Builders FirstSource (BLDR) 8-K Builders FirstSource Reports Third Quarter 2006 Results

For Immediate Release

Builders FirstSource Reports Third Quarter 2006 Results

October 26, 2006 (Dallas, TX) — Builders FirstSource, Inc. (NASDAQ: BLDR),a leading supplier and manufacturer of structural and related building products for residential new construction in the United States, today reported financial results for its third quarter ended September 30, 2006.

“Our third quarter results reflect the current challenges facing the homebuilding industry as many homebuilders work through excess inventory,” said Floyd Sherman, Builders FirstSource Chief Executive Officer. “Our sales were down only 11.5 percent year-over-year despite an estimated 20.6 percent decrease in housing starts in our markets and a 14.3 percent decrease in nationwide commodity lumber and lumber sheet good prices. We partially offset these market conditions by gaining market share while simultaneously improving our gross margin percentage and reducing our operating costs. I am pleased with our performance given the difficult current market environment.”

Third Quarter 2006 Financial Results
(See accompanying financial schedules for full financial details and reconciliations of Non-GAAP financial measures to their GAAP equivalents.)

• Sales for the third quarter were $569.9 million compared to $644.0 million for the same period in 2005.

• Third quarter 2006 net income was $17.3 million compared to $27.8 million in the same quarter last year. Third quarter 2006 net income included a $4.3 million (net of tax) charge to reduce the carrying value of goodwill related to one of the company’s reporting units. Net income for the third quarter 2006 also included stock-based compensation expense of $0.8 million (net of tax) as the company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004),Share-Based Payment, on January 1, 2006.

• Net income per diluted share for the quarter was $0.48 in 2006, including the aforementioned charges, compared to net income per diluted share of $0.80 in 2005.

• Diluted weighted average shares outstanding for the third quarter of 2006 were 36.0 million compared to 35.0 million for the same quarter last year.

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Builders FirstSource Reports Third Quarter 2006 Results, continued

• Gross margin percentage for the quarter was up slightly at 26.6 percent, compared to 26.4 percent in the same quarter of 2005.

• EBITDA for the quarter was $47.0 million compared to $58.7 million in the third quarter of 2005. EBITDA as a percentage of sales decreased from 9.1 percent to 8.3 percent.

• As of September 30, 2006, the company’s cash on hand was $65.8 million, and funded debt was $315.0 million.

Commenting on the third quarter results, Charles Horn, Builders FirstSource Senior Vice President and Chief Financial Officer, said, “During the quarter, we continued to deliver on sales drivers that we can control. Market share gains and new facilities positively affected our sales by an estimated 11.2 percent and 1.7 percent, respectively.”

During the third quarter, housing starts for markets in which the company operates declined by an estimated 20.6 percent compared to the same period in 2005. Many of the company’s largest markets, including Texas, Georgia and the Carolinas, started to experience year-over-year declines in housing starts after experiencing year-over-year growth during the first half of the year. In addition, nationwide commodity lumber and lumber sheet good prices decreased approximately 14.3 percent compared to the third quarter last year. The company mitigated those commodity price declines to a 3.8 percent decrease to its total sales primarily through pricing management and product mix.

Horn added, “We managed our cost structure very well during the quarter adjusting our operating expenses commensurate with the decline in sales volume. Selling, general and administrative expenses decreased $5.4 million from the third quarter of 2005. As a percentage of sales, however, third quarter SG&A increased from 18.0 percent in 2005 to 19.4 percent in 2006. Lower market prices for lumber products increased the 2006 percentage by 70 basis points. Stock compensation expense, which was not present in 2005, added 20 basis points, and costs associated with our Sarbanes-Oxley compliance efforts added 20 basis points.”

Outlook

“We believe we can continue to mitigate a portion of the macroeconomic headwind by gaining market share to grow faster than our underlying markets. We also believe we can continue to increase sales through new operations,” said Mr. Sherman. “However, we expect that difficult market conditions affecting our business will continue to have a negative effect on our operating results and year-over-year comparisons through at least mid 2007. While we are very focused on reducing costs and conserving capital during this challenging period, we want to avoid taking steps that will limit our ability to compete and create shareholder value in the long term.”

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Builders FirstSource Reports Third Quarter 2006 Results, continued

Mr. Sherman concluded, “Certainly, there are adjustments we are making as we manage through the current downturn. Still, we remain confident in our core business model and operating strategy. We also believe our diverse geographic footprint gives us a competitive advantage during both contracting and expanding housing markets. We plan to judiciously invest in new operations and to strategically seek acquisition candidates. Finally, we continue to believe that the long-term outlook for the housing market is very positive.”

