UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172023
or
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☐ | 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: 001-37793 001-37760
SiteOne Landscape Supply, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware | 46-4056061 |
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Delaware | 46-4056061 |
(State or other jurisdiction of
incorporation or organization)
| (IRS Employer
Identification No.)
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300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076 |
(Address of principal executive offices) (Zip Code) |
300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076
(Address of principal executive offices) (Zip Code)
(470) 277-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
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| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
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Common stock,Stock, $0.01 par value $0.01 per share | | SITE | | New York Stock Exchange |
(Title of Each Class) | | (Name of Each Exchange on which Registered) |
Securities registered pursuant to Section 12 (g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ 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 (§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 ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act (Check One):
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| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the SecuritiesExchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 2, 2017,2023, there were 39,727,90145,041,897 shares of common stock of SiteOne Landscape Supply, Inc. outstanding, and the aggregate market value of the voting and non-voting common equity of SiteOne Landscape Supply, Inc. held by non-affiliates (assuming only for purposes of this computation that the CD&R Investor and Deere (each as defined below), directors and officers may be affiliates) was approximately $1,752,135,681$7,435,730,157 based on the closing price of SiteOne Landscape Supply, Inc.’s common stock on The New York Stock Exchange (“NYSE”) on June 30, 20172023 (the last trading day of our most recently completed fiscal second quarter).
As of February 20, 2018,16, 2024, the number of shares of the registrant’s common stock outstanding were 40,025,054,45,139,896, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement to be filed with the U.S. Securities and Exchange Commission in connection with the registrant’s 20182024 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III hereof. Such Proxy Statement will be filed within 120 days of the registrant’s fiscal year ended December 31, 2017.2023.
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Special Note Regarding Forward-Looking Statements and Information
This Annual Report on Form 10-K, containsother periodic reports filed by us under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other written or oral statements made from time to time by our management contain forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of termsTerms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “project,” “potential,” or the negative of these terms, and similar expressions. You should be aware that theseexpressions often signify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that are beyond our control.control, and because they also relate to the future, they are likewise subject to inherent uncertainties and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following:
•cyclicality in residential and commercial construction markets;
•general business, financial market, and economic conditions;
•seasonality of our business and financialits impact on demand for our products;
•weather and climate conditions;
weather conditions, seasonality•prices for the products we purchase may fluctuate;
•market variables, including inflation and availability of water to end-users;elevated interest rates for prolonged periods;
•increases in operating costs;
•public perceptions that our products and services are not environmentally friendly or that our practices are not sustainable;
•climate, environmental, health and safety laws and regulations;
•hazardous materials and related materials;
•laws and government regulations applicable to our business that could negatively impact demand for our products;
public perceptions that our products and services are not environmentally friendly;
•competitive industry pressures;pressures, including competition for our talent base;
•supply chain disruptions, product or labor shortages, and the loss of key suppliers;
product price fluctuations;
•inventory management risks;
•ability to implement our business strategies and achieve our growth objectives;
•acquisition and integration risks;risks, including increased competition for acquisitions;
increased operating costs;
•risks associated with our large labor force;force and our customers’ labor force and labor market disruptions;
•retention of key personnel;
•construction defect and product liability claims;
•impairment of goodwill;
•adverse credit and financial markets events and conditions;
•inefficient or ineffective allocation of capital;
•credit sale risks;
retention of key personnel;
•performance of individual branches;
environmental, health and safety laws and regulations;•cybersecurity incidents involving our systems or third-party systems;
hazardous materials and related materials;•failure or malfunctions in our information technology systems;
construction defect and product liability claims;
computer data processing systems;
•security of personal information about our customers;
•intellectual property and other proprietary rights;
requirements of being a public company;•unanticipated changes in our tax provisions;
•threats from terrorism, violence, uncertain political conditions, and geopolitical conflicts such as the ongoing conflict between Russia and Ukraine, the conflict in the Gaza Strip, and unrest in the Middle East;
•risks related to our internal controls;
the possibility of securities litigation;
our substantialcurrent indebtedness and our ability to obtain financing in the future;
increases in interest rates;•financial institution disruptions;
•risks related to our common stock; and
•risks related to other factors discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
You should read this report completely and with the understanding that actual future results may be materially different from expectations. Allnot place undue reliance on any forward-looking statements, made in this report are qualified by these cautionary statements. These forward-looking statements are madewhich speak only as of the date made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible to predict all of this report,them. We assume no obligation and we do not undertake any obligation, other than as may be required by law,intend to update or revise any forward-looking or cautionary statements that are made from time to reflect changes in assumptions, the occurrencetime, either as a result of events, unanticipatedfuture developments, new information or otherwise, changes in future operating results over time or otherwise.except as may be required by law.
Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.
PART I
As used in this Annual Report on Form 10-K for the fiscal year ended December 31, 2017,2023, references to: “we,” “us,” “our,” “SiteOne,” or the “Company” refer to SiteOne Landscape Supply, Inc. and its consolidated subsidiaries. The term “Holdings” refers to SiteOne Landscape Supply, Inc. individually without its subsidiaries. References to the “2017“2023 Fiscal Year,” the “2016“2022 Fiscal Year”Year,” and the “2015“2021 Fiscal Year” refer to the fiscal years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022, respectively.
Item 1. Business
The following discussion of our business contains “forward-looking statements,” as discussed in “Special Note Regarding Forward-Looking Statements and Information” above. Our business, operations, and financial condition are subject to various risks as set forth in Part I, Item 1A,1A., ‘‘Risk Factors’’ below. The following information should be read in conjunction with the Risk Factors,Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Financial Statements and Supplementary Data and related notes included elsewhere in this Annual Report on Form 10-K.
Company Overview
We are the largest and only national full product line wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation, and maintenance of lawns, gardens, golf courses, and other outdoor spaces. As of February 20, 2018,December 31, 2023, we had 511over 690 branch locations in 45 U.S. states and six Canadian provinces. Through our expansive North American network, we offer a comprehensive selection of more than 120,000approximately 160,000 stock keeping units (“SKUs”) including irrigation supplies, fertilizer and control products (e.g.(e.g., herbicides), hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, hardscapes (including paving, natural stone and blocks), outdoor lighting, and ice melt products.products to green industry professionals. We also provide value-added consultative services to complement our product offerings and to help our customers operate and grow their businesses. Our consultative services include assistance with irrigation network design,project take-offs, commercial project planning, generation of sales leads, marketing servicesbusiness operations, and product support services, as well as a series of technical and business management seminars that we call SiteOne University.
Our typical customer is a private landscape contractor that operates in a single market. We interact regularly with our customers because of the recurring nature of landscape services and because most contractors buy products on an as-needed basis. We believe our high-touch customer service model strengthens relationships, builds loyalty, and drives repeat business. In addition, our broad product portfolio, convenient branch locations, and nationwide fleet of over 1,4002,600 delivery vehicles position us well to meet the needs of our customers and ensure timely delivery of products. We source our products from approximately 3,0005,500 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies, and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes, and other landscape products.
We have a balanced mix of sales across product categories, construction sectors, and end markets. We derived approximately 55%61% of our 20172023 Fiscal Year netNet sales from the residential construction sector, 31% from the commercial (including institutional) construction sector, and 14%8% from the recreational and other construction sector. By end market, we derived approximately 41%35% of our 20172023 Fiscal Year netNet sales from the sale of products relating to new construction of homes, commercial buildings and facilities, and recreational spaces. These products primarily include irrigation, hardscapes, landscape accessories, nursery, and outdoor lighting. The sale of products relating to maintenance of existing residential, commercial, and recreational properties.properties accounted for approximately 34% of our 2023 Fiscal Year Net sales. The recurring nature of landscape maintenance demand helps to provide stability in our financial performance across economic cycles. Fertilizer and control products are the primary products used in maintenance. The sale of products relating to new construction of homes, commercial buildings and recreational spaces accounted for approximately 40%Approximately 31% of our 20172023 Fiscal Year net sales. These products primarily include irrigation, nursery, hardscapes, outdoor lighting and landscape accessories. Approximately 19% of our 2017 Fiscal Year netNet sales were derived from sales of products for the repair and upgrade of existing landscapes. These sales benefit from increasing existing home sales increasing home prices and rising consumer spending.
Net Sales for 2017the 2023 Fiscal Year
Our History
Our company was established in 2001 after Deere & Company (“Deere”) entered the wholesale landscape distribution market through the acquisitions of McGinnis Farms and Century Rain Aid in 2001, United Green Mark in 2005, and LESCO Inc. (“LESCO”) in 2007, each of which significantly expanded our geographic footprint and broadened our product portfolio. In December 2013, an affiliate (the “CD&R Investor”) of Clayton, Dubilier & Rice, LLC (“CD&R”) purchased a 60% interest in our company from Deere (“CD&R Acquisition”). On May 17, 2016, we completed the initial public offering (“IPO”) of our common stock in which Deere and the CD&R Investor were the sole sellers of our common stock to the public. On December 5, 2016, May 1, 2017 and July 26, 2017, we completed secondary offerings of our common stock in which Deere and CD&R Investor were the sole sellers.stock.
Our Industry
Based on management’s estimates, we believe that our addressable market in North America for the wholesale distribution of landscape supplies represented approximately $18$25 billion in revenue in 2017.2023. Growth in our industry is driven by a broad array of factors, including consumer spending, housing starts, existing home sales, home prices, mortgage interest rates, commercial, recreational, and residential construction, repair and remodeling spending, and demographic trends. Within the wholesale landscape supply distribution industry, products sold for residential applications represent the largest construction sector, followed by the commercial, and recreational &and other sectors. Based on management estimates, we believe that nursery products represent the largest product category in the industry, with sales accounting for more than one-third of industry sales, followed by landscape accessories with approximately one-fifth of industry sales, and each of control products, hardscapes, irrigation products and outdoor lighting, and fertilizer &and other products accounting for approximately one-tenth of industry sales.
The wholesale landscape supply distribution industry is highly fragmented, consisting primarily of regional private businesses that typically have a small geographic footprint, a limited product offering, and limited supplier relationships. Wholesale landscape supply distributors primarily sell to landscape service firms, ranging from sole proprietorships to national enterprises. Landscape service firms include general landscape contractors and specialty landscape firms, who provide services such as lawn care and tree and foliage maintenance firms.maintenance. Over the past decade, professional landscape contractors have increasingly offered additional products and services to meet their customers’ needs. These firms historically needed to make numerous trips to branches in various locations to source their products. Consequently, landscape professionals have come to value distribution partners who offer a “one-stop shop” with a larger variety of productsproduct categories and services, particularly given the recurring nature of landscape maintenance services.
Our Strategies
Key elements of our strategy are as follows:
Build Upon Strong Customer and Supplier Relationships to Expand Organically
Our national footprint and broad supplier relationships, combined with our regular interaction with a large and diverse customer base, make us an important link in the supply chain for landscape products. Our suppliers benefit from access to our more than 230,000370,000 customers, a single point of contact for improved production planning and efficiency, and our ability to bring new product launches quickly to market on a national scale. We intend to continue to increasekeep increasing our size and scale in customer, geographic, and product reach, which we believe will continue to benefit our supplier base. We will continue to work with new and existing suppliers to maintain the most comprehensive product offering for our customers at competitive prices and enhance our role as a critical player in the supply chain.
Grow at the Local Level
The vast majority of our customers operate at a local level. We believe we can grow market share in our existing markets with limited capital investment by systematically executing local strategies to expand our customer base, increase the amount of our customers’ total spending with us, optimize our network of locations, coordinate multi-site deliveries, partner with strategic local suppliers, introduce new products and services, increase our share of underrepresented products in particular markets, and improve sales force performance. We currently offer our full product line in only 26%approximately 30% of the metropolitan statistical areas (“MSAs”) in the United StatesU.S. where we have a branch, and therefore believe we have the capacity to offer significantly more product lines and services in our geographic markets.
Pursue Value-Enhancing Strategic Acquisitions
Through recently completed acquisitions, we have added new markets in the United StatesU.S. and Canada, new product lines, talented associates, and operational best practices. In addition, we increased our sales by introducing products from our existing portfolio to customers of newly acquired companies. We intend to continue pursuing strategic acquisitions to better serve our customers, grow our market share, and enhance our local market leadership positions by taking advantage of our scale, operational experience, and acquisition know-how to pursue and integrate attractive targets. In addition, weknow-how. We currently have branches in 183approximately 50% of the 381387 U.S. MSAs and are focused on identifying and reviewing attractive new geographic markets for expansion through acquisitions. We will continue to apply a selective and disciplined acquisition strategy to maximize synergies obtained from enhanced sales and lower procurement and corporateadministrative costs.
Execute on Identified Operational Initiatives
We continue to undertake operational initiatives, utilizing our scale to improve our profitability, enhance supply chain efficiency, strengthen our pricing and category management capabilities, streamline and refine our marketing process, and invest in more sophisticated information technology systems and data analytics. Additionally, we have commencedcontinued to advance our e-commercedigital initiative, to include the relaunchenhancement of our website and implementation of a business-to-business (B2B) e-commerce(“B2B”) e-Commerce platform. Although we are still in the early stages of these initiatives, they have already enhanced our customer service, contributed to improvement in our profitability, and we believe we will continue to benefit from these and other operational improvements.
Be the Employer of Choice
We believe our associates are the key drivers of our success, and we aim to recruit, train, promote, and retain the most talented and success-driven personnel in the industry. Our size and scale enable us to offer structured training and career path opportunities for our associates, while at the area and branch level weassociates. We have built a vibrant and entrepreneurial culture that rewards performance.performance at the area and branch levels. We promote ongoing, open, and honest communication with our associates, including periodic engagement surveys, to ensure mutual trust, engagement, and performance improvement. We believe that high-performing local leaders coupled with creative, adaptable, and engaged associates are critical to our success and to maintaining our competitive position, and we are committed to being the employer of choice in our industry.
Our Products and Services
Our comprehensive portfolio of landscape products consists of over 120,000approximately 160,000 SKUs from approximately 3,0005,500 suppliers. Our product portfolio includes irrigation supplies, fertilizer & other,and control products, hardscapes, landscape accessories, nursery goods, hardscapes and outdoor lighting products. Our customers value our product breadth and geographic reach, as well as our on-site expertise and consultative services. While pricing is important to our customers, availability, convenience, and expertise are also important factors in their purchase decisions. In addition to other capabilities, our ability to offer the significant yard space and special equipment thatrequired by items such as hardscapes and nursery goods and hardscapes require provides us with a competitive advantage over many competitors who offer a more limited selection of product categories.
See Refer to “Note 122. Revenue from Contracts with Customers” to our audited financial statements for information on our netNet sales in the agronomic (fertilizer & other and control products), irrigationof landscaping products (irrigation supplies, hardscapes, landscape accessories, nursery goods, and outdoor lighting, landscape accessorieslighting) and hardscapesagronomic and nursery goods categories.other products (fertilizer, control products, ice melt, equipment, and other products).Irrigation Supplies
Our irrigation products include controllers, valves, sprinkler heads, irrigation pipe, and irrigation and drainage pipes.micro-irrigation or drip products. The market for irrigation products has historically provided stable growth and is driven primarily by new home and commercial construction and maintenance of existing irrigation systems.
Fertilizer &and Other
Our fertilizer &and other products include fertilizer, grass seed, and ice melt products. Fertilizer products are sold to the maintenance end market and accordingly are relatively stable through economic cycles.
Control Products
Our control products are specialty products that include herbicides, fungicides, rodenticides, and other pesticides. Similar to fertilizer products, control products sales are strongly tied to the maintenance end market and accordingly are relatively stable through economic cycles.
Hardscapes
Our Hardscapes include pavers, natural stone, blocks, and other durable materials.
Landscape Accessories
Our landscape accessories products include mulches, soil amendments, drainage pipe, tools, and sod. Landscape accessories are typically sold in combination with other landscape supply products. As a result, sales of these accessories are often tied to sales of fertilizers and control products, as well as sales of nursery goods and hardscape products.hardscapes.
Nursery Goods
Our nursery goods include deciduous shrubs,and evergreen shrubs, ornamental, shade, and trees, ornamental trees, shadeevergreen trees, both field grownfield-grown and container-grown nursery stock, roses, perennials, annuals, bulbs, and hundredsthousands of plant species and cultivars that are available in a number of container sizes, heights, forms, and bloom colors.
Outdoor Lighting
Our outdoor lighting products include lighting fixtures (path, area, accent, lights, dark lights, path lights, up, lights, down, lights, wall lightswell, hardscape, deck, underwater, bistro, and poolholiday), LED lamps, wire, transformers, and aquatic area lighting.accessories.
Hardscapes include paving, natural stone, blocks and other durable materials.Proprietary Branded Products
In addition to distributing branded products of third parties, we offer products under our proprietary brands. Sales of LESCO®, SiteOne Green Tech®, and Pro-Trade® together accounted for approximately 14% of our 20172023 Fiscal Year netNet sales, the large majority of which is attributable to LESCO®.
LESCO®
LESCO® is a premium brand and maintains strong brand awareness with golf and professional landscape contractors.
Under the LESCO® brand, we offer formulations of fertilizer (liquid and granular), combination products (pesticides on a fertilizer carrier), control products (liquid and granular pesticides), specialty chemicals, turf seed, application equipment (engine powered and walk behind or other non-engine powered), paint, maintenance products like engine oil, windshield washer fluid, ice melt, trimmer line, and soil tests. We also offer Basic Seed and Basic Nutrition, “sub-brands” of LESCO®, under which we offer fertilizer and landscape accessories. LESCO® products are sold through our branches and retail outlets such as The Home Depot True Value and Ace Hardware.Lowe’s.
SiteOne Green Tech®
We offer pre-packaged landscape and irrigation management solutions that are designed to help customers manage and conserve water under the SiteOne Green Tech® brand. The core SiteOne Green Tech® product lines include central irrigation control systems, solar assemblies, fertilizer injection systems, irrigation pumps, and hand-held remote control equipment.
Pro-Trade®
In 2017, we launched a line of professional-grade landscape lighting fixtures, LED lamps, and lighting solutionstransformers under our Pro-Trade®Pro-Trade® brand. The Pro-Trade® Pro-Trade® line of products is sold exclusively through our branches and currently includes lamps, brasswebsite, and aluminum fixtureshas expanded to include irrigation supplies, outdoor lighting, and transformers.landscape accessories. During the 2023 Fiscal Year, we expanded our Pro-Trade® offering in products such as drip tubing, centrifugal pumps, long handle tools, and safety gloves. We plan to continue expanding our Pro-Trade® line of products in the 2024 Fiscal Year.
Services
We offer a variety of complementary, value-added services to support the sale of our products. We do not derive separate revenue for these services, but we believe they are an important differentiator in establishing our value proposition to our customers.
Product Knowledge and Technical Expertise
Consultative services provided by our local staff, many of whom are former landscape contractors or golf course superintendents, include product selection and support, assistance with design and implementation of landscape projects, and potential sales leads for new business opportunities. Our SiteOne University program provides customers with access to substantive training and informational seminars that directly support the growth of their businesses. The program includes technical training, licensing, certifications, and business management seminars. In addition, our product category experts provide technical knowledge on the features and benefits of our products we provide as well as on job installation techniques.
Project Services
We partner with our customers by providing consultative services to help them save time, money, and effort in bidding for new projects and for new landscape installations. Our regionally based project services teams specialize in quoting, estimating, and completing sales for customers who compete in the commercial construction sector. Other services provided by our project services teams include assistance with specifications assistance and irrigation design.project take-offs.
Partners Program
We offer a loyalty rewards program, our Partners Program, which had approximately 17,00037,000 enrolled customers as of December 31, 20172023 and provides business and personal rewards, access to business services at preferred rates, and technical training and support. Reward points may be spent,utilized, for example, on credit on account,for on-account credits, trips and special events, gift cards to major retailers, and SiteOne University courses and educational events. Access is also provided to preferred rate business services and includes, for example, payroll and select human resourcesresource services, cell phone services, office supplies, auto and fleet insurance and fuel rebates. For the 20172023 Fiscal Year, Partners Program participants accounted for approximately 54%55% of our netNet sales.
Operational Structure
Our operational philosophy is to create local area teams and branch networks specifically designed to best meet our customers’ needs at the local market level, while supporting these teams with the resources of a large company delivered through regional and divisional management, including company-wide corporatesupport functions.
At the local market level, we organize our 511over 690 branches and approximately 350630 outside sales representatives into 5039 designated “areas” that each typically serve a defined geography, typically a large MSA, or a combination of MSAs in close proximity. Area managersManagers are responsible for organization and talent planning, branch operations, sales strategy, and product delivery strategy. Area managersManagers are supported by an area business managerArea Business Managers and Area Sales Managers who are responsible for executing the local market and operating strategies andas well as key initiatives to grow sales and profitability.
We support our 511over 690 branches and 5039 areas with regional management and company-wide corporatesupport functions by providing: management of business performance;performance, development and execution of local strategies;strategies, sharing of best practices;practices, execution and integration of acquisitions;acquisitions, finance and accounting expertise (credit/(including financial planning and analysis, credit/collections, payables);payables, and other shared services), category management and procurement;procurement, supply chain (planners,(e.g., planners and buyers);, pricing strategies; marketing;strategies, marketing, and information technology. Our integrated branches are integrated onutilize a single technology platform, allowing us to leverage our full operational scale for procurement, inventory management, financial support, data analytics, and performance reporting.
Our outside sales force is organized by geographic area. Each area maintains a number of outside sales representatives who drive sales growth on behalf of several branches across a variety of accounts from landscape contractors to municipal agencies. We also maintain a sales force of agronomic sales representatives who are focused on growing sales towith customers in the golf industry. Our agronomic sellers also focus on contractors in the lawn care operations, maintenance and development, and sports turf verticals.
We have a national account sales organization whichthat leads sales strategy and execution for our largest national and regional customers. The national sales team is organized around fivenine different market verticals: landscapefacility management, golf, international, lawn care operators, maintenance and grounds maintenance, golf,development, pest control, retail, internationalsod, and environmentaltree service accounts. Each national account manager is responsible for a group of large accounts and coordinates our business with themthese customers both nationally and locally through our local sales representatives. National account managers negotiate national programs with our largest customers in order to increase our share of their business.
Distribution Network
We use two distribution models to offer a comprehensive selection of products and meet the needs of each local market.
Branches
Our branch network is the core of our operations and creates a valuable connection between our suppliers and our customers. Of our approximately 3,0005,500 suppliers, few are set up to serve the shipping needs of our customers as their supply chains are typically focused on bulk quantities shipped from only a few locations.quantity shipments. In contrast, many of our customers often require comparatively small quantities of products from numerous suppliers to complete a typical project, making it unfeasibledifficult to source directly from those suppliers. Our branch network provides significant value to our suppliers by maintaining local availability of core and complementary products in quantities our customers need.
The majority of our branches carry multiple product categories, but do not carry all of them.all. Branches that carry our full product lines combine our regular branch facilities with large 8-to-155-to-30 acre yards suitable for nursery goods and hardscape products. Yards are well-equipped to manage truckload-purchased landscape, nursery, and hardscape products and can maintain a diverse variety of greenhouse and nursery plants. All locations offering nursery goods have water distribution systems to maintain inventories, and many of these locations have access to municipal water supply,supplies, wells, or ponds. Branches are strategically located near residential areas with goodconvenient highway access. In-store merchandising displays are utilized to emphasize product features and seasonal promotions. We primarily lease 5,000 to 15,000 square foot facilities in both freestanding and multi-tenant buildings with secured outside storage yards averaging from 10,000 to 20,000 square feet in some branches.feet.
Direct Distribution
Our direct distribution business provides point-to-point logistics for bulkquantities of landscape products between producerssuppliers and customers. Our direct distribution business providescustomers, providing customers with sourcing and logistics support services for inventory management and delivery, and in many cases, these services are more economicallyeconomical than the producers might otherwise provide. We believe that producers view us not as competitors, but as providers of a valuable service, brokering these large orders through the use of our network. We typically do not maintain inventory for direct distribution, but rather use our existing producersupplier relationships, marketing expertise, and ordering and logistics infrastructure to serve this demand, requiring less working capital investment for these sales. Approximately 7%5% of our 20172023 Fiscal Year netNet sales were from direct distribution.
Direct distribution is preferred for contractors with large projects, typically designed by professional landscape architects. Contractors work hand-in-hand with our outside sales and inside sales teams, including project planning support with material take-offs, product sourcing, and bid preparation. Using our large vendorsupplier network, our associates arrange convenient direct shipments to jobs, which are coordinated and staged according to each phase of the construction. This distribution channel primarily handles bulk nursery, agronomic, landscape, and hardscape products.
Customers
Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation, and maintenance of lawns, gardens, golf courses, and other outdoor spaces. Our customer base consists of more than 230,000370,000 firms and individuals, with our top 10 customers collectively accounting for approximatelyless than 4% of our 20172023 Fiscal Year netNet sales, with no single customer accounting for more than 2% of netNet sales. Small customers, with annual purchases of up to $25,000, made up 31%22% of our 20172023 Fiscal Year netNet sales. Medium customers, with annual purchases betweenfrom $25,000 andup to $150,000, made up 27%32% of our 20172023 Fiscal Year netNet sales. Large customers, with annual purchases over $150,000, made up 42%46% of our 20172023 Fiscal Year netNet sales. Some of our largest customers include BrightView, Weed Man, Yellowstone Landscape, The Home Depot, Heartland, and Davey Tree Expert Company and TruGreen.Tree. Distribution of our LESCOLESCO® proprietary branded products on a wholesale basis to retailers represented less than 1% of our 20172023 Fiscal Year netNet sales.
Suppliers
We source our products from approximately 3,0005,500 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies, and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes, and other landscape products. Some of our largest suppliers include Hunter Industries, Rain Bird, Oldcastle, Cresline, Turf Care Supply, NDS, Envu, Spears Manufacturing, Toro, Oldcastle, Bayer, Syngenta, BASF, Dow AgroSciences, Vista and NDS.Syngenta. Purchases from our top 10 suppliers accounted for approximately 39%32% of total purchases for our 2017the 2023 Fiscal Year.
We generally procure our products through purchase orders rather than under long-term contracts with firm commitments. We work to develop strong relationships with a select group of suppliers that we target based on a number of factors, including brand and market recognition, price, quality, product support, and service, service levels, delivery terms, and their strategic positioning. We generallytypically have annual supplier agreements, and while they generally do not provide for specific product pricing, many include volume-based financial incentives that we earn by meeting or exceeding target purchase volumes.volume targets. Our ability to earn these volume-based incentives is an important factor in our financial results. In limitedcertain cases, we have enteredenter into supply contracts with terms that exceed one year for
the manufacture of our LESCO® branded fertilizer, and some nursery goods, and grass seed, and landscape supply products, which may require us to purchase products in the future.
Competition
The majority of our competition comes from other wholesale landscape supply distributors. Among wholesale distributors, we primarily compete against a small number of regional distributors and many small, local, privately-owned distributors. Some of our competitors carry several product categories, while others mainly focus on one product category such as irrigation, fertilizer/fertilizer and control products, nursery goods, or hardscapes. We are one of the only national wholesale distributors which carries thedistributor to carry a full product line of irrigation, fertilizer & other, control products, landscape accessories, nursery goods, hardscapes and outdoor lighting products.supplies.
We believe our top nine largest competitors include Heritage Landscape Supply Group (a subsidiary of SRS Distribution), Ewing, Harrell’s, Horizon Distributors (a subsidiary of Pool Corporation), Winfield Solutions,Harrell’s, BWI, Target Specialty Products, Outdoor Living Supply, Central Turf and Irrigation Supply, and Howard Fertilizer and Chemical, BFG Supply and Central Turf & Irrigation Supply.Chemical.
We believe smaller, regional or local competitors still comprise approximately 90%83% of the landscape supply industry based on 2017 net2023 Net sales. The principal competitive factors in our business include, but are not limited to, location, availability of materials and supplies, technical product knowledge and expertise, advisory or other service capabilities, delivery capabilities, pricing of products, and availability of credit.
AssociatesHuman Capital Management and Sustainability
At SiteOne, we believe our associates are our greatest asset and the safety, health, and wellness of our associates and their families is a top priority. The support we offer to our associates is an important part of our vision to be a great place to work and the employer of choice in the green industry.
As of February 20, 2018,December 31, 2023, we hademployed approximately 3,8007,800 associates, none of whom were affiliated with labor unions. We periodically administer a company-wide associate engagement survey, the most recent of which occurred in November 2023, and we believe that we have good relations with our associates. Additionally, we believe that the training provided through our development programs and our entrepreneurial, performance-based culture provides significant benefits to our associates. Approximately 92.8%92% of our associates are employed on a full-time, year-round basis. Our associate count currently includes approximately 260430 seasonal associates, who are temporarily employed due to the weather-dependent nature of our business. An associate is anyone employed by the Company.
Safety
The first element of our SiteOne DNA is “Always Safe,” which means that we take personal responsibility for our own safety and for the safety of others. Our leadership team is focused on creating a culture of safety and evaluating ways to improve our operations that reduce the most common forms of on-the-job injuries. Our safety initiatives include:
•Our Environmental, Health, and Safety team, which further enhances our safety efforts by establishing and monitoring safe work practices to prevent customer and associate injuries. As a result, we invest in safety equipment and practices at all branches with the goal of eliminating workplace injuries.
•A designated Safety Champion in each of our branches. Our Safety Champions are high potential, well-respected associates who help demonstrate and influence our culture of safety. Our goal is a robust culture of safety with all associates committed to working safely, every task, every day, 100% of the time.
Diversity and Inclusion
We believe in the power of teamwork and in creating a great place to work for all our associates, no matter their race, age, gender, sexual orientation, or military status. At SiteOne, a culture in which all of our associates are respected and valued is critical. Our diversity and inclusion efforts focus on creating a work environment that is respectful and supportive of each of our associates and which places the team first. Our initiatives and actions include the following:
•Metrics in certain field and field support associates’ short-term incentive bonus plans intended to increase the Company’s diversity.
•Associate Resource Groups (“ARGs”), which are voluntary, associate-led groups tied to an aspect of diversity. Membership in each ARG is open to all SiteOne associates and diverse representation is encouraged. ARGs support business objectives, create diversity awareness, and offer an avenue of development for associates. Our ARGs include the following:
▪Black Resource Inclusion and Diversity Group for Excellence – BR1DGE provides a network for Black associates to be connected and supported, and to process and discuss life experiences in a safe space.
▪INSP1RE – INSP1RE fosters an inclusive culture with a focus on our extended Asian community – South Asia, South-East Asia, East Asia, Asian Pacific Islander, Asian American, and beyond, creating a platform for our teams to feel inspired, empowered, celebrated, and supported.
▪UN1DOS – UN1DOS attracts and retains engaged and diverse associates while enhancing SiteOne’s understanding of and relationships with Hispanic communities and customers.
▪VETS1 – VETS1 fosters an environment of diverse and engaged associates while developing SiteOne’s understanding of and relationships with veteran associates, customers, and communities.
▪Women in the Green Growing – W1GG promotes an environment of diverse and engaged associates while advocating female growth within SiteOne and the green industry.
•The creation of a Diversity & Inclusion Council during 2020 that consists of ARG leaders, select operational and functional leaders, our Executive Vice President of Human Resources, and our Chief Executive Officer. The Diversity & Inclusion Council assists executive leadership in the creation and execution of the Company’s inclusion strategy, including key action items and milestones.
•Increasing our Spanish-speaking capabilities in our branches to better meet the needs of our growing customer base.
•Partnering with Sigma Alpha, a professional agricultural sorority, to develop a pipeline of female talent. For the past five years, female associates of SiteOne have mentored over 100 students across the country, leading to hiring Sigma Alpha sisters in both our internship and entry level roles in both field operations and field support.
•Other diversity and inclusion partnerships and initiatives, including Minorities in Agriculture, Natural Resources, and Related Sciences (“MANRRS”) sponsorship, high school recruiting programs, particularly with JR MANRRS, Historically Black Colleges and Universities and Hispanic Serving Institutions recruiting strategies, and veteran programs like Hiring Our Heroes, which has resulted in 100% conversion from fellowships to full-time hires.
Benefits
We offer a competitive benefits package with the goal of enabling our associates to get the most out of work and life. Among our benefits, we offer a paid military leave benefit that provides additional resources to our full-time associates as they continue to serve our country. In addition, given the difficulties our associates experienced during the COVID-19 pandemic, we adjusted our PTO carry-over rule for the 2021 Fiscal Year and the 2022 Fiscal Year to allow associates to carry over additional hours into the following year. We also offer a paid parental leave benefit for our full-time associates to help parents during the early days of parenthood. The parental leave benefit provides time away from work within the first year of the birth or adoption of a child with 100% of base pay.
In the 2022 Fiscal Year, we launched SiteOne CARES, a grant assistance program designed to help our associates cope with unexpected financial challenges arising from personal hardships. We made an initial contribution of $75,000 to the SiteOne Cares fund and matched 100% of every associate contribution up to the first $25,000 of associate donations. As of December 31, 2023, we reached over $40,000 in associate donations to the fund and assisted 34 associates in need. In 2024, we made another contribution of $75,000 to the SiteOne Cares fund, with a commitment to match the next $25,000 in associate donations.
In the 2022 Fiscal Year, we created a new bonus program for our hourly associates. In the 2023 and 2022 Fiscal Years, approximately 2,340 and 2,750 associates, respectively, received the bonus with payments totaling approximately $1.4 million and $2.2 million, respectively. This program made all of our previously ineligible associates eligible to receive a bonus. We continue to review our compensation and benefits program to ensure we offer a competitive total rewards package.
Training and Development
We believe the training provided through our development programs and our entrepreneurial, performance-based culture delivers significant benefits to our associates. Targeted skills training is designed around an associate’s development and career interests. We offer certification programs that include instructor-led training, online learning, in-field work, and exit exams. We also facilitate leadership training to develop an understanding of leadership style, our values, and key coaching techniques.
Engagement
We administer associate engagement surveys to determine how we are doing in our mission to be the employer of choice in the green industry. We review the survey results with all of our associates and seek their involvement in developing and executing action plans to continue our workplace improvements. We monitor associate satisfaction and aim to strengthen our pipeline of top talent by conducting talent reviews and succession planning for all critical roles in the organization. We identify, communicate, and utilize career development paths for key roles. This includes not only an upward path for associates, but exposure to parallel roles across the organization.
Sustainability
We also believe it is important to provide our stockholders with important information about our sustainability-related performance. As part of this commitment, we published our annual IMPACT Report in October 2023, which details our programs and progress across a number of important sustainability topics. Our IMPACT Report follows the Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosures (“TCFD”) frameworks and includes the disclosure of quantitative metrics relevant to our business and industry. Among other examples of such commitment, we have identified certain short-, medium-, and long-term climate-related risks and opportunities for the Company’s business, strategy, and financial planning. We have also engaged a leading sustainability consultant to review our greenhouse gas (“GHG”) emissions inventory, develop a management plan, and oversee data collection and gap analysis, as well as have made several investments in technology and processes that will allow us to gather data and track our usage, including with respect to our fleet management services and our utility expense management services. We anticipate that our engagement with a leading sustainability consultant and our investment in our utility expense management services will allow us to disclose water usage data in the future.
Service Marks, Trademarks and Trade Names
We hold various trademark registrations, including SiteOne®, LESCO®, SiteOne Green Tech®, and LESCOPro-Trade®, which we consider important to our marketing activities. Generally, trademark rights have a perpetual life, provided that they are renewed on a timely basis and continue to be used properly as trademarks. We intend to maintain these trademark registrations and the other trademarks associated with our business so long as they remain valuable to our business. In addition, other than commercially available software licenses, we do not believe that any of our licenses for third-party intellectual property are material to our business, taken as a whole.
Weather Conditions and Seasonality
For a discussion regarding seasonality and weather, seerefer to Item 7,7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Weather Conditions and Seasonality,”Seasonality” of this Annual Report on Form 10-K.
Regulatory Compliance
Government Regulations
We are subject to various federal, state, provincial, and local laws and regulations, compliance with which increases our operating costs, limits or restricts the products and services we provide or the methods by which we offer and sell those products and services or conduct our business, and subjects us to the possibility of regulatory actions or proceedings. Noncompliance with these laws and regulations can subject us to fines or various forms of civil or criminal prosecution, any of which could have a material adverse effect on our reputation, business, financial position, results of operations, and cash flows.
These federal, state, provincial, and local laws and regulations include laws relating to consumer protection, wage and hour, deceptive trade practices, permitting and licensing, state contractor laws, workers’ safety, tax, healthcare reforms, collective bargaining and other labor matters, environmental, cybersecurity, and employee benefits.
Environmental, Health and Safety Matters
We are subject to numerous federal, state, provincial, and local environmental, health and safety laws and regulations, including laws that regulate the emission or discharge of materials into the environment, govern the use, handling, treatment, storage, disposal, and management of hazardous substances and wastes, protect the health and safety of our associates and users of our products, and impose
liability for investigating and remediating, and damages resulting from, present and past releases of hazardous substances at sites we have ever owned, leased or operated, or used as a disposal site.
In the United States, we are regulated under many environmental, health and safety laws, including the Comprehensive Environmental Response, Compensation and Liability Act, the Federal Environmental Pesticide Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean Air Act, the Clean Water Act, and the Occupational Safety and Health Act, each as amended. Certain laws, such as those requiring the registration of herbicides and pesticides, and regulating their use, also involve the oversight of regulatory authorities and public health agencies. Although we strive to comply with such laws and have processes in place designed to achieve compliance, we may be unable to prevent violations of these or other laws from occurring. We could also incur significant investigation and clean-up costs for contamination at any currently or formerly owned or operated facilities, including LESCO’s manufacturing and blending facilities. See “Note 10.Refer to “Note 10. Commitments and Contingencies” to our audited consolidated financial statements included in this Annual Report on Form 10-K.for additional information. In addition, we cannot predict the effect of possible future environmental, health, or safety laws on our operations. Changes in, or new interpretations of, existing laws, regulations or enforcement policies, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including obligations with respect to any potential health hazards of our products, may lead to additional compliance or other costs.
Available Information
We make available free of charge on the “Investor Relations” page of our website, www.siteone.com, our filed and furnished reports on Forms 10-K, 10-Q, and 8-K, and all amendments thereto, as soon as reasonably practicable after the reports are filed with or furnished to the Securities and Exchange Commission (the “SEC”). We also use our website as a means of disclosing additional information, including for complying with our disclosure obligations under the SEC’s Regulation FD (“Fair Disclosure”).
Our annual corporate responsibility report (“IMPACT Report”), Corporate Governance Guidelines, Board of Directors Communication Policy, Business Code of Conduct and Ethics, Financial Code of Ethics, and the Charters of the Audit Committee, the Human Resources and Compensation Committee, and the Nominating and Corporate Governance Committee of the Board of Directors are also available on the “Investor Relations” page of our website. In addition, we include a Stakeholder Impact section on the “Investor Relations” page of our website. The information contained on our website is not incorporated herein by reference. Copies of these documents (without exhibits, when applicable) are also available free of charge upon request to us at 300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076, Attention: Investor Relations or by telephone at (404) 277-7000. In addition, theThe SEC maintains a website that contains reports, proxy, and information statements, and other information regarding issuers, including us, that file electronically with the SEC at www.sec.gov. We are required to disclose any change to, or waiver from, our Business Code of Conduct and Ethics for our executive officers and members of our Board members.of Directors. We use our website to disseminate this disclosure as permitted by applicable SEC rules.
Item 1A. Risk Factors
You should carefully consider the factors described below, in addition to the other information set forth in this Annual Report on Form 10-K. These risk factors are important to understanding the contents of this Annual Report on Form 10-K and of other reports. Our reputation, business, financial position, results of operations, and cash flows are subject to various risks. The risks and uncertainties described below are not the only ones relevant to us. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also adversely impact our reputation, business, financial position, results of operations, and cash flows.
Risk Factor Summary
The following is a summary of the principal risks that could adversely affect our business, operations, and financial results:
Risks Related to Our Business and Our Industry
•Cyclicality in our business could result in lower Net sales and reduced cash flows and profitability.
•Our business is affected by general business, financial market, and economic conditions.
•Seasonality affects the demand for our products and services and our results of operations and cash flows.
•Our operations are substantially dependent on weather and climate conditions.
•The prices and costs of the products we purchase may be subject to large and significant price fluctuations.
•Market variables and other events outside of our control could cause our Cost of goods sold and operating costs to grow more rapidly than Net sales.
•Inflation and increases in operating costs have adversely impacted, and may in the future continue to adversely impact, our business.
•Public perceptions that the products we use and the services we deliver are not environmentally friendly or safe or that our practices are not sustainable may result in significant costs and adversely impact the demand for our products or services.
•Compliance with, or liabilities under, environmental, health and safety laws and regulations, including laws and regulations pertaining to the use and application of our products and climate change legislation, could result in significant costs.
•Our business exposes us to risks associated with hazardous materials and related activities, not all of which are covered by insurance.
•Laws and government regulations applicable to our business could increase our legal and regulatory expenses, and impact our business.
•Increased competitive pressures could reduce our market share.
•We may face supply chain delays or interruptions, product shortages, or the loss of key suppliers or fail to develop relationships with qualified suppliers.
•We are subject to inventory management risks.
•We may not successfully implement our business strategies, including achieving our growth objectives.
•We may be unable to successfully acquire and integrate other businesses or increased competition for those businesses may result in less favorable acquisition terms.
•We face risks associated with our labor force and our customers’ labor force.
•We may not be able to attract or retain key executives.
•We are exposed to construction defect and product liability claims as well as other legal proceedings.
•An impairment of goodwill and/or other intangible assets could reduce Net income.
•We may face adverse credit and financial market events and conditions.
•We may be inefficient or ineffective in capital allocation.
•We may fail to collect monies owed by our credit sale customers.
•The operating results of individual branches may vary.
•We could experience operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings or suffer damage to our reputation in the event of a cybersecurity incident.
•A large-scale malfunction or failure in our information technology systems could disrupt our business, create potential liabilities for us, or limit our ability to effectively monitor, operate, and control our operations.
•We may fail to protect the security of personal information about our customers.
•We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.
•We may be subject to unanticipated changes in our tax provisions.
•We may face acts or threats of terrorism, public health emergencies, violence, or unfavorable or uncertain political conditions.
Risks Related to Our Indebtedness
•We have outstanding indebtedness and may incur substantial additional indebtedness, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business, or satisfy our obligations.
•Significant or prolonged periods of higher interest rates would increase the costs of servicing our indebtedness and could reduce our profitability.
