• Windows & Doors. Our windows & doors category is comprised of the manufacturing, assembly, and distribution of windows and interior and exterior door units.

• Lumber & Lumber Sheet Goods. Lumber & lumber sheet goods include dimensional lumber, plywood, and OSB products used in on-site house framing.

• Millwork. Millwork includes interior trim, exterior trim, columns and posts that we distribute, as well as custom exterior features that we manufacture under the Synboard brand name.

• Other building products & services. Other building products & services are comprised of products such as cabinets, gypsum, roofing and insulation and services such as turn-key framing, shell construction, design assistance, and professional installation spanning all of our product categories.

Our operating results are dependent on the following trends, events and uncertainties, some of which are beyond our control:
• Homebuilding Industry. Our business is driven primarily by the residential new construction market, which is in turn dependent upon a number of factors, including interest rates, consumer confidence, foreclosure rates, and the health of the economy and mortgage markets. Over the past few years, many homebuilders significantly decreased their starts because of lower demand and an excess of home inventory. Due to the decline in housing starts and increased competition for homebuilder business, we have and will continue to experience increasing pressure on our margins. The decline in housing starts continues to be widespread and we expect this trend to continue through 2009 and possibly beyond. However, we still believe there are several meaningful trends that indicate U.S. housing demand will likely remain healthy in the long term and that the current downturn in the housing industry is likely a trough in the cyclical nature of the residential construction industry. These trends include relatively low interest rates, the aging of housing stock, and normal population growth due to birthrate exceeding death rate.

• Targeting Large Production Homebuilders. In recent years, the homebuilding industry has undergone significant consolidation, with the larger homebuilders substantially increasing their market share. We expect that trend to accelerate during this housing correction due to the better liquidity positions of the larger homebuilders relative to the smaller, less capitalized homebuilders. Our focus is on maintaining relationships and market share with these customers while balancing the competitive pressures we are facing in our markets with certain profitability expectations. Our sales to the "Builder 100," the country's largest 100 homebuilders, fell 47.0% during the three months ended March 31, 2009 compared to the same period of the prior year, slightly better than the overall decline in housing activity in the United States. We expect that our ability to maintain strong relationships with the largest builders will be vital to our ability to grow and expand into new markets as well as maintain our current market share through the downturn. Additionally, during the downturn, we will continue to expand our custom homebuilder base, but this growth may be limited by our tight credit standards.

• Expand into Multi-Family and Light Commercial Business. We have, and will continue to, diversify our customer base and grow our sales by further expanding into multi-family and light commercial business. While we primarily serve the single family new home construction market, we have entered the multi-family and/or light commercial market in certain regions. Our Shelby, Alabama location gives us the ability to manufacture steel roof trusses often used in multi-family and light commercial construction.

• Use of Prefabricated Components. Prior to the current housing downturn, homebuilders were increasingly using prefabricated components in order to realize increased efficiency and improved quality. Shortening cycle time from start to completion was a key imperative of the homebuilders during periods of strong consumer demand. With the current housing downturn, that trend has decelerated as cycle time has less relevance. Customers who traditionally used prefabricated components, for the most part, still do. However, the conversion of customers to this product offering has slowed. We expect this trend to continue at least for the duration of this downturn. In response, we have reduced our manufacturing capacity and delayed plans to open new facilities.

• Economic Conditions. Economic changes both nationally and locally in our markets impact our financial performance. The building products supply industry is highly dependent upon new home construction and subject to cyclical market changes. Our operations are subject to fluctuations arising from changes in supply and demand, national economic conditions, labor costs, competition, government regulation, trade policies and other factors that affect the homebuilding industry such as demographic trends, interest rates, single-family housing starts, employment levels, consumer confidence, and the availability of credit to homebuilders, contractors, and homeowners. During 2007, the mortgage markets experienced substantial disruption due to increased defaults, primarily as a result of credit quality deterioration. The disruption has continued and precipitated evolving changes in the regulatory environment and reduced availability of mortgages for potential homebuyers due to an illiquid credit market and more restrictive standards to qualify for mortgages. During 2008, the conditions in the credit markets and the economy worsened and the economy fell into a recession. The credit markets and financial services industry have recently experienced a significant crisis characterized by the bankruptcy or failure of various financial institutions and severe limitations on credit availability. As a result, the credit markets have become highly illiquid as financial and lending institutions have limited credit to conserve cash and protect their balance sheets. Although Congress and applicable regulatory authorities have enacted legislation and implemented policies and plans designed to free up the credit markets, it is unclear as to whether these actions have been effective to date or will be effective in the future. As the housing industry is dependent upon potential homebuyers' access to mortgage financing and homebuilders' access to commercial credit, it is likely there will be further damage to an already weak housing industry until conditions substantially improve.

