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, 2000 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
(Parent of BMC West Corporation)
Delaware 91-1834269
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Building Materials Holding Corporation
One Market Plaza, Steuart Tower, Ste 2650, San Francisco, CA 94105
Telephone: (208)331-4382 or (415)227-1650
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 month (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 4, 2000:
Common stock $.001 par value 12,755,330
1
BUILDING MATERIALS HOLDING CORPORATION
INDEX
Page
Number
PART I -- FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income for the three
and six months ended June 30, 2000 and 1999 3
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 4
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS 17
EXHIBITS 18
2
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(amounts in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $271,404 $256,005 $504,871 $471,630
Cost of sales 201,322 191,840 374,788 353,354
-------- -------- -------- --------
Gross profit 70,082 64,165 130,083 118,276
Selling, general
and administrative
expense 57,101 51,241 110,006 99,195
Other income, net 598 487 3,163 974
-------- -------- -------- --------
Income from operations 13,579 13,411 23,240 20,055
Equity in earnings of
unconsolidated companies,
net of amortization 2,276 1,033 4,252 1,033
Interest expense 4,420 2,999 8,793 5,543
-------- -------- -------- --------
Income before income taxes 11,435 11,445 18,699 15,545
Income taxes 4,402 4,406 7,199 5,985
-------- -------- -------- --------
Net income $ 7,033 $ 7,039 $ 11,500 $ 9,560
======== ======== ======== ========
Net income per common share:
Basic $ 0.55 $ 0.56 $ 0.90 $ 0.75
======== ======== ======== ========
Diluted $ 0.55 $ 0.55 $ 0.90 $ 0.75
======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(amounts in thousands, except share data)
(UNAUDITED)
June 30, December 31,
2000 1999
-------- --------
ASSETS
Current assets
Cash $ 6,384 $ 7,452
Receivables, net 129,490 110,123
Inventories 87,922 80,679
Prepaid expenses and other assets 4,336 10,433
-------- --------
Total current assets 228,132 208,687
Property, plant and equipment, net 166,554 153,598
Equity investments in unconsolidated companies 33,815 30,762
Goodwill, net 49,477 47,477
Deferred loan costs 4,442 4,873
Other 6,411 4,722
-------- --------
Total assets $488,831 $450,119
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 9,033 $ 3,200
Accounts payable and accrued expenses 74,784 66,204
-------- --------
Total current liabilities 83,817 69,404
Long-term debt 181,607 170,547
Deferred income taxes 6,024 5,124
Other long-term liabilities 5,677 4,934
Stockholders' equity
Common stock, $.001 par value, 20,000,000
shares authorized; 12,750,330 and
12,679,686 shares outstanding at June 30,
2000 and December 31, 1999, respectively 13 13
Additional paid-in capital 108,529 108,433
Retained earnings 103,164 91,664
-------- --------
Total stockholders' equity 211,706 200,110
-------- --------
Total liabilities and stockholders' equity $488,831 $450,119
======== ========
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, June 30,
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,500 $ 9,560
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization 7,997 7,027
Net gain on sale of property, plant and
equipment (2,260) (171)
Equity in earnings of unconsolidated
companies, net of amortization (4,252) (1,033)
Distributions received from unconsolidated
companies 1,176 --
Changes in assets and liabilities, net of
effects of acquisitions
Receivables (17,380) (24,458)
Inventories (6,879) (12,927)
Prepaid expenses 6,114 (91)
Accounts payable and accrued expenses 9,682 19,803
Other long-term liabilities 743 766
Other, net 58 945
-------- --------
Net cash flows from operating activities 6,499 (579)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (23,468) (12,654)
Acquisitions, net of cash acquired (5,905) (8,531)
Equity investment in unconsolidated companies -- (25,800)
Proceeds from dispositions of property,
plant and equipment 7,036 942
Other, net (723) --
-------- --------
Net cash flows from investing activities (23,060) (46,043)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under term note 11,100 --
Net borrowings under revolving
credit agreement 5,793 55,715
Decrease in book overdrafts (1,358) (6,046)
Principal payments of other notes payable -- (5,023)
Other, net (42) 45
-------- --------
Net cash flows from financing activities 15,493 44,691
-------- --------
Net change in cash (1,068) (1,931)
Cash, beginning of period 7,452 8,264
-------- --------
Cash, end of period $ 6,384 $ 6,333
======== ========
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 generally accepted accounting principles ("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 1999 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 Six Months Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
-------- -------- -------- --------
Wood Products $121,120 44.6% $115,270 45.0% $219,682 43.5% $206,001 43.7%
Value-added 103,412 38.1 86,408 33.8 197,686 39.2 164,521 34.9
Building Materials 33,301 12.3 34,996 13.7 59,497 11.8 64,181 13.6
Other 13,571 5.0 19,331 7.6 28,006 5.5 36,927 7.8
-------- -------- -------- --------
$271,404 $256,005 $504,871 $471,630
======== ======== ======== ========
6
To provide a more meaningful comparison with the three and six month period
ended June 30, 2000 certain reclassifications have been made between the product
groupings reported in prior periods.
