BlueLinx Holdings Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We are a leading distributor of building and industrial products in the U.S with 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. We are headquartered in Marietta, Georgia, and we operate our distribution business through a broad network of distribution centers. We serve many major metropolitan areas in the U.S. and deliver building and industrial products to a variety of wholesale and retail customers. We distribute products in two principal categories: structural products and specialty products. Structural products include primarily plywood, oriented strand board, rebar and remesh, lumber, spruce and other wood products primarily used for structural support in construction projects. 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 percent and 69 percent of our net sales over the past twelve months. On April 13, 2018, we completed the acquisition of Cedar Creek. Cedar Creek was established in 1977 as a wholesale building materials distribution company that distributed wood products across the United States. Its products included specialty lumber, oriented strand board, siding, cedar, spruce, engineered wood products, and other building products. This acquisition allowed us to expand our product offerings, while maintaining our existing geographical footprint. Recent Developments - Update on Impact of COVID-19 Pandemic A novel strain of coronavirus (COVID-19) was first identified in December 2019 in certain Far East and European countries. On March 11, 2020, the spread of COVID-19 was declared a global pandemic by the World Health Organization, with a high concentration of cases in the United States. In response to the pandemic, governmental authorities around the world implemented numerous measures to combat the virus, such as travel bans and restrictions, quarantines, “shelter-in-place” orders, and business shutdowns. Over the course of the second quarter, these measures were successful in containing and reducing the spread of the COVID-19 virus in many locations, and many governmental authorities have begun to ease restrictions and execute plans to re-open businesses. However, the rates of infection, hospitalization, and mortality associated with the virus continue to fluctuate, and in some cases, they have increased, in many U.S. states. The pandemic and these containment measures have had, and are expected to continue to have, a substantial negative impact on businesses around the world and on global, regional, and national economies. We began preparations for the pandemic in late February, and in early March we implemented policies and procedures to protect our associates, serve our customers, and support our suppliers. We also moved quickly to develop plans and take actions designed to give us financial and operating flexibility during the pandemic and over the course of the second quarter we continued to execute on those plans. To date, our business has been designated as “essential” in all states in which we operate, and we have continued to operate and provide service to our customers and suppliers. Also, notably, we have not experienced any significant supply chain disruptions as a result of the pandemic, and our supply chain has remained intact in all material respects. During the quarter, our cross-functional COVID-19 Disaster Response Team implemented safety and hygiene protocols consistent with the Centers for Disease Control and Prevention (“CDC”) and local guidance, including mandating the use of face coverings where their use is required by local order; implementing enhanced cleaning and disinfecting procedures; using social distancing guidelines and physical separation where required; establishing more restrictive travel policies; implementing no-contact rules and visitor guidelines; implementing enhanced safety procedures for our drivers such as including contactless delivery procedures; using mobile work arrangements for employees whose work can be done remotely; and developing rapid response procedures for presumptive and confirmed COVID-19 cases at any of our locations. We also took action on plans designed to reduce our cost structure, strengthen our balance sheet, and further increase liquidity in response to the pandemic. We took steps to reduce operating costs and optimize liquidity by pausing new hiring; limiting non-essential spending; closely monitoring and reviewing credit lines, open orders, overpaid accounts, and receivables aging; making substantial headcount and variable operating expense reductions in local markets correlating to demand declines; closely assessing and monitoring inventory availability and purchasing; placing approximately 15 percent of our corporate workforce on furlough, and making targeted reductions in corporate headcount; utilizing certain provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act; and ongoing review and monitoring of payroll and branch expenses. While 17 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 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 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. The U.S. 