EX-99 2 bldr-ex991_20150331.htm EX-99.1 bldr-10q_20150331.htm

 

EXHIBIT 99.1

 

REVISED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF BUILDERS FIRSTSOURCE, INC.

 

Note: The information contained in this Item has been updated for the change to reportable segments discussed in the Notes to the Consolidated Financial Statements. This Item has not been updated for any other changes since the filing of the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015.

 

 

 

 

1


 

PART I  — FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited)

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

 

 

Three Months Ended

March 31,

 

 

2015

 

 

2014

 

 

(Unaudited)

(In thousands, except per share amounts)

 

Sales

$

370,986

 

 

$

345,909

 

Cost of sales

 

287,253

 

 

 

270,994

 

Gross margin

 

83,733

 

 

 

74,915

 

Selling, general and administrative expenses

 

82,838

 

 

 

69,318

 

Facility closure costs

 

254

 

 

 

163

 

Income from operations

 

641

 

 

 

5,434

 

Interest expense, net

 

7,607

 

 

 

8,828

 

Loss from continuing operations before income taxes

 

(6,966

)

 

 

(3,394

)

Income tax expense (benefit)

 

196

 

 

 

(82

)

Loss from continuing operations

 

(7,162

)

 

 

(3,312

)

Income (loss) from discontinued operations (net of income tax expense of $0 in 2015 and 2014)

 

92

 

 

 

(72

)

Net Loss

$

(7,070

)

 

$

(3,384

)

Comprehensive Loss

$

(7,070

)

 

$

(3,384

)

Basic net loss per share:

 

 

 

 

 

 

 

Loss from continuing operations

$

(0.07

)

 

$

(0.03

)

Income (loss) from discontinued operations

 

0.00

 

 

 

(0.00

)

Net Loss

$

(0.07

)

 

$

(0.03

)

Diluted loss per share:

 

 

 

 

 

 

 

Loss from continuing operations

$

(0.07

)

 

$

(0.03

)

Income (loss) from discontinued operations

 

0.00

 

 

 

(0.00

)

Net Loss

$

(0.07

)

 

$

(0.03

)

Weighted average common shares:

 

 

 

 

 

 

 

Basic

 

98,204

 

 

 

97,617

 

Diluted

 

98,624

 

 

 

97,617

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

2


 

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

March 31,

2015

 

 

December 31,

2014

 

 

(Unaudited)

(In thousands, except per share amounts)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

36,837

 

 

$

17,773

 

Accounts receivable, less allowance of $2,962 and $3,153 at March 31, 2015 and December 31, 2014, respectively

 

157,221

 

 

 

148,352

 

Inventories

 

146,824

 

 

 

138,156

 

Other current assets

 

24,215

 

 

 

27,259

 

Total current assets

 

365,097

 

 

 

331,540

 

Property, plant and equipment, net

 

84,734

 

 

 

75,679

 

Goodwill

 

141,090

 

 

 

139,774

 

Intangible assets, net

 

16,657

 

 

 

17,228

 

Other assets, net

 

17,878

 

 

 

18,844

 

Total assets

$

625,456

 

 

$

583,065

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

90,737

 

 

$

75,868

 

Accrued liabilities

 

74,083

 

 

 

66,225

 

Current maturities of long-term debt

 

55,076

 

 

 

30,074

 

Total current liabilities

 

219,896

 

 

 

172,167

 

Long-term debt, net of current maturities

 

353,810

 

 

 

353,830

 

Other long-term liabilities

 

17,774

 

 

 

16,868

 

Total liabilities

 

591,480

 

 

 

542,865

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

 

-

 

 

 

-

 

Common stock, $0.01 par value, 200,000 shares authorized; 98,537 and 98,226 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

 

985

 

 

 

982

 

Additional paid-in capital

 

380,934

 

 

 

380,091

 

Accumulated deficit

 

(347,943

)

 

 

(340,873

)

Total stockholders' equity

 

33,976

 

 

 

40,200

 

Total liabilities and stockholders' equity

$

625,456

 

 

$

583,065

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

3


 

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Three months ended

March 31,

 

 

2015

 

 

2014

 

 

(Unaudited)

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(7,070

)

 

$

(3,384

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

3,152

 

 

 

1,982

 

Amortization of deferred loan costs

 

616

 

 

 

585

 

Fair value adjustment of stock warrants

 

(167

)

 

 

1,197

 

Deferred income taxes

 

267

 

 

 

(48

)

Bad debt expense

 

(24

)

 

 

(36

)

Stock compensation expense

 

1,767

 

 

 

982

 

Net gain on sale of assets

 

(46

)

 

 

(1

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

(8,490

)

 

 

(4,531

)

Inventories

 

(7,573

)

 

 

(12,977

)

Other current assets

 

3,161

 

 

 

806

 

Other assets and liabilities

 

183

 

 

 

183

 

Accounts payable

 

14,868

 

 

 

21,622

 

Accrued liabilities

 

9,219

 

 

 

7,380

 

Net cash provided by operating activities

 

9,863

 

 

 

13,760

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(9,124

)

 

 

(5,304

)

Proceeds from sale of property, plant and equipment

 

60

 

 

 

2

 

Cash used for acquisitions, net

 

(5,797

)

 

 

-

 

Net cash used in investing activities

 

(14,861

)

 

 

(5,302

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

25,000

 

 

 

-

 

Payments of long-term debt and other loans

 

(18

)

 

 

(16

)

Exercise of stock options

 

23

 

 

 

904

 

Repurchase of common stock

 

(943

)

 

 

(1,276

)

Net cash provided by (used in) financing activities

 

24,062

 

 

 

(388

)

Net change in cash and cash equivalents

 

19,064

 

 

 

8,070

 

Cash and cash equivalents at beginning of period

 

17,773

 

 

 

54,696

 

Cash and cash equivalents at end of period

$

36,837

 

 

$

62,766

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

4


 

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1.  Basis of Presentation

Builders FirstSource, Inc., a Delaware corporation formed in 1998, is a leading supplier and manufacturer of structural and related building products for residential new construction in the United States. In this quarterly report, references to the “Company,” “we,” “our,” “ours” or “us” refer to Builders FirstSource, Inc. and its consolidated subsidiaries, unless otherwise stated or the context otherwise requires.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the dates and periods presented. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. All significant intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated balance sheet as of December 31, 2014 is derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. This condensed consolidated balance sheet as of December 31, 2014 and the unaudited condensed consolidated financial statements included herein should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2014 included in our most recent annual report on Form 10-K. Accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the Notes to Consolidated Financial Statements included in our Form 10-K.

 

2. Net Loss per Common Share

Net loss per common share (“EPS”) is calculated in accordance with the Earnings per Share topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”), which requires the presentation of basic and diluted EPS. Basic EPS is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common shares.

Our restricted stock shares include rights to receive dividends that are not subject to the risk of forfeiture even if the underlying restricted stock shares on which the dividends were paid do not vest. In accordance with the Earnings per Share topic of the Codification, unvested share-based payment awards that contain non-forfeitable rights to dividends are deemed participating securities and should be considered in the calculation of basic EPS. Since the restricted stock shares do not include an obligation to share in losses, they will be included in our basic EPS calculation in periods of net income and excluded from our basic EPS calculation in periods of net loss. Accordingly, there were 27,000 and 82,000 restricted stock shares excluded from the computation of basic EPS for the three months ended March 31, 2015 and 2014, respectively, because we generated a net loss.

