Builders FirstSource, Inc. - Quarter Report: 2012 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended June 30, 2012

OR

For the transition period from            to            

Commission File Number 0-51357

BUILDERS FIRSTSOURCE, INC.

(Exact name of registrant as specified in its charter)

(214) 880-3500

(Registrant’s telephone number, including area code)

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 months (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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the issuer’s common stock, par value $0.01, outstanding as of July 31, 2012 was 96,700,935.

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BUILDERS FIRSTSOURCE, INC.

Index to Form 10-Q

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PART I — FINANCIAL INFORMATION

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

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BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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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, 2011 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, 2011 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, 2011 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 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 1.3 million and 1.8 million restricted stock shares excluded from the computations of basic EPS for the three and six months ended June 30, 2012 and 2011, respectively, because we generated a net loss. For the purpose of computing diluted EPS, options to purchase 5.7 million and 5.8 million shares of common stock were not included in the computations of diluted EPS for the three and six months ended June 30, 2012 and 2011, respectively, because their effect was anti-dilutive. Warrants to purchase 1.6 million shares of common stock were not included in the computation of diluted EPS for the three and six months ended June 30, 2012 because their effect was anti-dilutive. No warrants were outstanding in the three and six months ended June 30, 2011.

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3. Debt

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

We issued detachable warrants in connection with the term loan entered into in 2011. These warrants, which allow for the purchase of up to 1.6 million shares of our common stock at a price of $2.50 per share, were exercisable immediately upon issuance and expire in December 2018.

In the past, we entered into interest rate swaps in order to mitigate a portion of the interest rate risk that we were exposed to in the normal course of business on our floating rate notes. We had two interest rate swap agreements with notional amounts of $100 million and $50 million, which expired in May 2011.

The only financial instruments measured at fair value on a recurring basis were our warrants and the expired interest rate swaps.

The table below presents the effect of our derivative financial instruments on the condensed consolidated statements of operations for the three and six months ended June 30 (in thousands):

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.

We do not trade in swaps or hold them for speculative purposes, therefore, the retail market that exists for swaps would have been the most advantageous market for our interest rate swaps. As such, we used the market approach to value our interest rate swaps by obtaining a quote from the counterparty that was based on a discounted cash flow analysis which incorporated information obtained from third-party market sources and was adjusted for company specific credit risk. We validated the fair value quote obtained from the counterparty by using an independent, third-party discounted cash flow analysis which also utilized market information. In addition to the term and notional amount inputs, the valuation also factored in discount rate, forward yield curves, and credit risk.

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

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

We have elected to continue to report the value of our term loan and floating rate notes at amortized cost. The fair value of the floating rate notes at June 30, 2012 was approximately $128.5 million and was determined using Level 2 inputs based on market prices. The carrying value of the term loan at June 30, 2012 approximates fair value as the term loan agreement contains a variable interest rate and the value of qualified cash and specified collateral exceeded the minimum value required per the agreement. As such, the fair value measurement of the term loan was also classified as Level 2 in the hierarchy.

4. Comprehensive Loss

The following table presents the components of comprehensive loss for the three and six months ended June 30, 2012 and 2011 (in thousands):

5. Facility Closure Costs

During the second quarter of 2011, we closed a distribution facility in Georgia which had been idled since 2008. This facility was closed due to the continued depressed market conditions, the housing recovery taking longer than originally anticipated, our success in finding a subtenant to partially offset our remaining future lease obligations, and our ability to adequately service our customers from other existing locations in the market. In the second quarter of 2011, we recognized $1.9 million in facility closure costs which are primarily related to the future minimum lease obligations on this facility, net of estimated sub-rental lease income. The facility and other exit cost reserves of $2.6 million at June 30, 2012, of which $1.9 million is recorded as other long-term liabilities, are primarily related to future minimum lease obligations on vacated facilities.

In situations where multiple facilities serve the same market we may temporarily close, or idle, facilities with plans to reopen these facilities once demand returns to the market. Should conditions in our markets worsen, or recovery take significantly longer than forecasted, we may temporarily idle or permanently close additional facilities, at which time we may incur additional facility closure costs or asset impairment charges. Future non-cash impairment charges would have the effect of decreasing our earnings or increasing our losses in such period, but would not impact our current outstanding debt obligations or compliance with covenants contained in the related debt agreements.