• Cost of Materials. Prices of wood products, which are subject to cyclical market fluctuations, may adversely impact operating income when prices rapidly rise or fall within a relatively short period of time. We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured and prefabricated products. Short-term changes in the cost of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our customers, but our pricing quotation periods may limit our ability to pass on such price changes. We may also be limited in our ability to pass on increases on in-bound freight costs on our products due to the price of fuel. Our inability to pass on material price increases to our customers could adversely impact our operating income.

• Controlling Expenses. Another important aspect of our strategy is controlling costs and enhancing our status as a low-cost building materials supplier in the markets we serve. We pay close attention to managing our working capital and operating expenses. We have a "best practices" operating philosophy, which encourages increasing efficiency, lowering costs, improving working capital, and maximizing profitability and cash flow. We constantly analyze our workforce productivity to achieve the optimum, cost-efficient labor mix for our facilities. Further, we pay careful attention to our logistics function and its effect on our shipping and handling costs.

CURRENT OPERATING CONDITIONS AND OUTLOOK
The housing industry experienced further declines in the first quarter of 2009. The annualized rate for single-family housings starts at March 31, 2009 was 358,000, down almost 50% from 711,000 one year ago. For the quarter, actual single-family housing starts were 78,200, down from 161,900 last year, a 52% decline. We felt the impact of these difficult conditions on our first quarter results although we were able to limit the impact through execution of our strategy. Our strategy principally consisted of growing market share, implementing cost containment programs which included reducing physical capacity and adjusting staffing levels, prudently managing credit and, most importantly, conserving cash. Overall, we feel these efforts were successful. We estimate that market share gains contributed 17% sales growth during the quarter, partially offsetting the impact of declining housing starts on our sales. We lowered our average full-time equivalent headcount by over 1,900 from the first quarter of 2008, a decrease of 38%. The reductions in payroll costs coupled with other cost reductions allowed us to reduce our selling, general and administrative expenses by 29% compared to the first quarter of 2008. Because of these measures and others, our net cash used during the quarter was only $4.3 million. We believe these efforts will not only benefit us in the short-term but will allow us to be a more efficient organization in the long-term.
We expect these difficult conditions to continue throughout 2009. We believe our strategy remains relevant in these conditions and allows us to focus on conserving cash while maintaining a viable operating platform. We have aggressively but prudently cut costs during this downturn, and these efforts will continue in 2009. In addition, we believe we can continue to offset declining sales through market share gains by expanding our presence in the light commercial and multi-family segments, as well as increasing penetration with our top customers. Finally, we will continue to focus on working capital, to diligently control credit to our customers and also work with our vendors to improve our payment terms and pricing on our products. We ended the quarter with over $102 million in cash, of which $83.5 million was available for operations. In addition, we received $31.8 million in federal income tax refunds subsequent to quarter-end, and are expecting an additional $1.0 to 1.5 million in state income tax refunds to be received later in 2009. The continued execution of our strategy coupled with our available cash and income tax refunds should provide adequate liquidity to weather this unprecedented downturn into 2010.
We still believe that the long-term outlook for the housing industry is positive due to growth in the underlying demographics. At this point, it is unclear if housing activity has hit bottom, but we believe our market leadership, financial strength and industry-leading scale afford us the ability to manage through the downturn. We will continue to work diligently to achieve the appropriate balance of short-term cost reductions while maintaining the expertise to grow the business when market conditions improve
RECENT DEVELOPMENTS
None

SEASONALITY AND OTHER FACTORS
Our first and fourth quarters have historically been, and are expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following:
• The volatility of lumber prices;

• The cyclical nature of the homebuilding industry;

• General economic conditions in the markets in which we compete;

• The pricing policies of our competitors;

• The production schedules of our customers; and

• The effects of weather.

The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables. Working capital levels typically increase in the second and third quarters of the year due to higher sales during the peak residential construction season. These increases have in the past resulted in negative operating cash flows during this peak season, which generally have been financed through available cash. Collection of receivables and reduction in inventory levels following the peak building and construction season have more than offset this negative cash flow. We have also from time to time utilized our credit facility to cover working capital needs if needed.