•The agreements and instruments governing our indebtedness contain restrictions and limitations that could significantly impact our ability to operate our business.
•Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
Risks Related to Our Common Stock
•The market price of our common stock may be volatile.
•Holdings is a holding company with no operations of its own, and it depends on its subsidiaries for cash to fund all of its operations and expenses, including to make future dividend payments, if any.
•Our organizational documents contain certain provisions that may discourage, delay, or prevent a change of control of our Company and may limit our stockholders’ ability to obtain favorable judicial forum for certain disputes.
Risks Related to Our Business and Our Industry
Cyclicality in our business could result in lower netNet sales and reduced cash flows and profitability. We have been, and in the future may be, adversely impacted by declines in the new residential and commercial construction sectors, as well as in spending on repair and upgrade activities.
We sell a significant portion of our products for landscaping activities associated with new residential and commercial construction sectors, which have experienced cyclical downturns in the past and may experience cyclical downturns in the future, some of which have been, or could in the future be, severe. The strength of these markets depends on, among other things, housing starts, consumer spending, non-residential construction spending activity and business investment, which are a function of many factors beyond our control, including interest rates, employment levels, changes in the tax laws, availability of credit, geopolitics, consumer confidence, and capital spending. Weakness or downturns in residential and commercial construction markets could have a material adverse effect on our business, operating results, or financial condition.
Sales of landscape supplies to contractors serving the residential construction sector represent a significant portion of our business, and demand for our products is highly correlated with new residential construction.construction, including repairs and upgrades. Housing starts are dependent upon a number of factors, including housing demand, housing inventory levels, housing affordability and mortgage rates, foreclosure rates, demographic changes, the availability of land, local zoning and permitting processes, the availability of construction financing, and the overall health of the economy and mortgage markets.economy. Unfavorable changes in any of these factors could adversely affect consumer spending, result in decreased demand for homes, and adversely affect our business. Some analysts project thatIn the demand for2023 Fiscal Year, we experienced a softening of the residential construction may be negatively impacted as the number of renting households has increased in recent years andsector, including as a shortageresult of home price inflation and higher mortgage rates, which we anticipate may continue in the supply2024 Fiscal Year. If the softening of affordable housing is expected to result in lower home ownership rates. Thethe residential construction sector continues, the timing and extent of any recoverysuch reduction in homebuilding activity and the resulting impact on demand for landscape supplies are uncertain.
Our netNet sales also depend, in significant part, on commercial construction, which similarly recently experienced a severe downturn.is cyclical in nature and subject to downturns, which can be severe. Previously, downturns in the commercial construction market have typically lasted about two to three years, resulting in market declines of approximately 20% to 40%, while the most recent“Great Recession” downturn in the commercial construction market lasted over four years, resulting in a market decline of approximately 60%. We cannot predict the duration of the current market conditions, including the impacts that, among others, inflation and rising interest rates may have or the timing or strength of any future recovery of commercial construction activity in our markets.
We also rely, in part, on repair and upgrade of existing landscapes. High unemployment levels, high mortgage delinquency and foreclosure rates, lower home prices, limited availability of mortgage and home improvement financing, and significantly lower housing turnover, may restrict consumer spending, particularly on discretionary items such as landscape projects, and adversely affect consumer confidence levels and result in reduced spending on repair and upgrade activities.
Our business is affected by general business, financial market, and economic conditions, which could adversely affect our financial position, results of operations, and cash flows.
Our business and results of operations are significantly affected by general business, financial market, and economic conditions. General business, financial market, and economic conditions that could impact the level of activity in the wholesale landscape supply industry include the level of new home sales and construction activity, interest rate fluctuations, inflation, unemployment levels, geopolitics, tax rates, capital spending, bankruptcies, volatility in both the debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, global economic growth, local, state and federal government regulation, and the strength of regional and local economies in which we operate. With respect to the residential construction sector in particular, spending on landscape projects is largely discretionary and lower levels of consumer spending or the decision by home-ownershomeowners to perform landscape upgrades or maintenance themselves rather than outsource to contractors, or to focus less on outdoor projects may adversely affect our business. For example, in the 2023 Fiscal Year and the 2022 Fiscal Year, we experienced historic levels of inflation, resulting in the Federal Reserve raising benchmark interest rates multiple times. While the rate of inflation has slowed, we cannot predict whether these and adverse economic conditions will continue, the impact that future economic developments will have on consumers, or the manner in which these economic trends will impact consumer demand or preferences over the long term.
Seasonality affects the demand for our products and services and our results of operations and cash flows.
The demand for our products and services and our results of operations are affected by the seasonal nature of our irrigation, outdoor lighting, nursery, landscape accessories, fertilizers, turf protection products, grass seed, turf care equipment, and golf course maintenance supplies. Such seasonality causes our results of operations to vary considerably from quarter to quarter. Typically, our net
Net sales and netNet income have beenare higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters. Our netNet sales and netNet income however, are typically significantly lower in the first and fourth quarters due to lower landscaping, irrigation, and turf maintenance activities in these quarters. Accordingly, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Our operations are substantially dependent on weather and climate conditions.
We supply landscape, irrigation, and turf maintenance products, the demand for each of which is affected by weather conditions, including, without limitation, potential impacts, if any, from climate change. In particular, droughts could cause shortageshortages in the water supply, which may have an adverse effect on our business. For instance, our supply of plants could decrease, or prices could rise, due to such water shortages, and customer demand for certain types of plants may change in ways in which we are unable to predict. Such water shortages may also make irrigation or the maintenance of turf uneconomical. Governments may implement limitations on water usage, such as those enacted in California, that make effective irrigation or turf maintenance unsustainable, which could negatively impact the demand for our products. In California, for instance, mandatory water restrictions went into effect across the state in 2015. We have also recently seen an increased demand in California for products related to drought-tolerant landscaping, including hardscapes and plants that require low amounts of water. There is a risk that demand for landscaping products will decrease overall due to persistent or severe drought conditions in some of the geographic markets we serve, or that demand will change in ways that we are unable to predict.
Furthermore, natural disasters, adverse weather conditions and/or climate change-related events, such as droughts, severe storms, wildfires, hurricanes, and significant rain or snowfall, can adversely impact the demand for our products, availability of products, timing of product delivery, or our ability to deliver products at all. For example, severe winter storms can cause hazardous road conditions, which may prevent personnel from traveling or delivering to service locations. In addition, unexpectedlydemand for our products in the first quarter of the 2023 Fiscal Year was limited by unusually cold and rainy weather in our western and northern markets, including unprecedented precipitation in California. Other types of unexpected severe weather conditions, such as excessive heat or cold, may result in certain applications in the maintenance product cycle being omitted for a season or damage to or loss of nursery goods, sod, and other green products in our inventory, which could result in losses requiring writedowns.write-downs. In addition, our business and operating results could be impacted to a greater degree than we previously experienced to the extent that unfavorable weather conditions are exacerbated by global climate change or otherwise.
The prices and costs of the products we purchase may be subject to large and significant price fluctuations. We might not be able to pass cost increases through to our customers, and we may experience losses in a rising price environment. In addition, we might have to lower our prices in a declining price environment, which could also lead to losses.
We purchase and sell a wide variety of products, the price and availability of which may fluctuate, and may be subject to large and significant price increases, especially in periods of high inflation. For example, certain of our contracts with suppliers include prices for commodities such as grass seed and chemicals used in fertilizer that are not fixed or tied to an index, which allows our suppliers to change the prices of their products as the input prices fluctuate. Conversely, we may experience lower Net sales in a deflationary environment. Our business is exposed to these fluctuations, as well as to fluctuations in our costs for transportation and distribution. Changes in prices for the products that we purchase affect our Net sales and Cost of goods sold, as well as our working capital requirements, levels of debt, and financing costs. We might not always be able to reflect increases in our costs in our own pricing, especially in times of extreme price volatility. Any inability to pass cost increases on to customers may adversely affect our business, financial condition, and results of operations. In addition, if market prices for the products that we sell decline, we may realize reduced profitability levels from selling such products and lower revenues from sales of existing inventory of such products.
Market variables and other events outside of our control could cause our Cost of goods sold and operating costs to grow more rapidly than Net sales, which could result in lower Gross profit and gross margin as well as lower Net income.
Market variables, such as inflation of product costs, labor and fuel rates, and freight and energy costs, as well as other events outside of our control, such as supply shortages, geopolitical conflicts, trade disputes, or public health emergencies, could adversely impact the management of our Cost of goods sold and operating costs in a manner that would prevent us from leveraging our Net sales growth into higher Net income. For example, the ongoing conflicts between Russia and Ukraine, the conflict in the Gaza Strip, and unrest in the Middle East, as well as the international response related thereto (e.g., sanctions, export controls, etc.), has and may continue to create economic instability, including, among other things, inflationary pressures causing increases in fuel and other energy costs. In addition, our inability to pass on such increases in costs to customers in a timely manner, or at all, could cause our Cost of goods sold and operating costs to grow, which could result in lower Gross profit and gross margin as well as lower Net income.
Inflation and increases in operating costs have adversely impacted, and may in the future continue to adversely impact, our business, financial position, results of operations, and cash flows.
Our financial performance is affected by the level of our operating expenses, such as occupancy costs associated with the leases for our branch locations and costs of fuel, vehicle maintenance, equipment, parts, wages and salaries, employee benefits, health care, self-insurance costs and other insurance premiums, as well as various regulatory compliance costs, all of which may be subject to inflationary pressures. In particular, our financial performance is adversely affected by increases in these operating costs. Given the inflation rates over the past few years, we experienced elevated product and logistics costs as well as increased commodity costs.
Most of our facilities are located in leased premises. Many of our current leases are non-cancelable and typically have terms ranging from three to five years, with options to renew for specified periods of time. We believe that leases we enter into in the future will likely be long-term and non-cancelable and have similar renewal options. However, we may be unable to renew our current or future leases on favorable terms or at all, which could have an adverse effect on our operations and costs. In addition, if we close a location, we generally remain committed to perform our obligations under the applicable lease, which include, among other things, payment of the base rent for the balance of the lease term.
We deliver a substantial volume of products to our customers by truck. Petroleum prices have continued to fluctuate significantly in recent years. Prices and availability of petroleum products are subject to political, economic, and market factors that are outside our control. Political and military events in petroleum-producing regions, including the Middle East, U.S. energy policy, and hurricanes and other weather-related events may cause the price of fuel to increase. Our operating profit will be adversely affected if we are unable to obtain the fuel we require or to fully offset the anticipated impact of higher fuel prices through increased prices or fuel surcharges to our customers. We have not entered into any hedging arrangements that protect against fuel price increases and we do not have any long-term fuel purchase contracts. If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers, our results of operations would be adversely affected.
We cannot predict the extent to which we may experience future increases in costs of occupancy, fuel, vehicle maintenance, equipment, parts, wages and salaries, employee benefits, health care, self-insurance costs and other insurance premiums, as well as various regulatory compliance costs and other operating costs. To the extent such costs increase as a result of inflation or otherwise, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, and the rates we pay to our suppliers may increase, any of which could have a material adverse impact on our business, financial position, results of operations, and cash flows.
Public perceptions that the products we use and the services we deliver are not environmentally friendly or safe or that our practices are not sustainable may result in significant costs and adversely impact the demand for our products or services.
We sell, among other things, fertilizers, herbicides, fungicides, pesticides, rodenticides, and other chemicals. Public perception that the products we use and the services we deliver are not environmentally friendly or safe or are harmful to humans or animals, whether justified or not, or the improper application of these chemicals, could reduce demand for our products and services, increase regulation or government restrictions or actions, result in fines or penalties, impair our reputation, involve us in litigation that may result in significant costs, damage our brand names, and otherwise have a material adverse impact on our business, financial position, results of operations, and cash flows. Customers are also using social media to provide feedback and information about our Company and products and services in a manner that can be quickly and broadly disseminated. To the extent a customer has a negative experience with, or view of, our Company and shares it over social media, it may adversely impact our brand and reputation.
In addition, companies across many industries are facing increasing interest from stakeholders related to their environmental, social, and governance (“ESG”) practices, particularly as it relates to perceived effects of climate change. Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused on ESG practices and have placed increasing importance on the implications and social cost of their investments. While we believe that we currently hold a favorable view from stakeholders related to our ESG practices, there can be no assurance that we will be able to meet the future expectations of our stakeholders, which are evolving rapidly. As a result, we may suffer from reputational damage and our business or financial condition could be adversely affected.
Compliance with, or liabilities under, environmental, health and safety laws and regulations, including laws and regulations pertaining to the use and application of our products as well as climate change legislation, could result in significant costs that adversely impact our reputation, business, financial position, results of operations, and cash flows.
We are subject to federal, state, provincial, and local environmental, health and safety laws and regulations, including laws that regulate the emission or discharge of materials into the environment, govern the use, packaging, labeling, transportation, handling, treatment, storage, disposal, and management of chemicals and hazardous substances and waste, and protect the health and safety of our associates and users of our products. Such laws also impose liability for investigation and remediation failures, and damages resulting from, present and past releases of hazardous substances, including releases at sites we have ever owned, leased or operated, or used as a disposal site. We could be subject to fines, penalties, civil or criminal sanctions, personal injury, property damage, or other third-party claims as a result of violations of, or liabilities under, these laws and regulations. We could also incur significant investigation and cleanup costs for contamination at any currently or formerly owned or operated facilities, including LESCO’s manufacturing and blending facilities. In addition, changes in, or new interpretations of, existing laws, regulations, or enforcement policies as a result of the current presidential administration or otherwise, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including obligations with respect to any potential health hazards of our products, may lead to additional compliance or other costs that could have a material adverse effect on our business, financial position, results of operations, and cash flows.
In addition, in the United States, products containing herbicides and pesticides generally must be registered with the U.S. Environmental Protection Agency (“EPA”) and similar state agencies before they can be sold or distributed. The failure to obtain or the cancellation of any such registration, or the withdrawal from the marketplace of such products, could have an adverse effect on our business, the severity of which would depend in part on the products involved, whether other products could be substituted, and whether our competitors were similarly affected. The herbicides and pesticides we use are manufactured by independent third parties and are evaluated by the EPA as part of its ongoing exposure risk assessment. The EPA may decide that a herbicide or pesticide we use will be limited or will not be re-registered for use in the United States. We cannot predict the outcome or the severity of the effect of the EPA’s continuing evaluations.
