BlueLinx Holdings Inc. - Annual Report: 2005 (Form 10-K)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

BLUELINX HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Commission file number: 1-32383

Registrant’s telephone number, including area code:

770-953-7000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o  No þ

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o  No þ

      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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      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 Act).     Yes o          No þ

      The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of July 1, 2005 was $113,237,850, based on the closing price on the New York Stock Exchange of $11.01 per share on July 1, 2005.

      As of February 17, 2006, the registrant had 30,360,689 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of BlueLinx Holdings Inc.’s definitive Proxy Statement for use in connection with its 2006 Annual Meeting of Stockholders, scheduled to be held on May 12, 2006, have been incorporated by reference into Part III of this Report.

BLUELINX HOLDINGS INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2005

TABLE OF CONTENTS

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K includes “forward-looking statements.” 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 its 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” 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:

      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.

PART I

      As used herein, unless the context otherwise requires, “BlueLinx,” the “Company,” “we,” “us” and “our” refer to BlueLinx Holdings Inc. and its subsidiaries. BlueLinx Corporation is the wholly-owned operating subsidiary of BlueLinx Holdings Inc. and is referred to herein as the “operating company” when necessary. Reference to “fiscal 2005” refers to the 52-week period ended December 31, 2005. Reference to “fiscal 2004” refers to the 52-week period ended January 1, 2005 (fiscal 2004 is comprised of the period from inception (March 8, 2004) to January 1, 2005 and the period from January 4, 2004 to May 7, 2004). Reference to “fiscal 2003” refers to the 53-week period ended January 3, 2004.

Company Overview

      BlueLinx Holdings Inc., operating through its wholly-owned subsidiary, BlueLinx Corporation, is a leading distributor of building products in the United States. The Company operates in all of the major metropolitan areas in the United States and, as of December 31, 2005, distributed over 10,000 products to approximately 12,000 customers through the Company’s network of more than 65 warehouses and third-party operated warehouses.

      The Company distributes products in two principal categories: structural products and specialty products. Structural products, which represented approximately 62% and 65% of the Company’s fiscal 2005 and fiscal 2004 gross sales, include plywood, oriented strand board, or OSB, lumber and other wood products primarily used for structural support, walls and flooring in residential construction projects, and metal rebar and remesh. Specialty products, which represented approximately 38% and 35% of the Company’s fiscal 2005 and fiscal 2004 gross sales, include roofing, insulation, moulding, engineered wood products, vinyl products (used primarily in siding), composite decking and metal products.

      BlueLinx’s customers include building materials dealers, industrial users of building products, manufactured housing builders and home improvement centers. The Company purchases products from over 750 vendors and serves as a national distributor for a number of the Company’s suppliers. BlueLinx distributes products through its owned fleet of over 900 trucks and over 1,200 trailers, as well as by common carrier.

      The Company was created on March 8, 2004 as a Georgia corporation named ABP Distribution Holdings Inc. (“ABP”). ABP was owned by Cerberus Capital Management, L.P. (Cerberus Capital Management, L.P. and its subsidiaries referred to herein as “Cerberus”), a private, New York-based investment firm, and members of our management team. Prior to May 7, 2004, the Company’s assets were owned by the distribution division (the “Division”) of Georgia-Pacific Corporation (“Georgia Pacific”). The Division commenced operations in 1954 with 13 warehouses primarily used as an outlet for Georgia-Pacific’s plywood. On May 7, 2004, Georgia-Pacific sold the Division to ABP. ABP subsequently merged into BlueLinx Holdings Inc.

      On December 17, 2004, the Company consummated an initial public offering of 9,500,000 shares of its common stock, par value $.01 per share, at the initial public offering price of $13.50 per share (the “Equity Offering”). On January 5, 2005, the underwriters for the Equity Offering exercised an option to purchase 685,000 additional shares of common stock to cover the over-allotment of shares in connection with the Equity Offering.

      The Company’s principal executive offices are located at 4300 Wildwood Parkway, Atlanta, Georgia 30339 and its telephone number is (770) 953-7000. The Company’s board committee charters, code of conduct and ethics, and filings with the U.S. Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are accessible free of charge at www.BlueLinxCo.com. The Company has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K. This Code of Ethics applies to the Company’s principal executive officer, principal financial officer and principal accounting officer. This Code of Ethics is publicly available at the Company’s official website, www.BlueLinxCo.com

or upon request by writing to BlueLinx Holdings Inc., Attn: Corporate Secretary, 4300 Wildwood Parkway, Atlanta, Georgia 30339. If the Company makes substantial amendments to its Code of Ethics or grants any waiver, including any implicit waiver, the Company is required to disclose the nature of such amendment or waiver on its website or in a report on Form 8-K of such amendment or waiver. The reference to the Company’s website does not constitute incorporation by reference of the information contained at the site.

Products and Services

      As of December 31, 2005, the Company distributed over 10,000 different products to approximately 12,000 customers nationwide. The Company distributes these products in two principal categories: structural products and specialty products. Structural products include plywood panels, OSB, lumber and rebar and remesh. These products are primarily used for structural support, walls, flooring and roofing in construction projects. Additional end-uses of the Company’s structural products include outdoor decks, sheathing, crates and boxes. Approximately 62% and 65% of the Company’s fiscal 2005 and fiscal 2004 gross sales consisted of structural products. Specialty products include engineered lumber, roofing, insulation, metal products (excluding rebar and remesh), vinyl products (used primarily in siding), moulding, composite decking and particleboard. Specialty products generated 38% and 35% of the Company’s gross sales during fiscal 2005 and fiscal 2004, respectively. In some cases, these products are branded.

      The Company also provides a wide range of value-added services and solutions to the Company’s customers and vendors including:

Distribution Channels

      The Company sells products through three main distribution channels:

      Warehouse sales are delivered from the Company’s warehouses to dealers, home improvement centers and industrial users. The Company delivers products primarily using its fleet of over 900 trucks and over 1,200 trailers, but also occasionally uses common carriers for peak load flexibility. The Company operates in all of the major metropolitan areas in the United States through its network of more than 65 warehouses and third-party operated warehouses. The Company’s warehouses have over eleven million square feet of space under roof plus significant outdoor storage space. Warehouse sales accounted for approximately 52% and 56% of the Company’s fiscal 2005 and fiscal 2004 gross sales.

