and executive officers as a group (12 persons)
|
4,278,436 | 12.87 | % | |||||
| * | Less than one percent. | |
| (1) | Cerberus ABP Investor LLC is the record holder of 18,100,000 shares of our common stock. Mr. Feinberg exercises sole voting and investment authority over all of our securities owned by Cerberus ABP Investor LLC. Thus, pursuant to Rule 13d-3 under the Exchange Act, Mr. Feinberg is deemed to beneficially own 18,100,000 shares of our common stock. | |
| (2) | The address for Messrs. Feinberg and Warden is c/o Cerberus Capital Management, L.P., 299 Park Avenue, New York, NY 10171. | |
| (3) | Stadium Capital Management, LLC exercises shared voting and investment authority over 1,960,687 shares of our stock in conjunction with Alexander H. Seaver and Bradley R. Kent. In addition, Stadium Capital Partners, L.P., also exercises shared voting and investment authority over 1,700,618 of these shares of our stock. | |
| (4) | Mr. Cohen’s ownership includes options to purchase 750,000 shares of our common stock which are exercisable as of February 25, 2011, or that will become exercisable within 60 days of that date. | |
| (5) | Mr. Judd’s ownership includes options to purchase 78,647 shares of our common stock which are exercisable as of February 25, 2011, or that will become exercisable within 60 days of that date. | |
| (6) | Mr. Adelman’s ownership includes options to purchase 35,169 shares of our common stock which are exercisable as of February 25, 2011, or that will become exercisable within 60 days of that date. |
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Table of Contents
| (7) | Mr. Grant’s ownership includes options to purchase 10,000 shares of our common stock which are exercisable as of February 25, 2011, or that will become exercisable within 60 days of that date. | |
| (8) | Mr. Marchese’s ownership includes options to purchase 10,000 shares of our common stock which are exercisable as of February 25, 2011, or that will become exercisable within 60 days of that date. | |
| (9) | The address for Mr. Mayer is c/o Cerberus California, LLC, 11812 San Vicente Boulevard, Los Angeles, CA 90049. | |
| (10) | The percentage calculations are based on 33,235,376 shares of our common stock outstanding on February 25, 2011. |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Review
and Approval or Ratification of Related Person
Transactions
Our legal department and Corporate Secretary are primarily
responsible for identifying and reviewing relationships and
transactions in which the Company and our directors, executive
officers, certain of our stockholders or their immediate family
members are participants to determine whether any of these
“related persons” had or will have a direct or
indirect material interest. In order to identify potential
related person transactions, our legal department annually
prepares and distributes to all directors and executive officers
a written questionnaire which includes questions intended to
elicit information about any related person transactions.
Information regarding transactions with related persons or any
violation of policy, including transactions involving a
potential conflict of interest in violation of our Code of
Ethical Conduct, may be anonymously reported by employees
through our Business Conduct and Ethics Hotline.
If a related person transaction is identified by the legal
department as one which must be reported in our Annual Report on
Form 10-K
or our Proxy Statement, as applicable, pursuant to applicable
SEC regulations, we present the transaction to the Audit
Committee for its review and approval or ratification. In
evaluating related person transactions, our Audit Committee
members apply the same standards of good faith and fiduciary
duty they apply to their general responsibilities as a committee
of the Board and as individual directors. The Audit Committee
may approve a related person transaction when, in its good faith
judgment, the transaction is in the best interests of the
Company.
Cerberus Capital Management, L.P., our equity sponsor, retains
consultants that specialize in operations management and support
and who provide Cerberus with consulting advice concerning
portfolio companies in which funds and accounts managed by
Cerberus or its affiliates have invested. From time to time,
Cerberus makes the services of these consultants available to
Cerberus portfolio companies. We believe that the terms of these
consulting arrangements are favorable to us, or, alternatively,
are materially consistent with those terms that would have been
obtained by us in an arrangement with an unaffiliated third
party. We have normal service, purchase and sales arrangements
with other entities that are owned or controlled by Cerberus. We
believe that these transactions are not material to our results
of operations or financial position.
Other than the transactions discussed above, for the last fiscal
year there has not been, nor is there currently proposed, any
“transaction,” as defined by the SEC:
| • | to which we are or will be a participant; | |
| • | in which the amount involved exceeded or will exceed $120,000; and | |
| • | in which any “related person,” as defined by the SEC, had or will have a direct or indirect material interest. |
Director
Independence
We are a “controlled company” for purposes of the NYSE
listing requirements. Our basis for this determination is that
Cerberus ABP Investor LLC, an affiliate of Cerberus, owns
18,100,000, or approximately 55% of the outstanding shares of
our common stock as of February 25, 2011. Accordingly, we
are exempt from the NYSE listing requirements that would
otherwise mandate (1) a majority of independent directors
on
106
Table of Contents
our Board, (2) a nominating committee of our Board,
comprised solely of independent directors, to select or
recommend nominees to our Board, and (3) a compensation
committee of our Board, comprised solely of independent
directors, to determine the compensation of our executive
officers.
Our Board has reviewed the independence of each of its members
based on the criteria for independence set forth under
applicable securities laws, including the Exchange Act,
applicable rules and regulations of the SEC and applicable rules
and regulations of the NYSE. The NYSE Listed Company Manual and
corresponding listing standards provide that, in order to be
independent, the Board must determine that a director has no
material relationship with the Company other than as a director.
The Board has reviewed the relationships between each Board
member and the Company. Based on its review, the Board has
affirmatively determined, by resolution of the Board as a whole,
that the following directors have no material relationship with
us or any other matter of any kind that would impair their
independence for purposes of serving on our Board and,
therefore, satisfy the requirements to be considered independent
under the NYSE listing standards applicable to the Board as well
as satisfying the independence requirements applicable to audit
committee membership: Richard S. Grant, Richard B. Marchese and
Alan H. Schumacher. Mr. Marchese’s service on the
audit committees of three other public companies has been
determined by the Board not to impair his ability to serve on
the Company’s Audit Committee. Seven of the current members
of our Board do not meet the independence standards promulgated
under the listing standards of the NYSE. Five of the current
members of our Board are either current or former employees of
or advisors to Cerberus. Messrs. Mayer and Warden are
currently employed by Cerberus and Messrs. Warner and Cohen
are advisors to Cerberus. Mr. Suwyn was formerly an advisor
to Cerberus.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
The following table presents the aggregate fees billed by
Ernst & Young LLP for professional services for fiscal
years 2010 and 2009, by category as described in the notes to
the table:
| 2010 | 2009 | |||||||
|
Audit Fees(1)
|
$ | 1,758,859 | $ | 1,659,756 | ||||
|
Audit-Related Fees(2)
|
166,911 | 170,000 | ||||||
|
Tax Fees
|
— | — | ||||||
|
All Other Fees(3)
|
6,353 | 23,775 | ||||||
|
TOTAL
|
$ | 1,932,123 | $ | 1,853,531 | ||||
| (1) | Consists of fees related to audits of our consolidated financial statements, and reviews of interim financial statements and disclosures in filings with the Securities and Exchange Commission (“SEC”). Audit fees also included fees related to the audit of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. | |
| (2) | Consists of fees billed for services related to benefit plan audits. | |
| (3) | Consists of fees billed for services related to certain transactional services. |
Pre-Approval
of Audit and Non-Audit Services
The charter of the Audit Committee provides that the Committee
is responsible for the pre-approval of all material audit
services and non-audit services to be performed for us by our
independent registered public accounting firm. All audit and
non-audit work described above was pre-approved by the Audit
Committee. The Audit Committee may delegate to one or more of
its members the authority to grant such pre-approvals. The
decisions of any such member shall be presented to the full
Audit Committee at each of its scheduled meetings.
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Table of Contents
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
| (a) | Financial Statements, Schedules and Exhibits |
1.
Financial Statements.
The Financial Statements of
BlueLinx Holdings Inc. and the Reports of Independent Registered
Public Accounting Firm are presented under Item 8 of this
Form 10-K.
2.
Financial Statement Schedules.
Not applicable.
3.
Exhibits.
|
Exhibit
|
||||
|
Number
|
Item
|
|||
| 3 | .1 | Amended and Restated Certificate of Incorporation of BlueLinx(A) | ||
| 3 | .2 | Amended and Restated By-Laws of BlueLinx(B) | ||
| 4 | .1 | Registration Rights Agreement, dated as of May 7, 2004, by and among BlueLinx and the initial holders specified on the signature pages thereto(C) | ||
| 4 | .2 | Letter Agreement, dated as of August 30, 2004, by and among BlueLinx, Cerberus ABP Investor LLC, Charles H. McElrea, George R. Judd, David J. Morris, James C. Herbig, Wayne E. Wiggleton and Steven C. Hardin(C) | ||
| 4 | .3 | Investment Letter, dated March 10, 2004, between BlueLinx and Cerberus ABP Investor LLC, as Purchaser of Common Stock(D) | ||
| 4 | .4 | Investment Letter, dated May 7, 2004, between BlueLinx and Cerberus ABP Investor LLC, as Purchaser of Common Stock(D) | ||
| 4 | .5 | Executive Purchase Agreement dated May 7, 2004 by and among BlueLinx, Cerberus ABP Investor LLC and Charles H. McElrea(D) | ||
| 4 | .6 | Executive Purchase Agreement dated May 7, 2004 by and among BlueLinx, Cerberus ABP Investor LLC and George R. Judd(D) | ||
| 10 | .1 | Asset Purchase Agreement, dated as of March 12, 2004, by and among Georgia-Pacific Corporation, Georgia-Pacific Building Materials Sales, Ltd. and BlueLinx Corporation(C) | ||
| 10 | .2 | First Amendment to Asset Purchase Agreement, dated as of May 6, 2004, by and among Georgia-Pacific Corporation, Georgia-Pacific Building Materials Sales, Ltd. and BlueLinx Corporation(C) | ||
| 10 | .3† | Master Purchase, Supply and Distribution Agreement, dated May 7, 2004 by and between BlueLinx Corporation and Georgia-Pacific(B) | ||
| 10 | .4 | Form of Director and Officer Indemnification Agreement (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on January 13, 2011) | ||
| 10 | .5 | BlueLinx Holdings Inc. Short-Term Incentive Plan (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on February 7, 2006) | ||
| 10 | .6 | BlueLinx Holdings Inc. 2004 Long Term Equity Incentive Plan(C) | ||
| 10 | .7 | BlueLinx Holdings Inc. 2004 Long-Term Equity Incentive Plan Form of Restricted Stock Award Agreement (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on January 11, 2008) | ||
| 10 | .8 | BlueLinx Holdings Inc. 2006 Long-Term Equity Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement for the 2006 Annual Meeting of Stockholders, filed with the Securities and Exchange Commission on April 14, 2006) | ||
| 10 | .9 | BlueLinx Holdings Inc. 2006 Long-Term Equity Incentive Plan Restricted Stock Award Agreement (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 9, 2006) | ||
| 10 | .10 | BlueLinx Holdings Inc. 2006 Long-Term Equity Incentive Plan Nonqualified Stock Option Award Agreement (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 9, 2006) | ||
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Table of Contents
|
Exhibit
|
||||
|
Number
|
Item
|
|||
| 10 | .11 | BlueLinx Holdings Inc. 2006 Long-Term Equity Incentive Plan Form of Performance Share Award Agreement (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on April 4, 2007) | ||
| 10 | .12 | Amendment No. 1 to BlueLinx Holdings Inc. 2006 Long-Term Equity Incentive Plan Form of Performance Share Award Agreement (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on December 15, 2010) | ||
| 10 | .13 | Amended and Restated Master Lease Agreement, dated as of June 9, 2006, by and between ABP AL (Midfield) LLC and the other parties identified as landlords therein and BlueLinx Corporation as tenant (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 15, 2006) | ||
| 10 | .14† | Letter Agreement, dated December 18, 2006, relating to and amending the Master Purchase, Supply and Distribution Agreement between Georgia-Pacific Corporation and BlueLinx Corporation dated May 7, 2004 (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on December 22, 2006) | ||
| 10 | .15† | Loan and Security Agreement, dated as of June 9, 2006, between the entities set forth therein collectively as borrower and German American Capital Corporation as Lender (incorporated by reference to Form 10-Q filed with the Securities and Exchange Commission on November 6, 2009) | ||
| 10 | .16 | Guaranty of Recourse Obligations, dated as of June 9, 2006, by BlueLinx Holdings Inc. for the benefit of German American Capital Corporation (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 15, 2006) | ||
| 10 | .17 | Environmental Indemnity Agreement, dated as of June 9, 2006, by BlueLinx Holdings Inc. in favor of German American Capital Corporation (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 15, 2006) | ||
| 10 | .18† | Amended and Restated Loan and Security Agreement, dated August 4, 2006, by and between BlueLinx Corporation, Wachovia and the other signatories listed therein (incorporated by reference to Form 10-Q filed with the Securities and Exchange Commission on November 6, 2009) | ||
| 10 | .19 | Second Amendment to Amended and Restated Loan and Security Agreement, dated August 4, 2006, by and between BlueLinx Corporation, Wells Fargo, as successor in interest to Wachovia, and the other signatories listed therein, dated July 7, 2010 (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on July 7, 2010) | ||
| 10 | .20 | Amended and Restated Employment Agreement between BlueLinx Corporation and George R. Judd, dated January 21, 2011, (incorporated by reference to Form 8-K/A filed with the Securities and Exchange Commission on January 27, 2011) | ||
| 10 | .21 | Amended and Restated Employment Agreement between BlueLinx Corporation and Howard D. Goforth, dated January 21, 2011 (incorporated by reference to Form 8-K/A filed with the Securities and Exchange Commission on January 27, 2011) | ||
| 10 | .22 | Amended and Restated Employment Agreement between BlueLinx Corporation and Dean A. Adelman, dated January 21, 2011 (incorporated by reference to Form 8-K/A filed with the Securities and Exchange Commission on January 27, 2011) | ||
| 14 | .1 | BlueLinx Code of Ethical Conduct (incorporated by reference to Exhibit 14 to Annual Report on Form 10-K for the year ended January 1, 2005, filed with the Securities and Exchange Commission on March 22, 2005) | ||
| 21 | .1 | List of subsidiaries of the Company* | ||
| 23 | .1 | Consent of Independent Registered Public Accounting Firm* | ||
| 31 | .1 | Certification of George R. Judd, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | ||
| 31 | .2 | Certification of Howard D. Goforth, Chief Financial Officer and Treasurer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | ||
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Table of Contents
|
Exhibit
|
||||
|
Number
|
Item
|
|||
| 32 | .1 | Certification of George R. Judd, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | ||
| 32 | .2 | Certification of Howard D. Goforth, Chief Financial Officer and Treasurer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | ||
| * | Filed herewith. | |
| † | Portions of this document were omitted and filed separately with the SEC pursuant to a request for confidential treatment in accordance with Rule 24b-2 of the Exchange Act. | |
| (A) | Previously filed as an exhibit to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (Reg. No. 333-118750) filed with the Securities and Exchange Commission on December 10, 2004. | |
| (B) | Previously filed as an exhibit to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Reg. No. 333-118750) filed with the Securities and Exchange Commission on November 26, 2004. | |
| (C) | Previously filed as an exhibit to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (Reg. No. 333-118750) filed with the Securities and Exchange Commission on October 1, 2004. | |
| (D) | Previously filed as an exhibit to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (Reg. No. 333-118750) filed with the Securities and Exchange Commission on October 8, 2004. |
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Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BLUELINX HOLDINGS INC.
(Registrant)
(Registrant)
| By: |
/s/
George
R. Judd
|
George R. Judd
President and Chief Executive Officer
Date: February 28, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature Name
|
Capacity
|
Date
|
||||
|
/s/ George
R. Judd
|
President and Chief Executive Officer and
Director (Principal Executive Officer) |
February 28, 2011 | ||||
|
/s/ Howard
D. Goforth
|
Senior Vice President, Chief Financial
Officer and Treasurer (Principal Financial Officer) |
February 28, 2011 | ||||
|
/s/ Scott
T. Phillips
|
Chief Accounting Officer (Principal Accounting Officer) | February 28, 2011 | ||||
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/s/ Howard
S. Cohen
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Chairman | February 28, 2011 | ||||
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/s/ Richard
S. Grant
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Director | February 28, 2011 | ||||
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/s/ Steven
F. Mayer
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Director | February 28, 2011 | ||||
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/s/ Richard
B. Marchese
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Director | February 28, 2011 | ||||
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/s/ Charles
H. McElrea
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Director | February 28, 2011 | ||||
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/s/ Alan
H. Schumacher
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Director | February 28, 2011 | ||||
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/s/ Mark
A. Suwyn
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Director | February 28, 2011 | ||||
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/s/ Robert
G. Warden
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Director | February 28, 2011 | ||||
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/s/ M.
Richard Warner
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Director | February 28, 2011 | ||||
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TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. ReservedPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules