Bluelinx Holdings Inc. — Form 10-K Summary
Period clarification: The filing is an annual report for the 53-week fiscal year ended January 4, 2014 (fiscal 2013), not a 2012 Q4 filing. Comparative fiscal 2012 ended December 29, 2012 and comprised 52 weeks.
Business context
BlueLinx distributes building products across North America, serving approximately 11,500 customers with about 10,000 products from more than 750 suppliers. Fiscal 2013 sales were approximately 44% structural products and 56% specialty products. The business is highly exposed to housing construction, building-product prices, and seasonal demand.
Key financial metrics
| Metric | Fiscal 2013 | Fiscal 2012 |
|---|---|---|
| Net sales | $2,152.0 million | $1,907.8 million |
| Gross profit / margin | $228.5 million / 10.6% | $230.1 million / 12.1% |
| Operating income (loss) | $(21.3) million | $5.5 million |
| Net loss | $(40.6) million | $(23.0) million |
| Basic and diluted loss per share | $(0.51) | $(0.35) |
| Cash from operating activities | $(39.9) million | $(74.3) million |
| Capital expenditures | $4.9 million | $2.8 million |
- Sales increased 12.8%; management attributed the increase to stronger housing starts and higher unit volumes and prices. Structural sales rose 20.1%, while specialty sales rose 7.7%.
- Gross profit declined slightly despite higher sales. Structural gross margin fell to 6.9% from 9.6%; total gross margin declined to 10.6% from 12.1%.
- Operating results worsened as gross-margin pressure and higher SG&A outweighed revenue growth. SG&A increased to $240.7 million, including restructuring and leadership-change costs.
- Quarterly fiscal 2013 Q4 results were sales of $486.3 million, gross profit of $54.3 million, operating loss of $3.7 million, and net loss of $2.5 million. The comparable fiscal 2012 Q4 reported sales of $440.3 million and net loss of $11.4 million.
- Year-end cash was $5.0 million and working capital was $294.9 million. Total debt, as defined in selected financial data, was $406.8 million; stockholders’ deficit was $5.9 million.
- At year-end, U.S. revolving-credit borrowings were $207.9 million with $44.5 million excess availability; Canadian borrowings were $3.3 million with $1.3 million availability. Mortgage principal was $186.9 million.
Material changes and unusual items
- Fiscal 2013 net sales rose $244.1 million, but gross profit fell $1.6 million and operating income swung from profit to loss. The 53-week year versus 52 weeks in fiscal 2012 affects comparability.
- Wood-product price volatility reduced margins. A $3.8 million lower-of-cost-or-market inventory charge recorded in the second quarter was fully reversed by year-end as affected inventory sold and prices stabilized. A separate $1.0 million inventory charge related to facility closures was also recorded.
- The 2013 restructuring closed or designated five distribution centers for sale or closure and realigned headquarters resources. Related charges included $5.6 million severance, $2.9 million share-based compensation, $1.3 million facility obligations, $1.4 million other restructuring costs, and approximately $0.8 million of transition costs.
- Property sales generated $5.2 million of gains in fiscal 2013, compared with $9.9 million of property-sale gains and a $0.5 million insurance gain in fiscal 2012.
- A fully subscribed 2013 rights offering raised approximately $38.6 million net and issued 22.9 million shares, increasing the share count. Cerberus, the approximately 54% shareholder, exercised its rights and purchased additional shares under the offering.
- The CEO departed during 2013; Mitchell B. Lewis became President and CEO on January 20, 2014.
Liquidity, outlook, and risks
- Management expected available funding to cover routine operations and capital requirements for at least the next 12 months, but said additional capital could strengthen liquidity and support participation in a housing recovery. It expected fiscal 2014 capital expenditures of approximately $6.5 million.
- Management anticipated improving sales as housing activity recovered, while noting that demand remained below historical levels. Higher sales were expected to require more inventory and receivables, using some revolving-credit availability.
- The U.S. revolving facility matures April 15, 2016. If excess availability falls below the applicable threshold, a 1.1-to-1.0 fixed-charge coverage test applies; the filing says the company would not meet that test with then-current operating results. Availability was $44.5 million at year-end, and the company said it did not expect to fall below the threshold in fiscal 2014.
- The mortgage carries a fixed 6.35% rate, with approximately $181.4 million of principal scheduled for 2016. Debt is secured by operating assets and real property; revolving-facility covenants constrain additional debt, asset sales, investments, and other actions.
- Operating cash flow remained negative, and liquidity is sensitive to working-capital needs, commodity prices, housing demand, customer credit quality, interest rates, and access to financing. Additional risks include supplier concentration, competition, union labor, pension funding, environmental obligations, and cyber threats.
- The company suspended dividends indefinitely. It reported compliance with credit-facility covenants at filing, and management and the auditor concluded internal control over financial reporting was effective; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether housing recovery and sales growth can translate into improved gross margins and operating profitability, particularly in structural products.
- Current borrowing-base availability and covenant headroom, including the company’s ability to remain above the excess-availability threshold as working-capital needs grow.
- The refinancing or repayment plan for the substantial 2016 debt maturities, especially the mortgage principal due that year.
- Cash costs and realized savings from the 2013 restructuring, along with progress on any remaining asset sales.
- The final status of the IRS waiver for the 2012 pension contribution and the resulting required pension payments; the filing also specifies three fiscal 2014 quarterly cash contributions of $1.5 million each.
- The effects of the rights offering and share-based awards on dilution, and any restrictions on distributions from the operating subsidiary to the parent.