Conference Call

Builders FirstSource will host a conference call tomorrow at 11:00 a.m. Central Time (CT) and will simultaneously broadcast it live over the Internet. To participate in the teleconference, please dial into the call a few minutes before the start time: 800-565-5442 (U.S. and Canada) and 913-312-1298 (international). A replay of the call will be available from 1:00 p.m. CT October 27 through November 2, 2006. To access the replay, please dial 888-203-1112 (U.S. and Canada) and 719-457-0820 (international). Please refer to pass code 3659947. To access the webcast, go to www.bldr.com and click on “Investors.” The online archive of the webcast will be available for approximately 90 days.

About Builders FirstSource
Headquartered in Dallas, Texas, Builders FirstSource is a leading supplier and manufacturer of structural and related building products for residential new construction. The company operates in 12 states, principally in the southern and eastern United States, and has 66 distribution centers and 54 manufacturing facilities, many of which are located on the same premises as our distribution facilities. Manufacturing facilities include plants that manufacture roof and floor trusses, wall panels, stairs, aluminum and vinyl windows, custom millwork and pre-hung doors. Builders FirstSource also distributes windows, interior and exterior doors, dimensional lumber and lumber sheet goods, millwork and other building products. Effective July 3, 2006, the company was assigned to NASDAQ’s recently created NASDAQ Global Select Market, a new tier of the NASDAQ Global Market with higher initial listing and corporate governance standards. For more information about Builders FirstSource, visit the company’s Web site at www.bldr.com. (BLDR-F)

Cautionary Notice
Statements in this news release and the schedules hereto which are not purely historical facts or which necessarily depend upon future events, including statements about the impact of expected market share gains, plans to reduce costs, forecasted financial performance or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements. All forward-looking statements are based upon information available to Builders FirstSource, Inc. on the date this release was submitted. Builders FirstSource, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks or uncertainties related to the Company’s growth strategies, including gaining market share, or the Company’s revenues and operating results being highly dependent on, among other things, the homebuilding industry, lumber prices and the economy. Builders FirstSource, Inc. may not succeed in addressing these and other risks. Further information regarding factors that could affect our financial and other results can be found in the risk factors section of Builders FirstSource, Inc.’s most recent annual report on Form 10-K filed with the

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Builders FirstSource Reports Third Quarter 2006 Results, continued

Securities and Exchange Commission. Consequently, all forward-looking statements in this release are qualified by the factors, risks and uncertainties contained therein.

# # #

Contacts:
Hala Elsherbini	Charles L. Horn
Vice President	Senior Vice President and Chief Financial Officer
Halliburton Investor Relations	Builders FirstSource, Inc.
(972) 458-8000	(214) 880-3500

Financial Schedules to Follow

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BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)

	Three months ended				Nine months ended
	September 30,				September 30,
	2006		2005		2006		2005
	(in thousands, except per share amounts)
Sales	$	569,895	$	643,964	$	1,800,875	$	1,771,906
Cost of sales		418,100		474,019		1,328,454		1,325,523
Gross margin		151,795		169,945		472,421		446,383
Impairment of goodwill		6,763		—		6,763		—
Selling, general and administrative expenses		110,562		115,974		340,553		358,772
Income from operations		34,470		53,971		125,105		87,611
Interest expense		7,292		8,137		21,793		39,644
Income before income taxes		27,178		45,834		103,312		47,967
Income tax expense		9,862		18,006		38,296		18,838
Net income	$	17,316	$	27,828	$	65,016	$	29,129
Net income per share:
Basic	$	0.51	$	0.85	$	1.93	$	1.04
Diluted	$	0.48	$	0.80	$	1.80	$	0.96
Weighted average common shares outstanding:
Basic		34,051		32,660		33,651		27,927
Diluted		36,018		34,999		36,029		30,202

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BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
Sales by Product Category
(unaudited)

	Three Months Ended September 30,
	2006				2005
	(dollars in thousands)
Prefabricated components	$	118,273	20.8	%	$	142,358	22.1	%
Windows & doors		120,495	21.1	%		121,487	18.9	%
Lumber & lumber sheet goods		172,991	30.4	%		232,069	36.0	%
Millwork		52,961	9.3	%		55,826	8.7	%
Other building products & services		105,175	18.4	%		92,224	14.3	%
Total sales	$	569,895	100.0	%	$	643,964	100.0	%

	Nine Months Ended September 30,
	2006				2005
	(dollars in thousands)
Prefabricated components	$	377,643	21.0	%	$	376,787	21.3	%
Windows & doors		367,100	20.4	%		330,667	18.7	%
Lumber & lumber sheet goods		593,690	32.9	%		655,916	37.0	%
Millwork		161,705	9.0	%		151,519	8.5	%
Other building products & services		300,737	16.7	%		257,017	14.5	%
Total sales	$	1,800,875	100.0	%	$	1,771,906	100.0	%

