What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-03 compared with 2020-05-06 · 154 added, 93 removed, 187 unchanged (57% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are a leading distributor of building and industrial products in the U.S with a combination of market position and geographic coverage, the buying power of certain centralized procurement, and the strength of a locally-focused sales force, BlueLinx is able to provide a wide range of value-added services and solutions to our customers and suppliers.

BlueLinx is able to provide a wide range of value-added services and solutions to our customers and suppliers.

We are headquartered in Marietta, Georgia, and we operate our distribution business through a broad network of distribution centers.

4 unchanged sentences

Structural products include primarily plywood, oriented strand board, rebar and remesh, lumber, spruce and other wood products primarily used for structural support in construction projects.

Structural products represented between 31% and 37% of our net sales over the past twelve months.

Structural products represented between 31 percent and 37 percent of our net sales over the past twelve months.

Specialty products include primarily engineered wood products, moulding, siding and trim, cedar, metal products (excluding rebar and remesh), and insulation.

Specialty products represented between 63% and 69% of our net sales over the past twelve months.

Specialty products represented between 63 percent and 69 percent of our net sales over the past twelve months.

On April 13, 2018, we completed the acquisition of Cedar Creek.

2 unchanged sentences

This acquisition allowed us to expand our product offerings, while maintaining our existing geographical footprint.

Recent Developments - Impact of COVID-19 Pandemic

Recent Developments - Update on Impact of COVID-19 Pandemic

A novel strain of coronavirus (COVID-19) was first identified in December 2019 in certain Far East and European countries.

1 unchanged sentence

In response to the pandemic, governmental authorities around the world implemented numerous measures to combat the virus, such as travel bans and restrictions, quarantines, “shelter-in-place” orders, and business shutdowns.

Over the course of the second quarter, these measures were successful in containing and reducing the spread of the COVID-19 virus in many locations, and many governmental authorities have begun to ease restrictions and execute plans to re-open businesses.

However, the rates of infection, hospitalization, and mortality associated with the virus continue to fluctuate, and in some cases, they have increased, in many U.S.

The pandemic and these containment measures have had, and are expected to continue to have, a substantial negative impact on businesses around the world and on global, regional, and national economies.

We began preparations for the pandemic in late February, and in early March we implemented policies and procedures to protect our associates, serve our customers, and support our suppliers.

We also moved quickly to develop plans and take actions designed to give us financial and operating flexibility during the pandemic.

To date, our business has been designated as “essential” in all states in which we operate, and we are continuing to operate and provide service to customers and suppliers.

We also moved quickly to develop plans and take actions designed to give us financial and operating flexibility during the pandemic and over the course of the second quarter we continued to execute on those plans.

To date, our business has been designated as “essential” in all states in which we operate, and we have continued to operate and provide service to our customers and suppliers.

Also, notably, we have not experienced any significant supply chain disruptions as a result of the pandemic, and our supply chain has remained intact in all material respects.

We formed a cross-functional COVID-19 Disaster Response Team and implemented safety and hygiene protocols consistent with the Centers for Disease Control and Prevention (“CDC”) and local guidance.

Those protocols have evolved in accordance with CDC and local guidance, and they include mandating the use of face coverings where their use is required by local order;

During the quarter, our cross-functional COVID-19 Disaster Response Team implemented safety and hygiene protocols consistent with the Centers for Disease Control and Prevention (“CDC”) and local guidance, including mandating the use of face coverings where their use is required by local order;

implementing enhanced cleaning and disinfecting procedures;

using social distancing guidelines and physical separation where required;

establishing no-travel mandates;

establishing more restrictive travel policies;

implementing no-contact rules and visitor guidelines;

2 unchanged sentences

and developing rapid response procedures for presumptive and confirmed COVID-19 cases at any of our locations.

We also developed plans designed to reduce our cost structure, strengthen our balance sheet, and further increase liquidity in response to the pandemic.

Steps taken to reduce operating costs include pausing new hiring;

We also took action on plans designed to reduce our cost structure, strengthen our balance sheet, and further increase liquidity in response to the pandemic.

