Builders FirstSource Inc (BLDR) 2008 Q3 法說會逐字稿

Good morning, and welcome to the Builders FirstSource third quarter 2008 earnings conference call. Your host for today's call is Mr. Floyd Sherman, Chief Executive Officer. At this time, all participants are in a listen-only mode and later we will conduct a question and answer session and instructions will follow at that time. Any reproduction of this call, in whole or in part, is not permitted without prior written authorization of Builders FirstSource. And as a reminder, this conference is being recorded today, October 24, 2008. I would like to turn the call over to Katie Murphree, Director of Investor Relations and Financial Reporting who will begin the call. Please go ahead.

Good morning, and thank you for joining us to discuss our third quarter 2008 financial results. We issued a press release after the market closed yesterday. If you don't have a copy, you can find it on our website at bldr.com. Before we begin, I would like to remind you that during the course of this conference call, management may make statements concerning the company's future prospects, business strategies and industry trends. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties which could cause actual results to differ materially from expectations. Please refer to most recent Form 10-K filed with the Securities and Exchange Commission and other reports filed with the SEC for more information on those risks. The company undertakes no obligation to publicly update or revise any forward-looking statements. We have provided reconciliations of non-GAAP financial measures to their GAAP equivalents in our earnings press release and detailed explanations of non-GAAP financial measures in our Form 8-K filed yesterday, both of which are available on our website. At this time, I will turn the call over to Floyd Sherman.

Thank you, Katie. Good morning and welcome to the third quarter 2008 earnings call. Joining me from our management team is Charles Horn, Senior VP and Chief Financial Officer. After I give a brief overview, I will then turn the call over the Charles who will discuss our third quarter financial results in more detail. After my closing comments regarding our outlook, we will take your questions.

The challenging conditions facing our industry persists as analyzed housing starts in September fell to 817,000 units, the lowest level since The US Census Bureau began tracking data in 1958. Further aggravating an already weakened housing market was the financial market turmoil that intensified in September as the broader credit markets, not just the mortgage markets, became virtually frozen. These challenging conditions only strengthen our commitment to our strategy and and to the long-term success of Builders FirstSource. Our operating strategy for these conditions centers on preserving liquidity, reducing operating cost and growing market share. Our cash balance was $131.2 million at the end of September, after we borrowed $60 million on $350 million revolving credit facility at the end of September. We initiated the borrowings in response to the instability in the credit market to make certain we would have ample cash liquidity for our long-term needs. We continue to reduce our operating costs in response to the declining -- to the decline in our sales volume.

Our selling, G&A expenses declined 18.9% for the quarter when compared to the year ago quarter, which is 63.9% variable to our 29.6% decline in sales volume. Additionally, by growing market share during the downturn, we have been able to partially offset the negative effects economic conditions have on our sales. We have successfully grown market share every quarter throughout the downturn. We were able to grow share in the third quarter of 2008 by 10.1%, compared to the third quarter of 2007 through outstanding customer service and by expanding our customer base. Although we are facing difficult times in our industry, we are proud of our accomplishments, strong liquidity, after more than two years of challenging conditions, reductions in operating expenses which are in line with our sales decline and market share growth. Our strategy has served us well to date and we believe that it will help us to successfully navigate this protracted downturn. With the continued decline in housing starts and general economic conditions that affect our industry, we made the decision to close two of our facilities in the third quarter. In addition, subsequent to the quarter end, we decided to exit the New Jersey market, close a small facility, and idle another facility through an in-market consolidation bringing the closures to nine facilities. We made these very difficult decisions based on not only the short-term, but also the long-term prospects of these operations in order to protect our liquidity. I will now turn the call over to Charles who will review the financial results in more detail.