RESULTS OF OPERATIONS
   The following table sets forth, for the three months ended March 31, 2009 and
2008, the percentage relationship to sales of certain costs, expenses and income
items:

                                                         Three Months Ended
                                                              March 31,
                                                         2009           2008
       Sales                                               100.0 %       100.0 %
       Cost of sales                                        79.1 %        77.7 %

       Gross margin                                         20.9 %        22.3 %
       Selling, general and administrative expenses         33.2 %        29.3 %
       Facility closure costs                                0.3 %         0.0 %

       Loss from operations                                (12.6 )%       (7.0 )%
       Interest expense, net                                 4.7 %         2.6 %
       Income tax expense (benefit)                          1.3 %        (3.7 )%

       Loss from continuing operations                     (18.6 )%       (5.9 )%
       Loss from discontinued operations, net of tax        (0.1 )%       (0.2 )%

       Net loss                                            (18.7 )%       (6.1 )%

Three Months Ended March 31, 2009 Compared with the Three Months Ended March 31, 2008
Sales. Sales for the three months ended March 31, 2009 were $163.8 million, a 37.0% decrease from sales of $259.9 million for the three months ended March 31, 2008. In the three months ended March 31, 2009, housing starts in our markets decreased approximately 50%, while market prices for lumber and lumber sheet goods were on average 15.2% lower than the same period a year ago. We were able to mitigate some of this decline by continuing to expand into the multi-family and light commercial segment. Additionally, we were able to largely hold our market share with our Builder 100 customers and increase share with regional builders, and to lesser degree, with smaller custom builders. These items contributed to an approximate 17% market share growth during the current quarter. We were limited in growing our market share with custom builders due to our tight credit standards. Although these tight credit standards reduce our growth potential, they also limit our exposure to large write-offs in future quarters.

The following table shows sales classified by product category (dollars in millions):

                                                         Three Months Ended March 31,
                                                   2009                               2008
                                         Sales          % of Sales          Sales          % of Sales          % Change
Prefabricated components                $  29.8                18.2 %      $  51.5                19.8 %           (42.1 )%
Windows & doors                            40.7                24.8 %         66.9                25.7 %           (39.2 )%
Lumber & lumber sheet goods                40.0                24.4 %         61.2                23.6 %           (34.7 )%
Millwork                                   17.2                10.5 %         28.0                10.8 %           (38.5 )%
Other building products & services         36.1                22.1 %         52.3                20.1 %           (30.9 )%

Total sales                             $ 163.8               100.0 %      $ 259.9               100.0 %           (37.0 )%

All our product categories have been negatively impacted by volume declines associated with decreased housing activity. For the lumber & lumber sheet goods category, decreased volume accounted for 92% of our sales decline while lower prices accounted for 8% of the decline. This equates to $19.5 million and $1.7 million in sales declines due to volume and price, respectively, for this product category.
Our sales saw a shift away from prefabricated components towards other building products and services. As housing starts have declined cycle time has become less relevant, causing some builders to opt for our framing and installation services over prefabricated components. Our installation business has also grown due to our expansion into the multi-family and light commercial segments. We believe our installation business and our value-added products and services give us a competitive advantage helping us to attract new business during this down cycle.
Gross Margin. Gross margin decreased $23.8 million to $34.2 million. Our gross margin percentage decreased from 22.3% in the first quarter of 2008 to 20.9% in the current quarter, a 1.4 percentage point decline. Our gross margin percentage decreased by 0.3 percentage points due to price, 0.6 percentage points due to volume (a result of fixed costs within cost of goods sold) and 0.5 percentage points due to a shift in sales mix toward installed product sales, which carry a lower gross margin percentage. We experienced margin compression across all product categories due to competition and lower sales volumes against fixed costs in our manufacturing facilities. While we have seen some margin stabilization in recent months, if economic conditions continue to deteriorate, we could see further margin compression.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $21.8 million, or 28.6%. Average full-time equivalent employee headcount for the quarter was 37.7% lower than the year ago quarter, and our salaries and benefits expense, excluding stock compensation, decreased $13.6 million, or 31.3%, compared to a 37.0% decline in sales. We will continue to consider in-market consolidations and facility closures based on specific market conditions. Additionally, our office general and administrative expense decreased $3.1 million, which included decreases in professional services fees and travel related costs, and our delivery expenses decreased $4.1 million due to lower fuel costs combined with our efforts to eliminate excess fleet. As an offset to these declines, our bad debt expense increased $0.9 million as our customers continue to struggle with the decline in housing starts and limited availability of credit. We have responded to the increase in bad debt expense by continuing to tighten our credit standards, lowering credit limits, and in some cases requiring collateral.
As a percent of sales, selling, general and administrative expenses increased from 29.3% in 2008 to 33.2% in 2009. Salaries and benefit expense as a percentage of sales increased 1.5%, occupancy by 0.9% due to the fixed nature of the category, delivery costs by 0.7% due to fixed lease costs, and bad debt expense by 0.6%. We continue to monitor our operating cost structure closely and make adjustments as necessary.
Interest Expense, net. Interest expense was $7.5 million in the first quarter of 2009, an increase of $1.1 million. The increase was primarily due to the write-off of $1.2 million of unamortized debt issuance costs in the current quarter related to the capacity reduction of our credit facility from $350 million to $250 million.
Income Tax Expense (Benefit). We recognized income tax expense of $2.1 million, or a 7.5% effective tax rate, compared to an income tax benefit of $9.5 million, or a 38.3% tax benefit rate, for the same period a year ago. The income tax rate in the current quarter was affected by a non-cash valuation allowance of $12.9 million against the net deferred tax assets generated from the net loss during the period related to our continuing operations. Excluding the effect of the valuation allowance, the effective tax rate was 38.1%.