3. NET INCOME PER COMMON SHARE (in thousands)
Net income per common share was determined as follows:
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30
COMPUTATION OF BASIC 2000 1999 2000 1999
------- ------- ------- -------
EARNINGS PER SHARE:
Net income available to
common shareholders $ 7,033 $ 7,039 $11,500 $ 9,560
======= ======= ======= =======
Weighted average shares
outstanding used to
determine basic net
income per common share
12,729 12,665 12,709 12,663
Net effect of dilutive
stock options
79 122 92 129
------- ------- ------- -------
Weighted average shares
used to determine diluted
net income per common share
12,808 12,787 12,801 12,792
======= ======= ======= =======
4. DEBT (in thousands)
On June 26, 2000, the Company executed the First Amendment to the senior credit
facility which added an additional bank, Banque Nationale de Paris, and
increased its credit availability by $25.0 million. At June 30, 2000, debt
consisted of the following:
Term note $111,100
Revolving credit facility 76,000
Non-interest bearing term note, net of related
discount of $1,460 3,540
--------
190,640
Less current portion (9,033)
--------
$181,607
========
7
5. ACQUISITIONS
During the six month period ended June 30, 2000 the Company completed the
acquisition of Alberta Sales, a millwork facility that was consolidated into the
Company's existing Carson Valley location, and the acquisition of four warehouse
distribution centers along with several sales offices doing business as Marvin
Windows Planning Center from Frontier Wholesale Company. Aggregate cash
consideration was $5.9 million.
Proforma net sales and net income giving effect to these acquisitions as if they
had occurred at the beginning of 1999 and 2000 is not presented because the
effect of the acquisitions to the Company's net sales and net income is not
material.
8
BUILDING MATERIALS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTION
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,
1999. 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 publicly announce 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.
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, 1999.
For The For The
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 25.8 25.1 25.8 25.1
Selling, general and
administrative expense 21.0 20.0 21.8 21.0
Other income .2 .2 .6 .2
Income from operations 5.0 5.2 4.6 4.3
Equity in earnings
of unconsolidated
companies .8 .4 .8 .2
Interest expense 1.6 1.2 1.7 1.2
Income taxes 1.6 1.7 1.4 1.3
Net income 2.6 2.7 2.3 2.0
9
SECOND QUARTER OF 2000 COMPARED TO THE SECOND QUARTER OF 1999
Net sales for the three months ended June 30, 2000 were $271.4 million up 6.0%
from the second quarter of 1999 when sales were $256.0 million. The increase in
net sales resulted from a same-store sales growth of 4.3% over the second
quarter of 1999 in sales at facilities that operated for at least two months in
both the second quarter of 1999 and the second quarter of 2000 as well as a 1.7%
increase from the net impact of de novo expansion and acquisitions made during
the past year, offset by elimination of sales from locations sold in the last
twelve months as part of BMHC's business strategy. Value-added products
accounted for $103.4 million, or 38.1% of net sales for the second quarter of
2000, an increase from $86.4 million, or 33.8% of net sales for the second
quarter of 1999.
