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 SEPTEMBER 30, 1997 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 Street Tower, Ste 2650, San Francisco, CA 94105
Telephone: (208)331-4410 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
--- ---
Shares Outstanding as
Class of November 7, 1997:
-----
Common stock $.001 par value 12,065,350
----------
Index to exhibits at page
This is Page 1 of 16 Pages
BUILDING MATERIALS HOLDING CORPORATION
INDEX
Page
Number
------
PART I -- FINANCIAL INFORMATION
Item 1 - Financial Statements 3
Condensed Consolidated statements of Income for the three months
ended September 30, 1997 and 1996 and the nine months ended
September 30, 1997 and 1996 4
Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 6
Notes to the Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
INDEX TO EXHIBITS 15
EXHIBITS 16
This is Page 2 of 16 Pages
PART I - FINANCIAL INFORMATION
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. BMHC was formed on September 23,
1997 in a holding company reorganization in which BMC West Corporation, the
former, registrant, became a wholly owned subsidiary of BMHC. This new
structure was adopted to centralize certain administrative functions as the
Company expands its participation in the consolidation of the contractor
focused building materials distribution industry. All references to the
"Company" will mean BMHC on a consolidated basis if referring to periods
after September 23, 1997, or BMC West Corporation for all preceding periods.
In the opinion of management, all adjustments necessary to present fairly the
results for the periods presented have been included therein. The
adjustments made were of a normal, recurring nature. Certain information and
footnote disclosure normally included in the consolidated financial
statements 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. It is recommended that these condensed consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's 1996 Annual Report.
The condensed consolidated results of operations for the periods presented
are not necessarily indicative of the results that might be expected for the
fiscal year.
This is Page 3 of 16 Pages
BUILDING MATERIALS HOLIDNG CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in Thousands Except per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- ------------
Net sales $ 201,950 $ 206,455 $ 539,335 $ 547,076
Cost of sales 155,513 162,094 415,121 427,381
---------- ---------- ---------- ----------
Gross profit 46,437 44,361 124,214 119,695
Selling, general and administrative expense 37,717 34,780 105,462 97,493
Other income, net 487 289 1,378 1,270
---------- ---------- ---------- ----------
Income from operations 9,207 9,870 20,130 23,472
Interest expense 2,245 2,330 6,695 8,297
---------- ---------- ---------- ----------
Income before income taxes 6,962 7,540 13,435 15,175
Income taxes 2,750 2,980 5,307 5,993
---------- ---------- ---------- ----------
Net income before extraordinary item 4,212 4,560 8,128 9,182
Extraordinary item -- -- -- (342)
---------- ---------- ---------- ----------
Net Income $ 4,212 $ 4,560 $ 8,128 $ 8,840
========== ========== ========== ==========
Net income per common and common equivalent
share before extraordinary item $ .35 $ .38 $ .67 $ .86
Extraordinary item, net of tax -- -- -- ($ .03)
---------- ---------- ---------- ----------
Net income per Common and Common Equivalent Shares $ .35 $ .38 $ .67 $ .83
========== ========== ========== ==========
Weighted average number of common and common
equivalent shares 12,051,916 12,044,134 12,046,496 10,649,697
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
This is Page 4 of 16 Pages
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
September 30, December 31,
1997 1996
------------- ------------
CURRENT ASSETS
Cash $ 6,736 $ 7,066
Receivables, net 90,694 70,184
Inventories 71,507 76,415
Deferred income tax benefit 1,743 1,743
Prepaid expenses 935 1,874
-------- --------
Total current assets 171,615 157,282
PROPERTY AND EQUIPMENT, net 108,093 103,921
DEFERRED LOAN COSTS 1,162 1,438
GOODWILL, net 22,878 19,679
OTHER 5,892 6,049
-------- --------
Total assets $309,640 $288,369
-------- --------
-------- --------
CURRENT LIABILITIES
Current portion of long-term debt $ 588 $ 568
Current redemption requirement on Class B
preferred stock 1,000 1,994
Accounts payable 36,426 33,954
Accrued expenses 17,486 10,299
-------- --------
Total current liabilities 55,500 46,815
LONG-TERM DEBT, net of current portion 91,562 90,203
DEFERRED INCOME TAXES 4,368 4,368
OTHER LONG-TERM LIABILITIES 1,994 1,895
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 20,000,000
shares authorized, 12,065,350 and 11,825,106
shares outstanding at September 30, 1997 and
December 31, 1996, respectively 12 12
Additional paid-in-capital 100,736 97,731
Retained earnings 55,468 47,345
-------- --------
TOTAL STOCKHOLDERS' EQUITY 156,216 145,088
-------- --------
-------- --------
Total liabilities and stockholders' equity $309,640 $288,369
-------- --------
-------- --------
The accompanying notes are an integral part of these financial statements.