We took steps to reduce operating costs and optimize liquidity by pausing new hiring;

limiting non-essential spending;

closely monitoring and reviewing credit lines, open orders, overpaid accounts, and receivables aging;

making substantial variable operating expense reductions correlating to local market demand declines;

placing approximately 15% of our salaried workforce on an initial 60-day furlough;

voluntary reductions of executive officer and vice president base salaries for at least six months;

making substantial headcount and variable operating expense reductions in local markets correlating to demand declines;

closely assessing and monitoring inventory availability and purchasing;

placing approximately 15 percent of our corporate workforce on furlough, and making targeted reductions in corporate headcount;

utilizing certain provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act;

and ongoing review and monitoring of payroll and branch expenses.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted to offer relief to employers through, among other things, deferment of employer-side social security payments, deferral of quarterly pension contributions, net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction

We have elected to utilize certain of the provisions offered and continue to examine the impacts the CARES Act may have on our business.

For the first fiscal quarter of 2020, the COVID-19 pandemic did not have a significant impact on our business.

Net sales increased 3.7% and our net loss improved 88% compared to the first quarter of 2019.

However, beginning at the end of the first fiscal quarter of 2020, we began to see market demand decline in several of our warehouse locations.

We believe that social distancing requirements, shelter-in-place orders, and restrictions on non-essential construction in states like New York, Pennsylvania, Vermont, and Michigan, stemming from the COVID-19 pandemic are likely to have a negative impact;

even in these states, however, our distribution business was not fully impacted, and we have continued to operate everywhere, albeit with social distancing and hygiene protocols.

Overall, we currently expect the pandemic to negatively impact our business and sales in 2020.

The extent of this decline will depend on future developments, including, among others, the duration of the pandemic, new information that may emerge concerning the severity of COVID-19, the actions, especially those taken by governmental authorities, to contain the pandemic or address its impact, and the impact the COVID-19 pandemic has on demand in the markets we service.

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

Overall, the impact of the pandemic on our business during the second quarter of 2020 was not as significant as we originally anticipated.

Net sales and gross margin declined in April relative to the prior year period, but the commodity market for structural products began to stabilize and rebound in May and June.

For the second quarter of 2020, net sales declined $7.7 million , primarily driven by the 2019 discontinuation of a siding product, and net income improved $0.4 million compared to the second quarter of 2019.

For the first six months of 2020, net sales increased $15.7 million and net income improved $6.3 million as we moved from a net loss for the first six months of 2019 to net income for the first six months of 2020.

The extent of the impact of the pandemic on our business and sales for the second half of 2020 will depend on future developments, including, among others, the duration of the pandemic, the success of actions taken by governmental authorities to contain the pandemic and address its impact, the success of local return to work and business reopening plans, and the impact the COVID-19 pandemic has on demand in the markets we service.

The trajectory of the pandemic continues to evolve rapidly, and we cannot predict the extent to which our financial condition, results of operations, or cash flows will ultimately be impacted.

We are closely monitoring the impact of the pandemic on these industry conditions, and we anticipate that as states begin to ease pandemic-related restrictions, any negative impact should begin to stabilize.

We are closely monitoring the impact of the pandemic on industry conditions, the progress of local return to work and reopening plans, and any pandemic-related restrictions that may have an impact on our business.

Industry Conditions

Many of the factors that cause our operations to fluctuate have historically been seasonal or cyclical in nature and we expect that to continue.

Our operating results have historically been correlated with the level of single-family residential housing starts in the U.S.

At any time, the demand for new homes is dependent on a variety of factors, including job growth, changes in population and demographics, the availability and cost of mortgage financing, the supply of new and existing homes, and consumer confidence.

Our operating results are also affected by commodity pricing, primarily the markets for wood-based commodities.

Lumber and panel prices generally trended upwards during the first quarter of 2020, enhancing gross margins for structural products.

Market pricing in the first quarter of 2020 was close to historical averages, but is above the prior year levels, which resulted in favorable revenue comparisons to the first quarter of 2019.

Our operating results have historically been generally correlated with the level of single-family residential housing starts in the U.S.

