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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2002 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number 0-19335
BUILDING MATERIALS HOLDING CORPORATION
Delaware 91-1834269
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Building Materials Holding Corporation
Four Embarcadero Center, Suite 3250, San Francisco, CA 94111
Telephone: (415)627-9100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Class Shares Outstanding as
----- of August 2, 2002:
Common stock $.001 par value 13,133,267
1
BUILDING MATERIALS HOLDING CORPORATION
INDEX
Page
Number
------
PART I -- FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2002 and 2001 3
Condensed Consolidated Balance Sheets as of June 30, 2002
and December 31, 2001 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
Three months ended Six months ended
June 30 June 30
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales $300,528 $268,416 $547,663 $491,565
Cost of sales 215,028 194,621 390,936 354,103
-------- -------- -------- --------
Gross profit 85,500 73,795 156,727 137,462
Selling, general and
administrative expense 71,224 62,532 139,277 121,274
Other income, net -- 318 365 890
-------- -------- -------- --------
Income from operations 14,276 11,581 17,815 17,078
Equity in earnings of
unconsolidated companies,
net of amortization -- 2,970 -- 4,817
Interest expense 2,421 3,063 4,955 6,870
-------- -------- -------- --------
Income before income taxes
and change in accounting
principle 11,855 11,488 12,860 15,025
Income taxes 4,564 4,423 4,951 5,785
-------- -------- -------- --------
Income before change in
accounting principle 7,291 7,065 7,909 9,240
Change in accounting principle,
net of tax benefit of $6,286 -- -- (11,650) --
-------- -------- -------- --------
Net income/(loss) $ 7,291 $ 7,065 $ (3,741) $ 9,240
======== ======== ======== ========
Income before change in accounting
principle per common share:
Basic: $0.56 $0.55 $0.61 $0.72
===== ===== ===== =====
Diluted: $0.55 $0.54 $0.60 $0.72
===== ===== ===== =====
Change in accounting principle,
net of tax, per common share:
Basic: $ -- $ -- $(0.89) $ --
===== ===== ====== =====
Diluted: $ -- $ -- $(0.88) $ --
===== ===== ====== =====
Net income/(loss) per common share:
Basic: $0.56 $0.55 $(0.29) $0.72
===== ===== ====== =====
Diluted: $0.55 $0.54 $(0.28) $0.72
===== ===== ====== =====
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(UNAUDITED)
June 30, December 31,
2002 2001
---------- ------------
ASSETS
Current assets
Cash $ 6,961 $ 5,182
Receivables, net 133,594 112,557
Inventories 98,560 85,826
Deferred income tax benefit 5,301 4,657
Prepaid expenses and other current assets 4,112 10,802
-------- --------
Total current assets 248,528 219,024
Property, plant and equipment, net 175,909 177,554
Goodwill 50,737 68,339
Other intangibles, net 10,386 10,513
Deferred loan costs 3,454 4,387
Other long-term assets 7,223 5,925
-------- --------
Total assets $496,237 $485,742
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 78,559 $ 58,120
-------- --------
Total current liabilities 78,559 58,120
Long-term debt 165,201 167,417
Deferred income taxes 2,093 7,803
Other long-term liabilities 10,181 9,508
-------- --------
Total liabilities 256,034 242,848
-------- --------
Shareholders' equity
Common stock, $0.001 par value, 20,000,000
shares authorized; 13,133,267 and
12,984,284 shares issued and outstanding,
respectively 13 13
Additional paid-in capital 111,711 110,661
Retained earnings 128,479 132,220
-------- --------
Total shareholders' equity 240,203 242,894
-------- --------
Total liabilities and shareholders' equity $496,237 $485,742
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
Six months ended
June 30
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ (3,741) $ 9,240
Adjustments to reconcile net income/(loss) to cash
provided by operating activities:
Depreciation and amortization 9,194 8,020
Deferred income taxes (68) (2,154)
Net loss/(gain) on sale of assets 643 (674)
Equity in earnings of unconsolidated
companies, net of amortization -- (4,817)
Distributions received from unconsolidated
companies -- 3,616
Change in accounting principle, net of tax
benefit of $6,286 11,650 --
Changes in assets and liabilities, net of
effects of location sales and acquisitions
Receivables, net (21,217) (12,690)
Inventories (12,874) (9,131)
Prepaid expenses and other current assets 6,690 2,570
Accounts payable and accrued expenses 15,309 10,978
Other long-term assets and liabilities 1,616 3,747
-------- --------
Net cash provided by operating activities 7,202 8,705
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (9,998) (13,335)
Acquisition of businesses (1,406) --
Proceeds from sale of locations, net of cash sold 2,750 758
Proceeds from disposition of property and equipment 346 4,200
Other, net (883) (711)
-------- --------
Net cash used in investing activities (9,191) (9,088)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change under revolving credit agreements (1,100) 34,000
Principal payments on term notes -- (5,555)
Principal payments on other notes payable (156) (289)
Change in book overdrafts 3,755 (1,241)
Stock options exercised 1,036 --
Other, net 233 293
-------- --------
Net cash provided by financing activities 3,768 27,208
-------- --------
Net change in cash 1,779 26,825
Cash, beginning of period 5,182 4,570
-------- --------
Cash, end of period $ 6,961 $ 31,395
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
BUILDING MATERIALS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Building Materials Holding Corporation ("BMHC" or the "Company") on
a consolidated basis, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the consolidated financial statements prepared
in accordance with accounting principles generally accepted in the United States
of America ("GAAP") have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Although the Company
believes that the disclosures are adequate to make the information presented not
misleading, these condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's 2001 Annual Report. In the opinion of
management, all adjustments necessary to present fairly the results for the
periods presented have been included. The adjustments made were of a normal,
recurring nature.
Due to the seasonal nature of BMHC's business, the condensed consolidated
results of operations and resulting cash flows for the periods presented are not
necessarily indicative of the results that might be expected for the fiscal
year.
2. NET SALES BY PRODUCT (in thousands)
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
---------------- ---------------- ---------------- ----------------
Lumber products $102,140 34.0% $109,312 40.7% $180,625 33.0% $194,580 39.6%
Services and
manufactured
components 152,604 50.8 112,793 42.0 286,088 52.2 213,836 43.5
Building materials
26,944 9.0 29,585 11.1 46,910 8.6 52,443 10.7
Other 18,840 6.2 16,726 6.2 34,040 6.2 30,706 6.2
-------- -------- -------- --------
$300,528 $268,416 $547,663 $491,565
======== ======== ======== ========
6
3. NET INCOME PER COMMON SHARE
Net income per common share was determined using the following information (in
thousands):
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Net income/(loss) available to common
shareholders $7,291 $7,065 $(3,741)(1) $9,240
====== ====== ======= ======
Weighted average shares used to determine
basic net income/(loss) per common share 13,073 12,880 13,037 12,860
Net effect of dilutive stock options 203 105 190 62
------ ------ ------ ------
Weighted average shares used to determine
diluted net income/(loss) per common share 13,276 12,985 13,227 12,922
====== ====== ====== ======
(1) After change in accounting principle of $(11,650), net of tax
4. DEBT
At June 30, 2002 and December 31, 2001, debt consisted of the following (in
thousands):
June 30, December 31,
2002 2001
-------- -----------
Term note $110,000 $110,000
Revolving credit facility 52,000 53,100
Non-interest bearing term note, net of
related discounts of $1,531 and $650,
respectively 2,757 3,794
Other 444 523
-------- --------
$165,201 $167,417
======== ========
In connection with a 1999 acquisition, the Company issued a $5,000,000
non-interest bearing term note to the previous owner as partial consideration
for the purchase. Under the terms of the note, a portion of the payments may be
due based on operating results of the acquired business. The Company's original
discount of the note was based on a 15% effective interest rate and estimates of
the operating results of the acquired business. Due to the uncertain timing of
the payout of this term note, the note represents a form of contingent
consideration paid for the acquired business. As a result, the Company adjusted
its estimates related to the timing of the payout of the term note, which
resulted in recording an additional discount of $1,074,000 during the first
quarter of 2002.
7
The scheduled principal payments of total debt at June 30, 2002 are $8.1 million
in 2002, $17.9 million in 2003, $137.0 million in 2004, $0.2 million in 2005 and
$2.0 million in 2006. Principal payments of $17.3 million due within the next
twelve months are expected to be refinanced through the unused portion of the
revolving credit facility. As a result, this amount has been classified as
long-term.
5. ACQUISITIONS
On July 3, 2001 the Company purchased the remaining 51% interest it did not
already own in Knipp Brothers Industries, LLC, KBI Distribution LLC and KB
Industries Limited Partnership (collectively, "KBI") for total consideration of
$34.4 million in cash, net of cash acquired of $1.8 million. As a result, KBI
operating results are included in the consolidated statements of income
beginning July 3, 2001.
On February 1, 2002 the Company purchased the assets of Tri-Trim, Inc., a
Colorado based millwork installation business, for $1.1 million in cash.
On June 28, 2002 the Company purchased the assets of JDP, a Colorado based
millwork installation business, for $0.3 million in cash.
The following summarizes unaudited pro forma results of operations for 2001 and
actual results for 2002 assuming the July 3, 2001 acquisition of KBI (the "KBI
Acquisition") occurred as of the beginning of 2001. The pro forma information
does not include the effects of the Tri-Trim, Inc. acquisition or the JDP
acquisition because such effects are not material. The pro forma data has been
prepared for comparative purposes only. It does not purport to be indicative of
the results of operations that would have resulted had the KBI Acquisition been
consummated at the beginning of 2001, or that may occur in the future (in
thousands, except per share data):
Three months Three months Six months Six months
ended June ended June ended June ended June
30, 2002 30, 2001 30, 2002 30, 2001
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ------------ ----------- -----------
Net sales $300,528 $318,543 $547,663 $577,318
Net income before change in
accounting principle
$ 7,291 $ 8,593 $ 7,909 $ 11,660
Income per diluted common share
before change in accounting
principle
$0.55 $0.66 $0.60 $0.90
8
6. EQUITY INVESTMENT
Summarized combined income statement information of the Company's equity-basis
unconsolidated companies follows (in thousands):
Three months ended Six months ended
June 30, June 30,
2002(1) 2001 2002(1) 2001
---------- --------- --------- ----------
Net sales $-- $50,127 $-- $85,753
Income from operations $-- $ 2,379 $-- $ 3,488
Net income $-- $ 2,249 $-- $ 3,343
Less other members share of net income -- (1,147) -- (1,705)
--- ------- --- -------
Company's share of net income -- 1,102 -- 1,638
Other income allocations, net of
amortization of intangibles -- 1,868 -- 3,179
--- ------- --- -------
Equity in earnings of unconsolidated
companies $-- $ 2,970 $-- $ 4,817
=== ======= === =======
(1) As a result of the KBI Acquisition, the Company no longer accounts for its
investment in KBI under the equity method of accounting
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consisted of the following at June 30, 2002 (in thousands):
As of June 30, 2002
Gross
Carrying Accumulated Net Carrying
Amount Amortization Amount
-------- ------------ ------------
Amortized intangible assets
Covenants not to compete $ 1,885 $ (895) $ 990
Other amortized intangibles 500 (284) 216
Unamortized intangible assets
Customer relationships 9,180 -- 9,180
------- ------- -------
$11,565 $(1,179) $10,386
======= ======= =======
Aggregate amortization expense for intangible assets was $151,000 for the three
months ended June 30, 2002 and $327,000 for the six months ended June 30, 2002.
Estimated amortization expense for intangible assets is $317,000 for the
remainder of 2002, $580,000 in 2003, $272,000 in 2004, $37,000 in 2005 and $0 in
2006.
