FINANCIAL REVIEW
Building Materials Holding Corporation
This financial review covers management's discussion and analysis of
consolidated financial condition and operating results and should be read in
conjunction with the financial statements and the notes thereto appearing
elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The following table sets forth for the years ended December 31, 1999, 1998 and
1997, the percentage relationship to net sales of certain costs, expenses and
income items.
- ---------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------
Net sales ......................... 100.0% 100.0% 100.0%
Gross profit ...................... 25.0 24.4 23.1
Selling, general and
administrative expense .......... 20.7 20.5 20.0
Other income ...................... 0.2 0.1 0.3
Income from operations ............ 4.5 4.0 3.4
Equity in earnings of
unconsolidated subsidiaries...... 0.5 -- --
Interest expense .................. 1.3 1.2 1.2
Income taxes ...................... 1.4 1.1 0.9
Extraordinary item ................ (0.3) -- --
Net income ........................ 2.0 1.7 1.3
- ---------------------------------------------------------------------
1999 COMPARED WITH 1998
Net sales for 1999 were $1.0 billion, a 14.8% increase over net sales of $877.3
million in 1998. Sales in 1999 were positively affected by favorable overall
economic conditions, including strong employment levels and consumer confidence.
Acquisitions of building materials centers and value-added facilities that
occurred in 1998 and 1999 contributed a 5.3% increase to net sales in 1999.
Sales at facilities that operated for at least nine months of the year in both
1998 and 1999 increased 13.5%. This same-store sales increase is largely due to
the shift in our focus toward value-added products that attract new customers
and gives us the opportunity to increase our total sales per building permit.
Value-added products accounted for $348.6 million, or 34.6% of net sales in
1999, an increase from $275.9 million, or 31.4% of net sales in 1998.
Gross profit increased to $252.0 million, or 25.0% of net sales in 1999
from $214.2 million, or 24.4% of net sales, in 1998, primarily as a result of a
positive effect of the increased mix of higher-margin, value-added products such
as pre-hung doors, millwork, roof trusses and pre-assembled windows and higher
commodity wood product prices.
Selling, general and administrative ("SG&A") expenses increased to $208.8
million, or 20.7% of net sales, in 1999 from $180.1 million, or 20.5% of net
sales, in 1998. This increase as a percentage of net sales was due primarily to
higher costs associated with expanding value-added sales and costs associated
with integrating new operating units acquired in the fourth quarter of 1998 and
the full year of 1999. In addition, low unemployment and a tight labor market
resulted in higher wage costs in 1999 in an effort to attract and retain high
quality employees.
Other income increased primarily from a gain on the sale of equipment and
three centers located in Texas of $1,384,000. This was partially offset by costs
of $768,000, related to a postponed private placement of subordinated debt.
Equity in earnings of unconsolidated subsidiaries increased to $5.0
million, net of amortization of goodwill, after the completion of an investment
of a 49% interest in Knipp Brothers Industries, LLC, a framing company, and KBI
Distribution, LLC, a lumber yard, during 1999.
Interest expense increased to $13.2 million, or 1.3% of net sales in 1999
from $10.2 million, or 1.2% of net sales in 1998. The increase was due primarily
to an increase in interest rates and average debt outstanding. Average debt
outstanding was $156.2 million in 1999 compared with $121.9 million in 1998.
Average interest rates on variable rate debt were approximately 7.6% for 1999
compared with 6.8% for 1998. Increased average debt outstanding resulted
primarily from higher working capital requirements resulting from increased
sales activity and from financing acquisitions made in 1999.
The provision for income taxes increased to $14.4 million in 1999 from
$9.8 million in 1998. The increase in the provision for income taxes resulted
primarily from increased income from operations in 1999 as compared with the
prior year. In 1999, our tax rate decreased to 38.5% from 39.2% in 1998. This
was primarily due to a decrease in our state income taxes.
The Company entered into a new senior secured credit facility and used the
net proceeds to repay amounts borrowed under its prior senior credit facility,
two outstanding series of senior notes and a promissory note issued in
connection with an acquisition. Upon repayment of the senior notes, the Company
paid a redemption premium and wrote-off related deferred financing costs, the
aggregate of which is reflected as an extraordinary charge that reduced 1999
earnings by $3.4 million, or $0.26 per diluted share, net of tax.
1998 COMPARED WITH 1997
Net sales for 1998 were $877.3 million, a 20.5% increase over net sales of
$728.1 million in 1997. Acquisitions of building materials centers and
value-added facilities which occurred in 1997 and 1998 contributed a 14.5%
increase to net sales in 1998. Same-store sales increased 8.1%.
Gross profit increased to $214.2 million, or 24.4% of net sales in 1998
from $168.4 million, or 23.1% of net sales, in 1997, primarily as a result of
the increased mix of higher-margin, value-added products such as pre-hung doors,
millwork, roof trusses and pre-assembled windows. These value-added products
accounted for $275.9 million, or 31.4% of net sales in 1998, an increase from
$176.0 million, or 24.2% of net sales in 1997.
SG&A expenses, increased to $180.1 million, or 20.5% of net sales, in 1998
from $145.9 million, or 20.0% of net sales, in 1997. This increase as a
percentage of net sales was due primarily to lower prices for wood products
which decreased sales and thereby increased SG&A as a percent of sales, higher
costs associated with expanding value-added sales, and costs associated with
integrating new operating units. In addition, low unemployment and a tight labor
market resulted in higher wage costs in 1998 in an effort to attract and retain
high quality employees.
Although consistent as a percent of sales, interest expense increased to
$10.2 million in 1998 from $8.7 million in 1997. The increase was due primarily
to an increase in average debt outstanding. Average debt outstanding was $121.9
million in 1998 compared with $99.0 million in 1997. Average interest rates on
variable rate debt were approximately 6.8% for 1998 compared with 6.9% for 1997.
Increased average debt outstanding resulted primarily from higher working
capital requirements as a result of increased sales and from acquisitions made
in late 1997 and 1998.
