e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
September 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 0-51357
BUILDERS FIRSTSOURCE,
INC.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
52-2084569
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
2001 Bryan Street, Suite 1600
|
|
75201
|
Dallas, Texas
|
|
(Zip Code)
|
(Address of principal executive
offices)
|
|
|
(214) 880-3500
(Registrants 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.
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined by
Rule 12b-2
of the Exchange
Act). Yes o No þ
The number of shares of the issuers common stock, par
value $0.01, outstanding as of October 29, 2007 was
35,632,794.
BUILDERS
FIRSTSOURCE, INC.
Index to
Form 10-Q
1
PART I
FINANCIAL INFORMATION
|
|
Item 1.
|
Financial
Statements (unaudited)
|
BUILDERS
FIRSTSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
(Unaudited)
|
|
|
Sales
|
|
$
|
413,917
|
|
|
$
|
569,895
|
|
|
$
|
1,290,200
|
|
|
$
|
1,800,875
|
|
Cost of sales
|
|
|
314,294
|
|
|
|
418,100
|
|
|
|
969,393
|
|
|
|
1,328,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
99,623
|
|
|
|
151,795
|
|
|
|
320,807
|
|
|
|
472,421
|
|
Selling, general and administrative expenses
|
|
|
93,197
|
|
|
|
110,562
|
|
|
|
290,230
|
|
|
|
340,553
|
|
Impairment of goodwill
|
|
|
18,864
|
|
|
|
6,763
|
|
|
|
18,864
|
|
|
|
6,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(12,438
|
)
|
|
|
34,470
|
|
|
|
11,713
|
|
|
|
125,105
|
|
Interest expense, net
|
|
|
6,550
|
|
|
|
7,292
|
|
|
|
19,845
|
|
|
|
21,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(18,988
|
)
|
|
|
27,178
|
|
|
|
(8,132
|
)
|
|
|
103,312
|
|
Income tax (benefit) expense
|
|
|
(6,976
|
)
|
|
|
9,862
|
|
|
|
(4,747
|
)
|
|
|
38,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(12,012
|
)
|
|
$
|
17,316
|
|
|
$
|
(3,385
|
)
|
|
$
|
65,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.34
|
)
|
|
$
|
0.51
|
|
|
$
|
(0.10
|
)
|
|
$
|
1.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.34
|
)
|
|
$
|
0.48
|
|
|
$
|
(0.10
|
)
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,006
|
|
|
|
34,051
|
|
|
|
34,851
|
|
|
|
33,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
35,006
|
|
|
|
36,018
|
|
|
|
34,851
|
|
|
|
36,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
BUILDERS
FIRSTSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except
|
|
|
|
per share amounts)
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
132,411
|
|
|
$
|
93,258
|
|
Accounts receivable, less allowances of $7,366 and $6,292 at
September 30, 2007 and December 31, 2006, respectively
|
|
|
190,349
|
|
|
|
196,658
|
|
Inventories
|
|
|
111,708
|
|
|
|
122,015
|
|
Other current assets
|
|
|
30,468
|
|
|
|
28,380
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
464,936
|
|
|
|
440,311
|
|
Property, plant and equipment, net
|
|
|
104,843
|
|
|
|
109,777
|
|
Goodwill
|
|
|
161,248
|
|
|
|
173,806
|
|
Other assets, net
|
|
|
21,275
|
|
|
|
24,621
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
752,302
|
|
|
$
|
748,515
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
103,226
|
|
|
$
|
84,944
|
|
Accrued liabilities
|
|
|
52,432
|
|
|
|
59,329
|
|
Current maturities of long-term debt
|
|
|
445
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
156,103
|
|
|
|
144,715
|
|
Long-term debt, net of current maturities
|
|
|
318,424
|
|
|
|
318,758
|
|
Other long-term liabilities
|
|
|
16,993
|
|
|
|
28,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
491,520
|
|
|
|
491,651
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000 shares
authorized; zero shares issued and outstanding at
September 30, 2007 and December 31, 2006, respectively
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 200,000 shares
authorized; 35,631 and 34,832 shares issued and outstanding
at September 30, 2007 and December 31, 2006,
respectively
|
|
|
350
|
|
|
|
345
|
|
Additional paid-in capital
|
|
|
136,805
|
|
|
|
127,630
|
|
Retained earnings
|
|
|
122,742
|
|
|
|
126,974
|
|
Accumulated other comprehensive income
|
|
|
885
|
|
|
|
1,915
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
260,782
|
|
|
|
256,864
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
752,302
|
|
|
$
|
748,515
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
BUILDERS
FIRSTSOURCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3,385
|
)
|
|
$
|
65,016
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,056
|
|
|
|
16,310
|
|
Impairment of goodwill
|
|
|
18,864
|
|
|
|
6,763
|
|
Amortization of deferred loan costs
|
|
|
1,976
|
|
|
|
1,965
|
|
Bad debt expense
|
|
|
1,782
|
|
|
|
398
|
|
Non-cash stock based compensation
|
|
|
6,033
|
|
|
|
2,963
|
|
Deferred income taxes
|
|
|
(9,936
|
)
|
|
|
(3,883
|
)
|
Net gain on sales of assets
|
|
|
(583
|
)
|
|
|
(215
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
8,819
|
|
|
|
7,169
|
|
Inventories
|
|
|
11,892
|
|
|
|
6,982
|
|
Other current assets
|
|
|
(589
|
)
|
|
|
(4,236
|
)
|
Other assets and liabilities
|
|
|
(2,223
|
)
|
|
|
2,380
|
|
Accounts payable
|
|
|
16,626
|
|
|
|
(12,125
|
)
|
Accrued liabilities
|
|
|
(7,605
|
)
|
|
|
(16,068
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
59,727
|
|
|
|
73,419
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(7,451
|
)
|
|
|
(22,097
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
1,552
|
|
|
|
1,333
|
|
Cash used for acquisitions, net
|
|
|
(17,626
|
)
|
|
|
(26,560
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(23,525
|
)
|
|
|
(47,324
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(331
|
)
|
|
|
(22
|
)
|
Deferred loan costs
|
|
|
|
|
|
|
(100
|
)
|
Exercise of stock options
|
|
|
3,765
|
|
|
|
9,126
|
|
Repurchase of common stock
|
|
|
(483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,951
|
|
|
|
9,004
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
39,153
|
|
|
|
35,099
|
|
Cash and cash equivalents at beginning of period
|
|
|
93,258
|
|
|
|
30,736
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
132,411
|
|
|
$
|
65,835
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
BUILDERS
FIRSTSOURCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Builders FirstSource, Inc., a Delaware corporation formed in
1998, is a leading supplier and manufacturer of structural and
related building products for residential new construction in
the United States. In this quarterly report, references to the
company, we, our,
ours or us refer to Builders
FirstSource, Inc. and its consolidated subsidiaries, unless
otherwise stated or the context otherwise requires.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements include all
recurring adjustments and normal accruals necessary for a fair
statement of the companys financial position, results of
operations and cash flows for the dates and periods presented.
Results for interim periods are not necessarily indicative of
the results to be expected during the remainder of the current
year or for any future period. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of December 31,
2006 is derived from the audited consolidated financial
statements but does not include all disclosures required by
accounting principles generally accepted in the United States of
America. This condensed consolidated balance sheet as of
December 31, 2006 and the unaudited condensed consolidated
financial statements included herein should be read in
conjunction with the more detailed audited consolidated
financial statements for the years ended December 31, 2006
included in our most recent annual report on
Form 10-K.
Accounting policies used in the preparation of these unaudited
condensed consolidated financial statements are consistent with
the accounting policies described in the Notes to Consolidated
Financial Statements included in our
Form 10-K.
Two of our reporting units have underperformed due to their
specific business climate declining as housing activity has
softened and competitors have gained market share. The carrying
value of goodwill for these reporting units was
$31.6 million as of December 31, 2006. Since
December 31, 2006, management has closely monitored trends
in economic factors and their effects on operating results to
determine if an impairment trigger was present that would
warrant a reassessment of the recoverability of the carrying
amount of goodwill prior to the required annual impairment test.