      Reload sales are similar to warehouse sales but are shipped from third-party warehouses where the Company stores owned product in order to expand the Company’s geographic reach. This channel is employed primarily to service strategic customers that would be uneconomical to service from the Company’s warehouses and to distribute large volumes of imported products such as metal or hardwood

plywood from port facilities. A large portion of the Company’s Canadian sales are reload sales. The Company leases space at some third-party warehouse facilities in Canada. Reload sales accounted for approximately 13% and 12% of the Company’s fiscal 2005 and fiscal 2004 gross sales.

      Direct sales are shipped from the manufacturer to the customer without the Company’s taking physical inventory possession. This channel requires the lowest amount of committed capital and fixed costs. Direct sales accounted for approximately 35% and 32% of the Company’s fiscal 2005 and fiscal 2004 gross sales.

Customers

      As of December 31, 2005, the Company’s customer base included approximately 12,000 customers across multiple market segments and various end-use markets, including the following types of customers:

Sales and Marketing

      The Company’s sales efforts primarily are directed through its sales force of approximately 1,000 sales representatives. Approximately 600 of the Company’s sales representatives are located at its two sales centers in Denver and Atlanta. Within these sales centers, the Company’s sales representatives primarily interact with the Company’s customers over the telephone. The remaining 400 sales representatives are located throughout the country and are responsible for maintaining a local dialogue with the Company’s customers, including making frequent, in-person visits.

      The Company’s sales force is separated between industrial/dealer sales and home improvement center sales. Industrial/dealer sales are managed by regional vice-presidents with sales teams organized by customer regions. The majority of industrial/dealer orders are processed by telephone and are facilitated by the Company’s centralized database of customer preferences and purchasing history. The Company also has dedicated cross-functional customer support teams focused on strategic growth with the home improvement centers.

Suppliers

      As of December 31, 2005, the Company’s vendor base included over 750 suppliers of both structural and specialty building products. In some cases, these products are branded. The Company has supply contracts in place with many of its vendors. Terms for these agreements frequently include prompt payment discounts and freight allowances and occasionally include volume discounts, growth incentives, marketing allowances, consigned inventory and extended payment terms.

      Purchases of products manufactured by Georgia-Pacific accounted for approximately 28% and approximately 27% of total purchases in fiscal 2005 and fiscal 2004, respectively, with no other supplier accounting for more than 4% of the Company’s fiscal 2005 purchases. As part of the acquisition transactions, whereby the Company acquired the assets of Georgia-Pacific’s distribution division, the Company entered into a Master Purchase, Supply & Distribution Agreement with Georgia-Pacific, or the Supply Agreement. The Supply Agreement details distribution rights by product categories, including exclusivity rights and minimum supply volume commitments from Georgia-Pacific with respect to certain products. This agreement also details the Company’s purchase obligations by product categories, including substantial minimum purchase volume commitments with respect to most of the products supplied to the Company. Based on 2005 average market prices, the Company’s purchase obligation under this agreement

is approximately $1.2 billion for each of the next three years. If the Company fails or refuses to purchase any products that the Company is obligated to purchase pursuant to the Supply Agreement, Georgia-Pacific has the right to sell products to third parties and for certain products terminate the Company’s exclusivity, and the Company may be required to pay monetary penalties. The agreement has a five-year initial term and remains continuously in effect thereafter unless it is terminated. Termination of the Supply Agreement requires two years’ notice, exercisable after year four. The Supply Agreement may be terminated by either party for material breach. However, if the material breach only affects one or more, but not all, of the product categories, the non-breaching party may only terminate the Supply Agreement in respect of the affected product categories, and the Supply Agreement will remain in full force with respect to the remaining product categories. The Supply Agreement also provides for certain advertising, marketing and promotion arrangements between the Company and Georgia-Pacific for certain products. In addition, the Company was granted a limited, non-exclusive, royalty-free, fully paid license to use certain proprietary information and intellectual property of Georgia-Pacific.

Competition

      The U.S. building products distribution market is a highly fragmented market, served by a small number of multi-regional distributors, several regionally focused distributors and a large number of independent local distributors. Local and regional distributors tend to be closely held and often specialize in a limited number of segments, such as the roofing segment, in which they offer a broader selection of products. Some of the Company’s multi-regional competitors are part of larger companies and therefore have access to greater financial and other resources than the Company. The Company competes on the basis of breadth of product offering, consistent availability of product, product price and quality, reputation, service and distribution facility location.

      The Company’s two largest competitors are Weyerhaeuser Company, or Weyerhaeuser, and Boise Cascade Company, or Boise Cascade. Weyerhaeuser and Boise Cascade are integrated building products manufacturers-distributors that offer products manufactured by themselves as well as third-party manufactured products. Most major markets are served by at least one of these distributors.

Seasonality

      The Company is 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 the Company’s slowest quarters due to the impact of poor weather on the construction market. The Company’s second and third quarters are typically its strongest quarters, reflecting a substantial increase in construction due to more favorable weather conditions. The Company’s working capital and accounts receivable and payable generally peak in the third quarter, while inventory generally peaks in second quarter in anticipation of the summer building season. The Company expects these trends to continue for the foreseeable future.

Trademarks

      The Company has 35 U.S. trademark applications and registrations, one issued U.S. patent and two Canadian trademark registrations. Depending on the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not become generic. Registrations of trademarks can generally be renewed indefinitely as long as the trademarks are in use. The Company’s patent expires in September 2013. The Company does not believe its business is dependent on any one of the Company’s trademarks or on its patent.

Employees

      As of February 15, 2006 the Company employed approximately 3,600 persons on a full-time basis. Approximately 1,200 of the Company’s employees are represented by labor unions. As of February 15, 2006, the Company had approximately 49 collective bargaining agreements, of which eight, representing

240 employees, are up for renewal in 2006. The Company considers its relationship with its employees generally to be good.

Environmental and Other Governmental Regulations

      The Company’s operations are subject to various federal, state, provincial and local laws, rules and regulations. The Company is subject to environmental laws, rules and regulations that limit discharges into the environment, establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of hazardous materials, substances and wastes, and require cleanup of contaminated soil and groundwater. These laws, ordinances and regulations are complex, change frequently and have tended to become more stringent over time. Many of them provide for substantial fines and penalties, orders (including orders to cease operations) and criminal sanctions for violations. They may also impose liability for property damage and personal injury stemming from the presence of, or exposure to, hazardous substances. In addition, certain of the Company’s operations require the Company to obtain, maintain compliance with, and periodically renew permits.

