<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarterly period ended SEPTEMBER 30, 1999 or
- --- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number 0-19335
BUILDING MATERIALS HOLDING CORPORATION
(Parent of BMC West Corporation)
Delaware 91-1834269
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Building Materials Holding Corporation
One Market Plaza, Steuart Tower, Ste 2650, San Francisco, CA 94105
Telephone: (208)331-4410 or (415)227-1650
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 month (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
CLASS Shares Outstanding as
of November 1, 1999:
Common stock $.001 par value 12,675,021
1
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BUILDING MATERIALS HOLDING CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Income for the three and nine months ended
September 30, 1999 and 1998 3
Condensed Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30,
1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 4 - Submission of Matters to a Vote of Security Holders 20
Item 6 - Exhibits and Reports on Form 8-K 20
SIGNATURES 21
INDEX TO EXHIBITS 22
EXHIBITS 23
</TABLE>
2
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BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Net sales $288,715 $249,757 $760,345 $659,405
Cost of sales 218,910 188,649 572,264 499,728
----------- ----------- ----------- ---------
Gross profit 69,805 61,108 188,081 159,677
Selling, general
and administrative
expense 54,257 47,763 153,453 132,722
Other income, net 2,738 220 4,745 1,044
----------- ----------- ----------- ---------
Income from operations 18,286 13,565 39,373 27,999
Interest expense 3,711 2,547 9,254 7,718
----------- ----------- ----------- ---------
Income before income taxes 14,575 11,018 30,119 20,281
Income taxes 5,611 4,295 11,596 7,954
----------- ----------- ----------- ---------
Net income $ 8,964 $ 6,723 $ 18,523 $ 12,327
=========== =========== =========== =========
Net income per common share:
Basic $ 0.71 $ 0.53 $ 1.46 $ 0.99
=========== =========== =========== =========
Diluted $ 0.70 $ 0.53 $ 1.45 $ 0.98
=========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
(UNAUDITED)
Sept. 30, December 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash $7,266 $ 8,264
Receivables, net 124,771 92,113
Inventories 87,812 78,746
Other current assets 5,011 4,843
------------- -------------
Total current assets 224,860 183,966
Property, plant and equipment, net 149,830 139,585
Investment in unconsolidated subsidiary 31,437 0
Goodwill, net 43,584 43,903
Other 4,850 6,527
------------- -------------
Total assets $454,561 $373,981
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $54,412 $ 45,509
Accrued compensation 9,712 8,937
Sales tax payable 5,187 3,734
Other accrued expenses 8,872 9,042
------------- -------------
Total current liabilities 78,183 67,222
Long-term debt 167,433 117,805
Other long-term liabilities 10,103 8,704
Stockholders' equity
Common stock, $.001 par value, 20,000,000 shares
authorized; 12,675,021 and 12,652,298 shares
outstanding at Sept. 30, 1999 and December 31, 1998,
respectively 13 13
Additional paid-in capital 108,325 108,256
Retained earnings 90,504 71,981
------------- -------------
Total stockholders' equity 198,842 180,250
------------- -------------
Total liabilities and stockholders' equity $454,561 $373,981
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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BUILDING MATERIALS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30, Sept. 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
--------- ---------
<S> <C> <C>
Net income $18,523 $12,327
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization 10,577 9,830
Gain on sale of assets (320) (59)
Equity in earnings of unconsolidated
Subsidiary, net of amortization (3,158) 0
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable (31,541) (15,905)
Inventories (8,206) (2,890)
Prepaid expenses and other 767 2,293
Accounts payable and accrued expenses 10,599 19,510
Other long-term liabilities 1,399 (206)
---------- ----------
Net cash flows from operating activities (1,360) 24,900
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (17,296) (14,210)
Acquisitions of businesses and investment
in unconsolidated subsidiary (34,211) (13,076)
Proceeds from sales of property, plant
and equipment 2,174 615
---------- ----------
Net cash flows from investing activities (49,333) (26,671)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving credit agreement 49,628 5,290
Principal payments on long-term debt 0 (1,124)
Other 67 16
---------- ----------
Net cash flows from financing activities 49,695 4,182
---------- ----------
Net change in cash (998) 2,411
Cash, beginning of period 8,264 8,177
---------- ----------
Cash, end of period $7,266 $10,588
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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BUILDING MATERIALS HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Building Materials Holding Corporation ("BMHC" or the "Company")on a
consolidated basis, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the consolidated financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Although the Company
believes that the disclosures are adequate to make the information presented not
misleading, it is recommended that these condensed consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's 1998 Annual Report. In
the opinion of management, all adjustments necessary to present fairly the
results for the periods presented have been included. The adjustments made were
of a normal, recurring nature.
Due to the seasonal nature of BMHC's business, the condensed consolidated
results of operations and resulting cash flows for the periods presented are not
necessarily indicative of the results that might be expected for the fiscal
year.
2. NET SALES BY PRODUCT (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Wood Products $135,837 47.0% $110,686 44.3% $341,839 45.0% $290,497 44.0%
Value-added 93,876 32.5 75,538 30.2 257,220 33.8 201,836 30.6
Building Materials 38,867 13.5 38,837 15.5 104,225 13.7 105,413 16.0
Other 20,135 7.0 24,696 10.0 57,061 7.5 61,659 9.4
-------- ------ -------- ------ -------- ------ -------- ------
$288,715 100.0% $249,757 100.0% $760,345 100.0% $659,405 100.0%
======== ======== ======== ========
</TABLE>
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3. EARNINGS PER SHARE(in thousands, except per share amounts)
Earnings per share was determined as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -----------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30
COMPUTATION OF BASIC 1999 1998 1999 1998
EARNINGS PER SHARE: ---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Net income available to common
stockholders $8,964 $6,723 $18,523 $12,327
====== ====== ======= =======
Weighted average shares outstanding 12,673 12,643 12,684 12,464
====== ====== ====== ======
BASIC EARNINGS PER SHARE $ 0.71 $ 0.53 $ 1.46 $ 0.99
====== ====== ====== ======
COMPUTATION OF DILUTED
EARNINGS PER SHARE:
Net income available to common
stockholders $8,964 $6,723 $18,523 $12,327
====== ====== ======= =======
Weighted average shares outstanding 12,673 12,643 12,684 12,464
Net effect of dilutive stock options
based on the treasury stock method
using average market price 119 143 129 146
------ ------ ------ ------
Weighted average diluted shares
outstanding 12,792 12,786 12,813 12,610
====== ====== ====== ======
DILUTED EARNINGS PER SHARE $ 0.70 $ 0.53 $ 1.45 $ 0.98
====== ====== ====== ======
</TABLE>
7
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4. DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Revolving credit agreement borrowings $ 97,066
8.10% unsecured senior notes 16,667
9.18% unsecured senior notes 50,000
Other 3,700
---------
Total $167,433
=========
</TABLE>
On August 31, 1999, the Company entered into a Second Amendment to the revolving
credit agreement with its bank lenders. The amendment changes agents from Wells
Fargo Bank, N.A. to Bank of America, N.A., extends the scheduled commitment
reduction date to November 30, 1999, and the total commitment was increased from
$125 million to $145 million until the scheduled reduction date when it reverts
back to $125 million. Borrowings under this facility bear interest at prime rate
plus 0% to 1.25%, or LIBO rate plus 1.0% to 2.25%. The agreement expires in
February 2000.
