Edgar Filing: BlueLinx Holdings Inc.

BLUELINX HOLDINGS INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-32383

BlueLinx Holdings Inc.

(Exact name of registrant as specified in its charter)


Delaware		77-0627356
(State of Incorporation)		(I.R.S. Employer Identification No.)

4300 Wildwood Parkway, Atlanta, Georgia		30339
(Address of principal executive offices)		(Zip Code)

(770) 953-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 1, 2007 there were 31,252,894 shares of BlueLinx Holdings Inc. common stock, par value $0.01, outstanding.

BLUELINX HOLDINGS INC.

Form 10-Q

For the Quarterly Period Ended September 29, 2007

INDEX


	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements — BlueLinx Holdings Inc.		3
Condensed Consolidated Statements of Operations		4
Condensed Consolidated Balance Sheets		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Quantitative and Qualitative Disclosures About Market Risk		31
Item 4. Controls and Procedures		31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		31
Item 6. Exhibits		32
Signatures		33
Exhibit Index		34
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)


	Third Quarter
	Period from		Period from
	July 1, 2007		July 2, 2006
	to		to
	September 29, 2007		September 30, 2006
Net sales	$	1,015,888	$	1,203,578
Cost of sales		913,078		1,082,672

Gross profit		102,810		120,906

Operating expenses:
Selling, general, and administrative		84,826		99,615
Depreciation and amortization		5,106		5,217

Total operating expenses		89,932		104,832

Operating income		12,878		16,074
Non-operating expenses:
Interest expense		11,352		12,046
Other expense (income), net		7		(29	)

Income before provision for income taxes		1,519		4,057
Provision for income taxes		629		1,765

Net income	$	890	$	2,292

Basic weighted average number of common shares outstanding		30,853		30,662

Basic net income per share applicable to common stock	$	0.03	$	0.07

Diluted weighted average number of common shares outstanding		30,951		30,782

Diluted net income per share applicable to common stock	$	0.03	$	0.07

Dividends declared per share of common stock	$	0.125	$	0.125

See accompanying notes.

BLUELINX HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)


	Nine Months Ended
	Period from			Period from
	December 31, 2006			January 1, 2006
	to			to
	September 29, 2007			September 30, 2006
Net sales	$	3,054,992		$	3,959,134
Cost of sales		2,729,189			3,571,833

Gross profit		325,803			387,301

Operating expenses:
Selling, general, and administrative		266,640			295,004
Depreciation and amortization		15,840			15,323

Total operating expenses		282,480			310,327

Operating income		43,323			76,974
Non-operating expenses:
Interest expense		33,756			35,505
Charges associated with mortgage refinancing		—			4,864
Other income, net		(601	)		(17	)

Income before provision for income taxes		10,168			36,622
Provision for income taxes		4,033			14,925

Net income	$	6,135		$	21,697

Basic weighted average number of common shares outstanding		30,834			30,576

Basic net income per share applicable to common stock	$	0.20		$	0.71

Diluted weighted average number of common shares outstanding		30,947			30,762

Diluted net income per share applicable to common stock	$	0.20		$	0.71

Dividends declared per share of common stock	$	0.375		$	0.375

See accompanying notes.

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)


	September 29, 2007			December 30, 2006
	(unaudited)
Assets:
Current assets:
Cash	$	25,000		$	27,042
Receivables, net		371,222			307,543
Inventories, net		424,522			410,686
Deferred income taxes		9,429			9,024
Other current assets		42,333			44,948

Total current assets		872,506			799,243

Property, plant, and equipment:
Land and land improvements		57,141			56,985
Buildings		97,156			95,814
Machinery and equipment		66,462			61,955
Construction in progress		5,485			2,025

Property, plant, and equipment, at cost		226,244			216,779
Accumulated depreciation		(50,470	)		(38,530	)

Property, plant, and equipment, net		175,774			178,249
Other non-current assets		24,982			26,870

Total assets	$	1,073,262		$	1,004,362

Liabilities:
Current liabilities:
Accounts payable	$	224,787		$	195,815
Bank overdrafts		37,346			50,241
Accrued compensation		10,905			8,574
Current maturities of long-term debt		100,147			9,743
Other current liabilities		16,113			14,633

Total current liabilities		389,298			279,006

Non-current liabilities:
Long-term debt		480,853			522,719
Deferred income taxes		516			1,101
Other long-term liabilities		14,468			12,137

Total liabilities		885,135			814,963

Shareholders’ Equity:
Common Stock, $0.01 par value, 100,000,000 shares authorized; 31,244,577 and 30,909,630 shares issued and outstanding at September 29, 2007 and December 30, 2006, respectively		312			309
Additional paid-in-capital		141,394			138,066
Accumulated other comprehensive income		1,363			412
Retained earnings		45,058			50,612

Total shareholders’ equity		188,127			189,399

Total liabilities and shareholders’ equity	$	1,073,262		$	1,004,362

See accompanying notes.

BLUELINX HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)


	Nine Months Ended
	Period			Period
	from December 31,			from January 1,
	2006 to			2006 to
	September 29, 2007			September 30, 2006
Cash flows from operating activities:
Net income	$	6,135		$	21,697
Adjustments to reconcile net income to cash used in operations:
Depreciation and amortization		15,840			15,323
Amortization of debt issue costs		1,823			2,018
Charges associated with mortgage refinancing		—			4,864
Deferred income tax benefit		(1,135	)		(1,876	)
Share-based compensation expense		3,061			2,209
Gain from insurance settlement		(1,698	)		—
Excess tax benefits from share-based compensation arrangements		(41	)		(882	)
Changes in assets and liabilities:
Receivables		(63,679	)		(33,396	)
Inventories		(13,836	)		5,961
Accounts payable		28,972			(74,959	)
Changes in other working capital		5,238			(2,486	)
Other		415			(2,237	)

Net cash used in operating activities		(18,905	)		(63,764	)

Cash flows from investing activities:
Acquisitions, net of cash acquired		—			(9,353	)
Property, plant and equipment investments		(11,943	)		(7,267	)
Proceeds from disposition of assets		4,335			465

Net cash used in investing activities		(7,608	)		(16,155	)

Cash flows from financing activities:
Proceeds from stock options exercised		442			1,744
Excess tax benefits from share-based compensation arrangements		41			882
Net increase (decrease) in revolving credit facility		48,538			(38,342	)
Proceeds from new mortgage		—			295,000
Debt financing costs		—			(6,668	)
Retirement of old mortgage		—			(165,000	)
Prepayment fees with old mortgage		—			(2,475	)
Increase (decrease) in bank overdrafts		(12,895	)		6,177
Common stock dividends paid		(11,689	)		(11,537	)
Other		34			—

Net cash provided by financing activities		24,471			79,781

Decrease in cash		(2,042	)		(138	)
Balance, beginning of period		27,042			24,320

Balance, end of period	$	25,000		$	24,182

See accompanying notes.

BLUELINX HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Background

Basis of Presentation

BlueLinx Holdings Inc. has prepared the accompanying Unaudited Condensed Consolidated Financial Statements, including its accounts and the accounts of its wholly-owned subsidiaries, in accordance with the instructions to Form 10-Q and therefore they do not include all of the information and notes required by United States generally accepted accounting principles (“GAAP”). These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 30, 2006, as filed with the Securities and Exchange Commission (“SEC”). Our fiscal year is a 52- or 53-week period ending on the Saturday closest to the end of the calendar year. Fiscal year 2006 contained 52 weeks. BlueLinx Corporation is the wholly-owned operating subsidiary of BlueLinx Holdings Inc. and is referred to herein as the “operating subsidiary” when necessary.

We believe the accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented. The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and such differences could be material. In addition, the operating results for interim periods may not be indicative of the results of operations for a full year. We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors, with the second and third quarters typically accounting for the highest sales volumes. These seasonal factors are common in the building products distribution industry.

We are a leading distributor of building products in North America. We offer approximately 10,000 products from over 750 suppliers to service more than 11,500 customers nationwide, including dealers, industrial manufacturers, manufactured housing producers and home improvement retailers. We operate our distribution business from sales centers in Atlanta and Denver, and our network of more than 70 warehouses.

2. Summary of Significant Accounting Policies

Earnings per Common Share

Basic and diluted earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period.

Except when the effect would be anti-dilutive, the diluted earnings per share calculation includes the dilutive effect of the assumed exercise of stock options and restricted stock using the treasury stock method.


	Third Quarter				Nine Months Ended
					Period from
	Period from		Period from		December 31, 2006		Period from
	July 1, 2007 to		July 2, 2006 to		to September 29,		January 1, 2006 to
	September 29, 2007		September 30, 2006		2007		September 30, 2006

Basic weighted average shares outstanding		30,852,572		30,662,219		30,833,801		30,576,248
Dilutive effect of stock-based awards		98,829		120,054		113,045		185,351

Diluted weighted average shares outstanding		30,951,401		30,782,273		30,946,846		30,761,599

Common Stock Dividends

On January 22, 2007, our Board of Directors declared a quarterly dividend of $0.125 per share on our common stock. The dividend was paid on March 30, 2007, to shareholders of record as of March 16, 2007. Our controlling shareholder, Cerberus ABP Investor LLC (“Cerberus”), received a dividend of approximately $2.3 million as a result of its ownership of 18,100,000 shares of our common stock as of the record date.

On May 3, 2007, our Board of Directors declared a quarterly dividend of $0.125 per share on our common stock. The dividend was paid on June 29, 2007, to shareholders of record as of June 15, 2007. Cerberus received a dividend of approximately $2.3 million as a result of its ownership of 18,100,000 shares of our common stock as of the record date.