      Certain of these laws, including the Comprehensive Environmental Response, Compensation, and Liability Act, may require the investigation and cleanup of an entity’s or its predecessor’s current or former properties, even if the associated contamination was caused by the operations of a third party. These laws also may require the investigation and cleanup of third-party sites at which an entity or its predecessor sent hazardous wastes for disposal, notwithstanding that the original disposal activity accorded with all applicable requirements. Liability under such laws may be imposed jointly and severally, and regardless of fault.

      Georgia-Pacific Corporation has agreed to indemnify the Company against any claim arising from environmental conditions that existed prior to May 7, 2004. In addition, the Company carries environmental insurance. While the Company does not expect to incur significant independent costs arising from environmental conditions, there can be no assurance that all such costs will be covered by indemnification or insurance.

      The Company also is subject to the requirements of the U.S. Department of Labor Occupational Safety and Health Administration, or OSHA. In order to maintain compliance with applicable OSHA requirements, the Company has established uniform safety and compliance procedures for its operations and implemented measures to prevent workplace injuries.

      The U.S. Department of Transportation, or DOT, regulates the Company’s operations in domestic interstate commerce. The Company is subject to safety requirements governing interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also remain subject to both federal and state regulation.

      The Company has incurred and will continue to incur costs to comply with the requirements of environmental, health and safety and transportation laws, ordinances and regulations. The Company anticipates that these requirements will become more stringent in the future, and the Company cannot assure you that compliance costs will not be material.

Factors Affecting Future Results

      The building products distribution industry is subject to cyclical market pressures. Prices of building products are determined by overall supply and demand in the market for building products. Market prices of building products historically have been volatile and cyclical and we have limited ability to control the timing and amount of pricing changes for building products. Demand for building products is driven

mainly by factors outside of our control, such as general economic and political conditions, interest rates, the construction, repair and remodeling and industrial markets, weather and population growth. The supply of building products fluctuates based on available manufacturing capacity, and excess capacity in the industry can result in significant declines in market prices for those products. To the extent that prices and volumes experience a sustained or sharp decline, our net sales and margins would likely decline as well. Our results in some periods have been affected by market volatility, including a reduction in gross profits due to a decline in the resale value of our structural products inventory. All of these factors make it difficult to forecast our operating results.

      We have a substantial amount of debt. As of December 31, 2005, advances outstanding under our revolving credit facility were approximately $376 million, borrowing availability was approximately $219 million and outstanding letters of credit on the facility were approximately $7.6 million. As of February 17, 2006, borrowing availability under the revolving credit facility was approximately $158 million. We also have a mortgage loan in the amount of $165 million.

      Our substantial debt could have important consequences to you. For example, it could:

      In addition, our ability to make scheduled payments or refinance our obligations depends on our successful financial and operating performance, cash flows and capital resources, which in turn depend upon prevailing economic conditions and certain financial, business and other factors, many of which are beyond our control. These factors include, among others:

      If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. Obtaining additional capital or restructuring our debt could be accomplished in part, through new or additional borrowings or placements of debt or equity securities. There is no assurance that we could obtain additional capital or restructure our debt on terms acceptable to us or at all. In the event that we are required to dispose of material assets or operations to meet our debt service and other obligations, the value realized on such assets or operations will depend on market conditions and

the availability of buyers. Accordingly, any such sale may not, among other things, be for a sufficient dollar amount. Our obligations under the revolving credit facility are secured by a first priority security interest in all of our operating company’s inventories, receivables and proceeds from those items. In addition, our mortgage loan is secured by our real property. The foregoing encumbrances may limit our ability to dispose of material assets or operations. We also may not be able to restructure our indebtedness on favorable economic terms, if at all. We may incur substantial additional indebtedness in the future, including under the revolving credit facility. Our incurrence of additional indebtedness would intensify the risks described above.

      Our revolving credit facility and mortgage loan contain various restrictive covenants and restrictions, including financial covenants customary for asset-based loans that limit our management’s discretion in operating our business. In particular, these instruments limit our ability to, among other things:

      If we fail to maintain minimum excess availability of $40 million under the revolving credit facility, the revolving credit facility requires us to (i) maintain certain financial ratios and (ii) limit our capital expenditures. If we fail to comply with the restrictions in the revolving credit facility, the mortgage loan documents or any other current or future financing agreements, a default may allow the creditors under the relevant instruments to accelerate the related debt and to exercise their remedies under these agreements, which will typically include the right to declare the principal amount of that debt, together with accrued and unpaid interest and other related amounts, immediately due and payable, to exercise any remedies the creditors may have to foreclose on assets that are subject to liens securing that debt and to terminate any commitments they had made to supply further funds.

      On May 7, 2004, we and our operating company acquired the real estate and operating assets of the Division, respectively. Therefore, our operating history as a separate company is limited. Our business strategy as an independent entity may not be successful on a long-term basis. We may not be able to grow our business as planned and may not remain a profitable business. The historical financial information of the Division included in this filing may not necessarily reflect what our results of operations, financial condition and cash flows would have been had we been a separate, independent entity pursuing our own strategies during the periods presented.

      Georgia-Pacific is our largest supplier, accounting for approximately 28% and approximately 27% of our purchases during fiscal 2005 and fiscal 2004, respectively. Concurrent with the acquisition, we entered into a Master Purchase, Supply & Distribution Agreement with Georgia-Pacific, which is referred to as the Supply Agreement. The Supply Agreement has a five-year initial term and remains continuously in effect thereafter unless it is terminated. Termination of the Supply Agreement requires two years’ notice, exercisable after year four. It may be terminated, including before year five, by Georgia-Pacific upon a

material breach of the agreement by us. If Georgia-Pacific does not renew the Supply Agreement or if it discontinues sales of a product, we would experience a product shortage unless and until we obtain a replacement supplier. We may not be able to obtain replacement products on favorable economic terms, if at all. An inability to replace products on favorable economic terms would adversely impact our net sales and our costs, which in turn could impact our gross profit, net income and cash flows.

      We believe that the economic terms of the Supply Agreement are beneficial to us since they provide us with certain discounts off standard industry pricing indices, certain cash discounts and favorable payment terms. While we also believe these terms benefit Georgia-Pacific, Georgia-Pacific could, if it chose, terminate the Supply Agreement as early as May 7, 2010. If it did so and we could not obtain comparable terms from Georgia-Pacific or another vendor thereafter, our operating performance could be impaired by an interruption in the delivery of products and/or an increase in cost to us from sourcing comparable products from other suppliers.

      Under the Supply Agreement, we have substantial minimum purchase volume commitments with respect to a number of products supplied to us. Based on 2005 average market prices, our purchase obligations under this agreement are $1.2 billion for each of the next three years. These products account for a majority of our purchases from Georgia-Pacific. If we fail or refuse to purchase any products that we are obligated to purchase pursuant to the Supply Agreement, Georgia-Pacific has the right to sell products to third parties and, for certain products, terminate our exclusivity, which could reduce our net sales due to the unavailability of products or our gross profit if we are required to pay higher product prices to other suppliers. A reduction in our net sales or gross profit may also reduce our net income and cash flows.

      The building products distribution industry is highly fragmented and competitive and the barriers to entry for local competitors are relatively low. Some of our competitors are part of larger companies and therefore have access to greater financial and other resources than us. In addition, certain product manufacturers sell and distribute their products directly to customers. Additional manufacturers of products distributed by us may elect to sell and distribute directly to end-users in the future or enter into exclusive supply arrangements with other distributors. Finally, we may not be able to maintain our costs at a level sufficiently low for us to compete effectively. If we are unable to compete effectively, our net sales and net income will be reduced.

      Part of our growth strategy includes pursuing acquisitions. Any integration process may be complex and time consuming, may be disruptive to the business and may cause an interruption of, or a distraction of management’s attention from, the business as a result of a number of obstacles, including but not limited to:

      Any of the foregoing obstacles, or a combination of them, could increase selling, general and administrative expenses in absolute terms and/or as a percentage of net sales, which could in turn negatively impact our net income and cash flows.

      We have completed one acquisition, to date, of the assets of California-based hardwood lumber company Lane Stanton Vance (“LSV”), formerly a unit of privately-held Hampton Distribution Companies. We may not be able to consummate acquisitions in the future on terms acceptable to us, or at all. In addition, future acquisitions are accompanied by the risk that the obligations and liabilities of an acquired company may not be adequately reflected in the historical financial statements of that company and the risk that those historical financial statements may be based on assumptions which are incorrect or inconsistent with our assumptions or approach to accounting policies. Any of these material obligations, liabilities or incorrect or inconsistent assumptions could adversely impact our results of operations.

      As of February 15, 2006, approximately 1,200 of our employees were represented by various labor unions. As of February 15, 2006, we had approximately 49 collective bargaining agreements, of which eight, covering 240 total employees, are up for renewal in 2006. We may become subject to material cost increases, or additional work rules imposed by agreements with labor unions. The foregoing could increase our selling, general and administrative expenses in absolute terms and/or as a percentage of net sales. In addition, work stoppages or other labor disturbances may occur in the future, which could adversely impact our net sales and/or selling, general and administrative expenses. All of these factors could negatively impact our net income and cash flows.

      We use our own fleet of over 900 trucks and over 1,200 trailers to service customers throughout the United States. The U.S. Department of Transportation, or DOT, regulates our operations in domestic interstate commerce. We are subject to safety requirements governing interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also remain subject to both federal and state regulation. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driver hours of service would increase our costs, which, if we are unable to pass these cost increases on to our customers, would reduce our gross margins, increase our selling, general and administrative expenses and reduce our net income.

      Our operations are subject to federal, state, provincial and local laws, rules and regulations governing the protection of the environment, including, but not limited to, those regulating discharges into the air and water, the use, handling and disposal of hazardous or toxic substances, the management of wastes, the cleanup of contamination and the control of noise and odors. We have made, and will continue to make, expenditures to comply with these requirements. While we believe, based upon current information, that we are in substantial compliance with all applicable environmental laws, rules and regulations, we could be subject to potentially significant fines or penalties for any failure to comply. Moreover, under certain environmental laws, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of at real property, may be held liable for the cost to investigate or clean up such real property and for related damages to natural resources. We may be subject to liability, including liability for investigation and cleanup costs, if contamination is discovered at one of our current or former warehouse facilities, or at a landfill or other location where we have disposed of, or

arranged for the disposal of, wastes. Georgia-Pacific has agreed to indemnify us against any claim arising from environmental conditions that existed prior to May 7, 2004. We also carry environmental insurance. However, any remediation costs not related to conditions existing prior to May 7, 2004 may not be covered by indemnification. In addition, certain remediation costs may not be covered by insurance. In addition, we could be subject to claims brought pursuant to applicable laws, rules or regulations for property damage or personal injury resulting from the environmental impact of our operations. Increasingly stringent environmental requirements, more aggressive enforcement actions, the discovery of unknown conditions or the bringing of future claims may cause our expenditures for environmental matters to increase, and we may incur material costs associated with these matters.

      In the event of future terrorist attacks or threats on the United States, federal, state and local authorities could implement various security measures, including checkpoints and travel restrictions on large trucks. Our customers typically need quick delivery and rely on our on-time delivery capabilities. If security measures disrupt or impede the timing of our deliveries, we may fail to meet the needs of our customers, or may incur increased expenses to do so.

      Georgia-Pacific is a defendant in suits brought in various courts around the nation by plaintiffs who allege that they have suffered personal injury as a result of exposure to products containing asbestos. These suits allege a variety of lung and other diseases based on alleged exposure to products previously manufactured by Georgia-Pacific. Although the terms of the asset purchase agreement provide that Georgia-Pacific will indemnify us against all obligations and liabilities arising out of, relating to or otherwise in any way in respect of any product liability claims (including, without limitation, claims, obligations or liabilities relating to the presence or alleged presence of asbestos-containing materials) with respect to products purchased, sold, marketed, stored, delivered, distributed or transported by Georgia-Pacific and its affiliates, including the Division prior to the acquisition, we believe it is possible that circumstances may arise under which asbestos-related claims against Georgia-Pacific could cause us to incur substantial costs.

      For example, in the event that Georgia-Pacific is financially unable to respond to an asbestos product liability claim, plaintiffs’ lawyers may, in order to obtain recovery, attempt to sue us, in our capacity as owner of assets sold by Georgia-Pacific, despite the fact that the assets sold to us did not contain asbestos. Asbestos litigation has, over the years, proved unpredictable, as the aggressive and well-financed asbestos plaintiffs’ bar has been creative, and often successful, in bringing claims based on novel legal theories and on expansive interpretations of existing legal theories. These claims have included claims against companies that did not manufacture asbestos products. As a result of these factors, a number of companies have been held liable for amounts far in excess of their perceived exposure. Although we believe, based on our understanding of the law as currently interpreted, that we should not be held liable for any of Georgia-Pacific’s asbestos-related claims, and, to the contrary, that we would prevail on summary judgment on any such claims, there is nevertheless a possibility that new theories could be developed, or that the application of existing theories could be expanded, in a manner that would result in liability for us. Any such liability could ultimately be borne by us if Georgia-Pacific is unable to fulfill its indemnity obligation under the asset purchase agreement with us.