6. Income Taxes

In accordance with the Income Taxes topic of the Codification, we evaluate our deferred tax assets quarterly to determine if a valuation allowance is required. The Income Taxes topic requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence. During the three and six months ended June 30, 2012, we recorded valuation allowances of $4.3 million and $11.3 million against the net deferred tax assets generated from the net losses during the periods related to our continuing operations. During the three and six months ended June 30, 2011, we recorded a valuation allowance of $6.8 million and $14.9 million against the net deferred tax assets generated from the net losses during the periods related to our continuing operations. In connection with the expiration of our interest rate swaps during 2011, we reclassified $1.3 million of valuation allowance from accumulated other comprehensive loss to income tax expense for the six months ended June 30, 2011.

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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 is recorded, our effective tax rate may decrease as the valuation allowance is reversed. However, to the extent we generate future operating losses, we would be required to increase the valuation allowance on our net deferred tax assets and our income tax expense will be adversely affected.

7. 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.

8. Segment and Product Information

We have three regional operating segments — Atlantic, Southeast and Central — with centralized financial and operational oversight. We believe that these operating segments meet the aggregation criteria prescribed in the Segment Reporting topic of the Codification, and thus have one reportable segment.

Sales by product category for the three and six month periods ended June 30, 2012 and 2011 were as follows (in thousands):

9. Recent Accounting Pronouncements

There were no new accounting pronouncements or changes to existing guidance that were applicable to us.

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The following discussion of our financial condition and results of operations should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the year ended December 31, 2011 included in our most recent annual report on Form 10-K. The following discussion and analysis should also be read in conjunction with the unaudited condensed consolidated financial statements appearing elsewhere in this report. In this quarterly report on Form 10-Q, 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.

Cautionary Statement

Statements in this report which are not purely historical facts or which necessarily depend upon future events, including statements regarding our 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. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake 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 made in this report 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. Readers are cautioned not to place undue reliance on these forward-looking statements. In addition, oral statements made by our directors, officers and employees to the investor and analyst communities, media representatives and others, depending upon their nature, may also constitute forward-looking statements. As with the forward-looking statements included in this report, these forward-looking statements are by nature inherently uncertain, and actual results may differ materially as a result of many factors. Further information regarding the risk factors that could affect our financial and other results are included as Item 1A of our annual report on Form 10-K.

COMPANY OVERVIEW

We are a leading supplier and manufacturer of structural and related building products for residential new construction in the U.S. We offer an integrated solution to our customers providing manufacturing, supply and installation of a full range of structural and related building products. Our manufactured products include our factory-built roof and floor trusses, wall panels and stairs, aluminum and vinyl windows, custom millwork and trim, as well as engineered wood that we design and cut for each home. We also assemble interior and exterior doors into pre-hung units. Additionally, we supply our customers with a broad offering of professional grade building products not manufactured by us, such as dimensional lumber and lumber sheet goods, various window, door and millwork lines, as well as cabinets, roofing and gypsum wallboard. Our full range of construction-related services includes professional installation, turn-key framing and shell construction, and spans all our product categories.

We group our building products into five product categories:

Our operating results are dependent on the following trends, events and uncertainties, some of which are beyond our control:

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CURRENT OPERATING CONDITIONS AND OUTLOOK

Though the level of housing starts remains near historic lows, the homebuilding industry has shown moderate improvements in recent quarters. According to the U.S. Census Bureau, the annualized rate for U.S. single-family housing starts at June 30, 2012 was 539,000, a 21.7% improvement from one year ago but approximately 63% lower than when the downturn began in 2006. For the current quarter, actual U.S. single-family housing starts were 152,200, a 23.3% increase compared to the second quarter of 2011. Actual single-family housing starts in the South Region, as defined by the U.S. Census Bureau and which encompasses our entire geographic footprint, increased to 77,400 in the current quarter, up 21.3% from the second quarter of 2011. The housing industry continues to struggle due to the limited availability of credit to smaller homebuilders and potential homebuyers, a slow economic recovery, excess home inventory and high unemployment rates, among other factors. The National Association of Homebuilders (“NAHB”) is forecasting 519,000 U.S. single-family housing starts for 2012, which is up approximately 19.4% from 2011, but still well below historical averages.

Our sales for the second quarter of 2012 were up 31.7% over the same period last year. We believe our broad offering of building products and construction services represents a value proposition to our customers that is superior to that of our competitors. We believe this allowed us to increase our sales volume at a rate in excess of the increase in residential new construction activity during the current quarter, as we gained market share by expanding our customer base and promoting our wide array of products and services to existing and new customers. However, our gross margin percentage decreased by 1.0 percentage point during the second quarter of 2012 compared to the second quarter of 2011. Our gross margin percentage decreased 1.7 percentage points primarily due to commodity lumber inflation relative to customer pricing commitments, which was partially offset by a 0.7 percentage point gross margin improvement due to increased sales volume. We have continued to manage our operating expenses with a key focus on conserving liquidity. Our selling, general and administrative expenses, as a percentage of sales, decreased 3.5% in the quarter compared to the same period a year ago. We have made significant changes to our business during the recent downturn that have improved our operating efficiency and allowed us to better leverage our operating costs against changes in sales. The continued execution of our cost containment strategies along with our improved operating results contributed to us ending the quarter with $70.1 million of liquidity, consisting of $105.1 million of cash reduced by the $35.0 million minimum cash requirement in our term loan.

We still believe that the long-term outlook for the housing industry is positive due to growth in the underlying demographics. We believe we are well-positioned to take advantage of any construction activity in our markets and to continue to increase our market share. We will continue to focus on working capital by closely monitoring our credit exposure with our customers and by working with our vendors to improve our payment terms and pricing on our products. We will also continue to work diligently to achieve the appropriate balance of short-term cost reductions while maintaining the expertise to grow the business as market conditions improve. We want to create long-term shareholder value and avoid taking steps that will limit our ability to compete.

SEASONALITY AND OTHER FACTORS

Our first and fourth quarters have historically been, and are expected to continue to be, adversely affected by weather patterns in some of our markets, resulting in reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following:

The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables. Working capital levels typically increase in the second and third quarters of the year due to higher sales during the peak residential construction season. These increases have in the past resulted in negative operating cash flows during this peak season,

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which historically have been financed through available cash. Collection of receivables and reduction in inventory levels following the peak building and construction season have in the past positively impacted cash flow. In the past, we have also utilized borrowing availability under credit facilities to cover working capital needs.

RESULTS OF OPERATIONS

The following table sets forth, for the three and six months ended June 30, 2012 and 2011, the percentage relationship to sales of certain costs, expenses and income items:

Three Months Ended June 30, 2012 Compared with the Three Months Ended June 30, 2011

Sales. Sales for the three months ended June 30, 2012 were $271.9 million, a 31.7% increase from sales of $206.4 million for the three months ended June 30, 2011. We achieved this increase in sales despite actual U.S. single-family housing starts increasing only 23.3% in the second quarter of 2012 as compared to the second quarter of 2011. In the South Region, actual single-family housing starts increased 21.3% during the second quarter of 2012 compared to the same quarter a year ago. We achieved increased sales volume across all product categories, as we continued to expand our customer base while increasing our sales to existing customers. We estimate that our sales volume increased approximately 29%, while commodity price inflation resulted in an additional 3% increase in sales during the current quarter compared to the same quarter a year ago. Commodity prices for lumber and lumber sheet goods were on average 24.8% higher in the current quarter compared to the same period a year ago.

The following table shows sales classified by product category (dollars in millions):

Gross Margin. Gross margin increased $10.9 million to $53.7 million. Our gross margin percentage was 19.7% in the current quarter, a 1.0 percentage point decrease from 20.7% in the second quarter of 2011. Our gross margin percentage decreased 1.7 percentage points primarily due to commodity lumber price inflation in the current quarter relative to quarterly customer pricing commitments, as higher than expected sales volume resulted in us replacing inventory during the latter half of the current quarter at higher costs. However, the decrease was partially offset by a 0.7 percentage point gross margin improvement due to increased sales volume and our ability to leverage fixed costs in cost of goods sold.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $6.0 million, or 12.2%. Our salaries and benefits expense, excluding stock compensation expense, was $34.0 million, an increase of $6.0 million from the second quarter of 2011. The increase in salaries and benefits expense, excluding stock compensation expense, was primarily related to higher sales commissions and additional staffing needs to service the increased sales volume.

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As a percentage of sales, selling, general and administrative expenses decreased from 23.7% in 2011 to 20.2% in 2012. As a percentage of sales, salaries and benefits expense, excluding stock compensation expense, decreased 1.1%, office general and administrative expense decreased 0.7%, and delivery costs decreased by 1.1%. We continue to monitor our operating cost structure closely and make adjustments as necessary.

Interest Expense, Net. Interest expense was $10.5 million in the second quarter of 2012, an increase of $4.8 million from the second quarter of 2011. The increase was primarily due to $4.7 million of interest expense on our term loan agreement entered into during the fourth quarter of 2011 and $0.6 million of non-cash, fair value adjustments on the warrants issued as part of the term loan. These increases were partially offset by $0.3 million of non-cash, fair value adjustments in the second quarter of 2011 on our interest rate swaps, which expired during the second quarter of 2011.