The Company is currently negotiating a new five-year term and revolving debt
agreement; which will pay in full the Company's current long-term debt.
Accordingly, all of the Company's debt has been classified as long-term.
5. ACQUISITIONS AND INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
On May 3, 1999, the Company completed the investment of a 49% interest in Knipp
Brothers Industries, LLC, ("KBI") a framing company with operations in Phoenix
and Tuscon, Arizona, and Las Vegas, Nevada. The total consideration given was
$28 million consisting of $25.8 million in cash and $2.2 million from various
assets of its Phoenix operation. BMHC has the right to acquire the remaining 51%
interest in KBI. The 51% owner has a corresponding right to require BMHC to
purchase KBI's 51% after five years.
The Company accounts for its investment in KBI using the equity method of
accounting. The Company's recorded equity in income from KBI, included in other
income, differed from its prorata share of KBI earnings due to amortization of
goodwill associated with the Company's equity investment.
8
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The Company completed three acquisitions for the nine months ended September
30, 1999, including the acquisition of Western Door, a distributor of wood
and metal doors and millwork on June 7, 1999. Western Door has facilities in
Missoula and Kalispell, Montana. The Company paid aggregate cash
consideration of $8.5 million, which the Company financed through borrowings
under its existing senior credit facility.
Proforma net sales and net income giving effect to these acquisitions as if they
had occurred at the beginning of 1998 and 1999 is not presented because the
effect of the acquisitions to the Company's net sales and net income is not
material.
6. SUBSEQUENT EVENT
On November 1, 1999, the Company completed the acquisition of Royal Door
Company, Inc., a millwork sales, distribution and installation company. The
total consideration was $13.3 million, consisting of $8.3 million in cash and
a non-interest bearing note of $5.0 million. The acquisition will be
accounted for using the purchase method of accounting.
9
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BUILDING MATERIALS HOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTION
Certain statements made in this Form 10-Q may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors are
discussed in detail in Building Materials Holding Corporation's Form 10-K for
the fiscal year ended December 31, 1998. Given these uncertainties, investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the results of any revisions to any of the forward-looking statements
contained in the Annual Report on Form 10-K or this Form 10-Q except as required
by law.
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain costs, expenses and income items. The table
and subsequent discussion should be read in conjunction with the consolidated
financial statements and the notes thereto appearing elsewhere herein and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
<TABLE>
<CAPTION>
For The Three Months Ended For The Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 24.2 24.5 24.7 24.2
Selling, general and
administrative expense 18.8 19.1 20.2 20.1
Other income 0.9 .1 .6 .2
Income from operations 6.3 5.4 5.2 4.2
Interest expense 1.3 1.0 1.2 1.2
Income taxes 1.9 1.7 1.5 1.2
Net income 3.1 2.7 2.4 1.9
</TABLE>
10
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THIRD QUARTER OF 1999 COMPARED TO THE THIRD QUARTER OF 1998
Net sales for the three months ended September 30, 1999 were $288.7 million up
15.6% from the third quarter of 1998 when sales were $249.8 million. A
substantial portion of this increase is the result of a $32.9 million or 13.6%
increase in sales at facilities that operated for at least two months in both
the third quarter of 1998 and 1999. This same-store sales increase is largely
due to the shift in our focus towards value-added products, which attracts new
customers and gives us the opportunity to increase our total sales per building
permit. These value-added products accounted for $93.9 million, or 32.5% of net
sales for the third quarter of 1999, an increase from $75.5 million, or 30.2% of
net sales for the third quarter of 1998. The remaining portion of the increase
in net sales is a result of an increase in the number of store locations, as a
result of recent acquisitions.
Gross profit as a percentage of sales decreased to 24.2% in the third quarter of
1999 from 24.5% in the third quarter of 1998, primarily as a result of the
volatility of the price of commodity wood products. This price fluctuation that
affected the gross profit percentage was somewhat offset by increased
higher-margin, value-added product sales.
Selling, general and administrative (SG&A) expense was $54.3 million in the
third quarter of 1999 as compared to $47.8 million in the third quarter of 1998.
SG&A decreased as a percentage of net sales from 19.1% in 1998 to 18.8% in 1999.
The Company attributes this decrease somewhat due to greater efficiencies as
existing and acquired operations are consolidated and improved over time.
Other income of $2.7 million in the third quarter of 1999 increased from
$220,000 in the same period in 1998 primarily due to the investment in an
unconsolidated subsidiary in May 1999 which is accounted for under the equity
method of accounting.
Interest expense of $3.7 million in the third quarter of 1999 increased from
$2.5 million in the same period of 1998, primarily due to increased borrowings
under the Company's revolving line of credit to support higher
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working capital as a result of increased sales and acquisitions made during
the previous 12 months.
Income taxes were provided at estimated annual effective tax rates of 38.5% and
39.0% for the quarter ended September 30, 1999 and September 30, 1998,
respectively.
As a result of the foregoing factors, net income increased by $2.2 million, or
33.3% to $9.0 million, or 3.1% of net sales in the third quarter of 1999, as
compared to $6.7 million, or 2.7% of net sales, in the third quarter of 1998.
FIRST NINE MONTHS OF 1999 COMPARED WITH THE FIRST NINE MONTHS OF 1998
Net sales for the nine months ended September 30, 1999 were $760.3 million up
15.3% from the first nine months of 1998 when sales were $659.4 million. A
substantial portion of this increase is the result of a $71.8 million or 11.6%
increase in sales at facilities that operated for at least six months in the
nine-month period of 1998 and 1999. This same-store sales increase is largely
due to the shift in our focus towards value-added products which attracts new
customers and gives us the opportunity to increase our total sales per building
permit. These value-added products accounted for $257.2 million, or 33.8% of net
sales for the first nine months of 1999, an increase from $201.8 million, or
30.6% of net sales for the first nine months of 1998. The remaining portion of
the increase in net sales is a result of an increase in the number of store
locations, as a result of recent acquisitions.