However, at any time, the demand for new homes is dependent on a variety of factors, including job growth, changes in population and demographics, the availability and cost of mortgage financing, the supply of new and existing homes, and consumer confidence.

The COVID-19 pandemic had a significant negative effect on single family housing starts during the second quarter of 2020.

Census Bureau reported that single family housing starts were down 13 percent for the second quarter of 2020 compared to the second quarter of 2019.

However, the trend showed strong improvement over the course of the quarter.

Housing starts declined 23 percent in April, 15 percent in May, and 2 percent in June, all compared to the same months in 2019.

Additionally, July data from the National Association of Home Builders/Wells Fargo Housing Market Index shows a positive outlook in builder confidence in the market for newly built single-family homes.

Low interest rates, shortages in existing home inventory, and a growing trend toward relocating away from populated metropolitan areas to areas with single-family homes may help drive long-term improvement in single-family housing starts.

Our operating results are also affected by commodity pricing, primarily the markets for wood-based commodities that we classify as structural products.

After declining in the early part of April, lumber and panel prices increased for the balance of the quarter, staying at or above price levels from the second quarter of 2019.

These market trends resulted in favorable revenue comparisons and enhanced gross margins in the second quarter of 2020 for many of the structural products that we sell.

Factors That Affect Our Operating Results

1 unchanged sentence

the COVID-19 pandemic and other contagious illness outbreaks and their potential effects on our industry, suppliers and supply chains, and customers, our business, results of operations, cash flows, financial condition, and future prospects;

the integration of the Cedar Creek business with ours and the potential for disruption in distribution relationships, operational performance and sales resulting therefrom;

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

18 unchanged sentences

Results of Operations

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

(Dollars in thousands)

First Quarter of Fiscal 2020

First Quarter of Fiscal 2019

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

Second Quarter of Fiscal 2020

Second Quarter of Fiscal 2019

(In thousands)

Selling, general, and administrative

Depreciation and amortization

Gains from sales of property

Other operating expenses

Operating income

Interest expense, net

Other expense (income), net

Income before provision for income taxes

Provision for income taxes

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

First Six Months of Fiscal 2020

First Six Months of 2019

(In thousands)

Selling, general, and administrative

Depreciation and amortization

Gains from sales of property

Other operating expenses

Operating income

Interest expense, net

Other (income) expense, net

Loss before benefit from income taxes

Other expense, net

Income (loss) before benefit from income taxes

Benefit from income taxes

The following table sets forth net sales by product category for the three -month periods ending March 28, 2020, and March 30, 2019 (in thousands):

Net income (loss)

The following table sets forth net sales by product category for the three and six -month periods ending June 27, 2020 , and June 29, 2019 :

Three Months Ended

March 28, 2020

March 30, 2019

Six Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

(In thousands)

Structural products

Specialty products

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

The following table sets forth gross profit and gross margin percentages by product category for the three and six -month periods of fiscal 2020 and 2019 :

Three Months Ended

March 28, 2020

March 30, 2019

Six Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

(Dollars in thousands)

Structural products

3 unchanged sentences

Specialty products

Total, including adjustments

First Quarter of Fiscal 2020 Compared to First Quarter of Fiscal 2019

For the first quarter of fiscal 2020 , net sales increased 3.7 percent , or $23.4 million , compared to the first quarter of fiscal 2019 .

The sales increase was driven by higher sales volumes and commodity price inflation, offset by the loss of $31.9 million of sales related to a siding program that was discontinued in conjunction with our Cedar Creek integration activities in the prior year.

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

For the second quarter of fiscal 2020 , net sales decreased 1.1 percent , or $7.7 million , compared to the second quarter of fiscal 2019 .

The sales decrease was driven by the loss of $15.9 million of sales related to a siding program that was discontinued in conjunction with our Cedar Creek integration activities in the prior year, partially offset by an increase in sales volume for our structural products and commodity price inflation.

Gross profit and gross margin.

For the first quarter of fiscal 2020 , gross profit increased by $7.2 million , or 8.3 percent , compared to the first quarter of fiscal 2019 , primarily due to increased sales revenue and improved gross margins on both our

specialty and structural products businesses.