LIQUIDITY AND CAPITAL RESOURCES
Our cash on hand was $102.6 million at March 31, 2009. Due to the decline in sales and the corresponding reduction in our trade receivables and inventory which support our borrowing base, our net borrowing availability in excess of the $35 million liquidity covenant contained in our credit agreement was zero at March 31, 2009. Approximately $19.1 million of cash on hand at quarter-end supported a short-fall in the calculation of the $35 million minimum liquidity covenant. This covenant, which calculates as eligible borrowing base minus outstanding borrowings, must exceed $35 million or we are required to meet a fixed charge coverage ratio, which we currently would not meet. However, the calculation also allows cash on deposit with the agent to be included as eligible borrowing base. Absent the use of cash in the calculation, we would have been forced to repay $19.1 million in borrowings in order to comply with the covenant. Accordingly, our available cash was $83.5 million at March 31, 2009.
Since the beginning of the housing downturn, a primary focus has been on protecting our liquidity. We have implemented an action plan consisting of growing market share, reducing physical capacity, adjusting staffing levels, implementing cost containment programs, managing credit tightly, and most importantly, conserving cash. Although we felt the impact of the difficult conditions, we were able to limit it through this action plan. Overall, we believe our efforts were successful and we will continue to execute this strategy in 2009. With this continued strategy execution, $83.5 million in available cash at quarter-end, $31.8 million in federal income tax refunds received subsequent to quarter-end, and an additional $1.0 - $1.5 million in state income tax refunds expected to be received later in 2009, we believe we will have sufficient capital to meet our anticipated short-term needs, including capital expenditures and debt obligations for the next twelve months. Key assumptions considered in making this assessment are single-family housing starts ranging from 350,000 to 500,000, market share gains consistent with that achieved in 2008, market prices for commodity products stable with 2008, stable to only slight declines in product gross margins, continued ability to lower operating costs principally in salaries and benefits expense, timely receipt of our expected state income tax refunds, and consistent advance rates under our credit facility year-over-year. Should housing conditions deteriorate greater than expected, advance rates under our credit agreement be significantly reduced, or other assumptions prove to be incorrect, our action plans will expand to include further facility closures, attempts to renegotiate leases, increased headcount reductions and the potential divestitures of non-core business.
Our focus on liquidity extends beyond just 2009. Although an improvement in housing activity is generally expected toward the end of 2009, we have set an action plan for 2009 designed to provide us with sufficient liquidity to extend into 2010 even with no appreciable improvement in housing activity. However, there are no assurances that these steps will prove successful if the housing downturn is steeper or more protracted than general expectations. Should the current economic conditions continue beyond what we have planned in our 2009 action plan or deteriorate further, subsequent to 2009 we may be required to raise external funds through the sale of common stock or debt in the public capital markets or in privately negotiated transactions. There can be no . . .