9
The changes in the carrying amount of goodwill for the six months ended June 30,
2002 are as follows (in thousands):
Balance as of January 1, 2002 $68,339
Goodwill acquired during the period 1,408
Impairment losses(1) (17,936)
Contingent consideration adjustment(2) (1,074)
-------
Balance as of June 30, 2002 $50,737
=======
(1) See Note 8 related to the transitional impairment analysis.
(2) See Note 4 related to the re-pricing of the non-interest bearing
note payable.
8. CHANGE IN ACCOUNTING PRINCIPLE
The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142
"Goodwill and Other Intangible Assets" in the first quarter of 2002. The
provisions of SFAS 142 eliminate the amortization of goodwill and other
indefinite lived intangible assets on a prospective basis beginning with
acquisitions completed after June 30, 2001, or January 1, 2002 for those
completed prior to June 30, 2001. 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 as of the first quarter of 2002. The Company has completed the
transitional impairment analysis, which resulted in the following impaired
amounts of goodwill as of January 1, 2002 (in thousands):
Goodwill
Goodwill Impairment,
Reporting Unit Impairment Net of Tax
--------------------- ---------- -----------
Northern Nevada $ 2,257 $ 1,388
Utah 1,397 859
Spokane 41 25
San Antonio / Austin 2,194 1,969
Royal Door 2,975 1,830
Dallas / Fort Worth 1,403 863
Puget Sound 6,253 3,846
Portland 1,416 870
------- -------
Total $17,936 $11,650
======= =======
The Reporting Units (as defined by SFAS 142) listed above generated cash flows
during 2001 that did not meet Company expectations. Possible reasons for the
short-falls could 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 expected present value of future cash flows.
The following reflects adjustments that would be made to net income/(loss) and
earnings per share if the non-amortization provisions of SFAS 142 had been
adopted as of January 1, 2001 (in thousands, except per share data):
10
For the three For the six
months ended months ended
June 30, June 30,
2002 2001 2002 2001
-------- -------- --------- --------
Reported net income/(loss) $7,291 $7,065 $(3,741) $9,240
Add back: Goodwill amortization, net of tax -- 293 -- 586
Add back: Customer relationship amortization,
net of tax -- 24 -- 48
------ ------ -------- ------
Adjusted net income/(loss) $7,291 $7,382 $(3,741) $9,874
====== ====== ======== ======
BASIC EARNINGS PER SHARE:
Reported net income/(loss) $0.56 $0.55 $(0.29) $0.72
Goodwill amortization, net of tax -- 0.02 -- 0.05
Customer relationship amortization, net
of tax -- 0.00 -- 0.00
----- ----- ------ -----
Adjusted net income/(loss) $0.56 $0.57 $(0.29) $0.77
===== ===== ====== =====
DILUTED EARNINGS PER SHARE:
Reported net income/(loss) $0.55 $0.54 $(0.28) $0.72
Goodwill amortization, net of tax -- 0.02 -- 0.05
Customer relationship amortization, net
of tax -- 0.00 -- 0.00
----- ----- ------ -----
Adjusted net income/(loss) $0.55 $0.57 $(0.28) $0.76
===== ===== ====== =====
9. SUBSEQUENT EVENT
On July 1, 2002, the Company purchased a 51% interest in a newly formed
partnership, KBI Norcal, for approximately $4.9 million in cash, $0.8 million of
assumed debt and the issuance of 34,384 shares of BMHC common stock. The other
49% interest is owned by Robert Garcia and John Volkman, principals of Sanburn
Construction Corporation, a privately held firm based in Dixon, California. KBI
Norcal will provide turnkey framing services in Northern California.
Under the purchase agreement, BMHC will have the option to purchase the
remaining 49% interest in KBI Norcal from July 1, 2004 through June 30, 2008 and
the principals of Sanburn Construction Corporation have the option to require
BMHC to purchase the remaining 49% of KBI Norcal from July 1, 2006 through June
30, 2008. The purchase price for the remaining 49% will generally be equal to
the greater of (i) four times earnings before interest and taxes ("EBIT") of KBI
Norcal for the 12 calendar months prior to the exercise of the option, (ii) four
times the annualized average EBIT of KBI Norcal for the 36 calendar months prior
to the exercise of the option, or (iii) $7.5 million.
