Bluelinx Holdings Inc. — FY2014 Form 10-K
Period clarification: This is an annual report for the 52-week fiscal year ended January 3, 2015, compared principally with the 53-week year ended January 4, 2014. It includes unaudited quarterly results, including fourth-quarter FY2014; it is not a filing solely for 2013 Q4.
Business context
BlueLinx distributes building products through 49 distribution centers, serving about 11,500 customers with products from more than 750 suppliers. Its principal categories are structural products and specialty products. Housing construction and weather are important demand drivers; the business is seasonal, with the first and fourth quarters typically slower.
Financial performance and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Net sales | $1,979.4 million | $2,152.0 million |
| Gross profit / gross margin | $229.1 million / 11.6% | $228.5 million / 10.6% |
| Operating income (loss) | $13.5 million | ($21.3) million |
| Net income (loss) | ($13.9) million | ($40.6) million |
| Adjusted EBITDA | $24.6 million | $1.3 million |
| Cash from (used in) operations | ($12.3) million | ($39.9) million |
- Sales declined 8.0% ($172.6 million). Management attributed the decline mainly to the five distribution centers closed in FY2013, the extra week in FY2013, and a deliberate pullback from lower-profit structural sales.
- Structural unit volume fell 9.9%; specialty unit volume was approximately flat. Gross margin improved in both categories, with structural margin up to 8.3% from 7.2% and specialty margin up to 13.4% from 12.9%.
- SG&A fell to $206.1 million from $240.7 million, reflecting cost controls, lower payroll and commissions, and restructuring savings. FY2014 operating results included a $5.1 million gain on the Portland property sale.
- Interest expense was $26.8 million. FY2014 fourth-quarter net loss was $7.6 million, compared with a $2.5 million loss in FY2013’s fourth quarter.
- Year-end cash was $4.5 million; working capital was $297.7 million. Total debt, including current maturities and capital leases, was $414.0 million, up from $405.1 million. Stockholders’ equity was a deficit of $36.0 million.
- U.S. revolving-credit borrowings were $225.6 million, with $58.5 million of excess availability; Canadian borrowings were $4.0 million, with $1.0 million of availability. The company reported covenant compliance at year-end, but stated that it would not meet the fixed-charge coverage test if availability fell below the applicable threshold.
- Investing cash flow was positive $4.4 million, including proceeds from property dispositions; financing cash flow was positive $7.4 million. Operating cash use primarily reflected the net loss and inventory growth.
Outlook, risks and notable items
- No quantified earnings or revenue guidance is provided. Management said it believed the housing recovery was progressing and expected housing demand to improve over the long term, while noting that housing conditions remained historically weak.
- Management expected available revolver capacity and other sources to fund routine operations and working-capital needs for at least 12 months, while noting that growth in inventory and receivables could reduce excess availability.
- On February 18, 2015, after year-end, the company amended its U.S. revolving facility to extend maturity to April 15, 2017. The amendment requires at least $35 million of repayment by May 1, 2016, and requires refinancing, extension, or replacement of the mortgage by that date. The mortgage was due July 1, 2016; management planned to refinance it and disclosed a potentially substantial prepayment penalty.
- Pension obligations are a significant exposure: the single-employer plan was underfunded by $41.8 million at year-end, versus $27.9 million a year earlier. Required cash contributions for the stated 2015 funding period totaled approximately $6.1 million. The filing also warns of possible liabilities from underfunded multiemployer plans; the amount and timing are uncertain.
- Other principal risks include cyclical housing and commodity markets, price and margin pressure, customer credit risk, variable-rate debt, refinancing and covenant constraints, supplier and import risks, labor negotiations, environmental compliance, and cyber or operating disruptions. About 30% of union agreements were due for renewal in FY2015.
- Deferred tax assets were fully reserved because management judged cumulative losses to be significant negative evidence. FY2014 also included a $17.7 million pension-related other-comprehensive loss, contributing to the decline in reported equity.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective as of year-end.
Most important facts for investors to verify
- Whether revenue, margins, and operating cash flow improved after FY2014, particularly given the sales decline and continued net loss.
- Current revolver availability, borrowing-base capacity, covenant headroom, and compliance with the post-year-end amendment, including the required debt repayment and mortgage refinancing milestones.
- Progress in converting inventory and receivables to cash, and the working-capital funding needs associated with any housing-market recovery.
- Actual pension contributions, changes in plan underfunding, and exposure to multiemployer-plan withdrawal or increased-funding liabilities.
- Whether property-sale gains and other adjustments materially affect comparisons with recurring operating performance.