Good morning, everyone. We reported sales of $288.3 million in the third quarter of 2008. That's a decrease of 30.3% compared to $413.9 million for the same period in 2007. Breaking down the sales drivers for the quarter compared to the prior year. First we estimate that housing starts within our markets declined approximately 39% compared to the same period in 2007. This decline is consistent with the decline in overall national single family starts of 39.1%. Second, lower market processes on lumber and lumber sheet goods had a slightly over a 1% negative impact on our sales compared to the third quarter of 2007. Conversely, market share gains added approximately 10 percentage points to our sales and new operations nominally added to our sales. Breaking down our product categories, prefabricated components declined 29.7% from the third quarter 2007 due to a combination of lower volumes and lower prices. Windows and doors down 28.9%. Lumber and lumber sheet goods declined 34.8% to $71.6 million. We estimate that $35.5 million of the decrease is due to lower volumes and $2.8 million due to lower prices. Mill work declined 31.7% and finally, other building products and services decreased 26%. Our sales mix was consistent between years with the exception of other building products and services, which increased to 21.4% of total sales. This category grew due to our expansion of installation services and to the multifamily and light commercial segments.

Turning to gross margin, the $39.1 million decline in gross margins was across all product categories. Our gross margin percentage was 21% in the third quarter of 2008 compared to 24.1% in the third quarter of 2007. We experienced margin compression in all of our major product categories, the most significant in our manufactured products. The impact of fixed cost within our cost of goods sold against lower sales volumes lowered our gross margins by approximately 1 percentage point. Pricing pressure on all products continued in the currently highly competitive environment, although we are seeing pricing stabilize and in some cases, improving. As the downturn persists, we may see further margin compression. Our selling, general and administrative expenses were $75.6 million, down $17.6 million from the third quarter 2007. We reduced our salaries and benefits expense by almost 22% from Q3 2007, on a sales volume decline of 29.6%, or about 73% variable. We reduced our full time equivalent headcount by 22% from the third quarter of 2007.

In an effort to reduce fixed operating costs, we closed two locations during the third quarter of 2008. Subsequent to quarter end, we announced the closure of four additional locations. These closures should improve our cash flow by estimated $5 million to $7 million in 2009. Also in October, we reduced our corporate staff by approximately 31 people. The corporate reduction should bring us additional $3 million in annualized savings. From the third quarter 2007, we were also able to reduce our office G&A expense by almost $3 million or 29% and delivery costs by $1.6 million or 9.4%. However, as a percentage of sales, delivery costs were up 120 basis points primarily due to increased fuel cost. Fuel costs increased due to higher diesel prices coupled with extended delivery distances. Our occupancy expenses were only slightly lower than third quarter of 2007 as these costs are relatively fixed in nature. Bad debt expense and other customer writeoffs were essentially consistent between quarters at $1.5 million. Credit is becoming increasingly difficult for our builder customers to assess. Accordingly, we continue to diligently pursue collection of our accounts receivable. Our bad debt expense and other customer writeoffs may reflect these difficult conditions in future quarters. During the quarter, we closed a facility in South Carolina and a facility in Ohio as a result of the continued decline in market conditions for these facilities. We recognized $4.1 million or $0.07 per share in facility closure costs which are primarily related to future minimum lease obligations on these vacated facilities. We will recognize additional facility closure costs in the fourth quarter related to locations closed after quarter ends.

Interest expense $6.1 million for the third quarter, down $400,000 from the year ago period. The decrease was primarily attributable to a decrease in the debt balance from September 2007 as well as lower interest rates during the quarter. We borrowed $60 million under our $350 million revolving credit facility at the end of September. This was done late if the quarter, therefore, the borrowing had a minimal effect on interest expense during the quarter. Income taxes, during the third quarter, we recorded an after tax evaluation allowance of $3.2 million or $0.09 per share on net deferred assets recorded during the third quarter of 2008. Excluding the impact of the valuation allowance during the third quarter, our effective tax rate was 38.3% compared to 36.7% in the year ago quarter. Net loss for the second quarter was $18.9 million or negative $0.53 per diluted share compared to a net loss of $12 million or negative $0.34 per diluted share in the same period last year. Excluding the facility closure costs and the tax valuation allowance, our diluted loss per share was $0.37 compared to $0.01 per diluted share last year, exclusive of the asset impairments. Adjusted EBITDA for the third quarter was negative $7.6 million compared to $14.6 million in the year ago quarter. Adjusted EBITDA as a percentage of sales decreased to a negative 2.6% compared to positive 3.5% last year.