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 Our results of operations and financial performance are influenced by a variety of factors, including the following: 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; changes in the prices, supply and/or demand for products that we distribute; inventory management and commodities pricing; new housing starts; repair and remodeling activity; general economic and business conditions in the U.S.; disintermediation by our customers and suppliers; acceptance by our customers of our branded and privately branded products; financial condition and credit worthiness of our customers; supply from key vendors; reliability of the technologies we utilize; activities of competitors; changes in significant operating expenses; fuel costs; risk of losses associated with accidents; exposure to product liability claims and other legal proceedings; changes in the availability of capital and interest rates; adverse weather patterns or conditions; acts of cyber intrusion or other disruptions to our information technology systems; tariffs, anti-dumping and counter-vailing duties, anti-dumping charges, and similar import costs and restrictions; and variations in the performance of the financial markets, including the credit markets. 18 Results of Operations The following table sets forth our results of operations for the second quarter of fiscal 2020 and fiscal 2019 : Second Quarter of Fiscal 2020 % of Net Sales Second Quarter of Fiscal 2019 % of Net Sales (In thousands) (In thousands) Net sales $ 698,776 100.0% $ 706,448 100.0% Gross profit 100,820 14.4% 94,167 13.3% Selling, general, and administrative 69,710 10.0% 70,150 9.9% Depreciation and amortization 7,063 1.0% 7,503 1.1% Gains from sales of property — 0.0% (9,760 ) (1.4)% Other operating expenses 1,962 0.3% 3,951 0.6% Operating income 22,085 3.2% 22,323 3.2% Interest expense, net 11,535 1.7% 13,717 1.9% Other expense (income), net 417 0.1% (45 ) 0.0% Income before provision for income taxes 10,133 1.5% 8,651 1.2% Provision for income taxes 3,438 0.5% 2,350 0.3% Net income $ 6,695 1.0% $ 6,301 0.9% The following table sets forth our results of operations for the six -month periods of fiscal 2020 and fiscal 2019: First Six Months of Fiscal 2020 % of Net Sales First Six Months of 2019 % of Net Sales (In thousands) (In thousands) Net sales $ 1,360,846 100.0% $ 1,345,149 100.0% Gross profit 194,029 14.3% 180,212 13.4% Selling, general, and administrative 143,314 10.5% 139,235 10.4% Depreciation and amortization 14,698 1.1% 14,831 1.1% Gains from sales of property (525 ) 0.0% (9,760 ) (0.7)% Other operating expenses 6,127 0.5% 9,276 0.7% Operating income 30,415 2.2% 26,630 2.0% Interest expense, net 25,915 1.9% 27,118 2.0% Other expense, net 180 0.0% 105 0.0% Income (loss) before benefit from income taxes 4,320 0.3% (593 ) 0.0% Benefit from income taxes (1,588 ) (0.1)% (175 ) 0.0% Net income (loss) $ 5,908 0.4% $ (418 ) 0.0% The following table sets forth net sales by product category for the three and six -month periods ending June 27, 2020 , and June 29, 2019 : Three Months Ended Six Months Ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 (In thousands) (In thousands) Structural products $ 249,571 $ 224,528 $ 490,349 $ 421,314 Specialty products 449,205 481,920 870,497 923,835 Net sales $ 698,776 $ 706,448 $ 1,360,846 $ 1,345,149 19 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 Six Months Ended June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019 (Dollars in thousands) (Dollars in thousands) Structural products $ 23,100 $ 17,388 $ 47,334 $ 36,121 Specialty products 77,720 76,779 146,695 144,091 Gross profit $ 100,820 $ 94,167 $ 194,029 $ 180,212 Gross margin percentage by category Structural products 9.3 % 7.7 % 9.7 % 8.6 % Specialty products 17.3 % 15.9 % 16.9 % 15.6 % Total 14.4 % 13.3 % 14.3 % 13.4 % Second Quarter of Fiscal 2020 Compared to Second Quarter of Fiscal 2019 Net sales. 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 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 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 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 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. Net income. Our net income improved over the prior year period due to increased gross margins and reduced costs. 20 First Six Months of Fiscal 2020 Compared to First Six Months of Fiscal 2019 Net sales. 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 . 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. 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. 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. 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. Seasonality We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors common in the building products distribution industry. The first and fourth fiscal quarters are typically our lower volume quarters, due to the impact of poor weather on the construction market. Our second and third fiscal quarters are typically our higher volume quarters, reflecting an increase in construction, due to more favorable weather conditions. Assuming no change in underlying inventory costs, our working capital generally increases in the fiscal second and third quarters, reflecting increased seasonal demand. However, due to the COVID-19 pandemic, we could experience disruptions to our typical seasonality trends during the rest of 2020. 21 Liquidity and Capital Resources We expect our primary sources of liquidity to be cash flows from sales in the normal course of our operations and borrowings under our Revolving Credit Facility. We expect that these sources will fund our ongoing cash requirements for the foreseeable future. We believe that, assuming that our operations are not significantly impacted by the COVID-19 pandemic for a prolonged period, our sales in the normal course of our operations, and amounts currently available from our Revolving Credit Facility and other sources, will be sufficient to fund our routine operations, including working capital requirements, for at least the next twelve months. Revolving Credit Facility In April 2018, we amended and restated our Revolving Credit Facility to provide for a senior secured revolving loan and letter of credit facility of up to $600 million and an uncommitted accordion feature that permits us to increase the facility by an aggregate additional principal amount of up to $150 million . If we obtain the full amount of the additional increases in commitments, the Revolving Credit Facility will allow borrowings of up to $750 million . Borrowings under the Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the Revolving Credit Facility). Letters of credit in an aggregate amount of up to $30 million are also available under the Revolving Credit Facility, which would reduce the amount of the revolving loans available thereunder. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to (i) LIBOR plus a margin ranging from 1.75 percent to 2.25 percent , with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on LIBOR, or (ii) the administrative agent’s base rate plus a margin ranging from 0.75 percent to 1.25 percent , with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate. If excess availability falls below the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time, the Revolving Credit Facility requires maintenance of a fixed charge coverage ratio of 1.0 to 1.0 until excess availability has been at least the greater of (i) $50 million and (ii) 10 percent of the lesser of (a) the borrowing base and (b) the maximum permitted credit at such time for a period of 30 consecutive days. We amended the Revolving Credit Facility on January 31, 2020 , to provide that (i) the “Seasonal Period” will run from November 15, 2019 , through July 15, 2020 , for the calendar year 2019, and from December 15 of each calendar year through April 15 of each immediately succeeding calendar year for the calendar year 2020 and thereafter, and (ii) the measurement period in the definition of “Cash Dominion Event” will be five consecutive business days instead of three consecutive business days. As of June 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 June 27, 2020 . Term Loan Facility In April 2018, we entered into our Term Loan Facility with HPS Investment Partners, LLC, and other financial institutions as party thereto, which provides for a term loan of $180 million secured by substantially all of our assets. Borrowings under the Term Loan Facility may be made as Base Rate Loans or Eurodollar Rate Loans. The Base Rate Loans will bear interest at the rate per annum equal to (i) the greatest of the (a) U.S. prime lending rate published in The Wall Street Journal, (b) the Federal Funds Effective Rate plus 0.50 percent , and (c) the sum of the Adjusted Eurodollar Rate of one month plus 1.00 percent , provided that the Base Rate shall at no time be less than 2.00 percent per annum; plus (ii) the Applicable Margin, as described below. Eurodollar Rate Loans will bear interest at the rate per annum equal to (i) the ICE Benchmark Administration LIBOR Rate, provided that the Adjusted Eurodollar Rate shall at no time be less than 1.00 percent per annum; plus (ii) the Applicable Margin. The Applicable Margin will be 6.00 percent with respect to Base Rate Loans and 7.00 percent with respect to Eurodollar Rate Loans. We amended the Term Loan Facility on December 31, 2019 , to extend the period for satisfying the designated principal balance level required to maintain the modified total net leverage ratio covenant levels for the 2019 fourth and subsequent quarters thereunder, which was satisfied on January 31, 2020 , through repayments from proceeds from the real estate financing transactions described in Note 8. On February 28, 2020 , we further amended the Term Loan Facility to provide that we would not be subject to the facility’s total net leverage ratio covenant from and after the time, and then for so long as, 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 22 things, modifying the total net leverage ratio covenant levels for the 2020 second and third quarters. All other total net leverage ratio covenant levels for prior and future quarters were unchanged. The Term Loan Facility permits us to enter into real estate sale leaseback transactions with the net proceeds therefrom to be used for repayment of indebtedness under the facility, subject to payment of an applicable prepayment premium. In addition, proceeds from the sale of “Specified Properties” will be used for the repayment of indebtedness under the Term Loan Facility, subject to payment of an applicable prepayment premium, or, under certain circumstances, repayment of indebtedness under our Revolving Credit Facility. Unless and until the 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 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 Our Revolving Credit Facility and our Term Loan Facility include available interest rate options based on the London Inter-bank Offered Rate (LIBOR). It is widely expected that LIBOR will be discontinued after 2021, and the U.S. and other countries are currently working to replace LIBOR with alternative reference rates. The consequences of these developments with respect to LIBOR cannot be entirely predicted; however, we do not believe that the discontinuation of LIBOR as a reference rate in our loan agreements will have a material adverse effect on our financial position or materially affect our interest expense. 23 Sources and Uses of Cash Operating Activities 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 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 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 June 27, 2020 December 28, 2019 June 29, 2019 (In thousands) Current assets: Cash $ 11,530 $ 11,643 $ 12,662 Receivables, less allowance for doubtful accounts 264,642 192,872 262,042 Inventories, net 313,979 345,806 358,652 $ 590,151 $ 550,321 $ 633,356 Current liabilities: Accounts payable (2) $ 158,920 $ 132,348 $ 174,860 $ 158,920 $ 132,348 $ 174,860 Operating working capital $ 431,231 $ 417,973 $ 458,496 (1) Operating working capital is defined as the sum of cash, receivables, and inventory less accounts payable. (2) Accounts payable includes outstanding payments of $19.5 million , $16.1 million , and $37.1 million as of June 27, 2020 , December 28, 2019 , and June 29, 2019 , respectively. Outstanding payments represent outstanding checks and electronic payments that have not been presented for payment as of the end of the period; these amounts are typically funded within 24 hours. Operating working capital is an important measurement we use to determine the efficiencies of our operations and our ability to readily convert assets into cash. 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. 24 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 The preparation of our consolidated financial statements and related disclosures in conformity with GAAP requires our management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. There have been no material changes to our critical accounting policies from the information provided in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019. Forward-Looking Statements This report contains forward-looking statements. Forward-looking statements include, without limitation, any statement that predicts, forecasts, indicates or implies future results, performance, liquidity levels or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will be,” “will likely continue,” “will likely result” or words or phrases of similar meaning. The forward-looking statements in this report include statements about the COVID-19 pandemic, its duration and effects, and its potential effects on our business and results of operations; anticipated effects of adopting certain accounting standards; estimated future annual amortization expense; potential changes to estimates made in connection with revenue recognition; the expected outcome of legal proceedings; industry conditions; seasonality; and liquidity and capital resources. Forward-looking statements are based on estimates and assumptions made by our management that, although believed by us to be reasonable, are inherently uncertain. Forward-looking statements involve risks and uncertainties that may cause our business, strategy, or actual results to differ materially from the forward-looking statements. These risks and uncertainties include those discussed under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 28, 2019, and those discussed elsewhere in this report (including Item 1A of Part II of this report) and in future reports that we file with the SEC. We operate in a changing environment in which new risks can emerge from time to time. It is not possible for management to predict all of these risks, nor can it assess the extent to which any factor, or a combination of factors, may cause our business, strategy, or actual results to differ materially from those contained in forward-looking statements. Factors that may cause these differences include, among other things: the COVID-19 pandemic and other contagious illness outbreaks and their potential effects on our industry, suppliers and supply chain, and customers, and our business, results of operations, cash flows, financial condition, and future prospects; our ability to integrate and realize anticipated synergies from acquisitions; loss of material customers, suppliers, or product lines in connection with acquisitions; operational disruption in connection with the integration of acquisitions; our indebtedness and its related limitations; sufficiency of cash flows and capital resources; our ability to monetize real estate assets; fluctuations in commodity prices; adverse housing market conditions; disintermediation by customers and suppliers; changes in prices, supply and/or demand for our products; inventory management; competitive industry pressures; industry consolidation; product shortages; loss of and dependence on key suppliers and manufacturers; import taxes and costs, including new or increased tariffs, anti-dumping duties, countervailing duties or similar duties; our ability to successfully implement our strategic initiatives; fluctuations in operating results; sale-leaseback transactions and their effects; real estate leases; changes in interest rates; exposure to product liability claims; our ability to complete offerings under our shelf registration statement on favorable terms, or at all; changes in our product mix; petroleum prices; information technology security and business interruption risks; litigation and legal proceedings; natural disasters and unexpected events; activities of activist stockholders; labor and union matters; limits on net operating loss carryovers; pension plan assumptions and liabilities; risks related to our internal controls; retention of associates and key personnel; federal, state, local and other regulations, including environmental laws and regulations; and changes in accounting principles. Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We expressly disclaim any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.