Gross profit as a percentage of sales improved to 24.7% in the first nine months
of 1999 from 24.2% in the first nine months of 1998, primarily as a result of
the Company's on going efforts to improve margins through an increased focus on
value-added products, such as roof and floor trusses, pre-hung doors, millwork,
and pre-assembled windows.
SG&A was $153.5 million in the first nine months of 1999 as compared to $132.7
million in 1998, and was flat compared to a percentage of net sales
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for the prior year period. The Company continues to work on its cost
structure to enhance earnings.
Other income of $4.7 million in the nine months of 1999 increased from $1.0
million in the same period in 1998 primarily due to the investment in an
unconsolidated subsidiary in May 1999, which is accounted for under the equity
method.
Interest expense increased to $9.3 million in the first nine months of 1999 from
$7.7 million in the same period of 1998, primarily due to increased borrowings
under the Company's revolving line of credit to support higher working capital
as a result of increased sales and acquisitions made during the previous 12
months.
Income taxes were provided at estimated annual effective tax rates of 38.5% and
39.2% for the nine month periods ended September 30, 1999 and September 30,
1998, respectively.
As a result of the foregoing factors, net income increased by $6.2 million, or
50.3% to $18.5 million, or 2.4% of net sales in the first nine months of 1999,
as compared to $12.3 million, or 1.9% of net sales, in the first nine months of
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital resources is to fund future growth and
capital expenditures, as well as to finance working capital needs which have
been increasing as BMHC has grown in recent years. Capital resources have
primarily consisted of cash flows from operations and incurrence of debt.
OPERATIONS
In the first nine months of 1999, net cash used in operations was $1.3 million
compared to net cash provided by operations of $24.9 million in the first nine
months of 1998. The increase in cash used in operations is due to timing of the
collection of receivables, purchases of inventory, and payments on payables as
net working capital increased to $146.7 million at September
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30, 1999 compared to $125.0 million at September 30, 1998. Cash used for
operations in the nine months ended September 30, 1999, should be
subsequently offset as receivables are collected and inventories reduced
during the fourth quarter following the peak building and construction season.
CAPITAL INVESTMENT AND ACQUISITIONS
Capital expenditures, exclusive of acquisitions, were $17.3 million in the first
nine months of 1999. Capital expenditures included purchases of additional
property and expansion and remodeling of existing building materials centers and
value-added facilities.
In the first nine months of 1999, cash used for acquisitions and investments
totaled $51.5 million, including the investment of a 49% equity interest in KBI
and the acquisition of Western Door.
FINANCING
The Company is in the process of negotiating a new agreement with Bank of
America, N.A., as agent, and other banks for a term loan of $100 million and a
revolver facility of $125 million. This debt will be secured by the Company's
assets and will carry a five-year term. It is anticipated to be completed by the
end of 1999.
The Company will use a portion of the new facility to prepay $70.4 million of
fixed rate borrowings, consisting of $16.7 million principal amount of 8.10%
Notes, $50.0 million principal amount of 9.18% Notes and $3.7 million principal
amount of acquisition debt, as well as its current revolver balance.
On August 31, 1999, the Company entered into a Second Amendment to the revolving
credit agreement with its bank lenders. The amendment changes the agent from
Wells Fargo Bank, N.A. to Bank of America, N.A., extends the scheduled
commitment reduction date to November 30, 1999, and increases the total
commitment from $125 million to $145 million until the scheduled reduction date
when it reverts back to $125 million.
14
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In connection with the planned refinancing of the Company's existing debt, BMHC
would pay a premium to the holders of senior notes being prepaid, which is based
on the market interest rates at the date of payment, and write-off the
unamortized amount of associated deferred financing costs. At September 30,
1999, the premium would have approximated $5.8 million and the unamortized
deferred financing costs were approximately $700,000. The aggregate of these
charges would be reflected as an extraordinary one-time charge, of approximately
$4.0 million, net of income tax, or approximately $0.31 per share based on
September 30, 1999 amounts and average shares outstanding at that date. The
Company expects that the planned refinancing will give it increased flexibility
to fund its future growth. These changes will be recognized at the time the
refinancing is completed and the notes prepaid.
In the third quarter, the Company continued with its efforts to consummate an
offering of approximately $100 to $150 million principal amount of senior
subordinated notes due 2009 and deferred approximately $500,000 in related
costs. However, due to current market conditions for high-yield debt the
Company has chosen to temporarily suspend the offering until market
conditions become more favorable. If the offering has not re-commenced by
December 31, 1999, the Company would be required to expense its deferred
charges associated with the offering. The new credit facility is designed to
accommodate senior subordinated debt securities by permitting retirement of
the term portion with no make whole fee.
The Company believes that cash, funds generated from operations and funds
available under its revolving credit agreement will provide sufficient funds to
meet its currently anticipated requirements.
In the third quarter of 1998, the Company filed a shelf registration with the
Securities and Exchange Commission to register 2,000,000 shares of common stock.
The Company may issue these shares from time to time in connection with future
business combinations, mergers and/or acquisitions.
DISCLOSURES OF CERTAIN MARKET RISKS
As of September 30, 1999, approximately 40% of the Company's debt was
fixed-rate. However, BMHC has historically experienced only modest changes in
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interest expense when market interest rates change. Changes in the Company's
debt could increase these risks. Previously, the Company has managed its
exposure to market interest rate changes through periodic refinancing of its
variable rate debt with fixed rate term debt obligations.
Commodity wood products, including lumber and panel products, accounted for
approximately 45% of net sales in the first nine months of 1999 and 44% for the
same period in 1998. Commodity wood products carry lower gross margins than
value-added products. The volatility of commodity wood product prices may also
affect margins because the Company may be unable to immediately pass through the
increases to its customers. The Company does not use derivative financial
instruments to hedge commodity wood products.
YEAR 2000 SYSTEM ISSUE
As is the case with most other companies, the Year 2000 computer problem creates
risks for BMHC. However, the Company believes that the risks of the Year 2000
computer problem are not as severe for the building materials industry as
compared to other more technology dependent industries, because the building
materials industry, in general, and the Company and its professional contractor
customers, in particular, are not as heavily dependent upon computerized
systems. Except for millwork and truss operations, the Company is primarily a
provider of building materials to its customers and is dependent upon rail and
truck transportation for timely receipt and delivery of inventory. The Company
could be affected if its transportation suppliers are materially and adversely
affected by Year 2000 related issues.