      Funds and accounts managed by Cerberus or its affiliated management companies, which are referred to collectively as the controlling stockholder, collectively own approximately 60% of our common stock. As a result, the controlling stockholder will continue to be able to control the election of our directors, determine our corporate and management policies and determine, without the consent of our other stockholders, the outcome of any corporate transaction or other matter submitted to our stockholders for

approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions.

      Five of our ten directors are either employees of or advisors to Cerberus. The controlling stockholder also has sufficient voting power to amend our organizational documents. The interests of the controlling stockholder may not coincide with the interests of other holders of our common stock. Additionally, the controlling stockholder is in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. The controlling stockholder may also pursue, for its own account, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as the controlling stockholder continues to own a significant amount of the outstanding shares of our common stock, it will continue to be able to strongly influence or effectively control our decisions, including potential mergers or acquisitions, asset sales and other significant corporate transactions. In addition, because we are a controlled company within the meaning of the New York Stock Exchange rules, we are exempt from the NYSE requirements that our board be composed of a majority of independent directors, and that our compensation and nominating/corporate governance committees be composed entirely of independent directors.

      Our Amended and Restated Certificate of Incorporation and Bylaws contain provisions that:

      These provisions may discourage, delay or prevent a merger or acquisition at a premium price.

      In addition, we are subject to Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, which also imposes certain restrictions on mergers and other business combinations between us and any holder of 15% or more of our common stock. Further, certain of our incentive plans provide for vesting of stock options and/or payments to be made to our employees in connection with a change of control, which could discourage, delay or prevent a merger or acquisition at a premium price.

      We intend to continue to pay 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 its 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 and other factors that our board of directors may deem relevant. Accordingly, we may not be able to pay dividends in any given amount in the future, or at all.

      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 for more information on limits on our ability to pay dividends.

      None.

      The Company leases approximately 250,000 square feet for its corporate headquarters located at 4300 Wildwood Parkway, Atlanta, Georgia 30339. The Company operates warehouse facilities in over 65 markets nationwide. The Company owns warehouse facilities in 61 of these cities and leases the remainder. These warehouse facilities secure the Company’s mortgage loan. The total square footage under roof at the Company’s warehouses is approximately 11 million square feet.

      The following table lists each of the Company’s warehouse facilities, including their inside square footage. The Company also stores materials outdoors, such as lumber and rebar, at all of its warehouse locations, which increases its distribution and storage capacity. The Company believes that substantially all of its property and equipment is in good condition, subject to normal wear and tear, except for the New Orleans facility, which is presently closed due to damage from Hurricane Katrina. The Company believes that its facilities have sufficient capacity to meet its current and projected distribution needs.

Warehouse & Shed Under Roof Square Footage

      On November 19, 2004, the Company received a letter from Wickes Lumber, or Wickes, asserting that approximately $16 million in payments received by the Division 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, the Company filed its answer to the complaint denying liability. Although the ultimate outcome of this matter cannot be determined with certainty, the Company believes 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. Accordingly, the Company has not recorded a reserve with respect to the asserted claim.

      The Company is, and from time to time may be, a party to routine legal proceedings incidental to the operation of its business. The outcome of any pending or threatened proceedings is not expected to have a material adverse effect on the financial condition, operating results or cash flows of the Company, based on its current understanding of the relevant facts. Legal expenses incurred related to these contingencies are generally expensed as incurred. The Company establishes reserves for pending or threatened proceedings when the costs associated with such proceedings become probable and can be reasonably estimated.

      No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2005.

PART II

      The Company’s equity securities consist of one class of common stock. The common stock began trading on December 16, 2004. The common stock is traded on the New York Stock Exchange under the symbol BXC. The following table sets forth, for the periods indicated, the range of the high and low sales prices for the common stock as quoted on the New York Stock Exchange:

      As of February 17, 2006, there were 14 registered stockholders, and, as of that date we estimate there were approximately 4,300 beneficial owners holding our common stock in nominee or “street” name.

      The Company currently pays a dividend of $0.125 per share per quarter. The Company intends to continue to pay dividends on its common stock at the quarterly rate of $0.125 per share. The Company’s board of directors may, in its discretion, modify or repeal the Company’s dividend policy. Future dividends, if any, with respect to the Company’s shares of common stock will depend on, among other things, its results of operations, cash requirements, financial condition, contractual restrictions, provisions of

applicable law and other factors that its board of directors may deem relevant. See Item 8. Financial Statements and Supplementary Data, Note 8. Revolving Credit Facility for additional information regarding limitations on the ability of BlueLinx Corporation to transfer funds to its parent, BlueLinx Holdings Inc., which could impact the Company’s ability to pay dividends to its stockholders. Accordingly, the Company may not be able to continue to pay dividends at the same quarterly rate in the future, if at all.

Equity Compensation Plan Information

      The following table provides information about the shares of common stock that may be issued upon the exercise of option and other awards under the Company’s existing equity compensation plans as of December 31, 2005. The Company’s sole stockholder approved equity compensation plan is the 2004 Equity Incentive Plan. The Company does not have any non-stockholder approved equity compensation plans.

      The Company was created on March 8, 2004 (date of inception) as a Georgia corporation named ABP Distribution Holdings Inc. On May 7, 2004, the Company and its operating company acquired the assets of the distribution division of Georgia Pacific, or the Division, as described below. On August 30, 2004, ABP Distribution Holdings Inc. merged into BlueLinx Holdings Inc., a Delaware corporation. The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

      The financial statements of the Division reflect the accounts and results of certain operations of the business conducted by the Division. The accompanying financial statements of the Division have been prepared from Georgia-Pacific’s historical accounting records and are presented on a carve-out basis reflecting these certain assets, liabilities, and operations. The Division was an unincorporated business of Georgia-Pacific and, accordingly, Georgia-Pacific’s net investment in these operations (parent’s net investment) is presented in lieu of stockholder’s equity. All significant intradivision transactions have been eliminated. The financial statements are not necessarily indicative of the financial position, results of operations and cash flows that might have occurred had the Division been an independent entity not integrated into Georgia-Pacific’s other operations. Also, they may not be indicative of the actual financial position that might have otherwise resulted, or of future results of operations or financial position of the Division.

      The following table sets forth certain historical financial data of the Company. The selected financial data for the fiscal year ended December 31, 2005 (“fiscal 2005”), the period from inception (March 8, 2004) to January 1, 2005, the period from January 4, 2004 to May 7, 2004 (the aggregate period from January 4, 2004 through January 1, 2005 referred to herein as “fiscal 2004”), the fiscal year ended January 3, 2004 (“fiscal 2003”), the fiscal year ended December 28, 2002 (“fiscal 2002”) and the fiscal year ended December 29, 2001 (“fiscal 2001”) have been derived from the Company’s and the Division’s audited financial statements included elsewhere in this Annual Report on Form 10-K or from prior financial statements (“fiscal 2001” and “fiscal 2002”). The financial statements prior to May 7, 2004 are

referred to as “pre-acquisition period” statements. The following information should be read in conjunction with the Company’s financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

      The acquisition of the assets of the Division was accounted for using the purchase method of accounting, and the assets acquired and liabilities assumed were accounted for at their fair market values at the date of consummation.

      A reconciliation of net cash provided by (used in) operating activities, the most directly comparable GAAP measure, to EBITDA for each of the respective periods indicated is as follows:

Overview

      The Company is a leading distributor of building products in the United States. The Company measures its market share based on data published annually by Home Channel News, or HCN. The Company defines market share as the Company’s sales as a percentage of the reported sales of the firms on HCN’s list, as adjusted to eliminate firms that do not compete with the Company and, for certain firms, the portion of their sales attributable to businesses that do not compete with the Company.

      As of December 31, 2005, the Company distributed over 10,000 products to approximately 12,000 customers through its network of more than 65 warehouses and third-party operated warehouses which serve all major metropolitan markets in the United States. The Company distributes products in two principal categories: structural products and specialty products. Structural products include plywood, OSB, rebar and remesh, lumber and other wood products primarily used for structural support, walls and flooring in construction projects. Structural products represented approximately 62% and 65% of the Company’s fiscal 2005 and fiscal 2004 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 38% and 35% of the Company’s fiscal 2005 and fiscal 2004 gross sales.

      On March 12, 2004, the Company and its operating company entered into two separate definitive agreements to acquire the real estate and operating assets, respectively, of the distribution division of Georgia-Pacific Corporation (the “Division”). The transactions were consummated on May 7, 2004. The Company refers to the period prior to May 7, 2004 as the “pre-acquisition period.” The Division’s financial data for the pre-acquisition period generally will not be comparable to the Company’s financial data for the period after the acquisition. The principal factors affecting comparability are incremental costs that the Company will incur as a separate company, discussed in greater detail below; interest costs attributable to debt the Company incurred in connection with the acquisition transactions and mortgage refinancing transactions; and the effects of the purchase method of accounting applied to the acquisition transactions. The acquisition of the assets of the Division was accounted for using the purchase method of accounting, and the assets acquired and liabilities assumed were accounted for at their fair market values at the date of consummation.

      Supply Agreement. On May 7, 2004, the Company entered into a multi-year supply agreement with Georgia-Pacific. Under the agreement, the Company has exclusive distribution rights on certain products and certain customer segments. Georgia-Pacific is the Company’s largest vendor, with Georgia-Pacific products representing approximately 28% and 27% of purchases during fiscal 2005 and fiscal 2004, respectively.

      Transition Agreements. During the pre-acquisition period, Georgia-Pacific charged the Division for the estimated cost of certain functions that were managed by Georgia-Pacific and could reasonably be directly attributed to the operations of the Division. These costs included dedicated human resources, legal, accounting and information systems support. The charges to the Division were based on Georgia-Pacific management’s estimate of the services specifically used by the Division. Where determinations based on specific usage alone were impracticable, other methods and criteria were used that management believes are equitable and provide a reasonable estimate of the cost attributable to the Division. The total of the allocations was $5.9 million and $19.0 million for the period from January 4, 2004 to May 7, 2004 and fiscal 2003, respectively. Certain general corporate expenses were not allocated to the Division. These expenses included portions of property and casualty insurance premiums, health and welfare administration costs, human resources administration costs, finance administration costs and legal costs. The Company estimates that these incremental costs would have been approximately $5 million and $13 million for the period from January 4, 2004 to May 7, 2004 and fiscal 2003, respectively.

      The Company believes the assumptions underlying the Division’s financial statements are reasonable. However, the Division’s financial statements do not necessarily reflect what the Company’s future results of operations, financial position and cash flows will be, nor do they reflect what the Company’s results of operations, financial position and cash flows would have been had the Company been a separate, independent company during the periods presented.

Selected Factors that Affect the Company’s Operating Results

      The Company’s operating results are affected by housing starts, mobile home production, industrial production, repair and remodeling spending and non-residential construction. The table below shows increases and decreases with respect to each of the indicators for fiscal 2005, fiscal 2004 and fiscal 2003. Included are the Company’s estimates of the relative weight of each of the foregoing end-use markets on the Company’s sales, based on the percentage each end market contributed to net sales over the applicable period.

Source: Data from Resource Information Systems, Inc., or RISI, updated as of February, 2006, and weighting reflects management estimates.

      The Company measures its growth in unit volume (on a constant dollar basis) compared to the weighted average growth of the foregoing end-use indicators. The following table illustrates the Company’s unit volume growth versus the end-use indicators discussed above:

      The Company’s operating results are also impacted by changes in product prices. Structural products prices can vary significantly based on short-term and long-term changes in supply and demand. The prices of specialty products also can 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, in each case for fiscal 2005, fiscal 2004 and fiscal 2003:

Sales Revenue Variances by Product

      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 fiscal 2005, fiscal 2004 and fiscal 2003:

      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 fiscal 2005, fiscal 2004 and fiscal 2003:

      The Company’s fiscal year is a 52- or 53-week period ending on the Saturday closest to the end of the calendar year. The fiscal years 2005 and 2004 contained 52 weeks and fiscal year 2003 contained 53 weeks. The additional week in fiscal year 2003 was included in the fourth quarter of that year.

Results of Operations

      The following table sets forth the Company’s and the Division’s results of operations for fiscal 2005 and fiscal 2004. The results of operations for fiscal 2004 combine the pre-acquisition period from January 4, 2004 to May 7, 2004 of the Division and the period from inception (March 8, 2004) to January 1, 2005 of the Company.

      Net Sales. For the fiscal year ended December 31, 2005, sales were $5.62 billion, up $64 million or 1.1% from fiscal 2004. Specialty sales, primarily consisting of roofing, specialty panels, insulation, moulding, engineered wood products, vinyl siding, composite decking, and metal products (excluding rebar and remesh), were up $183 million or 9% higher than fiscal 2004. This increase was driven by 5.1% growth in unit volume. Structural sales including plywood, OSB, lumber, and metal rebar, were down $108 million or 3% from a year ago, as a 3% increase in unit volume was more than offset by lower plywood and OSB prices.

      Gross Profit. Gross profit for 2005 was $512 million compared to $560 million in fiscal 2004. The decrease in gross profit of $48 million or 8.6%, compared to 2004 was driven primarily by a decline in structural product margins from 8.5% in 2004 to 6.9% in fiscal 2005.

      Operating Expenses. Operating expenses for fiscal 2005 were $378 million, or 6.7% of net sales, compared to $387 million, or 7.0% of net sales, during fiscal 2004. Excluding expenses associated with acquired operations, operating expenses for fiscal 2005 were $371 million. The reduction in operating expenses was primarily the result of decreases in sales promotions and lower bad debt expense, partially offset by higher fuel costs.

      Depreciation and Amortization. Depreciation and amortization expense totaled $18.8 million for fiscal 2005, compared with $16.3 million for fiscal 2004. The increase in depreciation and amortization is

primarily due to an increase in capital expenditures for mobile equipment consisting of trucks, trailers, forklifts and automobiles.

      Operating Income. Operating income for fiscal 2005 was $116 million, or 2.1% of net sales, versus $157 million, or 2.8% of net sales, for fiscal 2004, reflecting the decline in gross profit, partially offset by lower variable operating expenses.

      Interest Expense. Interest expense totaled $42.3 million for fiscal 2005, which includes interest expense related to the Company’s revolving credit facility, mortgage and related debt issue cost amortization of $29.4 million, $9.3 million and $3.6 million, respectively. Interest expense totaled $28.8 million for fiscal 2004, which includes interest expense related to the Company’s revolving credit facility, term loan, old mortgage, new mortgage and debt issue cost amortization of $13.1 million, $6.4 million, $4.8 million, $1.4 million and $2.3 million, respectively. Interest expense on the final working capital settlement with Georgia-Pacific was $0.8 million. In addition, the Company wrote off $2.9 million of unamortized debt issue costs upon retirement of the Company’s term loan. The Division did not incur interest expense prior to the May 7, 2004 acquisition.

      Provision for Income Taxes. The Company’s effective tax rate was 39.0% and 38.9% for fiscal 2005 and fiscal 2004, respectively. The 2005 rate reflects the benefit of various tax credits approved during the year. Without these credits, the Company’s effective tax rate would have been 39.7%. This higher effective tax rate is principally a result of BlueLinx operating as a stand-alone company. As part of Georgia-Pacific, the Division was combined with the other divisions of Georgia-Pacific for state tax purposes. As a stand-alone company, the Company is projecting a state tax rate which is approximately 2% higher than Georgia-Pacific’s carve-out tax rate. The other differences resulted from higher non-deductible expenses and deemed repatriation of Canadian earnings.

      Net Income. Net income for fiscal 2005 was $44.6 million, compared to $76.3 million for fiscal 2004. The Company’s net income for the period from January 4, 2004 to May 7, 2004 was achieved as a division of Georgia-Pacific and did not include interest expense and certain corporate overhead expenses that are included in the results for the same period in fiscal 2005.

      On a per-share basis, basic and diluted income applicable to common stockholders for fiscal 2005 was $1.48 and $1.46, respectively. Basic and diluted earnings per share for the period from inception (March 8, 2004) to January 1, 2005 was $1.09 and $1.02, respectively. For the period prior to May 7, 2004, there were no earnings per share as a result of the business operating for much of that period as a division of Georgia-Pacific.

      The following table sets forth the Company’s and the Division’s results of operations for fiscal 2004 and fiscal 2003. The results of operations for fiscal 2004 combine the pre-acquisition period from January 4, 2004 to May 7, 2004 of the Division and the period from inception (March 8, 2004) to January 1, 2005 of the Company.

      Net Sales. Net sales for fiscal 2004 increased approximately 30% to $5.56 billion from $4.27 billion during fiscal 2003. Specialty sales, primarily consisting of roofing, specialty panels, insulation, moulding, engineered wood products, vinyl siding, composite decking, and metal products (excluding rebar and remesh), were up $271 million or 16% higher than fiscal 2003. This increase included a 7.6% increase in unit volume. Structural sales including plywood, OSB, lumber, and metal rebar, increased $1.02 billion or approximately 39% from a year ago. This reflects a 8.6% increase in unit volume as well as higher plywood, OSB and metal rebar prices.

      Gross Profit. Gross profit for fiscal 2004 increased by 23%, or $103 million, to $560 million from $457 million in fiscal 2003. The increase reflects increased sales, partially offset by a decline in gross profit margin from 10.7% in fiscal 2003 to 10.1% in fiscal 2004. The decrease in gross profit margin was primarily the result of a decline in structural product margins from 9.4% to 8.5% in fiscal 2004.

      Operating Expenses. Operating expenses for fiscal 2004 were $387 million, or 7.0% of net sales, compared to $347 million, or 8.1% of net sales, during fiscal 2003. Higher expenses in fiscal 2004 as compared to fiscal 2003 were primarily due to increases in employee bonuses and sales commissions due to strong performance and increased variable expenses such as warehouse and delivery labor associated with higher unit volume. Additionally, fiscal 2004 included approximately $10 million in expenses associated with the acquisition transactions and the related transition.

      Depreciation and Amortization. Depreciation and amortization expense totaled $16.3 million for fiscal 2004, while depreciation expense totaled $19.5 million for fiscal 2003. Property, plant and equipment was purchased by the Company for less than Georgia-Pacific’s book value. As a result, book value and associated depreciation following the acquisition is lower than it was during the pre-acquisition period. The Company did not have any amortization expense during the pre-acquisition period.

      Operating Income. Operating income for fiscal 2004 increased by $66 million to $157 million, or 2.8% of net sales, from $91 million, or 2.1% of net sales, for fiscal 2003. This improvement was the result of higher unit volume, higher product prices and higher gross profit.

      Interest Expense. Interest expense totaled $28.8 million for fiscal 2004, which includes interest expense related to the Company’s revolving credit facility, term loan, old mortgage, new mortgage and debt issue cost amortization of $13.1 million, $6.4 million, $4.8 million, $1.4 million and $2.3 million, respectively. Interest expense on the final working capital settlement with Georgia-Pacific was $0.8 million. In addition, the Company wrote off $2.9 million of unamortized debt issue costs upon retirement of the Company’s term loan. The Division did not incur interest expense prior to the May 7, 2004 acquisition.

      Provision for Income Taxes. The Company’s effective tax rate was 38.9% and 38.3% for fiscal 2004 and fiscal 2003, respectively.

      Net Income. Net income totaled $76.3 million and $56.2 million for fiscal 2004 and fiscal 2003, respectively. Earnings per share for fiscal 2004 and for the prior year periods is not available as a result of the business operating for much of that period as a division of Georgia-Pacific.

Seasonality

      The Company is 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 the Company’s slowest quarters due to the impact of poor weather on the construction market. The Company’s second and third quarters are typically its strongest quarters, reflecting a substantial increase in construction due to more favorable weather conditions. The Company’s 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. The Company expects these trends to continue for the foreseeable future.

Liquidity and Capital Resources

      The Company depends on cash flow from operations and funds available under its revolving credit facility to finance working capital needs, capital expenditures, dividends and acquisitions. The Company believes that the amounts available from this and other sources will be sufficient to fund its routine operations and capital requirements for the foreseeable future. The Division’s principal source of liquidity historically had been the consolidated resources of Georgia-Pacific.

      Part of the Company’s growth strategy is to selectively pursue acquisitions. Accordingly, depending on the nature of the acquisition or currency, the Company may use cash or stock, or a combination of both, as acquisition currency. The Company’s 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, the Company’s liquidity position may be adversely impacted. In addition, there can be no assurance that the Company will be successful in implementing its acquisition strategy. For a discussion of the risks associated with the Company’s acquisition strategy, see risk factor on integrating acquisitions.

      The following tables indicate the Company’s working capital and cash flows for the periods indicated.

      Working capital increased by $38.0 million, primarily as a result of a $94.1 million reduction in current maturities of long term debt and an increase in accounts receivables, resulting from higher levels of sales, partially offset by an $87.1 million increase in accounts payable and bank overdrafts. Additionally, cash increased from $15.6 million at January 1, 2005 to $24.3 million at December 31, 2005. The $24.3 million of cash on the Company’s balance sheet at December 31, 2005 primarily reflects customer remittances received in the Company’s lock-boxes on Friday and Saturday that are not available until the next Monday, which is part of the following fiscal period.

      During fiscal 2005, cash flows provided by operating activities totaled $125 million. The primary drivers of cash flow from operations were net income, as adjusted for non-cash charges, of $68.8 million and an increase in cash flow from operations related to working capital of $50.0 million reflecting improvements in working capital management.

      During fiscal 2004, cash flows provided by operating activities totaled $23.3 million. The primary driver of cash flow from operations was net income, as adjusted for non-cash charges, of $103.6 million. Offsetting this source of cash was a decrease in cash flow from operations related to working capital of $80.2 million. The change in working capital for fiscal 2004 reflected increases in inventory and accounts receivables associated with increased sales revenue, partially offset by an increase of $99 million in payables to Georgia-Pacific. Payables to Georgia-Pacific were classified as parent’s investment at January 3, 2004.

      During fiscal 2003, cash flows provided by operating activities totaled $59.6 million, primarily driven by net income of $56.2 million.

      During fiscal 2005 and fiscal 2004, cash flows used for investing activities totaled $28.5 million and $834 million, respectively. On May 7, 2004 we and our operating company acquired the real estate and operating assets of the Distribution Division. We paid purchase consideration of approximately $823 million to Georgia-Pacific.

      During fiscal 2005, the Company’s acquisition related expenditures totaled $16.9 million.

      During fiscal 2005 and fiscal 2004, the Company’s expenditures for property and equipment were $12.7 million and $11.1 million, respectively. These expenditures were primarily for mobile equipment consisting of trucks, trailers, forklifts and sales force automobiles. The Company estimates that capital expenditures for 2006 will be approximately $15 million for normal operating activities. The Company’s

2006 capital expenditures are anticipated to be paid from its current cash and cash provided from operating activities.

      Proceeds from the sale of property and equipment totaled $1.2 million and $0.3 million during fiscal 2005 and fiscal 2004, respectively.

      The Company’s expenditures for property and equipment were $5.4 million in fiscal 2003. These expenditures were primarily for mobile equipment.

      Proceeds from the sale of property and equipment totaled $1.3 million in fiscal 2003.

      Net cash provided by (used in) financing activities was $(87.5) million during fiscal 2005 and $826 million during fiscal 2004. The $87.5 million net cash used in financing activities during fiscal 2005 was cash used by the Company to pay down a portion of its outstanding debt on its revolving credit facility. The difference in cash provided by financing activities during fiscal 2004 primarily resulted from net proceeds from the Company’s (i) revolving credit facility of $487 million, (ii) its mortgage payable of $165 million, and (iii) its issuance of common stock of $121 million, all of which relate to the Company’s acquisition of the assets of the Division. Fees paid to issue debt in 2004 totaled $21.2 million.

      The Company paid dividends to its common stockholders in the aggregate amount of $15.1 million in fiscal 2005.

      Cash used for financing activities was $55 million for fiscal 2003. During the pre-acquisition period, the Company was financed by Georgia-Pacific and the use of bank overdrafts. Bank overdrafts are all checks issued by the Company that have not been presented by the payee for funding.

      On May 7, 2004, the Company’s operating company entered into a revolving credit facility. As of December 31, 2005, advances outstanding under the revolving credit facility were approximately $376 million. Borrowing availability was approximately $219 million and outstanding letters of credit on this facility were approximately $7.6 million. As of December 31, 2005, the interest rate on outstanding balances under the revolving credit facility was 7.16%. As of February 17, 2006, borrowing availability under the revolving credit facility was approximately $158 million.

      On October 27, 2004, the existing mortgage was refinanced by a new mortgage loan in the amount of $165 million, which was provided by Column Financial, Inc., a wholly-owned subsidiary of Credit Suisse First Boston LLC. The interest rate on the new mortgage loan is equal to LIBOR (subject to a 2% floor and a 6% cap), plus a 2.25% spread. On December 31, 2005, the interest rate was 6.62%.

      Contractual Commitments. The following table represents the Company’s contractual commitments, excluding interest, associated with its debt and other obligations disclosed above as of December 31, 2005.