This is Page 5 of 16 Pages
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
Nine Months Ended
September 30, September 30,
1997 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,128 $ 8,840
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 8,317 7,720
Gain on sale of assets (430) (366)
Extraordinary item, net of tax -- 342
Changes in working capital items, net of
effects of acquisitions 2,989 (11,097)
Other (559) (699)
-------- --------
Net cash provided from operating activities 18,445 4,740
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (9,927) (11,700)
Payment for acquisitions (10,259) (3,347)
Sale of property and equipment 1,337 1,774
-------- --------
Net cash used in investing activities (18,849) (13,273)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of 10% unsecured notes -- (20,000)
Repayment of Note Payable (561) (200)
Borrowings under revolving credit agreement 89,080 173,350
Repayments under revolving credit agreement (87,160) (180,780)
Redemption of Class B preferred stock (1,000) (1,000)
Issuance of debt -- 1,685
Issuance of Common Stock, net of expenses -- 38,486
Financing costs (201) (191)
Other (84) (342)
-------- --------
Net cash provided by financing activities 74 11,008
-------- --------
NET INCREASE (DECREASE) IN CASH (330) 2,475
CASH, beginning of period 7,066 6,004
-------- --------
CASH, end of period $ 6,736 $ 8,479
-------- --------
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $ 5,060 $ 6,610
Income taxes $ 4,019 $ 4,850
The accompanying notes are an integral part of these financial statements.
This is Page 6 of 16 Pages
BUILDING MATERIALS HOLDING CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. WORKING CAPITAL CHANGES
Changes in working capital items, net of acquisitions, for the nine months
ended September 30, 1997 and 1996 are as follows (in thousands):
1997 1996
-------- --------
Increase in accounts receivable ($16,512) ($19,613)
(Increase)decrease in inventories 9,495 (6,555)
(Increase) decrease in prepaid expenses 958 (13)
Increase in accounts payable and accrued expenses 7,413 13,397
Increase in interest payable 1,635 1,687
-------- --------
$ 2,989 ($11,097)
======== ========
2. LONG-TERM DEBT
Long-term debt consisted of the following at (in thousands):
September 30, December 31,
1997 1996
------------- ------------
Revolving credit agreement borrowings $16,000 $14,080
9.18% unsecured senior notes 50,000 50,000
8.10% unsecured senior notes 25,000 25,000
Capital lease obligations and other 1,150 1,691
------- -------
92,150 90,771
Less current portion 588 568
------- -------
$91,562 $90,203
======= =======
3. ACQUISITIONS
In the first quarter of 1997, the Company purchased substantially all of
the assets of a building supply firm in Utah, which operates as a satellite
to the Orem location. The total cash purchase price was $930,000. In the
second quarter of 1997, the Company completed two acquisitions consisting of
one value-added facility and one building materials center located in
Colorado and Washington. The total cash purchase price was $4,808,000. In
the third quarter of 1997, the Company purchased substantially all of the
assets of a building supply firm in Nevada. The total purchase price for
this facility was $7,522,000, consisting of
This is Page 7 of 16 Pages
230,000 shares of stock and $4,521,000 cash. The equity issued for this
acquisition was treated as a non-cash transaction and not included in the
condensed consolidated statement of cash flows.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement 128, EARNINGS PER SHARE, which will be implemented in the fourth
quarter of 1997. Primary earnings per share will be replaced with basic
earnings per share and fully diluted earnings per share will be renamed
diluted earnings per share, neither of which will be significantly different
than previously reported primary and fully diluted earnings per share. All
previously reported amounts will be restated.