For the purpose of computing diluted EPS, weighted average shares outstanding have been adjusted for common shares underlying 0.7 million warrants for the three months ended March 31, 2015. In addition, $0.2 million of income due to fair value adjustments related to the warrants was excluded from our net loss in the computation of diluted EPS for the three months ended March 31, 2015. Warrants to purchase 0.7 million shares of common stock were not included in the computation of diluted EPS for the three months ended March 31, 2014, because their effect was anti-dilutive. Options to purchase 6.4 million and 6.5 million shares of common stock were not included in the computation of diluted EPS for the three months ended March 31, 2015 and 2014, respectively, because their effect was anti-dilutive. 1.5 million restricted stock units (“RSUs”) were not included in the computation of diluted EPS for the three months ended March 31, 2015 because their effect was anti-dilutive. There were no outstanding RSUs during the three months ending March 31, 2014.

5


 

The table below presents a reconciliation of weighted average common shares used in the calculation of basic and diluted EPS (in thousands):

 

 

Three Months Ended
March 31,

 

 

 

2015

 

 

2014

 

 

Weighted average shares for basic EPS

 

98,204

 

 

 

97,617

 

 

Dilutive effect of warrants

 

420

 

 

 

 

 

Weighted average shares for diluted EPS

 

98,624

 

 

 

97,617

 

 

 

 

3. Debt

Long-term debt consisted of the following (in thousands):

 

 

March 31,
2015

 

 

December 31,
2014

 

2021 notes

$

350,000

 

 

$

350,000

 

2013 facility

 

55,000

 

 

 

30,000

 

Other long-term debt

 

3,886

 

 

 

3,904

 

 

 

408,886

 

 

 

383,904

 

Less: current portion of long-term debt

 

55,076

 

 

 

30,074

 

Long-term debt, net of current maturities

$

353,810

 

 

$

353,830

 

2013 Facility Borrowings

As of March 31, 2015, we have $55.0 million in borrowings outstanding under our $175.0 million senior secured revolving credit facility (the “2013 facility”) at a weighted average interest rate of 2.0%. Amounts borrowed under our 2013 facility have been and will continue to be used to fund working capital needs and potential future acquisitions.

Fair Value

The only financial instrument measured at fair value on a recurring basis was our outstanding warrants.

The table below presents the effect of our derivative financial instrument on the condensed consolidated statements of operations and comprehensive loss (in thousands):

 

Derivative Not Designated

as Hedging Instrument

  

Location of Gain (Loss) Recognized in Income

  

Amount of Gain (Loss)
Recognized in Income

 

  

  

Three Months Ended March 31,

 

  

  

2015

 

 

2014

 

Warrants

  

Interest expense, net

  

$

167

 

 

$

(1,197

 

We use the income approach to value our warrants by using the Black-Scholes option-pricing model. Using this model, the risk-free interest rate is based on the U.S. Treasury yield curve in effect on the valuation date. The expected life is based on the period of time until the expiration of the warrants. Expected volatility is based on the historical volatility of our common stock over the most recent period equal to the expected life of the warrants. The expected dividend yield is based on our history of not paying regular dividends in the past and our current intention to not pay regular dividends in the foreseeable future.

These techniques incorporate Level 1 and Level 2 inputs. Significant inputs to the derivative valuation for the warrants are observable in the active markets and are classified as Level 2 in the hierarchy.

6


 

The following fair value hierarchy table presents information about our financial instrument measured at fair value on a recurring basis using significant other observable inputs (Level 2) (in thousands):

 

 

Carrying Value
As of
March  31,
2015

 

 

Fair Value
Measurement as of
March  31, 2015

 

  

Carrying Value
As of
December 31,
2014

 

  

Fair Value
Measurement as of
December 31, 2014

 

Warrants (included in Other long-term liabilities)

$

3,207

 

 

$

3,207

 

 

$

3,375

 

 

$

3,375

 

We have elected to report the value of our 2021 Notes at amortized cost. The fair value of the 2021 Notes at March 31, 2015 was approximately $360.3 million and was determined using Level 2 inputs based on market prices.