11
BUILDING MATERIALS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND CRITICAL ACCOUNTING ESTIMATES
Certain statements made in this Form 10-Q may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors are discussed in detail in Building
Materials Holding Corporation's Form 10-K for the fiscal year ended December 31,
2001. Given these uncertainties, investors are cautioned not to place undue
reliance on such forward-looking statements. We disclaim any obligation to
update any such factors or to announce publicly the results of any revisions to
any of the forward-looking statements contained in the Annual Report on Form
10-K or this Form 10-Q except as required by law. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in our Annual
Report to Shareholders for information regarding our critical accounting
estimates.
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain costs, expenses and income items. The table
and subsequent discussion should be read in conjunction with the consolidated
financial statements and the notes thereto appearing elsewhere herein and in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
For the three months ended For the six months ended
June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- ------
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 28.4 27.5 28.6 28.0
Selling, general and
administrative expense 23.7 23.3 25.4 24.7
Other income -- 0.1 -- 0.2
Income from operations 4.7 4.3 3.2 3.5
Equity in earnings of
unconsolidated companies -- 1.1 -- 1.0
Interest expense 0.8 1.1 0.9 1.4
Income taxes 1.5 1.6 0.9 1.2
Income before change in
accounting principle 2.4 2.6 1.4 1.9
12
SECOND QUARTER OF 2002 COMPARED TO THE SECOND QUARTER OF 2001
Net sales for the three months ended June 30, 2002 were $300.5 million, up 12.0%
from the second quarter of 2001 when sales were $268.4 million. The increase in
net sales resulted from acquisitions, primarily from the consolidation of KBI.
This increase was partially offset by a 3.8% decrease in same-store sales, or a
3.9% decrease after adjusting for increases in commodity lumber prices, as
compared to the second quarter of 2001 at facilities that operated for at least
two months in the second quarter of both 2001 and 2002. Construction services
and manufactured components accounted for $152.6 million, or 50.8% of net sales
for the second quarter of 2002, an increase from $112.8 million, or 42.0% of net
sales for the second quarter of 2001. Building materials distribution accounted
for $147.9 million, or 49.2% of net sales for the second quarter of 2002, a
decrease from $155.6 million, or 58.0% of net sales, for the second quarter of
2001.
Gross profit as a percentage of sales increased to 28.4% in the second quarter
of 2002 from 27.5% in the second quarter of 2001, primarily as a result of
increased sales of higher margin construction services and manufactured
components, such as framing, roof trusses, pre-hung doors, millwork, and
pre-assembled windows.
Selling, general and administrative (SG&A) expense was $71.2 million, or 23.7%
of net sales in the second quarter of 2002 as compared to $62.5 million, or
23.3% of net sales in the second quarter of 2001. The Company attributes most of
this dollar increase to the consolidation of KBI resulting from the KBI
Acquisition on July 3, 2001. Increased SG&A expense attributable to the KBI
Acquisition and higher general insurance expense were partially offset by
reduced employee compensation expense related to a cash equity incentive plan
and by the elimination of goodwill amortization in accordance with new
accounting standards.
There was no equity in earnings of unconsolidated companies in the second
quarter of 2002, compared to $3.0 million in the second quarter of 2001. This
decrease is attributed to the consolidation of KBI resulting from the KBI
Acquisition on July 3, 2001.
Interest expense decreased to $2.4 million from $3.1 million during the second
quarter of 2002 and 2001, respectively, primarily due to a reduction in the
weighted average interest rate to 4.7% from 6.9% between the two periods. The
impact of the reduced interest rate was partially offset by an increase in the
weighted average debt outstanding to $171.9 million during the second quarter of
2002 from $161.0 million during the same period of 2001. The increase in
13
the average debt outstanding is primarily due to additional working capital
needs related to the KBI Acquisition.
