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| BXC > SEC Filings for BXC > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
• inventory levels of new and existing homes for sale;
• general economic and business conditions in the United States;
• the financial condition and credit worthiness of our customers;
• the activities of competitors;
• changes in significant operating expenses;
• fuel costs;
• risk of losses associated with accidents;
• exposure to product liability claims;
• changes in the availability of capital and interest rates;
• immigration patterns and job and household formation;
• our ability to identify acquisition opportunities and effectively and cost-efficiently integrate acquisitions;
• adverse weather patterns or conditions;
• acts of war or terrorist activities;
• variations in the performance of the financial markets, including the credit markets; and
• the other factors described herein under "Factors Affecting Future Results" in our Annual Report on Form 10-K for the year ended January 3, 2009 as filed with the SEC.
Given these risks and uncertainties, we caution you not to place undue
reliance on forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statement as a result of new information,
future events or otherwise, except as required by law.
Overview
Background
We are a leading distributor of building products in the United States. We
distribute approximately 10,000 products to more than 11,500 customers through
our network of more than 70 warehouses and third-party operated warehouses which
serve all major metropolitan markets in the United States. We distribute
products in two principal categories: structural products and specialty
products. Structural products include plywood, oriented strand board ("OSB"),
rebar and remesh, lumber and other wood products primarily used for structural
support, walls and flooring in construction projects. Structural products
represented approximately 44% of our third quarter of fiscal 2009 gross sales.
Specialty products include roofing, insulation, moulding, engineered wood, vinyl
products (used primarily in siding) and metal products (excluding rebar and
remesh). Specialty products accounted for approximately 56% of our third quarter
of fiscal 2009 gross sales.
Industry Conditions
As noted above, we operate in a changing environment in which new risks can
emerge from time to time. A number of factors cause our results of operations to
fluctuate from period to period. Many of these factors are seasonal or cyclical
in nature. Conditions in the United States housing market are at historically
low levels. Our operating results have declined during the past two years as
they are closely tied to U.S. housing starts. Additionally, the mortgage markets
have experienced substantial disruption due to a rising number of defaults in
the "subprime" market. This disruption and the related defaults increased the
inventory of homes for sale and also caused lenders to tighten mortgage
qualification criteria which further reduced demand for new homes. Forecasters
continue to have a bearish outlook for the housing market and we expect the
downturn in new housing activity will continue to negatively impact our
operating results for the foreseeable future. We continue to prudently manage
our inventories, receivables and spending in this environment. However, along
with many forecasters, we believe U.S. housing demand will improve in the long
term based on population demographics and a variety of other factors.
Supply Agreement with G-P
On April 27, 2009, we entered into a Termination and Modification Agreement
("Modification Agreement") related to our Supply Agreement with Georgia Pacific
("G-P"). The Modification Agreement effectively terminates the existing Supply
Agreement with respect to the distribution of G-P plywood, oriented strand board
and lumber by us. We will continue to distribute a variety of G-P building
products, including engineered lumber, which is covered under a three-year
purchase agreement dated February 12, 2009. As a result of terminating this
agreement, we are no longer contractually obligated to make minimum purchases of
products from G-P. As of January 3, 2009, our minimum purchases requirement had
totaled $31.9 million.
G-P agreed to pay us $18.8 million in exchange for our agreement to terminate
the Supply Agreement one-year earlier than the originally agreed upon May 7,
2010 termination date. Under the terms of the Modification Agreement, we will
receive four quarterly cash payments of $4.7 million, which began on May 1, 2009
and will end on February 1, 2010. As a result of the termination, we recognized
a net gain of $17.6 million in the first nine months of fiscal 2009 as a
reduction to operating expense. The gain was net of a discount of $0.2 million
and a $1.0 million write-off of an intangible asset associated with the Supply
Agreement. We believe the early termination of the Supply Agreement contributed
to the decline in our structural panel sales volume during the second and third
quarters of fiscal 2009. However, since the majority of these sales go through
the direct sales channel, the lower structural panel sales volume had an
insignificant impact on our gross profit during for these periods. To the extent
we are unable to replace these volumes with structural product from G-P or other
suppliers, the early termination of the Supply Agreement may continue to
negatively impact our sales of structural products which would impact our net
sales and our costs, which in turn could impact our gross profit, net income,
and cash flows. For more information on structural unit volume changes, refer to
the tables under "Selected Factors Affecting Our Operating Results" in our
Management, Discussion Analysis. For further discussion of the risks associated
with the termination of the Master Supply Agreement, please also refer to our
risk factors disclosed in our Annual Report on Form 10-K for the year ended
January 3, 2009, as further supplemented in our Quarterly Report on Form 10-Q
for the period ended April 4, 2009, as filed with the SEC.
Selected Factors Affecting Our Operating Results
Our operating results are affected by housing starts, mobile home production,
industrial production, repair and remodeling spending and non-residential
construction. Our operating results are also impacted by changes in product
prices. Structural product prices can vary significantly based on short-term and
long-term changes in supply and demand. The prices of specialty products can
also vary from time to time, although they are generally significantly less
variable than structural products.
The following table sets forth changes in net sales by product category,
sales variances due to changes in unit volume and dollar and percentage changes
in unit volume and price versus comparable prior periods, in each case for the
third quarter of fiscal 2009, the third quarter of fiscal 2008, the first nine
months of fiscal 2009, the first nine months of fiscal 2008, fiscal 2008 and
fiscal 2007.
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
Q3 2009 Q3 2008 2009 YTD 2008 YTD 2008 2007
(Dollars in millions)
Sales by Category
Structural Products $ 202 $ 366 $ 567 $ 1,181 $ 1,422 $ 2,098
Specialty Products 258 376 742 1,133 1,412 1,802
Other(1) (11 ) (15 ) (29 ) (36 ) (54 ) (66 )
Total Sales $ 449 $ 727 $ 1,280 $ 2,278 $ 2,780 $ 3,834
Sales Variances
Unit Volume $ Change $ (235 ) $ (337 ) $ (917 ) $ (868 ) $ (1,161 ) $ (896 )
Price/Other(1) (43 ) 48 (81 ) 91 107 (169 )
Total $ Change $ (278 ) $ (289 ) $ (998 ) $ (777 ) $ (1,054 ) $ (1,065 )
Unit Volume % Change (31.7 )% (32.6 )% (39.6 )% (27.9 )% (29.7 )% (18.0 )%
Price/Other(1) (6.5 )% 4.1 % (3.8 )% 2.5 % 2.2 % (3.7 )%
Total % Change (38.2 )% (28.5 )% (43.8 )% (25.4 )% (27.5 )% (21.7 )%
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(1) Other includes unallocated allowances and discounts.
The following table sets forth changes in gross margin dollars and percentages by product category, and percentage changes in unit volume growth by product, in each case for the third quarter of fiscal 2009, the third quarter of fiscal 2008, the first nine months of fiscal 2009, the first nine months of fiscal 2008, fiscal 2008 and fiscal 2007.
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
Q3 2009 Q3 2008 2009 YTD 2008 YTD 2008 2007
(Dollars in millions)
Gross Margin $'s by
Category
Structural Products $ 21 $ 36 $ 58 $ 121 $ 134 $ 173
Specialty Products 39 54 102 162 200 238
Other (1) (5 ) (7 ) (12 ) (15 ) (19 ) (19 )
Total Gross Margin
$'s $ 55 $ 83 $ 148 $ 268 $ 315 $ 392
Gross Margin %'s by
Category
Structural Products 10.4 % 9.9 % 10.2 % 10.2 % 9.4 % 8.2 %
Specialty Products 15.1 % 14.3 % 13.7 % 14.2 % 14.2 % 13.2 %
Total Gross Margin
%'s 12.3 % 11.5 % 11.6 % 11.8 % 11.3 % 10.2 %
Unit Volume Change by
Product
Structural Products (33.7 )% (40.3 )% (43.9 )% (32.9 )% (34.6 )% (19.2 )%
Specialty Products (29.8 )% (23.1 )% (35.2 )% (22.0 )% (24.0 )% (16.4 )%
Total Change in Unit
Volume %'s (31.7 )% (32.6 )% (39.6 )% (27.9 )% (29.7 )% (18.0 )%
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(1) Other includes unallocated allowances and discounts.
The following table sets forth changes in net sales and gross margin by channel and percentage changes in gross margin by channel, in each case for the third quarter of fiscal 2009, the third quarter of fiscal 2008, the first nine months of fiscal 2009, the first nine months of fiscal 2008, fiscal 2008 and fiscal 2007.