 

4. Employee Stock-Based Compensation

 

Stock Option Grant

On February 11, 2015, our board of directors granted 142,000 stock options to employees under our 2014 Incentive Plan. All the awards vest at 25% per year at each anniversary of the grant date over four years. The exercise price for the options was $6.35 per share, which was the closing stock price on the grant date. The weighted average grant date fair value of the options was $4.20 and was determined using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

Expected life

6.0 years

 

Expected volatility

75.2%

 

Expected dividend yield

0.00%

 

Risk-free rate

1.75%

 

The expected life represents the period of time the options are expected to be outstanding. We used the simplified method for determining the expected life assumption due to limited historical exercise experience on our stock options. The expected volatility is based on the historical volatility of our common stock over the most recent period equal to the expected life of the option. The expected dividend yield is based on our history of not paying regular dividends in the past and our current intention to not pay regular dividends in the foreseeable future. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant and has a term equal to the expected life of the options.

 

Restricted Stock Units Grant

On February 11, 2015, our board of directors granted 142,000 RSUs to employees under our 2014 Incentive Plan. All of the awards vest at 25% per year at each anniversary of the grant date over the next four years. The grant date fair value for the restricted stock units was $6.35 per share, which was the closing stock price on the grant date.

 

5. Income Taxes

We have $391.8 million of state operating loss carry-forwards, which includes $2.6 million of state tax credit carry-forwards expiring at various dates through 2032. We also have $263.5 million of federal net operating loss carry-forwards that will expire at various dates through 2033. The federal and state operating loss carry-forwards exclude approximately $6.7 million of gross windfall tax benefits from stock option exercises that have not been recorded as of March 31, 2015. These deferred tax assets will be recorded as an increase to additional paid in capital when the related tax benefits are realized. To the extent we generate sufficient taxable income in the future to fully utilize the tax benefits of the net deferred tax assets on which a valuation allowance was recorded, our effective tax rate may decrease as the valuation allowance is reversed.

Utilization of deferred tax assets could be limited by Section 382 of the Internal Revenue Code which imposes annual limitations on the utilization of net operating loss (“NOL”) carryforwards, other tax carryforwards, and certain built-in losses upon an ownership change as defined under that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of certain stockholders in the Company’s stock by more than 50 percentage points over a three year testing period (“Section 382 Ownership Change”). If the Company were to experience a Section 382 Ownership Change, an annual limitation would be imposed on certain of the Company’s tax attributes, including NOL and capital loss carryforwards, and certain other losses, credits, deductions or tax basis.

7


 

We evaluate our deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. In accordance with the Income Taxes topic of the Codification we assess whether it is more likely than not that some or all of our deferred tax assets will not be realized. Significant judgment is required in estimating valuation allowances for deferred tax assets. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in the applicable carryback or carryforward periods. We consider nature, frequency, and severity of current and cumulative losses, among other matters, the reversal of existing deferred tax liabilities, historical and forecasted taxable income, and tax planning strategies in our assessment. Changes in our estimates of future taxable income and tax planning strategies will affect our estimate of the realization of the tax benefits of these tax carryforwards.

Poor housing market conditions have contributed to our cumulative loss position for the past several years. While we generated income in 2014, we reported a net loss for the three month period ended March 31, 2015 and have a cumulative loss for the three year period ending March 31, 2015. We believe this, as well as uncertainty around the extent and timing of the housing market recovery, represents significant negative evidence in considering whether our deferred tax assets are realizable. Further, we do not believe that relying on projections of future taxable income to support the recovery of deferred tax assets is sufficient.  Based on an evaluation of positive and negative evidence, we concluded that the negative evidence regarding our ability to realize our deferred tax assets outweighed the positive evidence as of March 31, 2015.

We recorded increases to the valuation allowance of $3.1 million and $1.0 million for the three months ended March 31, 2015 and 2014, respectively, against the net deferred tax assets generated from the net operating loss during the period related to our continuing operations.