Gross margin during the same period was 14.1 percent, an increase compared to 13.5 percent in the first quarter of fiscal 2019 .

For the second quarter of fiscal 2020 , gross profit increased by $6.7 million , or 7.1 percent , compared to the second quarter of fiscal 2019 , primarily due to improved gross margins on both our specialty and structural products businesses.

Gross margin during the same period was 14.4 percent , an increase compared to 13.3 percent in the second quarter of fiscal 2019 .

Selling, general, and administrative expenses.

The increase in selling, general, and administrative expenses of 4.5 percent , or $3.4 million , for the first quarter of fiscal 2020 , compared to the first quarter of fiscal 2019 , is primarily due to increases in our operational and logistics expenses in support of our strategy to enhance our service to our customer base and higher sales volumes.

The decrease in selling, general, and administrative expenses of 0.6 percent , or $0.4 million , for the second quarter of fiscal 2020 , compared to the second quarter of fiscal 2019 , is primarily due to decreases in our operational and logistics expenses, along with reductions in our fixed cost structure, partially offset by an increase in incentive compensation of approximately $4.0 million .

Depreciation and amortization expense.

For the first quarter of fiscal 2020 , depreciation and amortization expense increased by $0.3 million to $7.6 million due to a higher base of depreciable assets.

Interest expense.

Interest expense increased by $1.0 million for the first quarter of fiscal 2020 , compared to the first quarter of fiscal 2019 .

The increase was largely attributable to an increase in real estate financing transactions.

For the second quarter of fiscal 2020 , depreciation and amortization expense decreased by $0.4 million to $7.1 million due to a lower base of depreciable assets.

Gains from sales of property.

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

Other operating expenses.

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

Interest expense, net.

Interest expense decreased by $2.2 million for the second quarter of fiscal 2020 , compared to the second quarter of fiscal 2019 .

The decrease was largely attributable to a decrease in the average debt balance, as well as a reduction in the variable LIBOR rate that is a component of the interest rate on the Revolving Credit Facility and Term Loan Facility.

Provision for income taxes.

Our effective tax rate was 86.5 percent and 27.3 percent for the first quarter of fiscal 2020 and 2019 , respectively.

Our effective tax rate for the first quarter of fiscal 2020 was impacted by (i) the discrete tax benefit of $3.9 million resulting from the release of the valuation allowance associated with the nondeductible interest expense under IRC Section 163(j) as a result of the CARES act changing the allowable percentage from 30 percent of adjusted taxable income to 50 percent of adjusted taxable income, (ii) the permanent addback of certain nondeductible expenses, including meals and entertainment, and (iii) the effect of the partial valuation allowance for separate company state income tax losses.

Our effective tax rate for the first quarter of fiscal 2019 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses.

Our net loss improved over the prior year period due to higher sales, increased gross margins, and reduced costs associated with the acquisition of Cedar Creek.

Our effective tax rate was 33.9 percent and 27.2 percent for the second quarter of fiscal 2020 and 2019 , respectively.

Our effective tax rate for the second quarter of fiscal 2020 was impacted by (i) discrete tax expense of $0.4 million for a shortfall on restricted stock unit vesting, (ii) the permanent addback of certain nondeductible expenses, including meals and entertainment and officer’s compensation, and (iii) the effect of the partial valuation allowance for separate company state income tax losses and previously nondeductible interest under 163(j) of the IRC.

Our effective tax rate for the second quarter of fiscal 2019 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses.

In addition, we recorded discrete tax expense of $0.2 million for a shortfall on vesting of our restricted stock units, which was offset by a $0.2 million discrete tax benefit for claiming state tax credits.

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

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

For the first six months of fiscal 2020 , net sales increased 1.2 percent , or $15.7 million , compared to the first six months of fiscal 2019 .

The sales increase was driven by higher sales volumes and commodity price inflation, partially offset by the loss of $47.8 million of sales related to a siding program that was discontinued in conjunction with our Cedar Creek integration activities in the prior year.

Gross profit and gross margin.

For the first six months of fiscal 2020 , gross profit increased by $13.8 million , or 7.7 percent , compared to the first six months of fiscal 2019 , primarily due to increased sales revenue and improved gross margins on both our specialty and structural products businesses.