Looking at our balance sheet, $131.2 million in cash at the end of September. Our liquidity, defined as cash plus net borrowing availability, was $154.5 million at quarter end. This amount is net of the $35 million minimum liquidity covenant contained in our credit agreement. We will continue our efforts to preserve liquidity in these very challenging conditions. Looking at cash flow and working capital, we used cash and operating activities during the quarter of $4.4 million due to the net operating loss which we were not able to completely offset with reductions in working capital. We did receive $8 million in income tax refunds during the quarter, and we anticipate receiving approximately $1 million additional tax refunds in the fourth quarter of 2008. Our working capital percentage excluding income tax receivables actually improved to 10.4% this year from 10.8% in the third quarter of 2007. Our day sales outstanding improved one day from last year while our accounts payable essentially remains flat. Inventory turns were slightly worse, down one turn as we took strategic inventory positions on certain products in advance of announced price increases. At September 2008, our accounts receivable balance greater than 60 days was 7% of total accounts receivable, up slightly from 6.2% in June 2008. I will now turn the call back over the Floyd for his closing comments.

The turmoil in the credit markets and resulting contraction in lending could further damage and already weakened housing market. Because of the many factors that affect our industry, it's difficult to predict when conditions will improve. But we estimate that these challenging conditions will persist through mid 2010. We will continue to provide updated housing permits and commodity price data on our website each month to help guide you through the market uncertainties. This data is summarized and based on publicly available information.

This quarter was yet another difficult quarter, but we are committed to the long-term success of Builders FirstSource. We continue to focus on our strategy which has served us well to this point with strong liquidity, a more efficient organization through implemented operating efficiencies and continued market share growth. We believe this strategy will help us weather the current downturn and make us a better company, able to take advantage of the upside when the market does turn around. We would like to point to our proven ability to cut costs and increase our operating efficiency, to preserve working capital and liquidity and to grow our market share. In order to continue with the successes in these areas, we will focus our efforts on identifying initiatives to offset declining sales, reduce head count, drive operational improvements, rationalize physical capacity and restructure underperforming locations. We will strive to maintain our market leadership and financial strength during this downturn. To achieve these identified initiatives, we will rely on the considerable strengths of our employees to continue the successful implementation of our strategy throughout the remainder of the downturn. I will now turn the call over the operator for Q&A

Thank you. (OPERATOR INSTRUCTIONS) We will first Nishu Sood at Deutsche Bank.

Thanks. First, I wanted to get some details on the drawing down on the line of credit, I just wanted to hear a little bit more about the rational, specifically, were there any concerns that you had about the banks that were involved in providing the line, or have there been any concerns on the part of your suppliers about your own liquidity position that led you to draw it down?

No, it certainly wasn't the latter, Nishu. It was a case where our lead bank is Wachovia. Obviously, everyone knows the events towards the end of September regarding Wachovia. Again, with them being an agent, we wanted to make sure that we borrowed, had the liquidity there in case there was a hiccup with Wachovia. Had they just been a participant, we wouldn't have been overly concerned. But as agents, will all money flowing through them, we thought it was beneficial to go ahead and draw the money and have it on hand. It certainly wasn't a case where we needed it, it certainly wasn't a case to beef up our balance sheet in terms of our suppliers. It was purely precautionary. I think once we see the merger go through with Wells Fargo, you will see us paid back and get rid of the negative interest arbitrage.

Got it, got it. And what might the interest impact be in the next couple of quarters?

I think the effective rate is about 5.5% on this drawing, so it would be $60million if we kept it for the full quarter at 5.5%.

Got it. And last quarter --

About $800,000.

Yes.

Last quarter you mentioned that you might get $7 million to $10 million back in interest rates -- I'm sorry, in tax refunds. So I was wondering if you can give us an update on the status of that, and what might you get this half and what might you be looking at next year?

For this year we received $7 million in the third quarter, we have an additional $1 million to be received in the fourth quarter of this year. So for 2008, we are only looking at an additional $1 million of refunds. For 2009, our best estimate right now is around $35 million of refunds, which we'll endeavor to get back in May or June of 2009.

Okay. Great, I will let others ask. Thanks a lot.

Next up from Regiment Capital, this is Walter Branson.

Hi, thanks. Actually, just a follow up on the previous fellow's questions on cash flow. So on the second quarter call, I think your full year guidance for negative cash flow implied that you would use $15 million to $25 million in the second half. You only used $4 million in the third quarter, but of course, you have those tax refunds. Is that range still good for the full second half?