The use of certain herbicide and pesticide products is also regulated by various federal, state, provincial, and local environmental and public health agencies. We may be unable to prevent violations of these or other regulations from occurring. Even if we are able to comply with all such regulations and obtain all necessary registrations and licenses, the herbicides and pesticides or other products we supply could be alleged to cause injury to the environment, to people or to animals, or such products could be banned in certain circumstances. We are subject to such allegations from time to time. The regulations may also apply to customers who may fail to comply with environmental, health and safety laws and subject us to liabilities. Costs to comply with environmental, health and safety laws, or to address liabilities or obligations thereunder, could have a material adverse impact on our reputation, business, financial position, results of operations, and cash flows.
Further, new legislation or regulatory change in response to the perceived effects of climate change has been, or is expected to be, adopted at both the state and federal level. These changes in environmental and climate change laws or regulations, including laws relating to greenhouse gas emissions, could lead to additional operational and compliance burdens, and collecting, measuring, and analyzing information relating to such matters can be costly, time-consuming, dependent on third-party cooperation, and unreliable. Such changes in climate change laws or regulations could further subject us to additional costs and restrictions, including additional investment in product designs and increased energy and raw material costs, as well as increased risk of litigation concerning our disclosures related thereto. We cannot predict how managing our climate change-related reporting obligations, as well as the consumer and retail impacts of climate change, could have a material adverse effect on our financial condition, results of operations, or cash flows.
Our business exposes us to risks associated with hazardous materials and related activities, not all of which are covered by insurance.
Because our business includes the managing, handling, storing, selling and transporting, and disposing of certain hazardous materials, such as fertilizers, herbicides, pesticides, fungicides, and rodenticides, we are exposed to environmental, health, safety, and other risks. We carry insurance to protect us against many accident-related risks involved in the conduct of our business and we maintain insurance coverage in accordance with our assessment of the risks involved, the ability to bear those risks, and the cost and availability of insurance. Each of these insurance policies is subject to exclusions, deductibles, and coverage limits. We do not insure against all risks and may not be able to insure adequately against certain risks and may not have insurance coverage that will pay any particular claim. We also may be unable to obtain adequate insurance coverage at commercially reasonable rates in the future for the risks we currently insure against, and certain risks are or could become completely uninsurable or eligible for coverage only to a reduced extent. Our business, financial condition, and results of operations could be materially impaired by environmental, health, safety, and other risks that reduce our revenues, increase our costs, or subject us to other liabilities in excess of available insurance.
Laws and government regulations applicable to our business could increase our legal and regulatory expenses, and impact our business, financial position, results of operations, and cash flows.
Our business is subject to significant federal, state, provincial, and local laws and regulations. These laws and regulations include laws relating to consumer protection, wage and hour requirements, the employment of immigrants, labor relations, permitting and licensing, building code requirements, workers’ safety, the environment, employee benefits, marketing and advertising, and the application and use of herbicides, pesticides, and other chemicals. In particular, we anticipate that various federal, state, provincial, and local governing bodies may propose additional legislation and regulation that may be detrimental to our business, may decrease demand for the products we supply, or may substantially increase our operating costs, including proposed legislation, such as environmental regulations related to chemical or nutrient use, water use, climate change, equipment efficiency standards, and other environmental matters; other consumer protection laws or regulations; or health care coverage. It is difficult to predict the future impact of the broad and expanding legislative and regulatory requirements affecting our businesses and changes to such requirements may adversely affect our business, financial position, results of operations, and cash flows. In addition, if we were to fail to comply with any applicable law or regulation, we could be subject to substantial fines or damages, be involved in litigation, suffer losses to our reputation, or suffer the loss of licenses, or incur penalties that may affect how our business is operated, which, in turn, could have a material adverse impact on our business, financial position, results of operations, and cash flows.
Our industry and the markets in which we operate are highly competitive and fragmented, and increased competitive pressures could reduce our share of the markets we serve and adversely affect our business, financial position, results of operations, and cash flows.
We operate in markets with relatively few large competitors, but barriers to entry in the landscape supply industry are generally low, and we may have several competitors within a local market area. Competition varies depending on product line, type of customer, and geographic area. Some local competitors may be able to offer higher levels of service, lower prices, or a broader selection of inventory than we can in particular local markets. As a result, we may not be able to continue to compete effectively with our competitors. Any of our competitors may foresee the course of market development more accurately than we do, provide superior service, sell or distribute superior products, have the ability to supply or deliver similar products and services at a lower cost, or on more favorable credit terms, develop stronger relationships with our customers and other consumers in the landscape supply industry, adapt more quickly to evolving customer requirements than we do, develop a superior network of distribution centers in our markets, or access financing on more favorable terms than we can obtain. As a result, we may not be able to compete successfully with our competitors.
In addition, we may face increased competition from new market entrants or companies in adjacent industries expanding into the landscape supply industry. Such competition may result in the diminution of our market share or the loss of one or more of our major customers, either of which would adversely affect our business, financial position, results of operations, and cash flows. Further, existing and future competitors, and private equity firms, increasingly compete with us for acquisitions, which can increase prices and reduce the number of suitable opportunities available to us; the acquisitions they make may also adversely impact our market position.
Competition can also reduce demand for our products and services, negatively affect our product sales and services or cause us to lower prices. Consolidation of professional landscape service firms may result in increased competition for their business. Certain product manufacturers that sell and distribute their products directly to landscapers may increase the volume of such direct sales. Our suppliers may also elect to enter into exclusive supplier arrangements with other distributors.
Former
We also face increased competition for our talent base from other employers, particularly competitors. If we are unable to retain our talent or lose talent to a competitor, our ability to achieve our strategic objectives may be adversely affected. In addition, former associates may start landscape supply businesses similar to ours, in competition with us. Our industry facesGiven the low barriers to entry makingin our industry, the possibility of former associates starting similar businesses may be more likely. Increased competition from businesses started by former associates may reduce our market share and adversely affect our business, financial position, results of operations, and cash flows.
Our customers consider the performance of the products we distribute, our customer service, and price when deciding whether to use our services or purchase the products we distribute. Excess industry capacity for certain products in several geographic markets
could lead to increased price competition. We may be unable to maintain our operating costs or product prices at a level that is sufficiently low for us to compete effectively. If we are unable to compete effectively with our existing competitors or new competitors enter the markets in which we operate, our financial condition, operating results, and cash flows may be adversely affected.
Product
Supply chain delays or interruptions, product shortages, loss of key suppliers, failure to develop relationships with qualified suppliers or dependence on third-party suppliers and manufacturers could affect our financial health.
Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers and other suppliers. Any disruption in our sources of supply, particularly of the most commonly sold items, could result in a loss of revenues, reduced margins, and damage to our relationships with customers. Supply shortages may occur as a result of unanticipated increases in demand or difficulties in production or delivery. WhenIn addition, we may be materially adversely impacted by disruptions within our supply chain network. Such disruptions may result from weather-related events, natural disasters, international trade disputes or trade policy changes or restrictions, tariffs or import-related taxes, third-party strikes, lock-outs, work stoppages or slowdowns, shortages of supply chain labor and truck drivers, shipping capacity constraints, military conflicts, acts of terrorism, public health issues (including public health emergencies and related shut-downs, re-openings, or other actions by the government), civil unrest, or other factors beyond our control. For example, in the 2022 Fiscal Year, our supply chains were negatively impacted by the COVID-19 pandemic, especially with respect to freight and labor availability. Although our supply chains stabilized in the 2023 Fiscal Year, when shortages occur, our suppliers often allocate products among distributors. The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our financial condition, operating results, and cash flows.flows, as well as our ability to benefit from ongoing supply chain initiatives.
Our ability to continue to identify and develop relationships with qualified suppliers who can comply with our Supplier Code of Conduct and satisfy our high standards for quality and our need to be supplied with products in a timely and efficient manner is a significant challenge. Our suppliers’ ability to provide us with products can also be adversely affected in the event they become financially unstable, particularly in light of continuing economic difficulties in various regions of the United States and the world, fail to comply with applicable laws, encounter supply disruptions, shipping interruptions, trade restrictions, tariffs or increased costs, or face other factors beyond our control.control, including, for example, as a result of the conflicts between Russia and Ukraine, the conflict in the Gaza Strip, and unrest in the Middle East.
Our agreements with suppliers are generally terminable by either party on limited notice, and in some cases we do not have written agreements with our suppliers. If market conditions change or worsen, suppliers may stop offering us favorable terms, including volume-based incentive terms. Our suppliers may increase prices or reduce discounts on the products we distribute and we may be unable to pass on any cost increase to our customers, thereby resulting in reduced margins and profits. Failure by our suppliers to continue to supply us with products on favorable terms, commercially reasonable terms, or at all, could put pressure on our operating margins or have a material adverse effect on our financial condition, results of operations, and cash flows.
The prices and costs of the products we purchase may be subject to large and significant price fluctuations. We might not be able to pass cost increases through to our customers, and we may experience losses in a rising price environment. In addition, we might have to lower our prices in a declining price environment, which could also lead to losses.
We purchase and sell a wide variety of products, the price and availability of which may fluctuate, and may be subject to large and significant price increases. Many of our contracts with suppliers include prices for commodities such as grass seed and chemicals used in fertilizer that are not fixed or are tied to an index, which allows our suppliers to change the prices of their products as the input prices fluctuate. Our business is exposed to these fluctuations, as well as to fluctuations in our costs for transportation and distribution. Changes in prices for the products that we purchase affect our net sales and cost of goods sold, as well as our working capital requirements, levels of debt and financing costs. We might not always be able to reflect increases in our costs in our own pricing. Any inability to pass cost increases on to customers may adversely affect our business, financial condition and results of operations. In addition, if market prices for the products that we sell decline, we may realize reduced profitability levels from selling such products and lower revenues from sales of existing inventory of such products.
We are subject to inventory management risks; insufficient inventory may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.
We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence because of changing customer requirements, fluctuating commodity prices, or the life-cycle of nursery goods, sod, and other green products. For example, while we increased our inventory levels in the 2022 Fiscal Year to mitigate the adverse impact of supply chain disruptions, we were able to normalize inventory levels in the 2023 Fiscal Year. In order to successfully manage our inventories, including grass seed, chemicals used in fertilizers, and nursery goods, sod, and other green products, we must estimate demand from our customers and purchase products that substantially correspond to that demand. If we overestimate demand and purchase too much of a particular product, we face a risk that the price of that product will fall, leaving us with inventory that we cannot sell profitably. In addition, we may have to write down such inventory if we are unable to sell it for its recorded value. Contracts with certain suppliers require us to take on additional inventory or pay a penalty, even in circumstances where we have excess inventory. By contrast, if we underestimate demand and purchase insufficient quantities of a product and the price of that product were to rise, we could be forced to purchase that product at a higher price and forego profitability in order to meet customer demand. Insufficient inventory levels may lead to shortages that result in delayed revenue or loss of sales opportunities altogether as potential end-customers turn to competitors’ products that are readily available. Our business, financial condition, and results of operations could suffer a material adverse effect if either or both of these situations occur frequently or in large volumes.
Many factors, such as weather conditions, agricultural limitations and restrictions relating to the management of pests and disease, affect the supply of nursery goods, grass seed, sod, and other green products. If the supply of these products available is limited, prices could rise, which could cause customer demand to be reduced and our revenues and gross margins to decline. For example, nursery goods, sod, and grass seed are perishable and have a limited shelf life. Should we be unable to sell our inventory of nursery goods, grass seed, sod, and other green products within a certain timeframe,time frame, we may face losses requiring write-downs. In contrast, we may not be able to obtain high-quality nursery goods and other green products in an amount sufficient to meet customer demand. Even if available, nursery goods from alternate sources may be of lesser quality or may be more expensive than those currently grown or purchased by us. If we are unable to effectively manage our inventory and that of our distribution partners, our business, financial condition, and results of operations could be adversely affected.
We may not successfully implement our business strategies, including achieving our growth objectives.
We may not be able to fully implement our business strategies or realize, in whole or in part within the expected time frames, the anticipated benefits of our various growth, or other initiatives.initiatives, such as our procurement and supply chain management initiatives, as well as our transportation and customer relationship management systems. Our various business strategies and initiatives, including our growth, operational, and management initiatives, are subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. The execution of our business strategy and our financial performance will continue to depend in significant part on our executive management team and other key management personnel, the smooth transition of new senior leadership and our executive management team’s ability to execute the new operational initiatives that they are undertaking. In addition, we may incur certain costs as we pursue our growth, operational, and management initiatives, and we may not meet anticipated implementation timetables or stay within budgeted costs. As these initiatives are undertaken, we may not fully achieve our expected efficiency improvements or growth rates, or these initiatives could adversely impact our customer retention, supplier relationships, or operations. Also, our business strategies may change from time to time in light of our ability to implement our business initiatives, competitive pressures, economic uncertainties or developments, or other factors.
We may be unable to successfully acquire and integrate other businesses.
Our historical growth has been driven in part by acquisitions, and future acquisitions are an important element of our business strategy. We may be unable to continue to grow our business through acquisitions. We may not be able to continue to identify suitable acquisition targets and may face increased competition for these acquisition targets.targets by both existing competitors as well as new market entrants. In addition, acquired businesses may not perform in accordance with expectations, and our business judgments concerning the value, strengths, and weaknesses of acquired businesses may not prove to be correct. We may also be unable to achieve expected improvements or achievements in businesses that we acquire. At any given time, we may be evaluating or in discussions with one or more acquisition targets, including entering into non-binding letters of intent. Future acquisitions may result in the incurrence of debt and contingent liabilities, legal liabilities, goodwill impairments, increased interest expense and amortization expense, and significant integration costs.
Acquisitions involve a number of special risks, including:
•our inability to manage acquired businesses or control integration costs and other costs relating to acquisitions;
•potential adverse short-term effects on operating results from increased costs or otherwise;
•diversion of management’s attention;
•failure to retain existing customers or key personnel of the acquired business and recruit qualified new associates at the location;
•failure to successfully implement infrastructure, logistics, and systems integration;integrations which could, among other things, increase the risk of a cybersecurity incident;
•potential impairment of goodwill;
•our inability to obtain financing necessary to complete acquisitions on attractive terms or at all;
•risks associated with the internal controls of acquired companies;
•exposure to legal claims for activities of the acquired business prior to acquisition and inability to realize on any indemnification claims, including with respect to environmental and immigration claims; and
•the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabilities; andliabilities.
our inability to obtain financing necessary to complete acquisitions on attractive terms or at all.
