SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1998 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number 0-19335
BUILDING MATERIALS HOLDING CORPORATION
Delaware 91-1834269
(State of other jurisdiction of incorporation or (IRS Employer
organization) Identification No.)
Building Materials Holding Corporation
One Market Plaza, Steuart Tower, Ste 2650, San Francisco, CA 94105
Telephone: (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 July 31, 1998:
----- --------------------
Common stock $.001 par value 12,641,439
1
BUILDING MATERIALS HOLDING CORPORATION
INDEX
Page
Number
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PART I -- FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income for the three and
six months ended June 30, 1998 and 1997 4
Condensed Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 5
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II -- OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS 17
EXHIBITS 18
2
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
financial results for the periods presented have been included in management's
discussion and analysis. The adjustments made were of a normal, recurring
nature. Certain information and footnote disclosures 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 audited consolidated
financial statements and notes thereto included in the Company's 1997 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.
3
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
Net sales $226,017 $190,616 $409,648 $337,385
Cost of sales 171,413 147,129 311,079 259,608
-------- -------- -------- --------
Gross profit 54,604 43,487 98,569 77,777
Selling, general
and administrative
expense 44,523 35,832 84,959 67,745
Other income 451 427 824 891
-------- -------- -------- --------
Income from
operations 10,532 8,082 14,434 10,923
Interest expense 2,674 2,362 5,171 4,450
-------- -------- -------- --------
Income before income
taxes 7,858 5,720 9,263 6,473
Income taxes 3,104 2,260 3,659 2,557
-------- -------- -------- --------
Net income $4,754 $3,460 $ 5,604 $ 3,916
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common
share:
Basic $0.38 $0.29 $0.45 $0.33
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $0.38 $0.29 $0.45 $0.33
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part of these condensed financial
statements.
4
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
June 30, December 31,
1998 1997
-------- ------------
ASSETS
Current assets
Cash $ 8,234 $ 8,177
Receivables, net 100,627 84,872
Inventories 83,089 78,162
Deferred income tax benefit 2,131 2,131
Prepaid expenses 1,366 3,481
-------- --------
Total current assets 195,447 176,823
Property, plant and equipment, net 131,543 118,240
Deferred loan costs 1,051 1,324
Goodwill, net 38,339 38,193
Other 5,618 5,793
-------- --------
Total assets $371,998 $340,373
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ -- $ 1,150
Accounts payable 47,350 43,204
Accrued compensation 8,065 6,469
Sales tax payable 4,017 3,398
Other accrued expenses 7,758 3,990
-------- --------
Total current liabilities 67,190 58,211
Long-term debt, net of current portion 126,630 113,410
Deferred income taxes 4,722 4,722
Other long-term liabilities 2,851 3,079
Shareholders' equity
Common stock, $.001 par value, 20,000,000
shares authorized, 12,641,439 and
12,331,088 shares outstanding at June 30,
1998 and December 31, 1997, respectively 13 12
Additional paid-in capital 108,154 104,107
Retained earnings 62,438 56,832
-------- --------
Total shareholders' equity 170,605 160,951
-------- --------
Total liabilities and shareholders' equity $371,998 $340,373
-------- --------
-------- --------
The accompanying notes are an integral part of these condensed financial
statements.
5
BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
June 30, June 30,
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,604 $ 3,916
Adjustments to reconcile net income to cash
provided (used)in operating activities:
Depreciation and amortization 6,576 5,457
Gain on sales of assets (60) (423)
Stock option compensation 16 --
Changes in working capital items, net of
effects of acquisitions and divestitures (2,569) (4,190)
Other (282) (684)
--------- ---------
Net cash provided by operating activities 9,285 4,076
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (10,327) (6,153)
Payments for acquisitions (11,536) (5,738)
Proceeds from sales of property and equipment 534 1,232
--------- ---------
Net cash used in investing activities (21,329) (10,659)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit agreement 13,220 9,930
Principal payments on debt (1,124) --
Redemption of preferred stock -- (1,000)
Financing costs -- (201)
Other 5 (68)
--------- ---------
Net cash provided by financing activities 12,101 8,661
--------- ---------
Net increase in cash 57 2,078
Cash, beginning of period 8,177 7,066
--------- ---------
Cash, end of period $ 8,234 $ 9,144
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for -
Interest $ 4,901 $ 4,378
Income taxes $ 1,114 $ 487
The accompanying notes are in integral part of these condensed financial
statements.
