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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   June 30, 2004

OR

o 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
(Exact name of registrant as specified in its charter)

Four Embarcadero Center, Suite 3250, San Francisco, CA 94111
(Address of principle executive offices, including zip code)

(415) 627-9100
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ý No o

The number of shares outstanding of the registrant's common stock as of August 4, 2004 was 13,465,434.

BUILDING MATERIALS HOLDING CORPORATION

INDEX

Building Materials Holding Corporation
Consolidated Statements of Income
(thousands, except per share data)
(unaudited)

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The quarterly consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2003.

The quarterly consolidated financial statements have not been audited by independent accountants. However, in the opinion of management, all adjustments necessary to present fairly the results for the period have been included. The preparation of these consolidated financial statements required estimates and assumptions. Actual results may differ from those estimates.

Certain reclassifications have been made to amounts reported in prior periods, none of which affected financial position, results of operations or cash flows.

2. NET INCOME PER SHARE

Net income per share was determined using the following information (thousands, except per share data):

⁽¹⁾ Stock options to purchase 55,535 and 578,229 shares for the second quarter of 2004 and 2003, respectively, and stock options to purchase 69,450 and 256,979 for the six months ended June 30, 2004 and 2003, respectively, were not dilutive and therefore excluded in the computations of diluted income per share. Stock options categorized as not dilutive were defined on the basis of the exercise price being greater than the average market value of the shares of common stock in the periods presented.

⁽²⁾ Cash dividends were $0.8 million and $0.7 million for the second quarter of 2004 and 2003, respectively, and $1.6 million and $1.3 million for the six months ended June 30, 2004 and 2003, respectively.

3. STOCK-BASED COMPENSATION

Incentive and Performance Plan
The 2004 Incentive and Performance Plan was approved by shareholders at the annual meeting in May 2004 and replaces the 2000 Stock Incentive Plan (2000 Plan) and the Second Amended and Restated Non-Employee Director Stock Option Plan (Director Plan). No further grants or awards will be made under the 2000 Plan or the Director Plan. The 2004 Incentive and Performance Plan provides performance-based compensation to employees and non-employee directors. The plan provides for the granting of stock options, stock appreciation rights, restricted stock, other stock-based awards, performance awards and non-discretionary awards. A total of 1.2 million shares of common stock are reserved for issuance under the plan, of which 201,000 options and 64,500 shares of restricted stock have been authorized and issued. The stock options vest at an annual rate of 25%, while the restricted stock vests three years after the date of grant.

As of June 30, 2004, there were six stock-based compensation plans. Stock-based compensation plans other than the 2004 Incentive and Performance Plan are more fully described in Note 13 of the Annual Report on Form 10-K. As permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, the stock compensation measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related interpretations were retained. Under APB Opinion No. 25, compensation expense is recognized based upon the difference, if any, at the measurement date between the market value of stock and the option exercise price. The measurement date is the date at which both the number of options and the exercise price for each option are known. The following table illustrates the effect on net income and net income per share if the fair value recognition provis ions of SFAS No. 123 were applied (thousands, except per share data):

4. MINORITY INTERESTS AND EQUITY EARNINGS

Acquisitions are accounted for under the purchase method of accounting. The purchase price is allocated to the assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair value of the identifiable assets and liabilities acquired is recorded as goodwill. Minority interest reflects the other owners' proportionate share in the fair value of the identifiable assets and liabilities acquired as of the date of purchase adjusted by the proportionate share of post-acquisition income or loss of the subsidiary. As the operating results of entities with minority interest are consolidated, minority interest (income) loss represents the income or loss attributable to the other owners. Operating results of the acquired businesses are included in the consolidated statements of income from the date of acquisition.

WBC Mid-Atlantic
In October of 2003, a 67.33% interest in a newly formed construction business, WBC Mid-Atlantic LLC, was acquired for approximately $5.1 million in cash and the issuance of 15,059 shares of common stock. The remaining 32.67% interest is owned by the principals of ANM Carpentry, Inc. (ANM) and is recognized as minority interest. The business venture provides framing services for high-volume production homebuilders in Virginia, Maryland, the District of Columbia and Delaware.

Under the purchase agreement, the Company has the option to purchase the remaining 32.67% of WBC Mid-Atlantic prior to October 1, 2010 subject to certain limitations or prior to October 1, 2006 contingent on the written consent of ANM or if certain other conditions are met. The principals of ANM have the option to require the Company to purchase the remaining 32.67% interest from October 1, 2008 through October 1, 2010. The purchase price for the remaining interest will generally be based on a multiple of historical earnings.