Gross profit as a percentage of sales increased to 25.8% in the second quarter
of 2000 from 25.1% in the second quarter of 1999, primarily as a result of
increased sales of higher margin value-added products, such as roof trusses,
pre-hung doors, millwork, and pre-assembled windows.
Selling, general and administrative (SG&A) expense was $57.1 million in the
second quarter of 2000 as compared to $51.2 million in the second quarter of
1999, and increased as a percentage of net sales from 20.0% in 1999 to 21.0% in
2000. The Company attributes some of this increase to the increase in
value-added product sales which generally require higher SG&A expenses and the
cost of integrating facility expansions and operations acquired in the second
quarter of 2000. Additionally, the Company incurred expenses of approximately
$0.8 million during the second quarter of 2000 for its analysis of additional
Internet, e-Business and strategic initiatives.
Equity in earnings of unconsolidated companies was $2.3 million, net of
amortization of goodwill, compared to $1.0 million in the second quarter of
1999. This increase is attributed to the investing companies improved
profitability and the inclusion of equity in earnings for three months in 2000
compared to only two months in the quarter ended June 30, 1999.
Interest expense of $4.4 million in the second quarter of 2000 increased from
$3.0 million in the same period of 1999, primarily due to higher debt levels
resulting from equity investments in unconsolidated companies, acquisitions
10
and capital expenditures related to expansion and remodeling of certain building
materials centers and value added facilities.
FIRST SIX MONTHS OF 2000 COMPARED WITH THE FIRST SIX MONTHS OF 1999
Net sales for the six months ended June 30, 2000 were $504.9 million up 7.1%
from the first half of 1999 when sales were $471.6 million. The increase in net
sales resulted from a 6.1% increase in sales at facilities that operated for at
least four months in the six month period of 1999 and the six month period of
2000 as well as a 1.0% increase from the net impact of de novo expansion and
acquisitions made during the past year, offset by the elimination of sales from
locations sold in the last twelve months as part of BMHC's business strategy.
Value-added products accounted for $197.7 million, or 39.2% of net sales for the
first half of 2000, an increase from $164.5 million, or 34.9% of net sales for
the first half of 1999.
Gross profit as a percentage of sales improved to 25.8% in the first half of
2000 from 25.1% in the first six months of 1999, primarily the result of
increased sales of higher margin value-added products, such as roof trusses,
pre-hung doors, millwork, and pre-assembled windows.
SG&A expense was $110.0 million in the first six months of 2000 as compared to
$99.2 million in 1999, and increased as a percentage of net sales to 21.8% in
2000 from 21.0% in 1999. The Company attributes some of this increase to the
increase in value-added product sales which generally require higher SG&A
expenses and the cost of integrating facility expansions and operations acquired
in the first half of 2000 that were not included in the first half of 1999.
Additionally, the Company incurred expenses of approximately $0.8 during the
first half of 2000 for its analysis of additional Internet, e-Business and
strategic initiatives.
Other income increased from $1.0 million in the first half of 1999 to $3.2
million in the first half of 2000 primarily from the gain during the first
quarter of 2000, on the sale of real estate in Beaverton, Oregon.
Equity in earnings of unconsolidated companies for the first half of 2000, was
$4.3 million, net of amortization of goodwill, compared to $1.0 million in the
first half of 1999. The change is a result of a second quarter 1999 49%
11
interest in Knipp Brothers Industries, LLC, and KBI Distribution, LLC, as well
as a fourth quarter 1999 49% investment in KB Industries Limited Partnership.
Interest expense increased to $8.8 million in the first six months of 2000 from
$5.5 million in the same period of 1999, primarily due to higher debt levels
resulting from equity investments in unconsolidated companies, acquisitions and
capital expenditures related to expansion and remodeling of certain building
materials centers and value added facilities.
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 working capital needs which have
been increasing as the Company has expanded operations in recent years. Capital
resources have primarily consisted of cash flows from operations and the
incurrence of debt.