On August 6, 2007, our Board of Directors declared a quarterly dividend of $0.125 per share on our common stock. The dividend was paid on September 28, 2007, to shareholders of record as of September 14, 2007. Cerberus received a dividend of approximately $2.3 million as a result of its ownership of 18,100,000 shares of our common stock as of the record date.

Stock-Based Compensation

We have two stock-based compensation plans covering officers, directors and certain employees and consultants; the 2004 Long Term Equity Incentive Plan (the “2004 Plan”) and the 2006 Long Term Equity Incentive Plan (the “2006 Plan”). The plans are designed to motivate and retain individuals who are responsible for the attainment of our primary long-term performance goals. The plans provide a means whereby our employees and directors develop a sense of proprietorship and personal involvement in our development and financial success and encourage them to devote their best efforts to our business.

The 2004 Plan provides for the grant of nonqualified stock options, incentive stock options for shares of our common stock and restricted shares of our common stock to participants of the plan selected by our Board of Directors or a committee of the Board who administer the 2004 Plan. We reserved 2,222,222 shares of common stock for issuance under the 2004 Plan. The terms and conditions of awards under the 2004 Plan are determined by the administrator for each grant.

Unless otherwise determined by the administrator or as set forth in an award agreement, upon a “Liquidity Event,” all unvested awards will become immediately exercisable and the administrator may determine the treatment of all vested awards at the time of the Liquidity Event. A “Liquidity Event” is defined as (1) an event in which any person who is not an affiliate of us becomes the beneficial owner, directly or indirectly, of fifty percent or more of the combined voting power of our then outstanding securities or (2) the sale, transfer or other disposition of all or substantially all of our business, whether by sale of assets, merger or otherwise, to a person other than Cerberus.

On May 12, 2006 our shareholders approved the 2006 Plan. The 2006 Plan permits the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards, and other stock-based awards. We reserved 1,700,000 shares of our common stock for issuance under the 2006 Plan. The terms and conditions of awards under the 2006 Plan are determined by the administrator for each grant. Awards issued under the 2006 Plan are subject to accelerated vesting in the event of a change in control as such event is defined in the 2006 Plan.

On January 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) 123R, Share-Based Payment, using the modified prospective transition method. Prior to 2006, we accounted for stock awards granted to employees under SFAS No. 123, Accounting for Stock-Based Compensation. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure will no longer be an alternative.

Under the modified prospective transition method, compensation expense recognized in the third quarter included: (a) compensation expense for all unvested share-based awards granted prior to January 1, 2006, based on the grant date fair value estimated in accordance with SFAS No. 123 and (b) compensation expense for all share-based awards granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with SFAS No. 123R. Results of prior periods have not been restated.

Through December 31, 2005, we accrued compensation expense assuming that all stock options granted were expected to vest. The effect of actual forfeitures was recognized as forfeitures occurred. Under SFAS No. 123R, we are required to estimate forfeitures in calculating the expense related to stock-based compensation. The adoption of SFAS No. 123R did not have a material impact on our results of operations.

of fiscal 2007, our total stock-based compensation expense was $0.8 million and $3.1 million, respectively. We also recognized related income tax benefits of $0.3 million and $1.2 million for the third quarter of fiscal 2007 and for the first nine months of fiscal 2007, respectively.

For the third quarter of fiscal 2006 and for the first nine months of fiscal 2006, our total stock-based compensation expense was $1.0 million and $2.2 million, respectively. We also recognized related income tax benefits of $0.4 million and $0.9 million for the third quarter of fiscal 2006 and for the first nine months of fiscal 2006, respectively.

The total fair value of the options vested for the first nine months of fiscal 2007 was $1.6 million. For the first nine months of fiscal 2006, the total fair value of the options vested was $1.2 million.

Cash proceeds from the exercise of stock options totaled $0.4 million and $1.7 million for the first nine months of fiscal 2007 and for the first nine months of fiscal 2006, respectively. In addition, SFAS No. 123R requires us to reflect the benefits of tax deductions in excess of recognized compensation expense as both a financing cash inflow and an operating cash outflow upon adoption. We included $0.04 million and $0.9 million of excess tax benefits in cash flows from financing activities for the first nine months of fiscal 2007 and for the first nine months of fiscal 2006, respectively.

The following table depicts the weighted average assumptions used in connection with the Black-Scholes-Merton option pricing model to estimate the fair value of stock options granted during the first nine months of fiscal 2007:


	Period from December 31, 2006 to September 29, 2007
	Time-Based			Performance-Based			Performance-Based
	Options*			Options**			Options***
Risk free interest rate		4.78	%		4.81	%		5.09	%
Expected dividend yield		4.46	%		4.52	%		4.52	%
Expected life	7		years	5		years	1		year
Expected volatility		45	%		45	%		45	%
Weighted average fair value	$	3.77		$	2.83		$	6.97


*		Exercise price equaled the market price at date of grant.

**		Exercise price exceeded the market price at date of grant.

***		Exercise price was less than the market price at date of grant.

All options granted during the first nine months of fiscal 2007 occurred in the first quarter.


	Period from
	July 2, 2006 to
	September 30,
	2006
	Time-Based
	Options*
Risk free interest rate		5.05	%
Expected dividend yield		4.20	%
Expected life	7		years
Expected volatility		50	%
Weighted average fair value	$	4.14


*		Exercise price equaled the market price at date of grant.


	Period from January 1, 2006 to September 30, 2006
	Time-Based			Time-Based			Performance-Based
	Options*			Options**			Options***
Risk free interest rate		4.36	%		4.72	%		4.60	%
Expected dividend yield		4.43	%		3.85	%		3.19	%
Expected life	7		years	7		years	1		year
Expected volatility		50	%		50	%		50	%
Weighted average fair value	$	3.69		$	5.11		$	11.47


*		Exercise price exceeded market price at date of grant.

**		Exercise price equaled market price at date of grant.

***		Exercise price is less than the market price at date of grant.

In determining the expected life, we did not rely on our historical exercise data as it does not provide a reasonable basis upon which to estimate future expected lives due to limited experience of employee exercises. Instead, we followed a simplified method based on the vesting term and contractual term as permitted under SEC Staff Accounting Bulletin No. 107.

The expected volatility is based on the historical volatility of our common stock.

The range of risk-free rates used for the first nine months of fiscal 2007 and for the first nine months of fiscal 2006 was from 4.78% to 5.10% and 4.34% to 5.05%, respectively. These rates were based on the U.S. Treasury yield with a term that is consistent with the expected life of the stock options.

Performance-based options are those options that only vest upon achievement of certain financial targets established by the Board of Directors, or a committee thereof. On February 14, 2007, the Board of Directors set the financial target for performance-based options subject to vesting criteria in 2007.

Additional information related to our existing employee stock options for the period from December 31, 2006 to September 29, 2007, excluding performance-based options totaling 62,475 for which the financial targets have not been set, follows:


				Weighted
				Average
				Exercise
	Options			Price
Options outstanding at December 30, 2006		1,717,531		$	11.47
Options granted		160,375			8.58
Options exercised		(117,213	)		3.75
Options forfeited		(17,207	)		3.75
Options outstanding at September 29, 2007		1,743,486			11.80
Options exercisable at September 29, 2007		438,070		$	10.18


	Outstanding						Exercisable
			Weighted						Weighted
			Average		Remaining				Average
	Number of		Exercise		Contractual Life		Number of		Exercise
Price Range	Options		Price		(in Years)		Options		Price
$3.75		248,469	$	3.75		0.68		138,369	$	3.75
$10.29 – $15.10		1,495,017		13.13		8.38		299,701		13.16

		1,743,486						438,070

The following table summarizes the activity for our performance shares, restricted stock and restricted stock units during the first nine months of fiscal 2007:


	Performance Shares				Restricted Stock				Restricted Stock Units
			Weighted				Weighted					Weighted
	Number of		Average Fair		Number of		Average Fair		Number of			Average Fair
	Awards		Value		Awards		Value		Awards			Value
Outstanding at December 30, 2006		—	$	—		147,412	$	13.99		119,250		$	13.95
Granted		245,025		10.46		218,063		10.50		97,625			11.02
Vested		—		—		—		—		—			—
Forfeited		—		—		—		—		(17,350	)		13.34

Outstanding at September 29, 2007		245,025	$	10.46		365,475	$	11.92		199,525		$	12.55

The fair value of the restricted stock units will be marked-to-market each reporting period through the date of settlement. On September 29, 2007, the fair value of these awards was based on the closing price of our common stock of $7.04.

At September 29, 2007, the aggregate intrinsic value of stock-based awards outstanding and options exercisable was $5.2 million and $0.5 million, respectively (the intrinsic value of a stock-based award is the amount by which the market value of the underlying award exceeds the exercise price of the award). The intrinsic value of stock options exercised during the first nine months of fiscal 2007 was $0.8 million. For the first nine months of fiscal 2006, the intrinsic value of stock options exercised was $5.0 million.

3. Income Taxes

We adopted the provisions of FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return (including a discussion of whether to file or not to file a return in a particular jurisdiction). The cumulative effect, if any, of applying FIN 48 is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. Adoption of FIN 48 on January 1, 2007 did not have a material effect on our consolidated financial position or results of operations.