Income Tax Expense. We recorded income tax expense of $0.1 million and $1.7 million during the three months ended June 30, 2012 and 2011, respectively. We recorded an after-tax, non-cash valuation allowance of $4.3 million and $6.8 million, in 2012 and 2011, respectively, related to our net deferred tax assets. Absent this valuation allowance, our effective tax rate would have been 34.9% and 37.5% in 2012 and 2011, respectively.

Six Months Ended June 30, 2012 Compared with the Six Months Ended June 30, 2011

Sales. Sales for the six months ended June 30, 2012 were $491.3 million, a 33.1% increase from sales of $369.2 million for the six months ended June 30, 2011. We achieved this increase in sales despite actual U.S. single-family housing starts increasing only 20.9% in the first six months of 2012 as compared to the first six months of 2011. In the South Region, actual single-family housing starts increased 20.3% compared to a year ago. We achieved increased sales volume across all product categories, as we continued to expand our customer base while increasing our sales to existing customers. We estimate that our sales volume increased approximately 31%, while commodity price inflation resulted in an additional 2% increase in sales during the first six months of 2012 compared to the same time period a year ago. Commodity prices for lumber and lumber sheet goods were on average 11.0% higher in the first six months of 2012 compared to the first six months of 2011.

The following table shows sales classified by product category (dollars in millions):

Gross Margin. Gross margin increased $24.5 million to $98.8 million. Our gross margin percentage was 20.1% in the first six months of 2012, which is consistent with our gross margin percentage for the same period in 2011. Our gross margin percentage decreased 0.8 percentage points primarily due to commodity lumber price inflation in the second quarter of 2012 relative to quarterly customer pricing commitments, as higher than expected sales volume in the second quarter of 2012 resulted in us replacing inventory during the latter half of the quarter at higher costs. However, the decrease was offset by a gross margin improvement due to increased sales volume and our ability to leverage fixed costs in cost of goods sold.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $10.1 million, or 10.6%. Our salaries and benefits expense, excluding stock compensation expense, was $65.1 million, an increase of $10.6 million from the first six months of 2011. This increase was primarily due to higher sales commissions and additional staffing needs to service the increased sales volume. Delivery expense increased $0.9 million as compared to the first six months of 2011, primarily due to fuel costs related to higher prices and increased sales volume. Our office general and administrative expense decreased $1.0 million from the first six months of 2011, primarily due to a reduction in professional service fees.

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As a percentage of sales, selling, general and administrative expenses decreased from 25.9% in 2011 to 21.5% in 2012. As a percentage of sales, salaries and benefits expense, excluding stock compensation expense, decreased 1.5%, office general and administrative expense decreased 0.9%, and delivery costs decreased by 1.1%. We continue to monitor our operating cost structure closely and make adjustments as necessary.

Interest Expense, Net. Interest expense was $23.6 million in the first six months of 2012, an increase of $12.0 million from the same period in 2011. The increase was primarily due to $9.3 million of interest expense on our term loan agreement entered into during the fourth quarter of 2011 and $3.7 million of non-cash, fair value adjustments on the warrants issued as part of the term loan. These increases were partially offset by $0.8 million of non-cash, fair value adjustments in the first six months of 2011 on our interest rate swaps, which expired during the second quarter of 2011.

Income Tax Expense. We recorded income tax expense of $0.3 million and $1.6 million during the six months ended June 30, 2012 and 2011, respectively. We recorded an after-tax, non-cash valuation allowance of $11.3 million and $14.9 million, in 2012 and 2011, respectively, related to our net deferred tax assets. Absent this valuation allowance, our effective tax rate would have been 35.7% and 38.1% in 2012 and 2011, respectively.

LIQUIDITY AND CAPITAL RESOURCES

In December 2011, we entered into a $160.0 million first-lien term loan and a stand-alone letter of credit facility, which provides up to $20.0 million of letters of credit. Our term loan contains financial covenants, which include maintaining a minimum amount of qualified cash and specified collateral value. Qualified cash is defined as the amount of unrestricted cash and cash equivalents held in deposit or securities accounts which are subject to control agreements in favor of our lenders. Qualified cash must be at least $35.0 million at all times. Specified collateral value is defined as the amount of qualified cash at such time, plus accounts receivable and inventory which meet specified criteria within the term loan agreement. The minimum specified collateral value must equal at least $160 million during the period from March 2 through October 31 of each year and at least $150 million during the balance of the year. The following table shows our qualified cash and specified collateral value as of June 30, 2012 and December 31, 2011 (in thousands):

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Our liquidity at June 30, 2012 was $70.1 million, which includes $105.1 million in cash, reduced by the $35.0 million minimum qualified cash requirement in our term loan. Our liquidity at June 30, 2012 was in line with expectations and our cash usage for fiscal 2012 is still expected to be in the range of $45-$55 million.