The following discussion summarizes management's present analyses and proposed
plans with respect to the anticipated material impacts of the Year 2000 computer
problem on the Company's primary operations. The discussion focuses on "mission
critical" systems, which management believes are important to the Company's day
to day functional operations. The Year 2000 problem may also impact systems that
are not mission critical or information technology related. These systems, which
may include telephone, electronic mail, elevators, heating and air conditioning
equipment, and security will be tested and any problems addressed on a
case-by-case basis, but none are
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expected to be material to the Company's results of operations or financial
condition. It is expected that assessment, remediation and contingency
planning activities will be on-going throughout 1999 with the goal of
appropriately resolving all significant internal systems and third party
issues.
State of Readiness
BMHC has evaluated the impact of the Year 2000 computer problem on its mission
critical systems. The mission critical systems that have been identified are:
- - retail system software used in each of the operations for sales transactions,
inventory and in-store accounting
- - corporate financial and accounting system
- - millwork configuration and order entry system
- - truss production and engineering system
- - payroll system, which is operated by a third party vendor
Each of the five mission critical systems is in the process of becoming Year
2000 compliant, or management is verifying with the original vendor that the
existing systems are Year 2000 compliant. The current status of the readiness
effort with respect to the five mission critical systems is as follows:
The retail system was upgraded in a two-step process that involved hardware and
operating system improvements that were originally scheduled and budgeted for in
1998. The process has been successfully completed. The final software upgrade
for Year 2000 compliance, as warranted by the vendor, has been fully implemented
throughout the Company, and has been fully tested with satisfactory results.
This system has been deemed Year 2000 ready.
The corporate financial and accounting system has been upgraded to the Year 2000
compliant version as warranted by the vendor. This upgrade was successfully
completed in December 1998, and the system is fully compliant. Testing has
verified the vendor's level of compliance, and shows no remaining Year 2000
issues with this system.
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It has been determined that the current millwork software will not meet the long
term needs of the Company, and a decision to replace this software package has
been made. However, due to the complexity of implementing a new system, it has
also been decided to bring the current system to a Year 2000 compliant state.
This project was performed by the original vendor of the software. The Year 2000
compliant version of the current software is undergoing final testing. The
go-live date for the Year 2000 compliant version of the millwork software is
late November 1999. At that time, this system is expected to be fully compliant.
Additionally, a replacement software package has been identified that is
warranted by the vendor as Year 2000 compliant. The new system has been
successfully implemented in three locations.
The vendors for the truss production system and outsourced payroll system have
advised the Company that the systems are currently Year 2000 compliant.
Verification and testing of these systems for compliance continues, and to date,
no Year 2000 issues have been discovered in these systems.
Cost to Address Year 2000 Issues
Much of the cost to address Year 2000 issues was budgeted and scheduled as part
of routine maintenance of the Company's systems. Since these costs were
identified and planned for in the budget cycle, the financial impact on the
Company is not expected to be material in any one year. However, it is
anticipated that the total cost of becoming Year 2000 compliant for all systems
currently in use by the Company will be approximately $1.5 million. To date
approximately $920,000 has been spent in remediation of Year 2000 issues. These
costs include consulting, hardware upgrades and employee time.
Risks of Year 2000 Issues for BMHC
Even in a most likely worst case scenario for BMHC, the risks due to failure to
accomplish Year 2000 remediations are not expected to have a material adverse
effect on the results of operations or financial condition of the Company. Each
of the Company's operating locations currently has procedures in place to deal
with the failure of the retail system. In this instance, the increased amount of
hand processing of accounting and inventory tracking
18
<PAGE>
would result in higher overtime and payroll expense. However, it is not
anticipated that there will be a material impact on the ability of the
Company to deliver products to customers. In order to reduce the risks of
delays in transportation of inventory either to the Company or its customers,
the Company is monitoring Year 2000 compliance by its transportation
suppliers and will consider a build-up of certain inventories in the fourth
quarter of 1999, if appropriate. The Company does not expect that the cost of
a short-term increase in its inventory levels to reduce Year 2000 risks will
be material to the Company's financial condition or operating results.
Since each of the systems independently perform specified functions that are
well understood by staff personnel in the operating locations and at the
corporate office, complete failure of all of the systems could be worked around
to perform the necessary functions of the systems. It is extremely unlikely that
this would occur due to the independent nature of the systems architecture
employed at BMHC. However, steps to avoid this possibility are being taken.
Contingency Plans
The Company believes that temporary solutions to most failures are readily and
economically available. For example, the dates on the systems could be set to
dates prior to 2000 that have the same days of the week, such as the year 1972.
This would involve a data conversion and hand correcting of dates on printed
documents, but could be accomplished in just a few days. Also, personal
computers with spreadsheets could be used to maintain accounting and inventory
information as well as corporate financial data. Millwork configuration is
unaffected by the date change, but dates would need to be changed for order
tracking if the system were not capable of dealing with dates after December 31,
1999. Processing of payroll could be done with personal computers. Truss
engineering would need validation by the plate manufacturer to ensure structural
integrity. Finally, the Company can increase inventory levels to mitigate risks
of Year 2000 transportation problems. All of these plans could be put in place
in a short time frame, and would mitigate nearly all the material risks to the
Company.
Summary
19
<PAGE>
BMHC is in the process of correcting the Year 2000 issues that it believes could
have a material impact on the Company. It is anticipated that all systems will
be capable of functioning in a normal fashion upon the change of the millennium.
It is not anticipated that BMHC will suffer any loss of revenue due to Year 2000
issues. The Company has requested from all of its significant vendors a
statement regarding their preparations for the Year 2000 date change. Each of
the responses has been tracked, and vendors that have not responded will soon
receive a final notice. Vendors not responding to the request may be replaced
with other vendors if necessary. Since the Year 2000 issue was anticipated in
the budget cycle over the last two years, no material impact is expected on the
results of operations or cash flows in any period or on the overall financial
condition of the Company. Also, no projects were canceled or delayed as a result
of Year 2000 efforts.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation and other legal matters
arising in the normal course of business. In the opinion of
management, the Company's recovery or liability, if any,
under any of these matters will not have a material effect on
the Company's financial position, liquidity or results of
operations.
ITEM 4. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUILDING MATERIALS HOLDING CORPORATION
Date: November 9, 1999 /s/ Robert E. Mellor
-------------------------------------------------
Robert E. Mellor
President, Chief Executive Officer
and Director (Principal Executive Officer)
Date: November 9, 1999 /s/ Ellis C. Goebel
-------------------------------------------------
Ellis C. Goebel
Senior Vice President - Finance
and Treasurer
(Principal Financial Officer)
22
<PAGE>
INDEX TO EXHIBITS
BUILDING MATERIALS HOLDING CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 1999
<TABLE>
<CAPTION>
Page
Exhibit Description Number
- ------- ----------- ------
<S> <C> <C>
10-30 Amendment No.2 to Third Amended And
Restated Credit Agreement dated as of
August 31, 1999 between BMC West Corporation
And Bank of America, N.A.