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
Q3 2009 Q3 2008 2009 YTD 2008 YTD 2008 2007
(Dollars in millions)
Sales by Channel
Warehouse/Reload $ 345 $ 540 $ 959 $ 1,673 $ 2,044 $ 2,763
Direct 115 202 350 641 790 1,137
Other(1) (11 ) (15 ) (29 ) (36 ) (54 ) (66 )
Total $ 449 $ 727 $ 1,280 $ 2,278 $ 2,780 $ 3,834
Gross Margin by Channel
Warehouse/Reload $ 53 $ 77 $ 137 $ 243 $ 284 $ 344
Direct 7 13 23 40 50 67
Other(1) (5 ) (7 ) (12 ) (15 ) (19 ) (19 )
Total $ 55 $ 83 $ 148 $ 268 $ 315 $ 392
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
Q3 2009 Q3 2008 2009 YTD 2008 YTD 2008 2007
(Dollars in millions)
Gross Margin % by Channel
Warehouse/Reload 15.4 % 14.3 % 14.3 % 14.5 % 13.9 % 12.5 %
Direct 6.1 % 6.4 % 6.6 % 6.2 % 6.3 % 5.9 %
Total 12.3 % 11.5 % 11.6 % 11.8 % 11.3 % 10.2 %
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(1) Other includes unallocated allowances and adjustments.
Fiscal Year
Our fiscal year is a 52- or 53-week period ending on the Saturday closest to
the end of the calendar year. Fiscal year 2009 and fiscal year 2008 contain
52 weeks and 53 weeks, respectively.
Results of Operations
Third Quarter of Fiscal 2009 Compared to Third Quarter of Fiscal 2008
The following table sets forth our results of operations for the third
quarter of fiscal 2009 and third quarter of fiscal 2008.
Period Period
from from
July 5, 2009 % of June 29, 2008 % of
to Net to Net
October 3, 2009 Sales September 27, 2008 Sales
(Dollars in thousands)
Net sales $ 449,363 100.0 % $ 726,756 100.0 %
Gross profit 55,305 12.3 % 83,249 11.5 %
Selling, general & administrative 55,024 12.2 % 73,793 10.2 %
Depreciation and amortization 3,882 0.9 % 4,940 0.7 %
Operating (loss) income (3,601 ) (0.8 )% 4,516 0.6 %
Interest expense 7,987 1.8 % 8,791 1.2 %
Charges associated with ineffective
interest rate swap 1,431 0.3 % - 0.0 %
Other expense, net 324 0.1 % 65 0.0 %
Loss before provision for (benefit from)
income taxes (13,343 ) (3.0 )% (4,340 ) (0.6 )%
Provision for (benefit from) income
taxes 120 0.0 % (1,746 ) (0.2 )%
Net income $ (13,463 ) (3.0 )% $ (2,594 ) (0.4 )%
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Net Sales. For the third quarter of fiscal 2009, net sales decreased by
38.2%, or $277.4 million, to $449.4 million compared to $726.8 million in the
prior year period. Sales during the quarter were negatively impacted by a 31.2%
decline in housing starts. New home construction has a significant impact on our
sales. Specialty sales, primarily consisting of roofing, specialty panels,
insulation, moulding, engineered wood products, vinyl siding, composite decking
and metal products (excluding rebar and remesh) decreased by $118.0 million or
31.4% compared to the third quarter of fiscal 2008, reflecting a 29.8% decline
in unit volume. Structural sales, including plywood, OSB, lumber and metal
rebar, decreased by $163.7 million, or 44.8% from a year ago, also primarily as
a result of a 33.7% decrease in unit volume and 21.4% decrease in average
structural product prices.
Gross Profit. Gross profit for the third quarter of fiscal 2009 was
$55.3 million, or 12.3% of sales, compared to $83.2 million, or 11.5% of sales,
in the prior year period. The decrease in gross profit dollars compared to the
third quarter of fiscal 2008 was driven primarily by a decrease in specialty and
structural product volumes of 29.8% and 33.7%, respectively, due to the
continued decline in the housing market. Gross margin percentage increased by
0.8% to 12.3% primarily due an increase in higher margin specialty sales as a
percentage of total sales and the impact of a lower of cost or market reserve
charge of $2.6 million recorded during the third quarter of fiscal 2008.
Selling, General, and Administrative Expenses. Selling, general and
administrative expenses for the third quarter of fiscal 2009 were $55.0 million,
or 12.2% of net sales, compared to $73.8 million, or 10.2% of net sales, during
the third quarter of fiscal 2008. The decline in selling, general and
administrative expenses included a $11.2 million decrease in payroll and payroll
related costs from a decline in headcount; a $2.2 million decrease in fuel
expense due to a decline in business volume and fuel prices; a $1.5 million
decrease in facility consolidation charges due to a $1.3 million charge recorded
in the prior year period related to exiting our custom milling operations in
California; and a $3.9 million decrease in other operating expense due to our
cost reduction initiatives.
Depreciation and Amortization. Depreciation and amortization expense totaled
$3.9 million for the third quarter of fiscal 2009, compared with $4.9 million
for the third quarter of fiscal 2008. The $1.0 million decrease in depreciation
and amortization is primarily due to a portion of our property and equipment
becoming fully depreciated.