I think that's correct. I think we are anticipating that Q4 could be difficult with the financial crisis that's going on. So I think we'd stay with that same guidance.

Okay. For next year, anything you can tell us beyond the tax refunds? In terms of your cash flow expectations?

No. We don't give forecasts, we always made that a point. So that's pretty much all we can disclose, would be the tax refunds.

Any comment you can make on working capital and whether you have any expectations of taking money out of working capital?

We are. I think if you look at the fourth quarter of this year we can do a little bit better on inventory. We did a very good job on DSO, we've done a very good job on accounts payable. I think we can do more on -- definitely on inventory, increase our terms a little bit. Going into next year though, I think it's going to be a challenge to maintain working capital percentage. I think there could be further pressure on DSO. Inventory is controllable, AP is more controllable, but DSO could be a little bit more difficult going into 2009.

Okay. Just so I understand the numbers, so that $4 million charge you took for closing those locations, that's basically still on the balance sheets, right? You haven't really spent that yet, right?

That's correct. It's primarily lease obligations that we'll pay out in the normal course of business over time.

So does that go into accrued liabilities and would have been factored into the change in that number?

Most of it is recorded in long-term versus the current liabilities.

Okay. Fine. Okay. In terms of the use of your cash at this point, it sounds like, tell me if I'm not right, but it sounds like at this point you're pretty much just holding cash to get you through this downturn. Is that your approach right now.

I think that's correct. You won't see us being overly inquisitive. There really is nothing on the horizon on that, to CapEx we're pulling in. We definitely will try to conserve cash is our first priority.

Okay, great. Thanks very much.

Moving on now to Jack Kasprzak at BB&T Capital Markets.

Thanks, good morning, guys.

Morning, Jack.

I wanted to ask about, I guess the issue of competition. You guys have obviously been mentioning that out in the marketplace. But I notice Woolsey recently said with regard to their stock operation in the US, they're shutting down 86 branches, exiting 16 markets. What can you tell us about this far in the housing downturn, what you're seeing on capacity in your market? Is it finally starting to exit the market at an accelerating pace? Seemed like there was a bit of a lag, and that's made things obviously -- contributed to a tough environment. But are we starting to see capacity closures, capacity exiting the market pick up?

Jack, yes, we are seeing this taking place now on an accelerated basis. I don't believe the required capacity has been eliminated to as great a degree as we think that it should be. But it certainly is accelerating on a much faster pace than what have we seen up until now. We are seeing it, obviously, from the announcements that are made by Woolsey, there have been some by 84, but we are also seeing it with a lot of smaller operations, a number of trust operations have closed. Whether this will be a permanent reduction in capacity or whether it's just moth balling, we just have to wait and see. The -- I think what we will find is that it will be probably split evenly between permanent reduction and moth balling.

Okay. Is there any way to determine -- we had 2.2 million housing starts at the peak, any way to determine what the industry -- it's moving target, of course, what the industry is -- what capacity is today versus where we were at the peak?

I really don't have any way of estimating that.

Fair enough, thank you very much.

Next up from JPMorgan, this is Michael Rehaut.

Hi, this is Jen Consoli on the line for Mike. My question with the share gains. I was wondering if you could explain what was the driver of that. Was it more on the price side, or was it -- I know you mentioned moving in to commercial markets, was that the main driver?

The commercial market initiatives and the multifamily initiatives have certainly been a significant part of it. I would also have to say that we have been price aggressive. You can always argue whether it's meeting market conditions, or whether you are taking advantage of someone else's position and trying to take business away. I think that we certainly have been aggressive in our pricing. The -- our multifamily and commercial endeavors continue to gain momentum, they are becoming a much more important part of our business. It's a business that we have to had to learn. There is certain costs that you have to put in up front, but they now appear to be really working in our favor. We will be continuing to push this out of the business. I can just tell you that there are two projects that we're currently providing materials for and also doing some labor on that exceed $5 million each in size and a lot of smaller projects that range anywhere from several hundred thousand to the $5 million in size. We are getting these projects throughout our market areas, which we are very pleased to see, because that does give us broader coverage and we are not depending upon just one area for the business.