27 Financial Data Schedule
</TABLE>
23
<PAGE>
AMENDMENT NO. 2 TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT AND AGENCY SUBSTITUTION AGREEMENT
THIS AMENDMENT NO. 2 TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of August 31, 1999, is made among BMC West Corporation, a
Delaware corporation (the "Borrower"), the financial institutions listed on the
signature pages hereof under the heading "BANKS" (each a "Bank" and,
collectively, the "Banks"), Wells Fargo Bank, National Association ("Wells Fargo
Bank"), as resigning agent for the Banks (in such capacity, the "Resigning
Agent") and Bank of America, N.A. (formerly known as Bank of America National
Trust and Savings Association) ("Bank of America"), as successor agent for the
Banks (in such capacity, the "Successor Agent"). The Borrower, the Banks and the
Resigning Agent are parties to a Third Amended and Restated Credit Agreement,
effective as of September 30, 1998, as amended by that certain Amendment No. 1
to Third Amended and Restated Credit Agreement dated as of March 31, 1999 (as so
amended, the "Credit Agreement"). The Borrower has requested that the Banks (i)
agree to certain amendments to the Credit Agreement in order to, among other
things, increase the Total Commitment upon the effectiveness of this Amendment
and extend the Scheduled Reduction Date to November 30, 1999, (ii) agree to the
replacement of Wells Fargo as Issuing Bank under the Credit Agreement by Bank of
America and (iii) accept the resignation of the Resigning Agent as Agent under
the Credit Agreement and appoint the Successor Agent as Agent under the Credit
Agreement. The Banks have agreed to such request, subject to the terms and
conditions hereof.
Accordingly, the parties hereto agree as follows:
DEFINITIONS; INTERPRETATION.
TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms used in this Amendment
(including in the recitals hereof and in the Consent of Guarantor attached
hereto) and not otherwise defined herein shall have the meanings assigned to
them in the Credit Agreement.
INTERPRETATION. The rules of interpretation set forth in Section 1 of the
Credit Agreement shall be applicable to this Amendment and are incorporated
herein by this reference.
AMENDMENTS TO THE CREDIT AGREEMENT.
AMENDMENTS. The Credit Agreement shall be amended as follows, effective as of
the date of satisfaction of the conditions set forth in Section 6 (the
"Effective Date"):
(a) Section 2.02(a) is hereby amended by substituting One Hundred Forty-
Five Million Dollars ($145,000,000) as the Total Commitment until the
Scheduled Reduction Date and One Hundred Twenty-Five Million Dollars
($125,000,000) as the Total Commitment on and after the Scheduled
Reduction Date.
(b) Section 2.02(d)(i) is hereby amended by substituting One Hundred
Twenty-Five Million Dollars ($125,000,000) in place of Seventy Million
Dollars ($70,000,000).
24
<PAGE>
(c) SCHEDULE I to the Credit Agreement is hereby amended by amending and
restating the Commitment amounts set forth for each Bank as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Commitment
Before Scheduled Proportionate Commitment On Proportionate
Reduction Share of Total and After Scheduled Share of Total
Bank Date Commitment Reduction Date Commitment
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank of America, N.A. $65,000,000 44.82758620% $55,000,000 44.00000000%
- -----------------------------------------------------------------------------------------------------------------------
KeyBank National Association $30,000,000 20.68965517% $20,000,000 16.00000000%
- -----------------------------------------------------------------------------------------------------------------------
Wells Fargo Bank, National
Association $25,000,000 17.24137931% $25,000,000 20.00000000%
- -----------------------------------------------------------------------------------------------------------------------
U.S. Bank National Association $25,000,000 17.24137931% $25,000,000 20.00000000%
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $145,000,000 100% $125,000,000 100%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) SCHEDULE II to the Credit Agreement is hereby amended by amending and
restating the DEFINITIONS OF "FEDERAL FUNDS RATE," "LIBO RATE," "PRIME
RATE" AND "SCHEDULED REDUCTION DATE" AS SET FORTH ON ANNEX A.
AMENDMENT TO TABLE OF CONTENTS. The Table of Contents of the Credit Agreement
shall be amended to the extent necessary to reflect the amendments to the Credit
Agreement made in subsection (a).
REFERENCES WITHIN CREDIT AGREEMENT. Each reference in the Credit Agreement to
"this Agreement" and the words "hereof," "herein," "hereunder," or words of
like import, shall mean and be a reference to the Credit Agreement as amended
by this Amendment.
CERTAIN TRANSITIONAL MATTERS. On the Effective Date, the
amount of Revolving Loans then outstanding and held by each Bank shall be
adjusted to reflect the changes in the Banks' Proportionate Shares of the
Revolving Loans, subject to Section 2.11 of the Credit Agreement. Each Bank
having Revolving Loans then outstanding and whose Proportionate Share in respect
of Revolving Loans has been decreased on the Effective Date as a result of the
increase in the Total Commitments and concurrent adjustment of the Commitment of
each Bank contemplated hereby shall be deemed to have assigned on the Effective
Date, without recourse, to each Bank increasing its Commitment on the Effective
Date such portion of such Revolving Loans as shall be necessary to effectuate
such adjustment. Each such Bank increasing its Commitment on the Effective Date
shall (i) be deemed to have assumed such portion of such Revolving Loans and
(ii) fund on the Effective Date such assumed amounts to the Successor Agent for
the account of the assigning Bank in accordance with the provisions hereof in
the amount notified to such increasing Bank by the Successor Agent. On or
promptly after the Effective Date, each Bank shall surrender to Successor Agent
its Revolving Loan Notes for replacement and Borrower, at its own expense, shall
execute and deliver to the Successor Agent in exchange for the surrendered
Revolving Loan Notes, a new Revolving Loan Note to the order of each Bank in the
amount of such Bank's Commitment after the Effective Date, dated the Effective
Date and otherwise in the form of the Revolving Loan Note replaced thereby. The
25
<PAGE>
Revolving Loan Notes surrendered by the Banks shall be returned by the Successor
Agent to Borrower marked "replaced".
RESIGNATION OF RESIGNING AGENT AND APPOINTMENT OF SUCCESSOR AGENT.
