Builders FirstSource Reports Third Quarter 2006 Results

DALLAS, Oct. 26 /PRNewswire-FirstCall/ -- Builders FirstSource, Inc. , a leading supplier and manufacturer of structural and related building products for residential new construction in the United States, today reported financial results for its third quarter ended September 30, 2006.

"Our third quarter results reflect the current challenges facing the homebuilding industry as many homebuilders work through excess inventory," said Floyd Sherman, Builders FirstSource Chief Executive Officer. "Our sales were down only 11.5 percent year-over-year despite an estimated 20.6 percent decrease in housing starts in our markets and a 14.3 percent decrease in nationwide commodity lumber and lumber sheet good prices. We partially offset these market conditions by gaining market share while simultaneously improving our gross margin percentage and reducing our operating costs. I am pleased with our performance given the difficult current market environment."

Third Quarter 2006 Financial Results

(See accompanying financial schedules for full financial details and reconciliations of Non-GAAP financial measures to their GAAP equivalents.)

* Sales for the third quarter were $569.9 million compared to $644.0 million for the same period in 2005. * Third quarter 2006 net income was $17.3 million compared to $27.8 million in the same quarter last year. Third quarter 2006 net income included a $4.3 million (net of tax) charge to reduce the carrying value of goodwill related to one of the company's reporting units. Net income for the third quarter 2006 also included stock-based compensation expense of $0.8 million (net of tax) as the company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, on January 1, 2006. * Net income per diluted share for the quarter was $0.48 in 2006, including the aforementioned charges, compared to net income per diluted share of $0.80 in 2005. * Diluted weighted average shares outstanding for the third quarter of 2006 were 36.0 million compared to 35.0 million for the same quarter last year. * Gross margin percentage for the quarter was up slightly at 26.6 percent, compared to 26.4 percent in the same quarter of 2005. * EBITDA for the quarter was $47.0 million compared to $58.7 million in the third quarter of 2005. EBITDA as a percentage of sales decreased from 9.1 percent to 8.3 percent. * As of September 30, 2006, the company's cash on hand was $65.8 million, and funded debt was $315.0 million.

Commenting on the third quarter results, Charles Horn, Builders FirstSource Senior Vice President and Chief Financial Officer, said, "During the quarter, we continued to deliver on sales drivers that we can control. Market share gains and new facilities positively affected our sales by an estimated 11.2 percent and 1.7 percent, respectively."

During the third quarter, housing starts for markets in which the company operates declined by an estimated 20.6 percent compared to the same period in 2005. Many of the company's largest markets, including Texas, Georgia and the Carolinas, started to experience year-over-year declines in housing starts after experiencing year-over-year growth during the first half of the year. In addition, nationwide commodity lumber and lumber sheet good prices decreased approximately 14.3 percent compared to the third quarter last year. The company mitigated those commodity price declines to a 3.8 percent decrease to its total sales primarily through pricing management and product mix.

Horn added, "We managed our cost structure very well during the quarter adjusting our operating expenses commensurate with the decline in sales volume. Selling, general and administrative expenses decreased $5.4 million from the third quarter of 2005. As a percentage of sales, however, third quarter SG&A increased from 18.0 percent in 2005 to 19.4 percent in 2006. Lower market prices for lumber products increased the 2006 percentage by 70 basis points. Stock compensation expense, which was not present in 2005, added 20 basis points, and costs associated with our Sarbanes-Oxley compliance efforts added 20 basis points."

Outlook

"We believe we can continue to mitigate a portion of the macroeconomic headwind by gaining market share to grow faster than our underlying markets. We also believe we can continue to increase sales through new operations," said Mr. Sherman. "However, we expect that difficult market conditions affecting our business will continue to have a negative effect on our operating results and year-over-year comparisons through at least mid 2007. While we are very focused on reducing costs and conserving capital during this challenging period, we want to avoid taking steps that will limit our ability to compete and create shareholder value in the long term."

Mr. Sherman concluded, "Certainly, there are adjustments we are making as we manage through the current downturn. Still, we remain confident in our core business model and operating strategy. We also believe our diverse geographic footprint gives us a competitive advantage during both contracting and expanding housing markets. We plan to judiciously invest in new operations and to strategically seek acquisition candidates. Finally, we continue to believe that the long-term outlook for the housing market is very positive."

