Overview

BlueLinx is a leading U.S. wholesale distributor of residential and commercial
building products with both branded and private-label stock keeping units
("SKUs"). With a strong market position, broad geographic coverage footprint
servicing 40 states, and the strength of a locally focused sales force, we
distribute our comprehensive range of products to over 15,000 national,
regional, and local dealers, specialty distributors, national home centers, and
manufactured housing customers. BlueLinx is able to provide a wide range of
value added services and solutions to our customers and suppliers. We are
headquartered in Georgia, with executive offices located at 1950 Spectrum
Circle, Marietta, Georgia, and we operate our distribution business through a
broad network of distribution centers.
As a "two-step" wholesale distributor of building products, BlueLinx stocks
products from leading manufacturers and supplies these products to a broad range
of customers, including lumber yards, dealers, home centers, and hardware
stores. These customers then serve residential and commercial builders and
contractors in their respective geographic areas. BlueLinx plays a critical role
in enabling its lumber yard, dealer, and home center customers to offer a broad
range of products and brands, as most of BlueLinx's customers do not have the
capability to purchase and warehouse directly from the manufacturers for such a
large set of SKUs. Similarly, BlueLinx provides value to its manufacturing
partners by enabling access to the fragmented network of lumber yards and
dealers that the manufacturers could not adequately serve directly. Our place in
this distribution model of building products provides easy access to the
marketplace for our suppliers and the value proposition of rapid delivery on an
as-needed basis to our customers from our network of warehouse facilities. In
addition to its broad portfolio of building products, BlueLinx also offers a
wide array of custom cutting and fabrication services for the wood products
industry.
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 54 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 46
percent of our net sales over the past twelve months.
On April 13, 2018, we completed the acquisition of Cedar Creek Holdings, Inc.
("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
On March 11, 2020, a novel strain of coronavirus ("COVID-19") was declared a
global pandemic by the World Health Organization. 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. To date, our business has
been designated as "essential" in all states in which we operate, and we have
continued to operate and provide services to our customers and suppliers.

As vaccination availability becomes more widespread in the U.S. and other major
countries across the world and the percentage of vaccinated individuals grows
rapidly, the impact of the pandemic may subside to some degree. However, the
rates of infection, hospitalization, and mortality associated with the virus
continue to fluctuate. 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. 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.

While the pandemic continued to impact many aspects of our business and
operations during the quarter, that impact was offset by the continued inflation
in our product pricing. Our net sales and gross margin increased, largely driven
by the continued elevation of wood-based commodity pricing over the course of
the quarter and secondarily driven by the Company's policies of pursuing
disciplined pricing strategies and gross margin enhancement. For the first
quarter of 2021, net sales increased $363.4 million and net income improved
$62.6 million, compared to the first quarter of 2020.

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The extent of the impact of the pandemic on our business and sales for the
remaining nine months of 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, the success of
vaccination efforts, 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, 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 office and reopening plans, and any pandemic-related restrictions.
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. Due
to supply constraints, lumber and panel commodity index prices started
increasing during the third quarter of 2020 and they continued to increase
throughout the first quarter of 2021. These market trends resulted in
substantially favorable revenue and gross margin comparisons in the first
quarter of 2021 for our structural products and our business as a whole.
Wood-based commodity index prices remained at elevated levels at the beginning
of the second quarter as supply constraints continued. Until supply constraints
are relieved, we anticipate that lumber and panel index prices will remain
elevated.