Our strategy could be impeded if we do not identify, or face increased competition for, suitable acquisition targets, and such increased competition could result in higher purchase price multiples we have to pay for acquisition targets or reduce the number of suitable targets. Our business, financial condition, results of operations, and cash flows could be adversely affected if any of the foregoing factors were to occur.
Increases in operating costs could adversely impact our business, financial position, results of operations and cash flows.
Our financial performance is affected by the level of our operating expenses, such as occupancy costs associated with the leases for our branch locations and costs of fuel, vehicle maintenance, equipment, parts, wages and salaries, employee benefits, health care, self-insurance costs and other insurance premiums as well as various regulatory compliance costs, all of which may be subject to inflationary pressures. In particular, our financial performance is adversely affected by increases in these operating costs.
Most of our facilities are located in leased premises. Many of our current leases are non-cancelable and typically have terms ranging from three to five years, with options to renew for specified periods of time. We believe that leases we enter into in the future will likely be long-term and non-cancelable and have similar renewal options. However, we may be unable to renew our current or future leases on favorable terms or at all which could have an adverse effect on our operations and costs. In addition, if we close a location, we generally remain committed to perform our obligations under the applicable lease, which include, among other things, payment of the base rent for the balance of the lease term.
We deliver a substantial volume of products to our customers by truck. Petroleum prices have fluctuated significantly in recent years. Prices and availability of petroleum products are subject to political, economic and market factors that are outside our control. Political events in petroleum-producing regions as well as hurricanes and other weather-related events may cause the price of fuel to increase. Our operating profit will be adversely affected if we are unable to obtain the fuel we require or to fully offset the anticipated impact of higher fuel prices through increased prices or fuel surcharges to our customers. Besides passing fuel costs on to customers, we have not entered into any hedging arrangements that protect against fuel price increases and we do not have any long-term fuel purchase contracts. If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers, our results of operations would be adversely affected.
We cannot predict the extent to which we may experience future increases in costs of occupancy, fuel, vehicle maintenance, equipment, parts, wages and salaries, employee benefits, health care, self-insurance costs and other insurance premiums as well as various regulatory compliance costs and other operating costs. To the extent such costs increase, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, and the rates we pay to our suppliers may increase, any of which could have a material adverse impact on our business, financial position, results of operations and cash flows.
Risks associated with our largelabor force and our customers’ labor force could have a significant adverse effect on our business.
We have an employee base of approximately 3,8007,800 associates. Various federal and state labor laws govern our relationships with our associates and affect our operating costs. These laws include employee classifications as exempt or non-exempt, minimum wage requirements, unemployment tax rates, workers’ compensation rates, overtime, family leave, anti-discrimination laws, safety standards, payroll taxes, citizenship requirements, and other wage and benefit requirements for employees classified as non-exempt. As our associates may be paid at rates that relate to the applicable minimum wage, further increases in the minimum wage could increase our labor costs. Associates may make claims against us under federal or state laws, which could result in significant costs. Significant additional government regulations, including the Employee Free Choice Act, the Paycheck Fairness Act, and the Arbitration Fairness Act, could materially affect our business, financial condition, and results of operations. In addition, we compete with other companies for many of our associates in hourly positions, and we invest significant resources to train and motivate our associates to maintain a high level of job satisfaction. OurLike many companies in our industry, our hourly employment positions have historically had high turnover rates, which can lead to increased spending on training and retention and, as a result, increased labor costs. If we are unable to effectively retain highly qualified associates in our key positions to deliver the future,customer experience, particularly our transportation and supply chain associates, it could adversely impact our business, financial position, results of operations, and cash flows.
None of our associates are currently covered by collective bargaining or other similar labor agreements. However, if a larger number of our associates were to unionize, including in the wakeas a result of any future legislation that makes it easier for associates to unionize, our business could be negatively affected. Any inability by us to negotiate collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs. If any such strikes or other work stoppages occur, or if other associates become represented by a union, we could experience a disruption of our operations and higher labor costs.
In addition, certain of our suppliers have unionized work forces and certain of our products are transported by unionized truckers. Strikes, work stoppages, or slowdowns could result in slowdowns or closures of facilities where the products that we sell are manufactured or could affect the ability of our suppliers to deliver such products to us. Any interruption in the production or delivery of these products could delay or reduce availability of these products and increase our costs.
Further, a large portion of our customers are in the landscape services industry, which is labor intensive. Demand for our products may be impacted by our customers’ ability to attract, train, and retain workers. Restrictive immigration policies, trends in labor migration, and increases in our customers’ personnel costs or the inability of our customers to hire sufficient personnel, which may be amplified in tight labor market conditions, could adversely impact our business, financial position, results of operations, and cash flows.
We depend on a limited number of key personnel. We may not be able to attract or retain key executives, which could adversely impact our business and inhibit our ability to operate and grow successfully.
We depend upon the ability and experience of a number of our executive management and other key personnel who have substantial experience with our operations and within our industry, including Doug Black, our Chairman, President, and Chief Executive Officer. The loss of the services of one or a combination of our senior executives or key employees could have a material adverse effect on our results of operations. Our business may also be negatively impacted if one of our senior executives or key employees is hired or recruited by a competitor. Our success also depends on our ability to continue to identify, attract, manage, motivate, and retain other qualified management personnel as we grow. We may not be able to continue to attract or retain such personnel in the future.
The nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings.
We rely on manufacturers and other suppliers to provide us with the products we sell and distribute. As we do not have direct control over the quality of the products manufactured or supplied by such third-party suppliers, we are exposed to risks relating to the quality of the products we distribute. It is possible that inventory from a manufacturer or supplier could be sold to our customers and later be alleged to have quality problems or to have caused personal injury, subjecting us to potential claims from customers or third parties. We are subject to such claims from time to time.
We operate a large fleet of trucks and other vehicles. From time to time, the drivers of these vehicles are involved in accidents which could result in material personal injuries and property damage claims and in which goods carried by these drivers may be lost or damaged. We cannot make assurances that we will be able to obtain insurance coverage to address a portion of these types of liabilities on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. Further, while we seek indemnification against potential liability for products liability claims from relevant parties, including but not limited to manufacturers and suppliers, we do not have written indemnification agreements from all of our suppliers and we may be unable to recover under such indemnification agreements that exist. An unsuccessful product liability defense could be highly costly and accordingly result in a decline in revenues and profitability. Finally, even if we are successful in defending any claim relating to the products we distribute, claims of this nature could negatively impact customer confidence in our products and our company.
Due to the highly regulated nature of certain of our products, from time to time, we may be involved in government inquiries and investigations, as well as tort proceedings, including toxic tort and product liability actions, and employment and other litigation. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, including environmental investigation, remediation, and other proceedings commenced by government authorities. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could adversely affect our operations or could require us to pay substantial amounts of money. Additionally, defending against lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources from other matters regardless of the ultimate outcome.
An impairment of goodwill and/or other intangible assets could reduce netNet income.
Acquisitions frequently result in the recording of goodwill and other intangible assets. As of December 31, 2017,2023, goodwill represented approximately 12%17% of our total assets. Goodwill is currently not amortized for financial reporting purposes and is subject to impairment testing at least annually using a fair-value based approach. The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units. Our accounting for impairment contains uncertainty because management must use its judgment in determining appropriate assumptions to be used in the measurement of fair value. We determine the fair values of our reporting units by using both a market and income approach.
We evaluate the recoverability of goodwill for impairment in between our annual tests when events or changes in circumstances, including a sustained decline in our market capitalization, indicate that the carrying amount of goodwill may not be recoverable. Any impairment of goodwill or other intangible assets, including as a result of market dynamics beyond our control, will reduce netNet income in the period in which the impairment is recognized.
Adverse credit and financial market events and conditions could, among other things, impede access to, or increase the cost of, financing or cause our customers to incur liquidity issues that could lead to some of our products not being purchased or orders being cancelled,canceled, or result in reduced operating revenue and netNet income, any of which could have an adverse impact on our business, financial position, results of operations, and cash flows.
Disruptions in credit or financial markets could, among other things, lead to impairment charges, make it more difficult for us to obtain, or increase our cost of obtaining, financing for our operations or investments or to refinance our indebtedness, cause our lenders to depart from prior credit industry practice and not give technical or other waivers under the Credit Facilities (as defined under “-Risks“—Risks Related to Our SubstantialCurrent Indebtedness” below), to the extent we may seek them in the future, thereby causing us to be in default under one or more of the Credit Facilities. These disruptions could also cause our customers to encounter liquidity issues that could lead to a reduction in the amount of our products purchased or services used, could result in an increase in the time it takes our customers to pay us, or could lead to a decrease in pricing for our products, any of which could adversely affect our accounts receivable, among other things, and, in turn, increase our working capital needs. In addition, adverse developments at federal, state, and local levels associated with budget deficits resulting from economic conditions could result in federal, state, and local governments increasing taxes or other fees on businesses, including us, to generate more tax revenues, which could negatively impact spending by customers on our products.
Inefficient or ineffective allocation of capital could adversely affect our operating results and/or stockholder value.
We strive to allocate capital in a manner that enhances stockholder value, lowers our cost of capital, or demonstrates our commitment to return excess capital to stockholders, while maintaining our ability to invest in strategic acquisition opportunities. In October 2022, our Board of Directors approved a share repurchase authorization for up to $400.0 million of the Company’s common stock. The Company has, and intends to continue to, purchase shares under the repurchase authorization from time to time on the open market at the discretion of management, subject to strategic considerations, market conditions, and other factors. Repurchases under our share repurchase program will reduce the market liquidity for our stock, potentially affecting its trading volatility and price. Future share repurchases will also diminish our cash reserves, which may impact our ability to pursue attractive strategic opportunities. Therefore, if we do not properly allocate our capital, including with respect to returning value to our stockholders through this share repurchase authorization, we may fail to produce optimal financial results and experience a reduction in stockholder value.
The majority of our netNet sales are derived from credit sales, which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the geographic areas in which they operate, and the failure to collect monies owed from customers could adversely affect our working capital and financial condition.
The majority of our netNet sales in our 20172023 Fiscal Year were derived from the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the areas where they operate. We offer credit to customers, generally on a short-term basis, either through unsecured credit that is based solely upon the creditworthiness of the customer, or secured credit for materials sold for a specific project where we establish a security interest in the material used in the project. The type of credit we offer depends on the customer’s financial strength. If any of our customers are unable to repay credit that we have extended in a timely manner, or at all, our working capital, financial condition, operating results, and cash flows would be adversely affected. Further, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward.
Because we depend on certain of our customers to repay extensions of credit, if the financial condition of our customers declines, our credit risk could increase as a result. Significant contraction in the residential and non-residential construction markets, coupled with limited credit availability and stricter financial institution underwriting standards, could adversely affect the operations and financial stability of certain of our customers. Should one or more of our larger customers declare bankruptcy, it could adversely affect the collectability of our accounts receivable, bad debt reserves, and netNet income.
Because we operate our business through highly dispersed locations across the United States and Canada, our operations may be materially adversely affected by inconsistent practices and the operating results of individual branches may vary.
We operate our business through a network of highly dispersed locations throughout the United States and Canada, supported by corporate executives and services infrom our headquarters, with local area and branch management retaining responsibility for day-to-day operations and adherence to applicable local laws. Our operating structure could make it difficult for us to coordinate procedures across our operations in a timely manner or at all. We may have difficulty attracting and retaining local personnel. In addition, our branches may require significant oversight and coordination from headquarters to support their growth. Inconsistent implementation of corporate strategy and policies at the local level could materially and adversely affect our overall profitability, prospects, business, results of operations, financial condition, and cash flows. In addition, the operating results of an individual branch may differ from that of another branch for a variety of reasons, including market size, management practices, competitive landscape, regulatory requirements, and local economic conditions. As a result, certain of our branches may experience higher or lower levels of growth and profitability than other branches.
Compliance with,In the event of a cybersecurity incident, we could experience operational interruptions, incur substantial additional costs, become subject to legal or liabilities under, environmental, health and safety laws and regulations, including laws and regulations pertainingregulatory proceedings, or suffer damage to our reputation.
In addition to the disruptions that may occur from interruptions in our information technology systems, cybersecurity threats and sophisticated and targeted cyberattacks pose a risk to our information technology systems, as well as those of our third-party service providers and other third parties with whom we do business and communicate. In connection with the increase in work-from-home arrangements, there has been a spike in cybersecurity attacks as work-from-home measures have led businesses to increase reliance on virtual environments and communications systems, which have been subject to increasing third-party vulnerabilities and security risks. In addition, the technology systems of businesses that we have acquired or may acquire, as well as their practices related to the collection, use, maintenance, and applicationdisclosure of fertilizers, herbicides, insecticidesdata, could present issues that we were not able to identify prior the acquisition or other issues that continue to pose risk to use, such as cybersecurity vulnerabilities or past cybersecurity or privacy incidents. We have established security policies, processes, and fungicides,defenses designed to help identify and protect against intentional and unintentional misappropriation or corruption of our information technology systems and information and disruption of our operations. Despite these efforts, and especially in light of increasingly sophisticated techniques used in cybersecurity attacks, our information technology systems and those of third parties with whom we do business or communicate may be damaged, disrupted, or shut down due to attacks by unauthorized access, malicious software, computer viruses, undetected intrusion, hardware failures, or other events, and in these circumstances where we cannot fully anticipate, detect, repel, or implement fully effective preventative measures, our disaster recovery plans may be ineffective or inadequate. These breaches or intrusions could lead to business interruption, exposure of proprietary or confidential information, data corruption, damage to our reputation, exposure to legal and regulatory proceedings, and other costs. A security breach might also lead to violations of privacy laws, regulations, trade guidelines or practices related to our customers and associates, and could result in significant costs thatpotential claims from customers, associates, shareholders, or regulatory agencies. Such events could adversely impact our reputation, business, financial position, results of operations, and cash flows.
