BlueLinx Holdings Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS BLUELINX HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net sales $ 809,981 $ 1,060,761 $ 2,423,852 $ 3,602,445 Cost of sales 670,735 871,385 2,015,264 2,920,610 Gross profit 139,246 189,376 408,588 681,835 Operating expenses (income): Selling, general, and administrative 91,354 91,678 271,278 274,305 Depreciation and amortization 8,089 6,688 23,758 19,952 Amortization of deferred gains on real estate ( 984 ) ( 983 ) ( 2,952 ) ( 2,951 ) Gains from sales of property — — — ( 144 ) Other operating expenses 1,131 1,267 5,240 2,731 Total operating expenses 99,590 98,650 297,324 293,893 Operating income 39,656 90,726 111,264 387,942 Non-operating expenses: Interest expense, net 5,577 10,444 19,575 32,992 Other expense, net 594 ( 361 ) 1,782 916 Income before provision for income taxes 33,485 80,643 89,907 354,034 Provision for income taxes 9,103 21,134 23,247 89,844 Net income $ 24,382 $ 59,509 $ 66,660 $ 264,190 Basic earnings per share $ 2.72 $ 6.44 $ 7.39 $ 28.03 Diluted earnings per share $ 2.71 $ 6.38 $ 7.38 $ 27.82 Comprehensive income: Net income $ 24,382 $ 59,509 $ 66,660 $ 264,190 Other comprehensive income: Amortization of unrecognized pension gain, net of tax 225 156 689 468 Other — ( 24 ) ( 22 ) ( 24 ) Total other comprehensive income 225 132 667 444 Comprehensive income $ 24,607 $ 59,641 $ 67,327 $ 264,634 See accompanying Notes. 1 BLUELINX HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) September 30, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 469,783 $ 298,943 Receivables, less allowances of $ 3,614 and $ 3,449 , respectively 297,568 251,555 Inventories, net 364,162 484,313 Other current assets 39,501 42,121 Total current assets 1,171,014 1,076,932 Property and equipment, at cost 381,593 360,869 Accumulated depreciation ( 165,976 ) ( 155,260 ) Property and equipment, net 215,617 205,609 Operating lease right-of-use assets 42,145 45,717 Goodwill 55,372 55,372 Intangible assets, net 31,817 34,989 Deferred tax assets 54,898 56,169 Other non-current assets 14,596 15,254 Total assets $ 1,585,459 $ 1,490,042 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 202,256 $ 151,626 Accrued compensation 18,624 22,556 Finance lease liabilities - current portion 9,813 7,089 Operating lease liabilities - current portion 6,845 7,432 Real estate deferred gains - current portion 3,935 3,935 Pension benefit obligation 2,380 1,521 Other current liabilities 24,045 16,518 Total current liabilities 267,898 210,677 Non-current liabilities: Long-term debt, net of debt issuance costs and discount 293,413 292,424 Finance lease liabilities, less current portion 267,530 265,986 Operating lease liabilities, less current portion 37,007 40,011 Real estate deferred gains, less current portion 67,550 70,403 Other non-current liabilities 20,549 20,512 Total liabilities 953,947 900,013 Commitments and Contingencies STOCKHOLDERS’ EQUITY: Common Stock, $ 0.01 par value, 20,000,000 shares authorized, 8,795,908 and 9,048,603 outstanding on September 30, 2023 and December 31, 2022, respectively 88 90 Additional paid-in capital 174,906 200,748 Accumulated other comprehensive loss ( 30,745 ) ( 31,412 ) Accumulated stockholders’ equity 487,263 420,603 Total stockholders’ equity 631,512 590,029 Total liabilities and stockholders’ equity $ 1,585,459 $ 1,490,042 See accompanying Notes. 2 BLUELINX HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Equity Stockholders’ Equity Total Shares Amount Balance, December 31, 2022 9,049 $ 90 $ 200,748 $ ( 31,412 ) $ 420,603 $ 590,029 Net income — — — — 17,812 17,812 Impact of pension plan, net of tax — — — 239 — 239 Vesting of restricted stock units 67 1 ( 1 ) — — — Compensation related to share-based grants — — 4,569 — — 4,569 Repurchase of shares to satisfy employee tax withholdings ( 8 ) — ( 570 ) — — ( 570 ) Obligation for repurchase of shares to satisfy employee tax withholdings ( 19 ) ( 1,319 ) — — ( 1,319 ) Other — — — ( 11 ) — ( 11 ) Balance, April 1, 2023 9,089 $ 91 $ 203,427 $ ( 31,184 ) $ 438,415 $ 610,749 Net income — — — — 24,466 24,466 Impact of pension plan, net of tax — — — 225 — 225 Vesting of restricted stock units 95 — ( 1 ) — — ( 1 ) Compensation related to share-based grants — — 1,926 — — 1,926 Repurchase of shares to satisfy employee tax withholdings ( 24 ) — ( 2,071 ) — — ( 2,071 ) Obligation for repurchase of shares to satisfy employee tax withholdings ( 10 ) — ( 913 ) — — ( 913 ) Common stock repurchase and retirement ( 142 ) ( 1 ) ( 11,598 ) — — ( 11,599 ) Other — — — ( 11 ) — ( 11 ) Balance, July 1, 2023 9,008 $ 90 $ 190,770 $ ( 30,970 ) $ 462,881 $ 622,771 Net income — — — — 24,382 24,382 Impact of pension plan, net of tax — — — 225 — 225 Vesting of restricted stock units 7 — — — — — Compensation related to share-based grants — — 2,980 — — 2,980 Repurchase of shares to satisfy employee tax withholdings ( 3 ) — ( 281 ) — — ( 281 ) Obligation for shares repurchases not yet settled ( 10 ) — ( 843 ) — — ( 843 ) Common stock repurchase and retirement ( 206 ) ( 2 ) ( 17,720 ) — — ( 17,722 ) Balance, September 30, 2023 8,796 $ 88 $ 174,906 $ ( 30,745 ) $ 487,263 $ 631,512 See accompanying Notes. 3 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Equity Stockholders’ Equity Total Shares Amount Balance, January 1, 2022 9,726 $ 97 $ 268,085 $ ( 29,360 ) $ 124,427 $ 363,249 Net income — — — — 133,409 133,409 Impact of pension plan, net of tax — — — 156 — 156 Vesting of restricted stock units 11 — — — — — Compensation related to share-based grants — — 2,162 — — 2,162 Repurchase of shares to satisfy employee tax withholdings ( 5 ) — ( 393 ) — — ( 393 ) Common stock repurchase and retirement ( 81 ) ( 1 ) ( 6,426 ) — — ( 6,427 ) Other — — — 20 — 20 Balance, April 2, 2022 9,651 $ 96 $ 263,428 $ ( 29,184 ) $ 257,836 $ 492,176 Net income — — — — 71,272 71,272 Impact of pension plan, net of tax — — — 156 — 156 Vesting of restricted stock units 181 2 — — — 2 Compensation related to share-based grants — — 1,775 — — 1,775 Repurchase of shares to satisfy employee tax withholdings ( 66 ) ( 1 ) ( 5,777 ) — — ( 5,778 ) Common stock repurchase and retirement ( 554 ) ( 5 ) ( 38,995 ) — — ( 39,000 ) Forward contract for accelerated share repurchase agreement — — ( 21,000 ) — — ( 21,000 ) Other — — 134 ( 20 ) — 114 Balance, July 2, 2022 9,212 $ 92 $ 199,565 $ ( 29,048 ) $ 329,108 $ 499,717 Net income — — — — 59,509 59,509 Impact of pension plan, net of tax — — — 156 — 156 Vesting of restricted stock units 121 1 ( 1 ) — — — Compensation related to share-based grants — — 2,092 — — 2,092 Repurchase of shares to satisfy employee tax withholdings ( 51 ) ( 1 ) ( 3,618 ) — — ( 3,619 ) Common stock repurchase and retirement ( 247 ) ( 2 ) 2 — — — Other — — ( 134 ) ( 24 ) — ( 158 ) Balance, October 1, 2022 9,035 $ 90 $ 197,906 $ ( 28,916 ) $ 388,617 $ 557,697 See accompanying Notes. 4 BLUELINX HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2023 October 1, 2022 Cash flows from operating activities: Net income $ 66,660 $ 264,190 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization 23,758 19,952 Amortization of debt discount and issuance costs 989 823 Gains from sales of property — ( 144 ) Deferred income tax 1,117 ( 939 ) Amortization of deferred gains from real estate ( 2,952 ) ( 2,951 ) Share-based compensation 9,475 6,029 Changes in operating assets and liabilities: Accounts receivable ( 46,013 ) ( 20,898 ) Inventories 120,151 ( 47,521 ) Accounts payable 49,791 28,197 Taxes payable — 612 Pension contributions — ( 677 ) Other current assets 2,621 ( 440 ) Other assets and liabilities 5,127 ( 197 ) Net cash provided by operating activities 230,724 246,036 Cash flows from investing activities: Proceeds from sale of assets 191 648 Property and equipment investments ( 18,938 ) ( 19,079 ) Net cash used in investing activities ( 18,747 ) ( 18,431 ) Cash flows from financing activities: Common stock repurchase and retirement ( 29,321 ) ( 66,427 ) Repurchase of shares to satisfy employee tax withholdings ( 5,157 ) ( 9,788 ) Principal payments on finance lease liabilities ( 6,659 ) ( 7,229 ) Net cash used in financing activities ( 41,137 ) ( 83,444 ) Net change in cash and cash equivalents 170,840 144,161 Cash and cash equivalents at beginning of period 298,943 85,203 Cash and cash equivalents at end of period $ 469,783 $ 229,364 Supplemental cash flow information: Interest paid during the period $ 27,948 $ 24,824 Taxes paid during the period $ 17,682 $ 90,626 Non-cash transactions: Property and equipment acquired under finance leases $ 11,277 $ 5,995 Obligation for shares repurchases not yet settled $ 843 $ — See accompanying Notes. 5 BLUELINX HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2023 (Unaudited) 1. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements include the accounts of BlueLinx Holdings Inc. and its wholly owned subsidiaries (the “Company”). The Company is composed of a single reportable segment for financial reporting purposes. We derived the condensed consolidated balance sheet as of December 31, 2022 from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Fiscal 2022 Form 10-K”), as filed with the Securities and Exchange Commission (“SEC”) on February 21, 2023. In the opinion of our management, the condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our statements of operations and comprehensive income for the three and nine months ended September 30, 2023 and October 1, 2022, our balance sheets as of September 30, 2023 and December 31, 2022, our statements of stockholders’ equity for the nine months ended September 30, 2023 and October 1, 2022, and our statements of cash flows for the nine months ended September 30, 2023 and October 1, 2022. We have condensed or omitted certain notes and other information from the interim condensed consolidated financial statements presented in this report. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the Fiscal 2022 Form 10-K. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results that may be expected for the full fiscal year ending December 30, 2023, or any other interim period. We operate on a 5-4-4 fiscal calendar. Our fiscal year ends on the Saturday closest to December 31 and may comprise 53 weeks in certain years. Our 2023 fiscal year contains 52 weeks and ends on December 30, 2023. Fiscal 2022 contained 52 weeks and ended on December 31, 2022. Our financial statements are prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which requires us to make estimates based on assumptions about current and, for some estimates, future economic and market conditions, which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. Reclassification of Prior Period Presentation For the nine months ended October 1, 2022, we have reclassified certain items within the presentation of our statement of cash flows to align with our statement of cash flows presentation for the nine months ended September 30, 2023. Our reclassifications are limited to the operating activities section and include presenting pension contributions, which were previously presented within the change of other assets and liabilities, as an individual item within changes in operating assets and liabilities. These reclassifications, we believe, provide an enhanced level of transparency with regards to the presentation of our statement of cash flows. Recently Adopted Accounting Standards Credit Impairment Losses. In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326).” This ASU sets forth a current expected credit loss (“CECL”) model which requires the measurement of all expected credit losses for financial instruments or other assets (e.g., trade receivables), held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the former incurred loss model applicable to the measurement of credit losses on financial assets measured at amortized cost, and applies to some off-balance sheet credit exposures. The standard also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. The Company adopted this standard on a 6 modified retrospective basis in the first quarter of 2022 and the implementation did not have a material impact to the Company’s condensed consolidated financial statements. Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The standard provides temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of the publication of certain tenors of the London Inter-bank Offered Rate (“LIBOR”) on December 31, 2021, with complete elimination of the publication of the LIBOR by June 30, 2023. The amendments in this ASU are elective and apply to all entities that have contracts referencing the LIBOR. The Company’s revolving credit agreement, as further discussed in Note 6, Long-Term Debt , to these condensed consolidated financial statements, was amended on June 27, 2023, to replace references to LIBOR with Secured Overnight Financing Rate (“SOFR”) for determining interest payable on current and future borrowings. The guidance in this ASU provides a practical expedient which simplifies accounting analyses under current U.S. GAAP for contract modifications if the change is directly related to a change from the LIBOR to a new interest rate index. The Company adopted this standard prospectively in the first quarter of 2022. The implementation did not have a material impact on the Company’s condensed consolidated financial statements or to any key terms of our revolving credit agreement other than the discontinuation of LIBOR. 2. Business Combinations On October 3, 2022, we acquired all the outstanding stock of Vandermeer Forest Products, Inc. (“Vandermeer”), a premier wholesale distributor of building products, for preliminary total consideration of $ 69.3 million. The acquisition has been accounted for as a business combination using the acquisition method. The assets acquired and liabilities assumed were recognized at their acquisition date fair values. During the first fiscal quarter of 2023, $ 0.3 million was returned to the Company for adjustments related to final cash and working capital balances, reducing preliminary total consideration from $ 69.3 million to $ 69.0 million. The acquisition accounting, including fair value estimations, is subject to change as we finalize assessments of the assets and liabilities that were acquired on the acquisition date. The primary area of the preliminary acquisition accounting that is not yet finalized relates to the fair value of certain liabilities that are subject to seller reimbursement via a cash escrow bank account that was funded through the holdback of $ 6.3 million of the purchase price. During the third quarter of fiscal 2023, $ 1.6 million of this escrow amount was returned to the seller under the terms of the stock purchase agreement and the escrow arrangement that provide for scheduled return of the unused balance in the escrow account. As of September 30, 2023, the remaining balance in the escrow account is $ 4.8 million and any unused amounts are scheduled to be returned to the seller within approximately 18 months after the acquisition date. 3. Inventories Our inventories consist almost entirely of finished goods inventory, with an immaterial amount of work-in-process inventory. The cost of all inventories is determined by the moving average cost method. We have included all material charges directly incurred in bringing inventory to its existing condition and location. We evaluate our inventory value at the end of each quarter to ensure that inventory, when viewed by category, is carried at the lower of cost or net realizable value, which also considers items that may be considered damaged, excess, and obsolete inventory. As of September 30, 2023, we recorded a lower of cost or net realizable value reserve of $ 0.6 million as a result of the decrease in the value of our structural lumber inventory related to the decline in wood-based commodity prices as of the end of the period. As of December 31, 2022, we recorded a lower of cost or net realizable value reserve of $ 2.6 million as a result of the decrease in the value of our structural lumber and panel inventory related to the decline in wood-based commodity prices as of the end of the period. 4. Goodwill and Other Intangible Assets In connection with our past merger and acquisition activity, we acquired certain intangible assets. As of September 30, 2023, our intangible assets consist of goodwill and other intangible assets including customer relationships, noncompete agreements, and trade names. 7 Goodwill Goodwill is the excess of the cost of an acquired entity over the fair value of tangible and intangible assets (including customer relationships, noncompete agreements, and trade names) acquired, and liabilities assumed, under acquisition accounting for business combinations. As of September 30, 2023, goodwill was $ 55.4 million. Goodwill is not subject to amortization but must be tested for impairment at least annually. This test requires us to assign goodwill to a reporting unit and to determine if the fair value of the reporting unit’s goodwill is less than its carrying amount. We evaluate goodwill for impairment during the fourth quarter of each fiscal year. In addition, we will evaluate the carrying value for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Such events and indicators may include, without limitation, significant declines in the industries in which our products are used, significant changes in capital market conditions, and significant changes in our market capitalization. No such indicators were noted during the first nine months of fiscal 2023. Definite-Lived Intangible Assets The gross carrying amounts, accumulated amortization, and net carrying amounts of our definite-lived intangible assets as of September 30, 2023 were as follows: Intangible Asset Weighted Average Remaining Useful Lives (Years) Gross Carrying Amounts Accumulated Amortization (1) Net Carrying Amounts (Dollar amounts in thousands) Customer relationships 10 $ 48,500 $ ( 17,909 ) $ 30,591 Noncompete agreements 4 8,954 ( 8,394 ) 560 Trade names 2 7,826 ( 7,160 ) 666 Total $ 65,280 $ ( 33,463 ) $ 31,817 (1) Intangible assets except customer relationships are amortized on a straight line basis. Certain of our customer relationships are amortized on a double declining balance method and certain others are amortized on a straight line basis. Amortization Expense Amortization expense for our definite-lived intangible assets was $ 1.0 million and $ 3.2 million for the three and nine month periods ended September 30, 2023, respectively. For the three and nine month periods ended October 1, 2022, amortization expense was $ 0.5 million and $ 2.2 million, respectively. Estimated amortization expense for definite-lived intangible assets for the remaining portion of 2023 and the next five fiscal years is as follows: Fiscal Year Estimated Amortization (In thousands) 2023 $ 1,033 2024 3,930 2025 3,765 2026 3,471 2027 3,340 2028 3,340 8 5. Revenue Recognition We recognize revenue when the following criteria are met: (1) Contract with the customer has been identified; (2) Performance obligations in the contract have been identified; (3) Transaction price has been determined; (4) Transaction price has been allocated to the performance obligations; and (5) When (or as) performance obligations are satisfied. Contracts with our customers are generally in the form of standard terms and conditions of sale. From time to time, we may enter into specific contracts, which may affect delivery terms. Performance obligations in our contracts generally consist solely of delivery of goods. For all sales channel types, consisting of warehouse, direct, and reload sales, we typically satisfy our performance obligations upon shipment. Our customer payment terms are typical for our industry, and may vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not deemed to be significant by us. For certain sales channels and/or products, our standard terms of payment may be as early as ten days. In addition, we provide inventory to certain customers through pre-arranged agreements on a consignment basis. Customer consigned inventory is maintained and stored by certain customers; however, ownership and risk of loss remain with us. All revenues recognized are net of trade allowances (i.e., rebates), cash discounts, and sales returns. Cash discounts and sales returns are estimated using historical experience. Trade allowances are based on the estimated obligations and historical experience. Adjustments to earnings resulting from revisions to estimates on discounts and returns have been insignificant for each of the reported periods. Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration. The following table presents our revenues disaggregated by revenue source. Sales and usage-based taxes are excluded from revenues. Three Months Ended Nine Months Ended Product type September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 (In thousands) (In thousands) Specialty products $ 558,851 $ 724,323 $ 1,697,679 $ 2,280,090 Structural products 251,130 336,438 726,173 1,322,355 Total net sales $ 809,981 $ 1,060,761 $ 2,423,852 $ 3,602,445 The following table presents our revenues disaggregated by sales channel. Warehouse sales are delivered from our warehouses. Reload sales are similar to warehouse sales but are shipped from warehouses, most of which are operated by third parties, where we store owned products to enhance our operating efficiencies. This channel is employed primarily to service strategic customers that would be less economical to service from our warehouses, and to distribute large volumes of imported products from port facilities. Direct sales are shipped from the manufacturer to the customer without our taking physical possession of the inventory and, as a result, typically generate lower margins than our warehouse and reload distribution channels. This distribution channel requires the lowest amount of committed capital and fixed costs. Sales and usage-based taxes are excluded from revenues. Three Months Ended Nine Months Ended Sales channel September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 (In thousands) (In thousands) Warehouse and reload $ 683,072 $ 889,349 $ 2,065,212 $ 2,987,636 Direct 143,026 193,446 405,335 680,333 Customer discounts and rebates ( 16,117 ) ( 22,034 ) ( 46,695 ) ( 65,524 ) Total net sales $ 809,981 $ 1,060,761 $ 2,423,852 $ 3,602,445 9 6. Long-Term Debt As of September 30, 2023, and December 31, 2022, long-term debt consisted of the following: September 30, 2023 December 31, 2022 (In thousands) Senior secured notes (1) $ 300,000 $ 300,000 Revolving credit facility (2) — — Finance lease obligations (3) 277,343 273,075 577,343 573,075 Unamortized debt issuance costs ( 3,449 ) ( 4,057 ) Unamortized bond discount costs ( 3,138 ) ( 3,519 ) 570,756 565,499 Less: current portion of finance lease obligations 9,813 7,089 Long-term debt, net of current portion $ 560,943 $ 558,410 (1) As of September 30, 2023 and December 31, 2022, our long-term debt was comprised of $ 300.0 million of senior secured notes issued in October 2021. These notes are presented under the long-term debt caption of our condensed consolidated balance sheets at $ 293.4 million and $ 292.4 million as of September 30, 2023 and December 31, 2022, respectively. This presentation is net of their discount of $ 3.1 million and $ 3.5 million and the combined carrying value of our debt issuance costs of $ 3.4 million and $ 4.1 million as of September 30, 2023 and December 31, 2022, respectively. Our senior secured notes are presented in this table at their face value. (2) The average effective interest rate for our revolving credit facility was zero percent for the fiscal quarters ended September 30, 2023 and October 1, 2022 since no borrowings were outstanding during those periods. (3) Refer to Note 9, Leases , for interest rates associated with finance lease obligations. Senior Secured Notes In October 2021, we completed a private offering of $ 300 million of our 6 percent senior secured notes due 2029 (the “2029 Notes”), and in connection therewith we entered into an indenture (the “Indenture”) with the guarantors party thereto and Truist Bank, as trustee and collateral agent. The 2029 Notes were issued to investors at 98.625 percent of their principal amount and will mature on November 15, 2029. The majority of net proceeds from the offering of the 2029 Notes were used to repay borrowings under our Revolving Credit Facility, as defined below. As of September 30, 2023 and December 31, 2022, the fair value of our 2029 Notes was approximately $ 271.5 million and $ 283.6 million, respectively, which are designated as Level 2 in the fair value hierarchy. Our valuation technique is based primarily on observable market prices in less active markets. Revolving Credit Facility Our revolving credit facility, entered into with Wells Fargo Bank, National Association, as administrative agent (the “Agent”), and certain other financial institutions party thereto, provides for a senior secured asset-based revolving loan and letter of credit facility of up to $ 350.0 million. Our obligations under the Revolving Credit Facility (as defined below) are secured by a security interest in substantially all of our and our subsidiaries’ assets (other than real property), including inventories, accounts receivable, and proceeds from those items. On June 27, 2023, we entered in to a third amendment to the credit facility to, among other things, replace the interest rate based on LIBOR applicable to borrowings under the Credit Agreement with an interest rate based on the SOFR and a customary spread adjustment (as amended, the “Revolving Credit Facility”). Our Revolving Credit Facility includes available interest rate options and was previously based on LIBOR, which was discontinued as an available rate option after June 30, 2023. Borrowings under our Revolving Credit Facility bear interest at a rate per annum equal to (i) Adjusted Term SOFR (calculated as SOFR plus 0.1 %) plus a margin ranging from 1.25 percent to 1.75 percent, with the margin determined based upon average excess availability for the immediately preceding fiscal quarter for loans based on SOFR, or (ii) the Agent’s base rate plus a margin ranging from 0.25 percent to 0.75 percent, with the margin based upon average excess availability for the immediately preceding fiscal quarter for loans based on the base rate. 10 Borrowings under our Revolving Credit Facility are subject to availability under the Borrowing Base (as that term is defined in the Revolving Credit Agreement). The Borrowers are required to repay revolving loans thereunder to the extent that such revolving loans exceed the Borrowing Base then in effect. Our Revolving Credit Facility may be prepaid in whole or in part from time to time without penalty or premium, but including all breakage costs incurred by any lender thereunder. As of September 30, 2023, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $ 816.3 million under our Revolving Credit Facility. As of December 31, 2022, we had zero outstanding borrowings and excess availability, including cash in qualified accounts, of $ 645.4 million under our Revolving Credit Facility. Available borrowing capacity under our Revolving Credit Facility was $ 346.5 million as of September 30, 2023 and December 31, 2022. Our average effective interest rate under the Revolving Credit Facility was zero percent for the fiscal quarters ended September 30, 2023 and October 1, 2022 since no borrowings were outstanding during those periods. Our Revolving Credit Facility contains certain financial and other covenants, and our right to borrow under the Revolving Credit Facility is conditioned upon, among other things, our compliance with these covenants. We were in compliance with all covenants under our Revolving Credit Facility as of September 30, 2023. Finance Lease Obligations Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate, with the majority of those finance leases related to real estate. For more information on our finance lease obligations, refer to Note 9, Leases . 7. Net Periodic Pension Cost (Benefit) The following table shows the components of our net periodic pension cost (benefit): Three Months Ended Nine Months Ended Pension-related items September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 (In thousands) (In thousands) Service cost (1) $ — $ — $ — $ — Interest cost on projected benefit obligation 1,105 606 3,314 1,818 Expected return on plan assets ( 812 ) ( 1,177 ) ( 2,437 ) ( 3,531 ) Amortization of unrecognized gain 301 209 905 627 Net periodic pension cost (benefit) $ 594 $ ( 362 ) $ 1,782 $ ( 1,086 ) (1) Service cost is not a part of our net periodic pension benefit as our pension plan is frozen for all participants. The net periodic pension cost (benefit) is included in other expense, net in our condensed consolidated statement of operations and comprehensive income. During the three and nine months ended September 30, 2023, we continued our previously announced plan to terminate the BlueLinx Corporation Hourly Retirement Plan (the “plan”) and transfer the management and delivery of continuing benefits associated with the plan to a highly rated and qualified insurance company with pension termination experience. The process for terminating a pension plan involves several regulatory steps and approvals, and typically takes 12 to 18 months to complete. We estimate the plan termination will be completed during fiscal 2023 or early fiscal 2024. 8. Stock Compensation During the three and nine months ended September 30, 2023, we incurred stock compensation expense of $ 3.0 million and $ 9.5 million, respectively. For the three and nine months ended October 1, 2022, we incurred stock compensation expense of $ 2.1 million and $ 6.0 million, respectively. The increase in our stock compensation expense for the nine-month period ended September 30, 2023 is primarily attributable to the acceleration of unrecognized compensation cost in conjunction with our leadership transition. 11 9. Leases We have operating and finance leases for certain of our distribution facilities, office space, land, mobile fleet, and equipment. Many of our leases are non-cancelable and typically have a defined initial lease term, and some provide options to renew at our election for specified periods of time. The majority of our leases have remaining lease terms of one to 15 years, some of which include one or more options to extend the leases for five years . Our leases generally provide for fixed annual rentals. Certain of our leases include provisions for escalating rent based on, among other things, contractually defined increases and/or changes in the Consumer Price Index (“CPI”). The known changes to lease payments are included in the lease liability at lease commencement. Unknown changes related to CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. In addition, a subset of our vehicle lease cost is considered variable. Some of our leases require us to pay taxes, insurance, and maintenance expenses associated with the leased assets. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We determine if an arrangement is a lease at inception and assess lease classification as either operating or finance at lease inception or modification. Operating lease right-of use (“ROU”) assets and liabilities are presented separately on the condensed consolidated balance sheets. Finance lease ROU assets are included in property and equipment and the finance lease obligations are presented separately in the condensed consolidated balance sheets. When a lease does not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Our accounting policy is to not separate lease components from non-lease components related to our mobile fleet asset class. Finance Lease Liabilities Our finance lease liabilities consist of leases related to equipment and vehicles, and real estate. As noted in the table below, a majority of our finance leases, formally known as capital leases, relate to real estate. The following table presents our assets and liabilities related to our leases as of September 30, 2023 and December 31, 2022: Lease assets and liabilities September 30, 2023 December 31, 2022 (In thousands) Assets Classification Operating lease right-of-use assets Operating lease right-of-use assets $ 42,145 $ 45,717 Finance lease right-of-use assets (1) Property and equipment, net 134,166 132,748 Total lease right-of-use assets $ 176,311 $ 178,465 Liabilities Current portion Operating lease liabilities Operating lease liabilities - short term $ 6,845 $ 7,432 Finance lease liabilities Finance lease liabilities - short term 9,813 7,089 Non-current portion Operating lease liabilities Operating lease liabilities - long term 37,007 40,011 Finance lease liabilities Finance lease liabilities - long term 267,530 265,986 Total lease liabilities $ 321,195 $ 320,518 (1) Finance lease right-of-use assets are presented net of accumulated amortization of $ 98.5 million and $ 90.1 million as of September 30, 2023 and December 31, 2022, respectively. 12 The components of lease expense were as follows: Three Months Ended Nine Months Ended Components of lease expense September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 (In thousands) (In thousands) Operating lease cost: Operating lease cost $ 2,755 $ 2,529 $ 8,789 $ 7,625 Sublease income ( 1,062 ) ( 693 ) ( 2,475 ) ( 2,021 ) Total operating lease costs $ 1,693 $ 1,836 $ 6,314 $ 5,604 Finance lease cost: Amortization of right-of-use assets $ 5,408 $ 5,098 $ 12,190 $ 13,698 Interest on lease liabilities 6,077 6,104 18,158 18,384 Total finance lease costs $ 11,485 $ 11,202 $ 30,348 $ 32,082 Supplemental cash flow information related to leases was as follows: Three Months Ended Nine Months Ended Cash flow information September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 (In thousands) (In thousands) Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 2,367 $ 2,562 $ 8,958 $ 7,713 Operating cash flows from finance leases $ 6,077 $ 6,104 $ 18,158 $ 18,384 Financing cash flows from finance leases $ 2,393 $ 2,496 $ 6,659 $ 7,229 Non-cash supplemental cash flow information related to leases was as follows: Three Months Ended Nine Months Ended Non-cash information September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 (In thousands) (In thousands) Right-of-use assets obtained in exchange for lease obligations Operating leases $ — $ 3,604 $ — $ 4,731 Finance leases $ 7,877 $ 3,279 $ 11,277 $ 5,995 13 Supplemental balance sheet information related to leases was as follows: Balance sheet information September 30, 2023 December 31, 2022 (In thousands) Finance leases Property and equipment $ 232,692 $ 222,839 Accumulated depreciation ( 98,526 ) ( 90,091 ) Property and equipment, net $ 134,166 $ 132,748 Weighted Average Remaining Lease Term (in years) Operating leases 9.09 9.21 Finance leases 13.14 13.97 Weighted Average Discount Rate Operating leases 8.70 % 8.54 % Finance leases 8.88 % 8.87 % The major categories of our finance lease liabilities as of September 30, 2023 and December 31, 2022 were as follows: Category September 30, 2023 December 31, 2022 (In thousands) Equipment and vehicles $ 34,008 $ 29,300 Real estate 243,335 243,775 Total finance leases $ 277,343 $ 273,075 Under the short-term lease exception provided within ASC 842, we do not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement. Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of September 30, 2023. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the condensed consolidated balance sheets, including options to extend lease terms that are reasonably certain of being exercised. Fiscal year Operating leases Finance leases (In thousands) 2023 $ 2,755 $ 17,101 2024 10,626 26,566 2025 9,347 32,000 2026 5,956 35,717 2027 4,657 30,298 Thereafter 32,208 530,078 Total lease payments $ 65,549 $ 671,760 Less: imputed interest ( 21,697 ) ( 394,417 ) Total $ 43,852 $ 277,343 14 10. Commitments and Contingencies Environmental and Legal Matters From time to time, we are involved in various proceedings incidental to our businesses, and we are subject to a variety of environmental and pollution control laws and regulations in all jurisdictions in which we operate. Although the ultimate outcome of these proceedings cannot be determined with certainty, based on presently available information management believes that adequate reserves have been established for probable losses with respect thereto and receivables have been recorded for expected receipts from settlements. Management further believes that, while the ultimate outcome of one or more of these matters could be material to our operating results in any given quarter, it will not have a materially adverse effect on our consolidated financial condition, our results of operations, or our cash flows. Regulatory Matters Government and regulatory agencies may have the ability to conduct periodic examinations of, and administrative proceedings regarding, the Company’s business operations. The United States Customs and Border Protection has gathered initial information from the Company under routine audit procedures, and the initial information gathered suggests that the Company potentially may have underpaid and/or overpaid duties arising from certain classification discrepancies for products imported into the United States as separately entered shipments. The Company is currently evaluating this matter. At this time the Company is not in a position to estimate amounts that it may be required to pay. The Company intends to exercise reasonable care to address the matter in an equitable manner. Collective Bargaining Agreements As of September 30, 2023, we employed approximately 2,000 associates and less than one percent of our associates are employed on a part-time basis. Approximately 20 percent of our associates are represented by various local labor unions with terms and conditions of employment governed by collective bargaining agreements (“CBAs”). Two CBAs covering approximately five percent of our associates are up for renewal in the remainder of fiscal 2023, which we expect to renegotiate before their renewal dates. 11. Accumulated Other Comprehensive Loss Comprehensive income includes both net income and other comprehensive income. Other comprehensive income results from items deferred from recognition in net income on our condensed consolidated statements of operations and comprehensive income. Accumulated other comprehensive loss is separately presented on our condensed consolidated balance sheets as part of stockholders’ equity. The changes in balances for each component of accumulated other comprehensive loss for the nine months ended September 30, 2023, were as follows: Defined benefit pension plan, net of tax Other, net of tax Total Accumulated Other Comprehensive Loss (In thousands) December 31, 2022, beginning balance $ ( 32,675 ) $ 1,263 $ ( 31,412 ) Other comprehensive income, net of tax 689 ( 22 ) 667 September 30, 2023, ending balance, net of tax $ ( 31,986 ) $ 1,241 $ ( 30,745 ) 12. Income Taxes Effective Tax Rate Our effective tax rates for the three months ended September 30, 2023 and October 1, 2022 were 27.2 percent and 26.2 percent, respectively. Our effective tax rates for the nine months ended September 30, 2023 and October 1, 2022 were 25.9 percent and 25.4 percent, respectively. Our effective tax rates for the three and nine months ended September 30, 2023 and October 1, 2022 were impacted by state taxes as well as the permanent addback of certain nondeductible expenses, including executive compensation, offset by a benefit from the vesting of restricted stock units, which occurred during each period. For additional information about our income taxes, see Note 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. 15 13. Earnings Per Share We calculate basic earnings per share by dividing net income by the weighted average number of common shares outstanding. We calculate diluted earnings per share using the treasury stock method, by dividing net income by the weighted average number of common shares outstanding plus the dilutive effect of outstanding share-based awards, including restricted stock units. The reconciliation of basic net income and diluted earnings per common share for the three and nine month periods ended September 30, 2023 and October 1, 2022 were as follows: Three Months Ended Nine Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 (In thousands, except per share data) (In thousands, except per share data) Net income $ 24,382 $ 59,509 $ 66,660 $ 264,190 Weighted-average shares outstanding - basic 8,936 9,230 9,010 9,425 Dilutive effect of share-based awards 34 98 18 72 Weighted-average shares outstanding - diluted 8,970 9,328 9,028 9,497 Basic earnings per share $ 2.72 $ 6.44 $ 7.39 $ 28.03 Diluted earnings per share $ 2.71 $ 6.38 $ 7.38 $ 27.82 Approximately 96,000 and 77,000 weighted-average shares underlying share-based awards were excluded from the computation of diluted earnings per share for the fiscal quarterly periods ended September 30, 2023 and October 1, 2022, respectively, because their inclusion would have been anti-dilutive. Approximately 91,000 and 58,000 weighted-average shares underlying share-based awards were excluded from the computation of diluted earnings per share for the nine-month fiscal periods ended September 30, 2023 and October 1, 2022, respectively, because their inclusion would have been anti-dilutive. 14. Subsequent Event On October 31, 2023, the Company’s Board of Directors authorized a new share repurchase program for $ 100 million, which follows the Company’s previous $ 100 million share repurchase program under which all remaining repurchase authority was utilized during early fiscal October 2023. Under the new share repurchase program, the Company may repurchase its common stock from time to time, without prior notice, subject to prevailing market conditions and other considerations. Repurchases may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, accelerated share repurchase programs, tender offers or pursuant to a trading plan that may be adopted in accordance with the Securities and Exchange Commission Rule 10b5-1. 16