SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Builders FirstSource, Inc.
Delaware | 5211 | 52-2084569 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification Number) |
2001 Bryan Street, Suite 1600
Donald F. McAleenan, Esq.
Robert B. Pincus, Esq.
Allison L. Amorison, Esq. Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square, P.O. Box 636 Wilmington, Delaware 19899-0636 (302) 651-3000 |
J. Scott Hodgkins, Esq.
Latham & Watkins LLP 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 (213) 485-1234 |
|
(Name, address, including zip code, and
telephone
number, including area code, of agent for service) |
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted. |
PRELIMINARY PROSPECTUS | , 2005 |
Shares
Common Stock
This is the initial public offering of shares of our common stock. No public market currently exists for our common stock. We are offering shares and the selling stockholders are offering shares of our common stock. We expect the public offering price to be between $ and $ per share. We will not receive any proceeds from the sale of any shares of our common stock sold by the selling stockholders.
We have applied to have our common stock approved for listing on The Nasdaq National Market under the symbol BLDR.
Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock under Risk factors beginning on page of this prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
Per Share
Total
$
$
$
$
$
$
$
$
The underwriters may also purchase up to an additional shares of our common stock from the selling stockholders at the public offering price, less underwriting discounts and commissions payable by the selling stockholders, to cover over-allotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $ , and the total proceeds, before expenses, to the selling stockholders will be $ .
The underwriters are offering the common stock as set forth under Underwriting. Delivery of the shares of common stock will be made on or about , 2005.
UBS Investment Bank | Deutsche Bank Securities |
Robert W. Baird & Co. | BB&T Capital Markets |
You should rely only on the information contained
in this prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with additional information or
information different from that contained in this prospectus. We
are offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where those offers and sales
are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of our
common stock.
TABLE OF CONTENTS
About this prospectus
As used in this prospectus, unless the context
requires otherwise, we, us,
our, or the Company refers to Builders
FirstSource, Inc. and its consolidated subsidiaries. All
references to fiscal years of the Company in this prospectus
refer to years commencing on January 1 of that year and
ending on December 31. Unless otherwise indicated, the
information in this prospectus assumes no exercise of the
Underwriters over-allotment option.
Market data and other statistical information
used throughout this prospectus are based on independent
industry publications, government publications, reports by
independent market research firms, or other published
independent sources. Some data are based on our good faith
estimates that are derived from our review of internal surveys
and independent sources. Although we believe that all of the
foregoing sources are reliable, we have not independently
verified the information. Statements as to our market position
relative to our competitors are generally based on management
estimates as of the end of fiscal year 2004.
Prospectus summary
The following summary contains basic
information about us and this offering. It likely does not
contain all the information that is important to you. For a more
complete understanding of us and this offering, we encourage you
to read this entire document carefully, including the Risk
Factors section beginning on
page and the financial
statements that are included elsewhere in this
prospectus.
OUR COMPANY
We are a leading supplier and a fast-growing
manufacturer of structural and related building products for
residential new construction in the U.S. We believe we are one
of the top two suppliers of our product categories to Production
Homebuilders, which we define as those U.S. homebuilders
that build more than 100 homes per year. Our large scale, full
product and service offerings, and unique business model
position us to continue growing our sales to Production
Homebuilders, the fastest-growing segment of residential
homebuilders. We have operations principally in the southern and
eastern U.S. with 63 distribution centers and 42 manufacturing
facilities. For the year ended December 31, 2004, we
generated sales of $2,058.0 million and net income of
$51.6 million.
We provide an integrated solution to our
customers that combines the manufacturing, supply, and
installation of a full range of structural and related building
products. Over the past several years, we have significantly
increased our sales of products that we manufacture. These
products include our factory-built roof and floor trusses, wall
panels and stairs, as well as engineered wood products that we
design and cut for each home (collectively Prefabricated
Components). We also manufacture custom millwork and trim
that we market under the Synboard® brand name, as well as
aluminum and vinyl windows, and we assemble interior and
exterior doors into pre-hung units. Our revenue from these
manufactured products totaled $680.4 million for the year
ended December 31, 2004, representing 33.1% of total sales.
In addition, we supply our customers with a broad offering of
professional grade building products not manufactured by us such
as dimensional lumber and 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 principal product categories: Prefabricated Components,
Windows & Doors, Lumber & Lumber Sheet Goods, Millwork,
and Other Building Products & Services. Over the past five
years we have more than doubled the sales of our Prefabricated
Components, Windows & Doors, and Millwork product
categories, each of which includes both manufactured and
distributed products. Products in these categories typically
carry a higher margin and provide us with opportunities to
cross-sell other products and services, thereby increasing
customer penetration. The chart below provides a breakdown of
each product categorys contribution to sales in the year
ended December 31, 2004.
Sales by Product CategoryYear Ended
December 31, 2004
We serve a broad customer base ranging from
Production Homebuilders to small custom homebuilders and believe
that we are the number one or two building products supplier for
single-family residential new construction in approximately 75%
of the geographic markets in which we operate. According to 2003
U.S. Census data, we have operations in 20 of the top 50 U.S.
Metropolitan Statistical Areas, as ranked by single family
housing permits, and approximately 44% of U.S. housing starts
occurred in states in which we operate. Our comprehensive
product offering featuring over 250,000 SKUs company-wide and
our full range of construction services, combined with our scale
and experienced sales force, have driven market share gains,
particularly with Production Homebuilders.
INDUSTRY OVERVIEW AND TRENDS
Our Industry.
We compete in the professional
segment (Pro Segment) of the U.S. residential new
construction building products supply market, which, according
to the Home Improvement Research Institute, has estimated 2004
annual sales of $145.05 billion. The Pro Segment of this
market is highly fragmented, with the top ten suppliers
accounting for about 12% of the total market according to their
public filings, company web sites, and the Home Channel
News . Our competitors are predominantly small, privately owned
companies, most of which have limited access to capital and
manufacturing capabilities, and lack the ability to provide a
full range of construction services. We do not compete with Home
Depot or Lowes, which primarily serve do-it-yourself and
professional remodeling customers.
Housing.
Our
business is driven primarily by the residential new construction
market. According to the National Association of Homebuilders,
U.S. housing starts were 1.85 million in 2003 and
1.95 million in 2004 and are projected to be
1.94 million in 2005. Several industry sources expect that
strong housing demand will continue to be driven over the next
decade by:
As a result of the recent consolidation activity
within the homebuilding industry and market share gains of the
larger builders, our customer base has shifted increasingly to
Production Homebuilders. The market share of the ten largest
Production Homebuilders quadrupled from approximately 5% in 1990
to 20% in 2004, according to Builder Magazine, and is expected
to increase to 40% by 2010 according to the National Association
of Realtors.
Prefabricated
Components.
The growing use of Prefabricated
Components in the homebuilding process represents a major trend
within the residential new construction building products supply
market, with the use of manufactured panels in new homes having
increased by over 60% from 1997 to 2003 according to the
Engineered Wood Association. In response to this trend, we have
increased our manufacturing capacity and our ability to provide
customers with Prefabricated Components such as roof and floor
trusses, stairs, wall panels, and engineered wood.
Builders value the many benefits of using these
products, including:
Once established as a preferred supplier of
Prefabricated Components, we are typically able to cross-sell
additional products and services as our customers increasingly
seek integrated solutions.
OUR COMPETITIVE STRENGTHS
We believe our sales, earnings, and cash flow
will be driven by our competitive strengths:
Although we believe that the factors described
above will drive our sales, earnings, and cash flow and provide
us with opportunities to grow, we have a substantial amount of
indebtedness and there are a number of other risks and
uncertainties that may affect our financial condition, results
of operation, and cash flows. See Risk Factors for a
description.
OUR STRATEGY
Our strategy is to leverage our competitive
strengths to grow sales, earnings, and cash flow and remain the
preferred supplier to the homebuilding industry.
OUR BACKGROUND
Our company was formed in 1998 through a
partnership between JLL Partners, Inc. (JLL
Partners), and certain members of the existing management
team. Since 1998, the Company has successfully acquired and
integrated 23 companies and is currently managed as three
operating groups with centralized financial and operational
oversight.
OUR PRINCIPAL INVESTORS
Affiliates of JLL Partners, Inc. control JLL
Building Products, LLC which owns 94.6% of our outstanding
common stock. Founded in 1988, JLL Partners is among the leading
private equity investment firms in the country with
$2.2 billion in committed capital currently under
management. JLLs investment philosophy is to partner with
exceptional managers to grow and improve quality companies. JLL
has invested in a wide variety of sectors, with portfolio
companies that have included AdvancePCS, C.H.I. Overhead Doors,
Foodbrands America, IASIS Healthcare, Mosaic Sales Solutions,
Motor Coach Industries, and PGT Industries.
RECENT DEVELOPMENTS
On May 24, 2005, our board of directors and
our stockholders approved a 1-for-10 reverse stock split of our
common stock.
After the reverse stock split, effective
May 24, 2005, each holder of record held one share of
common stock for every 10 shares held immediately prior to the
effective date. As a result of the reverse stock split, the
board of directors also exercised its discretion under the
anti-dilution provisions of our 1998 Stock Incentive Plan to
adjust the number of shares underlying stock options and the
related exercise prices to reflect the change in the share price
and outstanding shares on the date of the reverse stock split.
The effect of fractional shares is not material.
Following the effective date of the reverse stock
split, the par value of the common stock remained at
$0.01 per share. As a result, we have reduced the common
stock in our consolidated balance sheets and statements of
changes in shareholders equity (deficit) included herein
on a retroactive basis for all periods presented, with a
corresponding increase to additional paid-in capital. All share
and per-share amounts and related disclosures in this prospectus
have also been retroactively adjusted for all periods presented
to reflect the 1-for-10 reverse stock split.
On February 11, 2005 we entered into a
$350.0 million senior secured credit facility with a
syndicate of banks. The new credit facility is composed of a
$225.0 million six-and-a-half year term loan, a
$110.0 million five-year revolver, and a $15.0 million
pre-funded letter of credit facility to be available at any time
during the six-and-a-half year term. In addition, on
February 11, 2005, we issued $275.0 million aggregate
principal amount of second priority senior secured floating rate
notes due 2012. See Description of Certain
Indebtedness for a summary of the terms of the new senior
secured credit facility and the floating rate notes. With the
proceeds from these transactions, we repaid existing
indebtedness and paid a $201.2 million, or $8.00 per
share, dividend to stockholders and a $36.4 million payment
(including applicable payroll taxes of $0.6 million) to
holders of stock options, as well as expenses of the new senior
secured credit facility and floating rate notes.
Our principal executive offices are located at
2001 Bryan Street, Suite 1600, Dallas, Texas 75201, our
telephone number is (214) 880-3500, and our internet
address is www.bldr.com.
The offering
The following table sets forth a summary of
consolidated financial information and other data for each of
the periods or at each date indicated. The summary historical
consolidated statement of operations and balance sheet data as
of December 31, 2004, 2003, and 2002 and for each of the
three fiscal years ended December 31, 2004 has been derived
from the consolidated financial statements of the Company, which
have been audited by PricewaterhouseCoopers LLP, independent
registered public accounting firm for the Company. The summary
historical financial information as of and for the three months
ended March 31, 2005 and for the three months ended March 31,
2004 has been derived from the unaudited condensed consolidated
financial statements of the Company included elsewhere herein
and reflects all adjustments that, in the opinion of the
management of the Company, are necessary for a fair presentation
of such information.
All information included in the following tables
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and with the consolidated financial statements
and related notes, included elsewhere in this prospectus.
Risk factors
An investment in shares of our common stock
involves risks. You should consider carefully the following
information about these risks, together with the other
information contained in this prospectus, before deciding to buy
shares of our common stock. If any of the following risks
actually occurs, our business, financial condition, results of
operations, and future growth prospects could be materially and
adversely affected. In these circumstances, the market price of
our common stock could decline, and you may lose all or part of
the money you paid to buy shares of our common stock. The risks
and uncertainties described below are not the only ones we
face.
RISKS RELATING TO OUR BUSINESS AND
INDUSTRY
The Industry in Which We Operate Is Dependent
upon the Homebuilding Industry, the Economy, and Other Important
Factors.
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, 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 impact on our financial condition, results of operations
and cash flows.
The Building Supply Industry Is Cyclical and
Seasonal.
The building products supply industry is subject
to cyclical market pressures. Prices of building products are
subject to fluctuations arising from changes in supply and
demand, national and international economic conditions, labor
costs, competition, market speculation, government regulation,
and trade policies, as well as from periodic delays in the
delivery of lumber and other products. For example, prices of
wood products, including lumber and panel products, are subject
to significant volatility and directly affect our sales and
earnings. Our Lumber & Lumber Sheet Goods product category
represented 39.6% of total sales in the year ended
December 31, 2004. We have no ability to control the timing
and amount of pricing changes for building products. In
addition, the supply of building products fluctuates based on
available manufacturing capacity, and a shortage of capacity or
excess capacity in the industry can result in significant
increases or declines in market prices for those products, often
within a short period of time. Such price fluctuations can
adversely affect our financial condition, results of operations
and cash flows.
In addition, although weather patterns affect our
results of operations throughout the year, adverse weather
historically has reduced construction activity in the first and
fourth quarters in our markets. To the extent that hurricanes,
severe storms, floods, or other natural disasters or similar
events occur in the markets in which we operate, our business
may be adversely affected. We anticipate that fluctuations from
period to period will continue in the future.
Product Shortages, Loss of Key Suppliers, and
Our Dependence on Third-Party Suppliers and Manufacturers Could
Affect Our Financial Health.
Our ability to offer a wide variety of products
to our customers is dependent upon our ability to obtain
adequate product supply from manufacturers and other suppliers.
Generally, our products are obtainable from various sources and
in sufficient quantities. However, the loss of, or a substantial
decrease in the availability of, products from our suppliers or
the loss of key supplier arrangements could adversely impact our
financial condition, results of operations and cash flows.
Although in many instances we have agreements
with our suppliers, these agreements are generally terminable by
either party on limited notice. Failure by our suppliers to
continue to supply us with products on commercially reasonable
terms, or at all, could have a material adverse effect on our
financial condition, results of operations and cash flows.
The Loss of Any of Our Significant Customers
Could Affect Our Financial Health.
Our 10 largest customers generated approximately
26% of our sales in the year ended December 31, 2004, and
our largest customer accounted for almost 4.2% of our sales in
that same period. We cannot guarantee that we will maintain or
improve our relationships with these customers or that we will
continue to supply these customers at current levels. Production
Homebuilders and other customers may seek to purchase some of
the products that we currently sell directly from manufacturers,
or they may elect to establish their own building products
manufacturing and distribution facilities. In addition,
continued consolidation among Production Homebuilders could also
result in a loss of some of our present customers to our
competitors, and the loss of one or more of our significant
customers or a deterioration in our relations with any of them
could significantly affect our financial condition, results of
operations and cash flows. Furthermore, our customers are not
required to purchase any minimum amount of products from us. The
contracts into which we have entered with most of our
professional customers typically provide that we supply
particular products or services for a certain period of time
when and if ordered by the customer. Should our customers
purchase our products in significantly lower quantities than
they have in the past, such decreased purchases could have a
material adverse effect on our financial condition, results of
operations and cash flows.
Our Industry is Highly Fragmented and
Competitive, and Increased Competitive Pressure May Adversely
Affect Our Results.
The building products supply industry is highly
fragmented and competitive. We face significant competition from
local and regional building materials chains, as well as from
privately-owned single site enterprises. Any of these
competitors may (i) foresee the course of market
development more accurately than do we, (ii) develop
products that are superior to our products, (iii) have the
ability to produce similar products at a lower cost,
(iv) develop stronger relationships with local
homebuilders, or (v) adapt more quickly to new technologies
or evolving customer requirements than do we. As a result, we
may not be able to compete successfully with them. In addition,
home center retailers, which have historically concentrated
their sales efforts on retail consumers and small contractors,
may in the future intensify their marketing efforts to
professional homebuilders. Furthermore, certain product
manufacturers sell and distribute their products directly to
Production Homebuilders, and the volume of such direct sales
could increase in the future. Additional manufacturers of
products distributed by us may elect to sell and distribute
directly to homebuilders in the future or enter into exclusive
supplier 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 financial condition, results of operations and
cash flows will be adversely affected.
We Are Subject to Competitive Pricing Pressure
From Our Customers.
Production Homebuilders historically have exerted
significant pressure on their outside suppliers to keep prices
low because of their increasing market share and their ability
to leverage such market share in the highly fragmented building
products supply industry. Continued consolidation among
Production Homebuilders, and changes in Production
Homebuilders purchasing policies or payment practices,
could result in increased pricing pressure. If we are unable to
generate sufficient cost savings in the future to offset any
price reductions, our financial condition, results of
operations, and cash flows may be adversely affected.
Our Level of Indebtedness Could Adversely
Affect our Ability to Raise Additional Capital to Fund Our
Operations, Limit Our Ability to React to Changes in the Economy
or Our Industry, and Prevent Us from Meeting Our Obligations
under Our Debt Instruments.
As of December 31, 2004, after giving effect
to the application of the net proceeds of this offering, our new
senior secured credit facility, our floating rate notes, and the
application of the net proceeds therefrom, our total
indebtedness would have been
$ million. See
Capitalization for additional information.
Our substantial debt could have important
consequences for you, including:
In addition, some of our debt instruments,
including those governing our senior secured credit facility and
our floating rate notes, contain cross-default provisions which
could result in our debt, under a number of debt instruments
even if we default on only one debt instrument, being declared
immediately due and payable. In such event, it is unlikely that
we would be able to satisfy our obligations under all of such
accelerated indebtedness simultaneously.
We May Incur Additional Indebtedness
We may incur additional indebtedness under our
new senior secured credit facility, which provides for up to
$110.0 million of revolving credit borrowings and a
$15.0 million pre-funded letter of credit facility. In
addition, we and our subsidiaries may be able to incur
substantial additional indebtedness in the future, including
secured debt, subject to the restrictions contained in the
credit agreement governing our new senior secured credit
facility and the indenture relating to our floating rate notes.
See Description of Certain Indebtedness. If new debt
is added to our current debt levels, the related risks that we
now face could intensify.
Our Debt Instruments Contain Various Covenants
That Limit Our Ability to Operate Our Business.
Our financing arrangements, including our new
senior secured credit facility and the indenture governing our
floating rate notes, contain various provisions that limit our
ability to, among other things:
In addition, our new senior secured credit
facility requires us to meet specified financial ratios. These
covenants may restrict our ability to expand or fully pursue our
business strategies. Our ability to comply with these and other
provisions of the indenture governing our floating rate notes
and the new senior secured credit facility may be affected by
changes in our operating and financial performance, changes in
general business and economic conditions, adverse regulatory
developments, or other events beyond our control. The breach of
any of these covenants, including those contained in our new
senior secured credit facility and the indenture governing our
floating rate notes, could result in a default under our
indebtedness, which could cause those and other obligations to
become due and payable. If any of our indebtedness is
accelerated, we may not be able to repay it.
We Are a Holding Company and Conduct All of
Our Operations through Our Subsidiaries. Therefore, We Rely on
Dividends, Interest, and Other Payments, Advances, and Transfers
of Funds from Our Subsidiaries to Meet Our Debt Service and
Other Obligations. As a Result, We May Not Be Able to Generate
Sufficient Cash to Service All of Our Indebtedness and May Be
Forced to Take Other Actions to Satisfy Our Obligations under
Our Indebtedness, Which May Not Be Successful.
We are a holding company that derives all of our
operating income from our subsidiaries. All of our assets are
held by our direct and indirect subsidiaries, and we rely on the
earnings and cash flows of our subsidiaries, which are paid to
us by our subsidiaries in the form of dividends and other
payments or distributions, to meet our debt service obligations.
The ability of our subsidiaries to pay dividends or make other
payments or distributions to us will depend on their respective
operating results and may be restricted by, among other things,
the laws of their jurisdiction of organization (which may limit
the amount of funds available for the payment of dividends and
other distributions to us), the terms of existing and future
indebtedness and other agreements of our subsidiaries, the new
senior secured credit facility, the terms of the indenture
governing the floating rate notes, and the covenants of any
future outstanding indebtedness we or our subsidiaries incur.
Our financial condition and operating performance
and that of our subsidiaries is also subject to prevailing
economic and competitive conditions and to certain financial,
business, and other factors beyond our control. We cannot assure
you that we will maintain a level of cash flows from operating
activities sufficient to permit us to pay the principal, premium
and liquidated damages, if any, and interest on our indebtedness.
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 assets,
seek additional capital, or restructure or refinance our
indebtedness. These alternative measures may not be successful
and may not permit us to meet our scheduled debt service
obligations. In the absence of such operating results and
resources, we could face substantial liquidity problems and
might be required to dispose of material assets or operations to
meet our debt service and other obligations. The credit
agreement governing our new senior secured credit facility and
the indenture governing the floating rate notes will restrict
our ability to dispose of assets and use the proceeds from such
disposition. We may not be able to consummate those dispositions
or be able to obtain the proceeds that we could realize from
them, and these proceeds may not be adequate to meet any debt
service obligations then due.
Our Continued Success Will Depend on Our
Ability to Retain Our Key Employees and to Attract and Retain
New Qualified Employees.
Our success depends in part on our ability to
attract, hire, train, and retain qualified managerial, sales,
and marketing personnel. We face significant competition for
these types of employees in our industry. We may be unsuccessful
in attracting and retaining the personnel we require to conduct
and expand our operations successfully. In addition, key
personnel may leave us and compete against us. Our success also
depends to a significant extent on the continued service of our
senior management team. We may be unsuccessful in replacing key
managers who either quit or retire. The loss of any member of
our senior management team or other experienced, senior
employees could impair our ability to execute our business plan
and growth strategy, cause us to lose customers and reduce our
net sales, or lead to employee morale problems and/or the loss
of other key employees. In any such event, our financial
condition, results of operations, and cash flows could be
adversely affected.
The Nature of Our Business Exposes Us to
Product Liability and Warranty Claims and Other Legal
Proceedings.
We are involved in product liability and product
warranty claims relating to the products we manufacture and
distribute that, if adversely determined, could adversely affect
our financial condition, results of operations and cash flows.
We rely on manufacturers and other suppliers to provide us with
many of the products we sell and distribute. Because we do not
have direct control over the quality of such products
manufactured or supplied by such third party suppliers, we are
exposed to risks relating to the quality of such products. In
addition, we are exposed to potential claims arising from the
conduct of home builders and their sub-contractors, for which we
may be contractually liable. Although we currently maintain what
we believe to be suitable and adequate insurance in excess of
our self-insured amounts, there can be no assurance that we will
be able to maintain such insurance on acceptable terms or that
such insurance will provide adequate protection against
potential liabilities. Product liability claims can be expensive
to defend and can divert the attention of management and other
personnel for significant periods, regardless of the ultimate
outcome. Claims of this nature could also have a negative impact
on customer confidence in our products and our company. In
addition, we are involved on an ongoing basis in other legal
proceedings. We cannot assure you that any current or future
claims will not adversely affect our financial condition,
results of operations, and cash flows.
A Range of Factors May Make Our Quarterly
Revenues and Earnings Variable.
We have historically experienced, and in the
future will continue to experience, variability in revenues and
earnings on a quarterly basis. The factors expected to
contribute to this variability include, among others,
(i) the volatility of prices of lumber and wood products,
(ii) the cyclical nature of the homebuilding industry,
(iii) general economic conditions in the various local
markets in which we compete, (iv) the pricing policies of
our competitors, (v) the production schedules of our
customers, and (vi) the effects of the weather. These
factors, among others, make it difficult to project our
operating results on a consistent basis.
We May be Adversely Affected by Any Disruption
in Our Information Technology Systems.
Our operations are dependent upon our information
technology systems, which encompass all of our major business
functions. Our centralized financial reporting system currently
draws data from our two enterprise resource planning
(ERP) systems. We rely upon such information
technology systems to manage and replenish inventory, to fill
and ship customer orders on a timely basis, and to coordinate
our sales activities across all of our products and services. A
substantial disruption in our information technology systems for
any prolonged time period could result in delays in receiving
inventory and supplies or filling customer orders and adversely
affect our customer service and relationships. As part of our
continuing integration of our computer systems, we plan to
integrate our two ERPs into a single system. This integration
may divert managements attention from our core businesses.
In addition, we may experience delays in such integration or
problems with the functionality of the integrated system, which
could increase the expected cost of the integration. There can
be no assurance that such delays, problems, or costs will not
have a material adverse effect on our financial condition,
results of operations or cash flows.
We May be Adversely Affected by Any Natural or
Man-Made Disruptions to Our Distribution and Manufacturing
Facilities.
We currently maintain a broad network of
distribution and manufacturing facilities throughout the
southern and eastern U.S. Any serious disruption to our
facilities resulting from fire, earthquake, weather-related
events, an act of terrorism, or any other cause could damage a
significant portion of our inventory and could materially impair
our ability to distribute our products to customers. In
addition, we could incur significantly higher costs and longer
lead times associated with distributing our products to our
customers during the time that it takes for us to reopen or
replace a damaged facility. If any of these events were to
occur, our financial condition, results of operations and cash
flows could be materially adversely affected.
We May be Unable to Successfully Implement Our
Expansion Plans Included in Our Business Strategy.
Our business plan provides for continued growth
through acquisitions, particularly in the western and
southwestern U.S., and organic growth (see
BusinessOur Strategy). Failure to identify and
acquire suitable acquisition candidates on appropriate terms
could have a material adverse effect on our growth strategy.
Moreover, a significant change in our business or the economy,
an unexpected decrease in our cash flow for any reason, or the
requirements of our new senior secured credit facility could
result in an inability to obtain the capital required to effect
new acquisitions or expansions of existing facilities. Our
failure to make successful acquisitions or to build or expand
facilities, including manufacturing facilities, produce saleable
product, or meet customer demand in a timely manner could result
in damage to or loss of customer relationships. In addition,
although we have been successful in the past in integrating 23
acquisitions, we may not be able to integrate the operations of
future acquired businesses with our own in an efficient and
cost-effective manner or without significant disruption to our
existing operations. Acquisitions, moreover, involve significant
risks and uncertainties, including difficulties integrating
acquired personnel and other corporate cultures into our
business, the potential loss of key employees, customers, or
suppliers, difficulties in integrating different computer and
accounting systems, and exposure to unforeseen liabilities of
acquired companies, and the diversion of management attention
and resources from existing operations. We may also be required
to incur additional debt in order to consummate acquisitions in
the future, which debt may be substantial and may limit our
flexibility in using our cash flow from operations. Our failure
to integrate future acquired businesses effectively or to manage
other consequences of our acquisitions, including increased
indebtedness, could prevent us from remaining competitive and,
ultimately, could adversely affect our financial condition,
results of operations and cash flows.
Federal, State and Other Regulations Could
Impose Substantial Costs and/or Restrictions on Our Operations
That Would Reduce Our Net Income.
We are subject to various federal, state, local,
and other regulations, including, among other things,
regulations promulgated by the Department of Transportation and
applicable to our fleet of delivery trucks, work safety
regulations promulgated by the Department of Labors
Occupational Safety and Health Administration, employment
regulations promulgated by the United States Equal Employment
Opportunity Commission, accounting standards issued by the
Federal Accounting Standards Board or similar entities, and
state and local zoning restrictions and building codes. In early
2005, we performed a review of our accounting policies and
practices with respect to leases and vendor rebates. As a result
of this internal review, we identified errors in accounting
practices associated with accounting for leasehold improvements
impacting depreciation and vendor rebates and inventory
accounting impacting cost of sales. More burdensome regulatory
requirements in these or other areas may increase our general
and administrative costs and adversely affect our financial
condition, results of operations, and cash flows.
We are Subject to Potential Exposure to
Environmental Liabilities and Are Subject to Environmental
Regulation.
We are subject to various federal, state, and
local environmental laws, ordinances, and regulations. Although
we believe that our facilities are in material compliance with
such laws, ordinances, 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. No assurance can be provided
that remediation may not be required in the future as a result
of spills or releases of petroleum products or hazardous
substances, the discovery of unknown environmental conditions or
more stringent standards regarding existing residual
contamination. More burdensome environmental regulatory
requirements may increase our general and administrative costs
and adversely affect our financial condition, results of
operations, and cash flows.
We May be Adversely Affected by Uncertainty in
the Economy and Financial Markets, Including as a Result of
Terrorism and the War in the Middle East.
Instability in the economy and financial markets,
including as a result of terrorism and the war in the Middle
East, may result in a decrease in housing starts, which would
adversely affect our business. In addition, the war, related
setbacks, or adverse developments, including a retaliatory
military strike or terrorist attack, may cause unpredictable or
unfavorable economic conditions and could have a material
adverse effect on our operating results and financial condition
and on our ability to raise capital. Terrorist attacks similar
to the ones committed on September 11, 2001, may directly
affect our ability to keep our operations and services
functioning properly and could have a material adverse effect on
our financial condition, results of operations, and cash flows.
Being a Public Company Will Increase Our
Administrative Costs.
As a public company, we will incur significant
legal, accounting, and other expenses that we did not incur as a
private company. Under the SEC rules and regulations, as well as
those of Nasdaq, our financial compliance costs will increase.
Such rules may also make it more difficult and more expensive to
obtain director and officer liability insurance, and we may be
forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar
coverage. These rules and regulations could also make it more
difficult for us to attract and retain qualified members of our
board of directors, particularly to serve on our audit
committee, and qualified executive officers.
Investor Confidence and the Price of Our
Common Stock May Be Adversely Affected if We Are Unable to
Comply with Section 404 of the Sarbanes-Oxley Act of
2002.
Upon completion of this offering, we will become
an SEC reporting company. As a reporting company, we will be
subject to rules adopted by the SEC pursuant to Section 404
of the Sarbanes-Oxley Act of
2002, which require us to include in our annual
report on Form 10-K our managements report on, and
assessment of, the effectiveness of our internal controls over
financial reporting. In addition, our independent auditors must
attest to and report on managements assessment of the
effectiveness of our internal controls over financial reporting
and the effectiveness of such internal controls. These
requirements will first apply to our annual report for the
fiscal year ending December 31, 2006. If we fail to
properly assess and/or achieve and maintain the adequacy of our
internal controls, there is a risk that we will not comply with
all of the requirements imposed by Section 404. Moreover,
effective internal controls are necessary for us to produce
reliable financial reports and are important to help prevent
financial fraud. Any of these possible outcomes could result in
an adverse reaction in the financial marketplace due to a loss
of investor confidence in the reliability of our financial
statements, which ultimately could harm our business and could
negatively impact the market price of our securities.
Risks Related to the Offering
There Has Been No Prior Public Market for Our
Common Stock, and an Active Trading Market May Not
Develop.
Prior to this offering, there has been no public
market for our common stock. An active trading market may not
develop following completion of this offering or, if developed,
may not be sustained. The lack of an active market may impair
your ability to sell your shares at the time you wish to sell
them or at a price that you consider reasonable. The lack of an
active market may also reduce the fair market value of your
shares. An inactive market may also impair our ability to raise
capital by selling shares of capital stock and may impair our
ability to acquire other companies by using our shares as
consideration.
Our Stock Price May Be Volatile, and You May
Lose All or Part of Your Investment.
The initial public offering price for the shares
of our common stock sold in this offering has been determined by
negotiation among the representatives of the underwriters and
us. This price may not reflect the market price of our common
stock following this offering and the price of our common stock
may decline. In addition, the market price of our common stock
could be highly volatile and may fluctuate substantially due to
many factors, including:
In addition, the stock markets have experienced
extreme price and volume fluctuations. Broad market and industry
factors may materially harm the market price of our common
stock, regardless of our operating performance. In the past,
following periods of volatility in the market price of a
companys securities, securities class action litigation
has often been instituted against that company. If we were
involved in any similar litigation we could incur substantial
costs and our managements attention and resources could be
diverted, which could adversely impact our financial condition,
results of operations and cash flows.
Investors in This Offering Will Suffer
Immediate and Substantial Dilution.
The initial public offering price of our common
stock is substantially higher than the net tangible book value
per share of our common stock. Purchasers of our common stock in
this offering will experience immediate and substantial
dilution, and the exercise of stock options subsequent to this
offering will cause investors to experience further dilution,
which means that:
If We Fail to Meet the Requirements of The
Nasdaq National Market, Our Stock Could Be Delisted, and the
Market for Our Stock Could Be Less Liquid.
We have applied to list our common stock on The
Nasdaq National Market. There are continuing eligibility
requirements of companies listed on The Nasdaq National Market.
If we are not able to continue to satisfy the eligibility
requirements for The Nasdaq National Market, then our stock may
be delisted. Delisting could result in a lower price of our
common stock and may limit the ability of our stockholders to
sell our stock.
If Securities or Industry Analysts Do Not
Publish Research or Reports about Our Business, Our Stock Price
and Trading Volume Could Decline.
The trading market for our common stock will
likely be significantly influenced by the research and reports
that securities or industry analysts publish about us and our
business. We do not have any control over these analysts. If one
or more of the analysts who cover us downgrade our stock, our
stock price would likely decline. In addition, if one or more of
these analysts cease coverage of our company or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which could cause our stock price or trading
volume to decline.
The Market Price of Our Common Stock Could Be
Negatively Affected by Future Sales of Our Common
Stock.
Sales by us or our stockholders of a substantial
number of shares of our common stock in the public market
following this offering, or the perception that these sales
might occur, could cause the market price of our common stock to
decline or could impair our ability to raise capital through a
future sale of, or pay for acquisitions using, our equity
securities. The shares held by certain of our current officers,
and by our directors and principal stockholder following this
offering will be subject to lock-up agreements and may not be
sold to the public during the 180-day period following the date
of this prospectus without the consent of the underwriters. UBS
Securities LLC, as the representative of the underwriters, may,
in its sole discretion and at any time without notice, release
all or any portion of the shares subject to these lock-up
agreements. For more information about these lock-up agreements,
see Underwriting. Shares held by our officers,
directors and principal stockholder will be considered
restricted securities within the
meaning of Rule 144 under the Securities Act
and, after the lock-up period, will be eligible for resale
subject to certain limitations of Rule 144.
The holders of an aggregate
of shares
of our common stock, or their permitted transferees, are
entitled to rights with respect to the registration of these
shares under the Securities Act of 1933. See Description
of Capital Stock Registration Rights. In addition to
outstanding shares eligible for future
sale, shares
of our common stock are issuable under currently outstanding
stock options granted to several officers, directors and
employees. Following this offering, we intend to file a
registration statement on Form S-8 under the Securities Act
registering shares
under our stock incentive plan. Shares included in such
registration statement will be available for sale in the public
market immediately except for shares held by affiliates who will
have certain restrictions on their ability to sell. Sales of
substantial amounts of common stock in the public market, or the
perception that these sales may occur, could materially
adversely affect the prevailing market price of our common stock
and our ability to raise capital through a public offering of
our equity securities. See Shares Eligible for Future
Sale.
The Controlling Position of Affiliates of JLL
Partners Will Limit Your Ability to Influence Corporate
Matters.
Affiliates of JLL Partners control JLL Building
Products, LLC, one of the selling stockholders, which, prior to
this offering, owns 94.6% of our outstanding common stock and,
after this offering, is expected to
own % of our outstanding common
stock. Accordingly, following this offering, such affiliates of
JLL Partners will have significant influence over our management
and affairs and over all matters requiring stockholder approval,
including the election of directors and significant corporate
transactions, such as a merger or other sale of our company or
its assets, for the foreseeable future. This concentrated
control will limit your ability to influence corporate matters
and, as a result, we may take actions that some of our
stockholders do not view as beneficial. As a result, the market
price of our common stock could be adversely affected.
Although we intend to satisfy all applicable
Nasdaq corporate governance rules, if JLL Building Products, LLC
continues to own more than 50% of our outstanding shares after
the consummation of the offering, we intend to avail ourselves
of the Nasdaq Rule 4350(c) controlled company
exemption that applies to companies in which more than 50% of
the stockholder voting power is held by an individual, a group,
or another company. This rule will grant us an exemption from
the requirements that we have a majority of independent
directors on our board of directors and that our compensation
and nominating committees be comprised entirely of independent
directors. However, we intend to comply with such requirements
in the event JLL Building Products, LLCs ownership falls
below 50%.
Provisions in Our Charter Documents Could
Discourage a Takeover That Stockholders May Consider
Favorable.
Provisions in our certificate of incorporation
and bylaws, as amended and restated upon the closing of this
offering, may have the effect of delaying or preventing a change
of control or changes in our management. These provisions
include the following:
Our Management Team May Invest or Spend the
Proceeds of This Offering in Ways with Which You May Not Agree
or in Ways That May Not Yield a Return.
Presently, anticipated uses of the proceeds of
this offering include repaying some of our outstanding debt and
for other general corporate purposes. Other than with respect to
repaying our outstanding debt in the manner described in the
Use of Proceeds, we cannot specify with certainty
how we will use the net proceeds of this offering. Accordingly,
our management will have considerable discretion in the
application of the net proceeds, and you will not have the
opportunity to assess whether the proceeds are being used
appropriately. The net proceeds may be used for corporate
purposes that do not increase our operating results or market
value. Until the net proceeds are used, they may be placed in
investments that do not produce income or that lose value.
Forward-looking statements
This prospectus includes or incorporates
forward-looking statements regarding, among other things, our
financial condition and business strategy. We have based these
forward-looking statements on our current expectations and
projections about future events. All statements other than
statements of historical facts included in this prospectus,
including, without limitation, statements under the headings
Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and
Business, and located elsewhere in this prospectus
regarding the prospects of our industry and our prospects,
plans, financial position, and business strategy may constitute
forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of
forward-looking terminology such as may,
will, expect, intend,
estimate, anticipate, plan,
foresee, believe, or
continue, or the negatives of these terms or
variations of them or similar terminology. Although we believe
that the expectations reflected in these forward-looking
statements are reasonable, we can give no assurance that these
expectations will prove to be correct. Important factors that
could cause actual results to differ materially from our
expectations are disclosed in this prospectus, including in
conjunction with the forward-looking statements included in this
prospectus and under Risk Factors. All subsequent
written and oral forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their
entirety by the cautionary statements included in this document.
These forward-looking statements speak only as of the date of
this prospectus. We will not update these statements except as
may be required by applicable securities laws. Factors, risks,
and uncertainties that could cause actual outcomes and results
to be materially different from those projected include, among
others:
Use of proceeds
We estimate that we will receive net proceeds
from this offering of approximately
$ million,
based on an assumed initial public offering price of
$ per
share, and after deducting estimated underwriting discounts and
commissions and our estimated offering expenses. We will not
receive any proceeds from the sale of shares of common stock by
the selling stockholders.
We intend to use the net proceeds of this
offering:
With respect to the
$ indebtedness
to be repaid under our new senior secured credit facility with
the net proceeds of this offering, we intend to repay
outstanding borrowings, if any, under the revolving credit
facility and the remainder will be used to repay a portion of
the $225.0 million term loan. We incurred such indebtedness
in February 2005, when we entered into the new senior secured
credit facility. The proceeds of the new senior secured credit
facility, together with the proceeds of our $275.0 million
floating rate notes, were used to refinance our then-existing
indebtedness; pay a $201.2 million dividend to our
stockholders; make a $36.4 million cash payment to holders
of our stock options (including applicable payroll taxes of
$0.6 million); pay the fees and expenses associated with
the new senior secured credit facility and the floating rate
notes, and for working capital and general corporate purposes.
As
of ,
2005, the term loan, which matures on August 11, 2011, bore
interest at LIBOR plus 2.50% per annum and the revolving loan,
which matures on February 11, 2010, bore interest at either
LIBOR plus 2.50% per annum or a base rate plus 1.50% per annum.
As
of ,
2005, there was
$ million
of outstanding borrowings under the revolving credit facility.
Pending the uses described above, we intend to
invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
Dividend policy
We have not paid regular dividends in the past;
and any future determination relating to dividend policy will be
made at the discretion of our board of directors and will depend
on a number of factors, including restrictions in our debt
instruments, our future earnings, capital requirements,
financial condition, future prospects, and other factors that
our board of directors may deem relevant. The terms of our new
senior secured credit facility and the indenture governing our
floating rate notes restrict our ability to pay dividends.
Although we have not paid regular dividends in
the past, a dividend was paid to stockholders in the first
quarter of 2005 in an aggregate amount of $201.2 million
(or $8.00 per share) in connection with the closing of our
new senior secured credit facility and floating rate notes, and
an aggregate of $139.6 million (or $5.56 per share) of
dividends was paid in 2004.
Capitalization
The following table sets forth our consolidated
cash and cash equivalents and capitalization as of
March 31, 2005, on an actual basis and as adjusted to give
effect to this offering and the application of the net proceeds
from this offering as if it had occurred on March 31, 2005.
You should read this table in conjunction with Use of
Proceeds, Managements Discussion and Analysis
of Financial Condition and Results of Operations,
Unaudited Pro Forma Financial Data and our
consolidated financial statements and the notes thereto, each
included elsewhere in this prospectus.
Dilution
If you invest in our common stock, your interest
will be diluted to the extent of the difference between the
public offering price per share of our common stock and the pro
forma net tangible book value per share of our common stock
after giving effect to this offering. After giving effect to our
sale
of shares
of our common stock in this offering at an assumed initial
public offering price of
$ per
share, and after deducting estimated underwriting discounts and
commissions and our estimated offering expenses, our pro forma
as adjusted net tangible book value as
of ,
2005 would have been approximately
$ million,
or approximately
$ per
share. The difference represents an immediate increase in pro
forma net tangible book value of
$ per
share to our existing stockholders and an immediate dilution in
pro forma net tangible book value of
$ per
share to new investors.
The following table illustrates the per share
dilution to the new investors:
If the underwriters exercise their over-allotment
option in full, the pro forma net tangible book value per share
would increase to
$ per
share, and the dilution per share to new investors would be
$ .
The following table summarizes, on a pro forma
basis as
of ,
2005, the differences between our existing stockholders and
investors in this offering with respect to the total number of
shares of common stock purchased from us, the total
consideration paid to us, and the average price per share paid
by our existing stockholders and the price per share paid by
investors in this offering before deducting estimated
underwriting discounts and commissions and our estimated
offering expenses:
If the underwriters exercise their over-allotment
option in full, our existing stockholders would
own % and our new investors would
own % of the total number of
shares of our common stock outstanding after this offering.
The discussion and tables above
exclude shares
of our common stock issuable upon exercise of outstanding
options with exercise prices ranging from
$ per
share to
$ per
share,
and shares
of our common stock available for future grant or issuance under
our stock incentive plan. Because the exercise prices of the
outstanding options are significantly below the assumed initial
offering price, investors purchasing common stock in this
offering will suffer additional dilution when and if these
options are exercised.
Stock
Options.
Based on an estimated
initial public offering price of
$ ,
the intrinsic value of options outstanding at March 31,
2005 was
$ million,
of which
$ million
related to vested options and
$ million
related to unvested options.
Unaudited pro forma financial data
The following unaudited pro forma condensed
consolidated balance sheet as of March 31, 2005 is based on
the unaudited historical condensed consolidated balance sheet as
of March 31, 2005 of Builders FirstSource, Inc. and gives
effect to this offering and the use of proceeds therefrom as if
it occurred on March 31, 2005.
The unaudited pro forma condensed consolidated
statement of operations for the year ended December 31,
2004 has been derived from our audited consolidated financial
statements for the year ended December 31, 2004. The pro
forma consolidated statements of operations give effect to the
following events (the Transactions) as if each
occurred on January 1, 2004, for the year ended
December 31, 2004.