We are subject to federal, state, provincial and local environmental, health and safety laws and regulations, including laws that regulate the emission or discharge of materials into the environment, govern the use, packaging, labeling, transportation, handling, treatment, storage, disposal and management of chemicals and hazardous substances and waste, and protect the health and safety In addition, we could be adversely affected if any of our associatessignificant customers or suppliers experiences any similar events that disrupt their business operations or damage their reputation. Furthermore, our increased use of mobile and users of our products. Such laws also impose liability for investigating and remediating, and damages resulting from, present and past releases of hazardous substances,cloud technologies, including releases at sites we have ever owned, leased or operated or used as a disposal site. We could be subject to fines, penalties, civil or criminal sanctions, personal injury, property damage or other third-party claims as a result of violations of, or liabilities under, these laws and regulations. We could also incur significant investigation and cleanup costs for contamination at any currently or formerly owned or operated facilities, including LESCO’s manufacturing and blending facilities. In addition, changes in working environments such as work-from-home arrangements, has heighted these cybersecurity and privacy risks, including risks from cyber-attacks such as phishing, spam emails, hacking, social engineering, and malicious software.
Additionally, to the extent artificial intelligence capabilities improve and are increasingly adopted, they may be used to identify vulnerabilities and craft increasingly sophisticated cybersecurity attacks. Attachments crafted with artificial intelligence tools could directly attack information systems with greater speed and/or new interpretationsefficiency than a human threat actor or create more effective phishing emails. Vulnerabilities may also be introduced from the use of existing laws, regulationsartificial intelligence by us, our customers, suppliers, and other business partners and third-party providers. Use of artificial intelligence by us or enforcement policies,such third parties, whether authorized or unauthorized, increases the discoveryrisk that our intellectual property and other proprietary information will be unintentionally disclosed.
While we maintain monitoring practices and protections of previously unknown contamination,our information technology to reduce these risks and test our systems on an ongoing basis for potential threats, there can be no assurance that these efforts will prevent a cyber-attack or other security breach. We have not always been able in the imposition of other environmental liabilities or obligationspast and may be unable in the future including obligations with respect to any potential health hazardsanticipate or prevent techniques used to obtain unauthorized access or to compromise our systems because the techniques used change frequently and are generally not detected until after an incident has occurred.
In July 2020, we experienced a ransomware attack on our information technology systems. There can be no guarantees that the attack will not lead to the disclosure of customer data, our trade secrets, or other intellectual property, or personal information of our products, may lead to additional compliance or other costsemployees. There can be no guarantee that couldthe release of any of this information will not have a material adverse effect on our business, financial position, results of operations and cash flows.
In addition, in the United States, products containing herbicides and pesticides generally must be registered with the U.S. Environmental Protection Agency (“EPA”) and similar state agencies before they can be sold or applied. The failure to obtain or the cancellation of any such registration, or the withdrawal from the marketplace of such products, could have an adverse effect on our business, the severity of which would depend in part on the products involved, whether other products could be substituted and whether our competitors were similarly affected. The herbicides and pesticides we use are manufactured by independent third parties and are evaluated by the EPA as part of its ongoing exposure risk assessment. The EPA may decide that a herbicide or pesticide we use will be limited or will not be re-registered for use in the United States. We cannot predict the outcome or the severity of the effect of the EPA’s continuing evaluations.
In addition, the use of certain herbicide and pesticide products is regulated by various federal, state, provincial and local environmental and public health agencies. We may be unable to prevent violations of these or other regulations from occurring. Even if we are able to comply with all such regulations and obtain all necessary registrations and licenses, the herbicides and pesticides or other products we supply could be alleged to cause injury to the environment, to people or to animals, or such products could be banned in certain circumstances. The regulations may also apply to customers who may fail to comply with environmental, health and safety laws and subject us to liabilities. Costs to comply with environmental, health and safety laws, or to address liabilities or obligations thereunder, could have a material adverse impact on our reputation, business, financial position, results of operations and cash flows.
Our business exposes us to risks associated with hazardous materials and related activities, not all of which are covered by insurance.
Because our business includes the managing, handling, storing, selling and transporting and disposing of certain hazardous materials, such as fertilizers, herbicides, pesticides, fungicides and rodenticides, we are exposed to environmental, health, safety and other risks. We carry insurance to protect us against many accident-related risks involved in the conduct of our business and we maintain insurance coverage in accordance with our assessment of the risks involved, the ability to bear those risks and the cost and availability of insurance. Each of these insurance policies is subject to exclusions, deductibles and coverage limits. We do not insure against all risks and may not be able to insure adequately against certain risks and may not have insurance coverage that will pay any particular claim. We also may be unable to obtain at commercially reasonable rates in the future adequate insurance coverage for the risks we currently insure against, and certain risks are or could become completely uninsurable or eligible for coverage only to a reduced extent. Our business, financial condition, and results of operations could be materially impaired by environmental, health, safety and other risks that reduce our revenues, increase our costs or subject us to other liabilities in excess of available insurance.
Laws and government regulations applicable to our business could increase our legal and regulatory expenses, and impact our business, financial position, results of operations and cash flows.
Our business is subject to significant federal, state, provincial and local laws and regulations. These laws and regulations include laws relating to consumer protection, wage and hour requirements, the employment of immigrants, labor relations, permitting and licensing, building code requirements, workers’ safety, the environment, employee benefits, marketing and advertising and the application and use of herbicides, pesticides and other chemicals. In particular, we anticipate that various federal, state, provincial and local governing bodies may propose additional legislation and regulation that may be detrimental to our business, may decrease demand for the products we supply or may substantially increase our operating costs, including proposed legislation, such as environmental regulations related to chemical or nutrient use, water use, climate change, equipment efficiency standards and other environmental matters; other consumer protection laws or regulations; or health care coverage. It is difficult to predict the future impact of the broad and expanding legislative and regulatory requirements affecting our businesses and changes to such requirements may adversely affect our business, financial
position, results of operations and cash flows.operations. In addition, if we were to fail to comply with any applicable law or regulation, wethe July 2020 ransomware attack could be subject to substantial fines or damages, be involvedresult in litigation, suffer losses to our reputation or suffer the loss of licenses or incur penalties that may affect how our business is operated, which, in turn, could have a material adverse impact on our business, financial position, results of operations and cash flows.
The nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings.
We rely on manufacturers and other suppliers to provide us with the products we sell and distribute. As we do not have direct control over the quality of the products manufactured or supplied by such third-party suppliers, we are exposed to risks relating to the quality of the products we distribute. It is possible that inventory from a manufacturer or supplier could be sold to our customers and later be alleged to have quality problems or to have caused personal injury, subjecting us to potential claims from customers, associates, stockholders, or third parties. We have been subject to such claims in the past, which have been resolved without material financial impact.
We operate a large fleet of trucks and other vehicles. From time to time, the drivers of these vehicles are involved in accidentsregulatory agencies, which could result in material personal injuriessignificant judgements against us, penalties, and property damage claimsfines. The cost of investigating, mitigating, and in which goods carried by these drivers mayresponding to potential data security breaches and complying with applicable breach notification obligations to individuals, regulators, partners, and others could be lost or damaged.significant.
We cannot make assurances that we will be ablecarry cybersecurity insurance to obtain insurance coverage to address a portion of these types of liabilities on acceptable termshelp mitigate the financial exposure and related notification procedures in the future, if at all, orevent of intentional intrusion, including the July 2020 ransomware attack; however, there can be no assurance that any suchour insurance will provide adequate coverageadequately protect against potential claims. Further, while we seek indemnification against potential liability for products liability claims from relevant parties, including but not limited to manufacturers and suppliers, we do not have written indemnification agreements from all of our suppliers and we may be unable to recover under such indemnification agreementslosses that exist. An unsuccessful product liability defense could be highly costly and accordingly result in a decline in revenues and profitability. Finally, even if we are successful in defending any claim relating to the products we distribute, claims of this nature could negatively impact customer confidence in our products and our company.
From time to time, we may be involved in government inquiries and investigations, as well as employment, tort proceedings, including toxic tort actions, and other litigation. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, including environmental investigation, remediation and other proceedings commenced by government authorities. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could adversely affect our operations or could require us to pay substantial amounts of money. Additionally, defending against lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources from other matters regardless of the ultimate outcome.business.
We rely on our computer and data processing systems, and a large-scale malfunction or failure in our information technology systems could disrupt our business, create potential liabilities for us, or limit our ability to effectively monitor, operate, and control our operations and adversely impact our reputation, business, financial position, results of operations, and cash flows.
Our ability to keep our business operating effectively depends on the functional and efficient operation of our enterprise resource planning, telecommunications, inventory tracking, billing, and other information systems. We rely on these systems and the systems of certain third-party vendors to track transactions, billings, payments, and inventory, as well as to make a variety of day-to-day business decisions. We may experience system malfunctions, interruptions, or security breaches from time to time. OurSome of our systems also run older generations of software that may be unable to perform as efficiently as, and fail to communicate well with, newer systems. We are in the process of upgrading our management information technology systems. As we implement or develop new systems in the future, we may elect to modify, replace, or discontinue certain technology initiatives, which could result in write-downs, and changesinitiatives. Changes or modifications to our information technology systems could cause disruptions to our operations or cause challenges with respect to our compliance with laws, regulations, or other applicable standards.
A significant or large-scale malfunction interruption or security breachinterruption of our systems or the systems of third-party vendors could adversely affect our ability to manage and keep our operations running efficiently and damage our reputation. A malfunction that results in a wider or sustained disruption to our business could have a material adverse effect on our business, financial condition, and results of operations, as well as on the ability of management to align and optimize technology to implement business strategies. A security breach might also lead to violations of privacy laws, regulations, trade guidelines or practices related to our customers and associates and could result in potential claims from customers, associates, shareholders or regulatory agencies. If our disaster recovery plans do not work as anticipated, or if any third-party vendors to which we have outsourced certain information technology or other services fail to fulfill their obligations to us, our operations may be adversely impacted and any of these circumstances could adversely impact our reputation, business, financial position, results of operations, and cash flows.
If we fail to protect the security of personal information about our customers, we could be subject to interruption of our business operations, private litigation, reputational damage, and costly penalties.
We rely on, among other things, commercially available systems, software, tokenization, tools, and monitoring to provide security for collecting, processing, transmitting, and storing confidential customer information, such as payment card and personally identifiable information. The systems we currently use for payment card transactions, and the technology utilized in payment cards themselves, all of which can put payment card data at risk, are central to meeting standards set by the payment card industry, or PCI. We continue to evaluate and modify our systems and protocols for PCI compliance purposes; however, PCI data security standards may change from time to time. Activities by third parties, advances in computer and software capabilities and encryption technology, new tools and discoveries, and other events or developments may facilitate or result in a compromise or breach of our systems. Any compromises, breaches, or errors in applicationapplications related to our systems or failures to comply with data security standards set by the PCI, could cause damage to our reputation and interruptions in our operations, including our customers’ ability to pay for our products and services by credit card or their willingness to purchase our products and services, and could further result in a violation of applicable laws, regulations, orders, industry standards, or agreements and subject us to costs, penalties, litigation, and liabilities which could have a material adverse impact on our reputation, business, financial position, results of operations, and cash flows.
We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.
Our ability to compete effectively depends in part on our rights to service marks, trademarks, trade names, and other intellectual property rights we own or license, particularly our registered trademarks SiteOne®, LESCO®, SiteOne Green Tech®, and LESCOPro-Trade®. We have not sought to register or protect every one of our marks or brand names either in the United States or in every country in which they are or may be used. Furthermore, because of the differences in foreign trademark, patent, and other intellectual property or proprietary rights laws, we may not receive the same protection in other countries as we would in the United States. If we are unable to protect our proprietary information and brand names, we could suffer a material adverse impact on our reputation, business, financial position, results of operations, and cash flows. Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products, services, or activities infringe their intellectual property rights.
The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the NYSE, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
As a public company, we face significant legal, accounting, compliance and other expenses that we did not incur as a private company. We are obligated to file annual and quarterly information and other reports with the SEC, as required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and applicable SEC rules. We are also subject to other reporting and corporate governance requirements, including certain requirements of the NYSE, which impose significant compliance obligations upon us and increase our operating costs.
In addition, the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules subsequently implemented by the SEC and the NYSE, have imposed increased regulation and disclosure obligations and have required enhanced corporate governance practices of public companies. Our efforts to comply with evolving laws, regulations and standards are likely to result in increased administrative expenses and a diversion of management’s time and attention from sales-generating activities. If we do not comply with such requirements, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE. Any such action could harm our reputation and the confidence of investors and could materially adversely affect our business and cause our stock price to decline.
These requirements also place additional demands on our finance and accounting staff and on our financial accounting and information systems. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.
Any deficiencies in our financial reporting or internal controls could adversely affect our business and the trading price of our common stock.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting. Beginning with this Annual Report on Form 10-K (our second annual report following our initial public offering), we are required to provide a management report on internal control over financial reporting, which must be attested to by our independent registered public accounting firm.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to maintain or develop effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.
If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. In addition, our internal control over financial reporting may not prevent or detect all errors and fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If there are material weaknesses or failures in our ability to meet any of the requirements related to the maintenance and reporting of our internal controls, investors may lose confidence in the accuracy and completeness of our financial reports, which in turn could cause the price of our common stock to decline. Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our internal controls, it may negatively impact our business, results of operations and reputation. In addition, we could become subject to investigations by the NYSE, the SEC or other regulatory authorities, which could require additional management attention and which could adversely affect our business.
We may be subject to securities litigation, which is expensive and could divert management attention and resources from our business.
Our share price may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could adversely impact our business. Any adverse determination in litigation could also subject us to significant liabilities.
We may be subject to unanticipated changes in our tax provisions, including further changes to applicable U.S. tax laws.