4. Comprehensive Income

The calculation of comprehensive income is as follows (in thousands):


	Third Quarter
	Period from			Period from
	July 1, 2007			July 2, 2006
	to			to
	September 29, 2007			September 30, 2006
Net income	$	890		$	2,292
Other comprehensive income:
Foreign currency translation, net of taxes		866			(6	)
Unrealized loss from cash flow hedge, net of taxes		(2,040	)		(2,112	)

Comprehensive income (loss)	$	(284	)	$	174


	Nine Months Ended
	Period from			Period from
	December 31, 2006			January 1, 2006
	to			to
	September 29, 2007			September 30, 2006
Net income	$	6,135		$	21,697
Other comprehensive income:
Foreign currency translation, net of taxes		1,779			331
Unrealized loss from cash flow hedge, net of taxes		(756	)		(1,715	)
Unrealized loss from adoption of FIN 48, net of taxes		(72	)		—

Comprehensive income	$	7,086		$	20,313

5. Employee Benefits

Defined Benefit Pension Plans

Most of our hourly employees participate in noncontributory defined benefit pension plans. These include a plan that is administered solely by us (the “hourly pension plan”) and union-administered multiemployer plans. Our funding policy for the hourly pension plan is based on actuarial calculations and the applicable requirements of federal law. We do not expect to make any contributions to the hourly pension plan in fiscal 2007. Benefits under the majority of plans for hourly employees (including multiemployer plans) are primarily related to years of service.

Net periodic pension cost for our pension plans included the following:


	Third Quarter
	Period from July 1,			Period from July 2, 2006
	2007 to September 29, 2007			to September 30, 2006
	(In thousands)
Service cost	$	626		$	672
Interest cost on projected benefit obligation		1,054			1,011
Expected return on plan assets		(1,356	)		(1,300	)
Amortization of unrecognized prior service cost		1			1

Net periodic pension cost	$	325		$	384


	Nine Months Ended
	Period from December 31,			Period from January 1, 2006
	2006 to September 29, 2007			to September 30, 2006
	(In thousands)
Service cost	$	1,879		$	2,016
Interest cost on projected benefit obligation		3,162			3,033
Expected return on plan assets		(4,068	)		(3,900	)
Amortization of unrecognized prior service cost		2			3

Net periodic pension cost	$	975		$	1,152

6. Revolving Credit Facility

As of September 29, 2007, we had outstanding borrowings of $286 million and excess availability of $278 million under the terms of our revolving credit facility. Based on borrowing base limitations, we classify the lowest projected balance of the credit facility over the next twelve months of $186 million as long-term debt. The revolving credit facility contains customary negative covenants and restrictions for asset based loans, with which we are in compliance.

On June 12, 2006, we entered into an interest rate swap agreement with Goldman Sachs Capital Markets, to hedge against interest rate risks related to our variable rate revolving credit facility. The interest rate swap has a notional amount of $150 million and the terms call for us to receive interest monthly at a variable rate equal to the 30-day LIBOR and to pay interest monthly at a fixed rate of 5.4%. This interest rate swap is designated as a cash flow hedge.

We expect the hedge to be highly effective in offsetting changes in expected cash flows, as, at inception, the critical terms of the interest rate swap generally match the critical terms of the variable rate revolving credit facility. Fluctuations in the fair value of the ineffective portion, if any, of the cash flow hedge will be reflected in the current period earnings. For the first nine months of fiscal 2007, we recognized $0.2 million of expense related to the ineffective portion of the hedge.

At September 29, 2007, the fair value of the interest rate swap was a liability of $3.9 million and was included in “Other long-term liabilities” on the Condensed Consolidated Balance Sheet. Accumulated other comprehensive income at September 29, 2007 included the net loss on the cash flow hedge (net of tax) of $0.8 million, which reflects the cumulative amount of comprehensive loss in connection with the change in fair value of the swap.

As of September 29, 2007, we had outstanding letters of credit totaling $10.5 million, primarily for the purposes of securing collateral requirements under casualty insurance programs for us and for guaranteeing payment of international purchases based on the fulfillment of certain conditions.

7. Mortgage

On June 9, 2006, certain special purpose entities that are wholly-owned subsidiaries of us entered into a $295 million mortgage loan with the German American Capital Corporation. The mortgage has a term of ten years and is secured by 57 distribution facilities and 1 office building owned by the special purpose entities. The stated interest rate on the mortgage is fixed at 6.35%. German American Capital Corporation assigned half of its interest in the mortgage loan to Wachovia Bank, National Association.

Simultaneously with the execution of the mortgage loan, we paid off in full our then-existing $165 million mortgage loan agreement with Column Financial, Inc. dated as of October 26, 2004. In connection with the termination of the existing mortgage loan, we incurred charges of $4.9 million during the second quarter of fiscal 2006, which includes unamortized debt financing costs of $3.2 million.

The mortgage loan requires interest-only payments for the first five years followed by level monthly payments of principal and interest based on an amortization period of thirty years. The balance of the loan outstanding at the end of ten years will then become due and payable. The principal will be paid in the following increments (in thousands):


2011	$	1,511
2012		3,172
2013		3,437
2014		3,665
2015		3,908
Thereafter	$	279,307

8. Related Party Transactions

Cerberus Capital Management, L.P., our equity sponsor, retains consultants that specialize in operations management and support and who provide Cerberus with consulting advice concerning portfolio companies in which funds and accounts managed by Cerberus or its affiliates have invested. From time to time, Cerberus makes the services of these consultants available to Cerberus portfolio companies. We believe that the terms of these consulting arrangements are favorable to us, or, alternatively, are materially consistent with those terms that would have been obtained by us in an arrangement with an unaffiliated third party. We have normal service, purchase and sales arrangements with other entities that are owned or controlled by Cerberus. We believe that these transactions are at arms’ length terms and are not material to our results of operations or financial position.

9. Commitments and Contingencies

Environmental and Legal Matters

We are involved in various proceedings incidental to our businesses and 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. Management further believes that the ultimate outcome of these matters could be material to operating results in any given quarter but will not have a materially adverse effect on our long-term financial condition, our results of operations, or our cash flows.

Collective Bargaining Agreements

As of September 29, 2007, approximately 31% of our total work force is covered by collective bargaining agreements. Collective bargaining agreements representing approximately 8% of our work force will expire within one year.

Preference Claim

On November 19, 2004, we received a letter from Wickes Lumber, or Wickes, asserting that approximately $16 million in payments received by the Distribution Division of Georgia-Pacific Corporation during the 90-day period prior to Wickes’ January 20, 2004 Chapter 11 filing were preferential payments under section 547 of the United States Bankruptcy Code. On October 14, 2005, Wickes Inc. filed a lawsuit in the United States Bankruptcy Court for the Northern District of Illinois titled “Wickes Inc. v. Georgia Pacific Distribution Division (BlueLinx),” (Bankruptcy Adversary Proceeding No. 05-2322) asserting its claim. On November 14, 2005, we filed our answer to the complaint denying liability. Although the ultimate outcome of this matter cannot be determined with certainty, we believe Wickes’ assertion to be without merit and, in any event, subject to one or more complete defenses, including, but not limited to, that the payments were made and received in the ordinary course of business and were a substantially contemporaneous exchange for new value given to Wickes.

Breach of Contract Claim

On January 12, 2007, Kenexa Technology, Inc. filed suit against our operating company in the U.S. District Court for the District of Delaware. Effective July 10, 2007, we resolved the dispute, and Kenexa dismissed its lawsuit with prejudice.

Hurricane Katrina

Hurricane Katrina caused significant damage at our distribution center in New Orleans, Louisiana. The facility ceased operations prior to the arrival of the storm on August 29, 2005. There was approximately $2.4 million in inventory located at the facility that has been declared a total loss by our insurer. Damage to the building and furniture, fixtures and equipment exceeded $2.0 million. The total loss recognized related to the damage was $250,000, which is the amount of our insurance deductible. We recognized this loss in fiscal 2005. The facility has reopened and is operating at full capacity.

On July 11, 2007, we agreed with our insurer to a settlement of our outstanding insurance claims related to damage to our New Orleans distribution center and its inventory caused by Hurricane Katrina. We recognized a gain of $1.7 million during the quarter which represented the net effect of the receipt of insurance proceeds.

11. Subsequent Events

On October 31, 2007 our Board of Directors declared a quarterly dividend of $0.125 per share on our common stock. The dividend will be paid on December 28, 2007 to stockholders of record as of December 14, 2007.

12. Unaudited Supplemental Condensed Consolidating Financial Statements

The unaudited condensed consolidating financial information as of September 29, 2007 and December 30, 2006 and for the periods from July 1, 2007 to September 29, 2007 and July 2, 2006 to September 30, 2006 is provided due to restrictions in our revolving credit facility that limit distributions by BlueLinx Corporation, our wholly-owned operating subsidiary, to us, which, in turn, may limit our ability to pay dividends to holders of our common stock (see our Annual Report on Form 10-K for the year ended December 30, 2006, for a more detailed discussion of these restrictions and the terms of the facility). Also included in the supplemental condensed consolidated financial statements are sixty-one single member limited liability companies, which are wholly owned by us (the “LLC subsidiaries”). The LLC subsidiaries own certain warehouse properties that are occupied by BlueLinx Corporation, each under the terms of a master lease agreement. Certain of the warehouse properties collateralize a mortgage loan and none of the properties are available to satisfy the debts and other obligations of either BlueLinx Corporation or us.