26
<PAGE>
The Resigning Agent hereby provides notice to the Banks that, effective as of
the Effective Date, it hereby resigns as Agent under the Credit Agreement,
and the Banks and the Borrower hereby accept such resignation. On the
Effective Date, the Resigning Agent shall be discharged from its duties and
obligations as Agent under the Credit Agreement for matters arising on and
after the Effective Date, PROVIDED that the provisions of Section VII shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken while it was acting as Agent under the Credit Agreement. The
Borrower hereby consents to such resignation.
The Banks hereby appoint, effective as of the Effective Date, the Successor
Agent as Agent under the Credit Agreement, and the Successor Agent hereby
accepts such appointment. On the Effective Date, the Successor Agent shall
succeed to and become vested with all the rights, powers, privileges and duties
of the Resigning Agent as Agent under the Credit Agreement and all other Credit
Documents (including, without limitation, that certain Continuing Guaranty, as
amended, made by the Parent in favor of the Banks and the Resigning Agent). The
Borrower hereby consents to such appointment.
On or promptly following the Effective Date, (i) the Resigning Agent shall
refund to the Borrower any agency fees paid to the Resigning Agent pursuant
to the Agent Fee Letter, pro rated for the number of days remaining in the
period covered by such agency fee from and after the Effective Date, (ii) the
Resigning Agent shall deliver to the Successor Agent copies of its records
consisting of the Interest Account, the Register, all withholding tax
certificates, if any, delivered to the Agent by the Banks, all files, records
and other items regarding disbursements and payments under the Credit
Agreement since September 30, 1998, and all other notices, records,
certificates, documents and agreements as may be reasonably requested by the
Successor Agent which are held by the Resigning Agent in its capacity as
Agent under the Credit Agreement, and (iii) the Borrower shall have paid all
accrued and unpaid fees payable to the Resigning Agent under the Credit
Agreement.
On the Effective Date, the Borrower shall execute and deliver to the
Successor Agent a signed counterpart of a letter agreement dated the date
hereof pertaining to the payment of agency fees to the Successor Agent and
shall pay to the Successor Agent any agency fees then due thereunder.
Effective as of the Effective Date, such letter agreement shall replace the
existing Agent Fee Letter and be deemed the Agent Fee Letter for all purposes
of the Credit Agreement and the other Credit Documents.
On and after the Effective Date, all notices and payments to the Agent under
the Credit Agreement shall be directed to the Successor Agent in accordance
with the following notice and payment information:
27
<PAGE>
BANK OF AMERICA, N.A.,
as Agent
Notices for Borrowing, Conversions/Continuations, and Payments:
Bank of America, N.A.
Agency Administrative Services #5596
Mail Code: CA4-706-05-09
1850 Gateway Boulevard, 5th Floor
Concord, CA 94520
Attention: Irene Ruddell
Telephone (925) 675-8441
Facsimile: (925) 969-2829
OTHER NOTICES:
Bank of America, N.A.
Diversified Industries #9994
Mail Code: CA5-705-41-89
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Kevin Leader
Telephone (415) 622-8168
Facsimile: (415) 622-2385
AGENT'S PAYMENT OFFICE:
Bank of America, N.A.
1850 Gateway Boulevard
Concord, CA 94520
Attention: Agency Administrative Services #5596
Reference: BMHC
For credit to Bancontrol Acct. No. 12335-17996
Each Bank represents and warrants to the Successor Agent that the following
amounts of principal and accrued and unpaid interest are outstanding under the
Credit Agreement as of August 31, 1999:
<TABLE>
<CAPTION>
Accrued and
Bank Outstanding Loans Unpaid Interest
---- ----------------- ---------------
<S> <C> <C>
Bank of America, N.A. $21,719,160.00 $154,644.16
============== ===========
Keybank National Association $26,062,992.00 $185,572.99
============== ===========
Wells Fargo Bank, National Association $30,406,824.00 $216,501.82
============== ===========
U.S. Bank National Association $30,406,824.00 $216,501.82
============== ===========
</TABLE>
28
<PAGE>
Except as expressly set forth herein, the Resigning Agent makes no
representations or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or any other
instrument or document furnished pursuant thereto. The Resigning Agent makes no
representation or warranty in connection with, and assumes no responsibility
with respect to, the solvency, financial condition or statements of the
Borrower, or the performance or observance by the Borrower, of any of its
respective obligations under the Credit Agreement or any other instrument or
document furnished in connection therewith.
The Successor Agent (i) acknowledges that it has received a copy of the
Credit Agreement and the Schedules and Exhibits thereto and such other
documents and information as it has deemed appropriate to make its own credit
and legal analysis and decision to become the Agent under the Credit
Agreement; and (ii) agrees that it will, independently and without reliance
upon the Resigning Agent and based on such documents and information as it
shall deem appropriate at the time, make its own credit and legal decisions
in taking or not taking action in its capacity as Agent under the Credit
Agreement.
REPLACEMENT OF ISSUING BANK. Effective as of the Effective Date,
Bank of America shall replace Wells Fargo Bank as Issuing Bank under the
Credit Agreement. On the Effective Date, Wells Fargo Bank shall be discharged
from its duties and obligations as Issuing Bank under the Credit Agreement
and Bank of America shall succeed to and become vested with all the rights,
powers, privileges and duties of the Issuing Bank under the Credit Agreement.
The Borrower and the Banks hereby consent to such replacement of the Issuing
Bank. On and after the Effective Date, all notices to the Issuing Bank under
the Credit Agreement shall be directed to Bank of America in accordance with
the following notice information:
BANK OF AMERICA, N.A.,
as Issuing Bank
ADDRESS FOR NOTICES:
Bank of America, N.A.
Trade Operations Center #22621
Mail Code: CA9-703-19-23
333 So. Beaudry Ave., 19th Floor
Los Angeles, CA 90017
Attention: Sandra Leon
Telephone (213) 345-5231
Facsimile: (213) 345-6694
CONDITIONS OF EFFECTIVENESS. The effectiveness of this Amendment shall be
subject to the satisfaction of each of the following conditions precedent:
29
<PAGE>
CONSENT OF GUARANTOR. The Successor Agent shall have received a Consent of
Guarantor (the "Guarantor Consent") in the form attached hereto duly executed by
the Parent, consenting to the amendments and agency succession contemplated by
this Amendment;
DOCUMENTS AND ACTION RELATING TO COLLATERAL. The Parent shall have (i)
pledged the capital stock of BMHC Framing, Inc. to the Successor Agent
pursuant to a Pledge Agreement in substantially the form of Exhibit A hereto
(the "BMHC Framing Pledge Agreement"), (ii) executed and delivered to the
Successor Agent stock transfer powers executed in blank and such UCC-1
financing statements (as furnished by the Successor Agent) in each
jurisdiction in which such filing is necessary to perfect the security
interest of the Successor Agent in the pledged collateral, and (iii)
delivered such other items as reasonably requested by the Successor Agent in
connection with the foregoing, including search reports and other
certificates and documents.