The provision for income taxes increased to $9.8 million in 1998 from $6.2
million in 1997. The increase in the provision for income taxes resulted
primarily from increased income from operations in 1998 as compared with the
prior year.
As a result of the foregoing factors, net income increased $5.7 million to
$15.1 million in 1998, or 1.7% of net sales, as compared with $9.5 million, or
1.3% of net sales in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital resources is to fund future growth and
capital expenditures, as well as to finance its 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 incurrence of debt.
OPERATIONS
In 1999, operations provided $14.6 million in cash, compared with $44.8 million
in 1998, a decrease of $30.2 million due primarily to changes in accounts
receivable, inventories, prepaid expenses and accounts payable and accrued
expenses. Net working capital was $139.3 million at the end of 1999, compared
with $116.7 million at the end of 1998. The increase in working capital was
primarily the result of higher sales activity over 1998 levels. Receivables,
net, increased $18.0 million, or 19.6% compared to the prior year, however $6.8
million of this increase was attributable to locations acquired in 1999.
In 1998, operations provided $44.8 million in cash, compared with $35.3
million in 1997. This increase was due primarily to increases in net income and
improvements in working capital, net of acquisitions. Net working capital was
$116.7 million at the end of 1998, compared with $118.6 million at the end of
1997. The decrease in working capital was primarily the result of the effort by
management to increase inventory turns and decrease days sales outstanding.
CAPITAL INVESTMENT AND ACQUISITIONS
Capital expenditures, exclusive of acquisitions, were $27.4 million in 1999 and
$19.6 million in 1998 and $13.3 million in 1997. The principal property and
equipment expenditures included purchases of additional property and expansion
of existing building materials centers and value-added facilities.
In 1999, cash used for acquisitions and equity investments totaled $41.9
million. During 1999, the Company completed four transactions, including nine
value-added facilities and two equity-basis investments.
In 1998, cash used for acquisitions totaled $24.3 million, as the Company
completed eight acquisitions. These acquisitions included three building
materials centers and eleven value-added facilities.
FINANCING
Net cash provided by financing activities was $44.5 million in 1999 compared to
$1.7 million of cash used in 1998. The Company utilized its available borrowing
capacity to finance its growth during 1999.
The Company's borrowing capacity under its new revolving credit facility
is currently $125 million. Borrowings under the agreement bear interest at prime
plus 0.50% to 1.50%, or Offshore Rate plus 2.00% to 3.00%. The agreement expires
in 2004. At year-end the Company had $54.8 million of unborrowed capacity under
this agreement. Borrowings under the revolver increased to $70.2 million at
year-end 1999 from $42.4 million at year-end 1998 primarily due to increased
borrowings needed to complete the Company's 1999 acquisitions and equity-basis
investments.
The agreements related to these borrowings contain covenants providing for
the maintenance of certain financial ratios and conditions including total
funded debt to earnings before interest, taxes, depreciation and amortization
(EBITDA) and limitations on capital expenditures, among certain other
restrictions. The Company is currently in compliance with these covenants and
conditions.
In the third quarter of 1998, the Company filed a shelf registration with
the Securities and Exchange Commission to register 2,000,000 shares of common
stock. These shares may be issued from time to time in connection with future
business combinations, mergers and/or acquisitions.
Based on the Company's ability to generate cash flow from operations, its
borrowing capacity under the revolver and its access to 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. Changes in the Company's debt could also increase these risks.
Previously, the Company has managed its exposure to market interest rate changes
through periodic refinancing of its variable rate debt with fixed rate term debt
obligations. Based on average debt outstanding at December 31, 1999, a 25 basis
point increase in interest rates would result in approximately $434,000 of
additional interest costs.
Commodity wood products, including lumber and panel products, currently
account for approximately 44% of the Company's net sales. Prices of commodity
wood products, which are subject to significant volatility, could directly
affect the Company's net sales. The Company does not utilize any derivative
financial instruments.
QUARTERLY RESULTS AND SEASONALITY
The Company's first and fourth quarters historically are adversely affected by
weather patterns in the Company's markets which result in decreases in levels of
building and construction activity. In addition, quarterly results historically
have reflected, and are expected to continue to reflect, fluctuations from
period to period as a consequence of the impact of various other factors,
including general economic conditions, commodity wood product prices, interest
rates, building permit activity, single-family housing starts, employment
levels, consumer confidence and the availability of credit to professional
contractors.
The composition and level of working capital typically change during
periods of increasing sales as the Company carries more inventories and
receivables. Working capital levels typically increase in the second and third
quarters of the year due to higher sales during the peak building and
construction season. These increases historically have resulted in negative
operating cash flows during this peak season, which generally have been financed
through the revolving credit agreement. 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. The Company believes it will continue to generate
positive annual cash flows from operating activities.
NEW ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company is required to adopt this
statement in the first quarter of 2001 and based on the Company's present and
historic use of derivative instruments the adoption of this Statement is not
expected to have a material impact on the Company's consolidated results of
operations, financial condition, or cash flows.
OUTLOOK
The Company's financial performance could be negatively impacted by any adverse
economic changes in the Company's geographic market areas. The building
materials industry has seen considerable cyclicality in the past. The Company's
operations have been subject to substantial fluctuations from period to period,
as a reflection of these changes in general economic conditions, commodity wood
product prices, building permit activity, interest rates, single-family housing
starts, employment levels, consumer confidence and the availability of credit to
professional contractors and homeowners. These factors may have a more
significant impact on the Company, which derives a significant percentage of its
net sales from professional contractors, than on those building supply companies
which target a broad range of retail customers. The Company expects that
fluctuations from period to period will continue in the future.
