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: specialty products and structural products. Specialty products include primarily engineered wood products, moulding, siding and trim, cedar, metal products (excluding rebar and remesh), and insulation. Specialty products represented between 55 percent and 65 percent of our net sales over the past twelve months. 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 35 percent and 45 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. These measures have been successful to various degrees in containing and reducing the spread of the COVID-19 virus in many locations, and many governmental authorities have eased restrictions and executed plans to re-open businesses. However, the rates of infection, hospitalization, and mortality associated with the virus continue to fluctuate, and the rates have increased or rebounded in many U.S. states and localities, causing governmental authorities to consider new or reinstated mitigation measures. 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 and execute 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 have continued to operate and provide service to our customers and suppliers. During the recently completed quarter, we continued to practice safety and hygiene protocols consistent with the Centers for Disease Control and Prevention (“CDC”) and local guidance. We also continued our efforts to reduce operating costs and optimize liquidity and took actions designed to sustain many of our first and second quarter cost reduction actions long-term. Cost structure and liquidity will remain as areas of acute focus for us as the pandemic continues. While the pandemic continued to impact many aspects of our business and operations during the quarter, that impact was offset by the recovery in single-family residential housing starts and the rapid escalation in wood-based commodity pricing. Our net sales and gross margin increased, largely driven by the significant increase in wood-based commodity pricing over the course of the quarter. For the third quarter of 2020, net sales increased $192.4 million and net income improved $62.2 million, compared to the third quarter of 2019. For the first nine months of 2020, net sales increased $208.1 million and net income improved $68.5 million as we moved from a net loss for the first nine months of 2019 to net income for the first nine months of 2020. The extent of the impact of the pandemic on our business and sales for the remaining three months of 2020 and into fiscal 2021 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, 18 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 been seasonal or cyclical in nature and we expect that to continue. Our operating results are affected by commodity markets, primarily in the markets for wood-based commodities that we classify as structural products. After declining in the early part of April, lumber and panel commodity index prices significantly increased through the end of the third quarter, with the average prices for both more than doubling from the third quarter of 2019. These market trends resulted in substantially favorable revenue and gross margin comparisons in the third quarter of 2020 for our structural products and our business as a whole. Wood-based commodity index prices began to decline at the beginning of the fourth quarter as supply constraints show indications of abating. We anticipate that lumber and panel index prices will generally continue to trend downward from their peak levels at the end of the third quarter. Historically, our operating results have also 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 has had a significant negative effect on single family housing starts during the first half of 2020. However, housing starts have rebounded during the third quarter of 2020. The U.S. Census Bureau reported that single family housing starts were up 17 percent for the third quarter of 2020 compared to the third quarter of 2019. During the quarter, housing starts grew 12 percent in July, 15 percent in August, and 24 percent in September, all compared to the same months in 2019. Additionally, October data from the National Association of Home Builders/Wells Fargo Housing Market Index shows a record positive outlook in builder confidence in the market for newly built single-family homes. Low interest rates, shortages in existing home inventory, and a potential 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. Factors That Affect Our Operating Results Our results of operations and financial performance are influenced by a variety of factors, including the following: 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; 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; 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; variations in the performance of the financial markets, including the credit markets. 19 Results of Operations The following table sets forth our results of operations for the third quarter of fiscal 2020 and fiscal 2019: Third Quarter of Fiscal 2020 % of Net Sales Third Quarter of Fiscal 2019 % of Net Sales (In thousands) (In thousands) Net sales $ 871,063 100.0% $ 678,665 100.0% Gross profit 159,460 18.3% 93,713 13.8% Selling, general, and administrative 78,992 9.1% 76,095 11.2% Depreciation and amortization 7,087 0.8% 7,577 1.1% Gains from sales of property (8,684) (1.0)% (38) (0.0)% Other operating expenses 609 0.1% 3,786 0.6% Operating income 81,456 9.4% 6,293 0.9% Interest expense, net 10,776 1.2% 13,409 2.0% Other income, net (238) (0.0)% (317) (0.0)% Income (loss) before provision for income taxes 70,918 8.1% (6,799) (1.0)% Provision for income taxes 15,802 1.8% 244 0.0% Net income (loss) $ 55,116 6.3% $ (7,043) (1.0)% The following table sets forth our results of operations for the nine-month periods of fiscal 2020 and fiscal 2019: First Nine Months of Fiscal 2020 % of Net Sales First Nine Months of Fiscal 2019 % of Net Sales (In thousands) (In thousands) Net sales $ 2,231,909 100.0% $ 2,023,814 100.0% Gross profit 353,489 15.8% 273,925 13.5% Selling, general, and administrative 222,306 10.0% 215,330 10.6% Depreciation and amortization 21,785 1.0% 22,408 1.1% Gains from sales of property (9,209) (0.4)% (9,798) (0.5)% Other operating expenses 6,736 0.3% 13,062 0.6% Operating income 111,871 5.0% 32,923 1.6% Interest expense, net 36,691 1.6% 40,527 2.0% Other income, net (58) (0.0)% (212) (0.0)% Income (loss) before benefit from income taxes 75,238 3.4% (7,392) (0.4)% Provision for income taxes 14,214 0.6% 69 0.0% Net income (loss) $ 61,024 2.7% $ (7,461) (0.4)% The following table sets forth net sales by product category for the three and nine-month periods ending September 26, 2020, and September 28, 2019: Three Months Ended Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 (In thousands) (In thousands) Structural products $ 375,072 $ 225,689 $ 865,302 $ 646,646 Specialty products 495,991 452,976 1,366,607 1,377,168 Net sales $ 871,063 $ 678,665 $ 2,231,909 $ 2,023,814 20 The following table sets forth gross profit and gross margin percentages by product category for the three and nine-month periods of fiscal 2020 and 2019: Three Months Ended Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 (Dollars in thousands) (Dollars in thousands) Structural products $ 73,370 $ 20,229 $ 120,673 $ 56,284 Specialty products 86,090 73,484 232,816 217,641 Gross profit $ 159,460 $ 93,713 $ 353,489 $ 273,925 Gross margin percentage by category Structural products 19.6 % 9.0 % 13.9 % 8.7 % Specialty products 17.4 % 16.2 % 17.0 % 15.8 % Total 18.3 % 13.8 % 15.8 % 13.5 % Third Quarter of Fiscal 2020 Compared to Third Quarter of Fiscal 2019 Net sales. For the third quarter of fiscal 2020, net sales increased 28.3 percent, or $192.4 million, compared to the third quarter of fiscal 2019. The sales increase was primarily a result of wood-based commodity price inflation, partially offset by a slight decline in sales volume attributable to supply outages in structural products occurring toward the second half of the quarter. Gross profit and gross margin. For the third quarter of fiscal 2020, gross profit increased by $65.7 million, or 70.2 percent, compared to the third 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 18.3 percent, an increase compared to 13.8 percent in the third quarter of fiscal 2019. Selling, general, and administrative expenses. The increase in selling, general, and administrative expenses of 3.8 percent, or $2.9 million, for the third quarter of fiscal 2020, compared to the third quarter of fiscal 2019, is primarily due to an increase in variable incentive compensation of approximately $6.6 million and higher sales commissions of approximately $2.9 million, offset by reductions in our fixed cost structure, combined with decreases in our operational expenses. Depreciation and amortization expense. For the third quarter of fiscal 2020, depreciation and amortization expense decreased b y $0.5 million to $7.1 million due to a lower base of depreciable assets. Gains from sales of property. Gains from sales of property increased by $8.6 million for the third quarter of fiscal 2020, compared to the third fiscal quarter of 2019, as we completed the sale and leaseback of our Denver facility in August 2020 and we sold no property during the third quarter of 2019. Other operating expenses. For the third quarter of fiscal 2020, other operating expenses decreased by $3.2 million, or 83.9 percent, compared to the third quarter of fiscal 2019, primarily due to a decrease in spending related to the integration of the Cedar Creek acquisition. Interest expense, net. Interest expense decreased by $2.6 million for the third quarter of fiscal 2020, compared to the third quarter of fiscal 2019. The decrease was largely attributable to a decrease in the average bank 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 22.3 percent and (3.6) percent for the third quarter of fiscal 2020 and 2019, respectively. Our effective tax rate for the third quarter of fiscal 2020 was impacted by the permanent addback of certain nondeductible expenses, including meals and entertainment and officer’s compensation, and 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 third 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 and consolidated interest expense limitation, including $0.6 million in discrete tax expense related to prior periods. 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 increased gross margins resulting from wood-based commodity price inflation for our structural products and overall reduced costs. 21 First Nine Months of Fiscal 2020 Compared to First Nine Months of Fiscal 2019 Net sales. For the first nine months of fiscal 2020, net sales increased 10.3 percent, or $208.1 million, compared to the first nine months of fiscal 2019. The sales increase was driven by wood-based commodity price inflation and higher sales volume, partially offset by the loss of $50.5 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 nine months of fiscal 2020, gross profit increased by $79.6 million, or 29.0 percent, compared to the first nine months of fiscal 2019, primarily due to increased sales revenue and improved gross margins on both our specialty and structural products businesses from price inflation and higher sales volume. Gross margin during the same period was 15.8 percent, an increase compared to 13.5 percent in the first nine months of fiscal 2019. Selling, general, and administrative expenses. The increase in selling, general, and administrative expenses of 3.2 percent, or $7.0 million, for the first nine months of fiscal 2020, compared to the first nine months of fiscal 2019, is primarily due to an increase in variable incentive compensation of approximately $10.0 million and higher sales commission of approximately $4.5 million, offset by reductions in our fixed cost structure, combined with decreases in our operational expenses. Depreciation and amortization expense. For the first nine months of fiscal 2020, depreciation and amortization expense decreased by $0.6 million to $21.8 million compared to the first nine months of fiscal 2019, due to a lower base of depreciable assets. Gains from sales of property. Gains from sales of property decreased by $0.6 million for the first nine months of fiscal 2020, compared to the first nine months of fiscal 2019, due to lower net proceeds from property sales in the current year period. Other operating expenses. For the first nine months of fiscal 2020, other operating expenses decreased by $6.3 million, or 48.4 percent, compared to the first nine 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 throughout the period. Interest expense. Interest expense decreased by $3.8 million for the first nine months of fiscal 2020, compared to the first nine months of fiscal 2019. The decrease was largely attributable to a decrease in the average bank 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 18.9 percent and (0.9) percent for the first nine months of fiscal 2020 and 2019, respectively. Our effective tax rate for the first nine 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 nine 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 and consolidated interest expense limitations, including $0.6 million in discrete tax expense related to prior periods.. 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. Acquisition related costs declined from $11.3 million in the first nine fiscal months of 2019 to $1.8 million in the same period in 2020. 22 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 less favorable 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. In past years, assuming no change in underlying inventory costs, our working capital has increased in the fiscal second and third quarters, reflecting general increases in seasonal demand. During the fiscal second and third quarters of 2020, our inventory working capital balance decreased despite increasing commodity prices, reflecting enhancements in our working capital management throughout the year. Due to the COVID-19 pandemic, it remains a possibility that we could experience changes to our typical seasonality trends during the rest of 2020 and into 2021. 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 September 26, 2020, we had outstanding borrowings of $263.0 million, excess availability of $202.1 million, and a weighted average interest rate of 2.5 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 September 26, 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, 23 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 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. Prepayment premiums associated with the repayment of indebtedness were $0.3 million and $2.6 million for the three and nine-month periods ended September 26, 2020, respectively. For the nine-month period ended September 28, 2019, prepayment premiums were $0.5 million. No prepayment premiums were paid during the three-month period ending September 28, 2019. The Term Loan Facility required maintenance of a total net leverage ratio of 8.75 to 1.00 for the quarter ending September 26, 2020. We were in compliance with all covenants under the Term Loan Facility as of September 26, 2020. As of September 26, 2020 , we had outstanding borrowings of $57.8 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 required quarterly principal payments and net proceeds of the real estate financing transactions described in Note 8 being applied to the Term Loan Facility. On October 2, 2020, we reduced the principal balance of the Term Loan Facility to $44.4 million, and as a result we are no longer subject to the Facility’s total net leverage ratio covenant beginning with our 2020 fourth quarter. 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 $273.2 million as of September 26, 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. 24 Sources and Uses of Cash Operating Activities Net cash provided by operating activities for the first nine months of fiscal 2020 was $74.4 million, compared to net cash used in operating activities of $37.6 million in the first nine months of fiscal 2019. The increase in cash provided by operating activities during the first nine months of fiscal 2020 was a result of increased net income for the current year period, combined with improvements in our working capital balances compared to the prior year period. Investing Activities Net cash provided by investing activities for the first nine months of fiscal 2020 was $8.8 million compared to net cash provided by investing activities of $16.4 million in the first nine months of fiscal 2019. The decrease in net cash provided by investing activities was due to $6.0 million that was returned from escrow after the Cedar Creek acquisition was finalized in the prior year and declines in proceeds from the sales of assets as well as cash investments in property and equipment. For further details on our investments in property and equipment, refer to the “Investments in Capital Assets” section below. Financing Activities Net cash used in financing activities totaled $84.7 million for the first nine months of fiscal 2020, compared to net cash provided by financing activities of $25.1 million for the first nine 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 $171.3 million, offset by an increase in borrowings on our Revolving Credit Facility of $29.3 million and an increase in proceeds from real estate financing transactions of $33.5 million. Operating Working Capital (1) Selected financial information September 26, 2020 December 28, 2019 September 28, 2019 (In thousands) Current assets: Cash $ 10,154 $ 11,643 $ 12,847 Receivables, less allowance for doubtful accounts 308,584 192,872 243,905 Inventories, net 306,030 345,806 362,389 $ 624,768 $ 550,321 $ 619,141 Current liabilities: Accounts payable (2) $ 178,948 $ 132,348 $ 179,376 $ 178,948 $ 132,348 $ 179,376 Operating working capital $ 445,820 $ 417,973 $ 439,765 (1) Operating working capital is defined as the sum of cash, receivables, and inventory less accounts payable. (2) Accounts payable includes outstanding payments of $17.8 million, $16.1 million, and $39.8 million as of September 26, 2020, December 28, 2019, and September 28, 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 $445.8 million on September 26, 2020, compared to $418.0 million as of December 28, 2019, increased on a net basis by approximately $27.8 million. The increase in operating working capital is primarily driven by increases in accounts receivable, offset by decreases in inventory due to tighter management. The net increase in current assets was offset by an increase in accounts payable due to recent inventory purchases during the month of September. 25 Operating working capital of $445.8 million on September 26, 2020, compared to $439.8 million as of September 28, 2019, increased by $6.0 million, driven by an increase in accounts receivable, offset by a decrease in inventory due to tighter management of inventory levels. Investments in Capital Assets Our investments in capital assets consist of cash paid for owned assets and the inception of financing lease arrangements for long-lived assets to support our distribution infrastructure. The gross value of these assets are included in “Property and equipment, at cost” on our condensed consolidated balance sheet. For the third quarter ended September 26, 2020, we invested $0.2 million in cash related to investments in long-lived assets and entered into finance leases totaling $3.1 million, for a total investment of $3.3 million. For the first nine months of 2020, we invested $1.9 million in cash and entered into finance leases totaling $3.1 million, for a total investment of $5.0 million. 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: fluctuations in commodity prices; inventory management; changes in prices, supply and/or demand for products that we distribute; adverse housing market conditions; levels of new residential housing starts and residential repair and remodeling activity; 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; disintermediation by customers and suppliers; 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. 26 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.