Debt financing (closed February 11, 2005):
Offering:
The unaudited pro forma condensed consolidated
statement of operations for the three-month period ended
March 31, 2005 has been derived from our unaudited
condensed consolidated financial statements for the three-month
period ended March 31, 2005. The pro forma condensed
consolidated statement of operations gives effect to each of the
events listed above as if each occurred on January 1, 2004.
The pro forma condensed consolidated statement of operations for
the three months ended March 31, 2005 also excludes the
compensation expense related to the nonrecurring
$36.4 million payment made to stock option holders
(including applicable payroll taxes of $0.6 million) and
approximately $11.4 million of nonrecurring charges
associated with the write-off of debt issue costs and a
prepayment penalty each of which are related to the
recapitalization. These nonrecurring charges were similarly not
reflected in the pro forma consolidated statement of operations
for the year ended December 31, 2004.
The unaudited pro forma financial statements
should be read in conjunction with the accompanying notes, our
historical financial statements and related notes,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and other financial
information contained in this prospectus. The pro forma
information presented herein does not purport to be indicative
of the financial position or results of operations that would
have actually occurred had the Transactions taken place on the
dates indicated or which may occur in the future. Certain pro
forma adjustments are based on preliminary estimates and
assumptions and are subject to revision upon completion of the
Transactions.
We believe the estimates and assumptions used to
prepare the unaudited pro forma consolidated financial data
provide a reasonable basis for presenting the significant
effects of the Transactions and that the pro forma adjustments
give appropriate effect to the estimates and assumptions and are
properly applied in the unaudited pro forma consolidated
financial data.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
Selected historical consolidated financial
information
The following table sets forth our selected
historical consolidated financial information for each of the
periods or as of the date indicated. The selected statement of
operations and balance sheet data as of December 31, 2004
and 2003, and for each of the three fiscal years ended
December 31, 2004 has been derived from our consolidated
financial statements, included elsewhere herein which have been
audited by PricewaterhouseCoopers, LLP, our independent
Registered Public Accounting Firm. The selected statement of
operations and balance sheet data as of December 31, 2002,
2001, and 2000 and for the fiscal years ended December 31,
2001 and 2000 has been derived from our consolidated financial
statements, as restated, not included herein. The selected
historical financial information as of and for the three months
ended March 31, 2005 and for the three months ended
March 31, 2004 has been derived from the unaudited
condensed consolidated financial statements of the Company
included elsewhere herein and reflects all adjustments that, in
the opinion of the management of the Company, are necessary for
a fair presentation of such information.
All information included in the following tables
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations, the consolidated financial statements and
related notes and other financial information, included
elsewhere in this prospectus.
Managements discussion and analysis of
financial condition
The following discussion of our financial
condition and results of operations should be read in
conjunction with all of the consolidated historical financial
statements and the notes thereto included elsewhere in this
prospectus. This discussion contains forward-looking statements.
Please see Risk Factors and Forward-Looking
Statements for a discussion of certain of the
uncertainties, risks and assumptions associated with these
statements.
OVERVIEW
We are a leading supplier and a fast-growing
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 Synboard® brand name, as well as
aluminum and vinyl windows, and we 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 and
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 principal product categories: Prefabricated Components,
Windows & Doors, Lumber & Lumber Sheet Goods,
Millwork, and Other Building Products & Services.
Prefabricated Components consist of factory-built floor and roof
trusses, wall panels, stairs, as well as engineered wood that we
design and cut for each home. 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 oriented strand
board (OSB) products used in on-site house framing.
Millwork includes interior and 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 including cabinets, gypsum, roofing, and insulation,
and services including turn-key framing and shell construction,
design assistance, and the professional installation of
products, which spans all of our product categories.
Factors influencing future results of
operations
Our future results of operations will be impacted
by the following factors, some of which are beyond our control.
Homebuilding
Industry.
Our business is driven
primarily by the residential new construction market. According
to the National Association of Homebuilders, U.S. housing
starts were 1.85 million in 2003 and 1.95 million in
2004 and are projected to be 1.94 million in 2005. While
these levels are above the historical average of
1.62 million over the past ten years, several industry
sources expect that strong housing demand will continue to be
driven over the next decade by new household formations,
increasing homeownership rates, the size and age of the
population, an aging housing stock (approximately 36% of
existing homes were built before 1960), improved financing
options for buyers, and immigration trends. 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 residential homebuilders.
The growing use of Prefabricated Components in
the homebuilding process represents a major trend within the
residential new construction building products supply market.
Builders value the many benefits of using these products,
including reduced cycle time and carrying costs, increased
product quality, and cost savings from the reduction of
expensive on-site labor and material waste. In response to this
trend, we have continued to increase our manufacturing capacity
and our ability to provide customers with Prefabricated
Components such as roof and floor trusses, wall panels, stairs
and engineered wood, as well as windows, pre-hung doors and our
branded Synboard® millwork products.
Economic
Conditions.
Our financial
performance will be impacted by economic changes nationally and
locally in the markets we serve. The building products supply
industry is dependent on new home construction and subject to
cyclical market pressures. 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.
Cost of
Materials.
Prices of wood
products, which are subject to cyclical market pressures,
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 as direct production inputs for our
manufactured 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 operating income.
Recapitalization.
In connection with our new senior secured credit facility, our
floating rate notes, and the use of proceeds therefrom, we
incurred fees and expenses aggregating $21.1 million and
paid a $1.7 million early termination penalty related to
the prepayment of the Tranche B term loan under the prior
credit facility. The early termination penalty was included in
interest expense for the three months ended March 31, 2005.
In the first quarter of 2005, we made a $35.8 million cash
payment to option holders (excluding applicable payroll taxes of
$0.6 million). Also, based on the final syndicate of banks,
we expensed approximately $7.3 million of the
$9.3 million unamortized deferred financing costs related
to the prior credit facility and approximately $2.4 million
of costs incurred in connection with the refinancing. These
costs were recorded as interest expense. The remaining
$2.0 million of unamortized deferred financing costs
related to the prior credit facility and $18.7 million of
costs incurred in connection with the refinancing will be
included as a component of other assets, net and amortized over
the terms of the new senior secured credit facility and floating
rating notes.
Selling, General and Administrative
Expense.
On January 18, 2005,
we announced that we are planning to prepare for an underwritten
initial public offering of our common stock, which we expect to
complete in the second quarter of 2005. Following consummation
of our proposed initial public offering, we would incur certain
incremental costs and expenses as a result of being a public
company, including costs associated with our reporting
requirements.
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS
In early 2005 we performed a review of our
accounting policies and practices with respect to leases and
vendor rebates. As a result of this internal review, we
identified errors in our accounting practices associated with
accounting for leasehold improvements impacting depreciation and
vendor rebates and inventory accounting impacting cost of sales.
In prior periods, we amortized leasehold
improvements over terms greater than the shorter of the
estimated useful life or lease term. We have determined that
Statement of Financial Accounting Standards (SFAS)
No. 13,
Accounting for Leases
(SFAS 13), as amended, requires us to
amortize leasehold
improvements over the shorter of the estimated
useful life of the assets or the lease term, as defined by
SFAS 13, as amended.
The inventory and cost of sales adjustments
resulted from the recognition of rebates, which are earned from
vendors primarily based on the level of purchases, as a
reduction to cost of sales in the period earned and not
deferring any amount of vendor rebates to inventory still on
hand as of the end of the period, the non-recognition of a
vendor rebate earned during 2003 and difficulties associated
with converting to a new computer system at one location.
We have restated our consolidated financial
statements for the years ended December 31, 2003 and 2002.
See Note 3 to the consolidated financial statements for a
summary of the effects of these changes on our Consolidated
Balance Sheet as of December 31, 2003, as well as on our
Consolidated Statements of Operations, Cash Flows and Changes in
Shareholders Equity for the years ended December 31,
2003 and 2002. This Managements Discussion and Analysis
gives effect to these restatements. Additionally, the
information presented within the selected historical
consolidated financial information for 2001 and 2000 has been
restated with respect to vendor rebates and leasehold
improvements.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
Critical accounting policies are those that both
are important to the accurate portrayal of a companys
financial condition and results, and require subjective or
complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently
uncertain.
In order to prepare financial statements that
conform to accounting principles generally accepted in the
United States, commonly referred to as GAAP, we make estimates
and assumptions that affect the amounts reported in our
financial statements and accompanying notes. Certain estimates
are particularly sensitive due to their significance to the
financial statements and the possibility that future events may
be significantly different from our expectations.
We have identified the following accounting
policies that require us to make the most subjective or complex
judgments in order to fairly present our consolidated financial
position and results of operations.
Sales.
We
recognize sales when the following criteria are met: persuasive
evidence of an arrangement exists, delivery has occurred or
services have been rendered, our price to the buyer is fixed and
determinable, and collectibility is reasonably assured. We
generally recognize sales upon delivery to the customers
delivery site. We use the completed contract method to recognize
sales for certain construction and installation contracts. All
sales recognized are net of allowances for cash discounts and
estimated returns, which are estimated using historical
experience.
Vendor
Rebates.
Many of our arrangements
with our vendors provide for us to receive a rebate of a
specified amount payable to us when we achieve any of a number
of measures, generally related to the volume of purchases from
our vendors. We account for these rebates as a reduction of the
prices of the vendors products, which reduces inventory
until we sell the product, at which time these rebates reduce
cost of sales. Throughout the year, we estimate the amount of
rebates based upon our historical level of purchases. We
continually revise these estimates to reflect actual purchase
levels.
If market conditions were to change, vendors may
change the terms of some or all of these programs. Although
these changes would not affect the amounts which we have
recorded related to product already purchased, it may impact our
gross margins on products we sell or sales earned in future
periods.
Allowance for Doubtful Accounts and Related
Reserves.
We maintain an allowance
for doubtful accounts for estimated losses due to the failure of
our customers to make required payments. We perform periodic
credit evaluations of our customers and typically do not require
collateral. Consistent with industry practices, we generally
require payment from most customers within 30 days. As our
business is
seasonal in certain regions, our customers
businesses are also seasonal. Sales are lowest in the winter
months, and our past due accounts receivable balance as a
percentage of total receivables generally increases during this
time. Throughout the year, we record estimated reserves based
upon our historical write-offs of uncollectible accounts, taking
into consideration certain factors, such as aging statistics and
trends, customer payment history, independent credit reports,
and discussions with customers.
Periodically, we perform a specific analysis of
all accounts past due and write off account balances when we
have exhausted reasonable collection efforts and determined that
the likelihood of collection is remote. We charge these
write-offs against our allowance for doubtful accounts.
Impairment of Long-Lived
Assets.
Long-lived assets,
including property and equipment, are reviewed for possible
impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. Our judgment
regarding the existence of impairment indicators is based on
market and operational performance. Determining whether an
impairment has occurred typically requires various estimates and
assumptions, including determining which cash flows are directly
related to the potentially impaired asset, the useful life over
which cash flows will occur, their amount, and the assets
residual value, if any. In turn, measurement of an impairment
loss requires a determination of fair value, which is based on
the best information available. We use internal cash flow
estimates, quoted market prices when available and independent
appraisals as appropriate to determine fair value. We derive the
required cash flow estimates from our historical experience and
our internal business plans and apply an appropriate discount
rate. If these projected cash flows are less than the carrying
amount, an impairment loss is recognized based on the fair value
of the asset less any costs of disposition.
Goodwill.
Goodwill represents the excess of the amount we paid to acquire
businesses over the estimated fair value of tangible assets and
identifiable intangible assets acquired, less liabilities
assumed. At December 31, 2004, our net goodwill balance was
approximately $163.0 million, representing approximately
23.4% of our total assets.
In fiscal 2002, we adopted the provisions of
SFAS 142,
Goodwill and Other Intangible Assets.
Under these rules, we test goodwill for impairment in the fourth
quarter of each fiscal year or at any other time when impairment
indicators exist. Examples of such indicators that would cause
us to test goodwill for impairment between annual tests include
a significant change in the business climate, unexpected
competition, significant deterioration in market share or a loss
of key personnel. We determine fair value using a discounted
cash flow approach to value our reporting units.
If circumstances change or events occur to
indicate that our fair market value on a reporting unit basis
has fallen below its net book value, we will compare the
estimated implied value of the goodwill to its book value. If
the book value of goodwill exceeds the estimated implied value
of goodwill, we will recognize the difference as an impairment
loss in operating income.
Inventories.
Inventories consist principally of materials purchased for
resale, including lumber, sheet goods, windows, doors and
millwork, and raw materials for certain manufactured products
and are stated at the lower of cost or market. Cost is
determined using the weighted average method, the use of which
approximates the first-in, first-out method. We accrue for
shrink based on the actual historical shrink results of our most
recent physical inventories adjusted, if necessary, for current
economic conditions. These estimates are compared with actual
results as physical inventory counts are taken and reconciled to
the general ledger.
During the year, we monitor our inventory levels
by location and record provisions for excess inventories based
on slower moving inventory. We define potential excess inventory
as the amount of inventory on hand in excess of the historical
usage, excluding special order items purchased in the last three
months. We then apply our judgment as to forecasted demand and
other factors, including liquidation value, to
determine the required adjustments to net
realizable value. Our inventories are generally not susceptible
to technological obsolescence.
Deferred Income
Taxes.
We assess whether it is
more likely than not that some or all of our deferred tax assets
will not be realized. We consider the reversal of existing
deferred tax liabilities, future taxable income, and tax
planning strategies in our assessment. We have certain state
income tax carryforwards where we believe it is unlikely that we
will realize the benefits associated with these tax
carryforwards and have established a valuation allowance against
our deferred tax assets. Changes in our estimates of future
taxable income and tax planning strategies will affect our
estimate of the realization of the tax benefits of these tax
carryforwards.
Insurance Deductible
Reserve.
We have large deductibles
for general liability, auto liability and workers
compensation insurance. The expected liability for unpaid claims
falling within our deductible, including incurred but not
reported losses, is determined using the assistance of a
third-party actuary. This amount is reflected on our balance
sheet as an accrued liability. Our accounting policy includes an
internal evaluation and adjustment of our reserve for all
insurance-related liabilities on a quarterly basis. At least on
an annual basis, we engage an external actuarial professional to
independently assess and estimate the total liability
outstanding, which is compared to the actual reserve balance at
that time and adjusted accordingly.
RECENT DEVELOPMENTS
On May 24, 2005, our board of directors and
our stockholders approved a 1-for-10 reverse stock split of our
common stock.
After the reverse stock split, effective
May 24, 2005, each holder of record held one share of
common stock for every 10 shares held immediately prior to
the effective date. As a result of the reverse stock split, the
board of directors also exercised its discretion under the
anti-dilution provisions of our 1998 Stock Incentive Plan to
adjust the number of shares underlying stock options and the
related exercise prices to reflect the change in the share price
and outstanding shares on the date of the reverse stock split.
Following the effective date of the reverse stock
split, the par value of the common stock remained at
$0.01 per share. As a result, we have reduced the common
stock in our consolidated balance sheets and statements of
changes in shareholders equity (deficit) included herein
on a retroactive basis for all periods presented, with a
corresponding increase to additional paid-in capital. All share
and per-share amounts and related disclosures have also been
retroactively adjusted for all periods presented to reflect the
1-for-10 reverse stock split.
RESULTS OF OPERATIONS
The following discussion and analysis provides
information that management believes is relevant to an
assessment and understanding of our consolidated results of
operations for the years ended December 31, 2004, 2003, and
2002 and the three months ended March 31, 2005 and 2004 and
our financial condition as of December 31, 2004 and 2003
and March 31, 2005.
The following table sets forth, for the years
ended December 31, 2004, 2003 and 2002 and the three months
ended March 31, 2005 and 2004 the percentage relationship
to sales of certain costs, expenses and income items:
Overview.
Our
results for the three months ended March 31, 2005 were
primarily driven by double digit sales growth for all product
categories especially in Prefabricated Components and strong
margins for Prefabricated Components and Lumber & Lumber
Sheet Goods. Our operating results were negatively impacted by
$36.4 million of stock compensation expense resulting from
a special cash payment made to stock option holders (inclusive
of applicable payroll taxes) in conjunction with the
recapitalization. Interest expense for the three months ended
March 31, 2005 also included nonrecurring expenses related
to the recapitalization totaling $11.4 million.
Sales.
Sales
for the three months ended March 31, 2005 were
$509.3 million, an $80.0 million, or 18.6%, increase
over sales of $429.4 million for the three months ended
March 31, 2004. Sales benefited from strong homebuilding
activity in all our geographic markets. Sales of Prefabricated
Components increased 37.8% reflecting the success of our
strategy to diversify into more value-added product sales. In
addition, our sales management initiatives, including incentive
and training programs, have allowed us to grow sales in all
product categories at a faster rate than reported growth in
residential housing starts during the same period.
The following table shows sales classified by
major product category (in millions):
Sales of Prefabricated Components increased
$28.3 million, or 37.8%, from $74.9 million for the
three months ended March 31, 2004 to $103.1 million
for the three months ended March 31, 2005. This was largely
attributable to the increase in truss and panel sales of
$22.1 million resulting from increased usage of
Prefabricated Components by Production Homebuilders.
Sales of Windows & Doors increased
$12.6 million, or 14.9%, from $84.8 million for the
three months ended March 31, 2004 to $97.4 million for
the three months ended March 31, 2005. This was
attributable to an $8.0 million increase in sales of
pre-assembled door units and a $4.6 million increase in
sales of assembled and distributed window products.
Sales of Lumber & Lumber Sheet Goods
increased $20.6 million, or 12.3%, from $167.8 million
for the three months ended March 31, 2004 to
$188.4 million for the three months ended March 31,
2005. This increase was largely attributable to the effect of
price increases of approximately $11.5 million and unit
volume increases of $9.1 million. Market prices moderated
during the three months ended March 31, 2005 and were more
in line with the average market price for the year ended
December 31, 2004.
Sales of Millwork products increased
$6.2 million, or 16.3%, from $38.0 million for the
three months ended March 31, 2004 to $44.2 million for
the three months ended March 31, 2005. Sales of interior
trim and moldings increased $4.2 million, the result of
increased housing activity and our expanded distribution
capacity and broadened offering of custom millwork.
Sales of Other Building Products & Services
increased $12.3 million, or 19.3%, from $63.9 million
for the three months ended March 31, 2004 to
$76.2 million for the three months ended March 31,
2005. This increase was largely attributable to a
$2.7 million increase in sales of gypsum products, a
$2.4 million increase in sales of hardware products and a
$1.9 million increase in sales of roofing products.
Gross Margin.
Gross margin increased
$25.2 million, or 26.3%, from $95.8 million for the
three months ended March 31, 2004 to $120.9 million
for the three months ended March 31, 2005. The gross margin
percentage increased from 22.3% for the three months ended
March 31, 2004 to 23.7% for the three months ended
March 31, 2005. Contributing to this increase was a
$9.4 million, or 47.0%, increase in gross margins on
Prefabricated Components. The increase was attributable to the
higher sales volume and an increase in gross margin percentage
from 26.7% for the three months ended March 31, 2004 to
28.5% for the three months ended March 31, 2005. The
improvement in gross margin percentage was primarily
attributable to a reduction in raw materials costs. In addition,
the overall gross margin increase was attributed to an
$8.4 million, or 30.5%, increase in Lumber & Lumber
Sheet Goods gross margins, and a corresponding increase in
Lumber & Lumber Sheet Goods gross margin percentage from
16.4% for the three months ended March 31, 2004 to 19.1%
for the three months ended March 31, 2005. The gross margin
increase was a result of higher sales levels while purchasing
programs implemented in 2004 continue to improve gross margin
percentage.
Selling, General and Administrative
Expenses.
Selling, general and
administrative expenses increased by $14.4 million, or
17.4%, from $82.5 million for the three months ended
March 31, 2004 to $96.9 million for the three months
ended March 31, 2005. The increase was primarily related to
an $8.7 million increase in salaries and benefits expense,
largely as a result of a $3.4 million increase in
commission expense and a 5.1% increase in headcount to support
sales growth. In addition, handling and delivery expenses
increased $2.4 million, primarily due to higher fuel costs,
and occupancy costs increased $0.7 million.
Stock Compensation
Expense.
In conjunction with the
February 11, 2005 recapitalization, we made a
$36.4 million cash payment (including applicable payroll
taxes of $0.6 million) to stock option holders in-lieu of
adjusting the exercise price. During the three months ended
March 31, 2004, we paid approximately $0.4 million to
certain option holders whose exercise price could not be
adjusted for the dividend.
Interest Expense.
Interest expense increased by
$12.7 million from $6.5 million for the three months
ended March 31, 2004 to $19.2 million for the three
months ended March 31, 2005. The increase was primarily
attributable to a $7.3 million write-off of previously
deferred loan costs, $2.4 million of costs incurred in
connection with the recapitalization completed in February 2005,
and a $1.7 million early termination penalty related to the
prepayment of the Tranche B term loan under the 2004
Agreement. In the three months ended March 31, 2004, the
Company expensed $2.2 million in deferred loan costs
related to the early retirement of a prior debt facility.
In addition, higher average debt levels and
higher average interest rates during the three months ended
March 31, 2005 increased interest expense by approximately
$2.1 million and $1.0 million, respectively. Our
average debt balance increased from $226.6 million for the
three months ended March 31, 2004 to $416.0 million
for the same period in 2005. Our average interest rate increased
from 5.73% to 6.69% year-over-year. Interest expense also
included $0.7 million and $0.3 million of debt issue
cost amortization for the three months ended March 31, 2005
and 2004, respectively.
Income Tax Expense (Benefit).
The effective combined federal and
state tax rate was 40.2% and 38.5% for the three months ended
March 31, 2005 and 2004, respectively. The increase in the
effective tax rate was primarily because of an increase in 2005
of expenses not deductible for state tax purposes.
Income from Discontinued Operations, Net of
Tax.
During the three months ended
March 31, 2004, income from discontinued operations, net of
tax, was $0.2 million resulting from a favorable settlement
of a remaining lease obligation.
2004 compared with 2003
Overview.
Our
competitive strengths are driving sales growth and improved
profitability. During 2004, our leading market positions and
unique business model allowed us to grow market share by 3.1%.
We define market share growth as price adjusted sales growth
less permit growth within our markets. Adjusted for higher panel
and lumber prices in 2004, our sales grew 12.6% over 2003 while
we estimate that new building permits increased only 9.5% for
the same period. This market share growth has leveraged our
fixed operating expenses, reducing our selling, general and
administrative expenses, expressed as a percentage of sales,
from 19.5% in 2003 to 18.3% in 2004. Expanded offering of
prefabricated components over the last several years has
improved our sales mix and increased overall gross margins.
Prefabricated components sales have increased from
$257.3 million in 2002 to $385.9 in 2004, a
$128.6 million increase, while its gross margin percentage
has expanded from 24.9% in 2002 to 27.0% in 2004. Superior
customer service levels allow us to generate attractive gross
margins even on commodity type products. Our gross margin
percentage for Lumber and Lumber Sheet Goods products increased
to 19.2% in 2004 from 16.6% in 2003 due to the customer service
being provided coupled with new purchasing programs implemented
in 2004.
Sales.
Sales
for the year ended 2004 were $2,058.0 million, a
$382.9 million, or 22.9%, increase over sales of
$1,675.1 million for the year ended 2003. Sales benefited
from unanticipated strong homebuilding activity in all our
geographic markets and higher market prices for Lumber and
Lumber Sheet Goods products. Our sales management initiatives,
including incentive and training programs, have contributed to
our ability to grow sales in all product categories at a faster
rate than reported growth in residential housing starts during
the same period. In addition, the growth rate of Prefabricated
Components reflects the success of our strategy of diversifying
into more value-added product sales.
The following table shows sales classified by
major product category (in millions):
Sales of Prefabricated Components increased
$82.5 million, or 27.2%, from $303.4 million for the
year ended 2003 to $385.9 million for the year ended 2004.
This was largely attributable to the increase in truss and panel
sales of $61.9 million resulting from usage of
Prefabricated Components by Production Homebuilders. We expect
this trend to continue due to increasing demand and our
continued investment toward growing this product category.
Sales of Windows & Doors increased
$36.6 million, or 10.3%, from $354.6 million for the
year ended 2003 to $391.2 million for the year ended 2004.
This was attributable to a $13.1 million increase in sales
of assembled and distributed window products and a
$23.5 million increase in sales of pre-assembled door units.
Sales of Lumber & Lumber Sheet Goods
products increased $221.6 million, or 37.3%, from
$593.7 million for the year ended 2003 to
$815.3 million for the year ended 2004. This increase was
largely attributable to favorable price variances of
approximately $210.9 million and unit volume increases of
$10.7 million. Sales were favorably impacted by the
pass-through to our customers of significantly higher prices for
Lumber & Lumber Sheet Goods, a result of increases in
demand coupled with limited capacity additions by manufacturers
over the last several years. Market prices for these products
are determined by several factors U.S. housing
starts (demand), new capacity (supply), foreign imports and
tariffs, and world consumption. On average, market prices during
the year ended December 31, 2004 were approximately 28.2%
higher than average prices of the previous five years. Future
market prices are difficult to predict, and there is no
assurance that current price levels are sustainable in the
future.
Sales of Millwork products increased
$17.2 million, or 10.8%, from $158.7 million for the
year ended 2003 to $175.9 million for the year ended 2004.
This was largely attributable to a $14.3 million increase
in sales of interior trim and moldings, primarily as a result of
our new sales management programs.
Sales of Other Building Products &
Services increased $25.0 million, or 9.4%, from
$264.7 million for the year ended 2003 to
$289.7 million for the year ended 2004. This increase was
largely attributable to a $6.7 million increase in
installation services, a $6.7 million increase in sales of
insulation products and a $7.6 million increase in sales of
hardware products.
Gross Margin.
Gross margin increased
$108.8 million, or 29.0%, from $374.7 million for the
year ended 2003 to $483.5 million for the year ended 2004.
The gross margin percentage increased from 22.4% for the year
ended 2003 to 23.5% for the year ended 2004. Contributing to
this increase was a $26.2 million, or 33.6%, increase in
gross margins on Prefabricated Components. The increase was
attributable to the higher sales volume and an increase in gross
margin percentage from 25.7% for the year ended 2003 to 27.0%
for the year ended 2004. The improvement in gross margin
percentage is primarily attributable to a 1.0% of sales
improvement in labor efficiencies, a 1.8% of sales improvement
in fixed cost absorption due to the higher sales volume as
partially offset by a 1.6% of sales increase in raw materials
costs. In addition, the overall gross margin increase was
attributed to a $57.6 million, or 58.4%, increase in
Lumber & Lumber Sheet Goods gross margins, and a
corresponding increase in Lumber & Lumber Sheet Goods
gross margin percentage from 16.6% for the year ended 2003 to
19.2% for the year ended 2004. The gross margin increase was a
result of higher sales levels while purchasing programs
implemented in 2004 were the predominant reason for the
improvement in gross margin percentage.
Selling, General and Administrative
Expenses.
Selling, general and
administrative expenses increased by $49.1 million, or
15.0%, from $327.0 million for the year ended 2003 to
$376.1 million for the year ended 2004. The increase was
attributable to a $31.7 million increase in salaries and
benefits expense, largely as a result of a $13.0 million
increase in commission expense and a $10.3 million increase
in bonus expense, related to increased sales and profitability,
a $6.4 million increase in handling and delivery costs,
exclusive of salaries and benefits, primarily in fuel costs, and
a $4.3 million increase in occupancy costs. As a percentage
of sales, selling, general and administrative expenses decreased
from 19.5% for the year ended 2003 to 18.3% for the year ended
2004. This decrease was due to labor efficiencies and leveraging
of fixed operating costs.
Interest
Expense.
Interest expense
increased by $13.4 million, or 120.7%, from
$11.1 million for the year ended 2003 to $24.5 million
for the year ended 2004. Higher average debt levels and average
interest rates during the year ended 2004 increased interest
expense by approximately $8.0 million and
$3.4 million, respectively, following the recapitalization
completed in February 2004. Our average debt balance increased
from $135.2 million in 2003 to $297.5 million in 2004.
Our weighted average interest rate increased from 5.10% in 2003
to 6.24% in 2004. We expect interest expense to increase during
2005 due to the higher debt levels resulting from the 2005
capitalization.
Interest expense in 2003 and 2004 included
$2.0 million and $1.8 million of debt issue cost
amortization, respectively, and 2004 included the write-off of
$2.2 million of previously deferred loan costs.
Income Tax
Expense.
The effective combined
federal and state tax rate was 37.9% and 38.4% for the years
ended 2004 and 2003, respectively.
Income (Loss) from Discontinued Operations,
Net of Tax.
Loss from discontinued
operations, net of tax, decreased $3.9 million from a loss
of $3.8 million in 2003 to income of $0.1 million in
2004. During the year ended 2003, the Company recognized an
expense of $1.9 million to adjust asset balances to their
estimated net realizable value, an expense of $0.2 million
related to facility closure costs, and a goodwill impairment
charge of $1.2 million. We completed our Colorado exit plan
prior to December 31, 2003. During the year ended 2004, we
favorably settled an outstanding lease obligation and collected
several previously written-off customer balances aggregating
$0.4 million as partially offset by an additional
impairment charge of $0.2 million related to the carrying
value of the real estate.
2003 compared with 2002
Sales.
Sales
for the year ended 2003 were $1,675.1 million, a
$175.1 million, or 11.7%, increase over sales of
$1,500.0 million for the year ended 2002. Overall, sales
benefited from improved economic conditions and low interest
rates.
The following table shows sales by major product
category (millions):
Sales of Prefabricated Components increased
$46.1 million, or 17.9%, from $257.3 million for the
year ended 2002 to $303.4 million for the year ended 2003.
In particular, truss and panel sales grew $33.7 million as
we continued our strategy of opening new plants and modernizing
and expanding our existing plants.
Sales of Windows & Doors increased
$29.4 million, or 9.0%, from $325.2 million for the
year ended 2002 to $354.6 million for the year ended 2003.
Sales of manufactured aluminum and vinyl windows increased
$16.0 million as we continued to expand this product
offering.
Sales of Lumber & Lumber Sheet Goods
increased $78.3 million, or 15.2%, from $515.4 million
for the year ended 2002 to $593.7 million for the year
ended 2003. Higher prices contributed approximately
$57.0 million of the increase while increased unit volumes
amounted to approximately $21.3 million. Sales prices were
favorably impacted, particularly in the second half of 2003, by
higher market prices for panel and lumber products due to
increases in demand coupled with minimal increases in capacity
by the major manufacturers.
Sales of Millwork products increased
$7.6 million, or 5.0%, from $151.1 million for the
year ended 2002 compared to $158.7 million for the year
ended 2003.
Sales of Other Building Products &
Services increased $13.7 million, or 5.5%, from
$251.0 million for the year ended 2002 to
$264.7 million for the year ended 2003. This increase was
largely attributable to the continued growth of installation
services ($8.4 million increase in sales of services).
Gross Margin.
Gross margin increased $30.1 million, or 8.7%, from
$344.6 million for the year ended 2002 to
$374.7 million for the year ended 2003. Gross margin on
Prefabricated Components increased $14.0 million, and,
expressed as a percentage of sales, increased 0.8% as a result
of value-added engineering and raw material substitution
reducing the raw material costs of the finished product. The
overall gross margin percentage for 2003 decreased to 22.4%
compared to 23.0% in 2002. Gross margin on Lumber &
Lumber Sheet Goods increased $2.4 million but, expressed as
a percentage of sales, fell 2.1% from 18.7% in 2002 to 16.6% in
2003. This decrease was primarily due to the rapid increase in
procurement costs in 2003, and our delayed ability to pass along
these increases due to existing customer commitments.
Selling, General and Administrative
Expenses.
Selling, general and
administrative expenses increased $18.9 million, or 6.1%,
from $308.1 million in 2002 to $327.0 million in 2003.
Salaries and benefits expense increased $14.1 million in
2003 due to a $3.7 million increase in commission expense and a
$6.6 million increase in bonus expense associated with the
strong sales performance as partially offset by a
$1.3 million reduction in group health expense. In
addition, handling and delivery costs, exclusive of salaries and
benefits, increased $5.5 million in 2003 due to the
increase in number of deliveries. Selling, general and
administrative expenses expressed as a percentage of sales
decreased from 20.5% in 2002 to 19.5% in 2003. The largest
improvement was in the salaries and benefits percentage, which
decreased
0.6% due to improved labor efficiencies and the
leveraging of fixed management and supervisory payroll costs.
Interest Expense.
Interest expense totaled
$11.1 million for 2003 compared to $12.1 million for
2002. The decrease was due to lower average debt levels in 2003.
Interest expense in 2003 and 2002 included $2.0 million and
$2.1 million of debt issue cost amortization, respectively.
Income Tax
Expense.
The effective tax rate
was 38.4% for 2003 compared to 40.0% for 2002. Our overall
effective tax was in excess of the federal statutory rate due to
state income taxes. The effective state tax rate fell due to
change in mix of income generated in states in which we are
subject to taxation.
Loss from Discontinued Operations, Net of
Tax.
Loss from discontinued
operations, net of tax increased $0.8 million, or 26.7%, to
$3.8 million in 2003 from $3.0 million in 2002. The
increase was due to the Company announcing its intent to exit
its operations in Colorado in September 2003 based upon several
factors including unfavorable market conditions and a poor
competitive position which prevented the Company from generating
profitable results. The cessation of operations in this market
was treated as a discontinued operation as it had
distinguishable cash flow and operations that have been
eliminated from the ongoing Company and we have no further cash
flows or operations in this market. The Company completed the
exit plan prior to December 31, 2003. As a result of the
exit plan, in 2003 the Company recorded an expense of
$1.9 million in order to adjust asset balances to their
estimated net realizable value, an expense of $0.2 million
related to facility exit costs, and a goodwill impairment charge
of $1.2 million. During 2002, the Company also closed a
facility related to the Colorado operations and recorded an
expense of approximately $1.2 million for the closure of
this facility primarily related to future minimum lease payments
due on the vacated facility.
Cumulative Effect of Change in Accounting
Principle, Net of Tax.
As of
January 1, 2002, we adopted SFAS 142 which eliminates
the amortization of goodwill and intangible assets with
indefinite lives and requires instead that those assets be
tested for impairment annually. The application of the
transition provisions of this new accounting standard required
us to reduce our goodwill balance by $19.5 million, net of
tax during 2002.
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirements are to fund
working capital needs, meet required debt payments, including
debt service payments on the floating rate notes and our new
senior secured credit facility, to fund capital expenditures and
acquisitions, and to pay dividends, if any, on our common stock.
Capital resources have primarily consisted of cash flows from
operations and borrowings under our credit facility.
Consolidated cash flows
Operating
activities.
Cash flows used in
operating activities was $8.7 million for the three months
ended March 31, 2005 compared to net cash provided of
$39.4 million for the three months ended March 31,
2004. The decrease in cash flows provided by operating
activities was primarily driven by a special cash payment made
to stock option holders during the current year quarter. These
payments were recorded as compensation expense resulting in a
net loss for the three months ended March 31, 2005. Other
net uses of cash were related to changes in working capital. The
increase in accounts payable was the result of increased
purchasing activity to support higher sales volume combined with
the timing of disbursements at period end.
Cash flows provided by operating activities
increased to $94.4 million for the year 2004 from net cash
used of $40.2 million for the year ended 2003. The increase
of $134.6 million in cash flows provided by operating
activities was primarily driven by a $34.0 million increase
in net income, a net improvement of $72.7 million in
accounts receivable and retained interest in transferred
accounts receivable used in operating activities and a
$29.6 million increase in accounts payable and accrued
liabilities. The increase in accounts payable was the result of
increased purchasing activity to support higher fourth quarter
sales
volume combined with the timing of disbursements
near year-end. The remaining sources were from changes in other
working capital. The improvement in accounts receivable and
retained interest in transferred accounts receivable was
primarily due to our accounts receivable securitization
agreement expiring in August 2003. The increase in accrued
liabilities was due to increased compensation, including
bonuses, and sales and income tax accruals which were a direct
result of our increased performance for the year ended 2004 as
compared to the prior year.
Net cash used in operating activities was
$40.2 million for 2003 as compared to cash flows provided
by operating activities of $48.5 million in 2002. The net
change in cash provided by operating activities of
$88.7 million was primarily driven by net increases in
accounts receivable and retained interest in transferred
accounts receivable of $64.7 million, increases in cash
used for inventory of $30.9 million, and net decreases in
accounts payable and accrued liabilities of $6.2 million.
These increases in cash used were offset in part by an increase
in net income before depreciation and amortization, cumulative
effect of change in accounting principle, and non-cash gain
(loss) from discontinued operations of $9.0 million. The
remaining sources were from changes in other working capital.
The increase in accounts receivable and retained interest in
transferred accounts receivable was primarily due to our
accounts receivable securitization agreement expiring in August
2003. The net decrease in accounts payable and accrued
liabilities was primarily due to the timing of payments off-set
in part by increased compensation and sales tax accruals which
were a direct result of the Companys increased performance
from prior year. The increase in inventory levels was a direct
result of the Company building inventory levels to support
higher sales in addition to the Company taking advantage of
declining lumber prices near the end of the year in 2003.
Investing
activities.
During the three
months ended March 31, 2005 and 2004, cash flows used for
investing activities were $4.2 million and
$3.7 million, respectively. Capital expenditures increased
approximately $1.4 million to $5.5 million for the
three months ended March 31, 2005 from $4.1 million
for the three months ended March 31, 2004 primarily due to
the purchase of machinery and equipment at our existing
facilities. Proceeds from the sale of property, plant, and
equipment increased $0.9 million from $0.4 million for
the three months ended March 31, 2004 to $1.3 million
for the three months ended March 31, 2005 primarily due to
the sale of real estate related to discontinued operations.
During the years ended 2004 and 2003, cash flows
used for investing activities totaled $18.7 million and
$13.0 million, respectively. Capital expenditures increased
approximately $5.1 million to $20.7 million for the
year ended 2004 from $15.6 million for the year ended 2003
primarily due to the purchase of machinery and equipment at our
existing facilities. Proceeds from the sale of property, plant,
and equipment decreased $5.1 million from $7.1 million
for the year ended 2003 to $2.0 million for the year ended
2004 primarily due to us updating our delivery and warehouse
fleet in 2003. Cash used for acquisitions decreased
$4.6 million for the year ended 2004 due to our three
completed acquisitions during 2003 and no acquisitions completed
during 2004.
During 2003, cash used in investing activities
increased approximately $2.7 million from
$10.3 million in 2002 to $13.0 million in 2003. This
increase was primarily attributable to our using
$4.6 million to acquire three companies in 2003 as compared
to only $1.7 million in 2002 relating to acquisitions.
Financing
activities.
Net cash used in
financing activities was $25.6 million for the three months
ended March 31, 2005 compared to $27.9 million for the
three months ended March 31, 2004. During the three months
ended March 31, 2005, we used $313.3 million to retire
our prior credit facility, $201.2 million to pay a dividend
and $21.1 million to pay expenses related to the
refinancing. Also related to the 2005 refinancing, we received
proceeds totaling $275.0 million and $225.0 million
related to the floating rate notes and the new senior secured
credit facility term loan, respectively. During the first
quarter of 2005, we also had net borrowings under our senior
secured revolving credit facility totaling $10.0 million.
During the three months ended March 31,
2004, we received approximately $315.0 million of proceeds
from our prior credit facility, of which approximately
$139.6 million was used to pay a dividend,
$10.8 million was used to pay the transaction costs
associated with the prior credit facility and
$168.3 million was used to retire the existing debt
facility. Book overdrafts decreased $24.1 million during
the three months ended March 31, 2004 based on the timing
of disbursements at period end.
Net cash used in financing activities was
$30.7 million for the year ended 2004 as compared to
$56.5 million for the year ended 2003. The increase in cash
used in financing activities was primarily due to our entering
into a credit agreement in February of 2004 from which we
received approximately $315.0 million of proceeds, of which
approximately $139.6 million was used to pay a dividend,
$11.1 million was used to pay the transaction costs
associated with the new credit agreement and $168.3 million
was used to retire the then existing debt facility. We also made
$1.7 million of scheduled principal payments during the
year ended 2004 on our credit facility. We had net borrowings of
$61.4 million on our revolving line of credit and made
approximately $22.6 million of principal payments for the
year ended 2003. Book overdrafts decreased $24.8 million
during the year ended 2004 as compared to an increase of
$20.5 million during the year ended 2003, reflecting the
timing of the release of payables.
Net cash provided by financing activities was
$56.5 million in 2003 as compared to $39.3 million
used in financing activities in 2002. The increase in cash
provided by financing activities was primarily due to our
incurring net borrowings of long-term debt of $38.8 million
in 2003 as compared to us repaying $24.3 million of
long-term debt in 2002. The increased borrowings in 2003 were
attributable to our accounts receivable securitization agreement
expiring in 2003, which was a significant source of cash. Book
overdrafts increased $20.5 million during 2003 as compared
to a decrease of $13.3 million in 2002, reflecting the
timing of the release of payables.
Capital
Resources.
On February 11,
2005, we entered into a $350.0 million senior secured
credit agreement (the New Credit Agreement) with a
syndicate of banks. The New Credit Agreement is comprised of a
$225.0 million six-and-a-half year term loan; a
$110.0 million five-year revolver; and a pre-funded letter
of credit facility to be available at any time during the
six-and-a-half year term in the aggregate face amount
outstanding not to exceed $15.0 million.
Interest rates on loans under the New Credit
Agreement are based on the base rate of interest determined by
the administrative agent or LIBOR (plus a margin, based on
leverage ratios, which is currently 1.50% for base rate
revolving loans and 2.50% for term loans), to be determined at
our option at the time of borrowing. A variable commitment fee
(currently 0.50%) based on the total leverage ratio is charged
on the unused amount of the revolving loan commitment.
In April 2005, we entered into an interest rate
swap designed to obtain a fixed rate with respect to
$100.0 million of our outstanding senior secured floating
rate debt and thereby reduce our exposure to interest rate
volatility. The swap will fix $100.0 million of our
outstanding debt at an effective interest rate of 6.62% for
three years starting July 1, 2005 (4.12% fixed rate plus
2.50%). Thus, our effective interest rate on the debt includes
the fixed swap rate plus applicable margin payable under its
debt agreement.
The New Credit Agreement is collateralized by
(i) a pledge of the common stock of all of our subsidiaries
and (ii) a security interest in substantially all tangible
and intangible property and proceeds thereof now owned or
hereafter acquired by us and substantially all our subsidiaries.
The New Credit Agreement also contains certain restrictive
covenants that, among other things, relate to the payment of
dividends, incurrence of indebtedness, repurchase of common
stock or other distributions, and asset sales and also require
compliance with certain financial covenants with respect to a
maximum total leverage ratio and a minimum interest coverage
ratio. We can be required to make mandatory prepayments of
amounts outstanding under the New Credit Agreement based on
certain asset sales and casualty events, issuances of debt and
the results of an annual excess cash flow calculation.
On February 11, 2005, we issued
$275.0 million in aggregate principal amount of second
priority senior secured floating rate notes due 2012. Interest
accrues on the floating rate notes at a rate of LIBOR plus
4.25%. The LIBOR rate is reset at the beginning of each quarter.
The floating rate notes are collateralized by (i) a pledge
of the common stock of certain of our subsidiaries and
(ii) a security interest in substantially all tangible and
intangible property and proceeds thereof now owned or hereafter
acquired by us and substantially all our subsidiaries. The
indenture governing the floating rate notes contains covenants
that limit our ability and the ability of our restricted
subsidiaries to, among other things: incur additional
indebtedness; pay dividends or make other distributions on our
capital stock or repurchase, repay or redeem our capital stock;
make certain investments; incur liens; enter into certain types
of transactions with affiliates; create restrictions on the
payment of dividends or other amounts to us by our restricted
subsidiaries; and sell all or substantially all of our assets or
merge with or into other companies.
Proceeds from the New Credit Agreement and the
issuance of the floating rate notes were used, in addition to
cash and cash equivalents on hand at the refinancing date, to
retire our prior credit facility, pay a cash dividend to
shareholders of $201.2 million, make a cash payment of
approximately $36.4 million (including applicable payroll
taxes of $0.6 million) to stock option holders in lieu of
adjusting the exercise price, pay fees and expenses of
$21.1 million related to the refinancing, and make a
$1.7 million early termination payment related to the
prepayment of the Tranche B term loan under the prior
credit facility.
Long-term debt consists of the following:
Based on our ability to generate cash flows from
operations and our borrowing capacity under the revolver under
the New Credit Agreement, we believe we will have sufficient
capital to meet our anticipated short-term and long-term needs,
including our capital expenditures, acquisition strategies and
our debt obligations for the foreseeable future. Upon completion
of this offering and use of the net proceeds as set forth
herein, we expect to have total long-term debt of
$ million.
Capital
Expenditures.
Capital expenditures
vary depending on prevailing business factors, including current
and anticipated market conditions. With the exception of 2003
capital expenditures in recent years have remained at relatively
low levels in comparison to the operating cash flows generated
during corresponding periods. We believe that this trend will
continue given our existing facilities and acquisition plans,
and our product portfolio and anticipated market conditions
going forward. For the three months ended March 31, 2005
and 2004 capital expenditures totaled $5.5 million and
$4.1 million, respectively. For the years ended
December 31, 2004, 2003 and 2002, capital expenditures
totaled $20.7 million, $15.6 million and
$15.1 million, respectively. Market conditions in 2002 into
early 2003 led to reduced capital expenditures during those
periods. However, we increased capital expenditures in late 2003
and early 2004 given the improvement in business conditions.
Consistent with previous spending patterns,
future capital expenditures will focus primarily
on expanding our value-added product offerings such as
Prefabricated Components. We expect our capital expenditures to
approximate $28.0 million in 2005.
We anticipate that cash flows from operations and
liquidity from the New Credit Agreement will be sufficient to
execute the Companys business plans and acquisition
strategies.
DISCLOSURES OF CONTRACTUAL OBLIGATIONS AND
COMMERCIAL COMMITMENTS
The following summarizes the contractual
obligations of the Company as of December 31, 2004 (in
thousands):
Purchase orders entered into in the ordinary
course of business are excluded from the above table. Amounts
for which we are liable under purchase orders are reflected on
our consolidated balance sheet as accounts payable and accrued
liabilities.
Other cash obligations not reflected in the
balance sheet
The amounts reflected in the table above for
operating leases represent future minimum lease payments under
noncancelable operating leases with an initial or remaining term
in excess of one year at December 31, 2004.
In accordance with GAAP, our operating leases are
not recorded in our balance sheet. In addition, we have residual
value guarantees on certain equipment leases. Under these leases
the Company has the option of (a) purchasing the equipment
at the end of the lease term at its then fair market value,
(b) arranging for the sale of the equipment to a third
party, or (c) returning the equipment to the lessor to sell
the equipment. If the sales proceeds in either case are less
than the residual value, then we are required to reimburse the
lessor for the deficiency up to a specified level as stated in
each lease agreement. The guarantees under these leases for the
residual values of equipment at the end of the respective
operating lease periods approximated $10.8 million as of
December 31, 2004.
Based upon the expectation that none of these
leased assets will have a residual value at the end of the lease
term that is materially less than the value specified in the
related operating lease agreement, we do not believe it is
probable that we will be required to fund any amounts under the
terms of these guarantee arrangements. Accordingly, no accruals
have been recognized for these guarantees.
DISCLOSURES OF CERTAIN MARKET RISKS
The Company experiences changes in interest
expense when market interest rates change. Changes in the
Companys debt could also increase these risks. Based on
debt outstanding at December 31, 2004, a 25 basis
point increase in interest rates would result in approximately
$0.8 million of additional interest costs annually.
The Company does not utilize any derivative
financial instruments to hedge price movements of our materials.
However, we intend to use interest rate swap contracts to fix
long-term interest rates on approximately 40% of our outstanding
balances related to our term loan under the New Credit Agreement
and floating rate notes.
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 which 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 operating income.
QUARTERLY RESULTS AND SEASONALITY
The Companys first and fourth quarters
historically have been, and are expected to continue to be,
adversely affected by weather patterns in some of the
Companys 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, among other things, (i) the volatility
of prices of lumber and wood products, (ii) the cyclical
nature of the homebuilding industry, (iii) general economic
conditions in the various local markets in which we compete,
(iv) the pricing policies of our competitors, (v) the
production schedules of our customers, and (vi) the effects
of the weather.
The composition and level of working capital
typically changes during periods of increasing sales as the
Company carries 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 historically have resulted
in negative operating cash flows during this peak season, which
generally have been financed through our revolving credit
facility. Collection of receivables and reduction in inventory
levels following the peak of the building and construction
season have more than offset this negative cash flow in recent
years. We believe our new revolving credit facility and our
ability to generate positive cash-flows from operating
activities will continue to be sufficient to cover seasonal
working capital needs.
NEW ACCOUNTING STANDARDS
In December 2004, the FASB issued Staff Position
109-1 (FSP 109-1), Application of FASB Statement
No. 109 (FASB No. 109), Accounting
for Income Taxes, to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act
of 2004. FSP 109-1 clarifies guidance that applies to the new
deduction for qualified domestic production activities. When
fully phased-in, the deduction will be up to 9% of the lesser of
qualified production activities income or taxable
income. FSP 109-1 clarifies that the deduction should be
accounted for as a special deduction under FASB No. 109 and
will reduce tax expense in the period or periods that the
amounts are deductible on the tax return. Any tax benefits
resulting from the new deduction will be effective for the
Companys fiscal year ending December 31, 2005. The
Company is currently reviewing the effect of FSP 109-1 on its
consolidated financial statements.
In March 2005, the Securities and Exchange
Commission released SEC Staff Accounting Bulletin
(SAB) No. 107,
Share-Based Payment
.
SAB No. 107 provides the SEC staff position regarding
the application of
SFAS No. 123 (Revised 2004) Share
Based Payment (SFAS 123R). SAB No.
107 contains interpretive guidance related to the interaction
between SFAS No. 123(R) and certain SEC rules and
regulations, as well as provides the staffs views
regarding the valuation of share-based payment arrangements for
public companies. SAB No. 107 also highlights the
importance of disclosures made related to the accounting for
share-based payment transactions. The Company is currently
reviewing the effect of SAB No. 107 on its
consolidated financial statements.
In December 2004, the FASB issued SFAS
No. 123R, which is a revision of SFAS 123 and
supersedes APB 25 and SFAS 148. This statement
requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements. This
statement establishes fair value as the measurement objective in
accounting for share-based payment arrangements and requires all
entities to apply a fair value based measurement method in
accounting for share-based payment transactions with employees
except for equity instruments held by employee share ownership
plans.
SFAS 123R applies to all awards granted
after the required effective date (the beginning of the first
interim or annual reporting period that begins after
June 15, 2005) and to awards modified, repurchased, or
cancelled after that date. As of the required effective date,
all public entities that used the fair value based method for
either recognition or disclosure under Statement 123 will
apply this Statement using a modified version of prospective
application. Under that transition method, compensation cost is
recognized on or after the required effective date for the
portion of outstanding awards for which the requisite service
has not yet been rendered, based on the grant-date fair value of
those awards calculated under Statement 123 for either
recognition or pro forma disclosures. For periods before the
required effective date, those entities may elect to apply a
modified version of the retrospective application under which
financial statements for prior periods are adjusted on a basis
consistent with the pro forma disclosures required for those
periods by Statement 123. The Company previously used the
minimum value method under SFAS 123 to calculate the fair
value of its options and will apply the prospective transition
method as of the required effective date. The Company will
continue to account for the currently outstanding options under
APB 25 and will apply the provisions of SFAS 123R
prospectively to new awards and to awards modified, repurchased,
or cancelled after adoption of this statement.
In November 2004, the FASB issued
SFAS No. 151,
Inventory Costs an amendment of
ARB No. 43, Chapter 4
(SFAS No. 151). SFAS No. 151
amends the guidance in ARB No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). SFAS No. 151
requires that those items be recognized as current period
charges. In addition, SFAS No. 151 requires that
allocation of fixed production overhead to the costs of
inventory be based on the normal capacity of the production
facilities. This new standard is effective for inventory costs
incurred during fiscal years beginning after June 15,
2005. Earlier application is permitted for inventory costs
incurred during fiscal years beginning after November 23,
2004. The Company does not anticipate the adoption of this
statement to have a significant impact on its financial position
or results of operations.
In December 2004, the FASB issued Statement
No. 153,
Exchanges of Nonmonetary Assets
, an
amendment of APB Opinion No. 29,
Accounting for
Nonmonetary Transactions
(SFAS No. 153). The amendments made by
SFAS No. 153 are based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the
narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance.
Previously, Opinion 29 required that the accounting for an
exchange of a productive asset for a similar productive asset or
an equivalent interest in the same or similar productive asset
should be based on the recorded amount of the asset
relinquished. By focusing the exception on exchanges that lack
commercial substance, the Financial Accounting Standards Board
believes SFAS No. 153 produces financial reporting
that more faithfully represents the economics of the
transactions. This statement is effective for
nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company does not
believe the adoption of this new statement will have a material
impact on its financial condition or results of operations.
In September 2004, the Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue
No. 04-8, The Effect of Contingently Convertible Debt
on Diluted Earnings Per Share, which requires shares
associated with contingently convertible debt instruments with
market price triggers to be included in the computation of
diluted earnings per share (EPS) regardless of
whether the market price trigger has been met. EITF 04-8
also requires that prior period diluted EPS amounts presented
for comparative purposes be restated. EITF 04-8 is
effective for reporting periods ending after
December 15, 2004. The Company does not believe the
adoption of this new statement will have a material impact on
its financial condition or results of operations.
Industry overview and trends
We compete in the professional segment (Pro
Segment) of the U.S. residential new construction
building products supply market, which, according to the Home
Improvement Research Institute, has estimated 2004 annual sales
of $145.05 billion. Our competitive landscape is highly
fragmented, consisting primarily of small, privately owned
companies, most of which have limited access to capital and
manufacturing capabilities, and lack the ability to provide a
full range of construction services. We serve a broad customer
base ranging from small custom homebuilders to the largest
Production Homebuilders, including publicly traded companies
that have multi-billion dollar market capitalizations such as
Centex, D.R. Horton, Hovnanian Enterprises, Pulte, and Ryland
Group. Our target market is distinctly different from that of
home center retailers, such as Home Depot and Lowes, which
primarily serve do-it-yourself and professional remodeling
customers.
We believe the following industry conditions and
trends will benefit our business:
Large, Fragmented
Market.
The Pro Segment of the
$145.05 billion U.S. residential new construction
building products supply market, as estimated by the Home
Improvement Research Institute, is highly fragmented, with the
top ten suppliers accounting for about 12% of the total market,
and only six generating over $1 billion in sales according
to public filings, company web sites, and the Home Channel
News. This segment consists predominantly of small, privately
owned companies, most of which have limited access to capital
and lack sophisticated information technology systems and
large-scale procurement capabilities. The industrys
fragmentation is due to the overall size of the market, the
diversity of the target customer base, and variations in local
building preferences and practices. While we and our largest
competitors have significantly grown market share over the past
several years, including through acquisitions, the market
remains extremely fragmented relative to most other industries.
We believe that the highly fragmented nature of the Pro Segment
presents substantial acquisition opportunities as well as the
opportunity to increase market share in existing markets.
Strong Housing
Fundamentals.
Our business is
driven primarily by the new residential construction market.
According to the National Association of Homebuilders,
U.S. housing starts were 1.85 million in 2003 and
1.95 million in 2004 and are projected to be
1.94 million in 2005. While these levels are above the
historical average of 1.62 million over the past ten years,
several industry sources expect that strong housing demand will
continue to be driven over the next decade by new household
formations, increased housing affordability, rising
homeownership rates, the size and age of the population, an
aging housing stock, improved financing options for buyers, and
immigration trends. The Homeownership Alliance, for example,
predicts that these demand drivers will lead to
1.85 million to 2.17 million new U.S. housing
starts per year through 2014. The Homeownership Alliance further
predicts that U.S. home ownership rates, which are strongly
correlated with new housing construction, will reach 70% by
2013, an increase from 64% in 1985 and 68% in 2003.
Home Ownership
The strong levels of housing starts are being
driven in large part by an increase in household formations.
According to Fitch Ratings, the average ratio of new incremental
household formations to total housing starts from 1960-1999 was
86.6%. This ratio dipped to 80.5% in the 1990s, representing the
creation of some slack between demand and supply, but has
rebounded to 88.5% for the time period from 2000-2003, trending
above the historical average and signaling a tightening of the
supply/demand balance. Favorable demographic factors are
expected to continue to drive increased household formations.
Baby boomers have created demand that could not be accommodated
by the existing housing base. While this demand was primarily
for starter homes and apartments in the past, we expect it will
increasingly be directed toward single-family homes aimed at
move-up buyers, as well as second homes. Further, the echo
boom, comprised of the children of baby boomers, has just
begun to impact the housing market.
The U.S. housing market is also expected to
benefit from immigration trends. According to the Joint Center
for Housing Studies at Harvard University, foreign immigration
should account for almost one third of the total
U.S. population growth through 2010. The immigrant
population is expected to be concentrated between the ages of 20
and 50, and therefore represents a more immediate stimulus to
new household formation activity than population growth due to
new births. Further, Census results show that the homeownership
rate for immigrants is highly dependent on the length of time
since their arrival in the U.S. This figure rises from 25%
for those who have resided in the U.S. for less than
10 years to 74% for those who have been in the
U.S. more than 30 years. With the immigration peak
that occurred in the 1990s, this trend portends a dramatic
increase in immigrant homeowners in the coming decades.
Immigration into the U.S.
Consolidation and Emergence of Large-Scale
Production Homebuilders.
The
homebuilding sector has undergone a significant change over the
past decade as evidenced by a variety of industry trends,
including the introduction of more professional management
teams, a reduction in speculative land positions, lower levels
of unsold inventory, more conservatively financed balance
sheets, geographic diversification and increased consolidation.
Substantial consolidation among residential homebuilders and
market share gains by the top Production Homebuilders since the
early 1990s have shifted our target customer base increasingly
to large volume homebuilders. The market share of the ten
largest Production Homebuilders quadrupled from approximately 5%
in 1990 to 20% in 2004, according to Builder Magazine, and is
expected to increase to 40% by 2010 according to the National
Association of Realtors.
Market Share of the Top 10
Homebuilders
While Production Homebuilders continue to
consolidate their industry, homebuilding remains a locally
oriented business even within the Production Homebuilders
organizations, as building codes and architectural preferences
vary widely by locale. For example, building codes in coastal
areas are generally much different from codes in inland areas or
those in earthquake zones, requiring different products and
construction techniques. One of our key success factors is to
maintain the local flexibility required to meet customer demand
while maximizing the benefits of operating a large-scale,
integrated company.
Homebuilders Increasing Demand for
Integrated Solutions.
As the
homebuilding industry continues to consolidate, our customers
are increasingly demanding an integrated solution from their
building products suppliers. We play an integral role for our
customers that encompasses the entire homebuilding process from
planning to final construction. Prior to construction, we advise
our customers on essential issues such as design and product mix
and selection, as well as cost reduction opportunities. We then
deliver a comprehensive package of structural and related
building products to the job-site, which includes products that
we manufacture individually for the given house, such as roof
and floor trusses, wall panels and stairs. On the job-site, we
provide a full range of installation, turn-key framing and shell
construction services that reduce cycle time and costs for the
homebuilder. Our sales representatives are also deployed to the
job-site throughout the homebuilding process to ensure constant
communication and rapidly resolve issues that may arise,
including on the interpretation of blueprints, additional
product and service needs, and questions regarding building code
requirements. We believe this fully integrated approach further
strengthens customer loyalty and enables us to retain an
advantage over our competitors.
Building Components
Manufacturing.
The growing use of
Prefabricated Components in the homebuilding process represents
a major trend within the new residential construction building
products supply market. This trend has already had a large
impact on the homebuilding industry, as, according to the USDA
Forest Service, roof trusses, the largest component of our
Prefabricated Components category, have replaced conventional
site-built roof framing in approximately 70% of all
single-family construction. Further, the Engineered Wood
Association reports that the use of manufactured panels in new
homes increased by over 60% from 1997 to 2003.
In accordance with this trend, we have increased
our manufacturing capacity and our ability to provide customers
with Prefabricated Components such as roof and floor trusses,
stairs, wall panels, and engineered wood. Builders value the
many benefits of using these products, including reduced cycle
time and carrying costs, increased product quality, and cost
savings from the reduction of expensive on-site labor and
material waste. Once established as a preferred supplier of
Prefabricated Components, we are typically able to cross-sell
additional products and services as our customers increasingly
seek integrated solutions. Prefabricated wood components are
also becoming increasingly common in floor and wall construction.
According to the Freedonia Group, the outlook for
Prefabricated Component products is strong, with shipments of
roof trusses forecasted to rise at a 3.7% CAGR for the period
from 2001 to 2011. Smaller sub-segments such as floor trusses
and walls and partitions are expected to grow at a faster pace
over the same period, with CAGRs of 6.2% and 7.3%, respectively.
Sales growth of these products is being driven by increased
homebuilder awareness and acceptance of these products resulting
from cost and performance advantages. These products represent a
strategic focus for us going forward, as they carry higher
margins than our purely distributed product offerings.
Gross Sales of Manufactured Products
Business
GENERAL
The Company is a Delaware corporation formed on
March 4, 1998, as BSL Holdings, Inc., through a partnership
between JLL Partners and certain members of our management team.
On October 13, 1999, the Company changed its name to
Builders FirstSource, Inc. Since 1998, the Company has
successfully acquired and integrated 23 companies and is
currently managed as three operating groups with centralized
financial and operational oversight.
We are a leading supplier and a fast-growing
manufacturer of structural and related building products for
residential new construction in the U.S. We believe we are one
of the top two suppliers of our product categories to Production
Homebuilders, which we define as those U.S. homebuilders
that build more than 100 homes per year. Our large scale, full
product and service offerings, and unique business model
position us to continue growing our sales to Production
Homebuilders, the fastest-growing segment of residential
homebuilders. We have operations principally in the southern and
eastern U.S. with 63 distribution centers and 42 manufacturing
facilities. For the year ended December 31, 2004, we
generated sales of $2,058.0 million and net income of
$51.6 million.
We provide an integrated solution to our
customers that combines the manufacturing, supply, and
installation of a full range of structural and related building
products. Over the past several years, we have significantly
increased our sales of products that we manufacture. These
products include our factory-built roof and floor trusses, wall
panels and stairs, as well as engineered wood products that we
design and cut for each home (collectively Prefabricated
Components). We also manufacture custom millwork and trim
that we market under the Synboard® brand name, as well as
aluminum and vinyl windows, and we assemble interior and
exterior doors into pre-hung units. Our revenue from these
manufactured products totaled $680.4 million for the year
ended December 31, 2004, representing 33.1% of total sales.
In addition, we supply our customers with a broad offering of
professional grade building products not manufactured by us such
as dimensional lumber and 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 principal product categories: Prefabricated Components,
Windows & Doors, Lumber & Lumber Sheet Goods, Millwork,
and Other Building Products & Services. Over the past five
years we have more than doubled the sales of our Prefabricated
Components, Windows & Doors, and Millwork product
categories, each of which includes both manufactured and
distributed products. Products in these categories typically
carry a higher margin and provide us with opportunities to
cross-sell other products and services, thereby increasing
customer penetration.
We serve a broad customer base ranging from
Production Homebuilders to small custom homebuilders and believe
that we are the number one or two building products supplier for
single-family residential new construction in approximately 75%
of the geographic markets in which we operate. According to 2003
U.S. Census data, we have operations in 20 of the top 50 U.S.
Metropolitan Statistical Areas, as ranked by single family
housing permits, and approximately 44% of U.S. housing starts
occurred in states in which we operate. Our comprehensive
product offering featuring over 250,000 SKUs company-wide and
our full range of construction services, combined with our scale
and experienced sales force, have driven market share gains,
particularly with Production Homebuilders.
OUR COMPETITIVE STRENGTHS
We believe our sales, earnings and cash flow will
be driven by our competitive strengths:
Leading Positions in Growing
Markets.
We believe that we are
the number one or two building products supplier for
single-family residential new construction in approximately 75%
of the geographic markets in which we operate. We are also the
largest supplier of our product categories to the Production
Homebuilders in our geographic markets as a whole. These leading
market positions allow us to develop and sustain strong
relationships with local customers and attain economies of scale
that enhance profitability and reduce the risk of losing
customers to our competitors. This in turn positions us
favorably to continue to gain market share. Our facilities are
strategically located in many of the fastest-growing markets in
the southern and eastern U.S., where we expect continued growth.
We believe that we are well positioned to grow with the
Production Homebuilders as they increase their market share in
these growing markets.
Unique Business Model.
Our unique business model allows
us to cost-effectively supply our customers and target
Production Homebuilders, the fastest-growing segment of our
customer base. We operate an integrated business model across
our network of 63 distribution centers and
42 manufacturing facilities that differentiates us from
many of our competitors who operate in a decentralized manner
with a collection of facilities. This has enabled us to achieve
an appropriate balance of maximizing the benefits of a centrally
directed, large-scale company while maintaining the flexibility
to build strong customer relationships and provide superior
customer service at the local market level. The key components
of our business model are the following:
Full Offering of Manufactured Products and
Construction Services.
Over the
past several years, we have significantly increased our sales of
manufactured products, which provide us with higher margins and
increased opportunities to cross-sell other products to our
customers. Our ability to supply our own manufactured products,
including Prefabricated Components, windows, pre-hung doors and
our branded Synboard® millwork products, strengthens our
customer relationships by helping homebuilders reduce costs and
cycle time while ensuring high quality. We also provide our
customers with a full range of services, including professional
installation, turn-key framing and shell construction, and
design. This combination of manufactured products and
construction services offers competitive advantages versus the
traditional single-product, sell-and-deliver
business model employed by many of our competitors.
Superior Customer
Service.
We offer our customers
superior service through our experienced sales force and
reliable delivery capabilities. Our salespeople act as trusted
advisors and on-site consultants to the homebuilder and are
involved in each important step of the construction process to
ensure constant communication and rapidly resolve any issues
that may arise. We typically deploy a salesperson to the job
site to take measurements, interpret blueprints, assist in
product selection and help oversee product installation. Drawing
on a deep base of experience and knowledge, our representatives
advise on regional aesthetic preferences and opportunities for
cost reductions. In addition, our large delivery fleet and
comprehensive inventory management system enable
us to provide just-in-time product delivery,
ensuring a smoother and faster production cycle for the
homebuilder.
Attractive Cost and Working Capital
Position.
We have used our
position as one of the few large-scale competitors in our
industry to create an attractive cost position. We have
generated substantial savings over time by implementing
centralized corporate purchasing agreements. Approximately 80%
of our non-lumber product purchases are made pursuant to
company-wide agreements. Our distribution centers average $32.6
million of annual sales, which is higher than any of our
competitors that have annual sales in excess of $1 billion,
according to their public filings, company web sites, and the
Home Channel News. This scale allows us to leverage our fixed
costs, including occupancy, location management, supervisory
labor and corporate overhead, to lower our costs per sales
dollar. We measure location productivity at a detailed level and
actively manage efficiency and cost. We have implemented a
comprehensive efficiency measurement system in our truss and
wall panel plants and this system has enabled us to
significantly improve productivity. We aggressively manage every
component of working capital, including accounts receivable,
inventory, and accounts payable, and we have improved our
working capital, expressed as a percentage of sales, from 1999
as compared to the year ended December 31, 2004. All of
these activities are designed to ensure that we serve our
customers at the lowest cost possible.
Experienced Management
Team.
We have a dedicated
management team with extensive experience and expertise in the
manufacturing, distribution, and marketing of building products.
Our senior management team, including our three regional group
presidents, has a total of over 175 years of industry
experience. This team has successfully led us through various
industry cycles, economic conditions and capital structures, and
has demonstrated the ability to grow manufacturing businesses,
introduce new product lines, expand into new geographic markets,
and target and integrate acquisitions, while improving
operational and working capital efficiencies. Our seasoned
operational team is led by three regional group presidents who
average over 25 years of industry experience. Local
facility management and sales representatives are knowledgeable
about homebuilding and generally have longstanding relationships
with the builders in their respective markets.
OUR STRATEGY
Our strategy is to leverage our competitive
strengths to grow sales, earnings, and cash flow and remain the
preferred supplier to the homebuilding industry.
Increase Customer Penetration Through
Incremental Sales of Manufactured Products and
Services.
We plan to organically
grow our unit volumes and revenues through further penetration
of our customer base by providing existing customers with
incremental value-added products and services. As part of this
strategy, we intend to increase sales of manufactured products,
which are higher margin and less price sensitive than lumber
products, and are growing in demand by homebuilders.
Prefabricated Components, such as trusses, wall panels, stairs
and engineered wood, are highly valued by our customers,
especially Production Homebuilders, because they reduce
builders cycle times and carrying costs and generate cost
savings through the reduction of on-site labor and lumber waste.
Once established as a manufacturer of these products by our
customers, we are generally able to cross-sell additional
products. We also intend to grow our sales of construction
services, such as professional installation, turn-key framing
and shell construction, and design, as a complement to our
existing product offerings. Our ability to provide full product
and service solutions further strengthens customer loyalty and
enables us to retain an advantage over our competitors.
Target Production Homebuilders.
We intend to leverage our unique
business model, geographic breadth, and scale to continue to
grow our sales to the Production Homebuilders as they continue
to gain market share. The ten largest Production Homebuilders,
as measured by homes sold, quadrupled their market share from
approximately 5% in 1990 to 20% in 2004, according to Builder
Magazine, and are expected to increase their market share to 40%
by 2010 according to the National Association of Realtors. From
2001 to 2004, the ten largest Production Homebuilders increased
their market share by approximately 22% from an estimated 18% to
a projected 22%. Over approximately the same period, we
increased our sales to this customer group at an
even greater rate of approximately 73% from $260.8 million
in 2001 to $451.8 million in 2004.
Expand through New Manufacturing and
Distribution Centers in Existing and Contiguous
Markets.
We believe that several
key markets in which we currently operate require increased
manufacturing capacity or incremental distribution facilities to
reach their full sales potential. In many locations, we believe
that we can increase market penetration through the introduction
of additional distribution and manufacturing facilities. In
addition, we have identified several markets that we believe we
can enter with a strong market share from the onset by
leveraging our existing nearby facilities, customer
relationships and local knowledge. We will also selectively seek
expansion opportunities that will enable us to grow in the
multi-family and commercial end markets where we currently have
a limited presence. We expect these expansions can be realized
with capital expenditures consistent with historical levels.
Focus on Cost, Working Capital and
Operating Improvements.
We are
extremely focused on expenses and working capital to remain a
low cost supplier. We maintain a continuous improvement,
best practices operating philosophy and regularly
implement new initiatives to reduce costs, increase efficiency
and reduce working capital, thereby enhancing profitability and
cash flow. For example, we are beginning to link our computer
system to those of our customers to streamline the
administrative aspects of the quoting, invoicing and billing
processes. We are also analyzing our workforce productivity to
determine the optimal labor mix that minimizes cost, and
examining our logistics function to reduce the cost of inbound
freight. Our focus on cost controls and our strategy of shifting
the sales mix to value-added products and services have
significantly improved profitability. Selling, general and
administrative expenses have declined as a percentage of sales
from 21.4% in 2001 to 18.3% in 2004. We have also improved our
working capital, expressed as a percentage of sales, from 1999
as compared to the year ended December 31, 2004.
Pursue Strategic
Acquisitions.
The highly
fragmented nature of the Pro Segment presents substantial
acquisition opportunities. Our acquisition strategy centers on
geographic expansion and continued growth of our Prefabricated
Components business. First, there are a number of attractive
homebuilding markets, including in the western and southwestern
U.S. and parts of the Midwest, where we do not currently
operate. We believe that our proven operating model can be
successfully adapted to these markets and the homebuilders in
these markets, many of whom we currently serve elsewhere, and
who value our broad product and service offering, professional
expertise, and superior customer service. When entering a new
market, our strategy is to acquire market-leading distributors
and subsequently expand their product offerings and/or add
manufacturing facilities while integrating their operations into
our centralized platform. This strategy allows us to quickly
achieve the scale required to maximize profitability and
leverage existing customer relationships in the local market.
Second, we will selectively seek to acquire companies that
manufacture Prefabricated Components such as roof and floor
trusses, wall panels, stairs, and engineered wood, as well as
other building products such as millwork. Prefabricated
Components are growing in popularity with homebuilders and
provide us with cross-selling opportunities and higher margins.
While our senior management team has neither identified any
specific geographic areas in which to pursue strategic
acquisitions nor entered into serious negotiations to establish
a market in any such geographical area at the present time, it
has the experience and ability to identify acquisition
candidates and integrate acquisitions, having acquired and
integrated 23 companies since 1998.
OUR PRODUCTS AND SERVICES
We distribute a wide variety of products and
services directly to homebuilder customers through our network
of 63 distribution centers in 11 states. In addition,
through our 42 manufacturing facilities, many of which are
located on the same premises as our distribution centers, we are
a fast-growing manufacturer of building products, including
floor and roof trusses, wall panels, stairs, millwork and
windows.
We group our full range of building products and
services into five product categories: Prefabricated Components,
Windows & Doors, Lumber & Lumber Sheet Goods,
Millwork, and Other Building Products & Services. The
following chart provides the sales breakdown for our five
product categories for the year ended December 31, 2004:
Sales by Product CategoryYear Ended
December 31, 2004
Prefabricated
Components.
We believe we are one of
the largest manufacturers of Prefabricated Components for
residential new construction in the U.S. According to the
Freedonia Group, we are one of the leading manufacturers of wood
roof trusses and floor trusses in the U.S. Prefabricated
Components has been our fastest growing product category over
the past five years. This growth has been a response to changing
building practices that utilize more manufactured products, as
well as a concerted effort to increase profitability through the
sale of value-added products. Prefabricated Components are
factory-built substitutes for job site-framing and include floor
and roof trusses, wall panels, stairs, and engineered wood that
we design and cut for each home. Our manufacturing facilities
utilize the latest technology and the highest quality materials
to produce a quality product, increase efficiency, reduce lead
times, and minimize production errors. As a result, we believe
we incur significantly lower engineering and set-up costs than
do our competitors, contributing to improved margins and
customer satisfaction. Sales of Prefabricated Components were
$385.9 million during the year ended December 31,
2004, representing 18.8% of total sales.
Windows &
Doors.
The Windows & Doors
category comprises the manufacturing, assembly and distribution
of windows, and the assembly and distribution of interior and
exterior door units. These products typically require a high
degree of product knowledge and training to sell. As we continue
to emphasize higher margin product lines, value-added goods like
those in the Windows & Doors category are expected to
increasingly contribute to our sales and overall profitability.
Windows & Doors sales were $391.2 million during
the year ended December 31, 2004, representing 19.0% of
total sales.
Lumber & Lumber Sheet
Goods.
Lumber & Lumber Sheet
Goods include dimensional lumber, plywood and oriented strand
board (OSB) products used in on-site house framing.
This product line has not grown at the same rate as our overall
sales over the last five years, as demonstrated by the fact
that it represented 39.6% of total sales for the year ended
December 31, 2004, compared to 47.6% of total sales in
1999. This shift in product mix has been intentional as we have
sought to migrate builder demand toward higher margin
Prefabricated Components for their framing needs. Despite this
shift in product mix, we believe we have grown our market share
for Lumber & Lumber Sheet Goods over this time period. We
expect the Lumber & Lumber Sheet Goods business to
remain a stable revenue source in the future, but to grow over
the long-term at a slower rate than our other business lines.
Sales of Lumber & Lumber Sheet Goods for the year ended
December 31, 2004, were $815.3 million.
Millwork.
Millwork
represents a small, but profitable product category. This
category includes interior and exterior trim, columns and posts
that we distribute, as well as custom exterior features that we
manufacture under the Synboard® brand name. Millwork sales
during the year ended December 31, 2004, were
$175.9 million, representing 8.5% of total sales.
Other Building Products &
Services.
Other Building
Products & Services consists of products including
cabinets, gypsum, roofing, and insulation, and services
including turn-key framing and shell construction, design
assistance and professional installation of products which spans
all our product categories. We provide professional installation
and turn-key services as a solution for our homebuilder
customers to increase productivity and avoid project delays. We
believe these services require scale, capital and sophistication
that smaller competitors do not possess. Sales of Other Building
Products & Services were $289.7 million during the
year ended December 31, 2004, representing 14.1% of total
sales.
SALES AND MARKETING
Our marketing and sales strategy primarily seeks
to attract and retain customers through exceptional customer
service, leading product quality, a broad and complete product
and service offering, and competitive pricing. This strategy is
centered on building and maintaining strong customer
relationships rather than traditional marketing and advertising.
Homebuilders recognize the value we add: shorter lead times,
lower material costs, faster project completion and higher
quality. We expect to continue to successfully compete for
business and gain market share through superior service.
Our experienced, locally focused sales force is
at the core of our sales effort. This sales effort involves
deploying salespeople who are skilled in housing construction to
meet with a homebuilders construction superintendent,
local purchasing agent, or local executive with the goal of
becoming the primary product supplier. If selected by the
homebuilder, the salesperson and his or her team of experts
review blueprints for the contracted homes and advise the
homebuilder in areas such as opportunities for cost reduction
and regional aesthetic preferences. Next, the team determines
the specific package of our products that are needed to complete
the project and schedules a sequence of site deliveries. Our
large delivery fleet and comprehensive inventory management
system enable us to provide just-in-time product
delivery, ensuring a smoother and faster production cycle for
the homebuilder. Throughout the construction process, the
salesperson makes frequent site visits to ensure timely delivery
and proper installation and to make suggestions for efficiency
improvements. Our level of service is highly valued by customers
and generates significant customer loyalty. We currently employ
over 500 outside sales representatives, who are typically
paid a commission based on gross margin dollars collected and
work with over 300 internal sales coordinators and product
specialists.
OUR CUSTOMERS
Our customer mix is a balance of large national
homebuilders, regional homebuilders, and local builders. Our
customer base is highly diversified, with the top ten customers
accounting for approximately 26% of sales in the year ended
December 31, 2004, and no single customer accounting for
more than 4.2% of sales. At the same time, our top ten customers
are comprised primarily of the largest Production Homebuilders,
including publicly traded companies such as Centex,
D.R. Horton, Hovnanian Enterprises, Pulte, and Ryland Group.
We believe we are one of the top two suppliers of
our product categories to the Production Homebuilders, the
fastest growing segment of the residential builders, and are the
largest supplier of our product categories to Production
Homebuilders in our geographic markets as a whole. In line with
the growth of this segment, we have increased our sales to the
ten largest Production Homebuilders, as measured by homes sold,
by approximately 73% from $260.8 million in 2001 to
$451.8 million in the year ended December 31, 2004.
In addition to the largest Production
Homebuilders, we also service and supply regional and local
custom homebuilders. Custom homebuilders require high levels of
service since our sales team must work very closely with the
designers on a day-to-day basis in order to ensure the
appropriate products are produced and delivered to the building
site. To account for these increased service costs, pricing in
the industry is generally commensurate with the level of service
provided and the volumes purchased.
MATERIALS AND SUPPLIER RELATIONSHIPS
We purchase raw materials for our manufacturing
plants and finished products for resale by our distribution
operations. The key raw materials for our Prefabricated
Components are dimensional lumber, OSB and engineered wood. We
purchase door slabs and hardware for our pre-hanging door
plants, Celuka-blown PVC for our custom millwork plants, and
aluminum and vinyl extrusions and glass for our window plant.
Our distributed products include windows, doors, millwork,
lumber and lumber sheet goods. Our largest suppliers are
national lumber and wood products producers and distributors
such as Bluelinx, Boise Cascade, International Paper, and
Weyerhaeuser and building products manufacturers such as
Masonite and MW Windows. We believe there is sufficient
supply in the marketplace to competitively source most of our
requirements without reliance on any particular supplier and
that our diversity of suppliers affords us purchasing
flexibility. Due to our centralized oversight of purchasing and
our large lumber and OSB purchasing volumes, we are able to
maximize the advantages of both our and our suppliers
national footprints and negotiate purchases in multiple markets
to achieve more favorable contracts with respect to price, terms
of sale, and supply than our regional competitors. Additionally,
for certain customers, we institute purchasing programs on raw
materials such as OSB to align portions of our procurement costs
with our pricing commitments. We purchase lumber and OSB on the
spot market as necessary to fulfill customer contracts.
We currently source products from over 5,000
suppliers in order both to reduce our dependence on any single
company and to maximize purchasing leverage. Although no
purchases from any single supplier represent more than 11% of
our cost of goods sold, we believe we are one of the largest
customers for many suppliers, and therefore have significant
purchasing leverage. We have found that using multiple suppliers
ensures a stable source of products and the best purchasing
terms as the suppliers compete to gain and maintain our business.
We maintain strong relationships with our
suppliers, and we believe opportunities exist to improve
purchasing terms in the future, including inventory storage or
just-in-time delivery to reduce our inventory
carrying costs. Additional procurement cost savings and
purchasing synergies are expected to further enhance our margins
and cash flow generation capability.
MANUFACTURING
We manufacture four different types of products:
Prefabricated Components, millwork, windows, and pre-hung doors.
Our Prefabricated Components allow builders to build higher
quality homes more efficiently. Roof trusses, floor trusses,
wall panels and stair units are built in an indoor,
factory-controlled environment. Engineered wood floors and beams
are cut to the required size and packaged for the given
application at many of our locations. Without Prefabricated
Components, builders construct these items on site, where
weather and variable labor quality can negatively impact
construction cost, quality and installation time. In addition,
engineered wood beams have greater structural strength than
conventional framing materials, allowing builders to frame
houses with more open space and to create a larger variety of
house designs. Engineered wood floors are stronger and
straighter than conventionally framed floors.
We manufacture custom millwork products such as
synthetic exterior trim, custom windows and box columns under
the Synboard® brand name. Our millwork is produced from
extruded PVC and offers several advantages over traditional wood
features, such as greater durability and less maintenance
requirements. We also operate an aluminum and vinyl window plant
in Houston, Texas which allows us
to provide builders, primarily in the Texas
market, with an adequate supply of cost-competitive products.
Our pre-hung interior and exterior doors consist of a door slab
with the hinges and door jambs attached, reducing job site
installation time and providing higher quality finished door
units than those constructed on site.
Prefabricated Components Trusses and
Wall Panels.
Truss and wall panel
production has two steps, design and fabrication. Each house
requires its own set of designed shop drawings, which vary by
builder type: non-custom versus custom builders. Non-custom
builders use prototype house plans, which may be modified for
each individual customer. The number of changes made to a given
prototype house, and the number of prototype houses in
existence, varies by builder and their construction and sales
philosophy. We maintain an electronic master file of trusses and
wall panels for each builders prototype houses. There are
three primary benefits to master filing. First, it reduces
design cost as a designer can make minor changes to a prototype
house rather than designing the components individually. Second,
it improves design quality as the majority of the houses
design is based on a proven prototype. Third, master filing
allows us to change one file and update all related prototype
house designs automatically as we improve the design over time
or if the builder modifies the base prototype house. We do not
use a master file for custom builders who do not replicate
houses, as it is not cost-effective. For these builders, the
components are designed individually for each house.
After the shop drawings are designed for a given
house, regardless of whether or not the master file system is
used, the shop drawings are downloaded into a proprietary
software system to review the design for potential errors and to
schedule the job for production. The fabrication process begins
with the cutting of individual pieces of lumber to the lengths
required to assemble the finished component. Shop drawings are
downloaded from the design department to our computerized saws.
The cut lumber is then joined together to form the roof trusses,
floor trusses or wall panels. The finished components are stored
by house awaiting shipment to the job site.
We are able to generate fabrication time
standards for each component during the design step. We use
these standards to measure efficiency by comparing actual
production time with the calculated standard. Each plants
performance is benchmarked by comparing efficiency across plants.
Prefabricated Components Engineered
Wood.
As with trusses and wall panels,
engineered wood components have a design and fabrication step.
Engineered wood floors are designed using a master filing system
similar to the truss and wall panel system. Engineered wood
beams are designed to ensure the beam will be structurally sound
in the given application. After the design phase, a printed
layout is generated. This layout is used to cut the engineered
wood to the required length and assemble all of the components
into a house package. The components are then installed on the
job site. Engineered wood design and fabrication is done at the
majority of our distribution locations.
Prefabricated Components
Stairs.
We manufacture box stairs at
several of our locations and curved stairs at our East
Brunswick, New Jersey location. After a house is framed, our
salesman takes measurements at the job site prior to
manufacturing to account for any variation between the
blueprints and the actual framed house. Box stairs can be
fabricated based on these measurements. Curved stairs are
typically a more customized product used in the entry foyer of a
home and require additional designing, which is done using a CAD
based computer program. Box stairs are manufactured by
routing 1 1/4 inch by 12 inch stringer lumber to form the
frame that holds the stair treads. The treads are then nailed
and glued into the frame. The frame for curved stairs is built
on a specially designed jig to give the stairs the desired
curvature.
Custom Millwork.
Our
manufactured custom millwork consists primarily of synthetic
exterior trim, custom windows, features and box columns we sell
under the Synboard® brand name. Synboard® requires no
ongoing maintenance as compared to wood exterior trim products
that require periodic caulking and painting. Synboard®
products are sold throughout our company and are manufactured at
three locations.
Sheets of 4 foot by 18 or 20 foot Celuka-blown,
extruded PVC (Synboard®) are sanded, cut and
shaped to produce the desired product. Exterior trim boards are
produced by cutting the Synboard® into the same
industry-standard dimensions used for wood-based exterior trim
boards. Exterior features are formed by assembling pieces of
Synboard® and other PVC-based moldings that have been cut,
heated and bent over forms to achieve the desired shape. Custom
windows are made by building the frame from Synboard® and
glazing the glass into place. Box columns are fabricated
from sections of PVC that are cut on a 45 degree angle and
mitered together.
Windows.
We
manufacture a full line of traditional aluminum and vinyl
windows at a 200,000 square foot manufacturing facility
located in Houston, Texas. The process begins with the purchase
of aluminum and vinyl lineal extrusions. These extrusions are
cut to size and joined together to form the window frame and
sash. Sheet glass is purchased and cut to size. Two pieces of
identically shaped glass are then sealed together with a sealing
compound to create a glass unit with improved insulating
capability. The sealed glass unit is then inserted and glazed
into the window frame and sash. The unit is completed when a
balance is installed to operate the window and a lock is added
to secure the window in a closed position.
Pre-hung Doors.
We
pre-hang interior and exterior doors at many of our locations.
Door slabs and pre-cut door jambs are inserted into a door
machine. The door machine bores holes into the doors for the
door hardware and applies the jambs and hinges to the door slab.
The casing that frames interior doors is then applied at a
separate station. Exterior doors do not have a casing, and
instead may have sidelights applied to the sides of the door, a
transom attached over the top of the door unit and a door sill
applied to the threshold.
COMPETITION
We compete in the professional segment (Pro
Segment) of the U.S. residential new construction
building products supply market, which is estimated by the Home
Improvement Research Institute to have 2004 annual sales of
$145.05 billion. The Pro Segment of this market consists
predominantly of small, privately owned companies, including
framing and shell construction contractors, local and regional
materials distributors, single or multi-site lumberyards, and
truss manufacturing and millwork operations, most of which have
limited access to capital and lack sophisticated information
technology systems and large-scale procurement capabilities.
According to their public filings, company web sites, and the
Home Channel News, the top ten Pro Segment suppliers account for
about 12% of the total market, which remains fragmented due to
its overall size, the diversity of the target customer market,
and variations in local building preferences and practices.
There are only six building products suppliers in the Pro
Segment that generate over $1 billion in sales according to
their public filings, company web sites, and the Home Channel
News. Our largest competitors in our markets are 84 Lumber
(a privately held company), Stock Building Supply (formerly
known as Carolina Holdings, a unit of U.K.-based Wolseley, plc),
and Strober (a privately held company).
We focus on a distinctly different target market
than the home center retailers such as Home Depot and
Lowes, who primarily serve do-it-yourself and professional
remodeling customers. By contrast, our customers consist of
professional homebuilders and those that provide construction
services to them, with whom we develop strong relationships. The
principal methods of competition in the Pro Segment are the
development of long-term relationships with professional
builders and retaining such customers by delivering a full range
of high-quality products on time and offering trade credit,
competitive pricing, flexibility in transaction processing, and
integrated service and product packages, such as turnkey framing
and shell construction, as well as prefabricated components and
installation. Though some of our competitors may have access to
greater resources than do we, our geographic scope and the
breadth of our product and service offerings position us well to
meet the needs of our customers and retain an advantage over
such competitors. In addition, our leading market positions in
the highly competitive Pro Segment create economies of scale
that allow us to cost-effectively supply our customers, which
both enhances profitability and reduces the risk of losing
customers to competitors.
We believe we are the number one or two building
products supplier for single-family residential new construction
in approximately 75% of the geographic markets in which we
operate. We are also the largest supplier of our product
categories to the Production Homebuilders in our geographic
markets as a whole. Due in part to our long-standing customer
relationships, local market knowledge and competitive pricing,
we believe we have substantial competitive advantages over the
small, privately owned companies with which we primarily
compete. According to 2003 U.S. Census data, we have
operations in 20 of the top 50 U.S. Metropolitan
Statistical Areas as ranked by single family housing permits and
approximately 44% of U.S. housing starts occurred in states
in which we operate.
EMPLOYEES
At December 31, 2004, we had approximately
6,200 employees, none of whom was represented by a union.
We believe that we have good relations with our employees.
INFORMATION TECHNOLOGY SYSTEMS
Our primary ERP system, which we use for
operations representing 70% of our revenue, is a proprietary
system that has been highly customized by our computer
programmers. The system has been designed to operate our
businesses in a highly efficient manner. The materials required
for thousands of standard builder plans are stored by the system
for rapid quoting or order entry. Hundreds of price lists are
maintained on thousands of SKUs, facilitating rapid price
changes in changing product cost environments. A customers
order can be tracked at each stage of the process and billing
can be customized to reduce a customers administrative
costs and speed payment. We also operate a legacy ERP system for
operations representing 30% of our revenue. This system allows
us to effectively manage the business and deliver outstanding
customer service, but lacks several of the enhancements we have
made to our primary system. Accordingly, we are in the process
of migrating our remaining operations from the legacy system to
our primary system.
We have implemented a single financial reporting
system that has been highly customized for our business. Our
Hyperion financial reporting package is used to aggregate data
from our two ERP systems. The Hyperion system effectively
consolidates the financial information of each location to allow
us to plan, track, and report performance and compensation
measures. Our state-of-the-art information technology
infrastructure affords our corporate headquarters complete
financial oversight and control over each of our locations,
allowing us to minimize errors and maximize efficiency and
reliability.
We have developed a proprietary program for use
in our component plants. This software reviews product designs
for errors, schedules the plants and provides the data used to
measure plant efficiency. In addition, we have purchased several
software products that have been integrated with our primary ERP
system. These programs assist in analyzing blueprints to
generate material lists, configure kitchen cabinet orders to
submit to manufacturers, purchase lumber products from the
lowest cost source and configure orders and schedule production
in our window plants.
FACILITIES AND PROPERTIES
We have a broad network of distribution and
manufacturing facilities in 11 states throughout the
southern and eastern U.S. We have 63 distribution
facilities and 42 manufacturing facilities, many of which are
located on the same premises as our distribution facilities. Our
manufacturing facilities produce trusses, wall panels,
engineered wood, stairs, windows, pre-hung doors, and custom
millwork. We are organized into three regional operating groups,
Atlantic, Central, and Southeast, in order to achieve operating
efficiencies while maintaining maximum capacity for growth. The
Atlantic and Central markets generally consist of larger, higher
volume builders than the Southeast markets. As a result, each
manufacturing facility in the
Atlantic and Central regions typically supplies a
single distribution center, while Southeast manufacturing
facilities supply multiple distribution centers within an
economical three-hour shipping radius.
Distribution centers are generally leased and
typically include 15 to 25 acres of outside storage, a
60,000 square foot warehouse, 10,000 square feet of
office space, and 30,000 square feet of covered storage.
The outside area provides space for lumber storage and a staging
area for delivery while the warehouse stores millwork, windows,
and doors. The distribution centers are generally located in
industrial areas with low cost real estate and easy access to
freeways to maximize distribution efficiency and convenience. A
majority of the distribution centers are situated on rail lines
for efficient receipt of goods.
Our manufacturing facilities are generally
located on the same premises as our distribution facilities.
Truss and panel manufacturing facilities vary in size from
30,000 square feet to 60,000 square feet with 8 to
10 acres of outside storage for lumber and for finished
goods. Our window manufacturing facility in Houston, Texas has
approximately 200,000 square feet.
We lease most of our distribution and
manufacturing facilities. These leases generally have an initial
operating lease term of 5 to 15 years and most provide
options to renew for specified periods of time. A majority of
our leases provide for fixed annual rentals. Certain of our
leases include provisions for escalating rent, generally based
on changes in the consumer price index. Most of the leases
require us to pay taxes, insurance and common area maintenance
expenses associated with the properties.
The following chart highlights the location of
the Companys distribution and manufacturing operations:
We operate a fleet of approximately 1,500 trucks
to deliver products from our distribution and manufacturing
centers to job sites. Through our emphasis on local market
flexibility and strategically placed locations, we minimize
shipping and freight costs while maintaining a high degree of
local market expertise. Through knowledge of local homebuilder
needs, customer coordination, and rapid restocking ability, we
reduce working capital requirements and guard against
out-of-stock products. We believe that this reliability is
highly valued by our customers and reinforces customer
relationships.
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 financial position or operating
results.
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.
Management
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to our directors and
executive officers, as of the date hereof, is set forth below:
Our board of directors consists of five members
elected annually by our stockholders. All executive officers are
chosen by the board of directors and serve at its pleasure.
There are no family relationships among any of the directors or
executive officers, and there is no arrangement or understanding
between any of the directors or executive officers and any other
person pursuant to which he was selected as a director or
officer. Unless otherwise indicated, each director and officer
is a citizen of the United States and the business address of
each individual is: 2001 Bryan Street, Suite 1600, Dallas,
Texas 75201.
Set forth below is a brief description of the
business experience of each of our directors, executive
officers, and our three regional group presidents.
Floyd F. Sherman,
Chairman and Chief Executive Officer. Mr. Sherman has been
a director since 2001, when he came to BFS. Prior to joining
BFS, he spent 28 years at Triangle Pacific/ Armstrong
Flooring, the last nine of which he served as Chairman and Chief
Executive Officer. Mr. Sherman has over 40 years of
experience in the building products industry. A native of
Kerhonkson, New York, and a veteran of the U.S. Army,
Mr. Sherman is a graduate of the New York State College of
Forestry at Syracuse University. He also holds an M.B.A. degree
from Georgia State University.
Kevin P.
OMeara,
Chief Operating Officer.
Mr. OMeara is a co-founder of BFS. At the inception
of BFS, he served as the Chief Financial Officer.
Mr. OMeara was promoted to his current position in
May 2000. Prior to co-founding BFS, Mr. OMeara served
as Vice President, Strategic Planning and Business Development
at Fibreboard Corporation. He worked three years in the Dallas
office of Bain & Company, a strategic management
consulting firm. He also worked six years at two private
investment firms. Mr. OMeara is a C.P.A. and has a
B.A. (economics) and a B.B.A. (accounting) from
Southern Methodist University and an M.B.A. from Harvard
Business School.
Charles L. Horn,
Chief Financial Officer. Mr. Horn joined BFS in May 1999 as
Vice President-Finance and Controller. He was promoted to CFO in
May 2000. Prior to joining the Company, Mr. Horn served
in a variety of positions at Pier One Imports,
most recently as Vice President and Treasurer. Prior to Pier
One, he served as Vice President Finance/ Chief Financial
Officer of Conquest Industries. Mr. Horn also has seven
years of public accounting experience with Price Waterhouse.
Mr. Horn is a C.P.A. and received his B.B.A. degree from
Abilene Christian University and M.B.A. from The University of
Texas at Austin.
Donald F. McAleenan,
Senior Vice President and General Counsel. Mr. McAleenan is
a co-founder of BFS and serves as General Counsel. Prior to
co-founding BFS, Mr. McAleenan served as Vice President and
Deputy General Counsel of Fibreboard Corporation from 1992 to
1997. Mr. McAleenan was also Assistant General Counsel of
AT&E Corporation and spent nine years as a securities
lawyer at two New York City law firms. Mr. McAleenan has a
B.S. from Georgetown University and J.D. from New York
University Law School.
Frederick B.
Schenkel,
Vice President,
Manufacturing. Mr. Schenkel joined BFS in 1998 when the
Company acquired BSL from Pulte Home Corporation. At BSL, and
later with the Company, Mr. Schenkel was a location
manager. He became Vice President of the Atlantic Group in 1999
and was promoted to Vice President, Manufacturing in 2002.
Mr. Schenkel has more than 31 years of experience
managing manufacturing facilities in the industry and, before
joining BSL, held such positions as manufacturing manager for
The Ryland Group, Inc., vice president of manufacturing for
Diversified Homes Corporation of Maryland, and plant manager for
Regional Building Systems, Inc. Mr. Schenkel holds a B.A.
in accounting from Saint Bonaventure University.
Morris E.
Tolly,
Southeast Group President.
Mr. Tolly has been with the Company since 1998 when the
Company acquired Pelican Companies, Inc. (Pelican).
Mr. Tolly was a General Manager and Market Manager for
Pelican and later for the Company prior to being promoted in
2000 to President of the Southeast Group. Overall,
Mr. Tolly has over 40 years of experience in the
building products industry.
Douglas E.
Schweinhart,
Atlantic Group President.
Mr. Schweinhart joined BFS in 1998 when the Company
acquired Builders Supply & Lumber Co. (BSL)
from Pulte Home Corporation. Previously, Mr. Schweinhart
was a founder and Vice President of BSL. He also spent
12 years with Lowes Contractor Yards in various
capacities. Overall, Mr. Schweinhart has over 28 years
of experience in the building products industry.
Mr. Schweinhart received his B.S. degree in Finance from
Towson State University.
Alan K. Davenport,
Central Group President. Mr. Davenport joined BFS in 2000
as Vice President of National Sales and Marketing. In December
2002, Mr. Davenport was promoted to President of the newly
formed Central Group. Prior to joining BFS, Mr. Davenport
spent over ten years in the building products industry in
various executive positions with Wickes, Inc. and 84 Lumber.
Mr. Davenport is a graduate of the University of
Cincinnati. He holds a B.S. degree in architecture/construction
management technology.
Alexander R.
Castaldi,
Director. Mr. Castaldi
has been a director since 2004. Mr. Castaldi, a C.P.A., is
a Senior Managing Director of JLL Partners, Inc., which he
joined in 2003, and was previously a CFO of three very
successful management buyouts. He was most recently Executive
Vice President, Chief Financial and Administration Officer of
Remington Products Company. Previously, Mr. Castaldi was
Vice President and Chief Financial Officer at Uniroyal Chemical
Company. From 1990 until 1995, he was Senior Vice President and
Chief Financial Officer at Kendall International, Inc. During
the 1980s, Mr. Castaldi was also Vice President, Controller
of Duracell, Inc. and Uniroyal, Inc. Mr. Castaldi serves as
a director of several companies, including Motor Coach
Industries International, Inc., Mosaic Sales Solutions, Corp.,
PGT Industries, Inc., and C.H.I. Overhead Doors, Inc.
Ramsey A.
Frank,
Director. Mr. Frank has
been a director since 2001. Mr. Frank is a Senior Managing
Director of JLL Partners, Inc., which he joined in 1999. From
January 1993 to July 1999, Mr. Frank was a Managing
Director at Donaldson, Lufkin & Jenrette, Inc., where
he headed the restructuring group and was a senior member of the
leveraged finance group. Mr. Frank serves as a director of
several companies,
including Motor Coach Industries International,
Inc., C.H.I. Overhead Doors, Inc., PGT Industries,
Inc., and Medical Card System, Inc.
Paul S. Levy,
Director. Mr. Levy has been a director since 1998.
Mr. Levy is a Senior Managing Director of JLL Partners,
Inc., which he founded in 1988. Mr. Levy serves as a
director of several companies, including Fairfield Manufacturing
Company, Inc., Lancer Industries, Inc., Motor Coach Industries
International, Inc., Mosaic Sales Solutions, Corp.,
PGT Industries, Inc., and C.H.I. Overhead Doors, Inc.
Brett N. Milgrim,
Director. Mr. Milgrim has been a director since 1999.
Mr. Milgrim is a director of both PGT Industries, Inc.
and C.H.I. Overhead Doors, Inc. and is a Managing Director
of JLL Partners, Inc., which he joined in 1997.
Robert C. Griffin,
Director. Mr. Griffin has been nominated to become a
director upon completion of this offering. In March 2002,
Mr. Griffin retired from Barclays Capital, where from June
2000 to March 2002 he was Head of Investment Banking, Americas
and a member of the Management Committee. Prior to joining
Barclays Capital, Mr. Griffin was a member of the Executive
Committee for the Montgomery Division of Bank of America
Securities and held a number of positions with Bank of America,
including Group Executive Vice President and Head of Global Debt
Capital Raising and Senior Management Council Member.
Mr. Griffin is a member of the Advisory Council of
PriceMetrix, Inc. and has been nominated to serve on the board
of directors of Commercial Vehicle Group, Inc.
Board Composition
We intend to appoint an independent director
prior to the completion of this offering. Upon completion of
this offering, our board will consist of the new independent
director and Messrs. Sherman, Levy, Castaldi, Frank, and
Milgrim. Immediately prior to the consummation of this offering,
we will adopt our amended and restated articles of incorporation
and our amended and restated by-laws, which will provide that
our board of directors be divided into three classes, each of
whose members will serve for a staggered three-year term. We
intend to appoint one additional independent member to the board
of directors within 90 days of the consummation of this
offering, and, within one year of the consummation of this
offering, we expect to appoint that number of additional
independent members to the board of directors as are necessary
to comply with the requirements of the Sarbanes-Oxley Act of
2002 and The Nasdaq National Market.
Board Committees
Upon completion of this offering, our board of
directors intends to appoint an audit committee, the composition
of which will comply with the requirements of The Nasdaq
National Market and the Sarbanes-Oxley Act of 2002. Our board of
directors also intends to appoint such other committees as may
be required by the rules of The Nasdaq National Market.
The audit committee will select, on behalf of our
board of directors, an independent public accounting firm to be
engaged to audit our financial statements, discuss with the
independent auditors their independence, review and discuss the
audited financial statements with the independent auditors and
management, and recommend to our board of directors whether the
audited financials should be included in our Annual Reports on
Form 10-K to be filed with the SEC.
Compensation of Directors
For the year ended December 31, 2004, the
individuals serving on the board of directors did not receive
any compensation for their service as directors. We intend to
set the compensation for independent directors prior to
completion of this offering. We do not intend to pay
compensation to individuals serving on our board of directors
who are employees or affiliates of the Company for their service
as directors.
Executive compensation
SUMMARY OF COMPENSATION
The following summary compensation table sets
forth information concerning compensation earned in the fiscal
year ended December 31, 2004, by our chief executive
officer and our other four most highly compensated executive
officers serving at the end of the last fiscal year. We refer to
these executives as our named executive officers
elsewhere in this prospectus.
Summary Compensation Table
The following table sets forth information
concerning the grant of stock options to each of our named
executive officers during the last fiscal year.
Option Grants in Last Fiscal Year
The following table sets forth information
concerning the exercise of stock options during the last fiscal
year by each of our named executive officers and the number and
value of unexercised options held by such individuals as of the
end of the last fiscal year.
Aggregated Option Exercises in Last Fiscal
Year
Employment agreements
We have entered into employment agreements with
four of our named executive officers. These employment
agreements provide for Mr. Sherman to serve as Chairman of
the Board of Directors and as our Chief Executive Officer,
Mr. OMeara to serve as our Senior Vice President of
Operations and Chief Operating Officer, Mr. Horn to serve
as our Senior Vice President of Finance and Chief Financial
Officer, and Mr. McAleenan to serve as our Senior Vice
President and General Counsel.
Mr. Shermans agreement
Mr. Shermans employment agreement was
entered into on September 1, 2001, and has a two-year term,
with automatic one-year renewals commencing on the first
anniversary of the effective date of the employment agreement,
unless either party provides at least 90 days notice
of non-renewal. In addition to providing for his annual base
salary and employee benefits, Mr. Shermans employment
agreement provides, among other things, that he will be eligible
for an annual cash bonus of up to 133% of his base salary, as
determined by our board of directors or the compensation
committee, and for the initial grant of an option to
purchase 1,135,753 shares of our common stock. Our
board of directors may increase the amount of
Mr. Shermans bonus if they deem such an increase
appropriate. This option vests ratably on each of the first four
anniversaries of the effective date of the employment agreement
and in full upon a change of control (as defined in
the employment agreement) of the Company.
Mr. Shermans employment agreement
provides that if he is terminated by us without
cause (as defined in the employment agreement) he
will be entitled to payment of his annual base salary and health
and welfare benefits for the remainder of the term of the
employment agreement. His employment agreement further provides
that, during his employment with us and for one year thereafter,
he may not disclose confidential information and may not
directly or indirectly compete with the Company. In addition, he
may not solicit any employees of the Company or any of its
subsidiaries during his employment with us and for two years
thereafter.
Agreements with other named executive
officers
The employment agreements with
Messrs. OMeara, Horn, and McAleenan were entered into
on January 15, 2004. Each of these agreements has a
one-year term, with automatic one-year renewals commencing on
the first anniversary of the effective date of the employment
agreement, unless either party provides at least
90 days notice of non-renewal. In addition to
providing for an annual base salary and employee benefits, each
of these agreements provides, among other things, that the
executive is eligible for an annual cash bonus under our annual
cash incentive plan, which currently provides for a target bonus
percentage of 100% of the executives base salary. Pursuant
to the employment agreements, this target bonus percentage will
not be less than 100% of the executives base salary.
Under each of these employment agreements, in the
event that (a) the executives employment is
terminated by us without cause (as defined in the
employment agreement), (b) the executive terminates his
employment because of a material adverse diminution in job title
or responsibilities or a relocation of his principal place of
employment more than 100 miles from its current location
without his consent, (c) we notify the executive of our
intent not to renew the employment agreement and the executive
delivers a notice of resignation (as defined in the
employment agreement) within 90 days of receipt of the
notice of non-renewal, or (d) the executives
employment is terminated by mutual consent and the parties enter
into an agreement whereby the executive agrees to be bound by
the post-termination restrictive covenants in the agreement
(described below), the executive will be entitled to
continuation of his base salary and health benefits for one year
after the date of termination, plus payment of an amount equal
to his average bonus compensation (as defined in the
employment agreement). During the executives employment
with us and for one year thereafter, the executive may not
disclose confidential information and may not directly or
indirectly compete with the Company. In addition, the executive
may
not solicit any employees of the Company or any
of its subsidiaries during his employment with us and for two
years thereafter.
1998 Stock Incentive Plan, as amended and
restated March 1, 2004
The following is a summary of the material terms
of the 1998 Stock Incentive Plan. The following description is
subject to, and qualified in its entirety by reference to, the
plan document, a copy of which has been filed as an exhibit to
the registration statement of which this prospectus is a part.
The purpose of the 1998 Stock Incentive Plan is
to provide our key employees, officers, consultants, and
advisors with an opportunity to acquire shares of our common
stock. Under this plan, our board of directors is authorized to
grant stock options and other equity based awards, such as stock
appreciation rights or restricted stock awards. In addition, the
plan provides for the sale of shares to plan participants at
prices to be determined by our board of directors. Stock options
granted under the plan may be either incentive stock
options within the meaning of Section 422(b) of the
Code, or non-qualified stock options. A total of
6,400,000 shares of our common stock have been reserved for
issuance under this plan. A total of 4,600,000 shares have
been made available for the issuance of options and other equity
based awards and a total of 1,800,000 shares have been made
available for the sale of common stock. The plan is intended to
comply with the requirements of Rule 701 under the
Securities Act.
The plan is administered by our board of
directors, which has the discretion to determine the persons to
whom awards will be granted, the type of awards, the number of
awards, vesting requirements, and other features and conditions
of awards under the plan, including whether the awards will
contain provisions relating to a change in control of the
Company.
In the event of any extraordinary dividend, stock
dividend, recapitalization, reclassification, merger,
acquisition, consolidation, stock split, warrant or rights
issuance, combination or exchange of shares, or other similar
transaction, our board of directors has the sole discretion to
equitably adjust the exercise price, the number and kind of
shares of common stock available for issuance under the plan,
the number and kind of shares covered by outstanding options,
and other awards under the plan to preserve the value of each
share of common stock and the value of each award.
In the event of a sale of the Company, the board
of directors, in its sole discretion, may cancel all outstanding
stock options issued under the plan and provide for a cash
payment to each holder thereof equal to (i) the excess of
the consideration received by the Companys stockholders
pursuant to the sale of the Company over the exercise price per
share of the option multiplied by (ii) the number of shares
of common stock subject to the option.
2005 Equity Incentive Plan
The following is a summary of the material terms
of the 2005 Equity Incentive Plan. The following description is
subject to, and qualified in its entirety by reference to, the
plan document, a copy of which has been filed as an exhibit to
the registration statement of which this prospectus is a part.
We intend to adopt a new equity incentive plan
prior to completion of this offering for the purpose of
affording an incentive to eligible persons to increase their
efforts on behalf of the Company and its subsidiaries and to
promote the Companys success. The 2005 Equity Incentive
Plan will provide for the grant of equity-based awards,
including stock options, stock appreciation rights, restricted
stock, restricted stock units and other awards based on or
relating to our common stock to eligible non-employee directors,
selected officers and other employees, advisors and consultants.
The plan will be administered by our board of directors. Our
board of directors may appoint a committee of its members to
administer the plan and awards granted under the plan, provided
that the committees authorities under the plan will be
limited by the Boards authority to make all final
determinations with respect to the plan
and any awards granted under the plan. If a
committee is appointed to administer the plan, each member of
the committee will qualify as a non-employee
director within the meaning of Rule 16b-3 under the
Exchange Act and an outside director within the
meaning of Section 162(m) of the Code. Our board of
directors will have the authority, in its discretion, to
determine the participants in the plan; to grant awards under
the plan and determine all of the terms and conditions of
awards, including, but not limited to, whether the grant,
vesting or settlement of awards may be conditioned upon
achievement of one or more performance goals; to construe and
interpret the plan and any award; to prescribe, amend and
rescind rules and regulations relating to the plan; and to make
all other determinations deemed necessary or advisable for the
administration of the plan. Our board of directors may delegate
such administrative duties as it may deem advisable. All
decisions and determinations of our board of directors will be
final and binding on all persons.
Shares Available under the
Plan.
We will determine the maximum
number of shares of our common stock that will be available for
issuance under the plan, as well as limitations on the number of
shares that may be made subject to certain types of awards and a
limitation on the number of shares that may be made subject to
awards granted to any individual during any calendar year. The
shares available for issuance under the plan may be authorized
but unissued shares or shares that we have reacquired. If any
shares subject to an award are forfeited, cancelled, exchanged
or surrendered, or if an award terminates or expires without a
distribution of shares, or if shares are surrendered or withheld
as payment of the exercise price or withholding taxes with
respect to an award, those shares will again be available for
issuance under the plan. If our board of directors determines
that any dividend or other distribution, recapitalization, stock
split, reverse split, reorganization, merger, consolidation,
spin-off, combination or other similar corporate transaction or
event affects our common stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of
participants rights under the plan, our board of directors
will make such changes or adjustments as it deems necessary or
appropriate including with respect to any or all of (i) the
number and kind of shares or other property that may thereafter
be issued in connection with awards, (ii) the number and
kind of shares or other property subject to outstanding awards,
(iii) the exercise or purchase price of any award and
(iv) the performance goals applicable to outstanding
awards. In addition, our board of directors may determine that
an equitable adjustment may take the form of a payment to an
award holder in the form of cash or other property.
Performance Goals.
Our board of directors may determine that the grant, vesting or
settlement of an award granted under the plan may be subject to
the attainment of one or more performance goals. The performance
criteria that may be applied to an award granted under the plan
are the same as those described below, under Management
Incentive Plan.
Stock Options and Stock Appreciation
Rights.
Each stock option and stock
appreciation right, or SAR, will be evidenced by an
award agreement which will set forth the terms and conditions of
the award. Stock options granted under the plan may be
incentive stock options, within the meaning of
Section 422 of the Code, or nonqualified stock options. A
SAR confers on the participant the right to receive an amount
with respect to each share subject to the SAR equal to the
excess of the fair market value of one share of our common stock
on the date of exercise over the grant price of the SAR. SARs
may be granted alone or in tandem with a stock option. Our board
of directors will determine all of the terms and conditions of
stock options and SARs including, among other things, the number
of shares subject to the award and the exercise price per share
of the award, which in no event may be less than the fair market
value of a share of our common stock on the date of grant (in
the case of a SAR granted in tandem with a stock option, the
grant price of the tandem SAR will be equal to the exercise
price of the stock option), and whether the vesting of the award
will be subject to the achievement of one or more performance
goals. Stock options and SARs granted under the plan may not
have a term exceeding 10 years from the date of grant, and
the award agreement will contain terms concerning the
termination of the option or SAR following termination of the
participants service with us. Payment of the exercise
price of a stock option granted under the plan
may be made in cash or by an exchange of our common stock
previously owned by the participant, through a cashless
exercise procedure approved by the plan administrator or
by a combination of the foregoing methods.
Restricted Stock and Restricted Stock
Units.
The terms and conditions of
awards of restricted stock and restricted stock units granted
under the plan will be determined by our board of directors and
set forth in an award agreement. A restricted stock unit confers
on the participant the right to receive a share of our common
stock or its equivalent value in cash, in the discretion of our
board of directors. These awards will be subject to restrictions
on transferability which may lapse under those circumstances
that our board of directors determines, which may include the
attainment of one or more performance goals. Our board of
directors may determine that the holder of restricted stock or
restricted stock units may receive dividends (or dividend
equivalents, in the case of restricted stock units) that may be
deferred during the restricted period applicable to these
awards. The award agreement will contain terms concerning the
termination of the award of restricted stock or restricted stock
units following termination of the participants service
with us.
Other Stock-Based
Awards.
The plan will also provide for
other stock-based awards, the form and terms of which will be
determined by our board of directors consistent with the
purposes of the plan. The vesting or payment of one of these
awards may be made subject to the attainment of one or more
performance goals.
Change in Control.
The plan will provide that, unless otherwise determined by our
board of directors and set forth in an award agreement, in the
event of a change in control (as defined in the plan), all
awards granted under the plan will become fully vested and/or
exercisable, and any performance conditions will be deemed to be
fully achieved.
Taxes.
We are
authorized to withhold from any payment in respect of any award
granted under the plan, or from any other payment to a
participant, amounts of withholding and other taxes due in
connection with any transaction involving an award. Our board of
directors may provide in the agreement evidencing an award that
the participant may satisfy this obligation by electing to have
the company withhold a portion of the shares of our common stock
to be received upon exercise or settlement of the award.
Amendment;
Termination.
The plan will expire on
the tenth anniversary of the date of its adoption. Our board of
directors may amend, suspend or terminate the plan in whole or
in part at any time, provided that no amendment, expiration or
termination of the plan will adversely affect any
then-outstanding award without the consent of the holder of the
award. Unless otherwise determined by our board of directors, an
amendment to the plan that requires stockholder approval in
order for the plan to continue to comply with applicable law,
regulations or stock exchange requirements will not be effective
unless approved by our stockholders. Our board of directors may
amend an outstanding award at any time, provided that the
amendment of an award will not adversely affect the award
without the consent of the holder of the award.
Management Incentive Plan
The following is a summary of the material terms
of the Management Incentive Plan. The following description is
subject to, and qualified in its entirety by reference to, the
plan document, a copy of which has been filed as an exhibit to
the registration statement of which this prospectus is a part.
Prior to the completion of this offering, we
intend to adopt a management incentive plan that will provide
for the payment of annual bonuses to those of our executive
officers who are selected for participation in the plan. The
plan will be administered by our board of directors. Our board
of directors may appoint a committee of its members to
administer the plan and bonus awards granted under the plan,
provided that the committees authorities under the plan
will be limited by the Boards authority to make all final
determinations with respect to the plan and any
awards granted under the plan. If a committee is appointed to
administer the plan, each member of the committee will qualify
as an outside director within the meaning of
Section 162(m) of the Code. Our board of directors will
have the authority, in its discretion, to determine the
participants in the plan; to grant awards under the plan and
determine all of the terms and conditions of awards, including,
but not limited to, the performance goals; to adjust performance
goals where applicable; to construe and interpret the plan and
any award; to prescribe, amend and rescind rules and regulations
relating to the plan; and to make all other determinations
deemed necessary or advisable for the administration of the
plan. All decisions and determinations of our board of directors
will be final and binding on all persons.
Our board of directors will determine the
performance goals applicable to each award under the plan, which
may be based on one or more criteria. The plan provides for the
development of performance goals based on, for example, pre- or
after-tax income, cash flow, return on assets, equity or
investment, stock price or total stockholder return, earnings
before or after interest, taxes, depreciation, amortization or
extraordinary or special items, net tangible assets or return on
net tangible assets, or other criteria determined by our board
of directors to be appropriate.
Performance goals may be expressed in terms of
attaining a specified level of the particular criteria or the
attainment of a percentage increase or decrease in the
particular criterion and may be applied to one or more of the
company or one of our affiliates, or a division or business unit
of the company, all as determined by our board of directors.
Performance goals may include threshold, target and maximum
levels of performance. The achievement of performance goals will
be subject to certification by our board of directors. In the
discretion of our board of directors, equitable adjustments may
be made to performance goals in recognition of unusual or
non-recurring events affecting the company or one of our
affiliates, in response to changes in applicable laws or
regulations, or to account for items of extraordinary gain, loss
or expense, to account for dispositions or changes in accounting
principles.
Awards under the plan may be expressed as a
dollar amount or as a percentage of the participants
annual base salary. In no event will payment to any participant
who is expected to be a covered employee (as defined
in the plan) exceed $5.0 million in any performance period
(which may be no longer than 12 months). Payment of awards
under the plan may be made in cash or in the form of
equity-based awards issued under a stockholder-approved equity
incentive plan. Unless otherwise determined by our board of
directors, in order to receive payment of an award, the
participant must be employed by the company or one of its
affiliates on the day payment is to be made, absent any
deferral. The company has the right under the plan to withhold
the amount of any taxes that the company may be required to
withhold before delivery of any payment under the plan.
Our board of directors may alter, amend, suspend
or terminate the plan at any time, provided that no amendment
that requires stockholder approval in order for the plan to
comply with any applicable law, regulations or rule will be
effective unless it is approved by our stockholders. No
amendment or termination of the plan will affect adversely any
rights of a participant under the plan without the
participants consent.
Principal and selling stockholders
The following table sets forth certain
information regarding the beneficial ownership, as of
May 15, 2005, and as adjusted to reflect the sale of the
shares of common stock offered by us and the selling
stockholders in this offering, of: (i) our common stock by
each person known to us to hold greater than 5% of the total
number of outstanding shares; (ii) our common stock by each
current director or executive officer and of all the current
directors and executive officers as a group; and (iii) each
stockholder selling shares in this offering. The number of
shares beneficially owned by each person or group as of
May 15, 2005 includes shares of common stock that such
person or group had the right to acquire on or within
60 days after May 15, 2005, including upon the
exercise of options. All such information is estimated and
subject to change.
Ownership of our common stock is shown in terms
of beneficial ownership. Amounts and percentages of
common stock beneficially owned are reported on the basis of
regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is
deemed to be a beneficial owner of a security if
that person has or shares voting power, which
includes the power to vote or to direct the voting of such
security, or investment power, which includes the
power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of
any securities of which he has a right to acquire beneficial
ownership within 60 days. More than one person may be
considered to beneficially own the same shares. In the table
below, unless otherwise noted, a person has sole voting and
dispositive power for those shares shown as beneficially owned
by such person.
Common Stock
Certain related party transactions
In February 2005, with a portion of the net
proceeds of our offering of floating rate notes and our new
senior secured credit facility, we paid a dividend to our
stockholders and a compensation-based payment to all holders of
our outstanding stock options (including vested and unvested
options). Such payment to option holders was made in connection
with the payment of such dividend, rather than making an
adjustment to the exercise price or number of shares subject to
such options. The aggregate dividend to stockholders was
$201.2 million, and the aggregate payment to option holders
was $35.8 million (excluding applicable payroll taxes of
$0.6 million), which was recognized as stock compensation
expense.
In February 2004, we completed a recapitalization
to refinance our indebtedness and pay a dividend to our
stockholders in an aggregate amount equal to
$139.6 million. In connection with such dividend, our board
of directors exercised its discretion under the anti-dilution
provisions of our employee stock plan to adjust the exercise
price of stock options to reflect the change in the share value
on the dividend date. This adjustment was made to the stock
options held by our executive officers as well as other
employees. Approximately $0.4 million was also paid to
certain option holders whose exercise price could not be
adjusted for the dividend.
JLL Partners, affiliates of which control JLL
Building Products, LLC, one of the selling stockholders, is
reimbursed by us for expenses it pays or incurs on our behalf or
in connection with its investment in us. The amount reimbursed
was approximately $300,000 in each of 2004 and 2003, and
approximately $265,000 in 2002. In the ordinary course of
business, we purchase windows from PGT Industries, Inc., a
company controlled by affiliates of JLL Partners.
In connection with this offering, we will amend
our stockholders agreement with JLL Building Products, LLC and
some of our executive officers. See Description of Capital
Stock Registration Rights.
The Company loaned $50,000 to Mr. Horn to
purchase shares of our common stock, under our 1998 Stock
Incentive Plan, as amended, which loan, together with interest
thereon, was repaid in full on February 25, 2004.
Description of capital stock
The following is a summary of the material terms
of our capital stock. The following description of our capital
stock is subject to, and qualified in its entirety by reference
to, our amended and restated certificate of incorporation, which
will be filed with the State of Delaware and become effective
immediately prior to the closing of this offering, amended and
restated by-laws and other agreements, copies of which have been
filed as exhibits to the registration statement of which this
prospectus is a part, and by the provisions of applicable
Delaware law.
GENERAL MATTERS
Our amended and restated certificate of
incorporation, which will be filed with the State of Delaware
and become effective immediately prior to the closing of this
offering, provides that we are authorized to
issue shares
of common stock, par value $0.01 per share,
and shares
of undesignated preferred stock, par value $0.01 per share.
As
of ,
2005, we had
outstanding shares
of common stock, held
by stockholders
of record. As
of ,
2005, we had outstanding options to
purchase shares
of our common stock.
COMMON STOCK
Shares of our common stock have the following
rights, preferences and privileges:
LISTING
We have applied to list our common stock on The
Nasdaq National Market under the trading symbol BLDR.
PREFERRED STOCK
Our amended and restated certificate of
incorporation provides that the board of directors has the
authority, without action by the stockholders, to designate and
issue up
to shares
of preferred stock in one or more classes or series and to fix
for each class or series the powers, rights, preferences and
privileges of each series of preferred stock, including dividend
rights, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting
any class or series, which may be greater than the rights of the
holders of the common stock. There will be no shares of
preferred stock outstanding immediately after the closing of
this offering. Any issuance of shares of
preferred stock could adversely affect the voting
power of holders of common stock, and the likelihood that the
holders will receive dividend payments and payments upon
liquidation could have the effect of delaying, deferring or
preventing a change in control. We have no present plans to
issue any shares of preferred stock.
REGISTRATION RIGHTS
In connection with this offering, we will amend
prior to completion of this offering our stockholders agreement
with JLL Building Products, LLC and some of our executive
officers. The agreement provides that, upon the request of
JLL Building Products, we will register under the
Securities Act the shares of our common stock held by
JLL Building Products and such executive officers for sale
in accordance with its intended method of disposition, and will
take other actions as are necessary to permit the sale of the
shares in various jurisdictions. In addition, if we register any
of our equity securities either for our own account or for the
account of other security holders, JLL Building Products and
such executive officers are entitled to notice of the
registration and may include their shares in the registration,
subject to certain customary underwriters
cut-back provisions. All fees, costs and expenses of
underwritten registrations will be borne by us, other than
underwriting discounts and selling commissions, which will be
borne by each stockholder selling its shares. Our obligation to
register the shares and take other actions is subject to certain
restrictions on, among other things, the frequency of requested
registrations, the number of shares to be registered and the
duration of these rights. In addition to registration rights,
the amended stockholders agreement also provides for certain
customary tag-along and drag-along rights until the six-month
anniversary of this offering. We also have agreements with the
other selling stockholders providing them with
piggyback registration rights, subject to certain
conditions and limitations.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF
OUR CERTIFICATE OF INCORPORATION AND BY-LAWS
Our amended and restated certificate of
incorporation, which will be filed with the State of Delaware
and become effective immediately prior to the closing of this
offering, and by-laws contain provisions that are intended to
enhance the likelihood of continuity and stability in the
composition of the board of directors and which may have the
effect of delaying, deferring or preventing a future takeover or
change in control of our company unless the takeover or change
in control is approved by our board of directors. These
provisions include the following:
Staggered Board of
Directors.
Our amended and restated
certificate of incorporation provides for a staggered board of
directors, divided into three classes, with our stockholders
electing one class each year. Between stockholders
meetings, the board of directors will be able to appoint new
directors to fill vacancies or newly created directorships so
that no more than the number of directors in any given class
could be replaced each year and it would take three successive
annual meetings to replace all directors.
Elimination of stockholder action through
written consent.
Our amended and
restated certificate of incorporation provides that stockholder
action can be taken only at an annual or special meeting of
stockholders and cannot be taken by written consent in lieu of a
meeting.
Elimination of the ability to call special
meetings.
Our amended and restated
certificate of incorporation provides that, except as otherwise
required by law, special meetings of our stockholders can only
be called pursuant to a resolution adopted by a majority of our
board of directors, a committee of the board of directors that
has been duly designated by the board of directors and whose
powers and authority include the power to call such meetings, or
by our chief executive officer or the chairman of our board of
directors. Stockholders are not permitted to call a special
meeting or to require our board to call a special meeting.
Advance notice procedures for stockholder
proposals.
Our by-laws establish an
advance notice procedure for stockholder proposals to be brought
before an annual meeting of our stockholders, including proposed
nominations of persons for election to our board. Stockholders
at our annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting
by or at the direction of our board or by a stockholder who was
a stockholder of record on the record date for the meeting, who
is entitled to vote at the meeting and who has given to our
secretary timely written notice, in proper form, of the
stockholders intention to bring that business before the
meeting.
Removal of Directors; Board of Directors
Vacancies.
Our certificate of
incorporation and by-laws provide that members of our board of
directors may not be removed without cause. Our by-laws further
provide that only our board of directors may fill vacant
directorships, except in limited circumstances. These provisions
would prevent a stockholder from gaining control of our board of
directors by removing incumbent directors and filling the
resulting vacancies with such stockholders own nominees.
The foregoing provisions of our amended and
restated certificate of incorporation and by-laws could
discourage potential acquisition proposals and could delay or
prevent a change in control. These provisions are intended to
enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies
formulated by our board of directors and to discourage certain
types of transactions that may involve an actual or threatened
change of control. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The
provisions also are intended to discourage certain tactics that
may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for
our shares and, as a consequence, they also may inhibit
fluctuations in the market price of the common stock that could
result from actual or rumored takeover attempts. Such provisions
also may have the effect of preventing changes in our
management. See Risk Factors Risks Related to the
Offering Provisions in our charter documents and under
Delaware law could discourage a takeover that stockholders may
consider favorable.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Our amended and restated certificate of
incorporation and by-laws provide indemnification for our
directors and officers to the fullest extent permitted by the
DGCL. Prior to the completion of this offering, we intend to
enter into indemnification agreements with each of our directors
that may, in some cases, be broader than the specific
indemnification provisions contained under Delaware law. In
addition, as permitted by Delaware law, our amended and restated
certificate of incorporation includes provisions that eliminate
the personal liability of our directors for monetary damages
resulting from breaches of certain fiduciary duties as a
director. The effect of this provision is to restrict our rights
and the rights of our stockholders in derivative suits to
recover monetary damages against a director for breach of
fiduciary duties as a director, except that a director will be
personally liable for:
These provisions may not be held to be
enforceable for violations of the federal securities laws of the
United States.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common
stock is LaSalle Bank, N.A., and its telephone number is
(312) 904-2458.
Description of certain indebtedness
The following is a summary of the material
provisions of the agreements governing our material debt to be
in effect upon the closing of this offering. The following is
only a summary and it does not include all of the provisions of
our material debt, copies of which have been filed as exhibits
to our registration statement filed in connection with this
offering and are available as set forth under Where You
Can Find More Information.
SENIOR SECURED CREDIT FACILITY
On February 11, 2005, we entered into a new
senior secured credit facility with various lenders, UBS
Securities LLC and Deutsche Bank Securities Inc., as Joint
Arrangers, UBS AG, Stamford Branch, as Administrative Agent and
Deutsche Bank Securities Inc., as Syndication Agent.
Structure.
The new
senior secured credit facility consists of:
We may borrow, repay, and reborrow from the
Revolving Credit Facility from time to time until the earlier of
the maturity date thereof and the termination of the revolving
loan commitment. The Funded LC Facility will be used solely in
connection with general corporate purposes.
Maturity, Amortization, and
Prepayment.
The Term
Loan Facility has a maturity of six and a half years and
will amortize in consecutive equal quarterly installments in an
aggregate annual amount equal to 1.0% of the original principal
amount of the Term Loan Facility, with the balance payable
on the maturity date. Unless terminated earlier, the Revolving
Credit Facility has a maturity of five years. The Funded LC
Facility has a maturity of six and a half years.
The new senior secured credit facilities are
subject to mandatory prepayment with, in general, (i) 100%
of the net proceeds of certain asset sales or other disposition
of assets, subject to a 365-day reinvestment period and with
exceptions to be agreed; (ii) 100% of the net cash proceeds
from certain issuances of debt, with exceptions to be agreed;
(iii) 100% of all casualty and condemnation proceeds in
excess of amounts applied within 365 days of receipt to
replace or restore any properties in respect of which such
proceeds are paid; and (iv) 75% of the excess cash flow,
subject to leverage-based stepdowns to be agreed. Any such
prepayment is applied first to the Term Loan Facility, then
to the Credit Linked Deposit and the proceeds thereof applied to
cash-collateralize any outstanding Funded Letters of Credit to
the extent such Funded Letters of Credit outstanding at the time
exceed the Credit-Linked Deposit, and thereafter to the
Revolving Credit Facility.
Interest and Fees.
The term loans under the Term Loan Facility bear interest,
at our option, at a rate equal to LIBOR plus 2.50% per
annum or a base rate plus 1.50% per annum. The loans under
the Revolving Credit Facility initially bear interest, at our
option, at a rate equal to LIBOR plus 2.50% per annum or a
base rate plus 1.50% per annum, and, beginning
September 30, 2005, may decline to as much as 1.75% for
LIBOR loans and 0.75% for base rate loans if certain leverage
ratios are met. A commitment fee equal to 0.500% to
0.375% per annum (determined by our leverage) accrues on
the undrawn portion of the Revolving Credit Facility and such
fee is payable quarterly in arrears. We pay the lenders under
the Funded LC Facility an amount equal to LIBOR plus
2.75% per annum minus UBS AG, Stamford Branchs
internal deposit rate, and such lenders will
receive UBS AG, Stamford Branchs internal deposit rate on
the amounts in the Credit-Linked Deposit Account.
Guarantees.
All of
the obligations under the new senior secured credit facilities
are guaranteed by all of our existing and future direct and
indirect subsidiaries (collectively, the
Guarantors), subject to exceptions for foreign
subsidiaries to the extent such guarantees would be prohibited
by applicable law or would result in adverse tax consequences.
Pledge and Security.
The new senior secured credit facilities are secured by
perfected first priority pledges of all of the equity interests
of each of the Guarantors and perfected first priority security
interests in and mortgages on all of our tangible and intangible
assets and those of the Guarantors, except, in the case of the
stock of a foreign subsidiary, to the extent such pledge would
be prohibited by applicable law or would result in materially
adverse tax consequences, and subject to such other exceptions
as are agreed.
Covenants.
The new
senior secured credit facilities contain a number of covenants
that, among other things, restrict our ability and the ability
of our subsidiaries to (i) dispose of assets;
(ii) change our business; (iii) engage in mergers or
consolidations; (iv) make certain acquisitions;
(v) pay dividends or repurchase or redeem stock;
(vi) incur indebtedness and issue preferred stock;
(vii) make investments and loans; (viii) create liens;
(ix) engage in certain transactions with affiliates;
(x) enter into sale and leaseback transactions;
(xi) issue stock or stock options; (xii) amend or
prepay other indebtedness; (xiii) modify or waive material
documents; or (xiv) change our fiscal year. In addition,
under the new senior secured credit facilities, we are required
to comply with specified financial ratios and tests, including a
minimum interest coverage ratio, a maximum leverage ratio, and
maximum capital expenditures.
Events of Default.
The new senior secured credit facilities contain customary
events of default, including (i) nonpayment of principal or
interest; (ii) false or misleading representations or
warranties; (iii) noncompliance with covenants;
(iv) insolvency and bankruptcy-related events;
(v) judgments in excess of specified amounts;
(vi) certain ERISA matters; (vii) actual or asserted
invalidity of guarantees of the new senior secured credit
facilities or impairment of security interests in collateral;
(viii) invalidity or unenforceability of certain provisions
of any loan document; and (ix) certain change of control
events.
SECOND PRIORITY SENIOR SECURED FLOATING RATE
NOTES
On February 11, 2005, we issued
$275.0 million in aggregate principal amount of our
floating rate notes, all of which continue to be outstanding.
Maturity and
Interest.
The floating rate notes
mature on February 15, 2012. Interest accrues at a rate of
LIBOR plus 4.25%. The LIBOR rate is reset at the beginning of
each quarter. Interest on the floating rate notes is payable
quarterly in arrears on each February 15, May 15,
August 15, and November 15, commencing on May 15,
2005.
Ranking.
The
floating rate notes are our senior secured obligations and rank
equally in right of payment with all of our existing and future
senior debt. The floating rate notes are effectively junior in
right of payment to any of our indebtedness that is secured by
first priority liens on the assets securing the floating rate
notes, including our new senior secured credit facility, or
secured by assets not securing the floating rate notes, and are
junior in right of payment to all indebtedness of our future
nonguarantor subsidiaries. The subsidiary guarantees are the
senior secured obligations of our subsidiary guarantors and rank
equal in right of payment with all of our subsidiary
guarantors existing and future senior debt, but rank
effectively junior in right of payment to the subsidiary
guarantees of our new senior secured credit facility.
Guarantees.
All of
our existing subsidiaries jointly and severally guarantee the
floating rate notes. Our future significant restricted domestic
subsidiaries will also be required to guarantee the floating
rate notes.
Pledge and Security.
The new floating rate notes are secured by perfected second
priority pledges of certain of the equity interests of each of
the guarantors of the floating rate notes and perfected second
priority security interests in and mortgages on all of our
tangible and intangible assets and those of the guarantors,
except, in the case of the stock of a foreign subsidiary, to the
extent such pledge would be prohibited by applicable law or
would result in materially adverse tax consequences, and subject
to such other exceptions as are agreed.
Optional Redemption.
At any time on or after February 15, 2007, we may redeem
some or all of the floating rate notes at a redemption price
equal to 100% of the principal amount thereof, plus a premium
declining ratably to par, plus accrued and unpaid interest and
liquidated damages, if any, to the redemption dates.
At any time before February 15, 2007, we may
redeem the floating rate notes, in whole or in part, at a
redemption price equal to 100% of the principal amount of the
floating rate notes redeemed, plus a make-whole premium, accrued
and unpaid interest, and liquidated damages, if any, to the
redemption date.
At any time before February 15, 2007, we may
redeem up to 35% of the aggregate principal amount of the
floating rate notes with the proceeds of certain equity
offerings, including this offering, so long as:
Covenants.
The
indenture governing the floating rate notes contains covenants
that limit our ability and the ability of our restricted
subsidiaries to, among other things: incur additional
indebtedness; pay dividends or make other distributions on our
capital stock or repurchase, repay or redeem our capital stock;
make certain investments; incur liens; enter into certain types
of transactions with affiliates; create restrictions on the
payment of dividends or other amounts to us by our restricted
subsidiaries; and sell all or substantially all of our assets or
merge with or into other companies. These covenants are subject
to a number of important exceptions and qualifications.
Change of Control
Offer.
If we experience a change of
control, we may be required to offer to purchase the floating
rate notes at a purchase price equal to 101% of the principal
amount, plus accrued and unpaid interest and liquidated damages,
if any, to the repurchase date.
Events of Default.
The indenture contains customary events of default, including,
but not limited to, (i) defaults in the payment of
principal or interest, (ii) defaults in the compliance with
the covenants contained in the indenture, (iii) cross
defaults on debt in excess of $20.0 million,
(iv) failure to pay more than $20.0 million of
judgments that have not been stayed by appeal or otherwise, or
(v) our bankruptcy or other insolvency events.
Shares eligible for future sale
Prior to this offering, there has been no public
market for our common stock, and a significant public market for
our common stock may not develop or be sustained after this
offering. Future sales of significant amounts of our common
stock, including shares of our outstanding common stock and
shares of our common stock issued upon exercise of outstanding
options, in the public market after this offering could
adversely affect the prevailing market price of our common stock
and could impair our ability to raise capital through the sale
of our equity securities.
SALE OF RESTRICTED SHARES AND LOCK-UP
AGREEMENTS
Upon the closing of this offering, we will
have outstanding
shares of common stock based upon our shares outstanding as
of ,
2005, assuming no exercise of stock options.
Of these shares, the shares of common stock sold
in this offering will be freely tradeable without restriction
under the Securities Act, unless purchased by affiliates of our
company, as that term is defined in Rule 144 under the
Securities Act.
The
remaining shares
of common stock were issued and sold by us in private
transactions, and are eligible for public sale if registered
under the Securities Act or sold in accordance with
Rules 144, 144(k) or 701 of the Securities Act. However, of
these remaining shares of common stock, representing an
aggregate
of %
of our outstanding common stock after giving effect to this
offering, are
held by officers, directors, and existing security holders who
are subject to lock-up agreements for a period of 180 days
after the date of this prospectus under which these holders have
agreed not to sell or otherwise dispose of their shares of
common stock. The representatives of the underwriters may, in
their sole discretion and at any time without notice, release
all or any portion of the securities subject to the lock-up
agreements before the 180-day lock-up period ends.
As of the date of this prospectus, up
to of
the remaining shares may be eligible for sale in the public
market. Beginning 90 days after the date of this
prospectus, of
these remaining shares will be eligible for sale in the public
market, although all
but shares
will be subject to certain volume limitations under
Rule 144. As soon as practicable after the closing of this
offering, we intend to file a registration statement on
Form S-8 under the Securities Act covering shares of our
common stock issued or reserved for issuance under our 1998
Stock Incentive Plan and agreements with our employees.
Accordingly, shares of our common stock registered under such
registration statement will be available for sale in the open
market.
RULE 144
In general, Rule 144 allows a stockholder
(or stockholders where shares are aggregated) who has
beneficially owned shares of our common stock for at least one
year and who files a Form 144 with the SEC to sell within
any three month period commencing 90 days after the date of
this prospectus a number of those shares that does not exceed
the greater of:
Sales under Rule 144, however, are subject
to specific manner of sale provisions, notice requirements, and
the availability of current public information about our
company. We cannot estimate the number of shares of common stock
our existing stockholders will sell under Rule 144, as this
will depend on the market price for our common stock, the
personal circumstances of the stockholders, and other factors.
RULE 144(k)
Under Rule 144(k), in general, a stockholder
who has beneficially owned shares of our common stock for at
least two years and who is not deemed to have been an affiliate
of our company at any time during the immediately preceding
90 days may sell shares without complying with the manner
of sale provisions, notice requirements, public information
requirements, or volume limitations of Rule 144. Affiliates
of our company, however, must always sell pursuant to
Rule 144, even after the otherwise applicable
Rule 144(k) holding periods have been satisfied.
RULE 701
Rule 701 generally allows a stockholder who
purchased shares of our common stock pursuant to a written
compensatory plan or contract and who is not deemed to have been
an affiliate of our company during the immediately preceding
90 days to sell these shares in reliance upon
Rule 144, but without being required to comply with the
public information, holding period, volume limitation, or notice
provisions of Rule 144. Our 1998 Stock Incentive Plan
provided for the issuance
of shares
pursuant to Rule 701. Rule 701 also permits affiliates
of our company to sell their Rule 701 shares under
Rule 144 without complying with the holding period
requirements of Rule 144. All holders of
Rule 701 shares, however, are required to wait until
90 days after the date of this prospectus before selling
such shares pursuant to Rule 701. In addition, holders of
Rule 701 shares who are subject to the lock-up agreements
described in Sale of Restricted Shares and
Lock-up Agreements have agreed not to sell their shares
for a period of days after
the date of this prospectus.
As
of ,
2005, shares
of our outstanding common stock have been issued in reliance on
Rule 701, including as a result of exercises of stock
options, and an
additional shares
are issuable upon exercise of outstanding stock options issued
under our 1998 Stock Incentive Plan.
REGISTRATION RIGHTS
After the closing of this offering, JLL Building
Products, LLC, which will hold
approximately shares
of our common stock, will have the right, subject to various
conditions and limitations, to cause us to register shares of
our common stock held by it and our executive officers to
include such shares in registration statements relating to our
securities. The exercise of such registration rights, resulting
in a large number of shares to be registered and sold in the
public market, could cause the price of the common stock to
fall. In addition, any demand to include such shares in our
registration statements could have a material adverse effect on
our ability to raise needed capital. See Description of
Capital StockRegistration Rights. In addition, we
have agreements with the other selling stockholders providing
them with piggyback registration rights, subject to
certain conditions and limitations.
OPTIONS
In addition to the shares of common stock
outstanding immediately after this offering, as
of ,
2005, there were outstanding options to
purchase shares
of our common stock. As soon as practicable after the closing of
this offering, we intend to file a registration statement on
Form S-8 under the Securities Act covering shares of our
common stock issued or reserved for issuance under our 1998
Stock Incentive Plan and agreements with our employees.
Accordingly, shares of our common stock registered under such
registration statement will be available for sale in the open
market upon exercise by the holders, subject to vesting
restrictions with us, contractual lock-up restrictions, and/or
market stand-off provisions applicable to each option agreement
that prohibit the sale or other disposition of the shares of
common stock underlying the options for a period
of days
after the date of this prospectus without the prior written
consent from us or our underwriters.
Material United States federal tax considerations
for Non-U.S. holders
The following is a summary of the anticipated
material United States federal income and estate tax
consequences to a Non-U.S. Holder (as defined below) of the
acquisition, ownership and disposition of our common stock under
current United States federal tax law. This discussion does not
address specific tax consequences that may be relevant to
particular persons in light of their individual circumstances
(including, for example, pass-through entities (e.g.,
partnerships) or persons who hold our common stock through
pass-through entities, banks or financial institutions,
broker-dealers, insurance companies, tax-exempt entities, common
trust funds, pension plans, controlled foreign corporations,
passive foreign investment companies, owners of more than 5% of
our common stock, United States expatriates, dealers in
securities or currencies, persons that have a functional
currency other than the United States dollar and persons in
special situations, such as those who hold our common stock as
part of a straddle, hedge, conversion transaction, or other
integrated investment), all of whom may be subject to tax rules
that differ significantly from those summarized below. Unless
otherwise stated, this discussion is limited to the tax
consequences to those Non-U.S. Holders who are the original
beneficial owners of our common stock and who hold such common
stock as capital assets (generally, property held
for investment) under the United States Internal Revenue Code of
1986, as amended (the Code). In addition, this
discussion does not describe any tax consequences arising under
the tax laws of any state, local or non-United States
jurisdiction. This discussion is based upon the Code, the
Treasury Department regulations (the Treasury
Regulations) promulgated thereunder and administrative and
judicial interpretations thereof, all as of the date hereof and
all of which are subject to change, possibly with retroactive
effect.
Prospective purchasers of our common stock are
urged to consult their tax advisors concerning the United States
federal tax consequences to them of acquiring, owning and
disposing of our common stock, as well as the application of
state, local and non-United States tax laws.
As used herein, a U.S. Person is
(i) an individual who is a citizen or resident of the
United States, (ii) a corporation, partnership or other
entity taxable as a corporation or partnership created or
organized under the laws of the United States, any state thereof
or the District of Columbia, (iii) an estate that is
subject to United States federal income taxation without regard
to the source of its income or (iv) a trust (a) the
administration of which is subject to the primary supervision of
a United States court and which has one or more United States
persons who have the authority to control all substantial
decisions of the trust or (b) that was in existence on
August 20, 1996, was properly treated as a United States
person under the Code on the previous day, and elected to
continue to be so treated. A Non-U.S. Holder is a
holder of our common stock who is not a U.S. Person.
If a partnership, or other entity or arrangement
treated as a partnership for United States federal income tax
purposes, holds our common stock, the tax treatment of each
partner will generally depend upon the status of the partner and
the activities of the partnership. Partners in a partnership
that is a prospective investor should consult their tax advisors
as to the particular United States federal tax consequences
applicable to them.
Dividends
Dividends paid to a Non-U.S. Holder will
generally be subject to withholding of United States federal
income tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty. Dividends that are
effectively connected with the conduct of a trade or business by
the Non-U.S. Holder within the United States and, where an
income tax treaty applies, are attributable to a United States
permanent establishment of the Non-U.S. Holder, are not,
however, subject to the withholding tax, but are instead subject
to United States federal income tax on a net income basis at
applicable graduated
individual or corporate rates. Certain
certification and disclosure requirements must be satisfied for
effectively connected income to be exempt from withholding. Any
such effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty. A Non-U.S. Holder who wishes
to claim the benefit of an applicable income tax treaty rate
(and avoid backup withholding as discussed below) for dividends,
will be required to (a) complete Internal Revenue Service
(IRS) Form W-8BEN (or other applicable form)
and certify under penalties of perjury that such holder is not a
U.S. person or (b) if the common stock is held through
certain foreign intermediaries, satisfy the relevant
certification requirements of applicable Treasury Regulations.
Special certification and other requirements apply to certain
Non-U.S. Holders that are entities rather than individuals.
A Non-U.S. Holder eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty
may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the IRS.
Gain on Disposition of Common Stock
A Non-U.S. Holder will generally not be subject
to United States federal income tax with respect to gain
recognized on a sale or other disposition of our common stock
unless (i) the gain is effectively connected with a trade
or business of the Non-U.S. Holder in the United States, and,
where an income tax treaty applies, is attributable to a United
States permanent establishment of the Non-U.S. Holder,
(ii) in the case of a Non-U.S. Holder who is an individual
and holds the common stock as a capital asset, such holder is
present in the United States for 183 or more days in the taxable
year of the sale or other disposition and certain other
conditions are met, or (iii) we either are or have been a
United States real property holding corporation (a
USRPHC) for United States federal income tax
purposes at any time during the shorter of the five-year period
preceding such sale or other disposition or the period that such
Non-U.S. Holder held our common shares (the Applicable
Period).
An individual Non-U.S. Holder described in clause
(i) above will be subject to tax on the net gain derived
from the sale under regular graduated United States federal
income tax rates. An individual Non-U.S. Holder described in
clause (ii) above will be subject to a flat 30% tax on the
gain derived from the sale, which may be offset by United States
source capital losses (even though the individual is not
considered a resident of the United States). If a Non-U.S.
Holder that is a foreign corporation is described in clause
(i) above, it will be subject to tax on its gain under
regular graduated United States federal income tax rates and, in
addition, may be subject to the branch profits tax equal to 30%
of its effectively connected earnings and profits or at such
lower rate as may be specified by an applicable income tax
treaty.
We do not believe that we have been, are
currently or are likely to be a USRPHC. If we were to become a
USRPHC, so long as our common stock is regularly traded on an
established securities market and continues to be traded, you
would be subject to federal income tax on any gain from the sale
or other disposition of shares of common stock only if you
actually or constructively owned, during the Applicable Period,
more than 5% of the class of stock that includes such shares.
Federal Estate Tax
Common stock held by an individual Non-U.S.
Holder at the time of death will generally be included in such
holders gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides
otherwise.
Information Reporting and Backup
Withholding
We must report annually to the IRS and to each
Non-U.S. Holder the amount of dividends paid to such holder and
the tax withheld with respect to such dividends, regardless of
whether withholding was
required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
Non-U.S. Holder resides under the provisions of an applicable
income tax treaty. A Non-U.S. Holder will be subject to backup
withholding on dividends paid to such holder unless applicable
certification requirements are met.
If common stock is sold by a Non-U.S. Holder
outside the United States and conducted through a non-United
States related financial institution or broker, backup
withholding and information reporting generally would not apply.
Information reporting and, depending on the circumstances,
backup withholding, generally would apply to the proceeds of a
sale of common stock within the United States or conducted
through a United States related financial institution or broker
unless the beneficial owner certifies under penalties of perjury
that it is not a U.S. Person (and the payer does not have
actual knowledge or reason to know that the beneficial owner is
a U.S. Person) or the owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding
rules may be allowed as a refund or a credit against a Non-U.S.
Holders United States federal income tax liability
provided the required information is furnished to the IRS.
Underwriting
We and the selling stockholders are offering the
shares of our common stock described in this prospectus through
the underwriters named below. UBS Securities LLC and Deutsche
Bank Securities Inc. are the representatives of the
underwriters. UBS Securities LLC and Deutsche Bank Securities
Inc. are the joint book-running managers of this offering. We
and the selling stockholders have entered into an underwriting
agreement with the representatives. Subject to the terms and
conditions of the underwriting agreement, each underwriter has
severally agreed to purchase the number of shares of common
stock listed next to its name in the following table.
The underwriting agreement provides that the
underwriters must buy all of the shares if they buy any of them.
However, the underwriters are not required to take or pay for
the shares covered by the underwriters over-allotment
option described below.
Our common stock and the common stock of the
selling stockholders are offered subject to a number of
conditions, including:
In connection with this offering, certain of the
underwriters or securities dealers may distribute prospectuses
electronically.
OVER-ALLOTMENT OPTION
The selling stockholders have granted the
underwriters an option to buy up to an aggregate
of additional
shares of our common stock. The underwriters may exercise this
option solely for the purpose of covering over-allotments, if
any, made in connection with this offering. The underwriters
have 30 days from the date of this prospectus to exercise
this option. If the underwriters exercise this option, they will
each purchase additional shares approximately in proportion to
the amounts specified in the table above.
COMMISSIONS AND DISCOUNTS
Shares sold by the underwriters to the public
will initially be offered at the initial public offering price
set forth on the cover of this prospectus. Any shares sold by
the underwriters to securities dealers may be sold at a discount
of up to
$ per
share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to
$ per
share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the
representatives may change the offering price and the other
selling terms. Sales of shares made outside of the United States
may be made by affiliates of the underwriters. Upon execution of
the underwriting agreement, the underwriters will be obligated
to purchase the shares at the prices and upon
the terms stated therein, and, as a result, will
thereafter bear any risk associated with changing the offering
price to the public or other selling terms. The underwriters
have informed us that they do not expect discretionary sales to
exceed 5% of the shares of common stock to be offered.
We have agreed to pay the offering expenses of
the selling stockholders. The selling stockholders will pay the
underwriting discounts and commissions applicable to the shares
that they sell. The following table shows the per share and
total underwriting discounts and commissions we will pay to the
underwriters. These amounts are shown assuming both no exercise
and full exercise of the underwriters option to purchase
up to an
additional shares
from us and an
additional shares
from the selling stockholders.
We estimate that the total expenses of this
offering payable by us, not including underwriting discounts and
commissions, will be approximately
$ .
NO SALES OF SIMILAR SECURITIES
We and each of our directors, executive officers
and the selling stockholders have entered into lock-up
agreements with the underwriters. Under these lock-up
agreements, subject to certain exceptions, we and each of these
persons may not, without the prior written consent of UBS
Securities LLC and Deutsche Bank Securities Inc., sell, offer to
sell, contract or agree to sell, hypothecate, hedge, pledge,
grant any option to purchase or otherwise dispose of or agree to
dispose of, directly or indirectly, any of our common stock or
any securities convertible into or exercisable or exchangeable
for our common stock, or warrants or other rights to purchase
our common stock. These restrictions will be in effect for a
period of 180 days after the date of this prospectus.
Although they have advised us that they have no intention or
understanding to do so, at any time and without public notice,
UBS Securities LLC and Deutsche Bank Securities Inc. may, in
their sole discretion, release some or all of the affected
securities from these lock-up agreements. The representatives of
the underwriters have advised us that they do not have any
pre-established conditions to waiving the terms of, or releasing
shares early from, the lock-up agreements.
In the event that we issue an earnings release or
a material news event relating to us occurs 15 calendar days
plus three business days prior to or within 15 days after
the expiration of the -day period,
the restrictions imposed on us, our executive officers,
directors and the selling stockholders will continue to apply
for 15 calendar days plus three business days after such
earnings release is issued or such material news event occurs.
We and the selling stockholders have agreed to
indemnify the underwriters against certain liabilities,
including certain liabilities under the Securities Act. If we
are unable to provide this indemnification, we have agreed to
contribute to payments the underwriters may be required to make
in respect of those liabilities.
NASDAQ NATIONAL MARKET QUOTATION
We have applied to have our shares of common
stock approved for quotation on The Nasdaq National Market under
the symbol BLDR.
PRICE STABILIZATION, SHORT POSITIONS
In connection with this offering, the
underwriters may engage in activities that stabilize, maintain
or otherwise affect the price of our common stock, including:
Stabilizing transactions consist of bids or
purchases made for the purpose of preventing or retarding a
decline in the market price of our common stock while this
offering is in progress. These transactions may also include
making short sales of our common stock, which involve the sale
by the underwriters of a greater number of shares of common
stock than they are required to purchase in this offering and
purchasing shares of common stock on the open market to cover
positions created by short sales. Short sales may be
covered short sales, which are short positions in an
amount not greater than the underwriters over-allotment
option referred to above, or may be naked short
sales, which are short positions in excess of that amount.
The underwriters may close out any covered short
position by either exercising their over-allotment option, in
whole or in part, or by purchasing shares in the open market. In
making this determination, the underwriters will consider, among
other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase
shares through the over-allotment option.
Naked short sales are in excess of the
over-allotment option. The underwriters must close out any naked
short position by purchasing shares in the open market. A naked
short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price
of the common stock in the open market that could adversely
affect investors who purchased in this offering.
The underwriters also may impose a penalty bid.
This occurs when a particular underwriter repays to the
underwriters a portion of the underwriting discount received by
it because the representatives have repurchased shares sold by
or for the account of that underwriter in stabilizing or short
covering transactions.
As a result of these activities, the price of our
common stock may be higher than the price that otherwise might
exist in the open market. If these activities are commenced,
they may be discontinued by the underwriters at any time. The
underwriters may carry out these transactions on The Nasdaq
National Market, in the over-the-counter market or otherwise.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public
market for our common stock. The initial public offering price
will be determined by negotiation by us and the representatives
of the underwriters. The principal factors to be considered in
determining the initial public offering price include:
AFFILIATIONS
Certain of the underwriters and their affiliates
in the past have provided and may provide from time to time
certain commercial banking, financial advisory, investment
banking and other services for us for which they have been or
will be entitled to receive separate fees. The underwriters and
their affiliates may from time to time in the future engage in
transactions with us and perform services for us in the ordinary
course of their business. With respect to our
$110.0 million revolving credit facility, our
$225.0 million term loan, and our $15.0 million
pre-funded letter of credit facility, (i) UBS Loan Finance
LLC, an affiliate of UBS Securities LLC, and Deutsche Bank Trust
Company Americas, an affiliate of Deutsche Bank Securities Inc.,
are lenders thereunder; (ii) UBS AG, Stamford Branch, an
affiliate of UBS Securities LLC, is the issuing bank,
administrative agent and collateral agent thereunder; and
(iii) UBS Securities LLC and Deutsche Bank Securities Inc.
acted as arrangers thereunder and, in each case, have received
customary fees and reimbursement of certain expenses in
connection therewith. As of the date of this prospectus, the
aggregate commitments of UBS Securities LLC and Deutsche Bank
Securities Inc. and their respective affiliates, as applicable,
totaled approximately $32 million, or 29%, of the revolving
credit facility commitments. We intend to use a portion of the
net proceeds of this offering to repay outstanding borrowings,
if any, under the revolving credit facility and the remainder
will be used to repay a portion of the $225.0 million
senior secured term loan. The entire $225.0 million
principal amount of the term loan is currently outstanding and
is expected to be outstanding immediately prior to any repayment
with the proceeds of this offering. As of the date of this
prospectus, there were
$
of outstanding borrowings under the revolving credit facility.
The lenders under these credit facilities may transfer their
commitments, subject to certain conditions, so the individual
and aggregate commitments at the time of payoff could also vary
from the amounts set forth above. On February 8, 2005, UBS
Securities LLC and Deutsche Bank Securities Inc. acted as
initial purchasers in connection with the issuance of
$275.0 million of our second priority senior secured
floating rate notes due 2012 and received customary fees in
connection therewith.
ELECTRONIC DISTRIBUTION
A prospectus in electronic format is being made
available on Internet web sites maintained by one or more of the
lead underwriters of this offering and may be made available on
web sites maintained by other underwriters. Other than the
prospectus in electronic format, the information on any
underwriters web site and any information contained in any
other web site maintained by an underwriter is not part of the
prospectus or the registration statement of which the prospectus
forms a part.
Legal matters
The validity of the common stock offered hereby
and certain legal matters in connection with this offering will
be passed upon for us by Skadden, Arps, Slate,
Meagher & Flom LLP. Certain legal matters in connection
with the offering will be passed upon for the underwriters by
Latham & Watkins LLP, Los Angeles, California.
i
1
8
19
20
20
21
22
23
30
31
50
54
68
71
78
80
81
84
87
89
92
96
96
96
F-1
new household formations;
increasing homeownership rates;
the size and age of the population;
immigration trends;
an aging housing stock; and
improved financing options for buyers.
reduced cycle time and carrying costs;
increased product quality; and
cost savings from the reduction of expensive
on-site labor and material waste.
Leading Positions in Growing
Markets.
We believe that we are the number one or two
building products supplier for single-family residential new
construction in approximately 75% of the geographic markets in
which we operate.
We are also the largest supplier of our product
categories to the Production Homebuilders in our geographic
markets as a whole.
Our facilities are strategically located in many
of the fastest-growing markets in the southern and eastern U.S.
Unique Business Model.
Integrated business model across our network of
63 distribution centers and 42 manufacturing facilities.
Highly customized, proprietary information
technology system drives internal efficiencies allowing us to
respond rapidly to our customers and reduce their administrative
costs.
A one-stop-shop approach that
combines a full line of structural building products and
services, substantially reducing the cost and burden to our
customers of dealing with multiple suppliers.
Full Offering of Manufactured Products and
Construction Services.
We have significantly increased our sales of
manufactured products, which provide us with higher margins and
increased opportunities to cross-sell other products to our
customers.
Our ability to supply our own manufactured
products strengthens our customer relationships by helping
homebuilders reduce costs and cycle time.
We also provide our customers with a full range
of services, including professional installation, turn-key
framing and shell construction, and design.
Superior Customer Service.
Our salespeople act as trusted advisors and
on-site consultants to the homebuilder and are involved in each
important step of the construction process.
Our large delivery fleet and comprehensive
inventory management system enable us to provide
just-in-time product delivery.
Attractive Cost Position.
We have used our position as one of the few
large-scale competitors in our industry to create an attractive
cost position, with 80% of our non-lumber product purchases
being made pursuant to company-wide agreements.
Our distribution centers average
$32.6 million of annual sales, which is higher than any of
our competitors that have annual sales in excess of
$1 billion according to their public filings, company
web sites, and the Home Channel News.
Our scale allows us to leverage our fixed costs,
including occupancy, location management, supervisory labor, and
corporate overhead, to lower our costs per sales dollar.
Selling, general, and administrative expenses
have declined as a percentage of sales from 21.4% in 2001 to
18.3% for 2004.
Experienced Management Team.
We have a dedicated management team with
extensive experience and expertise in the manufacturing,
distribution, and marketing of building products.
Our senior management team, including our three
regional group presidents, has a total of over 175 years of
industry experience.
This team has successfully led us through various
industry cycles, economic conditions, and capital structures and
has demonstrated the ability to grow manufacturing businesses,
introduce new product lines, expand into new geographic markets,
and target and integrate acquisitions while improving
operational and working capital efficiencies.
Increase Customer Penetration through
Incremental Sales of Manufactured Products and
Services.
Organically grow unit volumes and revenues by
providing existing customers with incremental value-added
products and services.
Increase sales of manufactured products, which
are higher margin and less price sensitive than lumber products
and are growing in demand by homebuilders.
Grow sales of construction services.
Target Production Homebuilders.
Leverage geographic breadth and scale to continue
to grow our sales to the Production Homebuilders as they
continue to gain market share.
From 2001 to 2004, our sales to the ten largest
Production Homebuilders increased from $260.8 million to
$451.8 million.
Expand through New Manufacturing and
Distribution Centers in Existing and Contiguous
Markets.
Increase market penetration through the
introduction of additional distribution and manufacturing
facilities.
Selectively seek expansion opportunities that
will enable us to grow in the multi-family and commercial end
markets.
Focus on Cost, Working Capital, and Operating
Improvements.
Continue to focus on expenses and working capital
to remain a low cost supplier.
Maintain a continuous improvement, best
practices operating philosophy and regularly implement new
initiatives to reduce costs, increase efficiency, and reduce
working capital.
Pursue Strategic Acquisitions.
Geographic expansion and continued growth of our
Prefabricated Components business.
We do not currently operate in a number of
attractive homebuilding markets, including in the western and
southwestern U.S. and parts of the Midwest.
Our senior management team has the experience and
ability to identify acquisition candidates and integrate
acquisitions, having acquired and integrated 23 companies since
1998.
Common stock offered by Builders
FirstSource, Inc.
shares
Common stock offered by the selling stockholders
shares
( shares
if the underwriters exercise their over-allotment option in full)
Common stock to be outstanding after this offering
shares
Use of Proceeds
We intend to use the net proceeds that we receive
in this offering to repay a portion of our outstanding debt and
for general corporate purposes. We will not receive any of the
proceeds from the sale of our common stock by the selling
stockholders.
Proposed Nasdaq symbol
BLDR.
Three months ended
or at March 31,
Year ended or at December 31,
2005
2004
2004
2003(1)
2002(1)
(in thousands, except per share amounts)
Restated
Restated
$
509,342
$
429,354
$
2,058,047
$
1,675,093
$
1,500,006
388,407
333,577
1,574,535
1,300,410
1,155,375
120,935
95,777
483,512
374,683
344,631
96,902
82,513
376,096
327,027
308,060
36,364
437
1,171
750
(12,331
)
12,827
107,416
46,485
35,821
620
2,220
19,204
6,506
24,458
11,124
12,055
before income taxes
(31,535
)
6,321
82,958
34,741
21,546
(12,675
)
2,433
31,480
13,343
8,611
(18,860
)
3,888
51,478
21,398
12,935
246
103
(3,822
)
(2,980
)
(19,504
)
$
(18,860
)
$
4,134
$
51,581
$
17,576
$
(9,549
)
$
(0.75
)
$
0.15
$
2.05
$
0.85
$
0.51
(0.75
)
0.15
1.93
0.85
0.51
25,148
25,138
25,135
25,204
25,363
25,148
25,633
26,714
25,252
25,411
$
12,121
$
50,628
$
5,585
$
2,248
709,460
697,011
622,128
530,965
510,205
313,480
168,533
129,706
(9,156
)
210,890
298,933
282,789
$
4,712
$
4,823
$
19,350
$
20,187
$
20,745
5,487
4,119
20,718
15,592
15,061
(1)
See Note 3 to our audited consolidated
financial statements, included elsewhere herein,
regarding the restatement of our previously issued financial
statements.
(2)
Reflects the impact of the 1-for-10 reverse stock
split as discussed in Note 6 to the March 31, 2005
unaudited condensed consolidated financial statements, included
elsewhere herein.
(3)
Represents cash payments made to stock option
holders (including applicable payroll taxes) in lieu of
adjusting exercise prices in conjunction with our
recapitalization transactions. For the year ended
December 31, 2004, stock compensation expense is classified
as selling, general and administrative expenses. There was no
stock compensation expense for the years ended December 31,
2003 and 2002.
increasing our vulnerability to general economic
and industry conditions;
requiring a substantial portion of our cash flow
from operations to be dedicated to the payment of principal and
interest on our indebtedness, therefore reducing our ability to
use our cash flow to fund our operations, capital expenditures,
and future business opportunities;
exposing us to the risk of increased interest
rates because certain of our borrowings, including the floating
rate notes and borrowings under the new senior secured credit
facility, will be at variable rates of interest;
limiting our ability to obtain additional
financing for working capital, capital expenditures, debt
service requirements, acquisitions, and general corporate or
other purposes; and
limiting our ability to adjust to changing market
conditions and placing us at a competitive disadvantage compared
to our competitors who have less debt.
transfer or sell assets, including the equity
interests of our restricted subsidiaries, or use asset sale
proceeds;
incur additional debt;
pay dividends or distributions on our capital
stock or repurchase our capital stock;
make certain restricted payments or investments;
create liens to secure debt;
enter into transactions with affiliates;
merge or consolidate with another company; and
engage in unrelated business activities.
actual or anticipated fluctuations in our results
of operations;
variance in our financial performance from the
expectations of market analysts;
announcements by us or our competitors of
significant business developments, changes in customer
relationships, acquisitions or expansion plans;
changes in the prices of products we sell;
our involvement in litigation;
our sale of common stock or other securities in
the future;
market conditions in our industry;
changes in key personnel;
changes in market valuation or earnings of our
competitors;
the trading volume of our common stock;
changes in the estimation of the future size and
growth rate of our markets; and
general economic and market conditions.
you will pay a price per share that substantially
exceeds the per share book value of our assets immediately
following the offering after subtracting our
liabilities; and
the purchasers in this offering will have
contributed %
of the total amount to fund us but will own
only %
of our outstanding shares.
Our stockholders may not remove a director
without cause, and our certificate of incorporation provides for
a classified board of directors with staggered, three-year
terms. As a result, it could take up to three years for
stockholders to replace the entire board.
Our board of directors has the exclusive right to
elect directors to fill a vacancy created by the expansion of
the board of directors or the resignation, death or removal of a
director, which prevents stockholders from being able to fill
vacancies on our board of directors.
Our stockholders may not act by written consent.
As a result, holders of our capital stock would be able to take
actions only at a stockholders meeting.
No stockholder may call a special meeting of
stockholders. This may make it more difficult for stockholders
to take certain actions.
We do not have cumulative voting in the election
of directors. This limits the ability of minority stockholders
to elect director candidates.
Stockholders must provide advance notice to
nominate individuals for election to the board of directors or
to propose matters that can be acted upon at a
stockholders meeting. These provisions may discourage or
deter a potential acquirer from conducting a solicitation of
proxies to elect the acquirers own slate of directors or
otherwise attempting to obtain control of our company.
Our board of directors may issue, without
stockholder approval, shares of undesignated preferred stock.
The ability to authorize undesignated preferred stock makes it
possible for our board of directors to issue preferred stock
with voting or other rights or preferences that could impede the
success of any attempt to acquire us.
Dependence on the homebuilding industry, the
economy, and other important factors;
Cyclical and seasonal nature of the building
products supply industry;
Product shortages, loss of key suppliers, and our
dependence on third-party suppliers and manufacturers;
Loss of significant customers;
Competition in the highly fragmented building
products supply industry;
Pricing pressure from our customers;
Our level of indebtedness;
Our incurrence of additional indebtedness;
Our inability to take certain actions because of
restrictions in our debt agreements;
Our reliance on our subsidiaries;
Dependence on key personnel;
Exposure to product liability and warranty claims;
Variability of our quarterly revenues and
earnings;
Disruptions in our information technology systems;
Disruptions at our facilities;
Our ability to execute our strategic plans;
Effects of regulatory conditions on our
operations;
Exposure to environmental liabilities and
regulation;
Economic and financial uncertainty resulting from
terrorism and war;
Costs incurred as a result of becoming a public
company; and
Our ability to meet the requirements of the
Sarbanes-Oxley Act of 2002.
to repay approximately
$ million
of indebtedness under our new $350.0 million senior secured
credit facility;
to pay the fees and expenses of this
offering; and
for working capital and general corporate
purposes.
March 31, 2005
Actual
Adjusted
(in millions)
$
12.1
$
225.0
275.0
10.0
0.2
510.2
0.2
(9.4
)
(9.2
)
$
501.0
$
(1)
$110.0 million of unfunded revolving
facility commitment; $15.0 million pre-funded letter of
credit facility will not be reflected on the balance sheet until
drawn upon.
Per Share
$
$
$
$
$
Shares Purchased
Total Consideration
Average Price
Number
Percent
Amount
Percent
Per Share
$
$
100
%
100
%
We entered into a new $350.0 million senior
secured credit facility with a syndicate of banks, which
includes a $225.0 million term loan, a $110.0 million
long-term revolver, and a $15.0 million prefunded letter of
credit.
We issued $275.0 million of floating rate
notes.
We paid the fees and expenses, aggregating
$21.1 million, relating to the floating rate notes and the
new senior secured credit facility.
We entered into an interest rate swap agreement
designed to fix $100.0 million of our outstanding senior
secured floating rate term loan at an effective rate of 6.62%.
The interest rate swap agreement is for a three-year term
effective July 1, 2005 where we will pay a fixed rate of
4.12% and receive a variable rate at 90 day LIBOR.
We
issued shares
of common stock in this offering.
We repaid
$ of
indebtedness with the net proceeds of this offering.
We paid the fees and expenses related to this
offering.
As of March 31, 2005
Pro forma
Offering
Historical
adjustments
Pro forma
(in thousands)
$
12,121
$
$
12,121
250,212
250,212
151,924
151,924
21,098
21,098
435,355
435,355
88,553
88,553
163,030
163,030
22,522
22,522
$
709,460
$
$
709,460
$
128,961
$
$
128,961
59,139
59,139
2,250
2,250
190,350
190,350
507,955
507,955
20,311
20,311
718,616
718,616
251
251
(9,407
)
(9,407
)
(9,156
)
(9,156
)
$
709,460
$
$
709,460
For the Three Months Ended March 31, 2005
Pro forma
Pro forma
before
Pro forma
debt
Offering
Offering
Historical
adjustments
adjustments
adjustments
Pro forma
(in thousands, except per share amounts)
$
509,342
$
$
509,342
$
$
509,342
388,407
388,407
388,407
120,935
120,935
120,935
96,902
96,902
96,902
36,364
(36,364
)(a)
(12,331
)
36,364
24,033
24,033
19,204
(10,058
)(b)
9,146
9,146
(31,535
)
46,422
14,887
14,887
(12,675
)
17,640
(c)
4,965
4,965
$
(18,860
)
$
28,782
$
9,922
$
$
9,922
$
(0.75
)
$
(0.75
)
25,148
25,148
For the Year Ended December 31, 2004
Pro forma
Pro forma
before
Pro forma
debt
Offering
Offering
Historical
adjustments
adjustments
adjustments
Pro forma
(in thousands, except per share amounts)
$
2,058,047
$
$
2,058,047
$
$
2,058,047
1,574,535
1,574,535
1,574,535
483,512
483,512
483,512
376,096
376,096
376,096
107,416
107,416
107,416
24,458
13,558
(b)
38,016
38,016
82,958
(13,558
)
69,400
69,400
31,480
(5,139
)(c)
26,341
26,341
$
51,478
$
(8,419
)
$
43,059
$
$
43,059
$
2.05
$
$
1.93
$
25,135
26,714
(a)
Represents a $35.8 million payment made to
stock option holders and applicable payroll taxes of
$0.6 million related thereto recognized as compensation
expense in the first quarter 2005 and directly relates to the
recapitalization.
(b)
Represents the adjustment to historical interest
expense on debt to be issued or incurred in connection with the
Transactions, as presented in the following table.
Three Months Ended
Year Ended
March 31,
December 31,
2005
2004
(In thousands)
$
19,204
$
24,458
2,198
19,305
1,563
14,170
(2,559
)
(19,148
)
(2,425
)
(1,700
)
16,281
38,785
209
1,666
193
1,551
(238
)
(1,804
)
(7,299
)
(2,182
)
$
9,146
$
38,016
The pro forma balance sheet reflects outstanding
borrowings on the new senior secured credit facility of
$225.0 million term loan and the floating rate notes of
$275.0 million. The assumed interest rates are as follows:
5.27% (LIBOR plus 2.5%) for $125.0 million of the term
loan; 6.62% (fixed swap rate of 4.12% plus 2.5%) for
$100.0 million of the term loan; and 7.02% (LIBOR plus
4.25%) for the floating rate notes. The senior secured credit
facility also includes a letter of credit fee of 2.75% on
outstanding borrowings and a 0.50% commitment fee on the
revolving line of credit. For each 0.125% change in the assumed
variable interest rates of the new senior secured credit
facility and floating rate notes, interest expense would change
by approximately $0.1 million for the three month period
ended March 31, 2005 and $0.5 million for the year
ended December 31, 2004.
The average outstanding balance of the prior
credit facilities during the year ended December 31, 2004
was approximately $272.0 million at an average interest
rate of 6.24%. The prior credit facilities also included a
letter of credit fee of 2.75% on outstanding borrowings and a
0.50% commitment fee on the revolving line of credit. The year
ended December 31, 2004 also included interest from the
2003 credit facility which was refinanced in February 2004.
(c)
Represents the income tax effect of the pro forma
adjustments assuming an approximate incremental tax rate of
38.0%.
Three months ended
or at March 31,
Year ended December 31,
2005
2004
2004
2003(1)
2002(1)
2001
2000
(in thousands, except per share amounts)
Restated
Restated
Restated
Restated
$
509,342
$
429,354
$
2,058,047
$
1,675,093
$
1,500,006
$
1,513,545
$
1,513,086
388,407
333,577
1,574,535
1,300,410
1,155,375
1,149,957
1,141,808
120,935
95,777
483,512
374,683
344,631
363,588
371,278
96,902
82,513
376,096
327,027
308,060
324,430
309,346
36,364
437
1,171
750
8,288
(12,331
)
12,827
107,416
46,485
35,821
30,870
61,932
620
2,220
4,067
3,567
19,204
6,506
24,458
11,124
12,055
20,581
30,891
(31,535
)
6,321
82,958
34,741
21,546
6,222
27,474
(12,675
)
2,433
31,480
13,343
8,611
2,560
11,482
(18,860
)
3,888
51,478
21,398
12,935
3,662
15,992
246
103
(3,822
)
(2,980
)
(2,120
)
292
(19,504
)
$
(18,860
)
$
4,134
$
51,581
$
17,576
$
(9,549
)
$
1,542
$
16,284
Income (loss) from continuing operations
per sharebasic(2)
$
(0.75
)
$
0.15
$
2.05
$
0.85
$
0.51
$
0.14
$
0.72
Income (loss) from continuing operations
per sharediluted(2)
$
(0.75
)
$
0.15
$
1.93
$
0.85
$
0.51
$
0.14
$
0.71
Weighted average shares outstandingbasic(2)
25,148
25,138
25,135
25,204
25,363
25,532
22,268
Weighted average shares
outstandingdiluted(2)
25,148
25,633
26,714
25,252
25,411
25,682
22,432
Balance sheet data (end of period):
$
12,121
$
50,628
$
5,585
$
2,248
$
3,309
$
2,346
709,460
697,011
622,128
530,965
564,204
634,939
510,205
313,480
168,533
129,706
154,010
223,829
(9,156
)
210,890
298,933
282,789
293,035
293,916
$
4,712
$
4,823
$
19,350
$
20,187
$
20,745
$
25,232
$
21,652
5,487
4,119
20,718
15,592
15,061
22,491
23,123
(1)
See Note 3 to our audited consolidated
financial statements, included elsewhere herein, regarding the
restatement of our previously issued financial
statements.
(2)
Reflects the impact of the 1-for-10 reverse
stock split as discussed in Note 6 to the March 31,
2005 unaudited condensed consolidated financial statements,
included elsewhere herein.
(3)
Represents cash payments made to stock option
holders (including applicable payroll taxes) in lieu of
adjusting exercise prices in conjunction with our
recapitalization transactions. For the year ended
December 31, 2004, stock compensation expense is classified
as selling, general and administrative expenses. There was no
stock compensation expense for the years ended December 31, 2003
and 2002.
Three months
ended March 31,
Years ended December 31,
2005
2004
2004
2003
2002
Restated
Restated
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
76.3
%
77.7
%
76.5
%
77.6
%
77.0
%
23.7
%
22.3
%
23.5
%
22.4
%
23.0
%
19.0
%
19.2
%
18.3
%
19.5
%
20.5
%
7.1
%
0.1
%
0.0
%
0.0
%
0.0
%
0.0
%
0.0
%
0.0
%
0.1
%
0.0
%
(2.4
)%
3.0
%
5.2
%
2.8
%
2.4
%
3.8
%
1.5
%
1.2
%
0.7
%
0.8
%
0.0
%
0.0
%
0.0
%
0.0
%
0.1
%
(2.5
)%
0.6
%
1.5
%
0.8
%
0.6
%
0.0
%
(0.1
)%
0.0
%
0.2
%
0.2
%
0.0
%
0.0
%
0.0
%
0.0
%
1.3
%
(3.7
)%
1.0
%
2.5
%
1.0
%
(0.6
)%
Three Months Ended March 31, 2005
Compared with the Three Months Ended March 31,
2004
Three Months Ended March 31,
2005
2004
Sales
% of Sales
Sales
% of Sales
% Growth
$
103.1
20.2
%
$
74.9
17.4
%
37.8
%
97.4
19.1
%
84.8
19.8
%
14.9
%
188.4
37.0
%
167.8
39.1
%
12.3
%
44.2
8.7
%
38.0
8.8
%
16.3
%
76.2
15.0
%
63.9
14.9
%
19.3
%
$
509.3
100.0
%
$
429.4
100.0
%
18.6
%
Year Ended
2004
2003
Sales
% of Sales
Sales
% of Sales
% Growth
$
385.9
18.8
%
$
303.4
18.1
%
27.2
%
391.2
19.0
%
354.6
21.2
%
10.3
%
815.3
39.6
%
593.7
35.4
%
37.3
%
175.9
8.5
%
158.7
9.5
%
10.8
%
289.7
14.1
%
264.7
15.8
%
9.4
%
$
2,058.0
100.0
%
$
1,675.1
100.0
%
22.9
%
Year Ended
2003
2002
Sales
% of Sales
Sales
% of Sales
% Growth
$
303.4
18.1
%
$
257.3
17.2
%
17.9
%
354.6
21.2
325.2
21.7
9.0
593.7
35.4
515.4
34.3
15.2
158.7
9.5
151.1
10.1
5.0
264.7
15.8
251.0
16.7
5.5
$
1,675.1
100.0
%
$
1,500.0
100.0
%
11.7
%
March 31,
December 31,
2005
2004
(in thousands)
$
10,000
$
228,275
85,000
225,000
275,000
205
205
510,205
313,480
2,250
1,688
$
507,955
$
311,792
Payments Due by Period
Less
than
1 3
4
5
After 5
Contractual Obligations
Total
1 Year
Years
Years
Years
Years
$
500,205
$
1,688
$
6,750
$
2,250
$
2,455
$
487,062
172,664
31,072
65,018
16,449
11,476
48,649
226,842
30,079
100,493
33,245
32,614
30,411
$
899,711
$
62,839
$
172,261
$
51,944
$
46,545
$
566,122
(1)
These future maturities of Long-Term Debt
reflect the refinancing of our credit agreement and the issuance
of $275.0 million of floating rate notes on
February 11, 2005.
(2)
Interest based on LIBOR rate of 3.10% at
March 31, 2005. Actual interest may vary based on LIBOR
fluctuations.
SOURCES:
The Yearbook of Immigration Statistics, Joint
Center for Housing Studies at Harvard University
Immigrant Home Ownership Rate by Time Since
Arrival in the U.S.
SOURCE:
U.S. Census Bureau
SOURCES:
Production Homebuilders Public Filings;
National Association of Realtors
We operate a highly customized, proprietary
information technology system that drives internal efficiencies
while allowing us to rapidly respond to our customers and reduce
their administrative costs.
We tailor the size of our facilities to each
market to meet the needs of our customers, offering large-scale,
full-service branches in larger markets and smaller, more
tailored facilities in secondary markets.
We offer our customers a one-stop-shop
approach that combines a full line of manufactured
structural building products, lumber and lumber sheet goods, and
turn-key construction services; this integrated approach
substantially reduces the administrative burden and cost to our
customers of dealing with multiple suppliers.
Facility Location
Address
General Character
Leased or Owned
Florida
Bunnell
1700 N. State St.
Truss Plant
L
2121 N. State St.
Distribution Center
L
Fort Pierce
701 S. Kings Hwy.
Truss Plant
L
Jacksonville
6550 Roosevelt Blvd.
Truss Plant; Distribution Center
O/L
8275 Forshee Dr.
Millwork Shop
L
Lake City
2525 E. Duval St.
Truss Plant
L
Orlando
11501 Ryland Ct.
Distribution Center
O
Sanford
2901 Aileron Cr.
Truss Plant
L
Tampa
1820 Massaro Blvd.
Truss Plant; Distribution Center; Panel Plant
L
West Palm Beach
8333 Southern Blvd.
Distribution Center
L
Georgia
Atlanta (Norcross)
6870 Mimms Dr.
Truss Plant; Distribution Center
L
Blairsville
52 Cleveland St.
Distribution Center
L
College Park (South Atlanta)
5230 Feldwood Rd.
Distribution Center
L
Columbus
5515 Veterans Pkwy.
Distribution Center
L
Gainesville
1285 W. Ridge Rd.
Distribution Center
L
LaGrange
195 Davis Rd.
Distribution Center
O
Facility Location
Address
General Character
Leased or Owned
Kentucky
Erlanger
3244 Dixie Hwy.
Distribution Center
L
Maryland
Frederick
3302 Ballenger Creek Pike
Millwork Shop
O
295 Bailes Lane Rd.
Panel Plant
L
North East
18 Industrial Ave.
Truss Plant; Distribution Center
L
102 Pennisula Dr.
Panel Plant
L
Point of Rocks
4011 Rock Hall Rd.
Distribution Center
L
New Jersey
East Brunswick
40-B Cotters Ln.
Millwork Shop
L
South Brunswick
1 Progress Rd.
Distribution Center
L
North Carolina
Aberdeen
900 N. Pinehurst St.
Distribution Center
L
Apex
12816 US Hwy. 64 West
Truss Plant; Panel Plant; Distribution Center
L
Asheboro
3060 US Hwy. 220 Bus.
South
Distribution Center
O
Asheville
332 Haywood Rd.
Distribution Center
O
Cashiers
181 Hwy. 64 West
Distribution Center
L
Harrisburg (Charlotte)
7770 Caldwell Rd.
Truss Plant; Panel Plant; Distribution Center
L
Fayetteville
1135 Robeson St.
Truss Plant; Distribution Center
L
Hendersonville
433 4th Ave. East
Distribution Center
L
High Point
1601 S. Main St.
Distribution Center
L
Hillsborough
401 Valley Forge Rd.
Distribution Center
L
Pisgah Forest (Brevard)
1450 Ecusta Rd.
Distribution Center
L
Southport
1609 Howe St. SE
Distribution Center
O
Wake Forest
4900 NC Hwy. 98 West
Distribution Center
L
Washington
515 East Water St.
Distribution Center
L
Waynesville
970 Brown Ave.
Distribution Center
L
Wilmington
5415 Market St.
Distribution Center
O
Ohio
Cincinnati
7600 Colerain Ave.
Distribution Center
L
Mason
1242 Reading Rd.
Truss Plant; Panel Plant; Distribution Center
O
Winchester
11933 US Route 62
Truss Plant; Distribution Center
L
South Carolina
Anderson
1510 Pearman Dairy Rd.
Distribution Center
L
Beaufort
1 Parris Island Gateway
Distribution Center
L
Facility Location
Address
General Character
Leased or Owned
Cowpens
151 Dewberry Rd.
Truss Plant
O
101 Dewberry Rd.
Panel Plant
O
Charleston
4450 Arco Ln.
Millwork Shop; Distribution Center
L
Columbia
919 S. Edisto Ave.
Distribution Center
L
Conway
651 Century Cr.
Millwork Shop; Distribution Center
L
Edisto Island
796 Hwy. 174
Distribution Center
L
Florence
1724 West Lucas St.
Distribution Center
O
Goose Creek
111 Lumber Ln.
Distribution Center
L
Greenville
801 S. Washington Ave.
Millwork Shop; Distribution Center
O
Hilton Head
69 Matthews Dr.
Distribution Center
O
Johns Island
3155 Maybank Hwy.
Distribution Center
L
Little River
603 Hwy. 17 South
Distribution Center
L
Myrtle Beach
4920 Hwy. 17 Bypass
Millwork Shop
L
North Augusta
871 Edgefield Rd.
Distribution Center
L
Orangeburg (Charleston)
295 Prosperity Dr.
Panel Plant
O
Pawleys Island
226 Tiller Dr.
Distribution Center
O
Ridgeland (Cherry Point)
Rt. 1, Box 170
Distribution Center
O
Seneca
101 Lumber Ln.
Distribution Center
O
Simpsonville
313 N. Main St.
Distribution Center
L
Spartanburg
8035 Howard St.
Distribution Center
O
Summerville
1507 West 5th N. St.
Distribution Center
L
Sumter
114 & 116 Myrtle
Beach Hwy.
Truss Plant
O
Tennessee
Johnson City
407 E. State of
Franklin Rd.
Distribution Center
O
Lebanon (Nashville)
3135 Hwy. 109 North
Distribution Center
L
6010 Division St.
Truss Plant; Panel Plant
L
Morristown
1907 W. Morris Blvd.
Distribution Center
L
Mt. Carmel (Kingsport)
230 West Main
Distribution Center
L
Piney Flats
260 Piney Flats Rd.
Truss Plant; Millwork Shop
O
Texas
Arlington
3403 E. Abram
Window Shop; Millwork Shop; Distribution Center
L
Grand Prairie
1790 Westpark, Suite 103
Millwork Shop
L
Houston
5515 Brittmore
Vinyl Window Manufacturing Plant
L
5525 Brittmore
Aluminum Window Manufacturing Plant
L
Lewisville
902 N. Mill St.
Distribution Center
O
Facility Location
Address
General Character
Leased or Owned
Taylor (Austin)
3800 W. 2nd St.
Distribution Center
L
San Antonio
1515 Goliad Rd.
Window Shop
L
6305 Camp Bullis Rd.
Millwork Shop
L
6448 Camp Bullis Rd.
Distribution Center
L
Virginia
Bristol
941-15 W. State St.
Distribution Center
O
Culpeper
13234 Airpark Dr.
Distribution Center; Truss Plant; Panel Plant
L
Name
Age
Position
65
Chairman of the Board and Chief Executive Officer
40
Senior Vice President and Chief Operating Officer
44
Senior Vice President and Chief Financial Officer
50
Senior Vice President and General Counsel
55
Vice President, Manufacturing
55
Director
44
Director
57
Director
36
Director
57
Director Nominee
(1)
Mr. Griffin has agreed to become a member of
our board of directors upon the completion of this offering and
has consented to being named in this prospectus
Annual Compensation
Long-Term Compensation
Securities Underlying
All Other
Year
Salary
Bonus
Options(#)
Compensation(1)
2004
$
600,000
$
1,107,036
Chairman of the Board and Chief Executive
Officer
2004
$
360,000
$
848,444
56,592
$
3,769
Senior Vice President and Chief Operating
Officer
2004
$
330,000
$
927,740
111,783
$
4,925
Senior Vice President and Chief Financial
Officer
2004
$
320,000
$
754,172
57,577
$
6,500
Senior Vice President and General
Counsel
2004
$
232,000
$
492,097
5,000
$
6,500
Vice President, Manufacturing
(1)
Reflects Company matching contributions under our
401(k) plan.
Individual Grants
Number of
Percent of total
securities
options granted
Exercise or
Grant date
underlying options
to employees
base price
present
Name
granted(1)
in fiscal year
($/Sh)
Expiration date
value($)(2)
56,592
3.7
%
$
3.15
February 27, 2014
$
28,296
111,783
7.4
%
$
3.15
February 27, 2014
$
55,892
57,577
3.8
%
$
3.15
February 27, 2014
$
28,789
5,000
0.3
%
$
3.15
February 27, 2014
$
2,500
(1)
These options vest in full on
December 31, 2011. These options have accelerated vesting
provisions that provide that (a) one sixth of the options
will vest on each of December 31, 2004, 2005, and 2006, if
certain annual financial performance targets are met in the
applicable year; (b) one half of the options will vest on
December 31, 2006, if certain cumulative financial
performance targets for the three calendar years ended
December 31, 2006, are met; and (c) upon a change in
control of the Company some or all of the previously unvested
options will vest if certain financial targets have been
met.
(2)
The options are valued by the minimum value
option pricing variation of the Black-Scholes pricing model. The
following weighted average assumptions were used for the grants:
expected term six years; expected volatility 0.00%;
expected dividend yield 0.00%; and risk free rate
3.01%. No adjustment was made for non-transferability or risk of
forfeitures.
Value of Unexercised In-
Number of securities
the-Money Options at
underlying unexercised
Fiscal Year-End ($)
Shares acquired
Value
options at fiscal year-end(#)
Exercisable/
Name
on exercise(#)
realized($)
exercisable/unexercisable(1)
Unexercisable
851,814/ 283,939
350,158/ 132,341
181,292/ 143,707
293,534/ 118,965
12,433/ 17,567
(1)
In connection with the payment of an
extraordinary dividend to our stockholders in February 2004, the
exercise price of most of our then-outstanding stock options,
including all stock options held by our named executive
officers, was adjusted to take into account the decrease in the
fair market value of the underlying shares after the payment of
the extraordinary dividend. With respect to our named executive
officers, this adjustment resulted in the reduction of the
exercise price of their options from $10.00 to $3.15 per
share and applied to the following number of shares subject to
options: Mr. Sherman, 1,135,753; Mr. O Meara,
425,907; Mr. Horn, 213,216; Mr. McAleenan, 354,922;
and Mr. Schenkel, 25,000.
Shares Beneficially Owned
Shares Beneficially Owned
Before the Offering
After the Offering
Percentage of
Percentage
Ownership of
Shares
Ownership
Name and Address of
Shares of
Shares of
Offered
Shares of
of Shares of
Beneficial Owner(1)
Common Stock(2)
Common Stock(3)(4)
Hereby
Common Stock
Common Stock
23,783,643
94.6
%
851,814
3.3
%
394,455
1.5
%
197,792
*
337,831
1.3
%
27,033
*
23,783,643
94.6
%
23,783,643
94.6
%
23,783,643
94.6
%
23,783,643
94.6
%
100,000
*
179,866
*
25,592,568
95.3
%
*
Less than 1%.
(1)
Unless otherwise indicated, the business
address of each person named in the table is Builders
FirstSource, Inc., 2001 Bryan Street, Suite 1600,
Dallas, Texas 75201.
(2)
The number of shares beneficially owned by
each person or group as of May 15, 2005 includes shares of
common stock that such person or group had the right to acquire
on or within 60 days after May 15, 2005, including
upon the exercise of options.
(3)
For each person and group included in the
table, percentage ownership is calculated by dividing the number
of shares beneficially owned by such person or group as
described above by the sum of 25,148,213 shares of common
stock outstanding on May 15, 2005 and the number of shares
of common stock that such person or group had the right to
acquire on or within 60 days of May 15, 2005,
including upon the exercise of options.
(4)
Subject to dilution resulting from potential
awards of common stock and exercise of options to acquire common
stock under the 1998 Stock Incentive Plan, as amended.
(5)
Messrs. Levy, Frank, Milgrim, and
Castaldi are all associated with JLL Partners Fund II, L.P.
and JLL Partners Fund III, L.P., which, as members of JLL
Building Products, LLC, may be deemed to beneficially own the
shares of common stock owned by JLL Building Products, LLC. In
addition, Mr. Levy is the sole general partner of JLL
Associates II, L.P., which controls JLL Partners
Fund II, L.P., and Messrs. Levy and Frank and
Jeffrey C. Lightcap are the managing members of JLL
Associates III, L.L.C., which controls JLL Partners
Fund III, L.P. As a result, Messrs. Frank, Levy, and
Lightcap may be deemed to beneficially own all of the shares of
common stock owned by JLL Building Products, LLC, and to
have shared voting or investment power over the shares of common
stock owned by JLL Building Products, LLC.
Messrs. Milgrim and Castaldi disclaim any beneficial
ownership of our common stock.
(6)
Includes 851,814 shares of common stock
issuable upon exercise of options exercisable within
60 days of May 15, 2005 under the Companys 1998
Stock Incentive Plan, as amended.
(7)
Includes 350,158 shares of common stock
issuable upon exercise of options exercisable within
60 days of May 15, 2005 under the Companys 1998
Stock Incentive Plan, as amended.
(8)
Includes 185,292 shares of common stock
issuable upon exercise of options exercisable within
60 days of May 15, 2005 under the Companys 1998
Stock Incentive Plan, as amended.
(9)
Includes 293,534 shares of common stock
issuable upon exercise of options exercisable within
60 days of May 15, 2005 under the Companys 1998
Stock Incentive Plan, as amended.
(10)
Includes 16,033 shares of common stock
issuable upon exercise of options exercisable within
60 days of May 15, 2005 under the Companys 1998
Stock Incentive Plan, as amended.
(11)
The business address for Messrs. Levy,
Frank, Milgrim, and Castaldi is 450 Lexington Ave.,
Suite 3350, New York, New York 10017.
(12)
The business address for Poole Holdings, Inc.
is 8323 Ramona Blvd., Jacksonville, Florida 32221.
Mr. Lockwood P. Holmes is the controlling stockholder of
Poole Holdings, Inc. as well as its only officer and sole
director and accordingly may be deemed to beneficially own the
shares of common stock owned by Poole Holdings, Inc. and to have
voting or investment power over such shares. Mr. Holmes is also
the beneficial owner of 100,000 shares of common stock issuable
upon exercise of options exercisable within 60 days of
May 15, 2005. Mr. Holmes is currently an employee of the
Company.
(13)
The business address for Mr. William A.
Schwartz is 821 Holmdel Road, Holmdel, New Jersey
07733.
Voting rights.
Each
outstanding share of common stock entitles its holder to one
vote on all matters submitted to a vote of our stockholders,
including the election of directors. There are no cumulative
voting rights. Generally, all matters to be voted on by
stockholders must be approved by a majority of the votes
entitled to be cast by all shares of common stock present or
represented by proxy.
Dividends.
Holders
of common stock are entitled to receive dividends as, when and
if dividends are declared by our board of directors out of
assets legally available for the payment of dividends.
Liquidation.
In the
event of a liquidation, dissolution or winding up of our
affairs, whether voluntary or involuntary, after payment of our
liabilities and obligations to creditors, our remaining assets
will be distributed ratably among the holders of shares of
common stock on a per share basis.
Rights and
preferences.
Our common stock has no
preemptive, redemption, conversion or subscription rights. The
rights, powers, preferences and privileges of holders of our
common stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
any breach of his or her duty of loyalty to us or
our stockholders;
acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;
any transaction from which the director derived
an improper personal benefit; or
improper distributions to stockholders.
a new senior secured term loan facility of
$225.0 million (the Term Loan Facility),
a new senior secured revolving credit facility of
$110.0 million (the Revolving Credit
Facility), and
a new pre-funded letter of credit facility of
$15.0 million (the Funded LC Facility). Funds
in an aggregate principal amount of $15.0 million have been
deposited (the Credit-linked Deposit) by the lenders
under the Funded LC Facility in an account (the
Credit-Linked Deposit Account) held in the name of
the Administrative Agent.
we pay holders of the floating rate notes a
redemption price in an amount equal to par plus the interest
rate then in effect, plus accrued and unpaid interest and
liquidated damages, if any, to the redemption date;
at least 65% of the aggregate principal amount of
the floating rate notes issued under the indenture, remains
outstanding immediately after such redemption; and
we redeem the floating rate notes within
90 days of any such equity offering.
1% of the number of shares of common stock then
outstanding, which will equal
approximately shares
immediately after this offering; or
the average weekly trading volume of the common
stock during the four calendar weeks preceding the filing of the
Form 144 with respect to such sale.
Underwriters
Number of shares
receipt and acceptance of our common stock by the
underwriters; and
the underwriters right to reject orders in
whole or in part.
Paid by selling
Paid by us
stockholders
Total
No exercise
Full exercise
No exercise
Full exercise
No exercise
Full exercise
$
$
$
$
$
$
$
$
$
$
$
$
stabilizing transactions;
short sales;
purchases to cover positions created by short
sales;
imposition of penalty bids; and
syndicate covering transactions.
the information set forth in this prospectus and
otherwise available to the representatives;
our history and prospects and the history and the
prospects for the industry in which we compete;
our past and present financial performance and an
assessment of our management;
our prospects for future earnings and the present
state of our development;
the general condition of the securities markets
at the time of this offering;
the recent market prices of, and the demand for,
public traded common stock of generally comparable companies; and
other factors deemed relevant by the underwriters
and us.
Experts
The consolidated financial statements as of December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, included in this prospectus, have been so included in reliance on the report, which contains an explanatory paragraph relating to the restatement of the 2003 and 2002 consolidated financial statements, of PricewaterhouseCoopers LLP, independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
Where you can find more information
We have filed with the SEC a registration statement on Form S-1 with respect to the common stock being sold in this offering. This prospectus, which forms part of the registration statement, does not contain all of the information included in that registration statement. For further information about us and the common stock being sold in this offering, you should refer to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any agreement, or other document to which we make reference are not necessarily complete. In each instance, we refer you to the copy of such agreement, or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by the more complete description of the matter involved.
Upon completion of this offering, we will become subject to the reporting and information requirements of the Securities and Exchange Act of 1934, as amended, and, as a result, we will file periodic and current reports, proxy statements, and other information with the SEC. You may read and copy any document we file with the SEC at the SECs Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of these reports and information may be obtained at prescribed rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. In addition, the SEC maintains a web site that contains reports and other information regarding registrants, such as us, that file electronically with the SEC. The address of this web site is http://www.sec.gov. The other information we file with the SEC is not part of the registration statement of which this prospectus forms a part.
Index to consolidated financial statements
Consolidated Financial Statements
|
|||||
Report of Independent Registered Public
Accounting Firm
|
F-2 | ||||
Consolidated Statements of Operations for the
years ended December 31, 2004, 2003, and 2002
|
F-3 | ||||
Consolidated Balance Sheets at December 31,
2004 and 2003
|
F-4 | ||||
Consolidated Statements of Cash Flows for the
years ended December 31, 2004, 2003, and 2002
|
F-5 | ||||
Consolidated Statements of Changes in
Shareholders Equity for the years ended December 31,
2004, 2003, and 2002
|
F-6 | ||||
Notes to Consolidated Financial Statements
|
F-7 | ||||
Interim Condensed Consolidated Financial
Statements (Unaudited)
|
|||||
Unaudited Condensed Consolidated Statements of
Operations for the Three Months Ended March 31, 2005 and
2004
|
F-32 | ||||
Unaudited Condensed Consolidated Balance Sheets
as of March 31, 2005 and
December 31, 2004 |
F-33 | ||||
Unaudited Condensed Consolidated Statements of
Cash Flows for the Three Months Ended March 31, 2005 and
2004
|
F-34 | ||||
Unaudited Condensed Consolidated Statements of
Changes in Shareholders Equity (Deficit) for the Three
Months Ended March 31, 2005 and 2004
|
F-35 | ||||
Notes to Condensed Consolidated Financial
Statements (Unaudited)
|
F-36 |
Report of Independent Registered Public
Accounting Firm
To the Shareholders of Builders FirstSource, Inc.:
In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, changes in shareholders equity and cash flows
present fairly, in all material respects, the financial position
of Builders FirstSource, Inc. and its subsidiaries (the
Company) at December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 3 to the consolidated
financial statements, the Company has restated its 2003 and 2002
consolidated financial statements.
Additionally, as discussed in Notes 2 and 5
to the consolidated financial statements, the Company adopted
the provisions of Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets,
in 2002.
CONSOLIDATED STATEMENTS OF
OPERATIONS
The accompanying notes are an integral part of
these consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of
these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
The accompanying notes are an integral part of
these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY
The accompanying notes are an integral part of
these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Builders FirstSource, Inc. and subsidiaries (the
Company) is a leading provider of manufactured
components, building materials and construction services to
professional homebuilders and contractors in the United States.
The Company was formed through an agreement between JLL
Partners, Inc. and certain members of the existing management
team. Affiliates of JLL Partners, Inc. control JLL Building
Products, LLC, which currently owns 94.6% of the Companys
outstanding common stock. The Companys manufactured
products include trusses, wall panels, custom millwork, pre-hung
doors and windows and stairs. Construction services include
turnkey framing, product installation, and project management
for builders. At December 31, 2004, the Company had 63
distribution centers and 42 manufacturing operations generally
in co-located facilities in Florida, Georgia, Kentucky,
Maryland, North Carolina, New Jersey, Ohio, South Carolina,
Tennessee, Texas and Virginia.
Principles of Consolidation
The consolidated financial statements present the
results of operations, financial position, and cash flows of
Builders FirstSource, Inc. and its wholly-owned subsidiaries.
All significant intercompany transactions have been eliminated
in consolidation.
Accounting Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period.
Actual results could materially differ from those estimates.
Estimates are used when accounting for items such
as revenue, vendor rebates, allowance for returns, discounts and
doubtful accounts, employee compensation programs, depreciation
and amortization periods, income taxes, inventory values,
insurance programs, goodwill, other intangible assets and
long-lived assets.
Sales Recognition
The Company recognizes sales of building products
upon delivery to the customer. For contracts with service
elements, sales are generally recognized on the completed
contract method as these contracts are usually completed within
30 days. Contract costs include all direct material and
labor, equipment costs and those indirect costs related to
contract performance. Provisions for estimated losses on
uncompleted contracts are recognized in the period in which such
losses are determined. Prepayments for materials or services are
deferred until such materials have been delivered or services
have been provided.
All sales recognized are net of allowances for
discounts and estimated returns, based on historical experience.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand
and all highly liquid investments with an original maturity date
of three months or less.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Financial Instruments
The Company uses financial instruments in its
normal course of business as a tool to manage its assets and
liabilities. The Company does not hold or issue financial
instruments for trading purposes.
The carrying amounts of the Companys
financial instruments, including accounts receivable and
accounts payable approximate fair value due to their short-term
nature. Based on the variability of interest rates, management
believes the carrying value of long-term debt approximates fair
value at December 31, 2004.
Accounts Receivable
The Company extends credit to qualified
professional homebuilders and contractors, generally on a
non-collateralized basis. The allowance for doubtful accounts is
based on managements assessment of the amount which may
become uncollectible in the future and is estimated using
specific review of problem accounts, overall portfolio quality,
current economic conditions that may affect the borrowers
ability to pay, and historical experience. Accounts receivable
are written off when deemed uncollectible.
The Company previously provided financing for
construction projects through a builder finance program
inherited from a company acquired in 2000. This program was
offered to a select group of customers in a single market. The
notes receivable bear interest at rates ranging from prime plus
1% to 10.5%, generally mature within one year and are secured by
a first mortgage. As of December 31, 2003, the outstanding
balances aggregated $1.1 million and are included in
accounts receivable in the accompanying consolidated balance
sheets. There were no balances outstanding at December 31,
2004. This program was discontinued during 2002. See Note 6
for a discussion of the Companys accounts receivable
securitization agreement which expired in 2003.
Accounts receivable consist of the following at
December 31:
Inventories
Inventories consist principally of materials
purchased for resale, including lumber, sheet goods, windows,
doors and millwork, and certain manufactured products and are
stated at the lower of cost or market. Cost is determined using
the weighted average method, the use of which approximates the
first-in, first-out method. The Company accrues for shrink based
on the actual historical shrink results of the Companys
most recent physical inventories adjusted, if necessary, for
current economic conditions. These estimates are compared with
actual results as physical inventory counts are taken and
reconciled to the general ledger.
The Companys arrangements with vendors
provide for rebates of a specified amount of consideration,
payable when certain measures, generally related to a stipulated
level of purchases, have been achieved. The Company accounts for
estimated rebates as a reduction of the prices of the
vendors inventory until the product is sold, at which
time, such rebates reduce cost of sales in the accompanying
consolidated
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
statements of operations. Throughout the year,
the Company estimates the amount of the rebates based upon the
expected level of purchases. The Company continually revises
these estimates based on actual purchase levels.
Shipping and Handling Costs
Handling costs incurred in manufacturing
activities are included in cost of sales. All other shipping and
handling costs are included in selling, general and
administrative expenses on the accompanying consolidated
statements of operations and aggregated $80.2 million,
$73.2 million and $65.5 million in 2004, 2003 and
2002, respectively.
Income Taxes
The Company accounts for income taxes utilizing
the liability method described in Statement of Financial
Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. Deferred income taxes
are recorded to reflect consequences on future years of
differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year end based on
enacted tax laws and statutory tax rates applicable to the
periods in which differences are expected to affect taxable
earnings. The Company records a valuation allowance to reduce
deferred tax assets if it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Warranty Expense
The Company has warranty obligations with respect
to most manufactured products, however, the liability for the
warranty obligations is not significant as a result of third
party inspection and acceptance processes.
Deferred Loan Costs
Loan costs are capitalized upon the issuance of
long-term debt and amortized over the life of the related debt
using the effective interest rate method for the Companys
term notes and the straight-line method for the Companys
revolving credit facility. Amortization of deferred loan costs
is included in interest expense.
Property, Plant and Equipment
Property, plant and equipment are recorded at
cost and depreciated using the straight-line method over the
estimated useful lives of the assets. The estimated lives of the
various classes of assets are as follows:
Major additions and improvements are capitalized,
while maintenance and repairs that do not extend the useful life
of the property are charged to expense as incurred. Gains or
losses from dispositions of property, plant and equipment are
recorded in the period incurred.
The Company periodically evaluates the commercial
and strategic operation of the land and related buildings and
improvements of its facilities. In connection with these
evaluations, facilities may be
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
consolidated, and others sold or leased. The
Company recorded net gains of $0.5 million,
$1.0 million and $1.6 million in 2004, 2003 and 2002,
respectively, principally from the sale of real estate. These
gains are recorded as a reduction of selling, general and
administrative expenses in the accompanying consolidated
statements of operations.
The Company capitalizes certain costs of computer
software developed or obtained for internal use, including
interest, provided that those costs are not research and
development, and certain other criteria are met pursuant to
Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.
The net carrying value of internal use software costs was
$1.2 million and $2.3 million as of December 31,
2004 and 2003, respectively. These costs are included in
furniture and fixtures in Note 10 and are amortized on a
straight-line basis over a period of 3 to 5 years.
Long-Lived Assets
The Company evaluates its long-lived assets,
other than goodwill, for impairment when events or changes in
circumstances indicate, in managements judgment, that the
carrying value of such assets may not be recoverable. The
determination of whether an impairment has occurred is based on
managements estimate of undiscounted future cash flows
before interest attributable to the assets as compared to the
net carrying value of the assets. If an impairment has occurred,
the amount of the impairment recognized is determined by
estimating the fair value of the assets based on estimated
discounted future cash flows and recording a provision for loss
if the carrying value is greater than estimated fair value. The
net carrying value of assets identified to be disposed of in the
future is compared to their estimated fair value, generally the
quoted market price obtained from an independent third-party,
less the cost to sell to determine if an impairment is required.
Until the assets are disposed of, an estimate of the fair value
is redetermined when related events or circumstances change.
Insurance
The Company has established insurance programs to
cover certain insurable risks consisting primarily of physical
loss to property, business interruptions resulting from such
loss, workers compensation, employee healthcare,
comprehensive general and auto liability. Third party insurance
coverage is obtained for exposures above predetermined
deductibles as well as those risks required to be insured by law
or contract. Provisions for losses are developed from valuations
that rely upon the Companys past claims experience, which
considers both the frequency and settlement of claims. The
Company discounts its workers compensation liability based
upon estimated future payment streams at its risk-free rate.
Net Income (Loss) Per Common Share
Net income (loss) per common share
(EPS) is calculated in accordance with
SFAS No. 128, Earnings per Share, which
requires the presentation of basic and dilutive earnings per
share. Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period.
Dilutive earnings per share is computed using the weighted
average number of common shares outstanding during the period,
plus the dilutive effect of common stock equivalents. Weighted
average shares outstanding have been adjusted for common shares
underlying options of 4.5 million, 0.1 million and
0.1 million for the periods ended December 31, 2004,
2003 and 2002, respectively. Options to
purchase 2.9 million and 2.9 million shares of
common stock outstanding at December 31, 2003 and 2002,
respectively, were not included in the computation of diluted
earnings per share because their effect would not be dilutive.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The table below presents a reconciliation of
weighted average common shares, in thousands, used in the
calculation of basic and diluted EPS:
Goodwill and Other Intangible Assets
Intangibles subject to amortization
Goodwill and intangibles with indefinite
lives
Stock Compensation
The Company applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related
interpretations in accounting for employee stock-based
compensation costs related to its stock incentive plan (see
Note 14). APB 25 is an intrinsic value approach for
measuring stock-based compensation costs.
SFAS No. 123, Accounting for Stock-Based
Compensation, is a fair value approach for measuring
stock-based compensation costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Had the compensation cost for the Companys
stock-based compensation been determined in accordance with
SFAS No. 123, the Companys net income (loss) and
net income (loss) per share for 2004, 2003 and 2002 would
approximate the pro forma amounts below:
The effects of applying SFAS No. 123 in
this pro forma disclosure may not be indicative of future
results.
Recently Issued Accounting
Pronouncements
In December 2004, the FASB issued
SFAS No. 123 (Revised 2004) Share Based
Payment (SFAS 123R), which is a revision
of SFAS 123 and supersedes APB 25 and SFAS 148.
This statement requires that the cost resulting from all
share-based payment transactions be recognized in the financial
statements. This statement establishes fair value as the
measurement objective in accounting for share-based payment
arrangements and requires all entities to apply a fair value
based measurement method in accounting for share-based payment
transactions with employees except for equity instruments held
by employee share ownership plans.
SFAS 123R applies to all awards granted
after the required effective date (the beginning of the first
annual reporting period after June 15, 2005) and to awards
modified, repurchased, or cancelled after that date. As of the
required effective date, all public entities that used the fair
value based method for either recognition or disclosure under
Statement 123 will apply this Statement using a modified
version of prospective application. Under that transition
method, compensation cost is recognized on or after the required
effective date for the portion of outstanding awards for which
the requisite service has not yet been rendered, based on the
grant-date fair value of those awards calculated under
Statement 123 for either recognition or pro forma
disclosures. For periods before the required effective date,
those entities may elect to apply a modified version of the
retrospective application under which financial statements for
prior periods are adjusted on a basis consistent with the pro
forma disclosures required for those periods by
Statement 123. The Company previously used the minimum
value method under SFAS 123 to calculate the value of its
options and will apply the prospective transition method as of
the required effective date. The Company will continue to
account for the currently outstanding options under APB 25
and will apply the provisions of SFAS 123R prospectively to
new awards and to awards modified, repurchased, or cancelled
after adoption of this statement.
In November 2004, the FASB issued
SFAS No. 151,
Inventory Costs an amendment of
ARB No. 43, Chapter 4
(SFAS No. 151). SFAS No. 151
amends the guidance in ARB No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). SFAS No. 151
requires that those items be recognized as current period
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
charges. In addition, SFAS No. 151
requires that allocation of fixed production overhead to the
costs of inventory be based on the normal capacity of the
production facilities. This new standard is effective for
inventory costs incurred during fiscal years beginning after
June 15, 2005. Earlier application is permitted for
inventory costs incurred during fiscal years beginning after
November 23, 2004. The Company does not anticipate the
adoption of this statement to have a significant impact on its
financial position or results of operations.
In December 2004, the FASB issued Statement
No. 153,
Exchanges of Nonmonetary Assets
, an
amendment of APB Opinion No. 29,
Accounting for
Nonmonetary Transactions
(SFAS No. 153). The amendments made by
SFAS No. 153 are based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the
narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance.
Previously, APB Opinion No. 29 required that the accounting
for an exchange of a productive asset for a similar productive
asset or an equivalent interest in the same or similar
productive asset should be based on the recorded amount of the
asset relinquished. By focusing the exception on exchanges that
lack commercial substance, the Board believes
SFAS No. 153 produces financial reporting that more
faithfully represents the economics of the transactions. This
statement is effective for nonmonetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005. The
Company does not believe the adoption of this new statement will
have a material impact on its financial condition or results of
operations.
In September 2004, the Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue
No. 04-8, The Effect of Contingently Convertible Debt
on Diluted Earnings Per Share, which requires shares
associated with contingently convertible debt instruments with
market price triggers to be included in the computation of
diluted earnings per share (EPS) regardless of
whether the market price trigger has been met. EITF 04-8
also requires that prior period diluted EPS amounts presented
for comparative purposes be restated. EITF 04-8 is
effective for reporting periods ending after December 15,
2004. The Company does not believe the adoption of this new
statement will have a material impact on its financial condition
or results of operations.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current year presentation.
In early 2005 the Company performed a review of
its accounting policies and practices with respect to leases and
vendor rebates. As a result of this internal review, the Company
identified errors in accounting practices associated with
accounting for leasehold improvements impacting depreciation and
vendor rebates and inventory accounting impacting cost of sales.
The restatement increased income from continuing operations by
$0.7 million in 2003 and decreased income from continuing
operations by $0.7 million in 2002.
Property, plant and equipment and
depreciation
The property, plant and equipment and
depreciation (which is included as selling general and
administrative expense in the accompanying consolidated
statements of operations) adjustments related to the Company
amortizing leasehold improvements over terms greater than the
shorter of the estimated useful life or lease term. Statement of
Financial Accounting Standard (SFAS) No. 13,
Accounting for Leases (SFAS 13), as amended,
requires the Company to amortize leasehold improvements over the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
shorter of the estimated useful life of the
assets or the lease term, as defined by SFAS 13, as
amended. These adjustments reduced income from continuing
operations before income taxes by $0.6 million and
$0.7 million for the years ended December 31, 2003 and
2002, respectively.
Inventory and cost of sales
Income tax
Balance sheet
The Company has restated its consolidated
financial statements for the years ended December 31, 2003
and 2002. Following is a summary of the effects of these changes
on the Companys Consolidated Balance Sheet as of
December 31, 2003, as well as the Companys
Consolidated Statements of Operations and Changes in
Shareholders Equity for the years ended December 31,
2003 and 2002.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company has also reduced its
shareholders equity balance as of December 31, 2001,
by $2.7 million. The notes to these consolidated financial
statements have been restated, as applicable, to reflect the
restatement adjustments shown above.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Goodwill
There were no changes in the net carrying amount
of goodwill for the year ended December 31, 2004.
Covenants not to Compete
Estimated intangible amortization expense is
$0.1 million for 2005.
The Company adopted SFAS No. 142
effective January 1, 2002. This standard required the
Company to complete a transitional impairment analysis of its
recorded goodwill and indefinite lived intangible assets and to
record any impairment charge as a change in accounting
principle. This analysis is a two-step process. The first step
requires a comparison of the book value of net assets to the
fair value of the related operations. If the book value exceeds
the fair value, the second step of the test is performed. The
second step requires that the Company determine an estimate of
the implied fair value of goodwill and compare the estimated
implied fair value to the book value of the related goodwill.
The amount of goodwill impairment, if any, would be the
difference between the book value and the estimated implied fair
value of the related goodwill, as determined by the application
of the second step of the impairment test.
The impairment analysis of goodwill is performed
on a market-by-market basis. The Company performed its
transitional impairment analysis as of January 1, 2002. As
a result of the required change in
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
methodology used to evaluate goodwill for
impairment and performing the two-step test required by
SFAS No. 142, the Company determined that its goodwill
balance for certain reporting units was impaired resulting in a
charge of $23.1 million. The impairment charge has been
recorded as a cumulative effect of a change in accounting
principle, net of tax, in the Companys consolidated
statements of operations for 2002.
The Companys reporting units that were
determined to be impaired generated cash flows that did not meet
Company expectations and management does not anticipate cash
flows in the future that would support an implied fair value of
goodwill greater than its adjusted carrying value. Possible
reasons for the short-falls include increased competition, a
reduction in residential home building within the geographic
markets that these reporting units serve, or management issues.
In the case of each reporting unit, fair value was estimated
using the present value of future cash flows.
On August 31, 2000, the Company and certain
of its subsidiaries entered into an agreement to sell on a
non-recourse basis a pool of trade receivables to a wholly owned
bankruptcy-remote special purpose funding subsidiary (the
Funding Subsidiary) of the Company. The Funding
Subsidiary, in turn, sold the trade receivables to a
securitization company. The agreement with the securitization
company expired August 28, 2003 (the Expiration
Date) and the Funding Subsidiary was dissolved. Prior to
the Expiration Date, trade receivables sold to the
securitization company were not reflected on the Companys
consolidated balance sheets and any receivables not sold to the
securitization company were recorded as retained interest in the
receivables portfolio of the Funding Subsidiary.
The Company recognized losses on the accounts
receivable sold to the securitization company based on the fair
value of the receivables sold. The fair value of the retained
interest was determined after considering such factors as loss
history, payment discounts, weighted average life and product
returns. From the inception of the securitization to the
Expiration Date, there were no substantive changes in the
Companys key measurement and valuation assumptions.
Pre-tax losses on these sales, net of servicing fee, totaled
$0.6 million and $2.2 million in 2003 and 2002,
respectively, and were recorded in other expense, net in the
accompanying consolidated statements of operations.
During the tenure of the securitization, the
Company received an annual servicing fee of 0.5% of the
securitized account receivables, which amount is recorded in
other expense, net in the accompanying consolidated statements
of operations. The Company recognized no servicing asset or
liability because the servicing fee represented adequate
compensation for the services performed.
The following table summarizes certain cash flows
received from the securitization vehicle during the years ended
December 31:
Cash flow information:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Managed Portfolio Data:
The table below summarizes information regarding
delinquencies at the end of the period and net credit losses
during 2003 and 2002.
During 2003, the Company developed and executed a
plan to close a facility in Texas and one in South Carolina due
to the locations being unable to sustain a consistent level of
profitability. In conjunction with the plan, the Company began
disposing of assets, severing employees, and pursuing sale of
the related real estate. The Company completed the exit plan
prior to December 31, 2003. During 2003, the Company
recognized approximately $0.5 million in expenses related
to the facility closure, including termination benefits to
severed employees and adjustments to reflect certain asset
balances at net realizable value. The Company also recorded an
impairment charge of approximately $0.6 million to adjust
the carrying value of the real estate related to these
operations to its estimated fair value, less reasonable direct
selling costs. At December 31, 2004 and 2003, the Company
classified the carrying value of the real estate of
$1.4 million as held for sale and is included as a
component of other assets, net in the accompanying consolidated
balance sheets.
During 2001, the Company developed and executed a
plan to close various facilities in Texas, South Carolina, North
Carolina, and Tennessee. The facility closures were partially
due to the Company consolidating locations from separate
acquisitions within certain markets in an attempt to achieve
economies of scale. The facility closures were also due to
certain locations not being able to achieve the desired levels
of profitability. In conjunction with the plan, the Company
began disposing of assets, severing employees, and exiting the
facilities. The Company completed the exit plan on three
facilities prior to December 31, 2002. The Company
recognized certain expenses related to the facility closure,
including the present value of future minimum rental payments,
termination benefits to severed employees, and adjustments to
reflect certain asset balances at net realizable value. During
2002, the Company recorded $0.8 million in expenses related
to the final stages of the exit plan.
Facility closure costs on the accompanying
consolidated statements of operations, consisted of the
following:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
An analysis of the Companys facility
closure reserves for the periods reflected is as follows:
The facility and other exit cost reserves of
$2.7 million at December 31, 2004, of which
$2.4 million is recorded as other long-term liabilities,
are primarily related to future minimum lease payments on
vacated facilities. There were no facility closure costs
incurred in 2004.
During 2003, the Company acquired various
businesses that provide building materials and services
primarily to professional contractors and residential builders
in the United States. The aggregate purchase price (including
final working capital adjustments), consisting of cash
consideration, for these businesses approximated
$4.6 million. Of this amount, $2.1 million was
allocated to goodwill and intangible assets. There were no
acquisitions in 2004.
These acquisitions have been accounted for by the
purchase method, and accordingly the results of operations of
each have been included in the Companys consolidated
financial statements from the respective dates of acquisition.
Under this method, the consideration was allocated to the assets
acquired and liabilities assumed based on the estimated fair
values at the date of acquisition. Any excess of the purchase
price over the estimated fair value of the net assets acquired
and liabilities assumed was recorded as goodwill. Pro forma
results of operations have not been presented due to the
immateriality of the acquisitions.
During 2002, the Company closed a facility in
Colorado as part of a location consolidation in attempt to
achieve certain economies of scale, including reduced operating
costs. The Company recorded $1.2 million in expenses in
2002 for the closure of this facility primarily related to
future minimum lease payments due on the vacated facilities.
This amount is included in income (loss) from discontinued
operations in the accompanying consolidated statements of
operations for 2002.
In September 2003, based upon several factors
including unfavorable market conditions and a poor competitive
position which prevented the Company from generating profitable
results, the Company announced its intent to exit its operations
in Colorado. The cessation of operations in this market has been
treated as a discontinued operation as it had distinguishable
cash flow and operations that have been eliminated from the
on-going Company and the Company will have no further
involvement in this market. The Company completed the exit plan
prior to December 31, 2003.
As a result of the exit plan, in 2003 the Company
recorded an expense of $1.5 million in order to adjust
asset balances to net realizable value, an expense of
$0.2 million related to facility exit costs, and an
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
impairment charge of $1.2 million to
write-off the carrying value of goodwill pertaining to these
operations. The Company also recorded an impairment charge of
approximately $0.4 million to adjust the carrying value of
the real estate and equipment related to these operations to
estimated fair value, less reasonable direct selling costs.
These amounts are included in income (loss) from discontinued
operations in the accompanying consolidated statements of
operations for 2003. As of December 31, 2003, the Company
classified the carrying value of the real estate and equipment
of $1.6 million as held for sale and is included as a
component of other assets, net in the accompanying consolidated
balance sheets.
During 2004, the Company recorded an additional
impairment of approximately $0.2 million for the real
estate based on a revised estimate of fair value. The Company
also favorably settled the outstanding lease obligation and
collected several customer balances that were previously
written-off. The Company reduced expenses by approximately
$0.4 million related to these items. These amounts are
included in income (loss) from discontinued operations in the
accompanying consolidated statements of operations for 2004.
During 2004, the Company sold certain equipment that was held
for sale for cash proceeds of $0.2 million less direct
selling costs. No gain or loss was recorded on the sale as the
net cash proceeds equaled the carrying value of the equipment at
the time of the sale. The Company also transferred approximately
$0.2 million of other equipment that was held for sale to
other locations and reclassified the balances to property, plant
and equipment, net. As of December 31, 2004, the Company
classified the carrying value of the real estate of
$1.0 million as held for sale and is included as a
component of other assets, net in the accompanying consolidated
balance sheets. In March 2005, the Company sold the real estate
for cash proceeds of $1.2 million less direct selling
costs. No gain or loss was recorded on the sale as the net cash
proceeds equaled the carrying value of the real estate at the
time of the sale.
Sales and income (loss) attributable to the
Colorado operations, which are reported as discontinued
operations, are as follows:
The major classes of assets and liabilities of
the discontinued Colorado operations in the consolidated balance
sheets as December 31, 2003 are as follows (in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
An analysis of the Companys reserves
related to the Colorado discontinued operations for the periods
reflected is as follows:
Property, plant and equipment consist of the
following:
Depreciation expense relating to continuing
operations approximated $19.2 million, $19.4 million
(as restated) and $19.3 (as restated), of which
$5.1 million, $4.7 million, and $4.0 million were
included in cost of sales, for 2004, 2003 and 2002, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Accrued liabilities consist of the following:
Long-term debt consists of the following:
On February 25, 2004, the Company entered
into a $405.0 million senior secured credit agreement (the
Credit Agreement) with a syndicate of banks. The
Credit Agreement was initially comprised of a $90.0 million
long-term revolver due February 25, 2009; a
$230.0 million Tranche A term loan due in quarterly
installments of $0.6 million beginning June 30, 2004
and ending March 31, 2009 and quarterly installments of
$54.6 million beginning June 30, 2009 and ending
February 25, 2010; and an $85.0 million Tranche B
term loan due on August 25, 2010. During 2004, the Company
paid down approximately $1.7 million under the term loan
which permanently reduced the borrowing capacity under the
Credit Agreement.
Interest rates under the credit agreement for the
revolving loans and the Tranche A term loan are based on
the prime rate in the United States or LIBOR (plus a margin,
based on leverage ratios, which is currently 1.25% for revolving
loans and 3.0% for the Tranche A term loan), at the
Companys option at the time of borrowing. Interest rates
under the credit agreement for the Tranche B term loan are
based on the prime rate in the United States or LIBOR (plus a
fixed margin, which is 8.50%), at our option at the time of
borrowing provided that the base interest rate shall in no event
be less than 2.0%. The weighted-average
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
interest rate at December 31, 2004 for
borrowings under the Credit Agreement was 6.9%. A variable
commitment fee based on the total leverage ratio is charged on
the unused amount of the revolver (0.375% at December 31,
2004). At December 31, 2004 the available borrowing
capacity of the revolver totaled $73.8 million after being
reduced by outstanding letters of credit of approximately
$16.2 million.
The Credit Agreement is collateralized by all
tangible and intangible property and interest in property and
proceeds thereof now owned or hereafter acquired by the Company
and its wholly-owned subsidiaries. The Credit Agreement also
contains certain restrictive covenants, which, among other
things, relate to the payment of dividends, incurrence of
indebtedness, repurchase of common stock or other distributions,
and asset sales and also require compliance with certain
financial covenants with respect to a maximum total leverage
ratio and a minimum interest coverage ratio. The Company can
also be required to make mandatory prepayments of amounts
outstanding under the Credit Agreement based on the results of
an excess cash flow calculation that must be performed annually
under the terms of the Agreement.
Proceeds from the new Credit Agreement were used
to retire the Companys existing debt facility and to pay a
cash dividend, as discussed in Note 14. In connection with
the refinancing, the Company incurred fees and expenses
aggregating $11.1 million, which are included as a
component of other assets, net on the consolidated balance
sheets at December 31, 2004 and are being amortized over
the term of the Credit Agreement. In addition, the Company
expensed $2.2 million in deferred loan costs in 2004 due to
the early retirement of the prior debt facility. This amount is
included in interest expense in the accompanying consolidated
statements of operations for 2004.
During November of 2003, the Company modified and
extended its credit agreement due to expire in part on
December 30, 2003. The extended credit agreement changed
the expiration date of the revolving credit facility
(Revolver) to December 31, 2004 and increased
its borrowing availability to $175 million from
$150 million. The maturity date for the Tranche B term
loan remained December 30, 2005. In connection with the
extension of the credit agreement, deferred loan costs of
$1.3 million were incurred. These costs are included as a
component of other assets, net on the accompanying consolidated
balance sheets as of December 31, 2003.
The Company paid a commitment fee ranging from
0.325% to 0.50% on the unused amount of the Revolver. Borrowings
under the Revolver bore interest at a rate based on either the
Bank of America base rate or LIBOR plus an additional spread
based upon performance. At December 31, 2003, the Revolver
rates were Bank of America base rate plus 1.5% and LIBOR plus
2.5%. The interest rate on the Tranche B term loan was
based on either the Bank of America base rate plus 2.75% or
LIBOR plus 3.75%. The weighted average interest rates during
2003 on the Revolver, Tranche A term loan and
Tranche B term loan were 5.65%, 4.11% and 4.99%,
respectively.
The Company also has other notes aggregating
$0.2 million and $0.3 million at December 31,
2004 and 2003, respectively, due at various times through 2010.
Subsequent to December 31, 2004, the Company
entered into a new long-term credit agreement. Accordingly,
borrowings under the Credit Agreement have been reclassified to
be consistent with the terms of the new agreement. See
Note 21.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Future maturities of long-term debt as of
December 31, 2004 are as follows (in thousands):
These future maturities reflect the refinancing
of the Companys credit agreement as discussed in
Note 21.
The components of income tax expense from
continuing operations are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Temporary differences, which give rise to
deferred tax assets and liabilities, are as follows:
A reconciliation of the statutory federal income
tax rate to the Companys effective rate is provided below:
The Company has $76.2 million of state
operating loss carryforwards expiring at various dates through
2025.
In assessing the realizability of deferred tax
assets, the Company considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. The Company considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. The Company
concluded that it was appropriate to maintain a valuation
allowance for state net operating losses in certain
jurisdictions where it is more likely than not that the deferred
tax asset will not be realized and accordingly increased the
valuation allowance by $2.4 million during 2004. This
increase was off-set by a reversal of $0.4 million of
valuation allowance related to certain state net operating
losses that were able to be utilized due to a new state
operating structure initiated in 2004.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
During 1998, the Company implemented the Builders
FirstSource, Inc. 1998 Stock Incentive Plan (the
Plan), a stock-based incentive compensation plan. Under
the Plan, the Company is authorized to issue shares of common
stock pursuant to Awards granted in various forms,
including incentive stock options (intended to qualify under
Section 422 of the Internal Revenue Code of 1986 (as
amended)), non-qualified stock options and other stock-based
awards. The Plan also authorizes the sale of common stock on
terms determined by the Companys board of directors.
The Company had notes receivable from employees
aggregating $0.2 million at December 31, 2003 in
connection with the issuance of common stock under the Plan.
These notes were repaid in 2004. As of December 31, 2004,
there were 6.4 million shares authorized and
1.1 million shares available for issuance.
Options to purchase shares of common stock
generally cliff vest after a period of seven to nine years. A
portion of certain option grants are subject to acceleration if
certain financial targets are met. These financial targets
include return on net assets and earnings before interest,
taxes, depreciation, and amortization. These targets are based
on the performance of the operating group in which the employee
performs their responsibilities and the performance of the
Company as a whole for employees whose job responsibilities
cover all of the company. The expiration date is generally
ten years subsequent to date of issuance. To date, these
targets have generally been met. The Company recognized a tax
benefit of $0.1 million in 2004 related to the tax
deduction from option exercises. This amount was recorded as an
increase to additional paid-in capital.
On February 25, 2004, the Companys
board of directors declared a special cash dividend of
$5.56 per common share, or $139.6 million to
shareholders of record as of February 25, 2004. The Company
fully reduced retained earnings by $48.0 million and
reduced additional paid-in capital by $91.6 million for the
remainder of the dividend. As a result of the special dividend,
the board of directors exercised its discretion under the
anti-dilution provisions of the employee stock plan to adjust
the exercise price of stock options to reflect the change in the
share price on the dividend date. The Company did not record any
expense related to adjustment of the exercise price as the
modification did not increase the aggregate intrinsic value of
any award and the ratio of the exercise price per share to the
market value per share was not reduced.
Approximately $0.4 million was also paid to
certain option holders whose exercise price could not be
adjusted for the dividend. The cash payment to these option
holders was expensed and is included in selling, general, and
administrative expenses in the accompanying consolidated
statements of operations for 2004.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A summary of the status of the Companys
stock options as of December 31, 2004, 2003 and 2002 and
the changes during the periods including the effect of the
anti-dilution adjustment is presented below:
The minimum value of each stock option granted is
estimated on the date of grant using a Black-Scholes
option-pricing model. The following weighted-average assumptions
were used for grants during 2004, 2003 and 2002: expected
term six years; expected volatility 0.00%; expected
dividend yield 0.00%; and risk-free rate 3.01%,
3.12% and 4.37%, respectively. No adjustment was made for
non-transferability or risk of forfeitures.
The following table summarizes information about
employee stock options outstanding at December 31, 2004
(options are in thousands):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company maintains one active defined
contribution 401(k) plan as discussed below:
Employees of the Company are eligible after
completing six months of employment to participate in the
Builders FirstSource, Inc. 401(k) Plan. Participants can
contribute up to 15% of their annual compensation, subject to
federally mandated maximums. The Company will match 50% of
employee contributions up to 6% of employee contributions. The
Companys matching contributions are subject to a pro-rata
five-year vesting schedule.
The Company recognized expense of
$3.6 million, $3.0 million and $3.2 million in
2004, 2003 and 2002, respectively, for contributions to the plan.
The Company leases certain land, buildings and
equipment used in operations. These leases are accounted for as
operating leases with terms ranging from one to twenty years and
generally contain renewal options. Certain operating leases are
subject to contingent rentals based on various measures. Total
rent expense under operating leases was approximately
$28.7 million, $25.9 million and $25.3 million
for the years ended December 31, 2004, 2003 and 2002,
respectively.
In addition, the Company has residual value
guarantees on certain equipment leases. Under these leases the
Company has the option of (a) purchasing the equipment at
the end of the lease term at its then fair market value,
(b) arranging for the sale of the equipment to a third
party, or (c) returning the equipment to the lessor to sell
the equipment. If the sales proceeds in either case are less
than the residual value, the Company is required to reimburse
the lessor for the deficiency up to a specified level as stated
in each lease agreement. If the sales proceeds exceed the
residual value, the Company is entitled to all of such excess
amounts. The guarantees under these leases for the residual
values of equipment at the end of the respective operating lease
periods approximated $10.8 million as of December 31,
2004. Based upon the expectation that none of these leased
assets will have a residual value at the end of the lease term
that is materially less than the value specified in the related
operating lease agreement or that the Company will purchase the
equipment at the end of the lease term, the Company does not
believe it is probable that it will be required to fund any
amounts under the terms of these guarantee arrangements.
Accordingly, no accruals have been recognized for these
guarantees.
Future minimum commitments for noncancelable
operating leases with initial or remaining lease terms in excess
of one year are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company is 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 materially adverse effect on the
consolidated financial position, cash flows or operations of the
Company.
During 2001, the Company entered into a
termination agreement (the Agreement) with a former
senior executive (the Executive). As part of the
Agreement, the Company agreed to repurchase from the Executive
approximately 210,000 shares of Company common stock at
estimated fair market value of $2.1 million. The Agreement
provided for 77,000 shares to be repurchased upon execution
of the Agreement with the remaining shares to be repurchased
ratably over a 24-month period. At December 31, 2003, all
obligations under the Agreement had been fulfilled by the
Company.
In 2004, 2003 and 2002, the Company paid
approximately $2.4 million, $3.3 million and
$3.2 million, respectively, in rental expense to
shareholders of the Company for leases of land and buildings.
In 2004, 2003 and 2002, the Company paid JLL
Partners approximately $0.3 million for certain
out-of-pocket expenses incurred. These amounts are recorded in
selling, general, and administrative expenses.
The Company maintains cash at financial
institutions in excess of federally insured limits. Accounts
receivable potentially expose the Company to concentrations of
credit risk. The Company provides credit in its normal course of
business to customers in the residential construction industry.
The Company performs ongoing credit evaluations of its customers
and maintains allowances for potential credit losses.
Because customers are dispersed among the
Companys various markets, its credit risk to any one
customer or state economy is not significant.
Sales by product category for the years ended
December 31, 2004, 2003 and 2002 were as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Cash flows from operating activities included
cash payments as follows:
On February 11, 2005, the Company entered
into a $350.0 million senior secured credit facility with a
syndicate of banks. The senior secured credit facility is
comprised of a $110.0 million long-term revolver due
February 11, 2010; a $225.0 million term loan due in
quarterly installments of $0.6 million beginning
June 30, 2005 and ending June 30, 2011 and a final
payment of $210.9 million on August 11, 2011; and a
$15.0 million prefunded letter of credit facility due
August 11, 2011.
Interest rates on loans under the credit
agreement are based on the base rate of interest determined by
the administrative agent rate in the United States or LIBOR
(plus a margin, based on leverage ratios, which is currently
1.50% for base rate revolving loans and 2.50% for term loans),
at the Companys option at the time of borrowing. A
variable commitment fee (currently 0.50%) based on the total
leverage ratio is charged on the unused amount of the revolving
loan commitment.
The senior secured credit facility is
collateralized by all tangible and intangible property and
interest in property and proceeds thereof now owned or hereafter
acquired by the Company and its wholly-owned subsidiaries. The
credit facility also contains certain restrictive covenants,
which, among other things, relate to the payment of dividends,
incurrence of indebtedness, repurchase of common stock or other
distributions, and asset sales and also require compliance with
certain financial covenants with respect to a maximum total
leverage ratio and a minimum interest coverage ratio. The
Company can be required to make mandatory prepayments of amounts
outstanding under the agreement based on the results of an
excess cash flow calculation that must be performed annually
under the terms of the facility.
On February 11, 2005, the Company also
issued $275.0 million in aggregate principal amount of
floating rate notes. The floating rate notes mature on
February 15, 2012. Interest accrues at a rate of LIBOR plus
4.25%. LIBOR is reset at the beginning of each quarter. Interest
on the floating rate notes is payable quarterly in arrears
beginning May 15, 2005. At any time on or after
February 15, 2007, the Company can redeem some or all of
the notes at a redemption price equal to par plus a specified
premium that declines ratably to par. At any time before
February 15, 2007, the Company can redeem the notes, in
whole or in part, at a redemption price equal to par, plus a
make whole premium. The Company may also redeem up to 35% of the
aggregate principal amount of the notes with the proceeds of
certain equity offerings any time before February 15, 2007.
In the event of a change in control, the Company may be required
to offer to purchase the notes at a purchase price equal to 101%
of the principal, plus accrued and unpaid interest.
The notes are secured by a second priority lien
on all tangible and intangible property and interest in property
and proceeds thereof now owned or hereafter acquired by the
Company and its wholly-owned subsidiaries. The indenture
covering the notes contains certain restrictive covenants,
which, among other
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
things, relate to the payment of dividends,
incurrence of indebtedness, repurchase of common stock or other
distributions, asset sales, and investments.
Proceeds from the new senior secured credit
agreement and the issuance of the floating rate notes were used
to retire the Companys existing debt facility, pay a cash
dividend to shareholders of $8.00 per share, or
$201.2 million, and make a cash payment of approximately
$35.8 million to stock option holders in-lieu of adjusting
the exercise price. In connection with the refinancing, the
Company incurred estimated fees and expenses aggregating
$21.1 million and paid a $1.7 million early
termination penalty related to the prepayment of the
Tranche B term loan under the prior credit facility. The
Company had approximately $9.3 million in unamortized
deferred loan costs remaining at the refinancing date related to
the prior credit facility. In the first quarter of 2005, the
total cash payment to option holders and the termination penalty
related to the prepayment of the Tranche B term loan were
expensed and recorded as stock compensation expense and a
component of interest expense, respectively. Also, based on the
final syndicate of banks, the Company expensed approximately
$7.3 million of the unamortized deferred financing costs
related to the prior credit facility and approximately
$2.4 million of costs incurred in connection with the
refinancing. These costs were recorded as interest expense. The
remaining $2.0 million of unamortized deferred financing
costs related to the prior credit facility and
$18.7 million of costs incurred in connection with the
refinancing will be included as a component of other assets, net
and amortized over the terms of the new senior secured credit
facility and floating rate notes.
On May 24, 2005, the board of directors
recommended and the Companys shareholders approved a
1-for-10 reverse stock split of the Companys common stock.
After the reverse stock split effective
May 24, 2005, each holder of record held one share of
common stock for every 10 shares held immediately prior to
the effective date. As a result of the reverse stock split, the
board of directors also exercised its discretion under the
anti-dilution provisions of the employee stock plan to adjust
the number of shares underlying stock options and the related
exercise prices to reflect the change in the share price and
outstanding shares on the date of the reverse stock split. The
effect of fractional shares is not material.
Following the effective date of the reverse stock
split, the par value of the common stock remained at
$.01 per share. As a result, the Company has reduced the
common stock in the accompanying consolidated balance sheets and
statements of changes in stockholders equity on a
retroactive basis for all periods presented, with a
corresponding increase to additional paid-in capital. All share
and per-share amounts and related disclosures have also been
retroactively adjusted for all periods presented to reflect the
1-for-10 reverse stock split.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Builders FirstSource, Inc. and
Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
The accompanying notes are an integral part of
these condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE
SHEETS
The accompanying notes are an integral part of
these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
The accompanying notes are an integral part of
these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY (DEFICIT)
The accompanying notes are an integral part of
these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
Builders FirstSource, Inc. and subsidiaries (the
Company) is a leading provider of manufactured
components, building materials and construction services to
professional homebuilders and contractors in the United States.
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 and its
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.
These unaudited condensed consolidated financial
statements should be read in conjunction with the more detailed
audited consolidated financial statements for the years ended
December 31, 2004, 2003, and 2002. Accounting policies used
in the preparation of these unaudited condensed consolidated
financial statements are consistent in all material respects
with the accounting policies described in the Notes to
Consolidated Financial Statements.
Accounting Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period.
Actual results could materially differ from those estimates.
Estimates are used when accounting for items such
as revenue, vendor rebates, allowance for returns, discounts and
doubtful accounts, employee compensation programs, depreciation
and amortization periods, taxes, inventory values, insurance
programs, goodwill, other intangible assets and long-lived
assets.
Net Income (Loss) Per Common Share
Net income (loss) 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 common stock equivalents. Options to
purchase 4.5 million shares of common stock
outstanding at March 31, 2004 were included in the
computation of diluted EPS. Options to
purchase 4.5 million shares of common stock
outstanding at March 31, 2005, were not included in the
computation of diluted EPS because their effect would have been
anti-dilutive.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited) (continued)
The table below presents a reconciliation of
weighted average common shares, in thousands, used in the
calculation of basic and diluted EPS:
Stock Compensation
The Company applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and related
interpretations in accounting for employee stock-based
compensation costs related to its stock incentive plan.
APB 25 is an intrinsic value approach for measuring
stock-based compensation costs. SFAS No. 123,
Accounting for Stock-Based Compensation, is a fair
value approach for measuring stock-based compensation costs.
Had the compensation cost for the Companys
stock-based compensation been determined in accordance with
SFAS No. 123, the Companys net income (loss) and
net income (loss) per share for the three month periods ended
March 31, 2005 and 2004 would approximate the pro forma
amounts below:
The effects of applying SFAS No. 123 in
this pro forma disclosure may not be indicative of future
results.
Recently Issued Accounting
Pronouncements
In December 2004, the FASB issued Staff Position
109-1 (FSP 109-1), Application of FASB Statement
No. 109 (FASB No. 109), Accounting
for Income Taxes, to the Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act
of 2004. FSP 109-1 clarifies guidance that applies to the new
deduction for qualified domestic production activities. When
fully phased-in, the deduction will be up to 9% of the lesser of
qualified production activities income or taxable
income. FSP 109-1 clarifies that the deduction should be
accounted for as a special deduction under FASB No. 109 and
will reduce tax expense in the period or periods that the
amounts are deductible on the tax return. Any tax benefits
resulting from the new deduction will be effective for the
Companys fiscal year ending December 31, 2005. The
Company is currently reviewing the effect of FSP 109-1 on its
consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited) (continued)
In March 2005, the Securities and Exchange
Commission released SEC Staff Accounting Bulletin
(SAB) No. 107,
Share-Based Payment
.
SAB No. 107 provides the SEC staff position regarding
the application of SFAS No. 123(R). SAB No. 107
contains interpretive guidance related to the interaction
between SFAS No. 123(R) and certain SEC rules and
regulations, as well as provides the staffs views
regarding the valuation of share-based payment arrangements for
public companies. SAB No. 107 also highlights the
importance of disclosures made related to the accounting for
share-based payment transactions. The Company is currently
reviewing the effect of SAB No. 107 on its
consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current year presentation.
On February 11, 2005, the Companys
board of directors declared a special cash dividend of
$8.00 per common share, or $201.2 million to
shareholders of record as of February 11, 2005. The Company
fully reduced retained earnings and additional paid in capital
to zero by $26.4 million and $160.2 million,
respectively. The remainder of the dividend reduced retained
earnings by $14.6 million. The Company also made a cash
payment of $35.8 million to stock option holders in-lieu of
adjusting the exercise price. This payment, plus applicable
payroll taxes of $0.6 million, was recorded as stock
compensation expense in the accompanying unaudited condensed
consolidated statements of operations for the three months ended
March 31, 2005.
On February 25, 2004, the Companys
board of directors declared a special cash dividend of
$5.56 per common share, or $139.6 million to
shareholders of record as of February 25, 2004. The Company
fully reduced retained earnings by $48.0 million and
reduced additional paid-in capital by $91.6 million for the
remainder of the dividend. As a result of the special dividend,
the board of directors exercised its discretion under the
anti-dilution provisions of the employee stock plan to adjust
the exercise price of stock options to reflect the change in the
share price on the dividend date. The Company did not record any
expense related to adjustment of the exercise price as the
modification did not increase the aggregate intrinsic value of
any award and the ratio of the exercise price per share to the
market value per share was not reduced.
Approximately $0.4 million was also paid to
certain option holders whose exercise price could not be
adjusted for the dividend. The cash payment to these option
holders was expensed and is included in as stock compensation
expense in the accompanying unaudited condensed consolidated
statements of operations for the three month period ended
March 31, 2004.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited) (continued)
Long-term debt consists of the following:
2005 Senior Secured Credit Agreement
On February 11, 2005, the Company entered
into a $350.0 million senior secured credit agreement (the
2005 Agreement) with a syndicate of banks. The 2005
Agreement is comprised of a $110.0 million long-term
revolver due February 11, 2010; a $225.0 million term
loan due in quarterly installments of $0.6 million
beginning June 30, 2005 and ending June 30, 2011 and a
final payment of $210.9 million on August 11, 2011;
and a $15.0 million prefunded letter of credit agreement
due August 11, 2011.
Interest rates under the 2005 Agreement for the
revolving loans and the term loan are based on the rate of
interest determined by the administrative agent rate in the
United States or LIBOR (plus a margin, based on leverage ratios,
which is 1.50% for base rate revolving loans and 2.50% for term
loans at March 31, 2005), at the Companys option at
the time of borrowing. A variable commitment fee (currently
0.50%) based on the total leverage ratio is charged on the
unused amount of the revolver. The weighted-average interest
rate at March 31, 2005 for borrowings under the 2005
Agreement was 5.49%. At March 31, 2005, the available
borrowing capacity of the revolver totaled $83.8 after being
reduced by outstanding letters of credit of approximately
$16.2 million and borrowings under the long-term revolver
of $10.0 million.
The 2005 Agreement is collateralized by all
tangible and intangible property and interest in property and
proceeds thereof now owned or hereafter acquired by the Company
and its wholly-owned subsidiaries. The 2005 Agreement also
contains certain restrictive covenants, which, among other
things, relate to the payment of dividends, incurrence of
indebtedness, repurchase of common stock or other distributions,
and asset sales and also require compliance with certain
financial covenants with respect to a maximum total leverage
ratio and a minimum interest coverage ratio. The Company can be
required to make mandatory prepayments of amounts outstanding
under the agreement based on the results of an excess cash flow
calculation that must be performed annually under the terms of
the agreement.
Second Priority Senior Secured Floating Rate
Notes
On February 11, 2005, the Company issued
$275.0 million in aggregate principal amount of floating
rate notes. The floating rate notes mature on February 15,
2012. Interest accrues at a rate of LIBOR plus
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited) (continued)
4.25%. LIBOR is reset at the beginning of each
quarterly period. Interest on the floating rate notes is payable
quarterly in arrears beginning May 15, 2005. The
weighted-average interest rate at March 31, 2005 for the
floating rate notes was 7.02%. At any time on or after
February 15, 2007, the Company can redeem some or all of
the notes at a redemption price equal to par plus a specified
premium that declines ratably to par. At any time before
February 15, 2007, the Company can redeem the notes, in
whole or in part, at a redemption price equal to par, plus a
make whole premium. The Company may also redeem up to 35% of the
aggregate principal amount of the notes with the proceeds of
certain equity offerings any time before February 15, 2007.
In the event of a change in control, the Company may be required
to offer to purchase the notes at a purchase price equal to 101%
of the principal, plus accrued and unpaid interest.
The notes are secured by a second priority lien
on all tangible and intangible property and interest in property
and proceeds thereof now owned or hereafter acquired by the
Company and its wholly-owned subsidiaries. The indenture
covering the notes contains certain restrictive covenants,
which, among other things, relate to the payment of dividends,
incurrence of indebtedness, repurchase of common stock or other
distributions, asset sales, and investments.
In April 2005, the Company entered into an
interest rate swap in order to obtain a fixed rate with respect
to $100 million of the Companys outstanding floating
rate debt and thereby reduce the Companys exposure to
interest rate volatility. The swap will fix $100 million of
the Companys outstanding debt at an interest rate of 4.12%
for three years starting July 1, 2005. The Companys
effective interest rate of the swap will also include the
applicable margin payable under its debt agreement.
2004 Senior Secured Credit Agreement
Interest rates under the 2004 Agreement for the
revolving loans and the Tranche A term loan were based on
the prime rate in the United States or LIBOR (plus a margin, or
LIBOR spread, based on leverage ratios, which were
1.25% for revolving loans and 3.0% for the Tranche A term
loan at December 31, 2004), at the Companys option at
the time of borrowing. Interest rates under the credit agreement
for the Tranche B term loan were based on the prime rate in
the United States or LIBOR (plus a fixed margin, or LIBOR
spread, which was 8.50%), at our option at the time of
borrowing provided that the base interest rate shall in no event
be less than 2.0%. The weighted-average interest rate at
December 31, 2004 for borrowings under the 2004 Agreement
was 6.9%. A variable commitment fee based on the total leverage
ratio was charged on the unused amount of the revolver (0.375%
at December 31, 2004). At December 31, 2004 the
available borrowing capacity of the revolver totaled
$73.8 million after being reduced by outstanding letters of
credit of approximately $16.2 million.
Other Notes
Proceeds from the 2005 Agreement and the issuance
of the floating rate notes were used to retire the
Companys 2004 Agreement. The proceeds were also used to
pay a cash dividend to shareholders of $201.2 million and
make a cash payment of approximately $35.8 million to stock
option holders in lieu of
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited) (continued)
adjusting the exercise price, as discussed in
Note 2. In connection with the refinancing, the Company incurred
estimated fees and expenses aggregating $21.1 million and
paid a $1.7 million early termination penalty related to
the prepayment of the Tranche B term loan under the 2004
Agreement. The Company had approximately $9.3 million in
unamortized deferred loan costs remaining at the refinancing
date related to the 2004 Agreement. In the first quarter of
2005, the termination penalty related to the prepayment of the
Tranche B term loan was expensed and recorded as a component of
interest expense. Also, based on the final syndicate of banks,
the Company expensed approximately $7.3 million of the
unamortized deferred financing costs related to the 2004
Agreement and approximately $2.4 million of costs incurred
in connection with the refinancing. These costs were recorded as
interest expense. The remaining $2.0 million of unamortized
deferred financing costs related to the 2004 Agreement and
$18.7 million of costs incurred in connection with the
refinancing are included as a component of other assets, net and
are being amortized over the terms of the 2005 Agreement and
floating rate notes.
Proceeds from the 2004 Agreement were used to
retire the Companys then existing debt facility and to pay
a cash dividend, as discussed in Note 2. In connection with the
refinancing, the Company incurred fees and expenses aggregating
$11.1 million, which were included as a component of other
assets, net on the consolidated balance sheets at
December 31, 2004 and were being amortized over the terms
of the 2004 Agreement. In addition, the Company expensed $2.2
million in deferred loan costs in 2004 due to the early
retirement of the prior debt facility. This amount is included
in interest expense in the accompanying condensed consolidated
statements of operations for 2004.
Future maturities of long-term debt as of
March 31, 2005 are as follows (in thousands):
4. COMMITMENTS
AND CONTINGENCIES
The Company is 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 materially adverse effect on the
consolidated financial position, cash flows or operations of the
Company. However, there can be no assurances that future costs
would not be material to the results of operations or liquidity
of the Company for a particular period.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited) (continued)
5. SALES BY
PRODUCT CATEGORY
Sales by product category for the three months
ended March 31, 2005 and 2004 were as follows:
6. SUBSEQUENT
EVENT
On May 24, 2005, our board of directors and
the Companys stockholders approved a 1-for-10 reverse
stock split of the Companys common stock.
After the reverse stock split, effective
May 24, 2005, each holder of record held one share of
common stock for every 10 shares held immediately prior to
the effective date. As a result of the reverse stock split, the
board of directors also exercised its discretion under the
anti-dilution provisions of our 1998 Stock Incentive Plan to
adjust the number of shares underlying stock options and the
related exercise prices to reflect the change in the share price
and outstanding shares on the date of the reverse stock split.
The effect of fractional shares is not material.
Following the effective date of the reverse stock
split, the par value of the common stock remained at $0.01 per
share. As a result, the Company has reduced the common stock in
the unaudited condensed consolidated balance sheets and
statements of changes in shareholders equity (deficit)
included herein on a retroactive basis for all periods
presented, with a corresponding increase to additional paid-in
capital. All share and per-share amounts and related disclosures
have also been retroactively adjusted for all periods presented
to reflect the 1-for-10 reverse stock split.
Through and
including ,
2005 (the 25th day after the date of this prospectus), federal
securities law may require all dealers that effect transactions
in our common stock, whether or not participating in this
offering, to deliver a prospectus. This requirement is in
addition to the dealers obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Builders FirstSource, Inc.
Common Stock
,
2005
/s/ PRICEWATERHOUSECOOPERS LLP
Year ended December 31,
2004
2003
2002
(in thousands, except per share amounts)
Restated
Restated
$
2,058,047
$
1,675,093
$
1,500,006
1,574,535
1,300,410
1,155,375
483,512
374,683
344,631
376,096
327,027
308,060
1,171
750
107,416
46,485
35,821
620
2,220
24,458
11,124
12,055
82,958
34,741
21,546
31,480
13,343
8,611
51,478
21,398
12,935
103
(3,822
)
(2,980
)
(19,504
)
$
51,581
$
17,576
$
(9,549
)
$
2.05
$
0.85
$
0.51
(0.15
)
(0.12
)
(0.77
)
$
2.05
$
0.70
$
(0.38
)
$
1.93
$
0.85
$
0.51
(0.15
)
(0.12
)
(0.77
)
$
1.93
$
0.70
$
(0.38
)
25,135
25,204
25,363
26,714
25,252
25,411
Year Ended December 31,
2004
2003
2002
(In thousands)
Restated
Restated
$
51,581
$
17,576
$
(9,549
)
19,350
20,187
20,745
3,986
1,954
2,065
2,125
3,148
81
19,504
3,101
2,361
2,032
871
(159
)
3,598
1,653
(537
)
(975
)
(1,601
)
(9,357
)
(145,448
)
17,012
63,397
(34,409
)
(15,306
)
(16,139
)
14,788
372
628
68
1,469
492
1,789
28,600
1,109
10,515
9,160
7,079
3,837
94,385
(40,162
)
48,530
(20,718
)
(15,592
)
(15,061
)
2,046
7,115
6,401
(4,563
)
(1,651
)
(18,672
)
(13,040
)
(10,311
)
(68,900
)
61,400
(9,800
)
(101,153
)
315,000
(22,573
)
(14,504
)
(11,128
)
(1,340
)
(139,592
)
38
6
10
(351
)
(1,451
)
(1,805
)
196
13
98
(24,780
)
20,484
(13,279
)
(30,670
)
56,539
(39,280
)
45,043
3,337
(1,061
)
5,585
2,248
3,309
$
50,628
$
5,585
$
2,248
Stock
Common Stock
Additional
purchase
Paid-In
Loans
Retained
Shares
Amount
Capital
receivable
earnings
Total
(in thousands, except share amounts)
25,377,453
$
254
$
254,267
$
(307
)
$
41,529
$
295,743
(2,708
)
(2,708
)
25,377,453
$
254
$
254,267
$
(307
)
$
38,821
$
293,035
100,000
1
999
1,000
3,489
10
10
(180,518
)
(2
)
(1,803
)
(1,805
)
98
98
(9,549
)
(9,549
)
25,300,424
$
253
$
254,473
$
(209
)
$
29,272
$
282,789
600
6
6
(145,168
)
(1
)
(1,450
)
(1,451
)
13
13
17,576
17,576
25,155,856
$
252
$
252,029
$
(196
)
$
46,848
$
298,933
27,372
123
123
(35,015
)
(1
)
(350
)
(351
)
(91,589
)
(48,003
)
(139,592
)
196
196
51,581
51,581
25,148,213
$
251
$
160,213
$
$
50,426
$
210,890
1.
DESCRIPTION OF BUSINESS
2.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
2004
2003
(in thousands)
Restated
$
216,521
$
210,488
13,039
12,105
229,560
222,593
6,318
5,738
$
223,242
$
216,855
15 to 40 years
3 to 10 years
3 to 5 years
The shorter of the estimated useful life or the
remaining lease term, as defined by SFAS 13, as amended.
Year ended December 31,
2004
2003
2002
25,135
25,204
25,363
1,579
48
48
26,714
25,252
25,411
2004
2003
2002
(in thousands, except per share amounts)
Restated
Restated
$
51,581
$
17,576
$
(9,549
)
(924
)
(877
)
(872
)
$
50,657
$
16,699
$
(10,421
)
$
2.05
$
0.70
$
(0.38
)
$
2.02
$
0.66
$
(0.41
)
$
1.93
$
0.70
$
(0.38
)
$
1.90
$
0.66
$
(0.41
)
3.
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS
Year ended or at December 31, 2003
Year ended or at December 31, 2002
As
As
Previously
As
Previously
As
reported
Adjustments
Restated
Reported
Adjustments
Restated
(in thousands)
$
1,301,728
$
(1,318
)
$
1,300,410
$
1,155,369
$
6
$
1,155,375
373,365
1,318
374,683
344,637
(6
)
344,631
326,419
608
327,027
307,317
743
308,060
45,775
710
46,485
36,570
(749
)
35,821
34,031
710
34,741
22,295
(749
)
21,546
13,048
295
13,343
8,955
(344
)
8,611
20,983
415
21,398
13,340
(405
)
12,935
17,161
415
17,576
(9,144
)
(405
)
(9,549
)
$
0.83
$
0.02
$
0.85
$
0.53
$
(0.02
)
$
0.51
$
0.68
$
0.02
$
0.70
$
0.52
$
(0.01
)
$
0.51
$
0.83
$
0.02
$
0.85
$
(0.36
)
$
(0.02
)
$
(0.38
)
$
0.68
$
0.02
$
0.70
$
(0.36
)
$
(0.02
)
$
(0.38
)
$
214,855
$
2,000
$
216,855
125,152
(2,600
)
122,552
13,820
225
14,045
89,399
(3,658
)
85,741
626,161
(4,033
)
622,128
9,369
(1,335
)
8,034
324,530
(1,335
)
323,195
49,546
(2,698
)
46,848
301,631
(2,698
)
298,933
626,161
(4,033
)
622,128
$
49,546
$
(2,698
)
$
46,848
$
32,385
$
(3,113
)
$
29,272
17,161
415
17,576
(9,144
)
(405
)
(9,549
)
4.
GOODWILL AND COVENANTS NOT TO
COMPETE
$
162,080
2,131
(1,181
)
$
163,030
(1)
See Note 9 related to discontinued
operations.
Net
Carrying
Accumulated
carrying
amount
amortization
amount
$
5,362
$
(4,567
)
$
795
237
237
(818
)
(818
)
5,599
(5,385
)
214
67
67
(159
)
(159
)
(5,184
)
5,184
$
482
$
(360
)
$
122
5.
CHANGE IN ACCOUNTING PRINCIPLE
6.
SECURITIZATION OF TRADE RECEIVABLES
2003
2002
(in thousands)
$
69,000
$
49,000
332,738
419,126
534,927
958,667
For the year ended
December 31,
December 31,
2003
2002
2003
(in thousands)
$
1,905
$
4,361
n/a
n/a
n/a
5.7
%
7.
FACILITY CLOSURE COSTS
For the year
ended
2003
2002
(in thousands)
$
43
$
491
193
135
899
73
36
51
$
1,171
$
750
December 31,
December 31,
December 31,
2002
Additions
Payments
2003
Additions
Payments
2004
(in thousands)
$
3,784
$
43
$
(562
)
$
3,265
$
175
$
(793
)
$
2,647
193
(126
)
67
50
(75
)
42
301
36
(337
)
$
4,085
$
272
$
(1,025
)
$
3,332
$
225
$
(868
)
$
2,689
8.
ACQUISITIONS
9.
DISCONTINUED OPERATIONS
Year ended December 31,
2004
2003
2002
(in thousands)
$
$
25,600
$
32,943
159
(5,880
)
(4,585
)
December 31,
2003
$
206
678
45
1,629
2,558
1,021
559
1,580
$
978
December 31,
December 31,
December 31,
2002
Additions
Payments
2003
Additions
Payments
Adjustments
2004
(in thousands)
$
894
$
128
$
(301
)
$
721
$
$
(363
)
$
(358
)
$
55
55
(55
)
36
36
(21
)
15
$
894
$
219
$
(301
)
$
812
$
$
(439
)
$
(358
)
$
15
10.
PROPERTY, PLANT AND EQUIPMENT
December 31,
2004
2003
(in thousands)
Restated
$
13,324
$
12,291
45,836
41,268
85,644
80,806
29,486
27,767
5,060
1,042
179,350
163,174
(91,864
)
(77,433
)
$
87,486
$
85,741
11.
ACCRUED LIABILITIES
December 31,
2004
2003
(in thousands)
$
25,234
$
21,759
12,956
10,927
9,149
8,047
2,862
930
2,185
319
1,245
629
1,186
5,529
3,756
$
58,863
$
47,850
12.
LONG-TERM DEBT
December 31,
2004
2003
(in thousands)
$
228,275
$
85,000
99,358
68,900
205
275
313,480
168,533
1,688
1,731
$
311,792
$
166,802
$
1,688
2,250
2,250
2,250
2,250
302,792
$
313,480
13.
INCOME TAXES
2004
2003
2002
(in thousands)
Restated
Restated
$
25,380
$
12,151
$
7,795
4,669
968
749
$
30,049
$
13,119
$
8,544
2,229
(74
)
197
(798
)
298
(130
)
1,431
224
67
$
31,480
$
13,343
$
8,611
December 31,
2004
2003
(in thousands)
Restated
$
6,520
$
8,832
2,448
1,437
4,925
3,757
3,339
1,206
17,232
15,232
(3,137
)
(1,187
)
14,095
14,045
9,462
6,013
747
2,021
10,209
8,034
$
3,886
$
6,011
2004
2003
2002
Restated
Restated
35.0
%
35.0
%
35.0
%
3.0
%
2.5
%
2.7
%
(0.1)
%
0.9
%
2.3
%
37.9
%
38.4
%
40.0
%
14.
EMPLOYEE STOCK BASED COMPENSATION
Number of shares
Weighted average
underlying options
exercise price
(in thousands)
3,011
$
9.74
69
10.00
(4
)
2.50
(100
)
10.00
2,976
9.74
160
10.00
(1
)
10.00
(88
)
10.00
3,047
9.75
1,513
3.15
(27
)
1.44
(29
)
3.15
4,504
3.11
$
2.30
$
1.79
$
0.54
Options Outstanding
Options Exercisable
Weighted Average
Weighted
Outstanding at
Remaining
Exercisable at
Average
December 31,
Exercise
Contractual
December 31,
Exercise
Range of Exercise Prices
2004
Price
Life
2004
Price
80
$
1.13
4.00
80
$
1.13
4,424
$
3.15
7.46
2,408
$
3.15
4,504
$
3.11
7.40
2,488
$
3.09
15.
EMPLOYEE BENEFIT PLANS
16.
COMMITMENTS AND CONTINGENCIES
Related party
Total*
(in thousands
$
2,080
$
31,072
2,078
23,768
2,151
21,596
1,942
19,654
1,830
16,449
5,658
60,125
$
15,739
$
172,664
*
Includes related party future minimum
commitments for noncancelable operating leases.
17.
RELATED PARTY TRANSACTIONS
18.
CONCENTRATIONS
19.
SALES BY PRODUCT CATEGORY
2004
2003
2002
(in thousands)
$
815,295
$
593,693
$
515,387
391,199
354,584
325,170
385,938
303,449
257,349
175,957
158,680
151,148
289,658
264,687
250,952
$
2,058,047
$
1,675,093
$
1,500,006
20.
SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31,
2004
2003
2002
(in thousands)
$
20,681
$
9,445
$
11,644
26,953
9,941
6,268
$
2,185
$
$
21.
SUBSEQUENT EVENT - RECAPITALIZATION
22.
SUBSEQUENT EVENT - REVERSE STOCK
SPLIT
Three Months Ended
March 31,
2005
2004
(unaudited)
(unaudited)
(in thousands, except
per share amounts)
$
509,342
$
429,354
388,407
333,577
120,935
95,777
96,902
82,513
36,364
437
(12,331
)
12,827
19,204
6,506
(31,535
)
6,321
(12,675
)
2,433
(18,860
)
3,888
246
$
(18,860
)
$
4,134
$
(0.75
)
$
0.15
0.01
$
(0.75
)
$
0.16
25,148
25,138
25,148
25,633
Three months ended
March 31,
2005
2004
(unaudited)
(unaudited)
(in thousands)
$
(18,860
)
$
4,134
4,712
4,823
10,365
2,549
1,406
1,129
688
(379
)
(75
)
(77
)
(28,099
)
(6,209
)
(14,066
)
(6,090
)
(235
)
243
514
(377
)
34,583
45,067
(59
)
(4,943
)
(8,685
)
39,429
(5,487
)
(4,119
)
1,275
451
(4,212
)
(3,668
)
10,000
(68,900
)
225,000
315,000
275,000
(313,275
)
(99,364
)
(21,149
)
(10,823
)
(201,186
)
(139,592
)
(351
)
196
(24,091
)
(25,610
)
(27,925
)
(38,507
)
7,836
50,628
5,585
$
12,121
$
13,421
Additional
Common Stock
paid-in
Retained earnings
Shares
Amunt
captalnaudi
(accumulatd deficit)
Toal
(In thousands, except share amounts)
25,148,213
$
251
$
160,213
$
50,426
$
210,890
(160,213
)
(40,973
)
(201,186
)
(18,860
)
(18,860
)
25,148,213
$
251
$
$
(9,407
)
$
(9,156
)
1.
BASIS OF PRESENTATION
Three months
ended March 31,
2005
2004
25,148
25,138
496
25,148
25,634
2.
SPECIAL CASH DIVIDENDS
3.
LONG-TERM DEBT
March 31,
December 31,
2005
2004
(in thousands)
$
10,000
$
228,275
85,000
225,000
275,000
205
205
510,205
313,480
2,250
1,688
$
507,955
$
311,792
$
1,688
2,250
2,250
2,250
2,250
499,517
$
510,205
2005
2004
(in thousands)
$
188,388
$
167,802
97,388
84,783
103,142
74,855
44,162
37,968
76,262
63,946
$
509,342
$
429,354
INFORMATION NOT REQUIRED IN THE
PROSPECTUS
Item 13. Other
Expenses of Issuance and Distribution
The following table sets forth the costs and
expenses, other than underwriting discounts and commissions,
payable by the Registrant in connection with the sale of common
stock being registered.
The registrant will bear all of the expenses
shown above.
Item 14. Indemnification of Officers and
Directors
Section 145 of the Delaware General
Corporation Law (the DGCL) provides, in summary,
that directors and officers of Delaware corporations are
entitled, under certain circumstances, to be indemnified against
all expenses and liabilities (including attorneys fees)
incurred by them as a result of suits brought against them in
their capacity as directors or officers, if they acted in good
faith and in a manner they reasonably believed to be in or not
opposed to our best interests, and, with respect to any criminal
action or proceeding, if they had no reasonable cause to believe
their conduct was unlawful; provided that no indemnification may
be made against expenses in respect of any claim, issue, or
matter as to which they shall have been adjudged to be liable to
us, unless and only to the extent that the court in which such
action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, they are fairly and reasonably
entitled to indemnity for such expenses as the court shall deem
proper. Any such indemnification may be made by us only as
authorized in each specific case upon a determination by the
stockholders, disinterested directors or independent legal
counsel that indemnification is proper because the indemnitee
has met the applicable standard of conduct.
Section 102(b)(7) of the DGCL permits a
corporation to provide in its certificate of incorporation that
a director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability for
any breach of the directors duty of loyalty to the
corporation or its stockholders, for acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law, for unlawful payments of dividends or unlawful
stock repurchases, redemptions or other distributions, or for
any transaction from which the director derived an improper
personal benefit.
Our amended and restated certificate of
incorporation and amended and restated by-laws provide that we
shall indemnify our directors and officers to the fullest extent
permitted by law and that no director shall be liable for
monetary damages to us or our stockholders for any breach of
fiduciary duty, except to the extent provided by applicable law.
Prior to the completion of this offering, we intend to enter
into indemnification agreements with our directors. The
idemnification agreements provide indemnification to
our directors under certain circumstances for
acts or omissions that may not be covered by directors and
officers liability insurance and may, in some cases, be
broader than the specific indemnification provisions contained
under Delaware law. We currently maintain liability insurance
for our directors and officers.
ITEM 15. Recent
Sales of Unregistered Securities
In the three years preceding the filing of this
Registration Statement, the Registrant has issued the following
securities that were not registered under the Securities Act:
On February 11, 2005, we issued
$275.0 million aggregate principal amount of second
priority senior secured floating rate notes due 2012. These
securities were issued only to qualified institutional buyers in
accordance with Rule 144A and to non-U.S. persons outside
the U.S. in accordance with Regulation S under the
Securities Act. The securities were issued to UBS Securities LLC
and Deutsche Bank Securities Inc. as initial purchasers. We and
the guarantors have agreed to use all commercially reasonable
efforts to file a registration statement enabling holders of
these floating rate notes to exchange their privately placed
floating rate notes for publicly registered notes with
substantially identical terms as the floating rate notes; cause
the registration statement to be declared effective by the SEC
on or prior to 240 days after the issue date; and complete
the exchange offer within 30 business days after the date on
which the registration statement is declared effective, subject
to certain exceptions. In addition, in certain circumstances, we
will agree to file a shelf registration statement
that would allow some or all of the floating rate notes to be
offered to the public and to use all commercially reasonable
efforts to cause such a shelf registration statement to be
declared effective by the SEC.
In the past three calendar years, the Company has
granted stock options to employees under its 1998 Stock
Incentive Plan, as amended, covering an aggregate of 1,763,703
shares. Of these options, 251,200 were issued at an exercise
price of $10.00 per share, and 1,512,503 options were
issued at an exercise price of $3.15 per share. All of the
options were issued pursuant to the Companys stock
incentive plan in reliance on Rule 701 of the Securities
Act.
On February 25, 2004, the Companys
board of directors declared a special cash dividend of $5.56 per
common share, or an aggregate of $139.6 million, to
shareholders of record as of February 25, 2004. As a result
of the special dividend, the board of directors exercised its
discretion under the anti-dilution provisions of the employee
stock plan to adjust the exercise price of stock options from
$10.00 per common share to $3.15 per share and to
adjust certain other options from $2.50 per common share to
$1.125 per common share to reflect the change in the share
value on the dividend date. Approximately $0.4 million was
also paid to certain option holders whose exercise price could
not be adjusted for the dividend.
$
$
ITEM 16. Exhibits
1 | .1** | Form of Underwriting Agreement | ||||
3 | .1* | Form of Amended and Restated Certificate of Incorporation of Builders FirstSource, Inc. | ||||
3 | .2 | Form of Amended and Restated By-Laws of Builders FirstSource, Inc. | ||||
4 | .1 | Indenture, dated as of February 11, 2005, among Builders FirstSource, Inc., the Subsidiary Guarantors thereto, and The Wilmington Trust Corporation, as Trustee | ||||
4 | .2* | Form of Specimen Certificate | ||||
4 | .3 | 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. | ||||
4 | .4 | Form of Second Amended and Restated Stockholders Agreement, dated as of , 2005, among JLL Building Products, LLC, Builders FirstSource, Inc., Floyd F. Sherman, Charles L. Horn, Kevin P. OMeara, and Donald F. McAleenan |
4 | .5 | Stockholders Agreement, dated as of June 11, 1999, among Stonegate Resources Holdings, LLC, BSL Holdings, Inc., Holmes Lumber Company, and Lockwood Holmes | ||||
4 | .6 | Stock Purchase Agreement, dated as of March 3, 2000, among Stonegate Resources Holdings, LLC, Builders FirstSource, Inc., and William A. Schwartz | ||||
5 | .1** | Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, regarding the legality of the common stock being issued | ||||
8 | .1** | Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, regarding certain tax matters | ||||
10 | .1 | Credit Agreement, dated as of February 11, 2005, among Builders FirstSource, Inc., as borrower, JLL Building Products, LLC, and the guarantors party thereto, the lenders party thereto, UBS Securities LLC, as joint arranger and joint book runner, UBS AG, Stamford Branch, as issuing bank, administrative agent, and collateral trustee for the secured parties, UBS Loan Finance LLC as swingline lender, and Deutsche Bank Securities Inc. as joint arranger, joint book-runner, and syndication agent | ||||
10 | .2 | Collateral Trust Agreement, dated as of February 11, 2005, among Builders FirstSource, Inc., the other Pledgors from time to time party hereto, UBS AG, Stamford Branch, as Administrative Agent under the Credit Agreement, Wilmington Trust Company, as Trustee under the Indenture, UBS AG, Stamford Branch, as Priority Collateral Trustee, and UBS AG, Stamford Branch, as Parity Collateral Trustee | ||||
10 | .3 | Pledge and Security Agreement, dated as of February 11, 2005, by Builders FirstSource, Inc., the Guarantors party hereto, and UBS AG, Stamford Branch, as Collateral Trustee | ||||
10 | .4 | Builders FirstSource, Inc. 1998 Stock Incentive Plan, as amended | ||||
10 | .5 | 2004 Form of Builders FirstSource, Inc. 1998 Stock Incentive Plan Nonqualified Stock Option Agreement | ||||
10 | .6 | 2003 Form of Builders FirstSource, Inc. 1998 Stock Incentive Plan Nonqualified Stock Option Agreement | ||||
10 | .7* | Form of Builders FirstSource, Inc. Management Incentive Plan | ||||
10 | .8 | Builders FirstSource, Inc. 2004 Cash Incentive Bonus Plan | ||||
10 | .9 | Employment Agreement, dated September 1, 2001, between Builders FirstSource and Floyd F. Sherman | ||||
10 | .10 | Employment Agreement, dated January 15, 2004, between Builders FirstSource and Kevin P. OMeara | ||||
10 | .11 | Employment Agreement, dated January 15, 2004, between Builders FirstSource and Charles L. Horn | ||||
10 | .12 | Employment Agreement, dated January 15, 2004, between Builders FirstSource and Donald F. McAleenan | ||||
10 | .13* | Form of Director Idemnification Agreement | ||||
10 | .14** | 2005 Equity Incentive Plan | ||||
21 | .1 | Subsidiaries of Builders FirstSource, Inc. | ||||
23 | .1* | Consent of PricewaterhouseCoopers LLP | ||||
23 | .2** | Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included as part of Exhibit 5.1) | ||||
23 | .3** | Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included as part of Exhibit 8.1) | ||||
24 | .1 | Powers of Attorney | ||||
99 | .1* | Consent of Director Nominee (Robert C. Griffin) |
| Previously filed. |
* | Filed herewith. |
** | To be filed by subsequent amendment. |
ITEM 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. | |
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 3 to the Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on May 25, 2005.
BUILDERS FIRSTSOURCE, INC. |
By: | /s/ FLOYD F. SHERMAN |
|
|
Floyd F. Sherman, | |
Chairman, President, and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature | Title | Date | ||||
|
|
|
||||
/s/ FLOYD F. SHERMAN
Floyd F. Sherman |
Chairman, President, and Chief Executive
Officer
(Principal Executive Officer and Director) |
May 25, 2005 | ||||
/s/ CHARLES L. HORN
Charles L. Horn |
Senior Vice PresidentFinance and Chief
Financial Officer
(Principal Financial Officer) |
May 25, 2005 | ||||
/s/ M. CHAD CROW
M. Chad Crow |
Vice PresidentFinance and Controller
(Controller) |
May 25, 2005 | ||||
*
Alexander R. Castaldi |
Director | May 25, 2005 | ||||
*
Ramsey A. Frank |
Director | May 25, 2005 | ||||
*
Paul S. Levy |
Director | May 25, 2005 | ||||
*
Brett N. Milgrim |
Director | May 25, 2005 | ||||
*By: |
/s/ DONALD F. MCALEENAN
Donald F. McAleenan Attorney-in-Fact |
Exhibit 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BUILDERS FIRSTSOURCE, INC.
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
BUILDERS FIRSTSOURCE, INC. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware (the "DGCL"), does hereby certify as follows:
1. The name of the Corporation is Builders FirstSource, Inc. The Corporation was originally incorporated under the name BSL Holdings, Inc. The original certificate of incorporation of the Corporation was filed with the office of the Secretary of State of the State of Delaware on March 4, 1998.
2. This Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation (the "Board of Directors"), and by the stockholders of the Corporation in accordance with Sections 228, 242 and 245 of the DGCL.
3. This Amended and Restated Certificate of Incorporation restates and integrates and further amends the certificate of incorporation of the Corporation, as heretofore amended or supplemented.
4. The text of the Certificate of Incorporation is restated in its entirety as follows:
FIRST: The name of the Corporation is Builders FirstSource, Inc. (hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the DGCL as set forth in Title 8 of the Delaware Code.
FOURTH: (1) Authorized Capital Stock. The total number of shares of stock that the Corporation shall have authority to issue is ___, of which the Corporation shall have authority to issue ___ shares of Common Stock, each having a par value of $0.01 per share, and ___ shares of Preferred Stock, each having a par value of $0.01 per share.
(2) Common Stock. The powers, preferences and rights, and the qualifications, limitations and restrictions, of the Common Stock are as follows:
(a) No Cumulative Voting. The holders of shares of Common Stock shall not have cumulative voting rights.
(b) Dividends; Stock Splits. Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Amended and Restated Certificate of Incorporation, as it may be amended from time to time, holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock, or property of the Corporation when, as, and if declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor.
(c) Liquidation, Dissolution, etc. In the event of any liquidation, dissolution, or winding up (either voluntary or involuntary) of the Corporation, the holders of shares of Common Stock shall be entitled to
receive the assets and funds of the Corporation available for distribution after payments to creditors and to the holders of any Preferred Stock of the Corporation that may at the time be outstanding, in proportion to the number of shares held by them.
(d) No Preemptive or Subscription Rights. No holder of shares of Common Stock shall be entitled to preemptive or subscription rights.
(3) Preferred Stock. The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional, or other special rights, and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series and as may be permitted by the DGCL, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions.
(4) Power to Sell and Purchase Shares. Subject to the requirements of applicable law, the Corporation shall have the power to issue and sell all or any part of any shares of any class of stock herein or hereafter authorized to such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not greater consideration could be received upon the issue or sale of the same number of shares of another class, and as otherwise permitted by law. Subject to the requirements of applicable law, the Corporation shall have the power to purchase any shares of any class of stock herein or hereafter authorized from such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not less consideration could be paid upon the purchase of the same number of shares of another class, and as otherwise permitted by law.
FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation, and regulation of the powers of the Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the stock-holders to make, alter, amend, change, add to, or repeal the By-Laws of the Corporation.
(3) The Board of Directors shall consist of not less than 3 nor more than 13 members, the exact number of which shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the Board of Directors. Election of directors need not be by written ballot unless the By-Laws so provide.
(4) The directors shall be divided into three classes, designated Class I, Class II, and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the Board of Directors. The term of the initial Class I directors shall terminate on the date of the 2006 Annual Meeting; the term of the initial Class II directors shall terminate on the date of the 2007 Annual Meeting; and the term of the initial Class III directors shall terminate on the date of the 2008 Annual Meeting. At each Annual Meeting of Stockholders beginning in 2006, successors to the class of directors whose term expires at that Annual Meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director.
(5) A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification, or removal from office. Any director may resign at any time
in accordance with the By-Laws.
(6) Subject to the terms of any one or more classes or series of Preferred Stock, any vacancy on the Board of Directors that results from an increase in the number of directors may be filled only by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may be filled only by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class shall hold office for a term that shall coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor. Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of the Corporation's then outstanding capital stock entitled to vote generally in the election of directors. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies, and other features of such directorships shall be governed by the terms of this Amended and Restated Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article FIFTH unless otherwise expressly provided by the terms of such class or series of Preferred Stock.
(7) No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that to the extent required by the provisions of Section 102(b)(7) of the DGCL or any successor statute, or any other laws of the State of Delaware, this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended after the date of this Certificate to authorize the further elimination or limitation of
the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided in this Certificate, shall be limited to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of this Clause (7) of Article FIFTH shall not adversely affect any limitation on the personal liability or any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
(8) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors that would have been valid if such By-Laws had not been adopted.
SIXTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation.
SEVENTH: Unless otherwise required by law, Special Meetings of
Stockholders, for any purpose or purposes, may be called by either the Chairman
of the Board of Directors, if there be one, or the Chief Executive Officer, if
there be one, and shall be called by any officer at the request in writing of
(i) the Board of Directors, or (ii) a committee of the Board of Directors that
has been duly designated by the Board of Directors and whose powers and
authority include the power to call such meetings. The ability of the
stockholders to call a Special Meeting of Stockholders is hereby specifically
denied.
EIGHTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called Annual or Special Meeting of Stockholders of the Corporation, and the ability of the stockholders to consent in writing without a meeting to the taking of any action is hereby specifically denied.
NINTH: The Corporation shall not be governed by the provisions of
Section 203 of the DGCL.
TENTH: The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by applicable law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors, and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors, or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors. The right to indemnification conferred by this Article TENTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition upon receipt by the Corporation of an undertaking by or on behalf of the director or officer receiving advancement to repay the amount advanced if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation under this Article TENTH.
The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article TENTH to directors and officers of the Corporation.
The rights to indemnification and to the advancement of expenses conferred in this Article TENTH shall not be exclusive of any other right that any person may have or hereafter acquire under this Certificate of Incorporation, the By-Laws of the Corporation, any statute, agreement, vote of stockholders or disinterested directors, pursuant to the direction (howsoever embodied) of any court of competent jurisdiction, or otherwise.
Any repeal or modification of this Article TENTH by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to the advancement of expenses of a director, officer, employee, or agent of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.
ELEVENTH: Notwithstanding anything contained in this Certificate of Incorporation or the By-Laws to the contrary, any provision in the By-Laws that
provides for more than a majority vote for any action may only be amended or repealed by a supermajority vote equal to the supermajority vote called for in such provision.
TWELFTH: The Corporation reserves the right to amend, alter, change, or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Amended and Restated Certificate of Incorporation (and in addition to any other vote that may be required by law), the affirmative vote of the holders of at least sixty-six and two-thirds percent (66.67 %) of the voting power of the shares entitled to vote at an election of directors shall be required to amend, alter, change, or repeal, or to adopt any provision as part of this Amended and Restated Certificate of Incorporation inconsistent with the purpose and intent of Articles FIFTH and TENTH of this Amended and Restated Certificate of Incorporation or this Article TWELFTH.
THIRTEENTH: If any provision in this Amended and Restated Certificate of Incorporation is determined to be invalid, void, illegal, or unenforceable, the remaining provisions of this Amended and Restated Certificate of Incorporation shall continue to be valid and enforceable and shall in no way be affected, impaired, or invalidated.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be duly executed on its behalf this ___ day of ____, 2005.
BUILDERS FIRSTSOURCE, INC.
Title:
Exhibit 4.2
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE SHARES
[BUILDERS FIRSTSOURCE LOGO] SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 12008R 10 7
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $0.01 PER SHARE, OF
CERTIFICATE OF STOCK
Builders FirstSource, Inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney, upon surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated: /s/ Donald F. McAleenan [BUILDERS FIRSTSOURCE, INC.] /s/ Floyd F. Sherman SECRETARY [CORPORATE SEAL 1998] PRESIDENT AND CEO [DELAWARE] |
COUNTERSIGNED AND REGISTERED: LASALLE BANK NATIONAL ASSOCIATION TRANSFER AGENT BY AND REGISTRAR AUTHORIZED SIGNATURE |
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ____________ Custodian ___________ TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act ______________________________ in common (State) UNIF TRF MIN ACT -- _________ Custodian (until age ____) (Cust) ___________ under Uniform Transfers (Minor) to Minors Act ______________________ (State) |
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________ hereby sell, assign and transfer unto
_________________________________________________________________________ Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
_______________________________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated __________________
X _____________________________________________________
X _____________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
NOTICE: WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ___________________________________________________ THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
BUILDERS FIRSTSOURCE, INC.
FORM OF MANAGEMENT INCENTIVE PLAN
1. Purposes; Interpretation. The purposes of the Builders FirstSource, Inc. Management Incentive Plan are to reinforce corporate, organizational and business-development goals, to promote the achievement of year-to-year financial and other business objectives and to reward the performance of the Company's executive officers in fulfilling their personal responsibilities. The Plan is designed and intended to comply, to the extent applicable, with Section 162(m) of the Code, and all provisions hereof shall be construed in a manner to so comply.
2. Definitions. The following terms, as used herein, shall have the following meanings:
(a) "Affiliate" shall mean, with respect to the Company or any of its subsidiaries, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company.
(b) "Award" shall mean an incentive compensation award, granted pursuant to the Plan, that is contingent upon the attainment of Performance Goals with respect to a Performance Period.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the committee that may be established by the Board to administer the Plan, the composition of which shall at all times consist of "outside directors" within the meaning of section 162(m) of the Code.
(f) "Company" shall mean Builders FirstSource, Inc. and its subsidiaries and successors.
(g) "Covered Employee" shall have the meaning set forth in Section 162(m)(3) of the Code.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
(i) "Participant" shall mean an executive officer of the Company who is, pursuant to Section 4 of the Plan, selected to participate herein.
(j) "Performance Goals" shall mean performance goals based on one or
more of the following criteria, determined in accordance with generally accepted
accounting principles, where applicable: (i) pre-tax income or after-tax income;
(ii) earnings including operating income, earnings before or after taxes,
earnings before or after interest, depreciation, amortization, or extraordinary
or special items; (iii) net income excluding amortization of intangible assets,
depreciation and impairment of goodwill and intangible assets; (iv) operating
income; (v) earnings or book value per share (basic or diluted); (vi) return on
assets (gross or net), return on investment, return on capital, or return on
equity; (vii) return on revenues; (viii) net tangible assets (working capital
plus property, plants and equipment) or return on net tangible assets (operating
income divided by average net tangible assets); (ix) operating cash flow
(operating income plus or minus changes in working capital less capital
expenditures); (x) cash flow, free cash flow, cash flow return on investment
(discounted or otherwise), net cash provided by operations, or cash flow in
excess of cost of capital; (xi) economic value created; (xii) operating margin
or profit margin; (xiii) stock price or total stockholder return; (xiv) earnings
from continuing operations; (xv) cost targets, reductions or savings,
productivity or efficiencies; (xvi) strategic business criteria, consisting of
one or more objectives based on meeting specified market penetration or market
share, geographic business expansion, customer satisfaction, employee
satisfaction, human resources management, supervision of litigation, information
technology, or goals relating to divestitures, joint ventures or similar
transactions; or (xvii) any other criteria determined by the Board to be
appropriate. Where applicable, the Performance Goals may be expressed in terms
of attaining a specified level of the particular criterion or the attainment of
a percentage increase or decrease in the particular criterion, and may be
applied to one or more of the Company or a parent or subsidiary of the Company,
or a division or strategic business unit of the Company, all as determined by
the Board. The Performance Goals may include a threshold level of performance
below which no payment will be made (or no vesting will occur), levels of
performance at which specified payments will be paid (or specified vesting will
occur) and a maximum level of performance above which no additional payment will
be made (or at which full vesting will occur). Each of the foregoing Performance
Goals shall be evaluated in accordance with generally accepted accounting
principles, where applicable, and shall be subject to certification by the
Board. The Board shall have the authority to make equitable adjustments to the
Performance Goals in recognition of unusual or non-recurring events affecting
the Company or any parent or subsidiary of the Company or the financial
statements of the Company or any parent or subsidiary of the Company, in
response to changes in applicable laws or regulations or to account for items of
gain, loss or expense determined to be extraordinary or unusual in nature or
infrequent in occurrence or related to the disposal of a segment of a business
or related to a change in accounting principles.
(k) "Performance Period" shall mean, unless the Board determines otherwise, a period of no longer than 12 months.
(l) "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
(m) "Plan" shall mean the Builders FirstSource, Inc. Management Incentive Plan, as amended from time to time.
3. Administration. The Plan shall be administered by the Board. The Board may appoint a Committee to administer all or a portion of the Plan and to make recommendations to the Board with respect to the Plan and any Awards; provided, that such Committee's authorities and responsibilities shall always be limited by the Board's sole authority to make all final determinations under the Plan. The Board may delegate to one or more agents such administrative duties as it may deem advisable, and the Committee or any other person to whom the Board has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Board or such Committee or person may have under the Plan.
The Board shall have the authority in its sole discretion, subject to and
not inconsistent with the express provisions of the Plan, to administer the Plan
and to exercise all the powers and authorities either specifically granted to it
under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to: (i) grant Awards; (ii)
determine the persons to whom and the time or times at which Awards shall be
granted; (iii) determine all of the terms and conditions (including but not
limited to the Performance Goals) relating to any Award; (iv) determine whether,
to what extent, and under what circumstances an Award may be settled, cancelled
or forfeited; (v) make adjustments in the Performance Goals as provided in
Section 1(j) hereof; (vi) construe and interpret the Plan and any Award; (vii)
prescribe, amend and rescind rules and regulations relating to the Plan; and
(viii) make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations and interpretations of
the Board shall be final and binding on all persons, including the Company, the
Participant (or any person claiming any rights under the Plan from or through
any Participant) and any Company stockholder. No member of the Board or the
Committee shall be liable for any action taken or determination made in good
faith with respect to the Plan or any Award granted hereunder.
4. Eligibility. Awards may be granted to executive officers of the Company in the Board's sole discretion. Subject to Section 5(a) below, in determining the persons to whom Awards shall be granted and the Performance Goals relating to each Award, the Board shall take into account such factors as the Board shall deem relevant in connection with accomplishing the purposes of the Plan.
(a) In General. The Board shall specify with respect to a Performance Period the Performance Goals applicable to each Award and, if applicable, minimum, target
and maximum levels applicable to each Performance Goal. Awards for any Performance Period may be expressed as a dollar amount or as a percentage of the Participant's annual base salary. Unless otherwise determined by the Board, payment in respect of Awards shall be made only if and to the extent the Performance Goals with respect to such Performance Period are attained.
(b) Special Provisions Regarding Awards. Notwithstanding anything to the contrary contained in this Section 5, in no event shall payment in respect of an Award granted for a Performance Period be made to a Participant who is or is reasonably expected to be a Covered Employee in an amount that exceeds $5 million. The Board may, in its sole discretion, increase (subject to the maximum amount set forth in this Section 5(b)) or decrease the amounts otherwise payable to Participants upon the achievement of Performance Goals under an Award; provided, however, that in no event may the Board so increase the amount otherwise payable to a Covered Employee pursuant to an Award.
(c) Time and Form of Payment. All payments in respect of Awards granted under this Plan shall be made, in the Board's discretion, in cash (either within a reasonable period after the end of the Performance Period or on a deferred basis under rules promulgated by the Board) and/or in the form of equity-based awards under an equity compensation plan that has been approved by the Company's stockholders; provided, however, that, unless otherwise determined by the Board, in order to receive payment in respect of an Award, a Participant must be employed by the Company or one of its Affiliates on the day payment would be made in the absence of any deferral. In addition, such payments shall be made only after achievement of the Performance Goals has been certified by the Board.
(a) Compliance With Legal Requirements. The Plan and the granting and payment of Awards, and the other obligations of the Company under the Plan and any Award, shall be subject to all applicable Federal and state laws, rules and regulations and to required approvals by any regulatory or governmental agency.
(b) Nontransferability. Awards shall not be transferable by a Participant except by will or the laws of descent and distribution.
(c) Participant Rights. No executive officer of the Company or any other person shall have any claim to be granted any Award under the Plan. There is no obligation for uniformity of treatment among Participants. Nothing in the Plan or in any Award granted pursuant hereto shall confer upon any Participant the right to continue in the employ of the Company or to be entitled to any remuneration or benefits not set forth in the Plan or under such Award or to interfere with or limit in any way the right of the Company to terminate such Participant's employment.
(d) Beneficiary. A Participant may file with the Board a written designation of a beneficiary on such form as may be prescribed by the Board and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, the executor or administrator of the Participant's estate shall be deemed to be the grantee's beneficiary.
(e) Withholding Taxes. The Company shall have the right to withhold the amount of any taxes that the Company may be required to withhold before delivery of payment of an Award to the Participant or other person entitled to such payment, or to make such other arrangements for the withholding of taxes that the Company deems satisfactory.
(f) Amendment and Termination of the Plan. The Board or the Board may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part; provided, however, that no amendment that requires stockholder approval in order for the Plan to comply with any applicable law, regulation or rule (including, if applicable, Section 162(m) of the Code) shall be effective unless the same shall be approved by the requisite vote of the Company's stockholders. Notwithstanding the foregoing, no amendment or termination of the Plan shall affect adversely any of the rights of any Participant, without such Participant's consent, under any Award theretofore granted under the Plan.
(g) Unfunded Status of Awards. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Company.
(h) Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware without giving effect to the conflict of laws principles thereof.
(i) Effective Date. The Plan shall take effect as of [ ], 2005, subject to the approval of the Company's stockholders.
EXHIBIT 10.13
BUILDERS FIRSTSOURCE, INC.
FORM OF DIRECTOR INDEMNIFICATION AGREEMENT
AGREEMENT, dated as of _______ ___, 2005 between Builders FirstSource, Inc., a Delaware corporation (the "Company"), and [DIRECTOR] ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors the most capable persons available;
WHEREAS, Indemnitee is a director of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies in today's environment;
WHEREAS, the Certificate of Incorporation and By-laws of the Company require the Company to indemnify and advance expenses to its directors and officers to the fullest extent permitted by law, and the Indemnitee is serving as a director of the Company in part in reliance on such Certificate of Incorporation and By-laws;
WHEREAS, the Board of Directors of the Company has determined that the inability of the Company to retain and attract as directors the most capable persons would be detrimental to the interests of the Company and that the Company therefore should seek to assure such persons that indemnification will be available in the future;
WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, and Indemnitee's reliance on the Company's Certificate of Incorporation and By-laws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such Certificate of Incorporation and By-laws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Certificate of Incorporation or By-laws or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain Definitions. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement:
(a) Affiliate: means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings.
(b) Change in Control: means the occurrence of any of the following:
(i) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) other than a Principal or a Related Party of a Principal;
(ii) the adoption of a plan relating to the liquidation or dissolution of the Company;
(iii) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any "person" (as defined in subsection (i) above), other than a Principal or a Related Party of a Principal, becomes the Beneficial Owner, directly or indirectly, of more than 30% of the Voting Stock of the Company, measured by voting power rather than number of shares; or
(iv) after an Initial Public Offering, during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such Board of Directors or whose nomination for election was approved by a vote of a majority of the members of the Board of Directors of the Company, which members comprising such majority are then still in office
and were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company, as applicable.
For purposes of this definition of Change in Control:
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the Beneficial Ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in
the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock; (3) in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership interests; and
(4) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person, but excluding from all of the foregoing any debt securities
convertible into Capital Stock, whether or not such debt securities include any
right of participation with Capital Stock.
"Initial Public Offering" means the initial offering and sale of Capital Stock pursuant to a registration statement on Form S-1 that has been declared effective by the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended.
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
"Principal" means JLL Building Products, LLC, a Delaware limited liability company, JLL Partners, Inc., a Delaware corporation, and their respective Affiliates.
"Related Party" means (1) any controlling stockholder, 80% (or more) owned Subsidiary (as defined for purposes of this definition of Change in Control), or immediate family member (in the case of an individual) of any Principal; or (2) any trust, corporation, partnership, limited liability company or other entity, the beneficiaries, stockholders, partners, members, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other persons referred to in the immediately preceding clause (1).
"Subsidiary" means (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting
agreement or stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
(c) Claim: means any threatened, asserted, pending or completed action, suit or proceeding, or appeal thereof, or any inquiry or investigation, whether instituted by the Company or any governmental agency or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other, including any arbitration or other alternative dispute resolution mechanism.
(d) Expenses: include attorneys' fees and all other costs, expenses and obligations (including, without limitation, experts' fees, court costs, retainers, transcript fees, duplicating, printing and binding costs, as well as telecommunications, postage and courier charges) paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to investigate, defend, be a witness in or participate in, any Claim relating to any Indemnifiable Event.
(e) Indemnifiable Amounts: means any and all Expenses, damages, judgments, fines, penalties, ERISA excise taxes and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties, excise taxes or amounts paid in settlement) arising out of or resulting from any Claim relating to an Indemnifiable Event.
(f) Indemnifiable Event: means any event or occurrence, whether occurring before, on or after the date of this Agreement, related to the fact that Indemnitee is or was a director and/or officer or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, limited liability company, partnership, joint venture, employee benefit plan, trust or other entity or enterprise, or by reason of anything done or not done by Indemnitee in any such capacity.
(g) Independent Legal Counsel: means an attorney or firm of attorneys, selected in accordance with the provisions of Section 3 hereof, who is experienced in matters of corporate law and who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of
Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
(h) Reviewing Party: means any appropriate individual or body consisting of a member or members of the Company's Board of Directors or any other individual or body appointed by the Board who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel.
(i) Voting Stock: means any securities of the Company which vote generally in the election of directors.
2. Basic Indemnification Arrangement; Advancement of Expenses.
(a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than thirty days after written demand is presented to the Company, against any and all Indemnifiable Amounts.
(b) If so requested by Indemnitee, the Company shall advance (within
two business days of such request) any and all Expenses incurred by Indemnitee
(an "Expense Advance"). The Company shall, in accordance with such request (but
without duplication), either (i) pay such Expenses on behalf of Indemnitee, or
(ii) reimburse Indemnitee for such Expenses. Indemnitee's right to an Expense
Advance is absolute and shall not be subject to any prior determination by the
Reviewing Party that the Indemnitee has satisfied any applicable standard of
conduct for indemnification.
(c) Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification or advancement of Expenses pursuant to this Agreement in connection with any Claim initiated by Indemnitee unless (i) the Company has joined in or Company's Board of Directors has authorized or consented to the initiation of such Claim or (ii) the Claim is one to enforce Indemnitee's rights under this Agreement.
(d) Notwithstanding the foregoing, (i) the indemnification obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(b) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid (it being understood and agreed that the foregoing agreement by Indemnitee shall be deemed to satisfy any
requirement that Indemnitee provide the Company with an undertaking to repay any Expense Advance if it is ultimately determined that the Indemnitee is not entitled to indemnification under applicable law); provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's undertaking to repay such Expense Advances shall be unsecured and interest-free. If there has not been a Change in Control, the Reviewing Party shall be selected by the Company's Board of Directors, and if there has been such a Change in Control, the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3 hereof. If there has been no determination by the Reviewing Party within thirty days after written demand is presented to the Company or if the Reviewing Party determines that Indemnitee would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the State of Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in Control of the Company then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any Company By-law or charter provision now or hereafter in effect, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably delayed, conditioned or withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Legal Counsel and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
4. Indemnification for Additional Expenses. The Company shall indemnify
Indemnitee against any and all Expenses and, if requested by Indemnitee, shall
advance such Expenses to Indemnitee subject to and in accordance with Section
2(b), which are incurred by Indemnitee in connection with any action brought by
Indemnitee for (i) indemnification or an Expense Advance by the Company under
this Agreement or any Company By-law or charter provision now or hereafter in
effect and/or (ii) recovery under any directors' and officers' liability
insurance policies maintained by the Company, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, Expense Advance
or insurance recovery, as the case may be.
5. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses or other Indemnifiable Amounts in respect of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.
6. Burden of Proof. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder the Reviewing Party or court shall presume that the Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, and the burden of proof shall be on the Company to establish, by clear and convincing evidence, that Indemnitee is not so entitled.
7. Reliance as Safe Harbor. For purposes of this Agreement, Indemnitee shall be deemed to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee's actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements furnished to Indemnitee by the officers or employees of the Company in the course of their duties, or by committees of the Company's Board of Directors, or by any other Person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.
8. No Other Presumptions. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief.
9. Nonexclusivity, Etc. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's By-laws or
charter or the Delaware General Corporation Law or otherwise. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's By-laws or charter or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.
10. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.
11. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.
12. Amendments, Etc. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
13. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers reasonably required and shall do everything that may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.
14. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, By-law, charter provision or otherwise) of the amounts otherwise indemnifiable hereunder.
15. Defense of Claims. The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable Event or to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (i) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict of interest, (ii) the named parties in any such Claim (including any impleaded parties) include both the Company and Indemnitee and Indemnitee concludes that there may be one or more legal defenses available to him or
her that are different from or in addition to those available to the Company, or
(iii) any such representation by such counsel would be precluded under the
applicable standards of professional conduct then prevailing, then Indemnitee
shall be entitled to retain separate counsel (but not more than one law firm
plus, if applicable, local counsel in respect of any particular Claim) at the
Company's expense. The Company shall not be liable to Indemnitee under this
Agreement for any amounts paid in settlement of any Claim relating to an
Indemnifiable Event effected without the Company's prior written consent. The
Company shall not, without the prior written consent of the Indemnitee, effect
any settlement of any Claim relating to an Indemnifiable Event which the
Indemnitee is or could have been a party unless such settlement solely involves
the payment of money and includes a complete and unconditional release of
Indemnitee from all liability on all claims that are the subject matter of such
Claim. Neither the Company nor Indemnitee shall unreasonably withhold or delay
its or his or her consent to any proposed settlement; provided that Indemnitee
may withhold consent to any settlement that does not provide a complete and
unconditional release of Indemnitee.
16. Binding Effect, Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee and his or her counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer and/or director of the Company or of any other entity or enterprise at the Company's request.
17. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired and shall remain enforceable to the fullest extent permitted by law.
18. Specific Performance, Etc. The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.
19. Counterparts. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party
against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
20. Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.
21. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
BUILDERS FIRSTSOURCE, INC.
By:_____________________________
Name:
Title:
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of our report dated April 27, 2005, except for Note 22, which is as of May 24, 2005, relating to the consolidated financial statements of Builders FirstSource, Inc., which appear in such Registration Statement. We also consent to the references to us under the headings "Experts", "Summary of Historical Financial Information and Other Data" and "Selected Historical Consolidated Financial Information" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP Dallas, Texas May 26, 2005 |
EXHIBIT 99.1
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
Pursuant to Section 230.438 of Regulation C promulgated under the Securities Act of 1933, as amended, in connection with the Registration Statement on Form S-1 (the "Registration Statement") of Builders FirstSource, Inc. ("BFS") relating to the initial public offering (the "IPO") of shares of common stock, par value $0.01 per share, of BFS, the undersigned hereby consents to being named in the prospectus which forms a part of the Registration Statement as a person who is expected to become a director of BFS upon consummation of the IPO.
Date: May 11, 2005 /s/ ROBERT C. GRIFFIN --------------------------- Robert C. Griffin |