Additionally, the Company's results of operations throughout the year are
impacted by the weather in the states in which the Company has operations. The
Company's financial performance could be negatively impacted by poor weather,
which historically has affected building activity levels in the Company's market
areas in the first and fourth quarters. Commodity wood products, including
lumber and panel products, currently account for approximately 44% of the
Company's net sales. Prices of commodity wood products, which are subject to
significant volatility, directly affect the Company's sales, and future declines
in commodity wood prices could adversely impact the Company's results of
operations.
Certain statements in the Financial Review and elsewhere in the Annual
Report to Shareholders 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 the actual results, performance or achievements of
the Company, 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 above or in the
Company's Form 10-K for the fiscal year ended December 31, 1999. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the results of any revisions to
any of the forward-looking statements contained in the Annual Report on Form
10-K except as required by law.
CONSOLIDATED STATEMENTS OF INCOME
Building Materials Holding Corporation
For the years ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Net sales ...................................................................... $ 1,007,108 $ 877,280 $ 728,065
Cost of sales .................................................................. 755,137 663,122 559,655
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit ................................................................... 251,971 214,158 168,410
Selling, general and administrative expense .................................... 208,775 180,129 145,935
Other income ................................................................... 2,466 1,094 1,882
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations ......................................................... 45,662 35,123 24,357
Equity in earnings of unconsolidated companies, net of amortization ............ 4,978 -- --
Interest expense ............................................................... 13,184 10,218 8,666
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item .............................. 37,456 24,905 15,691
Income taxes ................................................................... 14,421 9,756 6,198
- ---------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item ............................................... 23,035 15,149 9,493
Extraordinary item, net of tax ................................................. (3,352) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net income ..................................................................... $ 19,683 $ 15,149 $ 9,493
===========================================================================================================================
Income before extraordinary item per common share:
Basic ........................................................................ $ 1.82 $ 1.21 $ 0.80
Diluted ...................................................................... $ 1.80 $ 1.20 $ 0.78
Net income per common share:
Basic ........................................................................ $ 1.55 $ 1.21 $ 0.80
Diluted ...................................................................... $ 1.54 $ 1.20 $ 0.78
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
Building Materials Holding Corporation
At December 31,
- ------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
- ------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash ................................................................... $ 7,452 $ 8,264
Receivables, net ....................................................... 110,123 92,113
Inventories ............................................................ 80,679 78,746
Deferred income tax benefit ............................................ 2,781 2,488
Prepaid expenses ....................................................... 7,652 2,355
- ------------------------------------------------------------------------------------------------
Total current assets ................................................. 208,687 183,966
Property, plant and equipment, net ....................................... 153,598 139,585
Equity investments in unconsolidated companies ........................... 30,762 --
Goodwill, net ............................................................ 47,477 43,903
Deferred loan costs ...................................................... 4,873 914
Other .................................................................... 4,722 5,613
- ------------------------------------------------------------------------------------------------
Total assets ............................................................. $450,119 $373,981
- ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt ...................................... $ 3,200 $ --
Accounts payable and accrued expenses .................................. 66,204 67,222
- ------------------------------------------------------------------------------------------------
Total current liabilities ............................................ 69,404 67,222
Long-term debt, net of current portion ................................... 170,547 117,805
Deferred income taxes .................................................... 5,124 5,404
Other long-term liabilities .............................................. 4,934 3,300
Shareholders' equity
Common stock, $.001 par value, 20,000,000 shares authorized;
12,679,686 and 12,652,298 shares outstanding, respectively............ 13 13
Additional paid-in capital ............................................... 108,433 108,256
Retained earnings ........................................................ 91,664 71,981
- ------------------------------------------------------------------------------------------------
Total shareholders' equity ............................................. 200,110 180,250
Total liabilities and shareholders' equity ............................... $450,119 $373,981
- ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Building Materials Holding Corporation
Additional
Common Stock Paid-In Retained
(AMOUNTS IN THOUSANDS) Shares Amount Capital Earnings Total
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 .............. 11,825 $ 12 $ 97,731 $ 47,345 $ 145,088
Net income ............................ -- -- -- 9,493 9,493
Accretion of redeemable preferred stock -- -- -- (6) (6)
Stock issued for acquisitions ......... 492 -- 6,300 -- 6,300
Stock options exercised and other ..... 14 -- 76 -- 76
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 .............. 12,331 12 104,107 56,832 160,951
Net income ............................ -- -- -- 15,149 15,149
Stock issued for acquisitions ......... 299 -- 4,000 -- 4,000
Stock options exercised and other ..... 22 1 149 -- 150
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 .............. 12,652 13 108,256 71,981 180,250
Net income ............................ -- -- -- 19,683 19,683
Stock options exercised and other ..... 28 -- 177 -- 177
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 .............. 12,680 $ 13 $ 108,433 $ 91,664 $ 200,110
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Building Materials Holding Corporation
For the years ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................................... $ 19,683 $ 15,149 $ 9,493
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization .................................................... 14,149 12,955 11,009
Deferred income taxes ............................................................ (573) (137) (117)
Loss (gain) on sales of assets and location centers .............................. (1,403) 91 (466)
Equity in earnings of unconsolidated subsidiaries, net of amortization ........... (4,978) -- --
Distributions received from unconsolidated subsidiaries .......................... 2,496 -- --
Extraordinary item, write-off of deferred financing costs ........................ 663 -- --
Changes in assets and liabilities, net of effects of acquisitions and location sales
Receivables, net ................................................................. (12,418) 733 (3,064)
Inventories ...................................................................... (2,419) 5,974 9,452
Prepaid expenses ................................................................. (5,287) 1,213 (1,484)
Accounts payable and accrued expenses ............................................ 662 8,868 10,655
Other assets ..................................................................... 2,409 (34) (1,350)