This is Page 8 of 16 Pages
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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, 1996.
For The Three Months Ended For The Nine Month Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 23.0 21.5 23.0 21.9
Selling, general and
administrative
expense 18.7 16.8 19.6 17.8
Other income, net .2 .1 .3 .2
Income from operations 4.6 4.8 3.7 4.3
Interest expense 1.1 1.1 1.2 1.5
Income taxes 1.4 1.4 1.0 1.1
Net Income 2.1 2.2 1.5 1.6
THIRD QUARTER OF 1997 COMPARED TO THE THIRD QUARTER OF 1996
Net sales for the three months ended September 30, 1997 were $202.0 million
down 2.2% from the third quarter of 1996 when sales were $206.5 million. The
decrease in net sales resulted from a 3.6% decrease from the third quarter of
1996 in sales at facilities that operated for at least two months in both the
third quarter of 1996 and the third quarter of 1997 ("Same-Store Sales").
Sales decreased due to an overall price deflation of 4.4% primarily
attributable to commodity wood product prices. Adjusting for the price
deflation, real same-store sales were about 1% ahead of the year-ago quarter,
despite lower building permit activity in the majority of the Company's
10-state market area.
Gross profit as a percentage of sales increased to 23.0% in the third quarter
of 1997 from 21.5% in the third quarter of 1996, primarily as a result of on
going efforts by the Company to improve margins through its increased focus
on value-added products, such as roof trusses, pre-hung doors and
pre-assembled windows.
This is Page 9 of 16 Pages
Selling, general and administrative (SG&A) expense, was $37.7 million in the
third quarter of 1997 as compared to $34.8 million in 1996, and increased as
a percentage of net sales from 16.8% in 1996 to 18.7% in 1997. The Company
attributes this partially to increases in value-added sales that carry higher
SG&A expenses and new operating locations that were not included in the
comparable period.
Interest expense of $2.2 million in the third quarter of 1997 decreased from
$2.3 million in the same period of 1996, primarily due to less debt outstanding
during the third quarter of 1997 compared to the third quarter of 1996.
Income taxes were provided at estimated annual effective tax rates of 39.5% for
the periods ended September 30, 1997 and September 30, 1996.
As a result of the foregoing factors, net income decreased by $348,000, or 7.6%
to $4,212,000, or 2.1% of net sales in the third quarter of 1997, as compared to
$4,560,000, or 2.2% of net sales, in the third quarter of 1996.
FIRST NINE MONTHS OF 1997 COMPARED WITH THE FIRST NINE MONTHS OF 1996
Net sales for the nine months ended September 30, 1997 were $539.3 million down
1% from the first nine months of 1996 when sales were $547.1 million. The
decrease in net sales resulted from a decrease of 2.9% in Same-Store Sales over
the first nine months of 1996. This decrease was primarily a result of lower
building permit activity in the majority of the Company's 10-state market area
offset by the acquisition of new locations.
Gross profit as a percentage of sales improved to 23.0% in the first nine months
of 1997 from 21.9% in the first nine months of 1996, primarily as a result of on
going efforts by the Company to improve margins through its increased focus on
value-added products, such as roof trusses, pre-hung doors and pre-assembled
windows.
This is Page 10 of 16 Pages
Selling, general and administrative (SG&A) expense, was $105.5 million in the
first nine months of 1997 as compared to $97.5 million in 1996, and increased
as a percentage of net sales to 19.6% in 1997 from 17.8% in 1996. The
Company attributes this partially to acquisition costs and increases in
value-added sales that carry higher SG&A expenses and new operating locations
that were not included in the comparable period.
