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Builders FirstSource Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: April 29, 2009 10:05PM

Builders FirstSource Inc. (BLDR) filed Quarterly Report for the period ended 2009-03-31. Builders FirstSource is a leading supplier and manufacturer of structural and related building products for residential new construction in the United States. Manufacturing facilities include plants that manufacture roof and floor trusses wall panels stairs aluminum and vinyl windows custom millwork and pre-hung doors. Builders FirstSource also distributes windows interior and exterior doors dimensional lumber and lumber sheet goods millwork and other building products. Builders FirstSource Inc. has a market cap of $113.7 million; its shares were traded at around $3.15 with and P/S ratio of 0.1.

Highlight of Business Operations:

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.

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.

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.

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.

During the three months ended March 31, 2009 and 2008, cash used in investing activities was $1.0 million and $0.7 million, respectively. Capital expenditures increased $0.4 million and were partially offset by an increase in proceeds from sale of assets as the company continued its efforts to reduce fleet costs by buying out existing equipment leases and selling off excess equipment.

Read the The complete Report

BLDR is in the portfolios of Arnold Schneider of Schneider Capital Management.

Stocks Discussed: BLDR,
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