Other long-term liabilities ...................................................... 1,633 3 1,212
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities .......................................... 14,617 44,815 35,340
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ................................................ (27,380) (19,595) (13,289)
Acquisitions, net of cash acquired ................................................. (15,779) (24,330) (40,231)
Equity investments in unconsolidated subsidiaries .................................. (26,093) -- --
Proceeds from sale of building materials centers, net of cash sold ................. 6,680 -- --
Proceeds from dispositions of property and equipment ............................... 4,152 909 1,450
Investments in preferred stock ..................................................... (1,000) -- --
Other, net ......................................................................... (511) -- --
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities .............................................. (59,931) (43,016) (52,070)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under term note .......................................................... 100,000 -- --
Net borrowings under revolving credit agreements ................................... 27,792 7,705 20,630
Principal payments of unsecured senior notes ....................................... (66,667) (9,457) (561)
Principal payments of other notes payable .......................................... (8,723) -- --
Deferred financing costs ........................................................... (4,963) -- --
Decrease in book overdrafts ........................................................ (3,112) -- --
Redemption of preferred stock ...................................................... -- -- (2,000)
Other, net ......................................................................... 175 40 (228)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ................................ 44,502 (1,712) 17,841
- --------------------------------------------------------------------------------------------------------------------------
Net change in cash ................................................................. (812) 87 1,111
Cash, beginning of year ............................................................ 8,264 8,177 7,066
- --------------------------------------------------------------------------------------------------------------------------
Cash, end of year .................................................................. $ 7,452 $ 8,264 $ 8,177
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest, net of amounts capitalized ........................................... $ 13,294 $ 10,389 $ 8,353
Income taxes ................................................................... $ 21,314 $ 6,068 $ 5,567
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Building Materials Holding Corporation
1. ORGANIZATIONAL STRUCTURE, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATIONAL STRUCTURE AND NATURE OF OPERATIONS
On September 23, 1997, Building Materials Holding Corporation ("BMHC") was
formed to provide its predecessor, BMC West Corporation ("BMC West"), with a
holding company organizational structure that can accommodate future growth from
internal operations, acquisitions or joint ventures, broaden the alternatives
available for future financing and generally provide for greater administrative
and operational flexibility. BMC West's outstanding capital stock was converted,
on a share for share basis, into capital stock of Building Materials Holding
Corporation. BMHC's common stock is listed on the Nasdaq National Market under
the symbol BMHC.
BMHC operates two wholly-owned subsidiaries--BMC West Corporation and BMHC
Framing, Inc. BMC West is a regional provider of building materials and services
in the United States, selling primarily to professional contractors and
builders, as well as to project-oriented consumers (including professional
repair and remodel contractors hired by them); through 53 building materials
centers and value-added facilities, located throughout the Western and South
Central United States. BMC West provides value-added conversion products, which
include pre-hung doors, roof and floor trusses and pre-assembled windows and
lumber pre-cut to meet customer specifications. BMHC Framing, Inc., owns a 49%
equity interest in Knipp Brothers Industries, LLC, ("Industries") a framing
contractor in Arizona and Nevada, and a 49% equity interest in KBI Distribution,
LLC ("Distribution"), a provider of building materials in Arizona.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BMHC and its
wholly-owned subsidiaries (the "Company"). The equity method of accounting is
used for investments in which the Company has significant influence. All
significant intercompany balances and transactions are eliminated in
consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts reported in prior periods,
none of which affect the Company's financial position, results of operations, or
cash flows.
USE OF 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 contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
The Company reviews the recoverability of all long-lived assets including
goodwill, whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The measurement of any impairment is
based primarily on the ability to recover the cost of long-lived assets from
expected future operating cash flows on an undiscounted basis. In management's
opinion, no such impairment existed at December 31, 1999 and 1998.
CASH AND CASH EQUIVALENTS
Cash represents amounts on deposit with high-credit-quality financial
institutions and such balances may, at times, exceed FDIC limits. The Company
considers all highly liquid investments that have a maturity of three months or
less at the date of purchase to be cash equivalents.
INVENTORIES
Inventories consist principally of materials purchased for resale and are stated
at the lower of average cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated using the
straight-line method. The estimated useful lives are ten to thirty years for
buildings and improvements, seven to ten years for machinery and fixtures and
three to ten years for handling and delivery equipment.
Major additions and improvements including interest costs, are capitalized
while maintenance and repairs that do not extend the useful life of the property
are expensed as incurred. Gains and losses from dispositions of property, plant
and equipment are included in the Company's consolidated statement of income in
other income.
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 Company's term notes and the straight-line method for the Company's
revolving credit facility. Interest expense includes amortization of deferred
loan costs of $341,000, $410,000 and $315,000 in 1999, 1998 and 1997,
respectively.
GOODWILL
Goodwill is amortized on a straight-line basis over 30 years. Accumulated
amortization of goodwill was $5,460,000 and $3,840,000 at December 31, 1999 and
1998, respectively.
OTHER ASSETS
Other assets consist of cash surrender values on Company owned life insurance, a
preferred stock investment accounted for at historical cost, non-compete
agreements arising from acquisitions and trade rebates receivable from
cooperative supplier organizations.
The non-compete agreements are amortized over the life of the related
agreements (two to five years).
REVENUE RECOGNITION
Revenues are recognized when title to the goods passes to the buyer, which is
generally at the time of delivery.
STOCK COMPENSATION
The Company records compensation expense associated with awards of stock using
the intrinsic method rather than the fair value method.
ADVERTISING
Advertising costs are expensed when incurred. During 1999, 1998 and 1997
advertising expense was $1,964,000, $1,953,000 and $2,200,000, respectively.
NEW ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Statement
establishes accounting and reporting standards requiring derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at their
fair value. The Company is required to adopt this Statement in the first quarter
of 2001 and based on the Company's present and historic use of derivative
instruments the adoption of this Statement is not currently expected to have a
material impact on the Company's consolidated results of operations, financial
condition, or cash flows.
2. EXTRAORDINARY ITEM
During the fourth quarter of 1999, the Company repaid its unsecured senior
subordinated notes prior to maturity. In connection with this early retirement,
the Company wrote off $663,000 of related deferred loan costs and paid a
makewhole premium of $4,788,000. These costs are included in the 1999
consolidated statement of income as an extraordinary item, net of a $2,099,000
tax benefit.