6
BUILDING MATERIALS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. WORKING CAPITAL CHANGES
Changes in working capital items, net of acquisitions, for the six months ended
June 30, 1998 and 1997 are as follows (in thousands):
1998 1997
---------- ----------
(Increase)in accounts receivable $(11,983) $(13,021)
(Increase)in inventories (2,144) (1,994)
Decrease in prepaid expenses 2,123 687
Increase in accounts payable and accrued
expenses 9,431 10,066
Increase in interest payable 4 72
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$ (2,569) $ (4,190)
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2. LONG-TERM DEBT
Long-term debt consisted of the following(in thousands):
June 30, December 31,
1998 1997
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Revolving credit agreement borrowings $ 47,930 $ 34,710
9.18% unsecured senior notes 50,000 50,000
8.10% unsecured senior notes 25,000 25,000
Other 3,700 4,850
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126,630 114,560
Less current portion -- 1,150
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$126,630 $113,410
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---------- -----------
The Company is in compliance with all covenants and conditions related to the
above borrowings.
7
3. EARNINGS PER SHARE
Earnings per share was determined as follows:
Three Months Ended Six Months Ended
------------------------- --------------------------
June 30, June 30, June 30, June 30
1998 1997 1998 1997
----------- ---------- ----------- -----------
COMPUTATION OF BASIC
EARNINGS PER SHARE:
Net income $ 4,754,000 $ 3,460,000 $ 5,604,000 $ 3,916,000
Class B preferred stock
accretion -- -- -- (6,500)
----------- ----------- ----------- -----------
Net income available to
common shareholders $ 4,754,000 $ 3,460,000 $ 5,604,000 $ 3,909,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares
outstanding 12,408,238 11,830,141 12,372,560 11,828,690
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE $0.38 $0.29 $0.45 $0.33
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
COMPUTATION OF DILUTED
EARNINGS PER SHARE:
Net income available to
common shareholders $ 4,754,000 $ 3,460,000 $ 5,604,000 $ 3,909,500
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares
outstanding 12,408,238 11,830,141 12,372,560 11,828,690
Net effect of dilutive
stock options based on
the treasury stock
method using average
market price 163,636 215,953 147,775 217,172
----------- ----------- ----------- -----------
Weighted average diluted
shares outstanding 12,571,874 12,046,094 12,520,335 12,045,862
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED EARNINGS PER
SHARE $0.38 $0.29 $0.45 $0.33
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
8
4. ACCQISITIONS
In the second quarter of 1998, the Company completed five acquisitions
consisting of eight locations, six of which have value-added facilities
located in Montana, Oregon, Texas and Washington. The total consideration
given was $15.6 million consisting of $11.5 million in cash, 299,343 shares
of common stock valued at $4.0 million and other assumed operating
liabilities of $81,000. For purposes of the Statements of Cash Flows,
those portions of the acquisitions completed by payment of the Company's
common stock or through the assumption of operating liabilities have been
treated as non-cash transactions.
5. START-UP COSTS
On April 3, 1998, the AICPA issued Statement of Position (SOP)98-5,
REPORTING ON THE COSTS OF START-UP ACTIVITIES. This SOP provides guidance
on the financial reporting of start-up and organization costs. The SOP
requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP is effective for financial statements with fiscal
years beginning after December 15, 1998 and earlier application is
encouraged. The Company adopted this SOP during the second quarter of
1998. The resulting impact on the Company's consolidated results of
operations and financial condition was immaterial.