Without continued improvement in housing activity, we could be required to establish additional valuation allowances. However, we had positive earnings before taxes in 2014. To the extent we continue to generate sufficient taxable income in the same jurisdictions in the future to utilize the tax benefits of the related net deferred tax assets, we may reverse some or all of the valuation allowance. We currently estimate that we will likely transition into a three year cumulative income position on a rolling three year period at some time during the year ending December 31, 2015. However, there continues to be uncertainty around housing market projections. Simply coming out of a cumulative loss is not viewed as a bright line and may not be considered sufficient positive evidence to reverse some or all of the valuation allowance if there are other offsetting negative factors. In upcoming quarters, we will closely monitor the positive and negative evidence surrounding our ability to realize our deferred tax assets. On April 13, 2015 we entered into a Securities Purchase Agreement to acquire all of the operating subsidiaries of ProBuild Holdings LLC. This valuation allowance analysis does not consider the ProBuild acquisition since it has not closed. For more information related to the ProBuild acquisition see Note 10.      

We base our estimate of deferred tax assets and liabilities on current tax laws and rates. In certain cases, we also base our estimate on business plan forecasts and other expectations about future outcomes. Changes in existing tax laws or rates could affect our actual tax results, and future business results may affect the amount of our deferred tax liabilities or the valuation of our deferred tax assets over time. Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods, as well as the residential homebuilding industry’s cyclicality and sensitivity to changes in economic conditions, it is possible that actual results could differ from the estimates used in previous analyses.  

Accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on our consolidated results of operations or financial position.  

 

6. Commitments and Contingencies

We are a party to various legal proceedings in the ordinary course of business. Although the ultimate disposition of these proceedings cannot be predicted with certainty, management believes the outcome of any claim that is pending or threatened, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position, cash flows or results of operations. However, there can be no assurances that future costs related to legal proceedings would not be material to our results of operations or liquidity for a particular period.

 

7. Segment and Product Information

We offer an integrated solution to our customers providing manufacturing, supply, and installation of a full range of structural and related building products. We provide a wide variety of building products and services directly to homebuilder customers. We manufacture floor trusses, roof trusses, wall panels, stairs, millwork, windows, and doors. We also provide a full range of construction services. These product and service offerings are distributed across approximately 450 locations operating in 40 states across the United States, which have been reorganized into nine geographical regions following the ProBuild acquisition. Centralized financial and operational oversight, including resource allocation and assessment of performance on an income (loss) from continuing

8


 

operations before income taxes basis, is performed by our CEO, whom we have determined to be our chief operating decision maker (“CODM”).

As a result of the reorganization following the ProBuild acquisition on July 31, 2015, the Company has nine operating segments aligned with its nine geographical regions (Regions 1 through 9). While all of our operating segments have similar nature of products, distribution methods and customers, certain of our operating segments have been aggregated due to also containing similar economic characteristics, resulting in the following composition of reportable segments:

 

·

Regions 1 and 2 have been aggregated to form the “Northeast” reportable segment

 

·

Regions 3 and 5 have been aggregated to form the “Southeast” reportable segment  

 

·

Regions 4 and 6 have been aggregated to form the “South” reportable segment

 

·

Region 7, 8 and 9 have been aggregated to form the “West” reportable segment. The West reportable segment operations were acquired in their entirety from the ProBuild acquisition.

In addition to our reportable segments, our consolidated results include corporate overhead, other various operating activities that are not internally allocated to a geographical region nor separately reported to the CODM, and certain reconciling items primarily related to allocations of corporate overhead and rent expense, which have collectively been presented as “All Other”.  The accounting policies of the segments are consistent with those described in Note 1, except for noted reconciling items.  