Overall, net income improved in the second quarter of 2002 when compared to the
second quarter of 2001. The improvement, however, is primarily attributable to
the consolidation of KBI, which resulted from the KBI Acquisition on July 3,
2001. Earnings from building materials distribution and construction services
and manufactured components, excluding the effect of the consolidation of KBI,
would have been lower in the second quarter of 2002 compared to the second
quarter of 2001. Management believes that second quarter earnings were adversely
affected by several factors, including a reduction in housing permits in some of
the markets we serve, a shift in the marketplace toward lower value houses
typically built for first-time home buyers, which do not provide us with as many
sales opportunities due to the reduced cost of materials going into these houses
and because our customer base has historically focused more on higher dollar
value custom homes, and increased operating expenses primarily related to
insurance expense.
FIRST SIX MONTHS OF 2002 COMPARED TO THE FIRST SIX MONTHS OF 2001
Net sales for the six months ended June 30, 2002 were $547.7 million, up 11.4%
from the first six months of 2001 when sales were $491.6 million. The increase
in net sales resulted primarily from the consolidation of KBI and the impact of
inflation on commodity lumber product prices. This increase was partially offset
by a 4.8% decrease in same-store sales, or a 6.6% decrease after adjusting for
increases in commodity lumber prices, as compared to the first six months of
2001 at facilities that operated for at least four months in the first half of
both 2001 and 2002. Construction services and manufactured components accounted
for $286.1 million, or 52.2% of net sales for the first six months of 2002, an
increase from $213.8 million, or 43.5% of net sales for the first six months of
2001. Building materials distribution accounted for $261.6 million, or 47.8% of
net sales, for the six months ended June 30, 2002, a decrease from 277.8
million, or 56.5% of net sales, for the six months ended June 30, 2001.
Gross profit as a percentage of sales increased to 28.6% in the first half of
2002 from 28.0% in the first six months of 2001, primarily as a result of
increased sales of higher margin construction services and manufactured
components, such as framing, roof trusses, pre-hung doors, millwork, and
pre-assembled windows.
SG&A expense was $139.3 million, or 25.4% of net sales in the first six months
of 2002 as compared to $121.3 million, or 24.7% of net sales in the first six
months of 2001. The Company attributes most of this dollar increase to the
14
consolidation of KBI resulting from the KBI Acquisition on July 3, 2001.
Increased SG&A expense attributable to the KBI Acquisition and higher general
insurance expense were partially offset by the elimination of goodwill
amortization in accordance with new accounting standards.
There was no equity in earnings of unconsolidated companies in the first six
months of 2002, compared to $4.8 million in the first six months of 2001. This
decrease is attributed to the consolidation of KBI resulting from the KBI
Acquisition on July 3, 2001.
Interest expense decreased to $5.0 million from $6.9 million during the first
six months of 2002 and 2001, respectively, primarily due to a reduction in the
weighted average interest rate to 4.9% from 8.0% between the two periods. The
impact of the reduced interest rate was partially offset by an increase in the
weighted average debt outstanding to $170.6 million during the first six months
of 2002 from $160.2 million during the same period of 2001. The increase in the
average debt outstanding is primarily due to additional working capital needs
related to the KBI Acquisition.
Overall, net income declined in the first six months of 2002 when compared to
the first six months of 2001. Management believes that earnings were adversely
affected by several factors, including a reduction in housing permits in some of
the markets we serve, a shift in the marketplace toward lower value houses
typically built for first-time home buyers, which do not provide us with as many
sales opportunities due to the reduced cost of materials going into these houses
and because our customer base has historically focused more on higher dollar
value custom homes, and increased operating expenses primarily related to
insurance expense. These factors were partially offset by the consolidation of
KBI, which resulted from the KBI Acquisition on July 3, 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital resources is to fund future growth,
capital expenditures, and acquisitions, as well as to finance working capital
needs, which have been increasing as the Company has grown in recent years.
Capital resources have primarily consisted of cash flows from operations and the
incurrence of debt.