Gross margin during the same period was 14.3 percent , an increase compared to 13.4 percent in the first six months of fiscal 2019 .

Selling, general, and administrative expenses.

The increase in selling, general, and administrative expenses of 2.9 percent , or $4.1 million , for the first six months of fiscal 2020 , compared to the first six months of fiscal 2019 , is primarily due to an increase in incentive compensation of approximately $4.0 million .

Depreciation and amortization expense.

For the first six months of fiscal 2020 , depreciation and amortization expense decreased by $0.1 million to $14.7 million compared to the first six months of fiscal 2019 , due to a lower base of depreciable assets.

Gains from sales of property.

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

Other operating expenses.

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

Interest expense.

Interest expense decreased by $1.2 million for the first six months of fiscal 2020 , compared to the first six months of fiscal 2019 .

Benefit from income taxes.

Our effective tax rate was (36.8) percent and 29.5 percent for the first six months of fiscal 2020 and 2019 , respectively.

Our effective tax rate for the first six months of fiscal 2020 was impacted by (i) the discrete tax benefit of $3.9 million resulting from the release of the valuation allowance associated with the nondeductible interest expense under IRC Section 163(j) as a result of the CARES Act changing the allowable percentage from 30 percent of adjusted taxable income to 50 percent of adjusted taxable income, (ii) recording discrete tax expense of $0.4 million for a shortfall on vesting of our restricted stock units, (iii) the permanent addback of certain nondeductible expenses, including meals and entertainment and nondeductible compensation, and (iv) the effect of the partial valuation allowance for separate company state income tax losses and previously nondeductible interest expense under Section 163(j) of the IRC.

Our effective tax rate for the first six months of fiscal 2019 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and executive compensation, and the effect of the partial valuation allowance for separate company state income tax losses.

Net income (loss).

Our net loss improved to net income from the prior year period due to higher sales, increased gross margins, and reduced costs associated with the acquisition of Cedar Creek.

We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the building products distribution industry.

2 unchanged sentences

Assuming no change in underlying inventory costs, our working capital generally increases in the fiscal second and third quarters, reflecting increased seasonal demand.

However, due to the significant impacts of the COVID-19 pandemic, we do not expect to experience our typical seasonality trends in 2020.

However, due to the COVID-19 pandemic, we could experience disruptions to our typical seasonality trends during the rest of 2020.

Liquidity and Capital Resources

1 unchanged sentence

We expect that these sources will fund our ongoing cash requirements for the foreseeable future.

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

Revolving Credit Facility

6 unchanged sentences

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

As of March 28, 2020 , we had outstanding borrowings of $381.6 million , excess availability of $96.8 million , and a weighted average interest rate of 3.2 percent under the Revolving Credit Facility.

As of June 27, 2020 , we had outstanding borrowings of $322.2 million , excess availability of $138.1 million , and a weighted average interest rate of 2.6 percent under the Revolving Credit Facility.

As of December 28, 2019, our principal balance was $326.5 million , excess availability was $80.0 million , and our weighted average interest rate was 3.9 percent .

We were in compliance with all covenants under the Revolving Credit Facility as of March 28, 2020.

We were in compliance with all covenants under the Revolving Credit Facility as of June 27, 2020 .

Term Loan Facility

9 unchanged sentences

On February 28, 2020 , we further amended the Term Loan Facility to provide that we would not be subject to the facility’s total net leverage ratio covenant from and after the time, and then for so long as, the principal balance level under the facility is less than $45 million .

On April 1, 2020, we amended the Term Loan Facility by, among other things, modifying the total net leverage ratio covenant levels for the 2020 second and third quarters.

On April 1, 2020, we amended the Term Loan Facility by, among other

things, modifying the total net leverage ratio covenant levels for the 2020 second and third quarters.

All other total net leverage ratio covenant levels for prior and future quarters were unchanged.

1 unchanged sentence

In addition, proceeds from the sale of “Specified Properties” will be used for the repayment of indebtedness under the Term Loan Facility, subject to payment of an applicable prepayment premium, or, under certain circumstances, repayment of indebtedness under our Revolving Credit Facility.