In addition to the $105.1 million of cash, we also had $14.4 million in restricted cash at June 30, 2012, of which $1.8 million was included in other long-term assets on the balance sheet. Restricted cash consists of the $13.5 million used to collateralize letters of credit outstanding under the new letter of credit facility and $0.9 million provided as collateral for other casualty insurance obligations. In the first quarter of 2012, we cancelled $2.2 million of letters of credit outstanding under our 2007 revolving credit facility (“2007 Agreement”), which was terminated in December 2011, and reissued them under our new letter of credit facility. In the current quarter, we cancelled the remaining $10.6 million letter of credit outstanding under the 2007 Agreement and reissued it under our new letter of credit facility. At June 30, 2012, we were not in violation of any covenants or restrictions imposed by any of our debt agreements.

Consolidated Cash Flows

Cash used in operating activities was $37.8 million and $38.8 million for the six months ended June 30, 2012 and 2011, respectively. Of the cash used in operating activities, approximately $17.8 million and $13.8 million were due to increases in working capital in the six months ended June 30, 2012 and 2011, respectively. Cash interest payments were $19.0 million and $12.6 million for the six months ended June 30, 2012 and 2011, respectively. The remaining cash used in operating activities was primarily to fund net operating losses.

During the six months ended June 30, 2012 and 2011, cash used in investing activities was $3.3 million and $1.3 million, respectively. The increase was primarily due to a $2.4 million increase in capital expenditures related to investments in manufacturing equipment and buyouts of expiring vehicle and equipment leases in the current year.

Cash used in financing activities for the six months ended June 30, 2012 increased $0.7 million as compared to the six months ended June 30, 2011. The increase was primarily due to the repurchase of our common stock related to restricted stock tendered in order to meet minimum withholding tax requirements for shares vested and payments of deferred loan costs related to the term loan.

RECENT ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements or changes to existing guidance that were applicable to us.

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We may experience changes in interest expense when market interest rates change. LIBOR rates on our term loan are subject to a 2% floor and LIBOR rates on our floating rate notes are subject to a 3% floor. Interest expense on these debt instruments would not change unless LIBOR increased to greater than 2%. Changes in our debt could also increase these risks. Based on debt outstanding and LIBOR rates at June 30, 2012, a 1.0% increase in interest rates would not result in any additional interest expense annually.

We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured products that we deliver. Short-term changes in the cost of these materials and the related in-bound freight costs, some of which are subject to significant fluctuations, are sometimes, but not always, passed on to our customers. Our delayed ability to pass on material price increases to our customers can adversely impact our operating results.

Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. The controls evaluation was conducted by our Disclosure Committee, comprised of senior representatives from our finance, accounting, internal audit, and legal departments under the supervision of our CEO and CFO.

Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are attached as exhibits to this quarterly report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, the Company’s implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this quarterly report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our quarterly reports on Form 10-Q. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, our legal department and by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis, and to maintain them as dynamic systems that change as conditions warrant.

Conclusions regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of June 30, 2012, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. During the period covered by this report, there have been no changes in our internal control over financial reporting identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

We are involved in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.

Although our business and facilities are subject to federal, state and local environmental regulation, environmental regulation does not have a material impact on our operations. We believe that our facilities are in material compliance with such laws and regulations. As owners and lessees of real property, we can be held liable for the investigation or remediation of contamination on such properties, in some circumstances without regard to whether we knew of or were responsible for such contamination. Our current expenditures with respect to environmental investigation and remediation at our facilities are minimal, although no assurance can be provided that more significant remediation may not be required in the future as a result of spills or releases of petroleum products or hazardous substances or the discovery of unknown environmental conditions.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition or future results. The risks described in our annual report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Unregistered Sales of Equity Securities

(a) None

Use of Proceeds

(b) Not applicable

Company Stock Repurchases

(c) None

(a) None

(b) None

Not applicable.

(a) None

(b) None

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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.

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