The following tables present Net sales, Income (loss) from continuing operations before income taxes and certain other measures for the reportable segments, reconciled to consolidated total continuing operations, for the periods indicated (in thousands):

 

 

 

Three months ended March 31, 2015

 

Reportable segments

 

Net Sales

 

 

Depreciation & Amortization

 

 

Interest

 

 

Income (loss) from continuing operations before income taxes

 

Northeast

 

$

43,485

 

 

$

243

 

 

$

852

 

 

$

(651

)

Southeast

 

 

147,477

 

 

 

699

 

 

 

2,992

 

 

 

(1,727

)

South

 

 

153,057

 

 

 

1,462

 

 

 

3,692

 

 

 

342

 

West

 

 

 

 

 

 

 

 

 

 

 

 

Total reportable segments

 

 

344,019

 

 

 

2,404

 

 

 

7,536

 

 

 

(2,036

)

All other

 

 

26,967

 

 

 

748

 

 

 

71

 

 

 

(4,930

)

Total consolidated

 

$

370,986

 

 

$

3,152

 

 

$

7,607

 

 

$

(6,966

)

 

 

 

Three months ended March 31, 2014

 

Reportable segments

 

Net Sales

 

 

Depreciation & Amortization

 

 

Interest

 

 

Income (loss) from continuing operations before income taxes

 

Northeast

 

$

49,397

 

 

$

284

 

 

$

897

 

 

$

(841

)

Southeast

 

 

143,406

 

 

 

706

 

 

 

2,784

 

 

 

(2,516

)

South

 

 

124,562

 

 

 

435

 

 

 

3,002

 

 

 

(641

)

West

 

 

 

 

 

 

 

 

 

 

 

 

Total reportable segments

 

 

317,365

 

 

 

1,425

 

 

 

6,683

 

 

 

(3,998

)

All other

 

 

28,544

 

 

 

557

 

 

 

2,145

 

 

 

604

 

Total consolidated

 

$

345,909

 

 

$

1,982

 

 

$

8,828

 

 

$

(3,394

)

 

Asset information by segment is not reported internally or otherwise reviewed by the CODM nor does the company earn revenues or have long-lived assets located in foreign countries.  The Company’s net sales by product category for the years indicated were as follows (in thousands):

 

9


 

 

 

Three Months Ended

March 31,

 

 

 

2015

 

 

2014

 

Lumber & lumber sheet goods

 

$

122,427

 

 

$

124,627

 

Windows, doors & millwork

 

 

121,597

 

 

 

107,497

 

Manufactured products

 

 

79,805

 

 

 

70,753

 

Gypsum, roofing & insulation

 

 

10,555

 

 

 

9,932

 

Siding, metal & concrete products

 

 

9,800

 

 

 

8,697

 

Other building products & services

 

 

26,802

 

 

 

24,403

 

Net sales

 

$

370,986

 

 

$

345,909

 

 

 

8. Acquisitions

On February 9, 2015 the Company acquired certain assets and the operations of Timber Tech Texas, Inc. and its affiliates (“Timber Tech”) for $5.8 million in cash (including certain adjustments). Of this amount, $4.5 million was allocated to tangible assets acquired and $1.3 million was allocated to goodwill. These are preliminary allocations and are subject to adjustment.

Timber Tech is based in Cibolo, Texas, which is approximately 25 miles northeast of downtown San Antonio. Timber Tech is a manufacturer of roof trusses, floor trusses, wall panels and sub-components, as well as a supplier of glue laminated timber and veneer lumber beams.

The acquisition was accounted for by the acquisition method, and accordingly the results of operations were included in the Company’s consolidated financial statements from the acquisition date. The purchase price was allocated to the assets acquired based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. Pro forma results of operations are not presented as this acquisition is not material.

We incurred $0.1 million in costs related to this acquisition during the three months ended March 31, 2015. These costs include due diligence costs and transaction costs to complete the acquisition, and have been recognized in selling, general and administrative expense in the accompanying condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2015.

 

 

9. Recent Accounting Pronouncements

In April 2015, the FASB issued an update to the existing guidance under the Interest topic of the Codification. This update requires debt issuance costs to be presented on the balance sheet as a direct reduction from the carrying amount of the related debt liability instead of a deferred charge. This guidance is effective for interim and annual reporting periods beginning after December 15, 2015. This guidance requires retrospective application. Early adoption is permitted for financial statements that have not been previously issued. We are currently evaluating the impact of this guidance on our financial statements.