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 since the third quarter of 2020. The U.S. Census Bureau
reported that single family housing starts were up 20 percent for the first
quarter of 2021 compared to the first quarter of 2020. During the first quarter
of 2021, housing starts grew 16 percent in January, 2 percent in February, and
40 percent in March, all compared to the same months in 2020. Additionally,
March 2021 data from the National Association of Home Builders/Wells Fargo
Housing Market Index shows a 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: pricing and product cost variability;
volumes of product sold; changes in the prices, supply, and/or demand for
products that we distribute; the cyclical nature of the industry in which we
operate; housing market conditions; the COVID-19 pandemic and other contagious
illness outbreaks and their potential effects on our industry; effective
inventory management relative to our sales volume or the prices of the products
we produce; information technology security and business interruption risks;
increases in petroleum prices; consolidation among competitors, suppliers, and
customers; disintermediation risk; loss of products or key suppliers and
manufacturers; our dependence on international suppliers and manufacturers for
certain products; exposure to product liability and other claims and legal
proceedings related to our business and the products we distribute; natural
disasters, catastrophes, fire, or other unexpected events; successful
implementation of our strategy; wage increases or work stoppages by our union
employees; costs imposed by federal, state, local, and other regulations;
compliance costs associated with federal, state, and local environmental
protection laws; our level of indebtedness and our ability to incur additional
debt to fund future needs; the risk that our cash flows and capital resources
may be insufficient to service our existing or future indebtedness; the
covenants of the instruments governing our indebtedness limiting the discretion
of our management in operating our business; the fact that we lease many of our
distribution centers, and we would still be obligated under these leases even if
we close a leased distribution center; changes in our product mix; shareholder
activism; potential acquisitions and the integration and completion of such
acquisitions; the possibility that the value of our deferred tax assets could
become impaired; changes in our expected annual effective tax rate could be
volatile; the costs and liabilities related to our participation in
multi-employer pension plans could increase; the possibility that we could be
the subject of securities class action litigation due to stock price volatility;
and changes in, or interpretation of, accounting principles.
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Results of Operations
The following table sets forth our results of operations for the first quarter
of fiscal 2021 and fiscal 2020:
                                                                      % of                                        % of
                                          First Quarter of            Net             First Quarter of            Net
                                            Fiscal 2021              Sales              Fiscal 2020              Sales
                                           (In thousands)                              (In thousands)
Net sales                                 $   1,025,469              100.0%           $     662,070              100.0%

Gross profit                                    180,392              17.6%                   93,209              14.1%
Selling, general, and administrative             75,560               7.4%                   74,588              11.3%
Depreciation and amortization                     7,465               0.7%                    7,635               1.2%
Amortization of deferred gains on real
estate                                             (984)             (0.1)%                    (984)             (0.1)%
Gains from sales of property                     (1,287)             (0.1)%                    (525)             (0.1)%
Other operating expenses                            112               0.0%                    4,165               0.6%
Operating income                                 99,526               9.7%                    8,330               1.3%
Interest expense, net                            16,234               1.6%                   14,380               2.2%
Other income, net                                  (314)             (0.0)%                    (237)             (0.0)%
Income (loss) before provision for income
taxes                                            83,606               8.2%                   (5,813)             (0.9)%
Provision for (benefit from) income taxes        21,746               2.1%                   (5,026)             (0.8)%
Net income (loss)                         $      61,860               6.0%            $        (787)             (0.1)%


The following table sets forth net sales by product category for the three-month periods ending April 3, 2021, and March 28, 2020:


                                           Three Months Ended
                              April 3, 2021                March 28, 2020
Net sales by category                       ($ in thousands)
Structural products     $    462,409        45  %    $      240,722        36  %
Specialty products           563,060        55  %           421,348        64  %
Net sales               $  1,025,469       100  %    $      662,070       100  %


The following table sets forth gross profit and gross margin percentages by product category for the three-month periods of fiscal 2021 and 2020:


                                                Three Months Ended
                                        April 3, 2021       March 28, 2020
Gross profit $ by category                       ($ in thousands)
Structural products                    $      71,857       $      24,214
Specialty products                           108,535              68,995
Gross profit                           $     180,392       $      93,209
Gross margin percentage by category
Structural products                             15.5  %             10.1  %
Specialty products                              19.3  %             16.4  %
Total gross margin %                            17.6  %             14.1  %



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First Quarter of Fiscal 2021 Compared to First Quarter of Fiscal 2020



