BlueLinx Holdings Inc. — Q1 2012 Form 10-Q
Business context and reporting period
BlueLinx distributes building products through approximately 55 distribution centers, serving more than 11,500 customers. Fiscal Q1 2012 ran from January 1 to March 31, 2012; comparison is with January 2 to April 2, 2011. Amounts below are in millions unless noted.
Financial performance
| Metric | Q1 2012 | Prior-year period |
|---|---|---|
| Net sales | $453.7 | $390.6 |
| Gross profit / margin | $54.2 / 12.0% | $46.3 / 11.8% |
| Operating loss | $(4.1) | $(5.1) |
| Net loss | $(11.0) | $(12.3) |
| Basic and diluted loss per share | $(0.18) | $(0.40) |
| Cash used in operating activities | $(89.0) | $(62.8) |
- Sales increased 16.2%, with unit volume up 11.2% and price/other up 5.0%. Management attributed growth to higher housing starts and milder winter weather than in the prior-year quarter.
- Gross profit rose $8.0 million. SG&A increased $7.6 million to $56.1 million, but was broadly stable at 12.4% of sales. The reported year-over-year expense change was affected by real-estate gains: $0.6 million in Q1 2012 versus $7.2 million in Q1 2011.
- Interest expense declined to $6.8 million from $9.1 million, mainly due to lower average borrowing rates and mortgage principal reduction. Q1 2011 also included $1.8 million of income related to the ineffective interest-rate swap; the swap had been terminated in March 2011.
- Operating cash use increased, principally from seasonal working-capital investment: receivables rose $59.1 million and inventory rose $65.0 million, partly offset by a $46.7 million increase in accounts payable. Investing activities provided $0.7 million; financing activities provided $89.3 million.
Balance sheet, debt and liquidity
- At March 31, cash was $5.9 million, working capital $271.5 million, and total assets $624.4 million. Stockholders’ equity was a deficit of $2.3 million, compared with positive equity of $8.4 million at year-end 2011.
- Total reported debt was $413.8 million, including $35.8 million current maturities and $378.0 million long-term debt. U.S. revolver borrowings were $175.0 million, with $120.3 million excess availability; Canadian revolver borrowings were $2.7 million, with $1.6 million availability. The mortgage had a 6.35% fixed rate and a reported March 31 carrying value and fair value of $232.2 million.
- Management reported compliance with debt covenants. If U.S. revolver availability falls below the specified threshold, a 1.1-to-1 fixed-charge coverage test and capital-spending restrictions apply; management stated current operating results would not meet that coverage test if triggered.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management expected the weak housing downturn to continue weighing on results for the foreseeable future, while anticipating long-term improvement in housing demand. It said available revolving credit and other sources should fund routine operations and capital needs for the next 12 months, but warned that prolonged lack of improvement could require additional capital.
- The company’s business is seasonal: Q1 and Q4 are typically slower, while Q2 and Q3 are stronger. Management expected working capital and revolver usage to ease later in the year.
- Management intended to seek an IRS waiver of the 2012 minimum pension contribution of $5.4 million. A waiver would defer that contribution and amortize it over five years, increasing future required contributions. The filing also cites approximately $4.1 million of required 2012 cash contributions, including an outstanding 2011 contribution.
- A $5.0 million payment was made for a headquarters lease modification; a further $1.2 million tenant-improvement payment is due by December 31, 2013. The company recorded a $0.6 million gain on property sales in Q1 2012 and continued marketing remaining properties held for sale.
- The company recorded a $4.2 million deferred tax asset and corresponding valuation allowance relating to current-period losses; the total net deferred tax asset with a matching valuation allowance was $71.0 million. Management noted realization depends on significant estimates.
- Risks highlighted include housing-market conditions, product prices and demand, customer creditworthiness, fuel costs, competition, interest rates and access to capital, weather, and product-liability or other claims. No material change to previously disclosed risk factors or legal proceedings was reported. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether housing starts and product volumes sustain the Q1 sales improvement, and whether gross margins remain resilient.
- Working-capital conversion and operating cash flow as seasonal receivables and inventories unwind.
- Revolver availability against the covenant threshold, including the consequences if the fixed-charge coverage test is triggered.
- Outcome of the requested pension contribution waiver and resulting future funding obligations.
- Assumptions supporting deferred tax asset valuation allowances and the company’s stated 12-month liquidity outlook.