Conference Call

Builders FirstSource will host a conference call tomorrow at 11:00 a.m. Central Time (CT) and will simultaneously broadcast it live over the Internet. To participate in the teleconference, please dial into the call a few minutes before the start time: 800-565-5442 (U.S. and Canada) and 913-312-1298 (international). A replay of the call will be available from 1:00 p.m. CT October 27 through November 2, 2006. To access the replay, please dial 888- 203-1112 (U.S. and Canada) and 719-457-0820 (international). Please refer to pass code 3659947. To access the webcast, go to http://www.bldr.com/ and click on "Investors." The online archive of the webcast will be available for approximately 90 days.

About Builders FirstSource

Headquartered in Dallas, Texas, Builders FirstSource is a leading supplier and manufacturer of structural and related building products for residential new construction. The company operates in 12 states, principally in the southern and eastern United States, and has 66 distribution centers and 54 manufacturing facilities, many of which are located on the same premises as our distribution facilities. 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. Effective July 3, 2006, the company was assigned to NASDAQ's recently created NASDAQ Global Select Market, a new tier of the NASDAQ Global Market with higher initial listing and corporate governance standards. For more information about Builders FirstSource, visit the company's Web site at http://www.bldr.com/ . (BLDR-F)

Cautionary Notice

Statements in this news release and the schedules hereto which are not purely historical facts or which necessarily depend upon future events, including statements about the impact of expected market share gains, plans to reduce costs, forecasted financial performance or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements. All forward-looking statements are based upon information available to Builders FirstSource, Inc. on the date this release was submitted. Builders FirstSource, Inc. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks or uncertainties related to the Company's growth strategies, including gaining market share, or the Company's revenues and operating results being highly dependent on, among other things, the homebuilding industry, lumber prices and the economy. Builders FirstSource, Inc. may not succeed in addressing these and other risks. Further information regarding factors that could affect our financial and other results can be found in the risk factors section of Builders FirstSource, Inc.'s most recent annual report on Form 10-K filed with the Securities and Exchange Commission. Consequently, all forward-looking statements in this release are qualified by the factors, risks and uncertainties contained therein.

