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 June 30, 2007

OR

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 (State of Incorporation)		77-0627356 (I.R.S. Employer Identification No.)
4300 Wildwood Parkway, Atlanta, Georgia (Address of principal executive offices)		30339 (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 August 3, 2007 there were 31,213,712 shares of BlueLinx Holdings Inc. common stock, par value $0.01, outstanding.

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLUELINX HOLDINGS INC.

		Second Quarter
		Period from				Period from
		April 1, 2007				April 2, 2006
		to				to
		June 30, 2007				July 1, 2006
Net sales		$	1,081,990			$	1,378,950
Cost of sales			962,752				1,242,507
Gross profit			119,238				136,443
Operating expenses:
Selling, general, and administrative			93,346				98,122
Depreciation and amortization			5,335				5,063
Total operating expenses			98,681				103,185
Operating income			20,557				33,258
Non-operating expenses:
Interest expense			11,798				12,262
Charges associated with mortgage refinancing			—				4,864
Other income, net			(225	)			(69	)
Income before provision for income taxes			8,984				16,201
Provision for income taxes			3,550				6,590
Net income		$	5,434			$	9,611
Basic weighted average number of common shares outstanding			30,848				30,649
Basic net income per share applicable to common stock		$	0.18			$	0.31
Diluted weighted average number of common shares outstanding			30,995				30,790
Diluted net income per share applicable to common stock		$	0.18			$	0.31
Dividends declared per share of common stock		$	0.125			$	0.125

See accompanying notes.

BLUELINX HOLDINGS INC.

		Six Months Ended
		Period from				Period from
		December 31, 2006				January 1, 2006
		to				to
		June 30, 2007				July 1, 2006
Net sales		$	2,039,104			$	2,755,556
Cost of sales			1,816,111				2,489,161
Gross profit			222,993				266,395
Operating expenses:
Selling, general, and administrative			181,814				195,389
Depreciation and amortization			10,734				10,106
Total operating expenses			192,548				205,495
Operating income			30,445				60,900
Non-operating expenses:
Interest expense			22,404				23,459
Charges associated with mortgage refinancing			—				4,864
Other (income) expense, net			(608	)			12
Income before provision for income taxes			8,649				32,565
Provision for income taxes			3,404				13,160
Net income		$	5,245			$	19,405
Basic weighted average number of common shares outstanding			30,824				30,533
Basic net income per share applicable to common stock		$	0.17			$	0.64
Diluted weighted average number of common shares outstanding			30,945				30,751
Diluted net income per share applicable to common stock		$	0.17			$	0.63
Dividends declared per share of common stock		$	0.25			$	0.25

See accompanying notes.

BLUELINX HOLDINGS INC.

		June 30, 2007				December 30, 2006
		(unaudited)
Assets:
Current assets:
Cash		$	24,756			$	27,042
Receivables, net			405,798				307,543
Inventories, net			470,222				410,686
Deferred income taxes			9,908				9,024
Other current assets			39,911				44,948
Total current assets			950,595				799,243
Property, plant, and equipment:
Land and land improvements			57,172				56,985
Buildings			96,763				95,814
Machinery and equipment			66,732				61,955
Construction in progress			4,515				2,025
Property, plant, and equipment, at cost			225,182				216,779
Accumulated depreciation			(46,544	)			(38,530	)
Property, plant, and equipment, net			178,638				178,249
Other non-current assets			23,238				26,870
Total assets		$	1,152,471			$	1,004,362
Liabilities:
Current liabilities:
Accounts payable		$	260,318			$	195,815
Bank overdrafts			34,563				50,241
Accrued compensation			10,306				8,574
Current maturities of long-term debt			103,816				9,743
Other current liabilities			16,644				14,633
Total current liabilities			425,647				279,006
Non-current liabilities:
Long-term debt			522,719				522,719
Deferred income taxes			1,870				1,101
Other long-term liabilities			10,842				12,137
Total liabilities			961,078				814,963
Shareholders’ Equity:
Common Stock, $0.01 par value, 100,000,000 shares authorized; 31,213,712 and 30,909,630 shares issued and outstanding at June 30, 2007 and December 30, 2006, respectively			312				309
Additional paid-in-capital			140,471				138,066
Accumulated other comprehensive income			2,537				412
Retained earnings			48,073				50,612
Total shareholders’ equity			191,393				189,399
Total liabilities and shareholders’ equity		$	1,152,471			$	1,004,362

See accompanying notes.