Net sales.  For the first quarter of fiscal 2021, net sales increased 54.9
percent, or $363.4 million, compared to the first quarter of fiscal 2020. The
sales increase was primarily a result of wood-based commodity price inflation in
our structural category and supply-driven pricing increases in our specialty
category, partially offset by a slight decline in sales volume attributable to
supply constraints. Persistent imbalances between supply and demand provided
pricing momentum that drove pricing up throughout the last nine months past
levels where we expected them to begin to affect demand. Product scarcity has
reduced resistance to price increases, further amplifying inflation across all
product categories.
Gross profit and gross margin.  For the first quarter of fiscal 2021, gross
profit increased 93.5 percent, or $87.2 million, compared to the first quarter
of fiscal 2020. Gross margin percentage increased to 17.6 percent, for the first
quarter of fiscal 2021, compared to 14.1 percent in the first quarter of fiscal
2020. Gross margin percentage increased due to rapidly increasing market
pricing, a result of unprecedented demand, paired with abnormally low supply.
Additionally, throughout this period lead times for products extended, further
promoting higher margins as prices escalated prior to receiving the product.
Selling, general, and administrative expenses.  For the first quarter of fiscal
2021, selling, general, and administrative expenses increased 1.3 percent, or
$1.0 million, compared to the first quarter of fiscal 2020. The increase in
sales, general, and administrative expenses is primarily due to an increase in
our sales commissions of approximately $2.7 million combined with an increase in
our variable incentive compensation of approximately $0.9 million, offset by a
reduction in our payroll costs of approximately $2.9 million, in addition to
other reductions within our operating expenses.
Depreciation and amortization expense. For the first quarter of fiscal 2021,
depreciation and amortization expense decreased 2.2 percent, or $0.2 million,
compared to the first quarter of fiscal 2020. The decrease in depreciation and
amortization expense is due to a lower base of depreciable assets throughout the
first quarter of 2021 when compared to the first quarter of fiscal 2020.
Gains from sales of property. For the first quarter of fiscal 2021, gains from
sales of property increased $0.8 million compared to the first quarter of 2020
as result of the sale of our non-operating facility in Birmingham during the
first quarter of 2021 and no property sales during the first quarter of 2020.
Other operating expenses. For the first quarter of fiscal 2021, other operating
expenses decreased $4.1 million compared to the first quarter of fiscal 2020
primarily due to a decrease in spending related to the integration of the Cedar
Creek acquisition and lower real estate financing costs compared to those
reported in the first quarter of 2020 that were associated with our prior year
real estate financing transactions.
Interest expense, net. For the first quarter of fiscal 2021, interest expense,
net, increased by 12.9 percent, or $1.9 million, compared to the first quarter
of fiscal 2020. The increase is largely attributable to $5.8 million in debt
issuance costs expensed in the first quarter of fiscal 2021 related to the
extinguishment of our former Term Loan Facility, offset by a reduction in our
interest expense resulting from our lower levels of indebtedness combined with
favorable benefits from lower LIBOR rates when compared to the prior year.
Other income, net. For the first quarter of fiscal 2021, other income, net,
increased $0.1 million compared to the first quarter of fiscal 2020. The
increase is due to a higher level of pension benefit cost amortization in the
first quarter of fiscal 2021 compared to the first quarter of fiscal 2020.
Provision for (benefit from) income taxes. Our effective tax rate was 26.0
percent and 86.5 percent for the first quarter of fiscal 2021 and 2020,
respectively. Our effective tax rate for the first quarter of fiscal 2021 was
impacted by the permanent addback of certain nondeductible expenses, including
meals and entertainment and executive compensation, slightly offset by the
benefit from state net operating loss carryforwards we anticipate being able to
utilize based on our taxable income through the end of the first quarter of
fiscal 2021, combined with a benefit from the vesting of restricted stock units,
which occurred during the period. Our effective tax rate for the three months
ended March 28, 2020, was primarily impacted by a discrete tax benefit of
$3.9 million resulting from the release of the valuation allowance associated
with nondeductible interest expense under Section 163(j) of the Internal Revenue
Code ("IRC") as a result of changes allowed under the Coronavirus Aid, Relief,
and Economic Security ("CARES") Act that was enacted on March 27, 2020 which
raised the allowable percentage of deductible interest from 30 percent to 50
percent of adjusted taxable income.
Net income (loss). Our net loss improved to net income from the prior year
period due primarily to increased gross product margins resulting from price
inflation and scarcity of products and overall reduced operating expenses and
secondarily to the Company's policies pursuing increased margins on sales of
products.
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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.
However, during the fourth quarter of 2020 and the first quarter of 2021, our
inventory working capital balance increased largely due to increased sales
levels. Due to the COVID-19 pandemic, it remains a possibility that we could
experience changes to our typical seasonality trends during the rest of 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 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.
As of April 3, 2021, we had outstanding borrowings of $358.5 million and excess
availability of $238.1 million under our Revolving Credit Facility. As of
January 2, 2021, had outstanding borrowings of $288.2 million and excess
availability of $184.3 million under out Revolving Credit Facility. Our average
effective interest rate was 2.4 percent and 2.8 percent for the quarters ended
April 3, 2021 and January 2, 2021, respectively. For the quarter ended March 28,
2020, our average effective interest rate was 4.2 percent.
We were in compliance with all covenants under the Revolving Credit Facility as
of April 3, 2021.
Term Loan Facility
We previously had a term loan facility that we entered into in April 2018 with
HPS Investments Partners, LLC, as administrative and collateral agent, and
certain other financial institutions party thereto (the "Term Loan Facility"),
with a maturity date of October 13, 2023. The Term Loan Facility provided for a
senior secured first lien loan facility in an initial aggregate principal amount
of $180 million and was secured by a security interest in substantially all of
our assets.
Prepayment premiums associated with the repayment of indebtedness were $0.9
million and $2.1 million for the three-month periods ended April 3, 2021 and
March 28, 2020, respectively.
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As of January 2, 2021, we had outstanding borrowings of $43.2 million under the
Term Loan Facility. On April 2, 2021, we repaid the remaining outstanding
principal balance of the Term Loan Facility and, as a result, as of April 3,
2021, we had no outstanding borrowings under the Term Loan Facility, which has
been extinguished. In connection with our repayment of the outstanding principal
balance in full on April 2, 2021, we expensed $5.8 million debt issuance costs
that we had been amortizing in connection with our former Term Loan Facility.
These costs are included within interest expense, net, on the Condensed
Consolidated Statements of Operations and reported separately as an adjustment
to net income in our Condensed Consolidated Statements of Cash Flows.
Our average interest rate under the facility, exclusive of fees and prepayment
premiums, was approximately 8.0 percent for the quarters ended April 3, 2021,
and January 2, 2021. For March 28, 2020, our average interest rate under the
facility, exclusive of fees and prepayment premiums, was approximately 8.7
percent.
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 fiscal 2019, we
completed real estate financing transactions on two warehouse facilities; and,
during 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. In addition, during the first quarter of
2021, we recorded finance leases of $10.2 million related to new tractors put
into service as part of our mobile fleet. Our total finance lease commitments,
including the properties associated with these transactions, totaled
$281.3 million as of April 3, 2021. Of the $281.3 million of finance lease
commitments as of April 3, 2021, $243.7 million related to real estate and
$37.6 million related to equipment.
Interest Rates
Our Revolving Credit Facility includes available interest rate options based on
the London Inter-bank Offered Rate ("LIBOR"). Certain LIBOR rates will be
discontinued after 2021, while other rates will be discontinued in 2023. 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 agreement will have a
material adverse effect on our financial position or materially affect our
interest expense.