The condensed consolidating statement of operations for BlueLinx Holdings Inc. for the period from July 1, 2007 to September 29, 2007 follows (in thousands):


	BlueLinx
	Holdings			BlueLinx		LLC
	Inc.			Corporation		Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,015,888	$	7,518		$	(7,518	)	$	1,015,888
Cost of sales		—			913,078		—			—			913,078

Gross profit		—			102,810		7,518			(7,518	)		102,810

Operating expenses:
Selling, general and administrative		241			91,983		120			(7,518	)		84,826
Depreciation and amortization		—			4,044		1,062			—			5,106

Total operating expenses		241			96,027		1,182			(7,518	)		89,932

Operating income (loss)		(241	)		6,783		6,336			—			12,878
Non-operating expenses:
Interest expense		—			6,460		4,892			—			11,352
Other expense (income), net		—			25		(18	)		—			7

Income before provision for (benefit from) income taxes		(241	)		298		1,462			—			1,519
Provision for (benefit from) income taxes		(94	)		153		570			—			629
Equity in income (loss) of subsidiaries		1,037			—		—			(1,037	)		—

Net income (loss)	$	890		$	145	$	892		$	(1,037	)	$	890

The condensed consolidating statement of operations for BlueLinx Holdings Inc. for the period from July 2, 2006 to September 30, 2006 follows (in thousands):


	BlueLinx
	Holdings			BlueLinx			LLC
	Inc.			Corporation			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,203,578		$	7,598		$	(7,598	)	$	1,203,578
Cost of sales		—			1,082,672			—			—			1,082,672

Gross profit		—			120,906			7,598			(7,598	)		120,906

Operating expenses:
Selling, general and administrative		332			106,679			202			(7,598	)		99,615
Depreciation and amortization		—			4,159			1,058			—			5,217

Total operating expenses		332			110,838			1,260			(7,598	)		104,832

Operating income (loss)		(332	)		10,068			6,338			—			16,074
Non-operating expenses:
Interest expense		—			7,064			4,982			—			12,046
Other expense (income), net		—			(12	)		(17	)		—			(29	)

Income before provision for (benefit from) income taxes		(332	)		3,016			1,373			—			4,057
Provision for (benefit from) income taxes		(129	)		1,359			535			—			1,765
Equity in income (loss) of subsidiaries		2,495			—			—			(2,495	)		—

Net income (loss)	$	2,292		$	1,657		$	838		$	(2,495	)	$	2,292

The condensed consolidating statement of operations for BlueLinx Holdings Inc. for the period from December 31, 2006 to September 29, 2007 follows (in thousands):


	BlueLinx
	Holdings			BlueLinx			LLC
	Inc.			Corporation			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	3,054,992		$	22,554		$	(22,554	)	$	3,054,992
Cost of sales		—			2,729,189			—			—			2,729,189

Gross profit		—			325,803			22,554			(22,554	)		325,803

Operating expenses:
Selling, general and administrative		957			287,874			363			(22,554	)		266,640
Depreciation and amortization		—			12,662			3,178			—			15,840

Total operating expenses		957			300,536			3,541			(22,554	)		282,480

Operating income (loss)		(957	)		25,267			19,013			—			43,323
Non-operating expenses:
Interest expense		—			19,080			14,676			—			33,756
Other expense (income), net		—			(342	)		(259	)		—			(601	)

Income before provision for (benefit from) income taxes		(957	)		6,529			4,596			—			10,168
Provision for (benefit from) income taxes		(373	)		2,614			1,792			—			4,033
Equity in income (loss) of subsidiaries		6,719			—			—			(6,719	)		—

Net income (loss)	$	6,135		$	3,915		$	2,804		$	(6,719	)	$	6,135

The condensed consolidating statement of operations for BlueLinx Holdings Inc. for the period from January 1, 2006 to September 30, 2006 follows (in thousands):


	BlueLinx
	Holdings			BlueLinx		LLC
	Inc.			Corporation		Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	3,959,134	$	18,053		$	(18,053	)	$	3,959,134
Cost of sales		—			3,571,833		—			—			3,571,833

Gross profit		—			387,301		18,053			(18,053	)		387,301

Operating expenses:
Selling, general and administrative		1,139			311,197		721			(18,053	)		295,004
Depreciation and amortization		—			12,149		3,174			—			15,323

Total operating expenses		1,139			323,346		3,895			(18,053	)		310,327

Operating income (loss)		(1,139	)		63,955		14,158			—			76,974
Non-operating expenses:
Interest expense		—			23,730		11,775			—			35,505
Charges associated with new mortgage		—			—		4,864			—			4,864
Other expense (income), net		—			68		(85	)		—			(17	)

Income before provision for (benefit from) income taxes		(1,139	)		40,157		(2,396	)		—			36,622
Provision for (benefit from) income taxes		(444	)		16,303		(934	)		—			14,925
Equity in income (loss) of subsidiaries		22,392			—		—			(22,392	)		—

Net income (loss)	$	21,697		$	23,854	$	(1,462	)	$	(22,392	)	$	21,697

The condensed consolidating balance sheet for BlueLinx Holdings Inc. as of September 29, 2007 follows (in thousands):


			BlueLinx
	BlueLinx		Corporation
	Holdings		and			LLC
	Inc.		Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets:
Current assets:
Cash	$	3	$	24,942		$	55		$	—		$	25,000
Receivables		—		371,222			—			—			371,222
Inventories		—		424,522			—			—			424,522
Deferred income taxes		—		9,450			—			(21	)		9,429
Other current assets		399		44,440			—			(2,506	)		42,333
Intercompany receivable		3,004		—			—			(3,004	)		—

Total current assets		3,406		874,576			55			(5,531	)		872,506

Property, plant and equipment:
Land and land improvements		—		2,845			54,296			—			57,141
Buildings		—		7,395			89,761			—			97,156
Machinery and equipment		—		66,462			—			—			66,462
Construction in progress		—		5,485			—			—			5,485

Property, plant and equipment, at cost		—		82,187			144,057			—			226,244
Accumulated depreciation		—		(36,062	)		(14,408	)		—			(50,470	)

Property, plant and equipment, net		—		46,125			129,649			—			175,774
Investment in subsidiaries		184,762		—			—			(184,762	)		—
Deferred income taxes		—		1,390			—			(1,390	)		—
Other non-current assets		—		19,533			5,449			—			24,982

Total assets	$	188,168	$	941,624		$	135,153		$	(191,683	)	$	1,073,262

Liabilities:
Current liabilities:
Accounts payable	$	20	$	224,767		$	—		$	—		$	224,787
Bank overdrafts		—		37,346			—			—			37,346
Accrued compensation		—		10,905			—			—			10,905
Current maturities of long-term debt		—		100,147			—			—			100,147
Deferred income taxes		21		—			—			(21	)		—
Other current liabilities		—		14,265			1,848			—			16,113
Intercompany payable		—		2,631			2,879			(5,510	)		—

Total current liabilities		41		390,061			4,727			(5,531	)		389,298

Non-current liabilities:
Long-term debt		—		185,853			295,000			—			480,853
Deferred income taxes		—		—			1,906			(1,390	)		516
Other long-term liabilities		—		14,468			—			—			14,468

Total liabilities		41		590,382			301,633			(6,921	)		885,135

Shareholders’ Equity/Parent’s Investment		188,127		351,242			(166,480	)		(184,762	)		188,127

Total liabilities and equity	$	188,168	$	941,624		$	135,153		$	(191,683	)	$	1,073,262

The condensed consolidating balance sheet for BlueLinx Holdings Inc. as of December 30, 2006 follows (in thousands):


			BlueLinx
	BlueLinx		Corporation			LLC
	Holdings Inc.		and Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets:
Current assets:
Cash	$	2	$	27,017		$	23		$	—		$	27,042
Receivables		—		307,543			—			—			307,543
Inventories		—		410,686			—			—			410,686
Deferred income taxes		—		9,175			—			(151	)		9,024
Other current assets		497		46,957			—			(2,506	)		44,948
Intercompany receivable		764		—			—			(764	)		—

Total current assets		1,263		801,378			23			(3,421	)		799,243

Property, plant and equipment:
Land and land improvements		—		2,760			54,225			—			56,985
Buildings		—		6,467			89,347			—			95,814
Machinery and equipment		—		61,955			—			—			61,955
Construction in progress		—		2,025			—			—			2,025

Property, plant and equipment, at cost		—		73,207			143,572			—			216,779
Accumulated depreciation		—		(27,300	)		(11,230	)		—			(38,530	)

Property, plant and equipment, net		—		45,907			132,342			—			178,249
Investment in subsidiaries		188,307		—			—			(188,307	)		—
Deferred income taxes		—		1,430			—			(1,430	)		—
Other non-current assets		—		20,916			5,954			—			26,870

Total assets	$	189,570	$	869,631		$	138,319		$	(193,158	)	$	1,004,362

Liabilities:
Current liabilities:
Accounts payable	$	20	$	195,795		$	—		$	—		$	195,815
Bank overdrafts		—		50,241			—			—			50,241
Accrued compensation		—		8,574			—			—			8,574
Current maturities of long-term debt		—		9,743			—			—			9,743
Deferred income taxes		151		—			—			(151	)		—
Other current liabilities		—		14,848			(215	)		—			14,633
Intercompany payable		—		160			3,110			(3,270	)		—

Total current liabilities		171		279,361			2,895			(3,421	)		279,006

Non-current liabilities:
Long-term debt		—		227,719			295,000			—			522,719
Deferred income taxes		—		—			2,531			(1,430	)		1,101
Other long-term liabilities		—		12,137			—			—			12,137

Total liabilities		171		519,217			300,426			(4,851	)		814,963

Shareholders’ Equity/Parent’s Investment		189,399		350,414			(162,107	)		(188,307	)		189,399

Total liabilities and equity	$	189,570	$	869,631		$	138,319		$	(193,158	)	$	1,004,362

The condensed consolidating statement of cash flows for BlueLinx Holdings Inc. for the period from December 31, 2006 to September 29, 2007 follows (in thousands):


	BlueLinx
	Holdings			BlueLinx			LLC
	Inc.			Corporation			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	6,135		$	3,915		$	2,804		$	(6,719	)	$	6,135
Adjustments to reconcile net income to cash provided by (used in) operations:
Depreciation and amortization		—			12,662			3,178			—			15,840
Amortization of debt issue costs		—			1,355			468			—			1,823
Deferred income tax benefit		(130	)		(380	)		(625	)		—			(1,135	)
Share-based compensation expense		—			3,061			—			—			3,061
Gain from insurance settlement		—			(1,698	)		—			—			(1,698	)
Excess tax benefits from share-based compensation arrangements		—			(41	)		—			—			(41	)
Equity in earnings of subsidiaries		(6,719	)		—			—			6,719			—
Changes in assets and liabilities:
Receivables		—			(63,679	)		—			—			(63,679	)
Inventories		—			(13,836	)		—			—			(13,836	)
Accounts payable		—			28,972			—			—			28,972
Changes in other working capital		98			3,077			2,063			—			5,238
Intercompany receivable		(2,240	)		—			—			2,240			—
Intercompany payable		—			2,471			(231	)		(2,240	)		—
Other		—			448			(33	)		—			415

Net cash provided by (used in) operating activities		(2,856	)		(23,673	)		7,624			—			(18,905	)

Cash flows from investing activities:
Investment in subsidiaries		14,063			—			—			(14,063	)		—
Property, plant and equipment investments		—			(11,494	)		(449	)		—			(11,943	)
Proceeds from disposition of assets		—			4,335			—			—			4,335

Net cash provided by (used in) investing activities		14,063			(7,159	)		(449	)		14,063			(7,608	)

Cash flows from financing activities:
Net transactions with Parent		—			(6,886	)		(7,177	)		14,063			—
Proceeds from stock options exercised		442			—			—			—			442
Excess tax benefits from share-based compensation arrangements		41			—			—			—			41
Net increase in revolving credit facility		—			48,538			—			—			48,538
Decrease in bank overdrafts		—			(12,895	)		—			—			(12,895	)
Common dividends paid		(11,689	)		—			—			—			(11,689	)
Other		—			—			34			—			34

Net cash provided by (used in) financing activities		(11,206	)		28,757			(7,143	)		14,063			24,471

Increase (decrease) in cash		1			(2,075	)		32			—			(2,042	)
Balance, beginning of period		2			27,017			23			—			27,042

Balance, end of period	$	3		$	24,942		$	55		$	—		$	25,000

The condensed consolidating statement of cash flows for BlueLinx Holdings Inc. for the period from January 1, 2006 to September 30, 2006 follows (in thousands):


	BlueLinx
	Holdings			BlueLinx			LLC
	Inc.			Corporation			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	21,697		$	23,854		$	(1,462	)	$	(22,392	)	$	21,697
Adjustments to reconcile net income (loss) to cash provided by (used in) operations:
Depreciation and amortization		—			12,150			3,173			—			15,323
Amortization of debt issue costs		—			1,441			577			—			2,018
Charges associated with mortgage refinancing		—			—			4,864			—			4,864
Deferred income tax benefit		(312	)		(1,068	)		(496	)		—			(1,876	)
Share-based compensation		48			2,161			—			—			2,209
Excess tax benefits from share-based compensation arrangements		—			(882	)		—			—			(882	)
Equity in earnings of subsidiaries		(22,392	)		—			—			22,392			—
Changes in assets and liabilities:
Receivables		—			(33,396	)		—			—			(33,396	)
Inventories		—			5,961			—			—			5,961
Accounts payable		(5	)		(75,043	)		2,595			(2,506	)		(74,959	)
Changes in other working capital		782			(4,372	)		(1,402	)		2,506			(2,486	)
Intercompany receivable		239			1,578			(2,510	)		693			—
Intercompany payable		(1,578	)		2,510			(239	)		(693	)		—
Other		—			(2,551	)		314			—			(2,237	)

Net cash provided by (used in) operating activities		(1,521	)		(67,657	)		5,414			—			(63,764	)

Cash flows from investing activities:
Investment in subsidiaries		10,419			—			—			(10,419	)		—
Acquisitions, net of cash acquired		—			(9,353	)		—			—			(9,353	)
Property, plant and equipment investments		—			(7,267	)		—			—			(7,267	)
Proceeds from sale of assets		—			465			—			—			465

Net cash provided by (used in) investing activities		10,419			(16,155	)		—			(10,419	)		(16,155	)

Cash flows from financing activities:
Net transactions with Parent		—			116,236			(126,655	)		10,419			—
Proceeds from stock options exercised		1,744			—			—			—			1,744
Excess tax benefits from share-based compensation arrangements		882			—			—			—			882
Net decrease in revolving credit facility		—			(38,342	)		—			—			(38,342	)
Proceeds from new mortgage		—			—			295,000			—			295,000
Debt financing costs		—			(400	)		(6,268	)		—			(6,668	)
Retirement of old mortgage		—			—			(165,000	)		—			(165,000	)
Prepayment fees associated with old mortgage		—			—			(2,475	)		—			(2,475	)
Increase in bank overdrafts		—			6,177			—			—			6,177
Common dividends paid		(11,537	)		—			—			—			(11,537	)

Net cash provided by (used in) financing activities		(8,911	)		83,671			(5,398	)		10,419			79,781

Increase (decrease) in cash		(13	)		(141	)		16			—			(138	)
Balance, beginning of period		13			24,307			—			—			24,320

Balance, end of period	$	—		$	24,166		$	16		$	—		$	24,182

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) has been derived from our historical financial statements and is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. We recommend that you read this MD&A section in conjunction with our condensed consolidated financial statements and notes to those statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 30, 2006 as filed with the U.S. Securities and Exchange Commission (the “SEC”). This MD&A section is not a comprehensive discussion and analysis of our financial condition and results of operations, but rather updates disclosures made in the aforementioned filing. The discussion below contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance 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. All of these 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, including, but not limited to, economic, competitive, governmental and technological factors outside of our control, that may cause our business, strategy or actual results to differ materially from the forward-looking statements. These risks and uncertainties may include those discussed under the heading “Factors Affecting Future Results” in our Annual Report on Form 10-K for the year ended December 30, 2006 as filed with the SEC and other factors, some of which may not be known to us. 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 you should consider that could cause these differences include, among other things:

	•		changes in the prices, supply and/or demand for products which we distribute, especially as a result of conditions in the residential housing market;

	•		general economic and business conditions in the United States;

	•		the activities of competitors;

	•		changes in significant operating expenses;

	•		changes in the availability of capital;

	•		our ability to identify acquisition opportunities and effectively and cost-efficiently integrate acquisitions;

	•		adverse weather patterns or conditions;

	•		acts of war or terrorist activities;

	•		variations in the performance of the financial markets, including the credit markets; and

	•		the other factors described herein under “Factors Affecting Future Results” in our Annual Report on Form 10-K for the year ended December 30, 2006 as filed with the SEC.

Given these risks and uncertainties, we caution you not to place undue reliance on forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

Overview

Background

We are a leading distributor of building products in the United States. We distribute approximately 10,000 products to more than 11,500 customers through our network of more than 70 warehouses and third-party operated warehouses which serve all major metropolitan markets in the United States. We distribute products in two principal categories: structural products and specialty products. Structural products include plywood, oriented strand board (“OSB”), rebar and remesh, lumber and other wood products primarily used for structural support, walls and flooring in construction projects. Structural products represented approximately 55% of our third quarter of fiscal 2007 gross sales. Specialty products include roofing, insulation, moulding, engineered wood, vinyl products (used primarily in siding) and metal products (excluding rebar and remesh). Specialty products accounted for approximately 45% of our third quarter of fiscal 2007 gross sales.

Recent Developments

On October 31, 2007, our Board of Directors declared a quarterly dividend of $0.125 per share on our common stock. The dividend is payable on December 28, 2007 to stockholders of record as of December 14, 2007.

Supply Agreement with Georgia-Pacific

On May 7, 2004, we entered into a multi-year supply agreement with Georgia-Pacific. Under the agreement, we have exclusive distribution rights on certain products and certain customer segments. Georgia-Pacific is our largest vendor, with Georgia-Pacific products representing approximately 24% of our purchases during fiscal 2006.

Selected Factors Affecting Our Operating Results

Our operating results are affected by housing starts, mobile home production, industrial production, repair and remodeling spending and non-residential construction. Our operating results are also impacted by changes in product prices. Structural product prices can vary significantly based on short-term and long-term changes in supply and demand. The prices of specialty products can also vary from time to time, although they are generally significantly less variable than structural products.

The following table sets forth changes in net sales by product category, sales variances due to changes in unit volume and dollar and percentage changes in unit volume and price versus comparable prior periods, in each case for the third quarter of fiscal 2007, the third quarter of fiscal 2006, the first nine months of fiscal 2007, the first nine months of fiscal 2006, fiscal 2006 and fiscal 2005.


	Fiscal			Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
	Q3 2007			Q3 2006			2007 YTD			2006 YTD			2006			2005
	(Dollars in millions)
	(Unaudited)
Sales by Category
Structural Products(1)	$	571		$	667		$	1,689		$	2,279		$	2,788		$	3,548
Specialty Products(1)		463			554			1,420			1,737			2,197			2,143
Unallocated Allowances and Adjustments		(18	)		(17	)		(54	)		(57	)		(86	)		(69	)

Total Sales	$	1,016		$	1,204		$	3,055		$	3,959		$	4,899		$	5,622

Sales Variances
Unit Volume $ Change	$	(177	)	$	(176	)	$	(711	)	$	(166	)	$	(398	)	$	216
Price/Other(2)		(11	)		(74	)		(193	)		(168	)		(325	)		(152	)

Total $ Change	$	(188	)	$	(250	)	$	(904	)	$	(334	)	$	(723	)	$	64

Unit Volume % Change		(14.5	)%		(12.0	)%		(17.7	)%		(3.8	)%		(7.0	)%		3.9	%
Price/Other(2)		(1.1	)%		(5.2	)%		(5.1	)%		(4.0	)%		(5.9	)%		(2.8	)%

Total % Change		(15.6	)%		(17.2	)%		(22.8	)%		(7.8	)%		(12.9	)%		1.1	%


(1)		For the quarter ended December 31, 2005, we began classifying metal rebar and remesh as structural product instead of specialty product. Fiscal 2005 Sales by Category have been adjusted to reclassify sales of rebar/remesh from Specialty Products sales to Structural Products sales. This reclassification has no impact on Total Sales.

(2)		Other includes unallocated allowances and discounts.

The following table sets forth changes in gross margin dollars and percentages by product category, and percentage changes in unit volume growth by product, in each case for the third quarter of fiscal 2007, the third quarter of fiscal 2006, the first nine months of fiscal 2007, the first nine months of fiscal 2006, fiscal 2006 and fiscal 2005.


	Fiscal			Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
	Q3 2007			Q3 2006			2007 YTD			2006 YTD			2006			2005
	(Dollars in millions)
	(Unaudited)
Gross Margin $’s by
Category
Structural Products(1)	$	44		$	47		$	145		$	158		$	194		$	246
Specialty Products(1)		64			77			197			245			308			284
Other (2)		(5	)		(3	)		(16	)		(16	)		(22	)		(18	)

Total Gross Margin $’s	$	103		$	121		$	326		$	387		$	480		$	512

Gross Margin %’s by Category
Structural Products		7.6	%		7.0	%		8.6	%		6.9	%		7.0	%		6.9	%
Specialty Products		13.8	%		14.0	%		13.9	%		14.1	%		14.0	%		13.3	%
Other (2)	NA			NA			NA			NA			NA			NA
Total Gross Margin %’s		10.1	%		10.0	%		10.7	%		9.8	%		9.8	%		9.1	%
Unit Volume Change by Product
Structural Products		(14.8	)%		(17.0	)%		(18.4	)%		(9.9	)%		(11.8	)%		3.2	%
Specialty Products		(14.2	)%		(3.9	)%		(16.8	)%		6.5	%		1.0	%		5.1	%
Total Unit Volume Change %’s		(14.5	)%		(12.0	)%		(17.7	)%		(3.8	)%		(7.0	)%		3.9	%


(1)		For the quarter ended December 31, 2005, we began classifying metal rebar and remesh as structural product instead of specialty product. Fiscal 2005 Sales by Category have been adjusted to reclassify sales of rebar/remesh from Specialty Products sales to Structural Products sales. This reclassification has no impact on Total Sales.

(2)		Other includes unallocated allowances and discounts.

The following table sets forth changes in net sales and gross margin by channel and percentage changes in gross margin by channel, in each case for the third quarter of fiscal 2007, the third quarter of fiscal 2006, the first nine months of fiscal 2007, the first nine months of fiscal 2006, fiscal 2006 and fiscal 2005.


	Fiscal			Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
	Q3 2007			Q3 2006			2007 YTD			2006 YTD			2006			2005
	(Dollars in millions)
	(Unaudited)
Sales by Channel
Warehouse/Reload	$	731		$	841		$	2,196		$	2,641		$	3,326		$	3,704
Direct		303			380			913			1,375			1,659			1,987
Unallocated Allowances and Adjustments		(18	)		(17	)		(54	)		(57	)		(86	)		(69	)

Total	$	1,016		$	1,204		$	3,055		$	3,959		$	4,899		$	5,622

Gross Margin by Channel
Warehouse/Reload	$	91		$	100		$	288		$	326		$	407		$	429
Direct		17			24			54			77			95			101
Unallocated Allowances and Adjustments		(5	)		(3	)		(16	)		(16	)		(22	)		(18	)

Total	$	103		$	121		$	326		$	387		$	480		$	512


	Fiscal			Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
	Q3 2007			Q3 2006			2007 YTD			2006 YTD			2006			2005
	(Dollars in millions)
	(Unaudited)
Gross Margin % by Channel
Warehouse/Reload		12.4	%		11.9	%		13.1	%		12.3	%		12.2	%		11.6	%
Direct		5.6	%		6.3	%		5.9	%		5.6	%		5.7	%		5.1	%
Unallocated Allowances and Adjustments		(0.5	)%		(0.2	)%		(0.5	)%		(0.4	)%		(0.4	)%		(0.3	)%
Total		10.1	%		10.0	%		10.7	%		9.8	%		9.8	%		9.1	%

Fiscal Year

Our fiscal year is a 52- or 53-week period ending on the Saturday closest to the end of the calendar year. Fiscal years 2006 and 2005 contain 52 weeks.

Results of Operations

Third Quarter of Fiscal 2007 Compared to Third Quarter of Fiscal 2006

The following table sets forth our results of operations for the third quarter of fiscal 2007 and third quarter of fiscal 2006.


	Period					Period
	from					from
	July 1, 2007		% of			July 2, 2006			% of
	to		Net			to			Net
	September 29, 2007		Sales			September 30, 2006			Sales
	(Unaudited)					(Unaudited)
	(Dollars in thousands)
Net sales	$	1,015,888		100.0	%	$	1,203,578			100.0	%
Gross profit		102,810		10.1	%		120,906			10.0	%
Selling, general & administrative		84,826		8.3	%		99,615			8.3	%
Depreciation and amortization		5,106		0.5	%		5,217			0.4	%

Operating income		12,878		1.3	%		16,074			1.3	%
Interest expense		11,352		1.1	%		12,046			1.0	%
Other income, net		7		0.0	%		(29	)		0.0	%

Income before provision for income taxes		1,519		0.1	%		4,057			0.3	%
Provision for income taxes		629		0.1	%		1,765			0.1	%

Net income	$	890		0.1	%	$	2,292			0.2	%

Net Sales. For the third quarter of fiscal 2007, net sales decreased by 15.6%, or $0.2 billion, to $1.0 billion. Sales during the quarter were negatively impacted by a 24% decline in housing starts. We estimate that new home construction represents approximately 50% of our end-use markets. Specialty sales, primarily consisting of roofing, specialty panels, insulation, moulding, engineered wood products, vinyl siding, composite decking and metal products (excluding rebar and remesh) decreased by $90.6 million or 16.4% compared to the third quarter of fiscal 2006, reflecting a 14.2% decline in unit volume. Structural sales, including plywood, OSB, lumber and metal rebar, decreased by $95.3 million, or 14.3% from a year ago, primarily as a result of a decrease in unit volume of 14.8%.

Gross Profit. Gross profit for the third quarter of fiscal 2007 was $103 million, or 10.1% of sales, compared to $121 million, or 10.0% of sales, in the prior year period. The decrease in gross profit dollars compared to the third quarter of fiscal 2006 was driven primarily by reduced unit volume associated with the ongoing slowdown in the residential housing market. Gross margin increased by 10 basis points to 10.1%

Selling, general, and administrative. Operating expenses for the third quarter of fiscal 2007 were $84.8 million, or 8.3% of net sales, compared to $99.6 million, or 8.3% of net sales, during the third quarter of fiscal 2006. The decline primarily reflects lower payroll related to headcount reductions, and lower commissions and incentives. In addition, despite the overall decline in unit sales volume, our logistics and material handling costs remained flat as more of our product mix flowed through our warehouses and as our trucks delivered smaller quantities to more locations.

Depreciation and Amortization. Depreciation and amortization expense totaled $5.1 million for the third quarter of fiscal 2007, compared with $5.2 million for the third quarter of fiscal 2006.

Operating Income. Operating income for the third quarter of fiscal 2007 was $12.9 million, or 1.3% of sales, versus $16.1 million, or 1.3% of sales, in the third quarter of fiscal 2006, reflecting a decrease in gross profit, partially offset by improvements in operating expense.

Interest Expense, net. Interest expense totaled $11.4 million for the third quarter of fiscal 2007, down $0.7 million from the prior year, reflecting lower debt levels. Interest expense related to our revolving credit facility and mortgage was $6.1 million and $4.7 million, respectively, during this period. Interest expense totaled $12.0 million for the third quarter of fiscal 2006. Interest expense

related to our revolving credit facility and mortgage was $6.6 and $4.7 million, respectively, for this period. In addition, interest expense included $0.6 million and $0.7 million of debt issue cost amortization for the third quarter of fiscal 2007 and for the third quarter of fiscal 2006, respectively.

Provision for Income Taxes. The effective tax rate was 41.4% and 43.5% for the third quarter of fiscal 2007 and the third quarter of fiscal 2006, respectively. The decrease in the effective tax rate resulted from the greater impact of various tax credits due to lower income in the third quarter of fiscal 2007.

Net Income. Net income for the third quarter of fiscal 2007 was $0.9 million compared to net income of $2.3 million for the third quarter of fiscal 2006.

On a per-share basis, basic and diluted loss applicable to common stockholders for the third quarter of fiscal 2007 were each $0.03. Basic and diluted earnings per share for the third quarter of 2006 were each $0.07.

Year-to-Date Fiscal 2007 Compared to Year-to-Date Fiscal 2006

The following table sets forth our results of operations for the first nine months of fiscal 2007 and the first nine months of fiscal 2006.


	Period						Period
	from						from
	December 31, 2006			% of			January 1, 2006			% of
	to			Net			to			Net
	September 29, 2007			Sales			September 30, 2006			Sales
	(Unaudited)						(Unaudited)
	(Dollars in thousands)
Net sales	$	3,054,992			100.0	%	$	3,959,134			100.0	%
Gross profit		325,803			10.7	%		387,301			9.8	%
Selling, general & administrative		266,640			8.7	%		295,004			7.5	%
Depreciation and amortization		15,840			0.5	%		15,323			0.4	%

Operating income		43,323			1.4	%		76,974			1.9	%
Interest expense		33,756			1.1	%		35,505			0.9	%
Charges associated with mortgage refinancing		—			0.0	%		4,864			0.1	%
Other (income) expense, net		(601	)		0.0	%		(17	)		0.0	%

Income before provision for income taxes		10,168			0.3	%		36,622			0.9	%
Income tax provision		4,033			0.1	%		14,925			0.4	%

Net income	$	6,135			0.2	%	$	21,697			0.5	%

Net Sales. For the first nine months of fiscal 2007, net sales decreased by 22.8%, or $0.9 billion, to $3.1 billion. Sales during this period were negatively impacted by a 25% decline in housing starts. We estimate that new home construction represents approximately 50% of our end-use markets. Specialty sales, primarily consisting of roofing, specialty panels, insulation, moulding, engineered wood products, vinyl siding, composite decking and metal products (excluding rebar and remesh) decreased by $317 million or 18.2% compared to the first nine months of fiscal 2006, reflecting a 16.8% decline in unit volume. Structural sales, including plywood, OSB, lumber and metal rebar, decreased by $590 million, or 25.9% from a year ago, primarily as a result of a decrease in unit volume of 18.4%.

Gross Profit. Gross profit for the first nine months of fiscal 2007 was $326 million, or 10.7% of sales, compared to $387 million, or 9.8% of sales, in the prior year period. The decrease in gross profit dollars compared to the first nine months of fiscal 2006 was driven primarily by lower unit volume associated with a slowdown in the housing market. Gross margin increased by 90 basis points to 10.7%, reflecting effective management of structural product inventory.

Selling, general, and administrative. Operating expenses for the first nine months of fiscal 2007 were $267 million, or 8.7% of net sales, compared to $295 million, or 7.5% of net sales, during the first nine months of fiscal 2006. The decline primarily reflects decreases in variable compensation and lower payroll related to headcount reductions.

Depreciation and Amortization. Depreciation and amortization expense totaled $15.8 million for the first nine months of fiscal 2007, compared with $15.3 million for the first nine months of fiscal 2006.

Operating Income. Operating income for the first nine months of fiscal 2007 was $43.3 million, or 1.4% of sales, versus $77.0 million, or 1.9% of sales, in the first nine months of fiscal 2006. The 44% decline in operating income was largely driven by the decrease in new housing starts and lower wood-based structural prices.

Interest Expense, net. Interest expense totaled $33.8 million, down $1.7 million from the prior year reflecting lower debt levels. Interest expense related to our revolving credit facility and new mortgage was $17.8 million and $14.2 million, respectively, during this period. Interest expense totaled $35.5 million for the first nine months of fiscal 2006. Interest expense related to our revolving credit facility, old mortgage and new mortgage was $22.5 million, $5.0 million and $6.0 million, respectively, for this period. In addition, interest expense included $1.8 million and $2.0 million of debt issue cost amortization for the first nine months of fiscal 2007 and for the first nine months of fiscal 2006, respectively.

Additionally, the second quarter of fiscal 2006 included charges of $4.9 million associated with the mortgage refinancing, which included the write-off of unamortized debt financing costs of $3.2 million.

Provision for Income Taxes. The effective tax rate was 39.7% and 40.8% for the first nine months of fiscal 2007 and the first nine months of fiscal 2006, respectively. The decrease in the effective tax rate resulted from the greater impact of various tax credits due to lower income for the first nine months of fiscal 2007.

Net Income. Net income for the first nine months of fiscal 2007 was $6.1 million compared to net income of $21.7 million for the first nine months of fiscal 2006.

On a per-share basis, basic and diluted loss applicable to common stockholders for the first nine months of fiscal 2007 were each $0.20. Basic and diluted earnings per share for the first nine months of 2006 were each $0.71.

Seasonality

We are exposed to fluctuations in quarterly sales volumes and expenses due to seasonal factors. These seasonal factors are common in the building products distribution industry. The first and fourth quarters are typically our slowest quarters due primarily to the impact of poor weather on the construction market. Our second and third quarters are typically our strongest quarters, reflecting a substantial increase in construction due to more favorable weather conditions. Our working capital and accounts receivable and payable generally peak in the third quarter, while inventory generally peaks in the second quarter in anticipation of the summer building season. We expect these trends to continue for the foreseeable future.

Liquidity and Capital Resources

We depend on cash flow from operations and funds available under our revolving credit facility to finance working capital needs, capital expenditures, dividends and acquisitions. We believe that the amounts available from this and other sources will be sufficient to fund our routine operations and capital requirements for the foreseeable future.

Part of our growth strategy is to selectively pursue acquisitions. Accordingly, depending on the nature of the acquisition or currency, we may use cash or stock, or a combination of both, as acquisition currency. Our cash requirements may significantly increase and incremental cash expenditures will be required in connection with the integration of the acquired company’s business and to pay fees and expenses in connection with acquisitions. To the extent that significant amounts of cash are expended in connection with acquisitions, our liquidity position may be adversely impacted. In addition, there can be no assurance that we will be successful in implementing our acquisition strategy. For a discussion of the risks associated with our acquisition strategy, see the risk factor on integrating acquisitions in our Annual Report on Form
10-K.

The following tables indicate our working capital and cash flows for the periods indicated.


	September 29,		December 30,
	2007		2006
	(Dollars in thousands)
	(Unaudited)
Working capital	$	483,208	$	520,237


	Period from			Period from
	December 31,			January 1,
	2006 to			2006 to
	September 29,			September 30,
	2007			2006
	(Dollars in thousands)
	(Unaudited)
Cash flows used for operating activities	$	(18,905	)	$	(63,764	)
Cash flows used for investing activities		(7,608	)		(16,155	)
Cash flows provided by financing activities	$	24,471		$	79,781

Working Capital

Working capital decreased by $37.0 million to $483 million at September 29, 2007, primarily as a result of increases in accounts payable and current maturities of long-term debt of $29.0 million and $90.4 million, respectively. These changes were partially offset by an increase in accounts receivable and inventories of $63.7 million and $13.8 million, respectively. Additionally, cash decreased from $27.0 million on December 30, 2006 to $25.0 million at September 29, 2007. The $25.0 million of cash on our balance sheet at September 29, 2007 primarily reflects customer remittances received in our lock boxes on Friday and Saturday that are not available until Monday, which is part of the following fiscal period.

Operating Activities

During the first nine months of fiscal 2007 and fiscal 2006, cash flows used in operating activities totaled $18.9 million and $63.8 million, respectively. The decrease of $44.9 million in cash flows used in operating activities was primarily the result of a lower use of cash related to changes in working capital of $43.3 million for the first nine months of fiscal 2007 compared to $105 million for the first nine months of fiscal 2006. This decreased use of cash was offset by a $20.2 million decline in net income, as adjusted, from $44.2 million to $24.0 million. Adjustments included depreciation and amortization, debt issue cost amortization, charges associated with mortgage refinancing, deferred income tax benefit, stock-based compensation, and gain from insurance settlement.

Investing Activities

During the first nine months of fiscal 2007 and fiscal 2006, cash flows used in investing activities totaled $7.6 million and $16.2 million, respectively.

During the first nine months of fiscal 2007 and fiscal 2006, our expenditures for property and equipment were $11.9 million and $7.3 million, respectively. The increase in cash used in investing activities was primarily for programs designed to improve and fine tune our capabilities in inventory management and forecasting, in financial budgeting and reporting, in order tracking and visibility and in product marketing.

Proceeds from the disposition of property and equipment totaled $4.3 million and $0.5 million for the first nine months of fiscal 2007 and fiscal 2006, respectively. The $4.3 million for the first nine months of fiscal 2007 includes $2.9 million of insurance proceeds we received as settlement of our outstanding insurance claims related to damage to our New Orleans distribution center and its inventory caused by Hurricane Katrina.

Financing Activities

Net cash provided by financing activities was $24.5 million during the first nine months of fiscal 2007 compared to $79.8 million during the first nine months of fiscal 2006. The $55.3 million decrease in cash provided by financing activities was primarily driven by the proceeds from the new mortgage and a decrease in bank overdrafts of $295 million and $19.1 million, respectively. This decrease was partially offset by the retirement of the old mortgage and an increase in the revolving credit facility in the amount of $165 million and $86.9 million, respectively.

We paid dividends to our common stockholders in the aggregate amount of $11.7 million and $11.5 million in the first nine months of fiscal 2007 and the first nine months of fiscal 2006, respectively.

Debt and Credit Sources

On May 7, 2004, our operating subsidiary entered into a revolving credit facility. As of September 29, 2007, advances outstanding under the revolving credit facility were approximately $286 million. Borrowing availability was approximately $278 million and outstanding letters of credit on this facility were approximately $10.5 million. As of September 29, 2007, the interest rate on outstanding balances under the revolving credit facility was 7.75%. For the third quarter and first nine months of fiscal 2007, interest expense related to the revolving credit facility was $6.1 million and $17.8 million, respectively. For the third quarter and first nine months of fiscal 2006, interest expense related to the revolving credit facility was $6.6 million and $22.5 million, respectively.

On June 9, 2006, certain special purpose entities that are wholly-owned subsidiaries of ours entered into a $295 million mortgage loan with the German American Capital Corporation. The mortgage has a term of ten years and is secured by 57 distribution facilities and 1 office building owned by the special purpose entities. The stated interest rate on the mortgage is fixed at 6.35%. German American Capital Corporation assigned half of its interest in the mortgage loan to Wachovia Bank, National Association.

At September 29, 2007, the fair value of the interest rate swap was a liability of $3.9 million and was included in “Other long-term liabilities” on the Condensed Consolidated Balance Sheet. Accumulated other comprehensive income at September 29, 2007 included the net loss on the cash flow hedge (net of tax) of $0.8 million, which reflects the cumulative amount of comprehensive loss recognized in connection with the change in fair value of the swap.

Contractual Obligations

There have been no material changes to our contractual obligations from those disclosed in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006.

Critical Accounting Policies

Our significant accounting policies are more fully described in the notes to the consolidated financial statements. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. As with all judgments, they are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, current economic trends in the industry, information provided by customers, vendors and other outside sources and management’s estimates, as appropriate.

The following are accounting policies that management believes are important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective or complex judgment.

Revenue Recognition

We recognize revenue when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, our price to the buyer is fixed and determinable and collectibility is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition is largely dependent on shipping terms. Revenue is recorded at the time of shipment for terms designated as FOB (free on board) shipping point. For sales transactions designated FOB destination, revenue is recorded when the product is delivered to the customer’s delivery site.

All sales are recorded at gross in accordance with the guidance outlined by EITF 99-19 and in accordance with standard industry practice. The key indicators used to determine this are as follows:

•

We are the primary obligor responsible for fulfillment;

	•		We hold title to all reload inventory and are responsible for all product returns;

	•		We control the selling price for all channels;

	•		We select the supplier; and

	•		We bear all credit risk.

All revenues recognized are net of trade allowances, 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.

Allowance for Doubtful Accounts and Related Reserves

We evaluate the collectibility of accounts receivable based on numerous factors, including past transaction history with customers and their creditworthiness. We maintain an allowance for doubtful accounts for each aging category on our aged trial balance based on our historical loss experience. This estimate is periodically adjusted when we become aware of specific customers’ inability to meet their financial obligations (e.g., bankruptcy filing or other evidence of liquidity problems). As we determine that specific balances will be ultimately uncollectible, we remove them from our aged trial balance. Additionally, we maintain reserves for cash discounts that we expect customers to earn as well as expected returns. At September 29, 2007 and December 30, 2006 these allowances totaled $9.6 million and $7.7 million, respectively. Adjustments to earnings resulting from revisions to estimates on discounts and uncollectible accounts have been insignificant for each of the reported periods.

Stock-Based Compensation

Compensation expense arising from stock-based awards granted to employees and non-employee directors is recognized as expense using the straight-line method over the vesting period. As of September 29, 2007, there was $4.4 million, $2.8 million, $0.5 million and $1.0 million of total unrecognized compensation expense related to stock options, restricted stock, performance shares and restricted stock units, respectively. The unrecognized compensation expense for these awards is expected to be recognized over a period of 3.3 years, 2.6 years, 2.3 years, and 2.4 years, respectively. For the third quarter of fiscal 2007 and for the first nine months of fiscal 2007, our total stock-based compensation expense was $0.8 million and $3.1 million, respectively. We also recognized related income tax benefits of $0.3 million and $1.2 million for the third quarter of fiscal 2007 and for the first nine months of fiscal 2007, respectively.

Inventories

Inventories are carried at the lower of cost or market. The cost of all inventories is determined by the moving average cost method. We evaluate our inventory value at the end of each quarter to ensure that first quality, actively moving inventory, when viewed by category, is carried at the lower of cost or market. At September 29, 2007, the lower of cost or market reserve totaled $0.1 million. The market value of our inventory exceeded its cost at December 30, 2006.

Additionally, we maintain a reserve for the estimated value of impairment associated with damaged and inactive inventory. The inactive reserve includes inventory that has had no sales in the past six months or has turn days in excess of 365 days. At September 29, 2007 and December 30, 2006, our damaged and inactive inventory reserves totaled $5.0 million and $5.1 million, respectively. Adjustments to earnings resulting from revisions to inactive estimates have been insignificant.

Consideration Received from Vendors and Paid to Customers

Each year, we enter into agreements with many of our vendors providing for purchase rebates, generally based on achievement of specified volume purchasing levels and various marketing allowances that are common industry practice. We accrue for the receipt of vendor rebates based on purchases, and also reduce inventory value to reflect the net acquisition cost (purchase price less expected purchase rebates). In addition, we enter into agreements with many of our customers to offer customer rebates, generally based on achievement of specified volume sales levels and various marketing allowances that are common industry practice. We accrue for the payment of customer rebates based on sales to the customer, and also reduce sales value to reflect the net sales (sales price less expected customer rebates). At September 29, 2007, the vendor rebate receivable and customer rebate payable totaled $7.5 million and $11.6 million, respectively. At December 30, 2006, these balances totaled $10.1 million and $14.0 million, respectively. Adjustments to earnings resulting from revisions to rebate estimates have been insignificant for each of the reported periods.

Impairment of Long-Lived Assets

Long-lived assets, including property and equipment, are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use internal cash flow estimates, quoted market prices when available and independent appraisals as appropriate to determine fair value. We derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate. If these projected cash flows are less than the carrying amount, an impairment loss is recognized based on the fair value of the asset less any costs of disposition. Our judgment regarding the existence of impairment indicators is based on market and operational performance. There have been no adjustments to earnings resulting from the impairment of long-lived assets for each of the reported periods.

Income Taxes

We adopted the provisions of FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return (including a discussion of whether to file or not to file a return in a particular jurisdiction). The cumulative effect, if any, of applying FIN 48 is to be reported as adjustment to the opening balance of retained earnings in the year of adoption. Adoption of FIN 48 on January 1, 2007 did not have a material effect on our consolidated financial position or results of operations.

Recently Issued Accounting Pronouncements

In February, 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently assessing the impact of SFAS No. 159 on our consolidated financial position, results of operations and cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to other

accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. We are currently evaluating the potential impact, if any, of the adoption of SFAS No. 157 on our consolidated financial position, results of operations and cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). The accounting provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The cumulative effect, if any, of applying FIN 48 is to be reported as adjustment to the opening balance of retained earnings in the year of adoption. Adoption on January 1, 2007 did not have a material effect on our consolidated financial position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information provided in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 30, 2006, other than those discussed below.

Our revolving credit facility accrues interest based on a floating benchmark rate (the prime rate or LIBOR rate), plus an applicable margin. A change in interest rates under the revolving credit facility would have an impact on our results of operations. An increase of 100 basis points in market interest rates would increase our annual interest expense by approximately $0.5 million. A decrease of 100 basis points in market interest rates would decrease our annual interest expense by approximately $1.4 million.

ITEM 4. CONTROLS AND PROCEDURES

Our management performed an evaluation, as of the end of the period covered by this report on Form 10-Q, under the supervision of our chief executive officer and chief financial officer of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in rule 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

During the quarter ended September 29, 2007, there were no material changes to our previously disclosed legal proceedings. Additionally, we are, and from time to time may be, a party to routine legal proceedings incidental to the operation of our business. The outcome of any pending or threatened proceedings is not expected to have a material adverse effect on our financial condition, operating results or cash flows, based on our current understanding of the relevant facts. Legal expenses incurred related to these contingencies are generally expensed as incurred.

ITEM 1A. RISK FACTORS

Except as set forth below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2006 as filed with the SEC.

In the past we have paid quarterly dividends on our common stock but we may change our dividend policy; the instruments governing our indebtedness contain various covenants that may limit our ability to pay dividends.

In the past we have paid dividends on our common stock at the quarterly rate of $0.125 per share. Our board of directors may, in its discretion, modify or repeal our dividend policy. Future dividends, if any, with respect to shares of our common stock will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, provisions of applicable law, future prospects and other factors that our board of directors may deem relevant. Our management has indicated that it does not intend to recommend to our board of directors to declare dividends during the current housing industry downturn, and accordingly we do not expect to be paying dividends until there is a significant improvement in conditions in the housing industry.

Our revolving credit facility limits distributions by our operating company to us, which, in turn, may limit our ability to pay dividends to holders of our common stock. See “Notes to Financial Statements — Note 8. Revolving Credit Facility” in our Annual Report on Form 10-K for the year ended December 30, 2006 for more information on limits on our ability to pay dividends.

ITEM 6. EXHIBITS


Exhibit
Number		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized.


		BlueLinx Holdings Inc.

		(Registrant)

Date: November 7, 2007		/s/ Lynn A. Wentworth Lynn A. Wentworth
		Chief Financial Officer and Treasurer
		(Principal Accounting and Financial Officer)

EXHIBIT INDEX


Exhibit
Number		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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