6. NEW ACCOUNTING PRONOUNCEMENT
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 its fair value.
This Statement is effective for fiscal quarters of fiscal years beginning
after June 15, 1999. The Company plans to adopt this Statement in the
first quarter of 2000. The Company is still in process of reviewing this
Statement, however, given that the Company does not utilize derivative
instruments, adoption of this Statement is not expected to have an impact
on the Company's consolidated results of operations or financial condition.
9
MANAGEMENT'S 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
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, 1997.
For The Three Months Ended For The Six Months Ended
-------------------------- ------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- ------- ------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 24.2 22.8 24.1 23.1
Selling, general and
administrative expense 19.7 18.8 20.7 20.1
Other income .2 .2 .2 .3
Income from operations 4.7 4.2 3.5 3.2
Interest expense 1.2 1.2 1.3 1.3
Income taxes 1.4 1.2 .9 .8
Net income 2.1 1.8 1.4 1.2
SECOND QUARTER OF 1998 COMPARED TO THE SECOND QUARTER OF 1997
Net sales for the three months ended June 30, 1998 were $226.0 million up 18.6%
from the second quarter of 1997 when sales were $190.6 million. The largest
portion of this increase was due to acquisitions contributing $26.6 million.
The increase in net sales also resulted from a 5.7% increase over the second
quarter of 1997 in sales at facilities that operated for at least two months in
both the second quarter of 1997 and the second quarter of 1998 ("same-store
sales"). Sales increased despite overall price deflation of 3.2%, primarily
attributable to commodity wood product prices. Adjusting for the price
deflation, real same-store sales were approximately 8.9% over the year-ago
quarter.
Gross profit as a percentage of sales increased to 24.2% in the second quarter
of 1998 from 22.8% in the second quarter of 1997, primarily as a result of on-
going efforts by the Company to improve margins through its increased focus on
10
value-added products, such as roof trusses, pre-hung doors, millwork, and
pre-assembled windows.
Selling, general and administrative (SG&A) expense, was $44.5 million in the
second quarter of 1998 as compared to $35.8 million in 1997, and increased as a
percentage of net sales from 18.8% in 1997 to 19.7% in 1998. The Company
attributes this partially to increases in value-added sales that carry higher
SG&A expenses and integrating new operating locations that were not included in
the comparable period.
Interest expense of $2.7 million in the second quarter of 1998 increased from
$2.4 million in the same period of 1997, primarily due to increased borrowings
under the Company's revolving line of credit to support higher working capital
as a result of increased sales and acquisitions made during the previous 12
months.
Income taxes were provided at estimated annual effective tax rates of 39.5% for
the periods ended June 30, 1998 and June 30, 1997.
As a result of the foregoing factors, net income increased by $1.3 million, or
37.4% to $4.8 million, or 2.1% of net sales in the second quarter of 1998, as
compared to $3.5 million, or 1.8% of net sales, in the second quarter of 1997.
FIRST SIX MONTHS OF 1998 COMPARED WITH THE FIRST SIX MONTHS OF 1997
Net sales for the six months ended June 30, 1998 were $409.6 million up 21.4%
from the first half of 1997 when sales were $337.4 million. The largest portion
of this increase was due to acquisitions contributing $47.5 million. The
increase in net sales also resulted from an increase of 8.7% in same-store
sales, over the first six months of 1997. Sales in the 1998 period were
negatively affected by lower commodity wood product prices. The price decrease
contributed to an overall price deflator of 3.4%, the effect of which decreased
sales by approximately $11.4 million. Excluding price deflation, same-store
sales increased 12.1%.
11
Gross profit as a percentage of sales improved to 24.1% in the first half of
1998 from 23.1% in the first six months of 1997, 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, millwork and
pre-assembled windows.