Okay, and as a percent of the total, how big would you say this is as a percent of the total versus a couple of quarters ago?

I would say now it's probably -- and Charles, you -- correct me if I'm wrong, but I would say it's now probably approaching 8% of our total business.

Okay, great, thank you.

We have a question now from Jim Wilson, JMP Securities.

Thanks, good morning, guys. Mm main questions were on the competitive front. But I guess another -- that you already answered, but the other thing is with the builders and the major builders downsizing in the -- I think in a process of already, but certainly in the future, gaining lots of market share. Can you describe how the, let's see, I don't know the -- relationship is working with the major builders, since presumably, you're going to be one of the few suppliers out still out there and the big builders are going to be gaining a lot of market share as small builders go under, how is that partnership working today, how can you benefit from it and are you already benefiting from it?

Well, on the -- we definitely are increasing our involvement with the national builders, that's always been an extremely important part and a major piece of this company. As the competitors pull out of the market or withdraw their presence or reduce their presence in the market, it definitely favors us and we are quick to take advantage of it and have been doing so. The market share gains that we had, a combination also we increased our business with the large national builders as well as we're increasing our share of the custom home home builder and the smaller builder. But certainly, as the larger national builder takes on a greater percentage of each marketplace, where that occurs, that fits in very well with our strategy and we respond to it very quickly.

Jim, the only thing I would add is we are well positioned with that group. About 50% of our revenues are to the Builder 100 group. So we do think that that will be beneficial for us.

Great. That's very helpful, thanks.

We'll move on to Jay McCanless at FTN Midwest.

Good morning.

Good morning.

Wanted to fall on a little bit more with the stock in 84 closures you talked about. Are there any opportunities, even in this down market, to maybe step in where they stepped away?

It's a little bit too early yet. I mean, there is a -- I've seen the announcements, I haven't necessarily seen the actions taking place in the market. We have not been, nor have they put out, a list of closures, so I think there is a lot of speculation in the market, but that is all there is right now. As soon as we see that and see them either pulling out, or reducing their presence in the market, we obviously are going to go after it. I think we can -- I think a strong selling point of our company will be is our financial stability and our ability to remain in those markets and provide a very competitive service oriented package to the customers. So once we get a definitive list or we see definitive closings, then we will address that in the markets where we overlap.

Okay. Also just want to talk a little bit about customers. If you look at the customer rolls at your different facilities, have you all measured what percentage of those customers have dropped off from, say, the peak until now, or is that sometime type of assessment you might do in the future?

Well, I can tell you Jay, we have not done that at this point. We tend to monitor more year-over-year, so I can't really tell you exactly what it is. If I look at our top ten customers, at the peak, our top ten customers were about 26% of our overall revenues and they're now down to about 20% of our revenues. I think that's more of an indication of the fact that they pulled back quicker, responded to the excess inventory in the market far more quicker than what your custom builders did. But other than that, we have not really drawn any conclusions.

Then last one on the customers, are you hearing any reports from the field that private bankruptcies have picked up and conversely, have you heard of any -- with all the executives who have been displaced from the larger builders, any new companies potentially trying to start up and get funding in this market?

To your latter question, no, I'm not aware of anything to that effect. In terms of bankruptcy closures, many of your small businesses are suffering extremely at this point. Credit has been pulled back. Your smaller regional banks have quit funding them. So you are seeing quite of bit of them going under and filing bankruptcy.

Okay, great. Thank you.

We'll go to Rob Hanson at Deutsche Bank.

Hi, you mentioned that 7% of your accounts receivable was greater than 60 days past due. I just wanted to see, let's say a comparative figure for this during more normalized times.

Normalized times would run 3.5% to 4%.

Yes, so during good times, it would be about 4%. At this point, it's about 7%. Again, we really try to work it to -- I think it's 7%, we're still one of the lowest in the industry if not the lowest in the industry. We try to keep our net 30 day terms where we can, and we do have very aggressive charge off policies. We don't let anything go beyond a year. Anything that hits the 90 day bucket is reserved at a 50% rate. Any company that files chapter 7 or 11, we fully charge off at that point in time. So we are trying to monitor it. We just have two or three smaller accounts that really caused a blip in the percentage. We do think we can work through it. We're working trying to get collateral to support those receivables. But the smaller custom, semi-custom builder is an exposure we focus on, we try to minimize, but it will get worse before it gets better.