WBC Construction
In January of 2003, a 60% interest in a newly formed construction business, WBC Construction, LLC (WBC), was acquired for approximately $22.9 million in cash and the issuance of 70,053 shares of common stock. The remaining 40% interest is owned by Willard Brothers Construction, Inc. and its principal members. WBC contracts with high-volume production homebuilders in Florida to construct the slab and structural shell of homes.

Under the purchase agreement, the Company has the option to purchase the remaining 40% interest in WBC from January 16, 2006 through January 16, 2009 and the principals of Willard Brothers Construction, Inc. have the option to require the Company to purchase the remaining 40% of WBC from January 16, 2007 through January 16, 2009. The purchase price for the remaining interest will generally be based on a multiple of historical earnings.

When purchased, the investment in WBC was accounted for using the equity method of accounting because the minority owners had certain approval and other rights that precluded consolidation.  On August 11, 2003, WBC's operating agreement was amended to eliminate certain approval and other rights of the minority interest shareholder.  As a result, the equity method of accounting was ceased and the results of WBC's operations have been included in the consolidated financial statements effective August 12, 2003. The 40% ownership interest is recognized as minority interest.  The consolidation of WBC resulted in an increase in assets of $41.2 million, an increase in liabilities of $12.7 million, an increase in minority interest of $2.3 million and a decrease in equity investments in an unconsolidated company of $26.2 million.  

While accounted for under the equity method prior to August 12, 2003, the condensed income statement and financial position for WBC was as follows (thousands):

KBI Norcal
In July 2002, a 51% interest in a newly formed partnership, KBI Norcal, was acquired for approximately $5.8 million in cash, $0.8 million of assumed debt and the issuance of 34,364 shares of common stock. The remaining 49% interest is owned by RJ Norcal, LLC and is recognized as minority interest. KBI Norcal provides turnkey framing services in northern California.

Under the purchase agreement, the Company has the option to purchase the remaining 49% interest in KBI Norcal from July 1, 2004 through June 30, 2008 and the principals of RJ Norcal, LLC have the option to require the Company to purchase the remaining 49% of KBI Norcal from July 1, 2006 through June 30, 2008. The purchase price for the remaining interest will generally be based on a multiple of historical earnings or the contractual minimum of $7.5 million. On a quarterly basis, an assessment of the fair value of the assets to be acquired is performed. If the fair value of the net assets to be acquired is less than the amount payable under the contractual minimum, an impairment would be recognized. As of June 30, 2004, the purchase price was in excess of the contractual minimum and no impairment was recognized. Additionally, contractual minimum purchase prices have not been structured in subsequent acquisitions, nor does management intend to in future acquisit ions.

Acquisitions are accounted for under the purchase method of accounting. The purchase price is allocated to the assets acquired, including intangibles assets, and liabilities assumed based on their estimated fair values at the date of acquisition. Any excess of the purchase price over the estimated fair value of the identifiable assets and liabilities acquired is recorded as goodwill.

In March 2004, BMC Construction acquired a distribution facility and associated operating assets in Tucson, Arizona for $4.0 million in cash. Assets acquired included accounts receivable of $1.3 million, inventory of $0.7 million, property and equipment of $2.3 million and liabilities of $0.3 million. Had this acquisition taken place as of the beginning of 2003, pro forma results of operations would not have been significantly different from reported amounts.

In June 2004, BMC West acquired a framing business in Denver, Colorado for $0.8 million in cash. Assets acquired included intangibles of $0.2 million, goodwill of $0.2 million and other assets of $0.4 million. Had this acquisition taken place as of the beginning of 2003, pro forma results of operations would not have been significantly different from reported amounts.

6. IMPAIRMENT OF ASSETS

Long-lived assets such as property, equipment and intangibles with finite lives are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. An impairment is recognized if the carrying amount is more than the estimated future operating cash flows on an undiscounted basis. In the first quarter of 2004, an impairment of $1.3 million for certain BMC West properties was recognized.

7. INTANGIBLE ASSETS AND GOODWILL

Intangible assets represent the values assigned to customer relationships and covenants not to compete. Intangible assets are amortized on a straight-line basis over their expected useful lives. Customer relationships are amortized over two to seventeen years and covenants not to compete over three to five years. Intangible assets consist of the following (thousands):

There are no intangible assets with indefinite useful lives. Estimated amortization expense for intangible assets with definite useful lives is $1.6 million for the remainder of 2004, $1.7 million for 2005, $1.6 million for 2006, $1.0 million for 2007, $0.5 million for 2008 and $4.0 million thereafter.

Goodwill represents the excess of purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Goodwill is assessed annually for impairment and whenever events and circumstances indicate the carrying amount may not be recoverable. An impairment is recognized if the carrying amount is more than the estimated future operating cash flows as measured by fair value techniques.

Changes in the carrying amount of goodwill by business segment are as follows (thousands):

8. DEBT