During the three months ended September 30, 2007, the
macroeconomic factors that drive our business declined further
prompting management to revise its expectations for its
reporting units. As a result of these unfavorable operating
conditions, we performed an interim impairment test for certain
of our reporting units in connection with the preparation of our
condensed consolidated financial statements for the three and
nine months ended September 30, 2007. Based on this interim
impairment test, management determined that the carrying value
of goodwill for two of our reporting units exceeded their
respective estimated fair values and recorded an
$18.9 million pre-tax impairment charge. One of these
reporting units was impaired at September 30, 2006. For
that quarter, we recorded a $6.8 million pre-tax impairment
charge. Fair value was determined based on discounted cash
flows. We will continue to monitor these reporting units and our
other reporting units, as additional declines in housing
activity for these or other of our reporting units could result
in an additional impairment of the related goodwill.
|
|
3.
|
Net
Income per Common Share
|
Net income per common share (EPS) is calculated in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings per Share,
which requires the presentation of basic and diluted EPS. Basic
EPS is computed using the weighted average number of common
shares outstanding during the period. Diluted EPS is computed
using the weighted average number of common shares outstanding
during the period, plus the dilutive effect of potential common
shares. There were 3.3 million options and 606,000
restricted shares excluded from the computation of diluted EPS
for the three and nine months ended September 30, 2007
because their effect was
5
BUILDERS
FIRSTSOURCE, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
anti-dilutive.
For the purpose of computing diluted EPS, weighted average
shares outstanding have been adjusted for common shares
underlying options of 3.0 million for the three and nine
months ended September 30, 2006. Weighted average shares
outstanding for the three and nine months ended
September 30, 2006 have also been adjusted for 54,000 and
357,000 shares of restricted stock, respectively. Options
to purchase 593,000 shares of common stock and 311,000
restricted stock shares were not included in the computations of
diluted EPS for the three months ended September 30, 2006
because their effect was anti-dilutive. Options to purchase
540,000 shares of common stock and 8,000 restricted stock
shares were not included in the computations of diluted EPS for
the nine months ended September 30, 2006 because their
effect was anti-dilutive.
The table below presents a reconciliation of weighted average
common shares used in the calculation of basic and diluted EPS
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average shares for basic EPS
|
|
|
35,006
|
|
|
|
34,051
|
|
|
|
34,851
|
|
|
|
33,651
|
|
Dilutive effect of stock awards and options
|
|
|
|
|
|
|
1,967
|
|
|
|
|
|
|
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted EPS
|
|
|
35,006
|
|
|
|
36,018
|
|
|
|
34,851
|
|
|
|
36,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Term loan
|
|
$
|
39,594
|
|
|
$
|
39,898
|
|
Floating rate notes
|
|
|
275,000
|
|
|
|
275,000
|
|
Other
|
|
|
4,275
|
|
|
|
4,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318,869
|
|
|
|
319,200
|
|
Less: current portion of long-term debt
|
|
|
445
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
318,424
|
|
|
$
|
318,758
|
|
|
|
|
|
|
|
|
|
|
Our available borrowing capacity under the revolving credit
facility at September 30, 2007 and December 31, 2006
was $107.8 million and $106.6 million, respectively.
Based on current market conditions, by the first quarter of 2008
we may be in violation of certain financial covenants contained
in the credit facility. We are currently evaluating our
available financing options, and expect to have new financing in
place prior to violation of existing covenants. Should other
alternatives prove unsatisfactory, prior to a covenant default
under our loan agreement we would expect to repay our term loan
of $39.6 million from available cash on hand. Any resulting
covenant default could prevent us from borrowing under our
revolving credit facility and require us to cash collateralize
our standby letters of credit in the amount of
$17.2 million.
6
BUILDERS
FIRSTSOURCE, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the components of comprehensive
income for the three and nine months ended September 30,
2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net (loss) income
|
|
$
|
(12,012
|
)
|
|
$
|
17,316
|
|
|
$
|
(3,385
|
)
|
|
$
|
65,016
|
|
Other comprehensive income change in fair value of
interest rate swap agreements, net of related tax effect
|
|
|
(570
|
)
|
|
|
(1,146
|
)
|
|
|
(1,030
|
)
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(12,582
|
)
|
|
$
|
16,170
|
|
|
$
|
(4,415
|
)
|
|
$
|
65,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Employee
Stock-based Compensation
|
Our board of directors granted 600,000 stock options and
366,000 shares of restricted stock to employees on
February 27, 2007. The grants were made under our 2005
Equity Incentive Plan and vest ratably over two to three years.
We estimate that this grant will result in incremental
stock-based compensation of approximately $3.7 million for
the year ending December 31, 2007. The exercise price for
these options and the grant date fair value for the restricted
stock was $18.00 per share, which was the closing stock price on
that date. The weighted average grant date fair value of these
options was $6.50 and was determined using the following
weighted average assumptions:
|
|
|
Expected life
|
|
4.4 years
|
Expected volatility
|
|
35.16%
|
Expected dividend yield
|
|
0.00%
|
Risk-free rate
|
|
4.47%
|
|
|
7.
|
Commitments
and Contingencies
|
We are a party to various legal proceedings in the ordinary
course of business. Although the ultimate disposition of these
proceedings cannot be predicted with certainty, management
believes the outcome of any claim that is pending or threatened,
either individually or on a combined basis, will not have a
material adverse effect on our consolidated financial position,
cash flows or results of operations. However, there can be no
assurances that future costs would not be material to our
results of operations or liquidity for a particular period.
|
|
8.
|
Segment
and Product Information
|
We have three regional operating segments Atlantic,
Southeast and Central with centralized financial and
operational oversight. We believe that these operating segments
meet the aggregation criteria prescribed in
SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, and thus have one
reportable segment.
7
BUILDERS
FIRSTSOURCE, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Sales by product category for the three and nine month periods
ended September 30, 2007 and 2006 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Prefabricated components
|
|
$
|
85,364
|
|
|
$
|
118,273
|
|
|
$
|
270,864
|
|
|
$
|
377,643
|
|
Windows & doors
|
|
|
94,033
|
|
|
|
120,495
|
|
|
|
291,944
|
|
|
|
367,100
|
|
Lumber & lumber sheet goods
|
|
|
109,892
|
|
|
|
172,991
|
|
|
|
350,523
|
|
|
|
593,690
|
|
Millwork
|
|
|
41,397
|
|
|
|
52,961
|
|
|
|
123,625
|
|
|
|
161,705
|
|
Other building products & services
|
|
|
83,231
|
|
|
|
105,175
|
|
|
|
253,244
|
|
|
|
300,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
413,917
|
|
|
$
|
569,895
|
|
|
$
|
1,290,200
|
|
|
$
|
1,800,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On July 31, 2007, the Company acquired the common stock of
Bama Truss and Components, Inc. (Bama) for cash
consideration of $17.6 million (including certain
adjustments). Of this amount, $2.6 million was allocated to
customer relationships and $1.1 million to non-compete
agreements, which are being amortized over nine years and two to
five years, respectively. In addition, $6.3 million was
allocated to goodwill. These are preliminary allocations and are
subject to adjustment.
Based in Shelby, Alabama, Bama is a market leader in
multi-family and light commercial manufactured structural
components. Its products include wood roof and floor trusses,
wood panels, steel roof trusses and related building materials
and services. The acquisition was accounted for by the purchase
method, and accordingly the results of operations are included
in the Companys consolidated financial statements from the
acquisition date. Under this method, the purchase price was
allocated to the assets acquired and the liabilities assumed
based on estimated fair values at the acquisition date. The
excess of purchase price over the estimated fair value of the
net assets acquired and liabilities assumed was recorded as
goodwill. Pro forma results of operations are not presented as
this acquisition is not material.
We adopted FASB Interpretation 48, Accounting for Uncertainty
in Income Taxes (FIN 48), at the beginning
of fiscal year 2007. FIN 48 clarifies the accounting for
income taxes by prescribing the minimum recognition threshold a
tax position is required to meet before being recognized in the
financial statements. FIN 48 also provides guidance on
derecognition measurement, classification, interest and
penalties, and disclosure requirements. The implementation of
FIN 48 did not have a significant impact on our financial
position or results of operations.
As a result of the adoption, we recognized a $0.8 million
increase to reserves for uncertain tax positions, which was
accounted for as an adjustment to the beginning balance of
retained earnings. Including the cumulative effect adjustment,
we had approximately $2.4 million of total gross
unrecognized tax benefits at January 1, 2007,
$1.8 million of which will affect our effective tax rate if
recognized. Also as of the adoption date, we had approximately
$0.5 million ($0.3 million net of federal benefit) of
interest and penalties accrued related to the unrecognized tax
benefits. During the current quarter, the statute of limitations
expired in certain federal and state jurisdictions for the 2003
tax year. As a result, we reduced the reserve for uncertain tax
positions by approximately $0.2 million for the reserves
recorded for that year. During the second quarter, we reduced
the reserve for unrecognized tax benefits by approximately
$0.4 million due to certain items being effectively settled
through an IRS audit of the 2004 tax year. There were no other
significant changes during the first nine months of 2007 to the
reserve balance for uncertain tax positions, including interest
and penalties. We currently record interest and penalties
related to unrecognized tax benefits as a component of income
tax expense.
8
BUILDERS
FIRSTSOURCE, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We are subject to U.S. federal income tax as well as income
tax of multiple state jurisdictions. Based on completed
examinations and the expiration of statutes of limitations, we
have concluded all U.S. federal income tax matters for
years through 2004. The company operates in 13 states with
various years open to examination.
During the second quarter of 2007, tax legislation was enacted
in one of our filing jurisdictions that increased the tax rate
at which loss carryforwards can be utilized in the future. We
increased the value of our deferred tax asset related to these
loss carryforwards by approximately $1.5 million based on
the provisions outlined in the legislation. The adjustment was
recorded as a reduction to income tax expense.
|
|
11.
|
Recent
Accounting Pronouncements
|
In June 2006, the FASB ratified Emerging Issues Task Force Issue
No. 06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation)
(EITF 06-3).
The scope of
EITF 06-3
includes any tax assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between a
seller and a customer. This issue provides that a company may
adopt a policy of presenting taxes either gross within revenue
or net. If taxes subject to this issue are significant, a
company is required to disclose its accounting policy for
presenting taxes and the amount of such taxes that are
recognized on a gross basis.
EITF 06-3
was effective for us beginning January 1, 2007, and the
adoption of
EITF 06-3
did not have a material impact on our consolidated financial
statements. We present sales tax on a net basis in our
consolidated financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements (SFAS 157), which
defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements.
The provisions of SFAS 157 are effective as of the
beginning of our 2008 fiscal year. We do not anticipate the
application of SFAS 157 to have a material effect on our
consolidated financial statements.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159), which permits
entities to choose to measure many financial instruments and
certain other items at fair value. SFAS 159 is effective as
of the beginning of our 2008 fiscal year. We are currently
evaluating if we will elect the fair value option for any of our
eligible financial instruments and other items.
In June 2007, the Financial Accounting Standards Board (FASB)
ratified Emerging Issues Task Force (EITF) issue
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11).
EITF 06-11
requires that tax benefits generated by dividends paid during
the vesting period on certain equity-classified share-based
compensation awards be classified as additional paid-in capital
and included in a pool of excess tax benefits available to
absorb tax deficiencies from share-based payment awards.
EITF 06-11
is effective as of January 1, 2008. We do not expect the
adoption of
EITF 06-11
to have a material effect on our consolidated financial
statements.
Kevin OMeara has resigned as President and Chief Operating
Officer of the Company effective October 29, 2007. We have
redistributed Mr. OMearas responsibilities; and
therefore, we have no plans to fill the position at this time.
At the request of the Board of Directors, Floyd Sherman, Chief
Executive Officer, has advised the Board that he intends to
remain as Chief Executive Officer of the Company for the next
three to five years.
9
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion of our financial condition and results
of operations should be read in conjunction with the
Managements Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial
statements and notes thereto for the year ended
December 31, 2006 included in our most recent annual report
on
Form 10-K.
The following discussion and analysis should also be read in
conjunction with the unaudited condensed consolidated financial
statements appearing elsewhere in this report. In this quarterly
report on
Form 10-Q,
references to the company, we,
our, ours or us refer to
Builders FirstSource, Inc. and its consolidated subsidiaries,
unless otherwise stated or the context otherwise requires.
Cautionary
Statement
Statements in this report which are not purely historical facts
or which necessarily depend upon future events, including
statements regarding our anticipations, beliefs, expectations,
hopes, intentions or strategies for the future, may be
forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended. All forward-looking statements in this report are based
upon information available to us on the date of this report. We
undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise. Any forward-looking
statements made in this report involve risks and uncertainties
that could cause actual events or results to differ materially
from the events or results described in the forward-looking
statements. Readers are cautioned not to place undue reliance on
these forward-looking statements. In addition, oral statements
made by our directors, officers and employees to the investor
and analyst communities, media representatives and others,
depending upon their nature, may also constitute forward-looking
statements. As with the forward-looking statements included in
this report, these forward-looking statements are by nature
inherently uncertain, and actual results may differ materially
as a result of many factors. Further information regarding the
risk factors that could affect our financial and other results
are included as Item 1A of our annual report on
Form 10-K.
COMPANY
OVERVIEW
We are a leading supplier and manufacturer of structural and
related building products for residential new construction in
the U.S. Our manufactured products include our
factory-built roof and floor trusses, wall panels and stairs, as
well as engineered wood that we design and cut for each home. We
also manufacture custom millwork and trim that we market under
the
Synboardtm
brand name, and aluminum and vinyl windows. We also assemble
interior and exterior doors into pre-hung units. In addition, we
supply our customers with a broad offering of professional grade
building products not manufactured by us, such as dimensional
lumber & lumber sheet goods, various window, door and
millwork lines, as well as cabinets, roofing and gypsum
wallboard. Our full range of construction-related services
includes professional installation, turn-key framing and shell
construction, and spans all our product categories.
We group our building products and services into five product
categories: prefabricated components, windows & doors,
lumber & lumber sheet goods, millwork, and other
building products & services. Prefabricated components
consist of floor trusses, roof trusses, wall panels, stairs, and
engineered wood. The windows & doors category is
comprised of the manufacturing, assembly and distribution of
windows and the assembly and distribution of interior and
exterior door units. Lumber & lumber sheet goods
include dimensional lumber, plywood and OSB products used in
on-site
house framing. Millwork includes interior trim, exterior trim,
columns and posts that we distribute, as well as custom exterior
features that we manufacture under the Synboard brand name. The
other building products & services category is
comprised of products such as cabinets, gypsum, roofing and
insulation, and services such as turn-key framing, shell
construction, design assistance, and professional installation
of products, spanning all of our product categories.
Our operating results are dependent on the following trends,
events and uncertainties, some of which are beyond our control:
|
|
|
|
|
Homebuilding Industry. Our business is driven
primarily by the residential new construction market, which is
in turn dependent upon a number of factors, including interest
rates and consumer confidence. During the past four quarters,
many homebuilders significantly decreased their starts because
of lower
|
10
|
|
|
|
|
demand and an excess of home inventory. Due to the decline in
housing starts and increased competition for homebuilder
business, we expect increasing pressure on our sales and
margins. The decline in housing starts continues to be
widespread affecting all our markets. However, we still believe
there are several meaningful trends that indicate
U.S. housing demand will likely remain healthy in the long
term. These trends include rising immigration rates, the growing
prevalence of second homes, relatively low interest rates, and
the aging of the housing stock.
|
|
|
|
|
|
Targeting Large Production Homebuilders. In
recent years, the homebuilding industry has undergone
significant consolidation, with the larger homebuilders
substantially increasing their market share. In accordance with
this trend, our customer base has increasingly shifted to
production homebuilders the fastest growing segment
of the residential homebuilders. However, during the nine months
ended September 30, 2007, our sales to the top 10
homebuilders in the country decreased 33.9% compared to the nine
months ended September 30, 2006. This decline is consistent
with the overall decline in housing activity in our markets. We
expect that our ability to maintain strong relationships with
the largest builders will be vital to our ability to grow and
expand into new markets.
|
|
|
|
Expand into Multi-Family and Light Commercial
Business. We believe we can diversify our
customer base and grow our sales by expanding into multi-family
and light commercial business. While we primarily serve the
single family new home construction market, we believe we can
enter the multi-family
and/or light
commercial market in certain regions with limited incremental
costs as these end markets are especially conducive for sales of
prefabricated components. In the third quarter of 2007, we
further advanced this strategy with the purchase of Bama Truss
and Components, Inc. which is a market leader in multi-family
and light commercial manufactured structural components based in
Shelby, Alabama.
|
|
|
|
Use of Prefabricated Components. Prior to the
current housing downturn, homebuilders were increasingly using
prefabricated components in order to realize increased
efficiency and improved quality. Shortening cycle time from
start to completion was a key imperative of the homebuilders
during periods of strong consumer demand. With the current
housing downturn, that trend has ceased as cycle time has less
relevance. Customers who traditionally used prefabricated
components, for the most part, still do. However, the conversion
of customers to this product offering has slowed. We expect this
trend to continue at least for the duration of this downturn. In
response, we have reduced our manufacturing capacity and delayed
plans to open new facilities.
|
|
|
|
Expansion of Existing and New Facilities. We
are seeking to increase our market penetration through the
introduction of additional distribution and manufacturing
facilities in markets that are underserved. In light of the
current operating conditions, however, we do not anticipate
opening or expanding as many facilities as we have in the past
few years. New facilities, including acquisitions, generated
incremental sales of approximately $25.3 million in the
nine months ended September 30, 2007, compared to the same
period in 2006.
|
|
|
|
Economic Conditions. Economic changes both
nationally and locally in our markets impact our financial
performance. The building products supply industry is dependent
on new home construction and subject to cyclical market changes.
Our operations are subject to fluctuations arising from changes
in supply and demand, national and international economic
conditions, labor costs, competition, government regulation,
trade policies and other factors that affect the homebuilding
industry such as demographic trends, interest rates,
single-family housing starts, employment levels, consumer
confidence, and the availability of credit to homebuilders,
contractors and homeowners. During the third quarter of 2007,
the mortgage markets experienced substantial disruption due to
increased defaults related to subprime mortgages.
This mortgage market disruption has had a two-fold effect on the
current homebuilder market. First, lenders have tightened the
qualification criteria for mortgages, effectively taking a
substantial number of potential home buyers out of the market
and therefore reducing demand for new homes. Second, the
increase in defaults has increased the inventory of homes for
sale, creating more competition for homebuilders.
|
|
|
|
Cost of Materials. Prices of wood products,
which are subject to cyclical market fluctuations, may adversely
impact operating income when prices rapidly rise or fall within
a relatively short period of time. We purchase certain
materials, including lumber products, which are then sold to
customers as well as used
|
11
|
|
|
|
|
as direct production inputs for our manufactured and
prefabricated products. Short-term changes in the cost of these
materials, some of which are subject to significant
fluctuations, are sometimes passed on to our customers, but our
pricing quotation periods may limit our ability to pass on such
price changes. Our inability to pass on material price increases
to our customers could adversely impact our operating income.
|
|
|
|
|
|
Controlling Expenses. Another important aspect
of our strategy is controlling costs and enhancing our status as
a low-cost building materials supplier in the markets we serve.
We pay close attention to managing our working capital and
operating expenses. We have a best practices
operating philosophy, which encourages increasing efficiency,
lowering costs, improving working capital, and maximizing
profitability and cash flow. We constantly analyze our workforce
productivity to achieve the optimum, cost-efficient labor mix
for our facilities. Further, we pay careful attention to our
logistics function and its effect on our shipping and handling
costs.
|
CURRENT
OPERATING CONDITIONS AND OUTLOOK
Housing starts continued to experience year-over-year declines
during the third quarter 2007 due in part to the tightened
credit standards in the mortgage markets. According to the
U.S. Census Bureau, housing starts for September 2007 were
at a seasonally adjusted annual rate of 1.226 million,
which is 25.9% below the September 2006 rate of
1.654 million and 24.7% below the December 2006 rate of
1.628 million. Third quarter 2007 housing starts for our
markets decreased approximately 32% compared to the third
quarter 2006. In addition, market prices for lumber &
lumber sheet goods in the third quarter 2007 were on average
approximately 2% lower than a year ago.
In response to industry conditions, we have continued our focus
on diligently controlling costs and mitigating the decrease in
sales through market share gains and new operations. Despite the
challenges of the current operating environment, in the current
quarter we have grown our sales from market share gains by
approximately six percent, maintained 24.1% gross margins, and
reduced our selling, general and administrative expense by
15.7%, compared to our sales volume decline of 23.9%, when
compared to the same quarter last year. Additionally, we have
generated $67 million in cash, after acquisitions, since
September of 2006.
In this environment, we are managing our business day-to-day,
adjusting to customer demand. We want to avoid taking steps that
will limit our ability to compete and to create long-term
shareholder value. We will continue to look for ways to
counteract the non-controllable macroeconomic factors and will
persistently strive to grow our market share and flex our cost
structure while still providing quality customer service as we
manage through this down cycle. We cannot predict the duration
or the severity of the current market conditions, but we believe
with cash of $132.4 million, we are well-positioned for the
challenging operating environment and for growth opportunities.
SEASONALITY
AND OTHER FACTORS
Our first and fourth quarters have historically been, and are
expected to continue to be, adversely affected by weather
patterns in some of our markets, causing reduced construction
activity. In addition, quarterly results historically have
reflected, and are expected to continue to reflect, fluctuations
from period to period arising from the following:
|
|
|
|
|
The volatility of lumber prices;
|
|
|
|
The cyclical nature of the homebuilding industry;
|
|
|
|
General economic conditions in the markets in which we compete;
|
|
|
|
The pricing policies of our competitors;
|
|
|
|
The production schedules of our customers; and
|
|
|
|
The effects of weather.
|
The composition and level of working capital typically change
during periods of increasing sales as we carry more inventory
and receivables. Working capital levels typically increase in
the second and third quarters of the year due to higher sales
during the peak residential construction season. These increases
have in the past resulted in lower or negative operating cash
flows during this peak season, which generally have been
financed through our revolving
12
credit facility or cash on hand. Collection of receivables and
reduction in inventory levels following the peak building and
construction season have more than offset this negative cash
flow. More recently, we have relied less on our revolving credit
facility due to our ability to generate sufficient operating
cash flows. We believe our substantial cash balance will be
sufficient to cover seasonal working capital needs. We also have
available borrowing capacity under the revolving credit facility
which at September 30, 2007 was $107.8 million.
However, based on current market conditions, by the first
quarter of 2008 we may be in violation of certain financial
covenants contained in the credit facility. We are currently
evaluating our available financing options, and expect to have
new financing in place prior to violation of existing covenants.
Should other alternatives prove unsatisfactory, prior to a
covenant default under our loan agreement we would expect to
repay our term loan of $39.6 million from available cash on
hand. Any resulting covenant default could prevent us from
borrowing under our revolving credit facility and require us to
cash collateralize our standby letters of credit in the amount
of $17.2 million.
RECENT
DEVELOPMENTS
Goodwill
Impairment
Two of our reporting units have underperformed due to their
specific business climate declining as housing activity has
softened and competitors have gained market share. The carrying
value of goodwill for these reporting units was
$31.6 million as of December 31, 2006. Since
December 31, 2006, management has closely monitored trends
in economic factors and their effects on operating results to
determine if an impairment trigger was present that would
warrant a reassessment of the recoverability of the carrying
amount of goodwill prior to the required annual impairment test.
During the three months ended September 30, 2007, the
macroeconomic factors that drive our business declined further
prompting management to revise its expectations for its
reporting units. As a result of these unfavorable operating
conditions, we performed an interim impairment test for certain
of our reporting units in connection with the preparation of our
condensed consolidated financial statements for the three and
nine months ended September 30, 2007. Based on this interim
impairment test, management determined that the carrying value
of goodwill for two of our reporting units exceeded their
respective estimated fair values and recorded an
$18.9 million pre-tax impairment charge. One of these
reporting units was impaired at September 30, 2006. For
that quarter, we recorded a $6.8 million pre-tax impairment
charge. Fair value was determined based on discounted cash
flows. We will continue to monitor these reporting units and our
other reporting units, as additional declines in housing
activity for these or other of our reporting units could result
in an additional impairment of the related goodwill.
Acquisition
On July 31, 2007, the Company acquired the common stock of
Bama Truss and Components, Inc. (Bama) for cash
consideration of $17.6 million (including certain
adjustments). Of this amount, $2.6 million was allocated to
customer relationships and $1.1 million to non-compete
agreements, which are being amortized over nine years and two to
five years, respectively. In addition, $6.3 million was
allocated to goodwill. These are preliminary allocations and are
subject to adjustment.
Based in Shelby, Alabama, Bama is a market leader in
multi-family and light commercial manufactured structural
components. Its products include wood roof and floor trusses,
wood panels, steel roof trusses and related building materials
and services. The acquisition was accounted for by the purchase
method, and accordingly the results of operations are included
in the Companys consolidated financial statements from the
acquisition date. Under this method, the purchase price was
allocated to the assets acquired and the liabilities assumed
based on estimated fair values at the acquisition date. The
excess of purchase price over the estimated fair value of the
net assets acquired and liabilities assumed was recorded as
goodwill. Pro forma results of operations are not presented as
this acquisition is not material.
ADOPTION
OF FIN 48
We adopted FASB Interpretation 48, Accounting for Uncertainty
in Income Taxes (FIN 48), at the beginning
of fiscal year 2007. FIN 48 clarifies the accounting for
income taxes by prescribing the minimum recognition
13
threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also
provides guidance on derecognition measurement, classification,
interest and penalties, and disclosure requirements. The
implementation of FIN 48 did not have a significant impact
on our financial position or results of operations.
As a result of the adoption, we recognized a $0.8 million
increase to reserves for uncertain tax positions, which was
accounted for as an adjustment to the beginning balance of
retained earnings. Including the cumulative effect adjustment,
we had approximately $2.4 million of total gross
unrecognized tax benefits at January 1, 2007,
$1.8 million of which will affect our effective tax rate if
recognized. Also as of the adoption date, we had approximately
$0.5 million ($0.3 million net of federal benefit) of
interest and penalties accrued related to the unrecognized tax
benefits. During the current quarter, the statute of limitations
expired in certain federal and state jurisdictions for the 2003
tax year. As a result, we reduced the reserve for uncertain tax
positions by approximately $0.2 million for the reserves
recorded for that year. During the second quarter, we reduced
the reserve for unrecognized tax benefits by approximately
$0.4 million due to certain items being effectively settled
through an IRS audit of the 2004 tax year. There were no other
significant changes during the first nine months of 2007 to the
reserve balance for uncertain tax positions, including interest
and penalties. We currently record interest and penalties
related to unrecognized tax benefits as a component of income
tax expense.
We are subject to U.S. federal income tax as well as income
tax of multiple state jurisdictions. Based on completed
examinations and the expiration of statutes of limitations, we
have concluded all U.S. federal income tax matters for
years through 2004. The company operates in 13 states with
various years open to examination.
RESULTS
OF OPERATIONS
The following table sets forth, for the three and nine months
ended September 30, 2007 and 2006, the percentage
relationship to sales of certain costs, expenses and income
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
75.9
|
%
|
|
|
73.4
|
%
|
|
|
75.1
|
%
|
|
|
73.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
24.1
|
%
|
|
|
26.6
|
%
|
|
|
24.9
|
%
|
|
|
26.2
|
%
|
Selling, general and administrative expenses
|
|
|
22.5
|
%
|
|
|
19.4
|
%
|
|
|
22.5
|
%
|
|
|
18.9
|
%
|
Impairment of goodwill
|
|
|
4.6
|
%
|
|
|
1.2
|
%
|
|
|
1.5
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(3.0
|
)%
|
|
|
6.0
|
%
|
|
|
0.9
|
%
|
|
|
6.9
|
%
|
Interest expense
|
|
|
1.6
|
%
|
|
|
1.3
|
%
|
|
|
1.5
|
%
|
|
|
1.2
|
%
|
Income tax (benefit) expense
|
|
|
(1.7
|
)%
|
|
|
1.7
|
%
|
|
|
(0.4
|
)%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(2.9
|
)%
|
|
|
3.0
|
%
|
|
|
(0.2
|
)%
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2007 Compared with the Three
Months Ended September 30, 2006
Sales. Sales for the three months ended
September 30, 2007 were $413.9 million, a 27.4%
decrease from sales of $569.9 million for the three months
ended September 30, 2006. In the three months ended
September 30, 2007, housing starts in our markets decreased
approximately 32%. In addition, market prices for
lumber & lumber sheet goods were on average
approximately 2% lower than in the three months ended
September 30, 2006 which reduced our total sales by
approximately 0.6%. In addition, the decline in housing activity
within our markets is prompting increased competitive
conditions. We have responded by lowering our prices to
customers in the lumber & lumber sheet goods category
reducing total sales by an estimated 3.0% for the quarter.
Market share gains and, to a lesser extent, sales from new
operations, partially offset the decline in housing starts and
market prices for commodity lumber products.
14
The following table shows sales classified by product category
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Sales
|
|
|
% of Sales
|
|
|
Sales
|
|
|
% of Sales
|
|
|
% Change
|
|
|
Prefabricated components
|
|
$
|
85.4
|
|
|
|
20.6
|
%
|
|
$
|
118.3
|
|
|
|
20.8
|
%
|
|
|
(27.8
|
)%
|
Windows & doors
|
|
|
94.0
|
|
|
|
22.7
|
%
|
|
|
120.5
|
|
|
|
21.1
|
%
|
|
|
(22.0
|
)%
|
Lumber & lumber sheet goods
|
|
|
109.9
|
|
|
|
26.6
|
%
|
|
|
173.0
|
|
|
|
30.4
|
%
|
|
|
(36.5
|
)%
|
Millwork
|
|
|
41.4
|
|
|
|
10.0
|
%
|
|
|
52.9
|
|
|
|
9.3
|
%
|
|
|
(21.7
|
)%
|
Other building products & services
|
|
|
83.2
|
|
|
|
20.1
|
%
|
|
|
105.2
|
|
|
|
18.4
|
%
|
|
|
(20.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
413.9
|
|
|
|
100.0
|
%
|
|
$
|
569.9
|
|
|
|
100.0
|
%
|
|
|
(27.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We continued to transition from commodity items to higher
margin, value-added products, but we felt the negative impact of
decreased housing starts across all our product categories.
Lumber & lumber sheet goods and, to a lesser degree,
prefabricated components were also negatively influenced by
commodity price deflation. For the lumber & lumber
sheet goods category, our unit volume declined 24.8% while our
prices declined 11.7%. This equates to $42.9 million and
$20.2 million in sales declines due to lower unit volumes
and price, respectively.
Our focus on growing our manufactured windows and installation
business has mitigated some of the downward pressure from
decreased housing activity. As our homebuilder customers
downsize their operations, they have increasingly utilized our
turn-key installation services. We believe our value-added
products and services give us a competitive advantage helping us
attract new business during this down cycle.
Gross Margin. Gross margin decreased
$52.2 million, or 34.4%. The majority of the decline was in
the lumber & lumber sheet goods category, which
declined $20.4 million. Our gross margin dollars decreased
primarily due to lower sales volume and price concessions to our
customers in response to increasingly competitive conditions.
The gross margin percentage decreased from 26.6% to 24.1% in
2007. The de-leveraging of lower sales volumes to fixed costs of
sales lowered our gross margins by approximately 80 basis
points. Lower prices on lumber & lumber sheet goods
contributed 140 basis points to the decline. In addition,
the rising percentage of installed sales, which traditionally
carry lower gross margins, had a negative impact on our gross
margins during the quarter. The overall decline in gross margin
percentage was partially mitigated by a favorable change in
sales mix towards higher margin products such as millwork and
windows and doors. If market conditions continue to create
increased competitive pressure, we may continue to see margin
compression during the remainder of 2007.
Impairment of Goodwill. Based on interim
impairment tests, management determined that the carrying value
of goodwill for certain of its reporting units was impaired and
recorded an $18.9 million and $6.8 million pre-tax
impairment charge during the three months ended
September 30, 2007 and 2006, respectively.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses decreased $17.4 million, or 15.7%, to
$93.2 million. The largest decline was in our salaries and
benefits expense, which excluding $1.0 million of
incremental stock-based compensation expense, decreased
$15.3 million, or 21.7%, while our full- time equivalent
employee headcount decreased 16.4%. Professional services fees
decreased $1.5 million, the result of the company managing
this semi-variable cost in response to current market conditions.
As a percent of sales, selling, general and administrative
expenses increased from 19.4% in 2006 to 22.5% in 2007. Lower
prices on commodity lumber products increased the
2007 percentage by 1.0% as many of our selling, general and
administrative expenses do not adjust to changes in price. In
addition, incremental stock-based compensation expense increased
selling, general and administrative expenses as a percentage of
sales by 0.2%. The remaining 1.9% increase is due to fixed
costs, which do not adjust lower with declining sales volume. We
continue to monitor our operating cost structure closely and
make adjustments as necessary.
Interest Expense, Net. Net interest expense
was $6.6 million for the three months ended
September 30, 2007, a decrease of $0.7 million. The
decrease was primarily attributable to increased interest income
related to higher cash balances and was partially offset by
additional interest expense resulting from higher interest rates
during the three months ended September 30, 2007.
15
Income Tax Expense. The effective tax rate
increased to 36.7% for the three months ended September 30,
2007, compared to 36.3% for the three months ended
September 30, 2006. During the third quarter of 2007, the
statute of limitations expired in certain federal and state
jurisdictions for the 2003 tax year. As a result, we reduced the
reserve for uncertain tax positions by approximately
$0.2 million that were recorded for that year. The
effective tax rate was also impacted by the shift from income to
loss before income taxes.
Nine
Months Ended September 30, 2007 Compared with the Nine
Months Ended September 30, 2006
Sales. Sales for the nine months ended
September 30, 2007 were $1,290.2 million, a 28.4%
decrease from sales of $1,800.9 million for the nine months
ended September 30, 2006. In the nine months ended
September 30, 2007, housing starts in our markets decreased
approximately 35%. In addition, market prices for
lumber & lumber sheet goods were on average
approximately 16% lower than in the nine months ended
September 30, 2006. We limited the negative impact on
lumber & lumber sheet goods sales and total sales to
only 15.2% and 5.0%, respectively, for the nine months ended
September 30, 2007 through purchasing efficiencies and
price management. Market share gains and, to a lesser extent,
sales from new operations, partially offset the significant
decline in housing starts and market prices for commodity lumber
products.
The following table shows sales classified by product category
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Sales
|
|
|
% of Sales
|
|
|
Sales
|
|
|
% of Sales
|
|
|
% Change
|
|
|
Prefabricated components
|
|
$
|
270.9
|
|
|
|
21.0
|
%
|
|
$
|
377.7
|
|
|
|
21.0
|
%
|
|
|
(28.3
|
)%
|
Windows & doors
|
|
|
291.9
|
|
|
|
22.6
|
%
|
|
|
367.1
|
|
|
|
20.4
|
%
|
|
|
(20.5
|
)%
|
Lumber & lumber sheet goods
|
|
|
350.5
|
|
|
|
27.2
|
%
|
|
|
593.7
|
|
|
|
32.9
|
%
|
|
|
(41.0
|
)%
|
Millwork
|
|
|
123.6
|
|
|
|
9.6
|
%
|
|
|
161.7
|
|
|
|
9.0
|
%
|
|
|
(23.6
|
)%
|
Other building products & services
|
|
|
253.3
|
|
|
|
19.6
|
%
|
|
|
300.7
|
|
|
|
16.7
|
%
|
|
|
(15.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
1,290.2
|
|
|
|
100.0
|
%
|
|
$
|
1,800.9
|
|
|
|
100.0
|
%
|
|
|
(28.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We continued to improve our sales mix during the period,
transitioning from commodity items to higher margin, value-added
products, but we felt the negative impact of decreased housing
starts across all our product categories. Lumber &
lumber sheet goods and, to a lesser degree, prefabricated
components are heavily influenced by commodity price deflation.
In addition, the decline in housing activity within our markets
is prompting increased competitive conditions. We have responded
by lowering our prices to our customers in the
lumber & lumber sheet goods category reducing total
sales by an estimated 5.0% for the nine months ended
September 30, 2007. For the lumber & lumber sheet
goods category, our unit volume declined 25.8% while our prices
declined 15.2%. This equates to $153.1 million and
$90.1 million in sales declines due to lower unit volumes
and price, respectively.
Our focus on growing our manufactured windows and installation
business has mitigated some of the downward pressure from
decreased housing activity. As our homebuilder customers
downsize their operations, they have increasingly utilized our
turn-key installation services. We believe our value-added
products and services give us a competitive advantage helping us
attract new business during this down cycle.
Gross Margin. Gross margin decreased
$151.6 million, or 32.1%. The majority of the decline was
in the lumber & lumber sheet goods category, which
declined $60.7 million. Our gross margin dollars decreased
primarily due to lower sales volume and price concessions to our
customers in response to increasingly competitive conditions.
The gross margin percentage decreased from 26.2% in 2006 to
24.9% in 2007. The de-leveraging of lower sales volumes to fixed
costs of sales lowered our gross margins by approximately
85 basis points. Lower prices on lumber & lumber
sheet goods contributed 70 basis points to the decline. In
addition, the rising percentage of installed sales, which
traditionally carry lower gross margins, had a negative impact
on our gross margins during the nine months ended
September 30, 2007. The overall decline in gross margin
percentage was partially mitigated by a favorable change in
sales mix towards higher margin products such as millwork and
windows and doors. If market conditions continue to create
increased competitive pressure, we may continue to see margin
compression during the remainder of 2007.
16
Impairment of Goodwill. Based on interim
impairment tests, management determined that the carrying value
of goodwill for certain of its reporting units was impaired and
recorded an $18.9 million and $6.8 million pre-tax
impairment charge during the nine months ended
September 30, 2007 and 2006, respectively.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses decreased $50.3 million, or 14.8%. Our salaries
and benefits expense, excluding $3.1 million of incremental
stock-based compensation expense, decreased $46.5 million,
or 21.1%, while our full-time equivalent employee headcount
decreased 17.4%. Professional services fees decreased
$2.5 million, the result of the company managing this
semi-variable cost in response to current market conditions.
As a percent of sales, selling, general and administrative
expenses increased from 18.9% in 2006 to 22.5% in 2007. Lower
prices for lumber products increased the 2007 percentage by
1.5% as many of our selling, general and administrative expenses
do not adjust with changes in price. In addition, incremental
stock-based compensation expense increased selling, general and
administrative expenses as a percentage of sales by 0.2%. The
remaining 1.9% increase is due to fixed costs, which do not
adjust lower with declining sales volume. We continue to monitor
our operating cost structure closely and plan to make
adjustments as necessary.
Interest Expense, Net. Net interest expense
was $19.8 million for the nine months ended
September 30, 2007, a decrease of $1.9 million. The
decrease was primarily attributable to increased interest income
related to higher cash balances and was partially offset by
additional interest expense resulting from higher interest rates
during the nine months ended September 30, 2007.
Income Tax Expense. The effective tax rate
increased to 58.4% for the nine months ended September 30,
2007, compared to 37.1% for the nine months ended
September 30, 2006. During the second quarter of 2007, tax
legislation was enacted in one of our filing jurisdictions that
increased the tax rate at which loss carryforwards can be
utilized in the future. We increased the value of our deferred
tax asset related to these loss carryforwards by approximately
$1.5 million based on the provisions outlined in the
legislation. The adjustment was recorded as a reduction to
income tax expense. Also during the first nine months of 2007,
the Internal Revenue Service completed the examination of our
2004 federal income tax return and the statute of limitations
expired in certain federal and state jurisdictions for the 2003
tax year. As a result, we reduced the reserve for uncertain tax
positions by approximately $0.6 million. The effective tax
rate was also impacted by the shift from income to loss before
income taxes.
LIQUIDITY
AND CAPITAL RESOURCES
For information regarding our liquidity and capital resources
see our annual report on
Form 10-K
for the year ended December 31, 2006. Our cash balance has
increased from $93.3 million at December 31, 2006, to
$132.4 million at September 30, 2007. Our available
borrowing capacity under the revolving credit facility at
September 30, 2007 was $107.8 million. Based on
current market conditions, by the first quarter of 2008 we may
be in violation of certain financial covenants contained in the
credit facility. We are currently evaluating our available
financing options, and expect to have new financing in place
prior to violation of existing covenants. Should other
alternatives prove unsatisfactory, prior to a covenant default
under our loan agreement we would expect to repay our term loan
of $39.6 million from available cash on hand. Any resulting
covenant default could prevent us from borrowing under our
revolving credit facility and require us to cash collateralize
our standby letters of credit in the amount of
$17.2 million. There have been no other material changes in
our liquidity, commitments for capital expenditures or sources
and mix of capital resources.
Consolidated
Cash Flows
Cash provided by operating activities decreased
$13.7 million to $59.7 million for the nine months
ended September 30, 2007, compared to the nine months ended
September 30, 2006. The decrease was essentially due to a
decrease in operating income primarily as a result of the
decrease in our sales volume and sales prices. This decrease in
operating income was partially offset by changes in working
capital as the company continues to aggressively manage working
capital by reducing inventory levels and negotiating more
favorable payment terms with our vendors.
17
During the nine months ended September 30, 2007 and 2006,
cash flows used for investing activities were $23.5 million
and $47.3 million, respectively. Capital expenditures
decreased from $22.1 million for the nine months ended
September 30, 2006, to $7.5 million for the nine
months ended September 30, 2007, as we strive to conserve
capital in the current operating environment. We also used cash
of $17.6 million to purchase a supplier of multi-family and
light commercial manufactured structural components in 2007, and
$26.6 million to purchase a supplier of prefabricated
components and building materials in 2006.
Net cash provided by financing activities was $3.0 million
for the nine months ended September 30, 2007, compared to
$9.0 million for the nine months ended September 30,
2006. The decrease was primarily due to a reduction in cash
received from stock option exercises.
RECENT
ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB ratified Emerging Issues Task Force Issue
No. 06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross versus Net Presentation)
(EITF 06-3).
The scope of
EITF 06-3
includes any tax assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between a
seller and a customer. This issue provides that a company may
adopt a policy of presenting taxes either gross within revenue
or net. If taxes subject to this issue are significant, a
company is required to disclose its accounting policy for
presenting taxes and the amount of such taxes that are
recognized on a gross basis.
EITF 06-3
was effective for us beginning January 1, 2007, and the
adoption of
EITF 06-3
did not have a material impact on our consolidated financial
statements. We present sales tax on a net basis in our
consolidated financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements (SFAS 157), which
defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements.
The provisions of SFAS 157 are effective as of the
beginning of our 2008 fiscal year. We do not anticipate the
application of SFAS 157 to have a material effect on our
consolidated financial statements.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159) which permits
entities to choose to measure many financial instruments and
certain other items at fair value. SFAS 159 is effective as
of the beginning of our 2008 fiscal year. We are currently
evaluating if we will elect the fair value option for any of our
eligible financial instruments and other items.
In June 2007, the Financial Accounting Standards Board (FASB)
ratified Emerging Issues Task Force (EITF) issue
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11).
EITF 06-11
requires that tax benefits generated by dividends paid during
the vesting period on certain equity-classified share-based
compensation awards be classified as additional paid-in capital
and included in a pool of excess tax benefits available to
absorb tax deficiencies from share-based payment awards.
EITF 06-11
is effective as of January 1, 2008. We do not expect the
adoption of
EITF 06-11
to have a material effect on our consolidated financial
statements.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We experience changes in interest expense when market interest
rates change. Changes in our debt could also increase these
risks. We utilize interest rate swap contracts to fix interest
rates on a portion of our outstanding long-term debt balances.
Based on debt outstanding and interest rate swap contracts in
place at September 30, 2007, a 1.0% increase in interest
rates would result in approximately $1.1 million of
additional interest expense annually.
We purchase certain materials, including lumber products, which
are then sold to customers as well as used as direct production
inputs for our manufactured products that we deliver. Short-term
changes in the cost of these materials, some of which are
subject to significant fluctuations, are sometimes, but not
always, passed on to our customers. Our delayed ability to pass
on material price increases to our customers can adversely
impact our operating income.
18
|
|
Item 4.
|
Controls
and Procedures
|
Controls Evaluation and Related CEO and CFO
Certifications. Our management, with the
participation of our principal executive officer
(CEO) and principal financial officer
(CFO), conducted an evaluation of the effectiveness
of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly
report. The controls evaluation was conducted by our Disclosure
Committee, comprised of senior representatives from our finance,
accounting, internal audit, and legal departments under the
supervision of our CEO and CFO.
Certifications of our CEO and our CFO, which are required in
accordance with
Rule 13a-14
of the Securities Exchange Act of 1934, as amended
(Exchange Act), are attached as exhibits to this
quarterly report. This Controls and Procedures
section includes the information concerning the controls
evaluation referred to in the certifications, and it should be
read in conjunction with the certifications for a more complete
understanding of the topics presented.
Limitations on the Effectiveness of
Controls. We do not expect that our disclosure
controls and procedures will prevent all errors or all fraud. A
system of controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute,
assurance that the objectives of the system are met. Because of
the limitations in all such systems, no evaluation can provide
absolute assurance that all control issues or instances of
fraud, if any, within the Company have been detected.
Furthermore, the design of any system of controls and procedures
is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential
future conditions, regardless of how unlikely. Because of these
inherent limitations in a cost-effective system of controls and
procedures, misstatements or omissions due to error or fraud may
occur and not be detected.
Scope of the Controls Evaluation. The
evaluation of our disclosure controls and procedures included a
review of their objectives and design, the Companys
implementation of the controls and procedures and the effect of
the controls and procedures on the information generated for use
in this quarterly report. In the course of the evaluation, we
sought to identify whether we had any data errors, control
problems or acts of fraud and to confirm that appropriate
corrective action, including process improvements, was being
undertaken if needed. This type of evaluation is performed on a
quarterly basis so that conclusions concerning the effectiveness
of our disclosure controls and procedures can be reported in our
quarterly reports on
Form 10-Q.
Many of the components of our disclosure controls and procedures
are also evaluated by our internal audit department, our legal
department and by personnel in our finance organization. The
overall goals of these various evaluation activities are to
monitor our disclosure controls and procedures on an ongoing
basis, and to maintain them as dynamic systems that change as
conditions warrant.
Conclusions regarding Disclosure
Controls. Based on the required evaluation of our
disclosure controls and procedures, our CEO and CFO have
concluded that, as of September 30, 2007, we maintain
disclosure controls and procedures that are effective in
providing reasonable assurance that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is
accumulated and communicated to our management, including our
CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure.
Changes in Internal Control over Financial
Reporting. During the period covered by this
report, there have been no changes in our internal control over
financial reporting identified in connection with the evaluation
described above that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
19
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
We are involved in various claims and lawsuits incidental to the
conduct of our business in the ordinary course. We carry
insurance coverage in such amounts in excess of our self-insured
retention as we believe to be reasonable under the circumstances
and that may or may not cover any or all of our liabilities in
respect of claims and lawsuits. We do not believe that the
ultimate resolution of these matters will have a material
adverse impact on our consolidated financial position, cash
flows or results of operations.
Although our business and facilities are subject to federal,
state and local environmental regulation, environmental
regulation does not have a material impact on our operations. We
believe that our facilities are in material compliance with such
laws and regulations. As owners and lessees of real property, we
can be held liable for the investigation or remediation of
contamination on such properties, in some circumstances without
regard to whether we knew of or were responsible for such
contamination. Our current expenditures with respect to
environmental investigation and remediation at our facilities
are minimal, although no assurance can be provided that more
significant remediation may not be required in the future as a
result of spills or releases of petroleum products or hazardous
substances or the discovery of unknown environmental conditions.
Set forth below is a discussion of the material changes in our
risk factors as previously disclosed in Item 1A of
Part I of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 (2006
Form 10-K).
The information presented below updates, and should be read in
conjunction with, the risk factors and other information
disclosed in our 2006
Form 10-K.
The first risk factor contained in Item 1A of the 2006
Form 10-K
is amended to read as follows:
The
industry in which we operate is dependent upon the homebuilding
industry, the economy, and other important factors; the housing
industry is undergoing a significant downturn.
The building products supply industry is highly dependent on new
home construction, which in turn is dependent upon a number of
factors, including demographic trends, interest rates, tax
policy, employment levels, consumer confidence, supply and
demand for housing stock, foreclosure rates and the economy
generally. Unfavorable changes in demographics or a weakening of
the national economy or of any regional or local economy in
which we operate could adversely affect consumer spending,
result in decreased demand for homes, and adversely affect our
business. Production of new homes may also decline because of
shortages of qualified tradesmen, reliance on inadequately
capitalized sub-contractors, and shortages of materials. In
addition, the homebuilding industry is subject to various local,
state, and federal statutes, ordinances, rules, and regulations
concerning zoning, building design and safety, construction, and
similar matters, including regulations that impose restrictive
zoning and density requirements in order to limit the number of
homes that can be built within the boundaries of a particular
area. Increased regulatory restrictions could limit demand for
new homes and could negatively affect our sales and earnings.
Because we have substantial fixed costs, relatively modest
declines in our customers production levels could have a
significant adverse effect on our financial condition, operating
results and cash flows.
The homebuilding industry is undergoing a significant downturn.
We believe that the market downturn is attributable to a variety
of factors, including: a decline in consumer confidence;
decreased housing affordability; excess home inventories; a
substantial reduction in speculative home investment; and an
industry-wide softening of demand. The downward trend in the
homebuilding industry has resulted in a substantial reduction in
demand for our products and services, which in turn has had a
significant adverse effect on our business and results of
operations during fiscal 2007.
In addition, during 2007, the mortgage markets experienced
substantial disruption due to increased defaults relating to
sub-prime mortgages. This development has resulted
in the decreased availability of mortgage
20
financing generally and more restrictive financing terms, which
in turn have contributed to the decline in demand for new homes.
The mortgage market disruption is likely to delay any future
improvement in the housing market.
We cannot predict the duration or severity of the current market
conditions, or the timing or strength of any future recovery of
housing activity in our markets. We also cannot provide any
assurances that the operational strategies we have implemented
to address the current market conditions will be successful. We
expect that these adverse industry conditions are likely to
continue to have a substantial adverse effect on our business
and results of operations until the housing market improves.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
Unregistered
Sales of Equity Securities
(a) None
Use of
Proceeds
(b) Not applicable
Company
Stock Repurchases
(c) None
|
|
Item 3.
|
Defaults
upon Senior Securities
|
(a) None
(b) None
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None
|
|
Item 5.
|
Other
Information
|
(a) Kevin OMeara, President and Chief Operating
Officer, resigned his position with the Company effective
October 29, 2007. We have redistributed
Mr. OMearas responsibilities; and therefore, we
have no plans to fill this position at this time. At the request
of the Board of Directors,, Floyd Sherman, Chief Executive
Officer, has advised the Board that he intends to remain as
Chief Executive Officer of the Company for the next three to
five years.
(b) None
21
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Builders
FirstSource, Inc. (incorporated by reference to Exhibit 3.1
to Amendment No. 4 to the Companys registration
statement on
Form S-1,
filed with the Securities and Exchange Commission on
June 6, 2005, File Number
333-122788)
|
|
3
|
.2
|
|
Amended and Restated By-Laws of Builders FirstSource, Inc.
(incorporated by reference to Exhibit 3.2 to the
Companys current report on
Form 8-K,
filed with the Securities and Exchange Commission on
March 5, 2007, File Number 0-51357)
|
|
4
|
.1
|
|
Second Amended and Restated Stockholders Agreement, dated as of
June 2, 2005, among JLL Building Products, LLC, Builders
FirstSource, Inc., Floyd F. Sherman, Charles L. Horn, Kevin P.
OMeara, and Donald F. McAleenan (incorporated by reference
to Exhibit 4.1 to the Companys quarterly report on
Form 10-Q
for the quarter ended June 30, 2005, filed with the
Securities and Exchange Commission on August 4, 2005, File
Number 0-51357)
|
|
4
|
.2
|
|
Registration Rights Agreement, dated as of February 11,
2005, among Builders FirstSource, Inc., the Guarantors named
therein, and UBS Securities LLC and Deutsche Bank Securities
Inc. (incorporated by reference to Exhibit 4.3 to Amendment
No. 1 to the Companys registration statement on
Form S-1,
filed with the Securities and Exchange Commission on
April 27, 2005, File Number
333-122788)
|
|
4
|
.3
|
|
Stockholders Agreement, dated as of June 11, 1999, among
Stonegate Resources Holdings, LLC, BSL Holdings, Inc.,
Holmes Lumber Company, and Lockwood Holmes (incorporated by
reference to Exhibit 4.5 to Amendment No. 2 to the
Companys registration statement on
Form S-1,
filed with the Securities and Exchange Commission on
April 27, 2005, File Number
333-122788)
|
|
4
|
.4
|
|
Stock Purchase Agreement, dated as of March 3, 2000, among
Stonegate Resources Holdings, LLC, Builders FirstSource, Inc.,
and William A. Schwartz (incorporated by reference to
Exhibit 4.6 to Amendment No. 2 to the Companys
registration statement on
Form S-1,
filed with the Securities and Exchange Commission on
April 27, 2005, File Number
333-122788)
|
|
4
|
.5
|
|
Indenture, dated as of February 11, 2005, among Builders
FirstSource, Inc., the Subsidiary Guarantors thereto, and
Wilmington Trust Company, as Trustee (incorporated by
reference to Exhibit 4.1 to Amendment No. 1 to the
Companys registration statement on
Form S-1,
filed with the Securities and Exchange Commission on
April 27, 2005, File Number
333-122788)
|
|
31
|
.1*
|
|
Written statement pursuant to 17 CFR 240.13a-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002, signed by Floyd F. Sherman as chief executive
officer
|
|
31
|
.2*
|
|
Written statement pursuant to 17 CFR 240.13a-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002, signed by Charles L. Horn as chief financial officer
|
|
32
|
.1**
|
|
Written statement pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002, signed by Floyd F. Sherman as chief executive
officer and Charles L. Horn as chief financial officer
|
|
|
|
* |
|
Filed herewith. |
|
** |
|
Builders FirstSource, Inc. is furnishing, but not filing, the
written statements pursuant to Title 18 United States Code
1350, as added by Section 906 of the Sarbanes-Oxley Act of
2002, of Floyd F. Sherman, our chief executive officer, and
Charles L. Horn, our chief financial officer. |
22
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BUILDERS FIRSTSOURCE, INC.
Floyd F. Sherman
Chief Executive Officer
(Principal Executive Officer)
November 1, 2007
Charles L. Horn
Senior Vice President Chief Financial Officer
(Principal Financial Officer)
November 1, 2007
23