The investment vehicle that took control of Stock Building Supply in May 2009 reported this week that it incurred an after-tax loss of $45.5 million on revenue of $949.9 million at America's No. 4 LBM operation in the fiscal year ended July 31, according to information provided by Stock's minority owner.
Wolseley Plc also said it was writing off the carrying value of its investment--roughly $64.4 million--in Saturn Acquisition Holdings because the firm continued to post losses in the past fiscal year, and Wolseley isn't sure whether Saturn will post dividends or other returns on investment in the future.
Asked to comment on the report, Stock noted that Wolseley reported its results using international accounting standards, which differ from the Generally Accepted Accounting Practices used in the United States. "Stock does not have visibility into Wolseley's internal accounting judgments," it said. Stock also declined to provide its own financial results, saying it's a private company.
"But we can tell you that the past 12 months have been extremely productive for us," it declared in an e-mail to ProSales. "Despite significant headwinds in the housing market, Stock has seized additional market share, increased sales for the third quarter [July through September 2010] vs. the prior year, and substantially stemmed losses from the prior year to levels at or better than similar companies. Stock is well-positioned for current market conditions and continues to make significant investments in its future. ... Further, Stock has ample liquidity to fund and grow the business now and into the foreseeable future and recently amended its credit facility to extend the maturity, lower borrowing costs, and increase its availability to borrow."
Saturn Acquisition is the vehicle that the Gores Group used when the Los Angeles-based investment firm acquired 51% of Stock from Wolseley in May 2009. Raleigh, N.C.-based Stock then reorganized itself while under Chapter 11 bankruptcy protection from creditors and emerged a much slimmer company on July 1, 2009. In the latest ProSales 100, Stock reported revenue of $1.43 billion, 70 branches, and roughly 2,800 employees as of the end of 2009.
Just three years earlier, Stock’s ProSales 100 listing showed $5.3 billion in revenue, 323 facilities, and 17,000 employees.
Despite that decline, Stock still ranked fifth on the ProSales 100, and because of a merger higher on the list, the company now stands fourth among the nation's largest construction supply firms. Since last July, Stock has grown by one market to focus on 20 areas of the country, acquiring No. 26 National Home Centers of Springdale, Ark. Stock also strengthened itself in the Houston market by taking over 16th-ranked Bison Building Materials.
Wolseley's financial report for the British company's financial year ended July 31 showed just how far Stock had sunk when it noted that Saturn suffered an after-tax loss of $51.8 million in the period from May 6 to July 31, 2009, on $172.7 million in revenue. By that benchmark, Stock has improved its financial situation dramatically since then, though it still is bleeding red ink.
Because Saturn has issued additional non-voting equity since May 6, 2009, as of July 31 of this year Wolseley's stake in Saturn (and thus in Stock) has dropped to 44% of Saturn's equity. U.K.-based Wolseley figures the carrying value of its investment now is worth $64.4 million.
"During the year ended 31 July 2010, Saturn continued to be loss-making due to challenging conditions in its markets," Wolseley's financial report said. "Consequently there is significant uncertainty as to whether the Group will receive dividends or other returns from its investment in the future, and therefore the Group has fully impaired the carrying value of its investment at year-end."
On the other hand, Wolseley's shedding control of Stock appears to have benefited it during fiscal 2010. Wolseley reported a $29.8 million loss from discontinuing Stock-related operations in FY2010, but it also recorded $70.7 million worth of tax credits. As a result, Wolseley recorded a $40.8 million profit as a result of discontinuing its ownership of Stock.
Craig Webb is editor of ProSales magazine.
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