3. ACQUISITIONS
Businesses acquired are accounted for using the purchase method of accounting.
Under this accounting method, the purchase price is allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. Any excess of the purchase price over the estimated fair
value of the net assets acquired is recorded as goodwill. Operating results of
the acquired businesses are included in the consolidated statements of income
from the date of acquisition.
In 1999, the Company completed three acquisitions involving six
value-added facilities located in Colorado, Montana, Nevada and Texas. The
aggregate purchase price was $19,319,000, consisting of $15,779,000 in cash and
a note payable for $3,540,000, net of discount. The issuance of the note payable
is considered a non-cash transaction for purposes of the consolidated statement
of cash flows.
The following summarized unaudited pro forma results of operations assume
the 1999 acquisitions occurred as of the beginning of 1999 and 1998. 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
acquisitions been consummated at the beginning of the years presented, or that
may occur in the future. (in thousands, except per share data).
Unaudited
- ---------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------
Net sales ......................... $1,037,304 $ 908,886
Income before extraordinary item .. 25,516 17,333
Net income ........................ 22,164 17,333
Income before extraordinary item
per diluted common share ........ 1.99 1.37
Net income per diluted common share 1.73 1.37
In 1998, the Company completed eight acquisitions involving three building
materials centers and eleven value-added facilities located in Colorado,
Montana, Nevada, Oregon, Texas and Washington. The total consideration given was
$33,978,000, consisting of $24,330,000 in cash, a note payable for $5,023,000,
299,343 shares of common stock valued at $4,000,000 and other assumed operating
liabilities of $625,000. The issuance of the note payable, payment of the
Company's common stock and the assumption of operating liabilities are
considered non-cash transactions for purposes of the consolidated statement of
cash flows.
The following summarized unaudited pro forma results of operations assume
the 1998 acquisitions occurred as of the beginning of 1998 and 1997. 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
acquisitions been consummated at the beginning of the years presented, or that
may occur in the future. (in thousands, except share data.)
Unaudited
- ---------------------------------------------------------
1998 1997
- ---------------------------------------------------------
Net sales ...................... $920,140 $796,448
Net income ..................... 15,313 9,656
Per diluted common share........ 1.20 .78
4. RECEIVABLES
Receivables consisted of the following at December 31, (in thousands):
- ---------------------------------------------------------
1999 1998
- ---------------------------------------------------------
Trade receivables .............. $ 106,965 $ 90,968
Other .......................... 5,415 3,207
Allowance for returns, discounts
and doubtful accounts ........ (2,257) (2,062)
- ---------------------------------------------------------
$ 110,123 $ 92,113
- ---------------------------------------------------------
No one customer exceeds 2% of net sales. Because the customers are
dispersed among the Company's various markets, its credit risk to any one
customer or state economy is not significant. The Company performs ongoing
credit evaluations of its customers and provides an allowance for doubtful
accounts when events or circumstances indicate that collection is doubtful.
5. EQUITY INVESTMENTS
In May 1999, the Company completed the investment of a 49% interest in
Industries, a framing company with operations in Phoenix and Tucson, Arizona and
Las Vegas, Nevada. The total cost was $28,293,000 consisting of $26,093,000 in
cash and $2,200,000 from various assets of its Phoenix operation. The Company
has the right to acquire the remaining 51% interest in Industries and the 51%
owner has a corresponding right to require the Company to purchase its 51%
ownership after five years.
In December 1999, Industries contributed the net assets and liabilities of
its lumberyard operation to Distribution in consideration for a 100% ownership
interest, which was subsequently distributed to the members of Industries in
proportion to their respective ownership interest in Industries.
Summarized 1999 combined financial information of the Company's
equity-basis unconsolidated companies follows (in thousands):
Income statement information:
Net sales ............................................... $ 101,354
Income from operations .................................. $ 1,298
Net income .............................................. $ 1,478
Other members' share of net income ...................... (754)
- -----------------------------------------------------------------------
Company's share of net income ........................... 724
Other income allocations, net of amortization of goodwill 4,254
- -----------------------------------------------------------------------
Equity in earnings of unconsolidated companies .......... $ 4,978
- -----------------------------------------------------------------------
Financial position information:
Current assets .......................................... $ 29,569
Noncurrent assets ....................................... $ 5,444
Total liabilities (current) ............................. $ 6,639
Members' capital ........................................ $ 28,374
Other members' share of capital ......................... (14,471)
- -----------------------------------------------------------------------
Company's share of capital .............................. 13,903
Goodwill ................................................ 16,859
- -----------------------------------------------------------------------
Equity investments in unconsolidated companies .......... $ 30,762
- -----------------------------------------------------------------------
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31, (in
thousands):
- ----------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------
Land .................................. $ 39,337 $ 38,794
Buildings and improvements ............ 80,414 76,018
Machinery and fixtures ................ 38,391 30,725
Handling and delivery equipment........ 34,573 30,812
Construction in progress .............. 11,097 6,915
- ----------------------------------------------------------------
203,812 183,264
Less accumulated depreciation ......... (50,214) (43,679)
- ----------------------------------------------------------------
$ 153,598 $ 139,585
- ----------------------------------------------------------------
Interest of $221,000, $94,000 and $0 has been capitalized during 1999,
1998 and 1997, respectively. Depreciation expense was $11,779,000, $10,484,000
and $9,055,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999 the Company had $7,658,000 of land and buildings and
improvements held for sale.