I think another very important difference too, with us, Charles, we apply our cash not to the oldest invoice, we apply cash to the invoice where it's directed. If it's not specifically directed, we hold it until the customer tells us where to apply it. Many people in this industry are very, very -- their usual practice is to apply cash to the oldest invoice. So what you see in days outstanding can very well be a misnomer.

All right. I also wanted to see if you could walk us through your decision to exit the New Jersey market. Based on that criteria, what other markets you might exit in the near term?

Obviously, the exit in New Jerry was a very painful decision for us to make. It's one we agonized quite a bit over. It was a situation where we are looking to maintain cash flows, as we have talked about before. We looked at the major operations that were losing money, and then we stepped back and said, three, five years down the road, what's the potential for this market? And New Jersey, unfortunately, was on the top of the list in meeting the criteria that we ranked them by. So we made the tough decision, we estimated it would save us over $5 million of cash flow next year in 2009. And again, thinking that five years down the road, the upside was not great, it was the right decision to make. In terms of the other small locations, they have been more in market consolidations or small locations that really didn't make any money. In terms of any other major moves like New Jersey, that's more of a distant decision, we will have to look and see how 2009 develops before we make any more tough calls. Again, it's not a case where you can go through and just start whacking off markets, that's never a good thing to do. It has to be a very limited approach, and has to very selective, because you do want to keep your core business, you want to keep your core geographies and you want to make sure that you have a good, viable company with a good strong footprint when a recovery comes.

Thanks.

Question now from [Brian Zale] at Broadpoint Capital.

Good morning. Wondering about -- on the liquidity front, given your comments for you expect this to continue through mid 2010, your $150 million you have of net liquidity at this point, what's your comfort level that that's enough to get you through that point?

Well the way I look at it, if we have $150 of liquidity have a tax refund coming next year, anticipated to be around $35 million, so that puts us up around $190 million. We should get in a declining environment some working capital that will come out that will help offset any operating losses. We are taking plans, like what we talked about in the press release where we closed locations, we have reduced our headcount, which will benefit us of about $10 million going forward to next year. And then what we will do is as the market conditions develop, if we see it getting worse, there are more actions we can try to take to minimize it. We think conditions can get really tough before we have any issues in 2010. We do feel we have a good liquidity structure, action we can take and we're being very pro active in taking them to ensure that we keep the liquidity we need.

With regard to the borrowing base and the facility, if you look at actually, the reduction in liquidity versus second quarter, shows more of a reduction in the base than it was actually a burning of cash. Do you have a sense of what a floor -- I know it's a tough market, but what a floor would be in terms of the size of the actual base that you could borrow against?

Well first, let me address your first point, which is, you're right, the borrowing base did go down, and then two, our advance rates go down from September through March. We have a seasonal advance rate that goes up during your peak months and down during the other months. So if you're comparing sequential quarters, you're also seeing that decline in advance rates. In terms of a floor, it depends on where your sales volume goes in terms of AR and your inventory, so I really wouldn't know how to answer that.

Finally, was there magic to that $60 million number that you drew? Was that an expectation what you need for peak working capital next year, or what was your logic around the 60 number.

No. At the time, we had about $85 million we could have borrowed under our borrowing base, we just chose to leave some cushion so we borrowed $60 million.

Okay, thank you.

From ERT Capital, this is Kevin Starke.

Hi, it's actually CRT Capital. On the borrowing base question, there is a little provision in there that talks about equipment availability. I wanted to know if that was available to you.

We actually took advantage of that during the third quarter. It adds about $7 million to the borrowing base, but amortizes down, but it amortizes down on a monthly basis. So it does add some, I think it added about $7 million to the borrowing base, so it wasn't a huge add.

And it amortizes, so that actually will reduce over time?

That's correct.

Okay. The letters of credit outstanding at the end of the quarter?

Yes.

What was that?

It was about $16.6 million.

The $4.4 million operating cash flow or burn and the $1.1 million CapEx gets you to $5.5 million basics earned, Do you think that's a pretty good template for builders for going forward on a quarterly basis?