In January 2015, the FASB issued an update to the existing guidance under the Income Statement topic of the Codification.  This update eliminates the concept of extraordinary items and the requirement to assess whether an event or transaction is both unusual in nature and infrequent in occurrence and to separately present any such items on the statement of operations after income from continuing operations. Under the updated guidance such items will either be presented as a separate component of income from continuing operations or disclosed in the notes to the financial statements. This guidance is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption, but not required. The guidance allows either prospective or retrospective methods of adoption. We do not currently expect that the adoption of this update will have an impact on our financial statements.

In August 2014, the FASB issued an update to the existing guidance under the Presentation of Financial Statements topic of the Codification. This update requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures, if required. This new guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted, but not required. We are currently evaluating the impact of this guidance on our financial statements.

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In May 2014, the FASB issued an update to the existing guidance under the Revenue Recognition topic of the Codification which is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This new guidance is effective for annual reporting periods beginning after December 15, 2016. Accordingly, we will adopt this guidance beginning January 1, 2017.  Early adoption of this guidance is not permitted.  This guidance allows either full retrospective or modified retrospective methods of adoption. We are currently evaluating the impact of this guidance on our financial statements.

 

 

10. Subsequent Event

 

Warrant Exercise

On April 14, 2015 the remaining 0.7 million of outstanding, detachable warrants were exercised. The outstanding warrants are considered to be derivative financial instruments and are classified as liabilities. The warrants are recorded as other long-term liabilities in the accompanying condensed consolidated balance sheets.  As a result of this exercise we will recognize a non-cash, fair value adjustment of approximately $4.7 million.  This fair value adjustment will be recorded as interest expense in the second quarter of 2015.

ProBuild Acquisition

On April 13, 2015, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with ProBuild Holdings LLC, a Delaware limited liability company (“ProBuild”), and the holders of securities of ProBuild named as parties thereto (collectively, the “Sellers”). Headquartered in Denver, Colorado, ProBuild is one of the nation’s largest professional building materials suppliers. Pursuant to the Securities Purchase Agreement, we will acquire all of the operating affiliates of ProBuild through the purchase of all of the issued and outstanding equity interests of ProBuild for approximately $1.63 billion, subject to certain adjustments (the “ProBuild Acquisition”).

The Securities Purchase Agreement contains representations and warranties customary for transactions of this type. The representations and warranties contained in the Securities Purchase Agreement have been made for the purposes of allocating contractual risk between us, ProBuild and the Sellers instead of establishing these matters as facts, and may or may not have been accurate as of any specific date and do not purport to be accurate as of the date of the filing of the Securities Purchase Agreement by us with the SEC. ProBuild has agreed to various customary covenants and agreements, including, among others, to use commercially reasonable efforts to conduct its business in the ordinary course during the interim period between the execution of the Securities Purchase Agreement and the closing of the ProBuild Acquisition and not to engage in certain types of significant transactions during this period. The parties have also agreed to use their reasonable best efforts to obtain approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). In addition, the Securities Purchase Agreement provides that ProBuild will indemnify us with respect to breaches of certain representations, warranties and covenants by ProBuild and the Sellers, as well as for other specified matters, subject to the limitations in the Securities Purchase Agreement.

Consummation of the ProBuild Acquisition is subject to certain customary conditions, including, among others: (i) the absence of a material adverse effect with respect to inaccuracy of the representations and warranties of the parties to the Securities Purchase Agreement; (ii) the performance in all material respects of all covenants by such parties; (iii) the absence of a material adverse effect with respect to the business of ProBuild; (iv) the absence of certain legal injunctions or impediments prohibiting the transaction; (v) expiration or termination of all applicable waiting periods under the HSR Act; and (vi) ProBuild’s obtaining certain third-party consents. On April 20, 2015 we submitted a filing under the HSR Act with respect to the ProBuild Acquisition. We are currently in a waiting period under the HSR Act.