In December 1999, the Company sold three of its centers (located in
Fredericksburg, Marble Falls and Shiner, Texas) to Parker Lumber and recorded a
gain of $1,384,000.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at December 31,
(in thousands):
- -------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------
Trade accounts payable ............................... $ 33,583 $ 30,209
Book overdrafts ...................................... 12,188 15,300
Accrued compensation ................................. 10,966 8,937
Sales tax payable .................................... 4,114 3,734
Income taxes payable ................................. -- 3,607
Other ................................................ 5,353 5,435
- -------------------------------------------------------------------------------
$ 66,204 $ 67,222
- -------------------------------------------------------------------------------
8. DEBT
Debt consisted of the following at December 31, (in thousands):
- -------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------
Term note ..................................................... $ 100,000
Revolving credit facility ..................................... 70,207
Non-interest bearing term note, net of related
discount of $1,460 .......................................... 3,540
- -------------------------------------------------------------------------------
173,747
Less current portion .......................................... (3,200)
- -------------------------------------------------------------------------------
$ 170,547
- -------------------------------------------------------------------------------
During the fourth quarter of 1999, management entered into a new senior
credit facility which included a revolving credit facility of $125,000,000 and a
term note of $100,000,000. The financing was arranged through Bank of America,
N.A., as administrative agent, and nine other banks. The facility was used to
repay the Company's 8.10% and 9.18% unsecured senior notes and other debt and
will be available to fund future acquisitions.
Under the existing revolving credit facility, the Company has the ability
to borrow up to $125,000,000 due 2004. Borrowings under the revolver bear
interest at prime plus 0.50% to 1.50%, or Offshore Rate plus 2.00% to 3.00%. A
fee of .375% to .50% per annum is charged on the unused portion. At December 31,
1999 the Company had $54,793,000 of unborrowed capacity under this agreement.
The $100,000,000 term note is due 2004 and bears interest at prime plus 0.50% to
1.50%, or Offshore Rate plus 2.00% to 3.00%.
The term note and revolving credit facility are both secured by the
following assets: all accounts, chattel paper, deposit accounts, documents,
equipment, general intangibles, pledged collateral, inventory, books, letter of
credit proceeds and deeds of trust on certain real property.
The agreements related to the above borrowings contain covenants providing
for the maintenance of certain financial ratios and conditions including total
funded debt to capitalization; consolidated net worth; and coverage ratio which
includes earnings before interest, taxes, depreciation and amortization (EBITDA)
and limitations on capital expenditures, among certain other restrictions. At
December 31, 1999, the Company was in compliance with these covenants and
conditions.
In connection with a 1999 acquisition, the Company issued a $5,000,000
non-interest bearing five-year term note to the previous owner as partial
consideration for the purchase. The note has been recorded assuming a 15%
effective interest rate resulting in a discount of $1,460,000 at December 31,
1999. Under the terms of the note, principal payments are due beginning 2004;
however, accelerated payments may be due based on the operating results of the
acquired facilities during each of the next five years. The Company has
discounted its principal payments for this note based on estimates of the
operating results of the acquired business.
The scheduled principal payments of debt are $3,200,000 in 2000,
$10,800,000 in 2001, $12,150,000 in 2002, $16,000,000 in 2003 and $131,597,000
in 2004.
9. PREFERRED STOCK
BMHC has 2,000,000 shares of preferred stock authorized but not currently
issued.
In 1987, BMC West authorized and issued 50,000 shares of Class B preferred
stock with a total mandatory redemption requirement of $5,000,000 due $1,000,000
annually through 1996 and $2,000,000 in 1997. As of December 31, 1996, 20,000
shares of Class B preferred stock were outstanding. During 1997, these remaining
shares were redeemed for $2,000,000.
10. STOCK PURCHASE AND INCENTIVE PLANS
Shareholders' Rights Plan
BMHC adopted a shareholder rights plan which expires in 2007. Under the plan, if
a company acquires 15% or more of BMHC's stock or makes a tender or other offer
to do so without the approval of the Board of Directors, shareholders would have
the right to purchase stock of BMHC or the acquiring company at a significant
discount. The Board of Directors of BMHC has the right to redeem the rights for
a nominal amount, to extend the period before shareholders may exercise the
rights or to take other actions permitted by the plan. The rights trade with
BMHC's stock but do not give shareholders any voting rights. The rights plan is
intended to encourage any person seeking to acquire BMHC to negotiate with the
Board of Directors.
Cash Equity Plan
On April 1, 1999, BMHC adopted a Cash Equity Plan to provide incentive for key
management employees. The awards vest after three years from the date of grant
and expire after five years. Each unit under an award allows for an exchange for
cash in the amount of the fair market value of BMHC's common stock at the date
of exercise. The number of units available for grant, including those units
outstanding and unexercised, cannot exceed two-percent of BMHC's common shares
outstanding at any given time. During 1999, BMHC awarded 73,190 units and
recognized compensation expense of $243,000. Accelerated vesting may occur if
there is a change of control of BMHC, as defined in the Cash Equity Plan.
STOCK OPTION PLANS
BMHC has four stock option plans: the 1991 Senior Management and Field
Management Plan, the 1992 Non-Qualified Stock Option Plan, the 1993 Employee
Stock Option Plan and the 1993 Non-Employee Stock Option Plan (the Stock Option
Plans). A total of 1,397,000 shares of common stock have been reserved for
potential grants under the Stock Option Plans.
The 1991 Senior Management and Field Management Plan provides for the
granting of options to purchase shares of BMHC's common stock at exercise prices
below fair market value. At December 31, 1999, options to purchase 2,898 shares
under this plan remain outstanding. Such options expire ten years from the date
of grant.
The 1992 Non-Qualified Stock Option Plan and the 1993 Employee Stock
Option Plan provide for the granting of options, at the discretion of the Board
of Directors, to purchase shares of BMHC's common stock. At December 31, 1999,
options to purchase 7,812 and 149,179 shares from the 1992 and 1993 plans,
respectively, remain outstanding. The exercise price is equal to the fair market
value of BMHC's common stock on the date the options are granted. Options vest
over five years from the date of grant and expire at the end of ten years if
unexercised.
The 1993 Non-Employee Stock Option Plan is available only to nonemployee
directors. Options granted under this plan have an exercise price equal to the
fair market value of BMHC's common stock on the date the options are granted. At
December 31, 1999, options to purchase 88,500 shares of BMHC's common stock
under this plan remain outstanding. The options are exercisable after one year
following the date of grant and expire at the end of ten years if unexercised.
During 1997, as an additional incentive to attract a member of senior
management, the Board of Directors authorized and issued an award of 50,000
options. The exercise price was equal to the fair market value of BMHC's common
stock on the date the options were granted. These options will vest in 2002, but
vesting may be accelerated if BMHC's common stock reaches certain fair market
values. These options expire 10 years from the date of grant, or 2007, and are
included in the tables below.
A summary of the activity of the Stock Option Plans for the years ended
December 31, 1999, 1998 and 1997, is presented in the table below:
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of the year .................. 920,995 $ 11.57 795,704 $ 11.24 603,060 $ 10.76
Options granted ................................... 215,750 10.42 173,470 12.52 227,170 12.47
Options exercised ................................. (27,388) 3.40 (21,907) 3.05 (13,946) 4.46
Options forfeited ................................. (34,556) 13.95 (26,272) 15.00 (20,580) 15.35
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of the year ........................ 1,074,801 $ 11.46 920,995 $ 11.57 795,704 $ 11.24
- ---------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of the year .................... 701,594 $ 11.33 606,187 $ 10.74 526,285 $ 9.78
Weighted average fair value of options granted .... $ 6.56 $ 6.24 $ 5.93
The following table summarizes information about stock options outstanding
at December 31, 1999:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Number Weighted Average Number
Outstanding at Remaining Exercisable at
Range of December Contractual Weighted Average December Weighted Average
Exercise Prices 31, 1999 Life Years Exercise Price 31, 1999 Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1.21 to $ 5.67 225,062 1.5 $ 2.89 225,062 $ 2.89
$ 8.67 to $17.00 741,902 7.5 12.43 379,006 13.34
$19.50 to $29.75 107,837 5.7 22.64 97,526 22.97
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1.21 to $29.75 1,074,801 6.0 $11.46 701,594 $11.33
- ------------------------------------------------------------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997: risk-free interest rates of
5.4%, 5.5% and 6.0%, respectively; estimated lives of approximately 6 years, 6
years and 6 years, respectively; and expected stock price volatility of 61.6%,
42.7% and 38.0%, respectively.
Had compensation cost for these plans been determined using the fair value
method, the Company's 1999 net income would have been reduced on a pro forma
basis by $617,000 and basic and diluted earnings per share would have been
reduced on a pro forma basis by $0.05. The 1998 pro forma reductions would have
been a reduction in net income of $437,000, and a reduction in basic and diluted
earnings per share of $0.03. The 1997 pro forma reductions would have been a
reduction in net income of $351,000, and a reduction in basic and diluted
earnings per share of $0.03.
11. INCOME TAXES
Income taxes for the years ended December 31, 1999, 1998 and 1997 consisted of
the following (in thousands):
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Current income taxes
Federal ........................ $ 13,912 $ 8,853 $ 5,480
State .......................... 1,082 1,040 835
- --------------------------------------------------------------------------------
14,994 9,893 6,315
Deferred income taxes
Federal ........................ (529) (126) (102)
State .......................... (44) (11) (15)
- --------------------------------------------------------------------------------
(573) (137) (117)
- --------------------------------------------------------------------------------
$ 14,421 $ 9,756 $ 6,198
- --------------------------------------------------------------------------------
A reconciliation of the statutory Federal income tax rate to the rate as
provided in the consolidated statements of income follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory rate ........................ 35.0% 35.0% 35.0%
State income taxes..................... 2.4 3.0 3.4
Other ................................. 1.1 1.2 1.1
- --------------------------------------------------------------------------------
38.5% 39.2% 39.5%
- --------------------------------------------------------------------------------
Deferred income taxes are provided to reflect temporary differences between the
financial and tax bases of assets and liabilities using presently enacted tax
rates and laws.
The components of deferred income taxes included in the Company's year-end
balance sheets were as follows (in thousands):
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets
Tax basis in excess of book basis
of acquired assets ................................ $ 30 $ 30
Inventories, tax basis in excess of book basis....... 1,647 1,901
Reserves not yet deductible for tax ................. 2,663 2,077
Other ............................................... 1,548 1,276
- --------------------------------------------------------------------------------
Total deferred tax assets ........................... 5,888 5,284
- --------------------------------------------------------------------------------
Deferred tax liabilities
Tax in excess of book depreciation .................. 7,040 7,046
Deferred costs deducted for taxes ................... 1,191 1,154
- --------------------------------------------------------------------------------
Total deferred tax liabilities ...................... 8,231 8,200
- --------------------------------------------------------------------------------
$(2,343) $(2,916)
Classified as
Deferred income tax benefit (current assets) ........ $ 2,781 $ 2,488
Deferred income taxes (long-term liabilities) ....... (5,124) (5,404)
- --------------------------------------------------------------------------------
$(2,343) $(2,916)
- --------------------------------------------------------------------------------
12. NET INCOME PER COMMON SHARE
Net income per common share was determined as follows (in thousands):
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net income ............................ $ 19,683 $ 15,149 $ 9,493
Class B preferred stock accretion ..... -- -- (6)
- --------------------------------------------------------------------------------
Net income available to
common shareholders ................. $ 19,683 $ 15,149 $ 9,487
- --------------------------------------------------------------------------------
Weighted average shares
outstanding used to determine
basic net income per common share ... 12,667 12,509 11,919
Net effect of dilutive stock options(1) 125 138 218
- --------------------------------------------------------------------------------
Average shares used to
determine diluted net income
per common share ...................... 12,792 12,647 12,137
- --------------------------------------------------------------------------------
(1) STOCK OPTIONS OF 644,371, 493,187 AND 495,140 WERE NOT INCLUDED IN THE
COMPUTATION, BECAUSE TO DO SO WOULD HAVE BEEN ANTI-DILUTIVE FOR THE YEARS
ENDED DECEMBER 31, 1999, 1998 AND 1997, RESPECTIVELY.
13. RETIREMENT PLANS
BMHC has a savings and retirement plan for its salaried and certain of its
hourly employees whereby the eligible employees may contribute a percentage of
their earnings to a trust, i.e., a 401(k) plan. The Company also makes
contributions to the trust based on a percentage of the contributions made by
the participating employees and a percentage of net income for the period. The
Company's contributions are charged against operations and were $2,707,000 in
1999, $2,402,000 in 1998 and $1,449,000 in 1997.
BMHC has a supplemental retirement plan for selected key management
employees and directors. The contributions are based on the Company achieving
certain operating earnings levels. Pursuant to this plan, the Company charged
operations for $1,420,000 in 1999, $1,065,000 in 1998, and $606,000 in 1997.
BMHC has purchased company-owned life insurance in order to have a funding
mechanism for this plan. Retirement payments will be paid to the participants or
their beneficiary over a 15-year period subsequent to retirement or death.
BMHC does not provide any other postretirement benefits for its employees.
14. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases real property, vehicles and office equipment under operating
leases. Rental expense was $6,813,000 in 1999, $6,503,000 in 1998, $5,180,000 in
1997. Certain of the leases are noncancelable and have minimum lease payment
requirements of $6,143,000 in 2000, $4,487,000 in 2001, $3,179,000 in 2002,
$2,425,000 in 2003 and $1,655,000 in 2004.
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
adverse effect on the Company's financial position, liquidity or results of
operations.
15. FINANCIAL INSTRUMENTS
The book value compared with the fair value of financial instruments at December
31, were as follows (in thousands):
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Book Fair Book Fair
Value Value Value Value
- --------------------------------------------------------------------------------
Long-term debt:
Variable rate debt........... $167,607 $167,607 $ 42,415 $ 42,415
Fixed rate debt ............. 3,540 3,540 75,390 79,713
- --------------------------------------------------------------------------------
$171,147 $171,147 $117,805 $122,128
- --------------------------------------------------------------------------------
The book values of cash and cash equivalents, accounts receivable, accounts
payable and variable interest rate long-term debt approximated fair value due to
either the short-term maturities or current variable interest rates of these
instruments.
The fair value of fixed rate debt has been estimated based upon the
discounted cash flows using the Company's incremental rate of borrowing for
similar debt.
16. BUSINESS SEGMENT AND PRODUCTS
The Company's chief operating decision makers consist of senior managers who
work together to allocate resources to and assess the performance of each of the
Company's individual locations.
Management believes its locations have similar operating and economic
characteristics and has aggregated its operations into a single reporting
segment, that being the supply and distribution of lumber and building materials
to professional contractors and project oriented consumers.
The Company's locations principally derive revenues from wood products
(lumber, plywood and oriented strand board), value-added (millwork, roof and
floor trusses, pre-hung doors, windows and moldings), building materials
(roofing, siding, insulation and steel products) and other revenues (paint,
hardware, tools, electrical and plumbing). Net sales by product for the years
ended December 31, 1999, 1998 and 1997 were as follows (in thousands):
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales
Wood products ...................... $ 444,834 $ 381,221 $ 340,972
Value-added ........................ 348,569 275,862 175,955
Building materials.................. 136,757 136,856 138,332
Other .............................. 76,948 83,341 72,806
- --------------------------------------------------------------------------------
Total revenues ..................... $1,007,108 $ 877,280 $ 728,065
- --------------------------------------------------------------------------------
17. RESULTS OF QUARTERLY OPERATIONS (UNAUDITED)
Operating results by quarter for 1999 and 1998 are as follows (dollars in
thousands, except per share data):
- --------------------------------------------------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------
1999
Net sales ............ $ 215,625 $ 256,005 $ 288,715 $ 246,763
Gross profit ......... 54,111 64,165 69,805 63,890
Income from
operations ......... 6,644 14,444 18,286 6,288
Extraordinary item ... -- -- -- (3,352)
Net income ........... 2,521 7,039 8,964 1,159
Income before extra-
ordinary item per
diluted common
share(1) ........... $ 0.20 $ 0.55 $ 0.70 $ 0.35
Net income per
diluted common
share(1) ........... $ 0.20 $ 0.55 $ 0.70 $ 0.09
Common stock prices:
High ................. $ 12.625 $ 12.750 $ 13.313 $ 11.750
Low .................. 9.375 9.750 10.000 7.500
1998
Net sales ............ $ 183,631 $ 226,017 $ 249,757 $ 217,875
Gross profit ......... 43,965 54,604 61,108 54,481
Income from
operations ......... 3,902 10,532 13,565 7,124
Net income ........... 850 4,754 6,723 2,822
Net income per diluted
common share(1) .... $ 0.07 $ 0.38 $ 0.53 $ 0.22
Common stock prices:
High ................. $ 13.625 $ 14.875 $ 14.438 $ 13.063
Low .................. 10.625 11.500 10.500 9.313
(1) NET INCOME PER SHARE CALCULATIONS ARE BASED ON THE AVERAGE COMMON SHARES
OUTSTANDING FOR EACH PERIOD PRESENTED. ACCORDINGLY, THE TOTAL OF THE PER
SHARE FIGURES FOR THE QUARTERS MAY NOT EQUAL THE PER SHARE FIGURE REPORTED
FOR THE YEAR.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Building Materials Holding Corporation
In our opinion, the accompanying consolidated balance sheet as of December 31,
1999 and the related consolidated statements of income, shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
Building Materials Holding Corporation and its subsidiaries (the "Company") at
December 31, 1999, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which 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
audit provides a reasonable basis for the opinion expressed above. The financial
statements of the Company as of December 31, 1998 and for the two years then
ended were audited by other independent accountants whose report dated January
25, 1999 expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
February 17, 2000