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Builders FirstSource Inc. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: March 2, 2012 03:38PM
Builders FirstSource Inc. (BLDR) filed Annual Report for the period ended 2011-12-31. Builders Firsts has a market cap of $308.3 million; its shares were traded at around $3.13 with and P/S ratio of 0.4.
Highlight of Business Operations:Focus on Cost, Working Capital and Operating Improvements. We are extremely focused on expenses and working capital to remain a low cost supplier. We maintain a continuous improvement, best practices operating philosophy and regularly implement new initiatives to reduce costs, increase efficiency and manage working capital. For example, we have linked our computer system to those of some customers to streamline the administrative aspects of the quoting, invoicing and billing processes. We also analyze our workforce productivity to determine the optimal labor mix that minimizes cost, and examine our logistics function to reduce the cost of inbound freight. Our focus on cost controls, working capital and operating improvements is particularly important during this downturn. Our largest controllable cost is our salaries and wages. Our ability to identify and implement operating efficiencies is evident in the fact that our salaries and benefits expense, excluding stock compensation expense, decreased $2.0 million in 2011 compared to 2010, despite a $78.8 million increase in sales. We were also able to keep our remaining selling, general and administrative expenses relatively flat during the current year, despite this sales increase. Industry forecasters are predicting that single family housing starts are expected to show improvements in 2012 which could require us to increase our operating expenses, headcount and working capital in order to support the additional demand. We will work to minimize these increases to ensure that we prudently adjust our variable costs with the change in sales volumes. We continue to be diligently focused on the controllable aspects of working capital, including days sales outstanding, inventory turns and accounts payable days outstanding.
Our 10 largest customers generated approximately 23.3% and 23.8% of our sales for the years ended December 31, 2011 and 2010, respectively. We cannot guarantee that we will maintain or improve our relationships with these customers or that we will continue to supply these customers at historical levels. Due to the current housing downturn, many of our homebuilder customers have substantially reduced construction activity. Some homebuilder customers have exited or severely curtailed building activity in certain of our markets. This trend is likely to continue until there is a housing recovery in our markets. Continuation of the current housing downturn could have a significant adverse effect on our financial condition, operating results and cash flows.
Our sales increase was due primarily to an increase in price, partially offset by a slight decrease in volume. For the lumber and lumber sheet goods category, price accounted for approximately 95% of our sales increase in this product category while unit volume accounted for 5% of the increase. This equates to $35.1 million and $1.7 million in sales increases due to price and volume, respectively, within this product category.
Cash used in operating activities was $66.4 million and $41.7 million for 2011 and 2010, respectively. We received a federal income tax refund related to the carry-back of losses of approximately $33.8 million in 2010. Excluding the federal income tax refund received in 2010, our cash used for 2010 was approximately $75.5 million. The decrease in cash used in operating activities, net of the income tax refund, is primarily related to lower operating losses in 2011 compared to 2010 due to increased sales and improved gross margins. This decrease was partially offset by an increase in cash used due to changes in working capital. Of the $66.4 million of cash used in 2011, approximately $24.6 million was due to an increase in working capital, which was primarily related to increases in accounts receivable and inventory to support our strong sales performance. Our asset utilization remained healthy as our accounts receivable days decreased in 2011 compared to 2010, as we increased the rate of our overall receivable collections. Our inventory turns were relatively flat, however, our accounts payable days decreased from 2010. We continue our focus on diligently managing working capital.
The term loan is collateralized by a first lien on substantially all of our assets, and is guaranteed by all of our subsidiaries. Interest accrues on the loan at 3-month LIBOR (subject to a 2% floor) plus 9.5%. The weighted average interest rate on the borrowings outstanding under the term loan was 11.5% at December 31, 2011. Interest on the term loan is payable quarterly in arrears. At any time we can redeem some or all of the loan at a redemption price equal to par plus an applicable prepayment premium that declines ratably to par. In addition to the financial covenants, the term loan contains other restrictive covenants, which, among other things, relate to the payment of dividends, incurrence of indebtedness, repurchase of common stock or other distributions, asset sales and investments. We were not in violation of any of these covenants at December 31, 2011.
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