OPERATIONS
In the first half of 2000, net cash provided by operations was $6.5 million
compared to net cash used by operations of $0.6 million in the first half of
1999. The increase in cash provided by operations is primarily due to timing of
the collection of receivables, purchases of inventory, and payments on payables.
CAPITAL INVESTMENT AND ACQUISITIONS
Capital expenditures, exclusive of acquisitions, were $23.5 million in the first
half of 2000. Capital expenditures were incurred to acquire additional property
and expand and remodel existing building materials centers and value-added
facilities. Proceeds from the dispositions of property, plant and equipment were
$7.0 million related primarily to the sale of the Beaverton and South Austin
locations during the first half of 2000.
During the first half of 2000 the Company completed the acquisition of Alberta
Sales, a millwork facility that was consolidated into the Company's existing
Carson Valley location, and the acquisition of four warehouse distribution
centers along with several sales offices doing business as Marvin Windows
12
Planning Center from Frontier Wholesale Company. Aggregate cash consideration
was $5.9 million.
FINANCING
Net cash provided by financing activities was $15.5 million in the first half of
2000 compared to $44.7 million in the same period in 1999. The Company utilized
its available borrowing capacity for capital expenditures related to expansion
and remodeling of building materials centers and value-added facilities during
the first half of 2000.
On June 26, 2000, the Company executed the First Amendment to the senior credit
facility which added an additional bank, Banque Nationale de Paris, and
increased its credit availability by $25 million. At June 30, 2000 the Company's
existing senior credit facility provided for borrowings of up to $250.0 million
which includes $111.1 million provided for by the term loan all of which was
outstanding at June 30, 2000, and $138.9 million provided for by the revolving
credit facility, $76.0 million of which was outstanding at June 30, 2000.
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 in 2004.
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.
Based on the Company's ability to generate cash flows 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 or changes are made to its debt structure. 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 debt outstanding at June 30, 2000, a 25 basis point increase in
interest rates would result in approximately $468,000 of additional annual
interest costs.
13
Commodity wood products, including lumber and panel products, accounted for
approximately 44% of net sales in the first six months of 2000 and 1999. Prices
of commodity wood products, which are subject to significant volatility, could
directly affect net sales. The Company does not utilize any derivative financial
instruments.
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.
14
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual stockholder meeting on May 4, 2000. A
total of 12,700,686 shares of common stock were outstanding at the
date of record and entitled to vote at the meeting. Of the total
outstanding, 11,452,684 shares were represented at the meeting and
1,248,002 shares were not voted.
Stockholders cast votes for the election of the following directors
whose terms expire in 2000:
For Against
George E. McCown 11,393,490 59,194
Robert E. Mellor 11,393,020 59,664
Alec F. Beck 11,390,124 62,560
H. James Brown 11,393,516 59,168
Wilbur J. Fix 11,392,103 60,581
Robert V. Hansberger 11,392,651 60,033
Donald S. Hendrickson 11,346,266 106,418
Guy O. Mabry 11,392,651 60,033
Peter S. O'Neill 11,393,516 59,168
The shareholders ratified the 2000 Stock Incentive Plan with votes
cast 7,967,593 for, 1,264,089 against, 25,917 abstained.
The shareholders ratified the Second Amended and Restated
Non-Employee Director Stock Plan with votes cast 8,376,635 for,
857,350 against, 23,614 abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
15
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 08, 2000 /s/ Robert E. Mellor
-----------------------------------------------
Robert E. Mellor
President, Chief Executive Officer
and Director (Principal Executive Officer)
Date: August 08, 2000 /s/ Ellis C. Goebel
-----------------------------------------------
Ellis C. Goebel
Senior Vice President - Finance
and Treasurer
(Principal Financial Officer)
16
INDEX TO EXHIBITS
BUILDING MATERIALS HOLDING CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1999
Page
Exhibit Description Number
10.38 First Amendment to Credit Agreement
Dated as of June 26, 2000
27 Financial Data Schedule
17