The Term Loan Facility requires maintenance of a total net leverage ratio of 6.25 to 1.00 for the quarter ending March 28, 2020 , a ratio of 8.75 to 1.00 for the second and third quarters of 2020, and ratio levels generally reducing over the remaining term of the Term Loan Facility.

We were in compliance with all covenants under the Term Loan Facility as of March 28, 2020 .

As of March 28, 2020 , we had outstanding borrowings of $77.4 million under our Term Loan Facility and an interest rate of 8.6 percent per annum.

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

The calculation of the total net leverage ratio for any period is generally determined by taking our “Consolidated Total Debt” and dividing it by our “Consolidated EBITDA,” as those terms are defined in the Term Loan Facility.

“Consolidated Total Debt” is generally determined by adding the balance of our term loan, the prior month’s average balance of our Revolving Credit Facility, and our equipment finance lease liability, and reducing that amount by unrestricted cash up to $10.0 million.

On June 27, 2020 , the Term Loan Facility balance was $68.8 million , the average balance of the Revolving Credit Facility for the prior month was $320.1 million , our equipment finance lease liability was $29.2 million , and unrestricted cash was $10.0 million .

Liabilities related to sale-leaseback transactions are excluded from the calculation.

“Consolidated EBITDA” is generally determined by taking the Adjusted EBITDA that we report for the most recent four consecutive quarters and adjusting items specified under the Term Loan Facility.

The adjustments to Adjusted EBITDA for calculating Consolidated EBITDA under the Term Loan Facility as of the end of the second quarter of 2020 for the most recent four consecutive quarters were approximately $3.0 million .

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

As of June 27, 2020 , we had outstanding borrowings of $68.8 million under our Term Loan Facility and an interest rate of 8.0 percent per annum.

As of December 28, 2019 , our principal balance was $146.7 million with an interest rate of 8.7 percent per annum.

The decrease in the outstanding borrowings was due to net proceeds of the real estate financing transactions described in Note 8 being applied to the Term Loan Facility.

Finance Lease Commitments and Real Estate Financing Obligations

In January 2018, we completed sale-leaseback transactions on four distribution centers.

We sold these properties for gross proceeds of $110.0 million .

As a result of the transactions, we recognized finance lease assets and obligations totaling $95.1 million on these properties, and a total deferred gain of $83.9 million , which is amortized over the lives of the applicable leases.

Our total finance lease commitments, which substantially relate to leases of property, including the properties associated with these sale-leaseback transactions, totaled $151.4 million as of March 28, 2020 .

In May 2019 and June 2019, we completed real estate financing transactions on two distributions centers under sale-leaseback arrangements.

We sold these properties for gross proceeds of $45.0 million .

During the first quarter of 2020, in December 2019, January 2020, and February 2020, we completed real estate financing transactions under sale-leaseback arrangements on an additional fourteen distribution centers.

We sold these properties for gross proceeds of $78.3 million .

Under ASC 842, which we adopted at the beginning of fiscal 2019, these transactions did not qualify as sales.

As a result, we recorded financing obligations in the amount of the gross proceeds received, which are amortized over the lives of the financing obligations.

Our total commitments under these financing obligations totaled $172.7 million as of March 28, 2020 .

Finance Lease Commitments

Our finance lease liabilities consist of leases related to equipment and vehicles, and to real estate, with the majority of those finance lease commitments relating to the real estate financing transactions that we have completed in recent years.

During fiscal 2017 and 2018, we completed real estate financing transactions on six warehouse facilities;

during 2019, we completed real estate financing transactions on two warehouse facilities;

and, to date in fiscal 2020, we completed real estate financing transactions on fourteen warehouse facilities.

We recognized finance lease assets and obligations as a result of each of these transactions.

Our total finance lease commitments, including the properties associated with these transactions, totaled $272.6 million as of June 27, 2020 .

Interest Rates

6 unchanged sentences

Operating Activities

Net cash used in operating activities for the first three months of fiscal 2020 was $59.2 million , compared to net cash used in operating activities of $58.3 million in the first three months of fiscal 2019 .