Sources and Uses of Cash
Operating Activities
Net cash used in operating activities for the first three months of fiscal 2021
was $24.6 million, compared to net cash used in operating activities of $59.2
million in the first three months of fiscal 2020. The decrease in cash used by
operating activities during the first three months of fiscal 2021 was primarily
a result of the net income for the current year period compared to a loss in the
prior year period, combined with an increase in our accounts payable balance
compared to the prior year period.
Investing Activities
Net cash provided by investing activities for the first three months of fiscal
2021 was $0.7 million compared to net cash used in investing activities of $1.2
million in the first three months of fiscal 2020. The increase in net cash
provided by investing activities was primarily due to proceeds received from the
sale of our non-operating facility in Birmingham during the first quarter of
2021.
Financing Activities
Net cash provided by financing activities totaled $24.0 million for the first
three months of fiscal 2021, compared to net cash provided by financing
activities of $61.3 million for the first three months of fiscal 2020. The
decrease in net cash provided by financing activities is primarily due to an
increase of $16.8 million in repayments on our Revolving Credit Facility and
Term Loan Facility, including the repayment of the remaining outstanding balance
on our Term Loan Facility, and reduction of $78.3 million in proceeds from real
estate financing transactions completed in the first three months of fiscal
2020, with no such transactions completed in the first three months of fiscal
2021, partially offset by an increase in borrowings of $58.0 million from our
Revolving Credit Facility.
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Operating Working Capital
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 is defined as the sum of cash, receivables, and
inventory, less accounts payable. Management of working capital helps us monitor
our progress in meeting our goals to enhance working capital assets.
                                        Selected financial information
                                            April 3, 2021           January 2, 2021           March 28, 2020
                                                                     (In thousands)
Current assets:
Cash                                      $          179          $             82          $        12,558
Receivables, less allowance for doubtful
accounts                                         418,815                   293,643                  247,940
Inventories, net                                 376,423                   342,108                  378,634
                                          $      795,417          $        635,833          $       639,132

Current liabilities:
Accounts payable                          $      218,975          $        165,163          $       162,398
                                          $      218,975          $        165,163          $       162,398

Operating working capital                 $      576,442          $        

470,670 $ 476,734





Operating working capital of $576.4 million as of April 3, 2021, compared to
$470.7 million as of January 2, 2021, increased on a net basis by approximately
$105.8 million. The increase in operating working capital is primarily driven by
an increase in accounts receivable and an increase in inventory, both of which
continue to be effected by the inflationary environment impacting our net sales
and product costs. The net increase in current assets was offset by an increase
in accounts payable, also due to the inflation of product costs.
Operating working capital of $576.4 million as of April 3, 2021, compared to
$476.7 million as of March 28, 2020, increased by $99.7 million. The increase in
operating working capital is primarily driven by an increase in accounts
receivable, offset by an increase in accounts payable, both largely due to the
inflationary environment impacting our net sales and product costs.

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 first quarter ended April 3, 2021, we invested $1.1 million in cash in
investments in long-lived assets and entered into finance leases related to new
tractors put into service as part of our mobile fleet totaling approximately
$10.2 million, for a total investment of $11.3 million in capital assets during
the quarter.

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 January 2, 2021.

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. Forward-looking statements involve risks
and uncertainties that may cause our business,
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strategy, or actual results to differ materially from the forward-looking
statements. 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 January 2, 2021, 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:
•the risk that we may experience pricing and product cost variability;
•the fact that our earnings are highly dependent on volumes;
•the fact that our industry is highly fragmented and competitive and, that if we
are unable to compete effectively, our net sales and operating results may be
reduced;
•the fact that our industry is highly cyclical, and prolonged periods of weak
demand or excess supply may reduce our net sales and/or margins, which may cause
us to incur losses or reduce out net income;
•the risk that adverse housing market conditions may negatively impact our
business, liquidity, and results of operations, and increase the credit risk
from our customers;
•the full effect of the COVID-19 pandemic on our business is unknown, and it may
adversely affect our business and results from operations;
•our ability to effectively manage our inventory relative to our sales volume or
as the prices of the products we distribute fluctuate, which could affect our
business, financial condition, and operating results;
•information technology security risks and business interruption risks, which
may cause us to incur increasing costs in an effort to minimize and/or respond
to those risks;
•the risk of increases in petroleum prices, which could adversely affect our
results of operations;
•consolidation among competitors, suppliers, and customers could negatively
impact our business;
•the risk of disintermediation;
•the risk of loss of key products or key suppliers and manufacturers could
affect our financial health;
•our dependence on international suppliers and manufacturers for certain
products exposes us to risks that could affect our financial condition;
•business disruptions;
•the risk of exposure to product liability and other claims and legal
proceedings related to our business and the products we distribute, which may
exceed the coverage of our insurance;
•the risk that our business operations could suffer significant losses from
natural disasters, catastrophes, fire, or other unexpected events;
•that fact that a significant percentage of our employees are unionized, and
wage increases or work stoppages by our unionized employees may reduce our
results of operations;
•the risk that federal, state, local, and other regulations could impose
substantial costs and restrictions on our operations that would reduce our net
income;
•the fact that we are subject to federal, state, and local environmental
protection laws and may have to incur significant costs to comply with these
laws and regulations in the future;
•our level of indebtedness could limit our financial and operating activities
and adversely affect our ability to incur additional debt to fund future needs;
•our cash flows and capital resources may be insufficient to make required
payments on our indebtedness or future indebtedness;
•the instruments governing our indebtedness contain various covenants limiting
the discretion of our management in operating our business, including requiring
us to maintain a minimum level of excess liquidity;
•borrowings under our revolving credit facility bear interest at a variable
rate, which subjects us to interest rate risk, which could cause our debt
service obligations to increase significantly;
•we may still incur more debt, which could increase the risks relating to
indebtedness;
•the fact that we have sold and leased back certain of our distribution centers
under long-term non-cancelable leases, and may enter into similar transactions
in the future;
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•the fact that many of our distribution centers are leased, and if we close a
leased distribution center, we will still be obligated under the applicable
lease;
•changes in our product mix could adversely affect our results of operations;
•the risk of adjustments in the future based on actual development experience
because we establish insurance-related deductible/retention reserves based on
historical loss development factors;
•our strategy includes pursuing acquisitions, which we may be unsuccessful in
making and integrating mergers, acquisitions, and investments, and completing
divestitures;
•the risk that the activities of activist stockholders could have a negative
impact on our business and results of operations;
•the risk that the value of our deferred tax assets could become impaired, which
could materially and adversely affect our operating results;
•the risk that our expected annual effective tax rate could be volatile and
materially change as a result of changes in mix of earnings and other factors;
•the risk that changes in actuarial assumptions for our pension plan could
impact our financial results, and funding requirements are mandated by the
federal government;
•the risk that costs and liabilities related to our participation in
multi-employer pension plans could increase;
•the risk that we could be the subject of securities class action litigation due
to stock price volatility, which could divert management's attention and
adversely affect our results of operations; and
•the risk that changes in, or interpretation of, accounting principles could
result in unfavorable accounting changes.
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.
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