BLUELINX HOLDINGS INC.

		Six Months Ended
		Period				Period
		from December 31,				from January 1,
		2006 to				2006 to
		June 30, 2007				July 1, 2006
Cash flows from operating activities:
Net income		$	5,245			$	19,405
Adjustments to reconcile net income to cash used in operations:
Depreciation and amortization			10,734				10,106
Amortization of debt issue costs			1,215				1,409
Charges associated with mortgage refinancing			—				4,864
Deferred income tax benefit			(1,563	)			(1,733	)
Share-based compensation expense			2,227				1,246
Excess tax benefits from share-based compensation arrangements			(60	)			(863	)
Changes in assets and liabilities:
Receivables			(98,255	)			(70,028	)
Inventories			(59,536	)			(59,093	)
Accounts payable			64,503				(13,733	)
Changes in other working capital			8,840				(5,515	)
Other			2,278				498
Net cash used in operating activities			(64,372	)			(113,437	)
Cash flows from investing activities:
Property, plant and equipment investments			(10,027	)			(2,785	)
Proceeds from sale of assets			1,086				332
Net cash used in investing activities			(8,941	)			(2,453	)
Cash flows from financing activities:
Proceeds from stock options exercised			323				1,483
Excess tax benefits from share-based compensation arrangements			60				863
Net increase in revolving credit facility			94,073				5,512
Proceeds from new mortgage			—				295,000
Debt financing costs			—				(5,953	)
Retirement of old mortgage			—				(165,000	)
Prepayment fees with old mortgage			—				(2,475	)
Decrease in bank overdrafts			(15,678	)			(3,034	)
Common stock dividends paid			(7,784	)			(7,680	)
Other			33				—
Net cash provided by financing activities			71,027				118,716
Increase (decrease) in cash			(2,286	)			2,826
Balance, beginning of period			27,042				24,320
Balance, end of period		$	24,756			$	27,146

See accompanying notes.

BLUELINX HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2007

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 were created on March 8, 2004 as a Georgia corporation named ABP Distribution Holdings Inc. On May 7, 2004, we and our operating subsidiary acquired the assets of the Building Products Distribution Division (the “Distribution Division”) of Georgia-Pacific Corporation (“Georgia-Pacific”), pursuant to an asset purchase agreement. On August 30, 2004, ABP Distribution Holdings Inc. merged into BlueLinx Holdings Inc., a Delaware corporation.

     We are a leading distributor of building products in North America with more than 3,200 employees. 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, restricted stock and performance shares using the treasury stock method.

		Second Quarter								Six Months Ended
		Period from				Period from				Period from				Period from
		April 1, 2007 to				April 2, 2006 to				December 31, 2006				January 1, 2006 to
		June 30, 2007				July 1, 2006				to June 30, 2007				July 1, 2006
Basic weighted average shares outstanding			30,848,349				30,649,044				30,824,416				30,533,267
Dilutive effect of stock-based awards			146,568				140,783				120,153				218,000
Diluted weighted average shares outstanding			30,994,917				30,789,827				30,944,569				30,751,267

     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.

     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 June 11, 2007, we granted certain non-executive employees restricted stock units equivalent in cash value to restricted shares of our common stock. These restricted stock unit awards were granted pursuant to the terms of the 2006 Long-Term Incentive Plan for Key Senior Managers. The restricted stock unit awards vest on March 29, 2012. However, the awards may vest earlier in their entirety (or portion, as appropriate) upon the attainment of certain minimum performance goals determined by future increases in the market value of our common stock. Upon vesting of all or any portion of the restricted stock units, we will pay a cash amount equivalent to the fair market value of the shares of our common stock. The fair market value will be determined on the date when the award vests.

     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 second 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.

     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 June 30, 2007, there was $5.0 million, $3.3 million, $2.3 million and $1.7 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 3.5 years, 2.6 years, 2.5 years, and 2.5 years, respectively. For the second quarter of fiscal 2007 and for the first six months of fiscal 2007, our total stock-based compensation expense was $1.4 million and $2.2 million, respectively. We also recognized related income tax benefits of $0.5 million and $0.9 million for the second quarter of fiscal 2007 and for the first six months of fiscal 2007, respectively.

     For the second quarter of fiscal 2006 and for the first six months of fiscal 2006, our total stock-based compensation expense was $0.7 million and $1.2 million, respectively. We also recognized related income tax benefits of $0.3 million and $0.5 million for the second quarter of fiscal 2006 and for the first six months of fiscal 2006, respectively.

     The total fair value of the options vested for the first six months of fiscal 2007 was $0.6 million. For the first six months of fiscal 2006, the total fair value of the options vested was $0.05 million.

     Cash proceeds from the exercise of stock options totaled $0.3 million and $1.5 million for the first six months of fiscal 2007 and for the first six 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 $0.06 million and $0.9 million of excess tax benefits in cash flows from financing activities for the first six months of fiscal 2007 and for the first six 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 six months of fiscal 2007:

		Period from December 31, 2006 to June 30, 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

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

     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 second quarter of fiscal 2006:

		Period from
		April 2, 2006 to
		July 1, 2006
		Time-Based
		Options*
Risk free interest rate			4.92	%
Expected dividend yield			3.57	%
Expected life			7	years
Expected volatility			50	%
Weighted average fair value		$	5.64

     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 six months of fiscal 2006:

		Period from January 1, 2006 to July 1, 2006
		Time-Based				Time-Based				Performance-Based
		Options*				Options**				Options***
Risk free interest rate			4.34	%			4.73	%			4.60	%
Expected dividend yield			4.44	%			3.85	%			3.19	%
Expected life			7	years			7	years			1	year
Expected volatility			50	%			50	%			50	%
Weighted average fair value		$	3.68			$	5.12			$	11.48

     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 six months of fiscal 2007 and for the first six months of fiscal 2006 was from 4.78% to 5.10% and 4.34% to 4.92%, 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 30, 2006 to June 30, 2007, excluding performance-based options totaling 62,813 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			(86,066	)			3.75
Options forfeited			(15,454	)			3.75
Options outstanding at June 30, 2007			1,776,386				11.64
Options exercisable at June 30, 2007			299,701			$	13.16

		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			281,369			$	3.75				0.91				—			$	—
$10.29 - $15.10			1,495,017				13.13				8.64				299,701				13.16
			1,776,386												299,701

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

		Performance Shares								Restricted Stock								Restricted Stock Units
						Weighted								Weighted								Weighted
						Average Fair								Average Fair								Average Fair
		Number Awards				Value				Number Awards				Value				Number 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			—				—				—				—				(11,750	)			14.01
Outstanding at June 30, 2007			245,025			$	10.46				365,475			$	11.92				205,125			$	12.55

     The fair value of the restricted stock units will be marked-to-market each reporting period through the date of settlement. On June 30, 2007, the fair value of these awards was based on the closing price of our common stock of $10.49.

     At June 30, 2007, the aggregate intrinsic value of stock-based awards outstanding and options exercisable was $10.5 million and $0, 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 six months of fiscal 2007 was $0.7 million. For the first six months of fiscal 2006, the intrinsic value of stock options exercised was $4.5 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 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):

		Second Quarter
		Period from				Period from
		April 1, 2007				April 2, 2006
		to				to
		June 30, 2007				July 1, 2006
Net income		$	5,434			$	9,611
Other comprehensive income:
Foreign currency translation, net of taxes			921				367
Unrealized gain from cash flow hedge, net of taxes			1,557				394
Comprehensive income		$	7,912			$	10,372

		Six Months Ended
		Period from				Period from
		December 31, 2006				January 1, 2006
		to				to
		June 30, 2007				July 1, 2006
Net income		$	5,245			$	19,405
Other comprehensive income:
Foreign currency translation, net of taxes			913				340
Unrealized gain from cash flow hedge, net of taxes			1,284				394
Unrealized loss from adoption of FIN 48, net of taxes			(72	)			—
Comprehensive income		$	7,370			$	20,139

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:

		Second Quarter
		Period from April 1,				Period from April 2, 2006
		2007 to June 30, 2007				to July 1, 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

		Six Months Ended
		Period from December 31,				Period from January 1, 2006
		2006 to June 30, 2007				to July 1, 2006
		(In thousands)
Service cost		$	1,252			$	1,344
Interest cost on projected benefit obligation			2,108				2,022
Expected return on plan assets			(2,712	)			(2,600	)
Amortization of unrecognized prior service cost			2				1
Net periodic pension cost		$	650			$	767

6. Revolving Credit Facility

     As of June 30, 2007, we had outstanding borrowings of $332 million and excess availability of $306 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 $228 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 six months of fiscal 2007, we recognized $0.2 million of expense related to the ineffective portion of the hedge.

     At June 30, 2007, the fair value of the interest rate swap was a liability of $0.6 million and was included in “Other long-term liabilities” on the Condensed Consolidated Balance Sheet. The fair value of the interest rate swap liability decreased by $1.9 million from December 30, 2006, due to changes in 30-day LIBOR rates. Accumulated other comprehensive income at June 30, 2007 included the cumulative net loss on the cash flow hedge (net of tax) of $0.3 million, which reflects the cumulative amount of comprehensive loss in connection with the change in fair value of the swap.

     As of June 30, 2007, we had outstanding letters of credit totaling $10.4 million, primarily for the purposes of securing collateral requirements under the 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 our wholly-owned subsidiaries 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 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 June 30, 2007, approximately 31% of our total work force is covered by collective bargaining agreements. Collective bargaining agreements representing approximately 11% 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. The resolution of this matter did not have a material effect on our financial position and results of operations.

     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 exceeds $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.

11. Subsequent Events

     On August 6, 2007 our Board of Directors declared a quarterly dividend of $0.125 per share on our common stock. The dividend will be paid on September 28, 2007 to stockholders of record as of September 14, 2007.

     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. The net effect of the receipt of insurance proceeds will result in a gain of approximately $1.7 million to be recognized in the third quarter of fiscal 2007.

12. Unaudited Supplemental Condensed Consolidating Financial Statements

     The unaudited condensed consolidating financial information as of June 30, 2007 and December 30, 2006 and for the periods from April 1, 2007 to June 30, 2007 and April 2, 2006 to July 1, 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 April 1, 2007 to June 30, 2007 follows (in thousands):

		BlueLinx
		Holdings				BlueLinx				LLC
		Inc.				Corporation				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	1,081,990			$	7,518			$	(7,518	)		$	1,081,990
Cost of sales			—				962,752				—				—				962,752
Gross profit			—				119,238				7,518				(7,518	)			119,238
Operating expenses:
Selling, general and administrative			279				100,459				126				(7,518	)			93,346
Depreciation and amortization			—				4,276				1,059				—				5,335
Total operating expenses			279				104,735				1,185				(7,518	)			98,681
Operating income (loss)			(279	)			14,503				6,333				—				20,557
Non-operating expenses:
Interest expense			—				6,905				4,893				—				11,798
Other expense (income), net			—				(219	)			(6	)			—				(225	)
Income before provision for (benefit from) income taxes			(279	)			7,817				1,446				—				8,984
Provision for (benefit from) income taxes			(109	)			3,095				564				—				3,550
Equity in income (loss) of subsidiaries			5,604				—				—				(5,604	)			—
Net income (loss)		$	5,434			$	4,722			$	882			$	(5,604	)		$	5,434

     The condensed consolidating statement of operations for BlueLinx Holdings Inc. for the period from April 2, 2006 to July 1, 2006 follows (in thousands):

		BlueLinx
		Holdings				BlueLinx				LLC
		Inc.				Corporation				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	1,378,950			$	5,556			$	(5,556	)		$	1,378,950
Cost of sales			—				1,242,507				—				—				1,242,507
Gross profit			—				136,443				5,556				(5,556	)			136,443
Operating expenses:
Selling, general and administrative			470				103,010				198				(5,556	)			98,122
Depreciation and amortization			—				4,005				1,058				—				5,063
Total operating expenses			470				107,015				1,256				(5,556	)			103,185
Operating income (loss)			(470	)			29,428				4,300				—				33,258
Non-operating expenses:
Interest expense			—				8,599				3,663				—				12,262
Charges associated with mortgage refinancing			—				—				4,864				—				4,864
Other expense (income), net			—				(56	)			(13	)			—				(69	)
Income before provision for (benefit from) income taxes			(470	)			20,885				(4,214	)			—				16,201
Provision for (benefit from) income taxes			(183	)			8,416				(1,643	)			—				6,590
Equity in income (loss) of subsidiaries			9,898				—				—				(9,898	)			—
Net income (loss)		$	9,611			$	12,469			$	(2,571	)		$	(9,898	)		$	9,611

     The condensed consolidating statement of operations for BlueLinx Holdings Inc. for the period from December 31, 2006 to June 30, 2007 follows (in thousands):

		BlueLinx
		Holdings				BlueLinx				LLC
		Inc.				Corporation				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	2,039,104			$	15,036			$	(15,036	)		$	2,039,104
Cost of sales			—				1,816,111				—				—				1,816,111
Gross profit			—				222,993				15,036				(15,036	)			222,993
Operating expenses:
Selling, general and administrative			716				195,891				243				(15,036	)			181,814
Depreciation and amortization			—				8,618				2,116				—				10,734
Total operating expenses			716				204,509				2,359				(15,036	)			192,548
Operating income (loss)			(716	)			18,484				12,677				—				30,445
Non-operating expenses:
Interest expense			—				12,620				9,784				—				22,404
Other expense (income), net			—				(367	)			(241	)			—				(608	)
Income before provision for (benefit from) income taxes			(716	)			6,231				3,134				—				8,649
Provision for (benefit from) income taxes			(279	)			2,461				1,222				—				3,404
Equity in income (loss) of subsidiaries			5,682				—				—				(5,682	)			—
Net income (loss)		$	5,245			$	3,770			$	1,912			$	(5,682	)		$	5,245

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

		BlueLinx
		Holdings				BlueLinx				LLC
		Inc.				Corporation				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	2,755,556			$	10,455			$	(10,455	)		$	2,755,556
Cost of sales			—				2,489,161				—				—				2,489,161
Gross profit			—				266,395				10,455				(10,455	)			266,395
Operating expenses:
Selling, general and administrative			807				204,518				519				(10,455	)			195,389
Depreciation and amortization			—				7,990				2,116				—				10,106
Total operating expenses			807				212,508				2,635				(10,455	)			205,495
Operating income (loss)			(807	)			53,887				7,820				—				60,900
Non-operating expenses:
Interest expense			—				16,666				6,793				—				23,459
Charges associated with new mortgage			—				—				4,864				—				4,864
Other expense (income), net			—				80				(68	)			—				12
Income before provision for (benefit from) income taxes			(807	)			37,141				(3,769	)			—				32,565
Provision for (benefit from) income taxes			(315	)			14,944				(1,469	)			—				13,160
Equity in income (loss) of subsidiaries			19,897				—				—				(19,897	)			—
Net income (loss)		$	19,405			$	22,197			$	(2,300	)		$	(19,897	)		$	19,405

     The condensed consolidating balance sheet for BlueLinx Holdings Inc. as of June 30, 2007 follows (in thousands):

						BlueLinx
		BlueLinx				Corporation
		Holdings				and				LLC
		Inc.				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets:
Current assets:
Cash		$	3			$	24,715			$	38			$	—			$	24,756
Receivables			—				405,798				—				—				405,798
Inventories			—				470,222				—				—				470,222
Deferred income taxes			—				9,973				—				(65	)			9,908
Other current assets			(11	)			42,428				—				(2,506	)			39,911
Intercompany receivable			971				—				—				(971	)			—
Total current assets			963				953,136				38				(3,542	)			950,595
Property, plant and equipment:
Land and land improvements			—				2,877				54,295				—				57,172
Buildings			—				7,002				89,761				—				96,763
Machinery and equipment			—				66,732				—				—				66,732
Construction in progress			—				4,515				—				—				4,515
Property, plant and equipment, at cost			—				81,126				144,056				—				225,182
Accumulated depreciation			—				(33,197	)			(13,347	)			—				(46,544	)
Property, plant and equipment, net			—				47,929				130,709				—				178,638
Investment in subsidiaries			190,515				—				—				(190,515	)			—
Deferred income taxes			—				245				—				(245	)			—
Other non-current assets			—				17,633				5,605				—				23,238
Total assets		$	191,478			$	1,018,943			$	136,352			$	(194,302	)		$	1,152,471
Liabilities:
Current liabilities:
Accounts payable		$	20			$	260,298			$	—			$	—			$	260,318
Bank overdrafts			—				34,563				—				—				34,563
Accrued compensation			—				10,306				—				—				10,306
Current maturities of long-term debt			—				103,816				—				—				103,816
Deferred income taxes			65				—				—				(65	)			—
Other current liabilities			—				15,451				1,193				—				16,644
Intercompany payable			—				692				2,785				(3,477	)			—
Total current liabilities			85				425,126				3,978				(3,542	)			425,647
Non-current liabilities:
Long-term debt			—				227,719				295,000				—				522,719
Deferred income taxes			—				—				2,115				(245	)			1,870
Other long-term liabilities			—				10,842				—				—				10,842
Total liabilities			85				663,687				301,093				(3,787	)			961,078
Shareholders’ Equity/Parent’s Investment			191,393				355,256				(164,741	)			(190,515	)			191,393
Total liabilities and equity		$	191,478			$	1,018,943			$	136,352			$	(194,302	)		$	1,152,471

     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