During the first three months of fiscal 2020 , cash used in operating activities increased slightly, primarily from the increase in working capital compared to prior year.

Net cash provided by operating activities for the first six months of fiscal 2020 was $12.9 million , compared to net cash used in operating activities of $53.0 million in the first six months of fiscal 2019 .

The increase in cash provided by operating activities during the first six months of fiscal 2020 was a result of reporting net income for the current period and a decrease in working capital compared to the prior year period.

Investing Activities

Net cash used in investing activities for the first three months of fiscal 2020 was $1.2 million compared to net cash provided by investing activities of $4.9 million in the first three months of fiscal 2019 .

The net cash provided by investing activities in the prior year was due to $6.0 million that was returned from escrow after the Cedar Creek acquisition was finalized, offset by cash paid for property and equipment investments of $1.2 million ;

Net cash used in investing activities for the first six months of fiscal 2020 was $1.7 million compared to net cash provided by investing activities of $15.0 million in the first six months of fiscal 2019 .

The net cash provided by investing activities in the prior year was due to $6.0 million that was returned from escrow after the Cedar Creek acquisition was finalized and $10.8 million of proceeds from asset sales, offset by cash paid for property and equipment investments of $1.8 million ;

cash paid for property and equipment investments was consistent in both periods.

Financing Activities

Net cash provided by financing activities totaled $61.3 million for the first three months of fiscal 2020 , compared to $57.1 million for the first three months of fiscal 2019 .

The increase in net cash provided by financing activities is primarily due to proceeds from real estate transactions of $78.3 million and net borrowings on the revolving credit facility of $55.1 million , offset by a repayment on our term loan of $69.2 million .

Net cash used in financing activities totaled $11.4 million for the first six months of fiscal 2020 , compared to net cash provided by financing activities of $41.8 million for the first six months of fiscal 2019 .

The decrease in net cash provided by financing activities is primarily due to an increase in repayments on our Revolving Credit Facility and Term Loan Facility of $70.8 million and a reduction in borrowings on our Revolving Credit Facility of $15.3 million , offset by an increase in proceeds from real estate financing transactions of $33.4 million .

Operating Working Capital (1)

Selected financial information (in thousands)

March 28, 2020

Selected financial information

June 27, 2020

December 28, 2019

March 30, 2019

June 29, 2019

(In thousands)

Current assets:

4 unchanged sentences

Operating working capital

___________________________

(1) Operating working capital is defined as the sum of cash, receivables, and inventory less accounts payable.

[2] Accounts payable includes outstanding payments of $26.5 million , $16.1 million , and $42.9 million as of March 28, 2020 , December 28, 2019 , and March 30, 2019 , respectively.

(2) Accounts payable includes outstanding payments of $19.5 million , $16.1 million , and $37.1 million as of June 27, 2020 , December 28, 2019 , and June 29, 2019 , respectively.

Outstanding payments represent outstanding checks and electronic payments that have not been presented for payment as of the end of the period;

1 unchanged sentence

Operating working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash.

Operating working capital of $476.7 million on March 28, 2020 , compared to $418.0 million as of December 28, 2019 , increased on a net basis by approximately $58.8 million .

The increase in operating working capital is primarily driven by seasonal increases in accounts receivable and inventory to support expected increases that the Company has historically experienced in sales activity during the summer building season, offset by increases in accounts payable.

Operating working capital of $476.7 million on March 28, 2020 , compared to $471.2 million as of March 30, 2019 , increased by $5.6 million , driven by a decrease in accounts payable, partially offset by a decrease in the company’s inventory level.

Operating working capital of $431.2 million on June 27, 2020 , compared to $418.0 million as of December 28, 2019 , increased on a net basis by approximately $13.3 million .

The increase in operating working capital is primarily driven by seasonal increases in accounts receivable, offset by decreases in inventory due to the company’s tighter management of inventory levels.

The net increase in current assets was offset by an increase in accounts payable due to recent inventory purchases during the month of June.

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

Critical Accounting Policies

15 unchanged sentences

We operate in a changing environment in which new risks can emerge from time to time.

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.

It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements.

Factors that may cause these differences include, among other things:

41 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis