þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 52-2084569 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
2001 Bryan Street, Suite 1600 | 75201 | |
Dallas, Texas | (Zip Code) | |
(Address of principal executive offices) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
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Three Months Ended
March 31,
2008
2007
(Unaudited)
(In thousands,
except per share amounts)
$
270,511
$
411,143
210,110
306,592
60,401
104,551
79,571
97,470
(19,170
)
7,081
6,470
6,712
(25,640
)
369
(9,794
)
137
$
(15,846
)
$
232
$
(0.45
)
$
0.01
$
(0.45
)
$
0.01
35,460
34,633
35,460
36,206
Table of Contents
Table of Contents
Three Months Ended
March 31,
2008
2007
(Unaudited)
(In thousands)
$
(15,846
)
$
232
5,930
6,068
703
659
298
201
2,107
1,598
44
8
(400
)
(288
)
(3,695
)
1,417
(681
)
2,899
1,953
2,675
(745
)
(2,340
)
5,461
22,751
(11,218
)
(14,168
)
(16,089
)
21,712
(1,246
)
(2,573
)
577
493
(669
)
(2,080
)
(9
)
(110
)
(245
)
1,662
2,319
(399
)
(483
)
1,009
1,726
(15,749
)
21,358
97,574
93,258
$
81,825
$
114,616
Table of Contents
(unaudited)
Three Months Ended
March 31,
2008
2007
35,460
34,633
1,573
35,460
36,206
Table of Contents
(unaudited)
March 31,
December 31,
2008
2007
$
129,253
$
133,639
29,113
23,052
158,366
156,691
6,504
7,209
$
151,862
$
149,482
March 31,
December 31,
2008
2007
$
275,000
$
275,000
4,257
4,266
279,257
279,266
41
40
$
279,216
$
279,226
Table of Contents
(unaudited)
Fair Value
As of March 31,
Measurement as of
2008
March 31, 2008
$
238
$
238
2,422
2,422
$
2,660
$
2,660
Three Months Ended
March 31,
2008
2007
$
(15,846
)
$
232
(2,001
)
(407
)
$
(17,847
)
$
(175
)
5 years
42.28
%
0.00
%
2.89
%
Table of Contents
(unaudited)
Three Months Ended
March 31,
2008
2007
$
53,832
$
84,155
68,237
92,611
64,517
114,683
28,630
39,242
55,295
80,452
$
270,511
$
411,143
Table of Contents
Homebuilding Industry.
Our business is driven primarily by the residential new
construction market, which is in turn dependent upon a number of factors, including interest
rates, consumer confidence, and the health of the economy and mortgage markets. Over the
past several quarters, many homebuilders significantly decreased their starts because of
lower demand and an excess of home inventory. Due to the decline in housing starts and
increased competition for homebuilder business, we expect increasing pressure on our
margins. The decline in housing starts continues to be widespread affecting all our markets.
However, we still believe there are several meaningful trends that indicate U.S. housing
demand will likely remain healthy in the long term and that the current pullback in the
housing industry is likely a trough in the cyclical nature of the residential construction
industry. These trends include rising immigration rates, the growing prevalence of second
homes, relatively low interest rates, and the aging of the housing stock.
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Targeting Large Production Homebuilders.
In recent years, the homebuilding industry has
undergone significant consolidation, with the larger homebuilders substantially increasing
their market share. In accordance with this trend, our customer base has increasingly
shifted to production homebuilders the fastest growing segment of the residential
homebuilders. However, during the three months ended March 31, 2008, our sales to the top 10
homebuilders in the country declined 44.9% compared to the three months ended March 31,
2007. This decline is slightly higher than the overall decline in housing activity in our
markets. We attribute this to the highly competitive pricing in our markets as we believe a number of
our competitors are selling at or below cost as they become more liquidity constrained. We
expect that our ability to maintain strong relationships with the largest builders will be
vital to our ability to grow and expand into new markets as well as maintain our current
market share through the downturn. Additionally, during the downturn, we plan to further
expand our customer base including our custom homebuilder base.
Expand into Multi-Family and Light Commercial Business.
We believe we can diversify our
customer base and grow our sales by expanding into multi-family and light commercial
business. While we primarily serve the single family new home construction market, we
believe we can enter the multi-family and/or light commercial market in certain regions with
limited incremental costs as these end markets are especially conducive for sales of
prefabricated components. In the third quarter of 2007, we purchased Bama Truss and
Components, Inc. (Bama) which is a market leader in multi-family and light commercial
manufactured structural components based in Shelby, Alabama. The Bama location also gives
us the ability to manufacture steel roof trusses often used in multi-family and light
commercial construction.
Use of Prefabricated Components.
Prior to the current housing downturn, homebuilders
were increasingly using prefabricated components in order to realize increased efficiency
and improved quality. Shortening cycle time from start to completion was a key imperative
of the homebuilders during periods of strong consumer demand. With the current housing
downturn, that trend has decelerated as cycle time has less relevance. Customers who
traditionally used prefabricated components, for the most part, still do. However the
conversion of customers to this product offering has slowed. We expect this trend to
continue at least for the duration of this downturn. In response, we have reduced our
manufacturing capacity and delayed plans to open new facilities.
Expansion of Existing and New Facilities.
We are seeking to increase our market
penetration through the introduction of additional distribution and manufacturing facilities
in markets that are underserved. In light of the current operating conditions, however, we
have delayed plans to open new manufacturing facilities and distribution centers in the
short-term until economic conditions improve. New facilities, including acquisitions,
generated incremental sales of approximately $6.3 million for the three months ended March
31, 2008, compared to the same period in 2007.
Economic Conditions.
Economic changes both nationally and locally in our markets impact
our financial performance. The building products supply industry is dependent on new home
construction and subject to cyclical market changes. Our operations are subject to
fluctuations arising from changes in supply and demand, national and international economic
conditions, labor costs, competition, government regulation, trade policies and other
factors that affect the homebuilding industry such as demographic trends, interest rates,
single-family housing starts, employment levels, consumer confidence, and the availability
of credit to homebuilders, contractors and homeowners. During the last half of 2007, the
mortgage markets experienced substantial disruption related to subprime mortgages. This
mortgage market disruption is continuing and has now had a three-fold effect on the current
homebuilder market. First, lenders have tightened the qualification criteria for mortgages,
effectively taking a substantial number of potential home buyers out of the market and
therefore reducing the demand for new homes. Second, a number of mortgage lenders and
buyers of mortgage securities have exited the mortgage market, thereby reducing available
funds for new mortgages and the demand for mortgage securities which also reduces the number
of potential home buyers. Finally, the increase in defaults as a result of the subprime
mortgage crisis has increased the inventory of homes for sale, creating more competition
for homebuilders. Although the federal government is enacting legislation to assist with
the subprime mortgage crisis and interest rates have decreased since the end of the year,
given the substantial number of potential foreclosures nationwide, more meaningful
legislation may need to be enacted and liquidity in the mortgage market will need to be
restored before a long-term recovery occurs in the residential construction industry and
therefore our industry.
Cost of Materials.
Prices of wood products, which are subject to cyclical market
fluctuations, may adversely impact operating income when prices rapidly rise or fall within
a relatively short period of time. We purchase certain materials, including lumber
products, which are then sold to customers as well as used as direct production inputs for
our manufactured and prefabricated products. Short-term changes in the cost of these
materials, some of which are subject to significant fluctuations, are sometimes passed on to
our customers, but our pricing quotation periods may limit our ability to pass on such price
changes. Our inability to pass on material price increases to our customers could adversely
impact our operating income.
Table of Contents
Controlling Expenses.
Another important aspect of our strategy is controlling costs and
enhancing our status as a low-cost building materials supplier in the markets we serve. We
pay close attention to managing our working capital and operating expenses. We have a best
practices operating philosophy, which encourages increasing efficiency, lowering costs,
improving working capital, and maximizing profitability and cash flow. We constantly analyze
our workforce productivity to achieve the optimum, cost-efficient labor mix for our
facilities. Further, we pay careful attention to our logistics function and its effect on
our shipping and handling costs.
The volatility of lumber prices;
The cyclical nature of the homebuilding industry;
General economic conditions in the markets in which we compete;
The pricing policies of our competitors;
The production schedules of our customers; and
The effects of weather.
Table of Contents
Three Months Ended
March 31,
2008
2007
100.0
%
100.0
%
77.7
%
74.6
%
22.3
%
25.4
%
29.4
%
23.7
%
(7.1
)%
1.7
%
2.4
%
1.6
%
(3.6
)%
0.0
%
(5.9
)%
0.1
%
Three Months Ended March 31,
2008
2007
Sales
% of Sales
Sales
% of Sales
% Change
$
53.8
19.9
%
$
84.2
20.5
%
(36.1
)%
68.2
25.2
%
92.6
22.5
%
(26.3
)%
64.5
23.9
%
114.7
27.9
%
(43.8
)%
28.7
10.6
%
39.2
9.5
%
(26.8
)%
55.3
20.4
%
80.4
19.6
%
(31.2
)%
$
270.5
100.0
%
$
411.1
100.0
%
(34.2
)%
Table of Contents
Table of Contents
Table of Contents
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Maximum
Total Number of
Number of
Total
Shares Purchased
Shares That May
Number of
Average
as Part of Publicly
Yet be Purchased
Shares
Price Paid
Announced Plans
Under the Plans
Period
Purchased
per Share
or Programs
or Programs
58,281
$
6.85
58,281
$
6.85
Table of Contents
Exhibit
Number
Description
Amended and Restated Certificate of Incorporation of Builders FirstSource, Inc. (incorporated
by reference to Exhibit 3.1 to Amendment No. 4 to the Companys registration statement on Form
S-1, filed with the Securities and Exchange Commission on June 6, 2005, File Number
333-122788)
Amended and Restated By-Laws of Builders FirstSource, Inc. (incorporated by reference to
Exhibit 3.2 to the Companys current report on Form 8-K, filed with the Securities and
Exchange Commission on March 5, 2007, File Number 0-51357)
Second Amended and Restated Stockholders Agreement, dated as of June 2, 2005, among JLL
Building Products, LLC, Builders FirstSource, Inc., Floyd F. Sherman, Charles L. Horn, Kevin
P. OMeara, and Donald F. McAleenan (incorporated by reference to Exhibit 4.1 to the Companys
quarterly report on Form 10-Q for the quarter ended June 30, 2005, filed with the Securities
and Exchange Commission on August 4, 2005, File Number 0-51357)
Registration Rights Agreement, dated as of February 11, 2005, among Builders FirstSource,
Inc., the Guarantors named therein, and UBS Securities LLC and Deutsche Bank Securities Inc.
(incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the Companys registration
statement on Form S-1, filed with the Securities and Exchange Commission on April 27, 2005,
File Number 333-122788)
Stockholders Agreement, dated as of June 11, 1999, among Stonegate Resources Holdings, LLC,
BSL Holdings, Inc., Holmes Lumber Company, and Lockwood Holmes (incorporated by reference to
Exhibit 4.5 to Amendment No. 2 to the Companys registration statement on Form S-1, filed with
the Securities and Exchange Commission on April 27, 2005, File Number 333-122788)
Stock Purchase Agreement, dated as of March 3, 2000, among Stonegate Resources Holdings, LLC,
Builders FirstSource, Inc., and William A. Schwartz (incorporated by reference to Exhibit 4.6
to Amendment No. 2 to the Companys registration statement on Form S-1, filed with the
Securities and Exchange Commission on April 27, 2005, File Number 333-122788)
Indenture, dated as of February 11, 2005, among Builders FirstSource, Inc., the Subsidiary
Guarantors thereto, and Wilmington Trust Company, as Trustee (incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Companys registration statement on Form S-1, filed with
the Securities and Exchange Commission on April 27, 2005, File Number 333-122788)
2008 Form of Builders FirstSource, Inc. 2007 Incentive Plan Nonqualified Stock Option Agreement
2008 Form of Builders FirstSource, Inc. 2007 Incentive Plan Restricted Stock Award Agreement
Written statement pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, signed by Floyd F. Sherman as chief executive officer
Written statement pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, signed by Charles L. Horn as chief financial officer
Written statement pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, signed by Floyd F. Sherman as chief executive officer and
Charles L. Horn as chief financial officer
*
Filed herewith.
**
Builders FirstSource, Inc. is furnishing, but not filing, the written
statements pursuant to Title 18 United States Code 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002, of Floyd F. Sherman,
our chief executive officer, and Charles L. Horn, our chief financial
officer.
+
Indicates a management contract or compensatory plan or arrangement.
Table of Contents
BUILDERS FIRSTSOURCE, INC.
/s/
FLOYD F. SHERMAN
Floyd F. Sherman
Chief Executive Officer
(Principal Executive Officer)
/s/
CHARLES L. HORN
Charles L. Horn
Senior Vice President Chief Financial Officer
(Principal Financial Officer)
Table of Contents
Exhibit
Number
Description
Amended and Restated Certificate of Incorporation of Builders FirstSource, Inc. (incorporated
by reference to Exhibit 3.1 to Amendment No. 4 to the Companys registration statement on Form
S-1, filed with the Securities and Exchange Commission on June 6, 2005, File Number
333-122788)
Amended and Restated By-Laws of Builders FirstSource, Inc. (incorporated by reference to
Exhibit 3.2 to the Companys current report on Form 8-K, filed with the Securities and
Exchange Commission on March 5, 2007, File Number 0-51357)
Second Amended and Restated Stockholders Agreement, dated as of June 2, 2005, among JLL
Building Products, LLC, Builders FirstSource, Inc., Floyd F. Sherman, Charles L. Horn, Kevin
P. OMeara, and Donald F. McAleenan (incorporated by reference to Exhibit 4.1 to the Companys
quarterly report on Form 10-Q for the quarter ended June 30, 2005, filed with the Securities
and Exchange Commission on August 4, 2005, File Number 0-51357)
Registration Rights Agreement, dated as of February 11, 2005, among Builders FirstSource,
Inc., the Guarantors named therein, and UBS Securities LLC and Deutsche Bank Securities Inc.
(incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the Companys registration
statement on Form S-1, filed with the Securities and Exchange Commission on April 27, 2005,
File Number 333-122788)
Stockholders Agreement, dated as of June 11, 1999, among Stonegate Resources Holdings, LLC,
BSL Holdings, Inc., Holmes Lumber Company, and Lockwood Holmes (incorporated by reference to
Exhibit 4.5 to Amendment No. 2 to the Companys registration statement on Form S-1, filed with
the Securities and Exchange Commission on April 27, 2005, File Number 333-122788)
Stock Purchase Agreement, dated as of March 3, 2000, among Stonegate Resources Holdings, LLC,
Builders FirstSource, Inc., and William A. Schwartz (incorporated by reference to Exhibit 4.6
to Amendment No. 2 to the Companys registration statement on Form S-1, filed with the
Securities and Exchange Commission on April 27, 2005, File Number 333-122788)
Indenture, dated as of February 11, 2005, among Builders FirstSource, Inc., the Subsidiary
Guarantors thereto, and Wilmington Trust Company, as Trustee (incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Companys registration statement on Form S-1, filed with
the Securities and Exchange Commission on April 27, 2005, File Number 333-122788)
2008 Form of Builders FirstSource, Inc. 2007 Incentive Plan Nonqualified Stock Option Agreement
2008 Form of Builders FirstSource, Inc. 2007 Incentive Plan Restricted Stock Award Agreement
Written statement pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, signed by Floyd F. Sherman as chief executive officer
Written statement pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, signed by Charles L. Horn as chief financial officer
Written statement pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, signed by Floyd F. Sherman as chief executive officer and
Charles L. Horn as chief financial officer
*
Filed herewith.
**
Builders FirstSource, Inc. is furnishing, but not filing, the written
statements pursuant to Title 18 United States Code 1350, as added by
Section 906 of the Sarbanes-Oxley Act of 2002, of Floyd F. Sherman,
our chief executive officer, and Charles L. Horn, our chief financial
officer.
+
Indicates a management contract or compensatory plan or arrangement.
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BUILDERS FIRSTSOURCE, INC. | ||||||
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BUILDERS FIRSTSOURCE, INC. | |||
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/s/ FLOYD F. SHERMAN | ||||
Floyd F. Sherman | ||||
Chief Executive Officer | ||||
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/s/ CHARLES L. HORN | ||||
Charles L. Horn | ||||
Senior Vice President and Chief Financial Officer | ||||
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/s/ FLOYD F. SHERMAN | ||||
Floyd F. Sherman | ||||
Chief Executive Officer | ||||
/s/ CHARLES L. HORN | ||||
Charles L. Horn | ||||
Senior Vice President and Chief Financial Officer | ||||
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