Operating (Loss) Income. Operating loss for the third quarter of fiscal 2009
was $(3.6) million, or (0.8)% of sales, versus operating income of $4.5 million,
or 0.6% of sales, in the third quarter of fiscal 2008, reflecting a
$27.9 million decrease in gross profit that was partially offset by a
$19.8 million decrease in operating expenses.
Interest Expense, net. Interest expense for the third quarter of fiscal 2009
totaled $8.0 million, down $0.8 million from the prior year because of the
$110 million decrease in debt. Interest expense related to our revolving credit
facility and mortgage was $2.8 million and $4.6 million, respectively, during
this period. Interest expense totaled $8.8 million for the third quarter of
fiscal 2008. Interest expense related to our revolving credit facility and
mortgage was $3.5 million and $4.7 million, respectively, during this period. In
the third quarter of fiscal 2009 and the third quarter of fiscal 2008, interest
expense included $0.6 million of debt issue cost amortization.
Charges associated with ineffective interest rate swap. Charges associated
with the ineffective interest rate swap for the third quarter of fiscal 2009
were $1.4 million and are comprised of a $1.9 million charged on the date we
reduced our borrowings outstanding by $25.0 million; $0.5 million of
amortization of the unrealized losses remaining in accumulated other
comprehensive loss; and $1.0 million of income related to fair value changes
since the date of reduction. Due to our interest rate swap becoming ineffective,
as well as our decision to record a full valuation allowance against our
deferred tax assets, we will recognize the income tax effect associated with
unrealized losses initially recorded in other comprehensive income as a charge
to earnings when the interest rate swap terminates.
Provision for (Benefit from) Income Taxes. The effective tax rate was (0.9)%
and 40.2% for the third quarter of fiscal 2009 and the third quarter of fiscal
2008, respectively. The change in our effective tax rate for the third quarter
of fiscal 2009 is due to a $5.1 million valuation allowance.
Net Loss. Net loss for the third quarter of fiscal 2009 was $(13.5) million
compared to $(2.6) million for the third quarter of fiscal 2008 as a result of
the above factors.
On a per-share basis, basic and diluted loss applicable to common
shareholders for the third quarter of fiscal 2009 and the third quarter of
fiscal 2008 were $(0.44) and $(0.08), respectively.
Year-to-Date Fiscal 2009 Compared to Year-to-Date Fiscal 2008 The following table sets forth our results of operations for the first nine months of fiscal 2009 and the first nine months of fiscal 2008.
Period Period
from from
January 4, 2009 % of December 29, 2007 % of
to Net to Net
October 3, 2009 Sales September 27, 2008 Sales
(Unaudited) (Unaudited)
(Dollars in thousands)
Net sales $ 1,280,000 100.0 % $ 2,278,185 100.0 %
Gross profit 147,881 11.6 % 268,487 11.8 %
Selling, general & administrative 163,744 12.8 % 235,655 10.3 %
Net gain from terminating the
Georgia-Pacific supply agreement (17,554 ) (1.4 )% - 0.0 %
Depreciation and amortization 13,153 1.0 % 15,011 0.7 %
Operating (loss) income (11,462 ) (0.9 )% 17,821 0.8 %
Interest expense 24,610 1.9 % 27,530 1.2 %
Charges associated with ineffective
interest rate swap 7,341 0.6 % - 0.0 %
Write-off of debt issuance costs 1,407 0.1 % - 0.0 %
Other expense, net 482 0.0 % 385 0.0 %
Loss before provision for (benefit from)
income taxes (45,302 ) (3.5 )% (10,094 ) (0.4 )%
Provision for (benefit from) income
taxes 28,186 2.2 % (3,508 ) (0.2 )%
Net loss $ (73,488 ) (5.7 )% $ (6,586 ) (0.3 )%
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Net Sales. For the first nine months of fiscal 2009, net sales decreased by
43.8%, or $998.2 million, to $1.3 billion compared to $2.3 billion in the prior
year period. Sales during this period were negatively impacted by a 42.7%
decline in housing starts. New home construction has a significant impact on our
sales. Specialty sales, primarily consisting of roofing, specialty panels,
insulation, moulding, engineered wood products, vinyl siding, composite decking
and metal products (excluding rebar and remesh) decreased by $390.9 million or
34.5% compared to the first nine months of fiscal 2008, reflecting a 35.2%
decline in unit volume. Structural sales, including plywood, OSB, lumber and
metal rebar, decreased by $613.6 million, or 52.0% from a year ago, also
primarily as a result of a 43.9% decrease in unit volume and 20.4% decrease in
average structural product prices.
Gross Profit. Gross profit for the first nine months of fiscal 2009 was
. . .
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