Selling, general and administrative (SG&A) expense, was $85.0 million in the
first six months of 1998 as compared to $67.7 million in 1997, and increased as
a percentage of net sales to 20.7% in 1998 from 20.1% in 1997. The Company
attributes this partially to increases in value-added sales that carry higher
SG&A expenses and integrating new operating locations that were not included in
the comparable period.
Interest expense increased to $5.2 million in the first six months of 1998 from
$4.5 million in the same period of 1997, primarily due to increased borrowings
under the Company's revolving line of credit to support higher working capital
as a result of increased sales and acquisitions made during the previous 12
months.
Income taxes were provided at estimated annual effective tax rates of 39.5% for
the six month periods ended June 30, 1998 and June 30, 1997.
As a result of the foregoing factors, net income increased by $1.7 million, or
43.1% to $5.6 million, or 1.4% of net sales in the first half of 1998, as
compared to $3.9 million, or 1.2% of net sales, in the first six months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 the Company had $126.6 million of long-term debt outstanding,
consisting of $78.7 million of term borrowings under fixed rate notes, and $47.9
million of variable rate debt under the revolving credit agreement.
In the first half of 1998, the Company generated $9.3 million of cash from
operating activities. Working capital increased from $118.6 million at
December 31, 1997 to $128.3 million at June 30, 1998, due primarily to
12
increased sales and acquisitions made during the previous 12 months and due to
the seasonality in the Company's accounts receivable and inventories.
Based on its ability to generate cash from operations and the available
borrowing capacity at June 30, 1998 of $22.1 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.
YEAR 2000 SYSTEM ISSUE
The Company continues to review its financial and operating systems with respect
to the Year 2000 issue. The Company is in the process of making normal upgrades
and modifications to its significant financial and operating systems, including
both hardware and software components. The upgrades are designed, among other
things, to address the Year 2000 issue, and are not presently expected to result
in a material incremental expense to the Company. Based on the Company's
progress to date in addressing its significant operating and financial
applications, the Company does not currently anticipate any material disruption
in its operations as a result of the Year 2000 issue.
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.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholder meeting on May 7, 1998. A
total of 12,333,762 shares of common stock were outstanding at the
date of record and entitled to vote at the meeting. Of the total
outstanding, 10,436,735 shares were represented at the meeting and
1,897,027 shares were not voted.
Shareholders cast votes for the election of the following
directors, whose terms expire in 1999:
For Against
---------- -------
George E. McCown 10,360,389 76,346
Robert E. Mellor 10,359,466 77,269
Donald S. Hendrickson 10,360,525 76,210
Alec F. Beck 10,358,071 78,664
H. James Brown 10,360,378 76,357
Wilbur J. Fix 10,360,378 76,357
Robert V. Hansberger 10,360,064 76,671
Guy O. Mabry 10,360,064 76,671
Peter S. O'Neill 10,360,438 76,297
The shareholders ratified the appointment of Arthur Andersen LLP
as the Company's independent auditors for the year 1998 with votes
cast 10,402,699 for, 21,410 against, 12,566 abstained.
The shareholders ratified the Amended and Restated Non-Employee
Director Stock Option Plan with votes cast 10,079,767 for, 265,417
against, 40,702 abstained.
The shareholders ratified the First Amendment to the Amended and
Restated 1993 Employee Stock Option Plan with votes cast
10,024,144 for, 321,603 against, 40,139 abstained.
14
ITEM 5. OTHER INFORMATION
None
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 3, 1998 /s/ Robert E. Mellor
-------------------------------------------
Robert E. Mellor
President, Chief Executive Officer
and Director (Principal Executive Officer)
Date: August 3, 1998 /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, 1998
Page
Exhibit Description Number
- -------- ------------ ------
27 Financial Data Schedule 18
10.1 Amended and Restated Non-Employee Director
Stock Option Plan 20
10.2 First Amendment to the Amended and Restated 1993
Employee Stock Option Plan 28
17