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OPERATIONS
In the first six months of 2002 and 2001, net cash provided by operations was
$7.2 million and $8.7 million, respectively. The decrease in cash provided by
operations is primarily due to increases in accounts receivable and inventory,
partially offset by increases in accounts payable and accrued expenses. Working
capital decreased to $170.0 million at June 30, 2002 from $180.0 million at June
30, 2001 primarily due to advances made on the revolving credit facility in June
2001 in anticipation of purchasing the remaining 51% of KBI on July 3, 2001,
partially offset by increases in accounts receivable and inventory as of June
30, 2002.
CAPITAL INVESTMENT AND ACQUISITIONS
Capital expenditures were $10.0 million in the first six months of 2002. Capital
expenditures were incurred to acquire additional property and expand and remodel
existing facilities. Proceeds from the sale of business units, net of cash sold,
were $2.8 million during the first six months of 2002, related to the sale of
the Jackson, Wyoming, Gardnerville, Nevada, and Tooele, Utah locations.
FINANCING
Net cash provided by financing activities was $3.8 million and $27.2 million in
the first six months of 2002 and 2001, respectively. The variance between the
two periods is primarily attributable to borrowings made in June 2001 under the
revolving credit facility in anticipation of purchasing the remaining 51% of KBI
on July 3, 2001.
At June 30, 2002 the Company's existing senior credit facility provided for
borrowings of up to $300.0 million, which includes $110.0 million provided for
by the term loan all of which was outstanding at June 30, 2002, and $190.0
million provided for by the revolving credit facility, $52.0 million of which
was outstanding at June 30, 2002. Revolver borrowings are limited by a borrowing
base equal to 60% of inventory plus 80% of trade accounts receivable. The
borrowing base is calculated monthly and was $165.3 million at June 30, 2002,
resulting in revolver availability of $107.4 million, net of $5.9 million in
outstanding letters of credit. Borrowings under the facility bear interest at
prime plus 0.50% to 1.50%, or Offshore Rate plus 2.0% to 3.0%. The agreement
expires on December 1, 2004.
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In the third quarter of 1998, a shelf registration was filed with the Securities
and Exchange Commission to register 2,000,000 shares of common stock. The
Company may issue these shares from time to time in connection with future
business combinations, mergers and/or acquisitions. As part of the KBI Norcal
acquisition on July 1, 2002, the Company issued 34,384 shares of stock from this
shelf registration (See Note 9).
Based on the Company's ability to generate cash flows from operations, its
borrowing capacity under the revolver and its access to debt and equity markets,
the Company believes it will have sufficient capital to meet its anticipated
needs.
DISCLOSURES OF CERTAIN MARKET RISKS
The Company experiences changes in interest expense when market interest rates
change or changes are made to its debt structure. Based on debt outstanding at
June 30, 2002, a 25 basis point increase in interest rates would result in
approximately $402,000 of additional annual interest costs.
Commodity lumber products, including panel products, accounted for approximately
33.0% and 39.6% of net sales in the first six months of 2002 and 2001,
respectively. Prices of commodity lumber products, which are subject to
significant volatility, directly affect net sales and cost of sales and could
affect net income. The Company does not utilize any derivative financial
instruments.
The Company has a cash equity incentive plan that is partially based on changes
in the Company's stock price. Under the plan, a $1.00 increase or decrease in
the Company's stock price after June 30, 2002 would result in an increase or
decrease in compensation expense of approximately $131,000.
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation and other legal matters arising
in the normal course of business. In the opinion of management, the
Company's recovery or liability, if any, under any of these matters
will not have a material effect on the Company's financial position,
liquidity or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit # Description
--------- ------------
11.0 Statement regarding computation of earnings per share (see
Note 3)
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002
99.2 Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
The Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On April 8, 2002 Building Materials Holding Corporation, Registrant,
filed a Form 8-K with the Securities and Exchange Commission
announcing preliminary results for the quarter ending March 31, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUILDING MATERIALS HOLDING CORPORATION
Date: August 9, 2002 /s/ Robert E. Mellor
----------------------------------------
Robert E. Mellor
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 9, 2002 /s/ Ellis C. Goebel
----------------------------------------
Ellis C. Goebel
Senior Vice President - Finance
and Treasurer
(Principal Financial Officer)
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