ADDITIONAL CLOSING DOCUMENTS AND ACTIONS. The Successor Agent shall have
received the following, in form and substance satisfactory to it and the
Banks:
(e) a certificate of a Responsible Officer of the Borrower, stating
that (A) the representations and warranties contained in Section 7 are
true and correct on and as of the Effective Date as though made on and
as of the Effective Date, and (B) on and as of the Effective Date,
after and giving effect to the amendment of the Credit Agreement
contemplated hereby, no Default shall have occurred and be continuing;
and
(f) a certificate of a Responsible Officer of the Guarantor, stating that
the representations and warranties contained in Section 5 of the
Guaranty are true and correct on and as of the Effective Date as though
made on and as of such date; and
CORPORATE DOCUMENTS. The Successor Agent shall have received the following, in
form and substance satisfactory to it:
(g) a certificate of the Secretary or Assistant Secretary of the Borrower,
dated the Effective Date, certifying (A) copies of the resolutions of
the Board of Directors of the Borrower authorizing the execution,
delivery and performance of this Amendment and (B) the incumbency,
authority and signatures of each officer of the Borrower authorized to
execute and deliver this Amendment;
(h) a certificate of the Secretary or Assistant Secretary of the Guarantor,
dated the Effective Date, certifying (A) copies of the resolutions of
the Board of Directors of the Guarantor authorizing the execution,
delivery and performance of the Guarantor Consent and the BMHC Framing
Pledge Agreement and (B) the incumbency, authority and signatures of
each officer of the Guarantor authorized to execute and deliver the
Guarantor Consent and the BMHC Framing Pledge Agreement; and
30
<PAGE>
MATERIAL ADVERSE EFFECT. On and as of the Effective Date, there shall have
occurred no Material Adverse Effect since the date of this Amendment.
REPRESENTATIONS AND WARRANTIES; NO DEFAULT. On the Effective Date, after giving
effect to the amendment of the Credit Agreement contemplated hereby:
(i) the representations and warranties contained in Section 7 shall be true
and correct on and as of the Effective Date as though made on and as of
such date; and
(j) no Default shall have occurred and be continuing.
COMMITMENT FEES; RESIGNING AGENT COSTS AND EXPENSES. The Borrower shall have
paid to the Resigning Agent (i) all unpaid Commitment Fees accrued to (but not
including) the Effective Date, and (ii) all unpaid costs and expenses payable to
the Resigning Agent by the Borrower under the Credit Agreement which are owing
to the Resigning Agent as of the Effective Date.
ADDITIONAL DOCUMENTS. The Successor Agent shall have received, in form and
substance satisfactory to it, such additional approvals, opinions, documents
and other information as the Successor Agent or any Bank (through the
Successor Agent) may reasonably request.
REPRESENTATIONS AND WARRANTIES. To induce the Banks to enter
into this Amendment, the Borrower hereby confirms and restates, as of the date
hereof, the representations and warranties made by it in Section 4.01 of the
Credit Agreement and in the other Credit Documents. For the purposes of this
Section 7, (i) each reference in Section 4.01 of the Credit Agreement to "this
Agreement," and the words "hereof," "herein," "hereunder," or words of like
import in such Section, shall mean and be a reference to the Credit Agreement as
amended by this Amendment, and each reference in such Section to "the Credit
Documents" shall mean and be a reference to the Credit Documents as amended as
contemplated hereby, (ii) Section 4.01(h) of the Credit Agreement shall be
deemed instead to refer to the last day of the most recent fiscal quarter and
fiscal year for which financial statements have then been delivered, and (iii)
any representations and warranties which relate solely to an earlier date shall
not be deemed confirmed and restated as of the date hereof (PROVIDED that such
representations and warranties shall be true, correct and complete as of such
earlier date). The Borrower further represents and warrants to the Successor
Agent and the Banks that (A) no Revolver Extension Request has been delivered by
the Borrower pursuant to Section 2.01(h) of the Credit Agreement and that the
scheduled Revolving Loan Maturity Date remains February 28, 2000, and (B) no
Letters of Credit or Letter of Credit Agreements are outstanding under the
Credit Agreement and no Request for Letter of Credit is currently pending.
CONSENT TO CREDIT AGREEMENT DATED AS OF AUGUST 24, 1999.
Subject to the following proviso, the Resigning Agent, the Successor Agent and
each Bank hereby acknowledges and consents to the execution and delivery by the
Parent, the Company and certain Subsidiaries of the Parent of that certain
Credit Agreement dated as of August 24, 1999, among the Parent, the Borrower and
certain other Subsidiaries of the Parent, as guarantors, the lenders party
thereto, and Bank of America, as administrative agent for such lenders, PROVIDED
that there shall be no borrowings made or letters of credit issued thereunder
until such time as all amounts due under the Credit Agreement (as defined in the
recitals hereof) have been paid in full, the
31
<PAGE>
Borrower is not obligated with respect to any Letters of Credit, and all
Commitments have been terminated.
MISCELLANEOUS.
32
<PAGE>
NOTICE. The Successor Agent shall notify the Borrower , the Guarantor and the
Banks of the occurrence of the Effective Date.
CREDIT AGREEMENT OTHERWISE NOT AFFECTED. Except as expressly amended pursuant
hereto, the Credit Agreement shall remain unchanged and in full force and
effect and is hereby ratified and confirmed in all respects. The Banks', the
Resigning Agent's and the Successor Agent's execution and delivery of, or
acceptance of, this Amendment and any other documents and instruments in
connection herewith (collectively, the "Amendment Documents") shall not be
deemed to create a course of dealing or otherwise create any express or
implied duty by any of them to provide any other or further amendments,
consents or waivers in the future.
NO RELIANCE. The Borrower hereby acknowledges and confirms to the Resigning
Agent, the Successor Agent and the Banks that the Borrower is executing this
Amendment and the other Amendment Documents on the basis of its own
investigation and for its own reasons without reliance upon any agreement,
representation, understanding or communication by or on behalf of any other
Person.
COSTS AND EXPENSES. The Borrower agrees to pay to the Resigning Agent and the
Successor Agent on demand their respective reasonable out-of-pocket costs and
expenses, and the reasonable fees and disbursements of their respective
counsel (including allocated costs of internal counsel), in connection with
the negotiation, preparation, execution and delivery of this Amendment and
any other documents to be delivered in connection herewith.