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BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

	September 30,
	2006		December 31,
	(unaudited)		2005
(in thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	65,835	$	30,736
Accounts receivable, less allowances of $6,474 and $6,135, respectively		235,421		237,695
Inventories		144,024		149,397
Other current assets		29,066		24,753
Total current assets		474,346		442,581
Property, plant and equipment, net		110,336		99,862
Goodwill		166,722		163,030
Other assets, net		24,868		18,934
Total assets	$	776,272	$	724,407
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	118,385	$	127,998
Accrued liabilities		68,511		83,572
Current maturities of long-term debt		441		102
Total current liabilities		187,337		211,672
Long-term debt, net of current maturities		318,869		314,898
Other long-term liabilities		20,738		26,702
		526,944		553,272
Commitments and contingencies Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding		—		—
Common stock, $0.01 par value, 200,000 shares authorized; 34,490 and 32,998 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively		341		330
Additional paid-in capital		123,837		111,979
Unearned stock compensation		—		(1,087	)
Retained earnings		123,097		58,081
Accumulated other comprehensive income		2,053		1,832
Total stockholders’ equity		249,328		171,135
Total liabilities and stockholders’ equity	$	776,272	$	724,407

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BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures to their GAAP Equivalents
(unaudited — dollars in thousands, except per share amounts)

	Three months ended						Nine months ended
	September 30,						September 30,
	2006			2005			2006			2005
Reconciliation to Adjusted Net Income and Adjusted Net Income per Share (1):
Net income	$	17,316		$	27,828		$	65,016		$	29,129
Reconciling items:
Cash payment to stock option holders (2)		—			—			—			36,364
Write-off of unamortized debt issuance costs (3)		—			—			—			10,293
Financing costs incurred and expensed in conjunction with the February 2005 refinancing (3)		—			—			—			2,425
Termination penalty resulting from prepayment of term loan under prior credit facilities (3)		—			—			—			1,700
Reduction in interest expense assuming IPO net proceeds were used to repay debt at the beginning of the period (3)		—			—			—			3,319
Tax effect of reconciling items at 38.0%		—			—			—			(20,558	)
Adjusted net income	$	17,316		$	27,828		$	65,016		$	62,672
Weighted average shares outstanding:
Diluted shares		36,018			34,999			36,029			30,202
Incremental shares for IPO (4)		—			—			—			4,725
Adjusted diluted shares		36,018			34,999			36,029			34,927
Adjusted net income per share — diluted	$	0.48		$	0.80		$	1.80		$	1.79
Reconciliation to EBITDA and Adjusted EBITDA (1):
Net income	$	17,316		$	27,828		$	65,016		$	29,129
Reconciling items:
Depreciation and amortization expense		5,798			4,773			16,310			14,248
Impairment of goodwill		6,763			—			6,763			—
Interest expense		7,292			8,137			21,793			39,644
Income tax expense		9,862			18,006			38,296			18,838
EBITDA		47,031			58,744			148,178			101,859
Add: cash payment to stock option holders (2)		—			—			—			36,364
Adjusted EBITDA	$	47,031		$	58,744		$	148,178		$	138,223
Adjusted EBITDA as percentage of sales		8.3	%		9.1	%		8.2	%		7.8	%

	Three months ended						Last twelve months ended
	September 30, (annualized)						September 30,
	2006			2005			2006			2005
Reconciliation to Return on Net Assets and Adjusted Return on Net Assets (1):
Net income	$	69,264		$	111,312		$	84,515		$	44,120
Reconciling items:
Interest expense		29,168			32,548			29,376			45,415
Income tax expense		39,448			72,024			48,775			27,477
Earnings before interest and taxes		137,880			215,884			162,666			117,012
Add: cash payment to stock option holders (2)		—			—			—			36,364
Adjusted earnings before interest and taxes	$	137,880		$	215,884		$	162,666		$	153,376
Average net assets		534,552			491,069			502,101			490,184
Return on net assets		25.8	%		44.0	%		32.4	%		23.9	%
Adjusted return on net assets		25.8	%		44.0	%		32.4	%		31.3	%

(1)	The company has provided detailed explanations of its non-GAAP financial measures in its Form 8-K filed October 26, 2006.
(2)	Represents cash payment made to stock option holders (including applicable payroll taxes) in lieu of adjusting exercise prices in conjunction with our refinancing transactions. This amount is included in selling, general and administrative expenses.
(3)	This amount is included in interest expense.
(4)	Represents incremental shares related to the company’s IPO assuming the 7,500 shares sold by the company were issued at the beginning of the period.

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