It's going to depend on the level of housing starts. If the starts are somewhat equivalent to what they were in Q3, I think that that's a pretty good measure. But I think all of us, as we said in our press release, believes starts are going to go further down before they bottom and we see a recovery.

Yes. Your borrowing base is roughly 55%, 60% of your total AR and inventories at any given time. Just doing, eyeballing the numbers. And inventories in receivables are down to the tune of 30%, year-on-year for the past several quarters. It makes me wonder why you would actually want to repay the $60 million. Why wouldn't you want to hold onto that.

It could. That could be an option that we do. It's just a matter of, do we want to carry the interest expense if we don't need the borrowing. But it's always a consideration we have and alternative we do have.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS) We'll move on now to a follow up from Walter Branson.

Thanks. I just wanted to ask another question regarding the tax refunds. So after getting that $35 million in 2009, do you still have an ability to carry back more in 2010 if you have losses in 2009, or do you bump up against the three year limitation for carry backs.

There will be no - everything from that point forward, Walter, will be carried forward.

Okay.

So we have no additional amounts to carry back.

Okay, thanks. Actually, if I could follow up, you had said on the last call you could potentially do 60 to 70. So that just means you don't have the losses to support the 60/70.

Two things. The first point is correct, we won't have the loss to support it and second, I didn't have the exact number in front of me, so I've refined that going into this call.

Okay, great. Thanks very much.

We'll move on to Tim McDowell at Group G Capital.

Good morning, guys. Just one question on SG&A. I know on past calls, you guys have discussed the fact that you were cutting in to bone, muscle and that (inaudible) possible, but you guys did a nice job in this quarter cutting down SG&A. How should we think about -- as revenues continue to go down, if that is, in fact, the case, how should we think about you guys being able to further make cuts to SG&A? Is it more of a step function related to the closing of various facilities? Or are there further measures that can take it irrespective of facility closures.

I think obviously, when you look at the salaries and benefits, we done a very good job flexing there. I think there is more we can do if we have to the take that metric down, obviously, to reduce our fixed cost such as occupancy, that will require us to close additional locations. That is always an option we have, even though we don't have anything currently on the table aside from what we have already announced. Delivery costs, we're trying to reduce the fleet, trying to pull back on lease expense within delivery cost. Obviously, we are hoping for a break in fuel costs which would give us some benefit as well. From a bad debt expense standpoint, I think we will see it being fairly consistent at around $1.5 million per quarter. Not a great deal we can do there. So, long winded way of saying, there are, obviously some costs we can take. Again, the biggest cost expense we have is payroll, and we can continue to address it. And then, if we need to take further costs out, we'd have to look at our fixed costs, which would be primarily closing locations.

Okay. Where would you say you guys stand -- I know historically, the split has been -- salaries have been 55%, 60% percent of overall SG&A (inaudible). Where does that stand today?

Hold on one second, I can tell you. For Q3 -- in Q3 our payroll salaries and benefits was still about 60% of our total SG&A. So it's still a very meaningful number to us.

Thanks so much guys.

A question from Ray Lamanski, BB&T Capital Markets.

Good morning, guys. Charles, have a question for you versus a comment you made before about saying it's going to be harder to maintain DSO going forward, and also how that interrelates with charge offs. It looks like you charged off about the same amount this quarter as you did last. Would you say that -- when you say it's going to be harder to keep a lid on DSO, is it because, let's say the customers in your non-big builder component are having troubles paying and slower or that the larger players in the home builders are taking advantage of their position right now, to try to improve their own cash flow a little bit more by paying more slowly.

No, it's more the smaller builders who are having their credit lines pulled away from them. We're seeing actually some fairly large regional builders who are losing their credit lines. Once that happens, they have to wait, (inaudible) sells homes, then they try to pay off their suppliers. But I think, the credit crisis we are seeing that is going on is really affecting your smaller builders, I can't tell you that we are seeing any issues with the top customers.

Okay. Thank you very much.

(OPERATOR INSTRUCTIONS) At this time, there are no other questions holding. I will turn things back over to our speakers to provide some closing comments.

Thank you for joining us today. If you have further questions, please feel free to contact Charles Horn.

Ladies and gentlemen, again, thank you very much for joining us. That will conclude today's conference call. Have a good day