Financial Schedules to Follow BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (unaudited) Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 (in thousands, except per share amounts) Sales $569,895 $643,964 $1,800,875 $1,771,906 Cost of sales 418,100 474,019 1,328,454 1,325,523 Gross margin 151,795 169,945 472,421 446,383 Impairment of goodwill 6,763 --- 6,763 --- Selling, general and administrative expenses 110,562 115,974 340,553 358,772 Income from operations 34,470 53,971 125,105 87,611 Interest expense 7,292 8,137 21,793 39,644 Income before income taxes 27,178 45,834 103,312 47,967 Income tax expense 9,862 18,006 38,296 18,838 Net income $17,316 $27,828 $65,016 $29,129 Net income per share: Basic $0.51 $0.85 $1.93 $1.04 Diluted $0.48 $0.80 $1.80 $0.96 Weighted average common shares outstanding: Basic 34,051 32,660 33,651 27,927 Diluted 36,018 34,999 36,029 30,202 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES Sales by Product Category (unaudited) Three Months Ended September 30, 2006 2005 (dollars in thousands) Prefabricated components $118,273 20.8% $142,358 22.1% Windows & doors 120,495 21.1% 121,487 18.9% Lumber & lumber sheet goods 172,991 30.4% 232,069 36.0% Millwork 52,961 9.3% 55,826 8.7% Other building products & services 105,175 18.4% 92,224 14.3% Total sales $569,895 100.0% $643,964 100.0% Nine Months Ended September 30, 2006 2005 (dollars in thousands) Prefabricated components $377,643 21.0% $376,787 21.3% Windows & doors 367,100 20.4% 330,667 18.7% Lumber & lumber sheet goods 593,690 32.9% 655,916 37.0% Millwork 161,705 9.0% 151,519 8.5% Other building products & services 300,737 16.7% 257,017 14.5% Total sales $1,800,875 100.0% $1,771,906 100.0% BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets September 30, 2006 December 31, (unaudited) 2005 (in thousands, except per share amounts) ASSETS Current assets: Cash and cash equivalents $65,835 $30,736 Accounts receivable, less allowances of $6,474 and $6,135, respectively 235,421 237,695 Inventories 144,024 149,397 Other current assets 29,066 24,753 Total current assets 474,346 442,581 Property, plant and equipment, net 110,336 99,862 Goodwill 166,722 163,030 Other assets, net 24,868 18,934 Total assets $776,272 $724,407 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $118,385 $127,998 Accrued liabilities 68,511 83,572 Current maturities of long-term debt 441 102 Total current liabilities 187,337 211,672 Long-term debt, net of current maturities 318,869 314,898 Other long-term liabilities 20,738 26,702 526,944 553,272 Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding --- --- Common stock, $0.01 par value, 200,000 shares authorized; 34,490 and 32,998 shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively 341 330 Additional paid-in capital 123,837 111,979 Unearned stock compensation --- (1,087) Retained earnings 123,097 58,081 Accumulated other comprehensive income 2,053 1,832 Total stockholders' equity 249,328 171,135 Total liabilities and stockholders' equity $776,272 $724,407 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES Reconciliation of Non-GAAP Financial Measures to their GAAP Equivalents (unaudited - dollars in thousands, except per share amounts) Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 Reconciliation to Adjusted Net Income and Adjusted Net Income per Share (1): Net income $17,316 $27,828 $65,016 $29,129 Reconciling items: Cash payment to stock option holders (2) --- --- --- 36,364 Write-off of unamortized debt issuance costs (3) --- --- --- 10,293 Financing costs incurred and expensed in conjunction with the February 2005 refinancing (3) --- --- --- 2,425 Termination penalty resulting from prepayment of term loan under prior credit facilities (3) --- --- --- 1,700 Reduction in interest expense assuming IPO net proceeds were used to repay debt at the beginning of the period (3) --- --- --- 3,319 Tax effect of reconciling items at 38.0% --- --- --- (20,558) Adjusted net income $17,316 $27,828 $65,016 $62,672 Weighted average shares outstanding: Diluted shares 36,018 34,999 36,029 30,202 Incremental shares for IPO (4) --- --- --- 4,725 Adjusted diluted shares 36,018 34,999 36,029 34,927 Adjusted net income per share - diluted $0.48 $0.80 $1.80 $1.79 Reconciliation to EBITDA and Adjusted EBITDA (1): Net income $17,316 $27,828 $65,016 $29,129 Reconciling items: Depreciation and amortization expense 5,798 4,773 16,310 14,248 Impairment of goodwill 6,763 --- 6,763 --- Interest expense 7,292 8,137 21,793 39,644 Income tax expense 9,862 18,006 38,296 18,838 EBITDA 47,031 58,744 148,178 101,859 Add: cash payment to stock option holders (2) --- --- --- 36,364 Adjusted EBITDA $47,031 $58,744 $148,178 $138,223 Adjusted EBITDA as percentage of sales 8.3% 9.1% 8.2% 7.8% Three months Last twelve months ended ended September 30, (annualized) September 30, 2006 2005 2006 2005 Reconciliation to Return on Net Assets and Adjusted Return on Net Assets (1): Net income $69,264 $111,312 $84,515 $44,120 Reconciling items: Interest expense 29,168 32,548 29,376 45,415 Income tax expense 39,448 72,024 48,775 27,477 Earnings before interest and taxes 137,880 215,884 162,666 117,012 Add: cash payment to stock option holders (2) --- --- --- 36,364 Adjusted earnings before interest and taxes $137,880 $215,884 $162,666 $153,376 Average net assets 534,552 491,069 502,101 490,184 Return on net assets 25.8% 44.0% 32.4% 23.9% Adjusted return on net assets 25.8% 44.0% 32.4% 31.3% (1) The company has provided detailed explanations of its non-GAAP financial measures in its Form 8-K filed October 26, 2006. (2) Represents cash payment made to stock option holders (including applicable payroll taxes) in lieu of adjusting exercise prices in conjunction with our refinancing transactions. This amount is included in selling, general and administrative expenses. (3) This amount is included in interest expense. (4) Represents incremental shares related to the company's IPO assuming the 7,500 shares sold by the company were issued at the beginning of the period.