Interest expense decreased to $6.7 million in the first nine months of 1997 from
$8.3 million in the same period of 1996, primarily due to less debt outstanding
during the nine months of 1997 compared to the first nine months of 1996.
Income taxes were provided at estimated annual effective tax rates of 39.5% for
the nine month period ended September 30, 1997 and September 30, 1996.
As a result of the foregoing factors, net income before extraordinary item,
decreased to $8,128,000 or 1.5% of net sales in the first nine months of 1997,
as compared to $9,182,000, or 1.7% of net sales, in the first nine months of
1996.
In the second quarter of 1996, the Company redeemed, with the net proceeds of an
equity offering, the 10% unsecured senior subordinated notes early in the third
quarter of 1996. In connection with this planned redemption, the Company wrote
off the related deferred loan cost. These write-offs were recorded as an
extraordinary charge of $342,000 in the second quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
In the second quarter of 1996, the Company sold 2,300,000 shares of previously
unissued common stock. The net proceeds of this offering of $38.5 million, less
underwriting and estimated other issuance costs, were used to retire the $20
million of 10% unsecured senior subordinated notes in the third quarter of 1996
and reduce the debt under the revolving credit agreement.
At September 30, 1997 the Company had $91.6 million of long-term debt
outstanding, consisting of $75.6 million of term borrowings under fixed rate
This is Page 11 of 16 Pages
notes, and $16.0 million of variable rate debt under the revolving credit
agreement.
In the first nine months of 1997, the Company generated $18.4 million of cash
from operating activities. Working capital increased from $110.5 million at
December 31, 1996 to $116.1 million at September 30, 1997, due primarily to the
seasonality in the Company's accounts receivable.
Based on its ability to generate cash from operations and the available
borrowing capacity at September 30, 1997 of $59.0 million under the revolving
credit agreement (availability of which is subject to the satisfaction of
certain customary borrowing conditions), the Company believes it will have
sufficient funds to meet its currently anticipated requirements.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement 128,
EARNINGS PER SHARE, which will be implemented in the fourth quarter of 1997.
Primary earnings per share will be replaced with basic earnings per share and
fully diluted earnings per share will be renamed diluted earnings per share,
neither of which will be significantly different than previously reported
primary and fully diluted earnings per share. All previously reported amounts
will be restated.
This is Page 12 of 16 Pages
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation and administrative
proceedings primarily arising in the normal course of its business.
In the opinion of management, the Company's recovery, if any, or
the Company's liability, if any, under any pending litigation or
administrative proceedings would not materially affect its
financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement regarding computation of per share earnings.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
On September 23, 1997, the Company filed a Form 8-K with the
Securities and Exchange Commission describing the merger of BMC
West Corporation with Building Materials Holding Corporation to
create a holding company structure.
On September 24, 1997, the Company's predecessor BMC West
Corporation filed a Form 8-K with the Securities and Exchange
Commission also related to the merger of BMC West Corporation with
Building Materials Holding Corporation.
This is Page 13 of 16 Pages
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: November 7, 1997 /s/ Robert E. Mellor
---------------------------------------
Robert E. Mellor
President, Chief Executive Officer
and Director (Principal Executive Officer)
Date: November 7, 1997 /s/ Ellis C. Goebel
---------------------------------------
Ellis C. Goebel
Senior Vice President - Finance
and Treasurer
(Principal Financial Officer)
This is Page 14 of 16 Pages
INDEX TO EXHIBITS
BUILDING MATERIALS HOLDING CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 1997
Page
Exhibit Description Number
- ------- ----------- ------
3.1 Restated Certificate of Incorporation, filed
with the office of the Secretary of State of
the State of Delaware on September 23, 1997.
3.2 Certificate of Correction Filed to Correct a
Certain Error in the Certificate of
Incorporation Filed in the Office of the
Secretary of State of Delaware on
September 23, 1997.
11 Computation of Earnings Per Share 16
27 Financial Data Schedule
This is Page 15 of 16 Pages