The Securities Purchase Agreement also contains certain termination provisions by us, ProBuild and the Sellers, including if the ProBuild Acquisition has not been consummated by November 13, 2015, subject to extension (the “Outside Date”), unless the terminating party’s material breach of the Securities Purchase Agreement has been the principal cause of or resulted in the failure of the closing of the ProBuild Acquisition to occur by such date. A termination of the Securities Purchase Agreement by us, ProBuild, or the Sellers under certain specified circumstances, including a failure to obtain regulatory approval by the Outside Date or a failure of our debt financing to be funded, in each case, if all of the other conditions to our obligation to close the ProBuild Acquisition have been satisfied (other than those conditions that, by their nature, are to be satisfied at the closing of the ProBuild Acquisition), will entitle ProBuild to receive from us a reverse termination fee equal to $81.3 million.

The Sellers have agreed to use reasonable best efforts to provide us with all cooperation reasonably requested by us to assist us in arranging financing in connection with the ProBuild Acquisition, including furnishing us with certain necessary financial

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information regarding ProBuild and taking other corporate and other actions reasonably requested by us to consummate such  financing. Upon request, we will promptly reimburse ProBuild for any documented and reasonable out-of-pocket costs and expenses incurred in connection with the Sellers’ cooperation with obtaining the financing.

We have received a debt commitment letter from certain financial institutions pursuant to which they have committed to provide us with an $800 million senior secured credit facility, a $550 million senior secured first lien term loan facility and a $750 million senior unsecured bridge facility (or up to $750 million in unsecured notes in lieu of all or a portion thereof). Additionally, the amount of the first lien term loan facility may be increased to repay, redeem or defease our existing senior notes in an amount equal to $350 million plus any applicable make-whole payments (the “Quantum Increase”) required in connection with any such repayment, redemption, or defeasance. Under certain circumstances, the Quantum Increase may take the form of secured debt securities or unsecured debt securities instead of additional first lien term loans. The proceeds of these borrowings will be used on the closing date of the ProBuild Acquisition to pay a portion of the aggregate acquisition consideration and related fees and expenses.

We have also received an equity commitment letter (the “Equity Commitment Letter”) from JLL Partners Fund V, L.P. (“JLL Fund V”) and Warburg Pincus Private Equity IX, L.P. (“Warburg Pincus”). Pursuant to the Equity Commitment Letter, and subject to the terms and conditions thereof, JLL Fund V and Warburg Pincus have agreed that, in the event we are unable to consummate a public offering of shares of our common stock, which provides proceeds of no less than $100 million to the Company, then at the closing of the ProBuild Acquisition, JLL Fund V will purchase $40 million of our common stock and Warburg Pincus will purchase $60 million of our common stock.

The issuance of shares of our common stock to JLL Fund V and Warburg Pincus pursuant to the Equity Commitment Letter would be accomplished in a private placement exempt from registration under the Securities Act of 1933, as amended.

ProBuild Holdings, Inc., an affiliate of ProBuild Holdings LLC, was created in 2005 by Devonshire Investors, the private investment firm affiliated with FMR LLC, the parent company of Fidelity Investments. ProBuild currently operates more than 350 facilities in 40 U.S. states, including lumber yards, truss and panel facilities, millwork shops, gypsum yards, retail stores and administrative offices. ProBuild has an extensive geographic footprint, which includes a presence in 71 of the top 100 metropolitan statistical areas (as ranked by housing permits) and a large number of secondary markets. ProBuild sells a broad selection of building materials including lumber and plywood, engineered wood, gypsum wallboard and other drywall products, millwork, trusses, roofing, siding products, tools, insulation materials and metal and hardware specialties. ProBuild employs approximately 10,000 employees.

For more information related to this transaction please refer to our Form 8-K filed with the SEC on April 13, 2015, as well as our Form S-3 and Form 8-K filed on May 4, 2015.       

    

 

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