BINDING EFFECT. This Amendment shall be binding upon, inure to the benefit of
and be enforceable by the Borrower, the Resigning Agent, the Successor Agent
and each Bank and their respective successors and assigns.
GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
COMPLETE AGREEMENT; AMENDMENTS. This Amendment, together with the other
Amendment Documents and the other Credit Documents, contains the entire and
exclusive agreement of the parties hereto and thereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
commitments, drafts, communications, discussion and understandings, oral or
written, with respect thereto. This Amendment may not be modified, amended or
otherwise altered except in accordance with the terms of Section 8.04 of the
Credit Agreement.
SEVERABILITY. Whenever possible, each provision of this Amendment shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Amendment shall be
prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so
33
<PAGE>
modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this
Amendment, or the validity or effectiveness of such provision in any other
jurisdiction.
COUNTERPARTS. This Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
INTERPRETATION. This Amendment and the other Amendment Documents are the
result of negotiations between and have been reviewed by counsel to the
Resigning Agent, the Successor Agent, the Borrower and other parties, and are
the product of all parties hereto. Accordingly, this Amendment and the other
Amendment Documents shall not be construed against any of the Banks, the
Resigning Agent or the Successor Agent merely because of the Resigning
Agent's, the Successor Agent's or any Bank's involvement in the preparation
thereof.
CREDIT DOCUMENTS. This Amendment and the other Amendment Documents shall
constitute Credit Documents.
[Signature pages follow.]
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of
the date first above written.
THE BORROWER
BMC WEST CORPORATION
By:_________________________________
Title:
THE RESIGNING AGENT
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By:_________________________________
Title:
THE SUCCESSOR AGENT
BANK OF AMERICA, N.A. (formerly
known as Bank of America National Trust
and Savings Association)
By:_________________________________
Title:
THE BANKS
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as a Bank
By:__________________________________
Title:
BANK OF AMERICA, N.A. (formerly
known as Bank of America National Trust
and Savings Association), as a Bank
By:_________________________________
Title:
U.S. BANK NATIONAL ASSOCIATION
By:_________________________________
Title:
35
<PAGE>
KEYBANK NATIONAL ASSOCIATION
By:_________________________________
Title:
36
<PAGE>
CONSENT AND AGREEMENT OF GUARANTOR
The undersigned, in its capacity as a guarantor, acknowledges that its consent
to the foregoing Amendment No. 2 to Third Amended and Restated Credit Agreement
and Agency Substitution Agreement (the "AMENDMENT") is not required, but the
undersigned nevertheless does hereby consent to the foregoing Amendment and to
the documents and agreements referred to therein (including but not limited to
the agreement to increase the Total Commitment to $145,000,000 on the Effective
Date of the Amendment). Nothing herein or in the Amendment shall in any way
limit any of the terms or provisions of the Continuing Guaranty of the
undersigned in the Agent's and the Banks' favor, or any other Credit Document
executed by the undersigned (as the same may be amended from time to time), all
of which are hereby ratified and affirmed in all respects.
GUARANTOR:
BUILDING MATERIALS HOLDING
CORPORATION
By:_________________________________
Title:
37
<PAGE>
Annex A
to Amendment No. 2 to Third Amended and Restated Credit Agreement
and Agency Substitution Agreement
"FEDERAL FUNDS RATE" shall mean, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York with respect to
the preceding Business Day opposite the caption "Federal Funds (Effective)"; or,
if for any relevant day such rate is not so published with respect to any such
preceding Business Day, the rate for such day will be the arithmetic mean as
determined by the Agent of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by
each of three leading brokers of Federal funds transactions in New York City
selected by the Agent.
"LIBO RATE" shall mean, for any Interest Period, with respect to
Revolving LIBOR Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward to the next 1/16th of 1%) determined by the
Agent as follows:
LIBOR
LIBO Rate = --------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect
on such day (whether or not applicable to any Bank) under
regulations issued from time to time by the Federal Reserve
Board for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"); and
"LIBOR" means: (i) the rate of interest per annum determined
by the Agent to be the rate of interest per annum (rounded
upward to the nearest 1/100th of 1%) appearing on Dow Jones
Page 3750 (as defined below) for Dollar deposits in the
approximate amount of the Revolving LIBOR Loan to be made,
continued or converted by Bank of America, N.A. ("BofA") and
having a maturity comparable to such Interest Period, at
approximately 11:00 a.m. (London time) two Business Days prior
to the commencement of such Interest Period, subject to clause
(ii) below; or (ii) if for any reason the rate is not
available as provided in the preceding clause (i) of this
definition, "LIBOR" instead means the rate of interest per
annum determined by the Agent to be the arithmetic mean
(rounded upward to the nearest 1/16th of 1%) of the rates of
interest per annum notified to the Agent by BofA as the rate
of interest at which Dollar deposits in the approximate amount
of the Revolving LIBOR Loan to be made, continued or converted
by BofA, and having a maturity comparable to such Interest
Period, would be offered to major banks in the London
interbank market at their request at approximately 11:00 a.m.
(London time) two Business Days prior to the commencement of
such
38
<PAGE>
Interest Period. As used in this definition, "Dow Jones
Page 3750" means the display designated as "3750" on the Dow
Jones Market Service (formerly known as the Telerate Service)
or any replacement page thereof or successor thereto.
The LIBO Rate shall be adjusted automatically as to all
Revolving LIBOR Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"PRIME RATE" shall mean, for any day; the rate of interest in effect
for such day as publicly announced from time to time by BofA as its prime rate
or reference rate. (The prime rate or reference rate is a rate set by BofA based
upon various factors including BofA's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate.) Any change
in the prime rate or reference rate announced by BofA shall take effect at the
opening of business on the day specified in the public announcement of such
change.
"SCHEDULED REDUCTION DATE" means November 30, 1999.
39
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 7,266
<SECURITIES> 0
<RECEIVABLES> 128,611
<ALLOWANCES> 3,840
<INVENTORY> 87,812
<CURRENT-ASSETS> 224,860
<PP&E> 199,573
<DEPRECIATION> 49,743
<TOTAL-ASSETS> 454,561
<CURRENT-LIABILITIES> 78,183
<BONDS> 167,433
0
0
<COMMON> 13
<OTHER-SE> 198,829
<TOTAL-LIABILITY-AND-EQUITY> 454,561
<SALES> 760,345
<TOTAL-REVENUES> 760,345
<CGS> 572,264
<TOTAL-COSTS> 725,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,254
<INCOME-PRETAX> 30,120
<INCOME-TAX> 11,596
<INCOME-CONTINUING> 18,524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,524
<EPS-BASIC> 1.46
<EPS-DILUTED> 1.45
</TABLE>