In December 2017,
We are subject to income and other taxes in U.S. federal and state jurisdictions, as well as Canada. Changes in applicable U.S. or Canadian tax laws and regulations, or their interpretation and application, including the Tax Cutspossibility of retroactive effect, could impact our tax expense and Jobsprofitability. There may also be technical corrections or superseding legislation proposed with respect to tax laws, the risk of which may be elevated due to the current presidential administration, and the effect and timing cannot be predicted and may be adverse to us or our business, financial position, results of operations, and cash flows. For example, on August 16, 2022, President Biden signed into law the Inflation Reduction Act (the “2017 Tax Act”of 2022 (“IRA”) was enacted. The 2017 Tax Act includes, which contains a number of changestax-related provisions, including, among others, a 15% corporate alternative minimum tax on book income of certain large corporations effective for tax years beginning after December 31, 2022, and a 1% excise tax on corporate stock repurchases. The 1% excise tax on share repurchases applies to existing U.S. tax laws that impact us, most notably a reduction ofshares repurchased after December 31, 2022, subject to certain exceptions. We are unable to predict the U.S. corporate income tax rate from 35%full extent to 21%, which required us to re-measure certain deferred tax assets and liabilities in the reporting period in which the 2017 Tax Act was signed into law, a one-time transition tax on certain foreign earnings that were previously deferred, and immediate expensing for certain assets placed into service after September 27, 2017. We recognized the income tax effects of the 2017 Tax ActIRA or other potential changes in our 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of Accounting Standards Codification (“ASC”) Topic 740, Income Taxes. At December 31, 2017, we have not completed the accounting for the tax effects of enactment of the 2017 Tax Act. In certain instances, however, we have made a reasonable estimate (provisional amount) of the effects on our existing deferred tax balances and one-time transition tax. In other cases, we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC Topic 740, and the provisions of the tax laws that wereor changes in effecttheir interpretation could have a material adverse impact on our operating results. We have filed our tax returns in prior years based upon certain filing positions we believe are appropriate. If the Internal Revenue Service or state taxing authorities disagree with these filing positions, we may owe additional taxes.
Acts or threats of terrorism, public health emergencies, violence, or unfavorable or uncertain political conditions could harm our business.
Acts of terrorism or war, public health emergencies, political or civil unrest and uncertainty, public health emergencies, and other catastrophes may disrupt commerce and undermine consumer confidence, which could negatively affect our sales by causing consumer spending to enactment. In all cases, we will continuedecline. Also, an act of terrorism or war, or the threat thereof, political or civil unrest or uncertainty, public health emergencies (such as the COVID-19 pandemic), and other catastrophes, could negatively affect our business by interfering with our ability to make and refineobtain products from our calculations as additional analysis is completed, andsuppliers or distribute products to our provisional estimates may also be affected as we gain a more thorough understandingcustomers.
Risks Related to Our Current Indebtedness
We have substantialoutstanding indebtedness and may incur substantial additional indebtedness, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business, or satisfy our obligations.
As of December 31, 20172023, we had $476.1$379.0 million aggregate principal amount of total long-term consolidated indebtedness outstanding and $11.7$91.6 million of capital leases.finance lease obligations excluding interest.
SiteOne Landscape Supply Holding, LLC (“Landscape Holding”) and SiteOne Landscape Supply, LLC (“Landscape”) are parties to (i) a credit agreement dated December 23, 2013, which has been amended pursuant to Amendment No. 1 dated June 13, 2014, Amendment No. 2 dated January 26, 2015, Amendment No. 3 dated February 13, 2015 and Amendment No. 4 dated October 20, 2015 (such agreement, as so amended, the “ABL Credit Agreement”), providing for an asset-based loan facility in the amount of up to $325.0$600.0 million, subject to availability under a borrowing base with UBS AG, Stamford Branch, as administrative agent and collateral agent, and(as so amended, the other financial institutions and lenders from time to time party thereto (the “ABL Facility”).
Landscape Holding and Landscape are parties to(ii) an amended and restated credit agreement dated April 29, 2016, providing for a syndicated senior secured term loan facility, with UBS AG, Stamford Branch, as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto (as amended by the First Amendment to Amended and Restated Credit Agreement, datedwhich had an outstanding balance of $369.6 million as of November 23, 2016, and the Second Amendment to Amended and Restated Credit Agreement, dated as of May 24, 2017, and as furtherDecember 31, 2023 (as so amended, supplemented, waived or otherwise modified from time to time, the “Term Loan Facility”“the New Term Loans” and, together with the ABL Facility, the “Credit Facilities”) with the maturity date of April 29, 2022. On December 12, 2017, the Term Loan Facility was amended to, among other things, (i) add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche D Term Loans”) in an aggregate principal amount of $298.0 million and (ii) increase the aggregate principal amount of Tranche D Term Loans under the Term Loan Facility to $350.0 million. Proceeds of the Tranche D Term Loans were used to, among other things, repay approximately $50.7 million of borrowings outstanding under the ABL Facility. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Term Loan Facility Amendments.”.
In addition, we are able to incur additional indebtedness in the future, subject to the limitations contained in the agreements governing our indebtedness.
Our substantialcurrent indebtedness could have important consequences. Because of our substantialcurrent indebtedness:
•our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing is limited;
•our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements, or general corporate purposes, and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future;
•a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes;
•although we enter into interest rate hedging transactions periodically, we are exposed to the risk of increased interest rates because borrowings under the Credit Facilities and certain floating rate operating and capitalfinance leases are at variable rates of interest;
•it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness;
•we may be more vulnerable to general adverse economic and industry conditions;
•we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns;
•our ability to refinance indebtedness may be limited or the associated costs may increase;
•our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and
•we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve operating margins of our businesses.
Increases
Although the Credit Facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions may be significant. If additional indebtedness is added to our current debt levels, the risks to our financial health, our ability to react to changes in our business, or satisfy our obligations may intensify.
Significant or prolonged periods of higher interest rates would increase the cost of servicing our indebtedness and could reduce our profitability.
Our indebtedness under the Credit Facilities bears interest at variable rates, and as a result, increases insignificant or prolonged periods of higher interest rates would increase the cost of servicing our indebtedness and could materially reduce our profitability and cash flows. As of December 31, 2017 each one percentage point change in interest rates would result in an approximately $1.3 million change in the annual interest expense on the amount outstanding under the ABL Facility. As of December 31, 2017, each one percentage point change in interest rates would result in an approximately $3.5 million change in the annual interest expense on the Term Loan Facility. The impact of increases insignificant or prolonged periods of higher interest rates could be more significant for us than it would be for some other companies because of our substantialcurrent indebtedness. As of December 31, 2023, an increase of one percentage point in interest rates would result in an increase of approximately $1.9 million in projected interest payments for the 2024 Fiscal Year based on the amounts outstanding under the ABL Facility and the New Term Loans that were not covered by our interest rate swap contracts.
A lowering or withdrawal of the ratings, outlook or watch assigned
We may use interest rate risk management techniques in an effort to limit our debt securities by rating agenciesexposure to interest rate fluctuations. Such techniques may increase our future borrowing costs and reduce our access to capital.
The ratings, outlook or watch assigned to our indebtedness could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, current or future circumstances relatinginclude various interest rate hedging activities to the basisextent permitted by the Investment Company Act of 1940. Additionally, we cannot assure you that financing will be available on acceptable terms, if at all. Deterioration in the rating, outlook, or watch such as adverse changescredit markets, which could delay our ability to our business, so warrant. Based on the financial performancesell certain of our businesses and the outlook for future years,loan investments in a timely manner, could also negatively impact our credit ratings, outlook or watch could be negatively impacted. Any loweringcash flows.
The agreements and instruments governing our indebtedness contain restrictions and limitations that could significantly impact our ability to operate our business.
Our Credit Facilities contain customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. The negative covenants limit the ability of Landscape Holding and Landscape to:
incur additional indebtedness;
pay dividends, redeem stock, or make other distributions;
repurchase, prepay or redeem subordinated indebtedness;
make investments;
create restrictions on the ability of Landscape Holding’s restricted subsidiaries to pay dividends or make other intercompany transfers;
create liens;
transfer or sell assets;
make negative pledges;
consolidate, merge, sell, or otherwise dispose of all or substantially all of Landscape Holding’s assets;
enter into certain transactions with affiliates; and
designate subsidiaries as unrestricted subsidiaries.
In addition, the ABL Facility is subject to various covenants requiring minimum financial ratios, and our additional borrowings may be limited by these financial ratios. Our ability to comply with the covenants and restrictions contained in the Credit Facilities, may be affected by economic, financial, and industry conditions beyond our control including credit or capital market disruptions. The breach of any of these covenants or restrictions could result in a default that would permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay indebtedness, lenders having secured obligations, such as the lenders under the Credit Facilities, could proceed against the collateral securing the indebtedness. In any such case, we may be unable to borrow under the Credit Facilities and may not be able to repay the amounts due under such facilities. This could have serious consequences to our financial position and results of operations and could cause us to become bankrupt or insolvent.
Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
Our ability to make scheduled payments on, or to refinance our obligations under, our indebtedness depends on the financial and operating performance of our subsidiaries, which, in turn, depends on their results of operations, cash flows, cash requirements, financial position, and general business conditions, and any legal and regulatory restrictions on the payment of dividends to which they may be subject, many of which may be beyond our control.
We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital, or restructure our indebtedness. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our indebtedness, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.
The final maturity date of the ABL Facility is October 20, 2020.July 22, 2027. The final maturity date of the New Term Loan FacilityLoans is April 29, 2022.March 23, 2028. We may be unable to refinance any of our indebtedness or obtain additional financing, particularly because of our high levels of indebtedness. Market disruptions, such as those experienced in 2008 and 2009,2020, as well as our significant indebtedness levels, may increase our cost of borrowing or adversely affect our ability to refinance our obligations as they become due. If we are unable to refinance our indebtedness or access additional credit, or if short-term or long-term borrowing costs dramatically increase, our ability to finance current operations and meet our short-term and long-term obligations could be adversely affected.
Risks Related to Our Common Stock
Holdings is a holding company with no operations of its own, and it depends on its subsidiaries for cash to fund all of its operations and expenses, including to make future dividend payments, if any.
Our operations are conducted entirely through our subsidiaries, and our ability to generate cash to fund operations and expenses, to pay dividends or to meet debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries through dividends or intercompany loans. Deterioration in the financial condition, earnings or cash flow of Landscape and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, to the extent that Holdings needs funds, and its subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of our financing arrangements, or are otherwise unable to provide such funds, it could materially adversely affect our business, financial condition, results of operations and cash flows.
Further, the terms of the agreements governing the Credit Facilities restrict the ability of our subsidiaries to pay dividends, make loans or otherwise transfer assets to Holdings. Furthermore, our subsidiaries are permitted under the terms of the Credit Facilities and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to us. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock.
We do not currently expect to declare or pay dividends on our common stock for the foreseeable future. Payments of dividends, if any, will be at the sole discretion of our board of directors after taking into account various factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications of the payment of dividends by us to our stockholders or by our subsidiaries (including Landscape) to us, and such other factors as our board of directors may deem relevant. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock. To the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends.
The market price of our common stock may be volatile.
The stock market in general and our common stock in particular have recently experienced significant volatility and the market price of our common stock may continue to fluctuate significantly. Among the factors that could affect our stock price are:
•industry or general market conditions;
•domestic and international economic and political factors unrelated to our performance;
•changes in our customers’ or their end-users’ preferences;
•new regulatory pronouncements and changes in regulatory guidelines;
•lawsuits, enforcement actions, and other claims by third parties or governmental authorities;
•actual or anticipated fluctuations in our quarterly operating results;
•changes in securities analysts’ estimates of our financial performance;
•action by institutional stockholders or other large stockholders, including future sales;
•comments by public figures or other third parties, including blogs, articles, message boards, and social and other media;
•failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices;
•announcements by us of significant impairment charges;
•speculation in the press or investment community;
•investor perception of us and our industry;
•changes in market valuations or earnings of similar companies;
•announcements by us or our competitors of significant contracts, acquisitions, dispositions, or strategic partnerships;
•novel and unforeseen trading strategies adopted by retail investors or other market participants;
•war, civil unrest, terrorist acts, and epidemic disease;disease, including the ongoing conflicts between Russia and Ukraine, the conflict in the Gaza Strip, and unrest in the Middle East;
•any future repurchases or sales of our common stock or other securities; and
•additions or departures of key personnel.
In particular, we cannot assure that you will be able to resell your shares at or above your purchase price. The stock markets have experienced extremesignificant volatility in recent years that has been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the affected company. Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention and resources, which would harm our business, results of operations, financial condition, and cash flows.
Future sales
Holdings is a holding company with no operations of shares by usits own, and it depends on its subsidiaries for cash to fund all of its operations and expenses, including to make future dividend payments, if any.
Our operations are conducted entirely through our subsidiaries, and our ability to generate cash to fund operations and expenses, to pay dividends, or to meet debt service obligations is highly dependent on the earnings, and the receipt of funds from our existing stockholderssubsidiaries through dividends or intercompany loans. Deterioration in the financial condition, earnings, or cash flow of Landscape and its subsidiaries for any reason could causelimit or impair their ability to pay such distributions. Additionally, to the extent that Holdings needs funds, and its subsidiaries are restricted from providing funding or capital under applicable law or regulation or under the terms of our stock priceCredit Facilities, or are otherwise unable to decline.provide such funds, it could materially adversely affect our business, financial condition, results of operations, and cash flows.
Sales of substantial amounts of
We do not currently expect to declare or pay dividends on our common stock infor the public market, orforeseeable future. Payments of dividends, if any, will be at the perception that these sales could occur, could cause the market pricesole discretion of our common stockBoard of Directors after taking into account various factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, our ability and plans to decline. These sales, orfund future share repurchases, contractual, legal, tax, and regulatory restrictions, and implications of the possibility that these sales may occur, also might make it more difficult forpayment of dividends by us to sell equity securities in the future at a timeour stockholders or by our subsidiaries (including Landscape) to us, and at a pricesuch other factors as our Board of Directors may deem relevant. In addition, Delaware law may impose requirements that we deem appropriate.
In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement or associate arrangement or otherwise. Any of these issuances could result in dilutionrestrict our ability to our existing stockholders and could cause the trading price of our common stockpay dividends to decline.
Future offerings of debt or equity securities may adversely affect the market price of our common stock.
If, in the future, we decide to issue debt or equity securities that rank senior to our common stock, it is likely that such securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to ownersholders of our common stock. We and, indirectly, our stockholders, will bearTo the cost of issuing and servicing such securities. Because our decisionextent that we determine in the future to issue debt or equity securities in any future offering will dependpay dividends on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock, will bear the risknone of our future offerings reducingsubsidiaries will be obligated to make funds available to us for the market pricepayment of our common stock and diluting the value of their stock holdings in us.dividends.
Anti-takeoverOur organizational documents contain certain provisions in our amended and restated certificate of incorporation and amended and restated by-laws couldthat may discourage, delay, or prevent a change of control of our companyCompany and may affect the trading price oflimit our common stock.stockholders’ ability to obtain a favorable judicial forum for certain disputes.
Our third amended and restated certificate of incorporation (“Charter”) and secondthird amended and restated by-laws or amended and restated by-laws,(“By-laws”) include a number of provisions that may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. For example, our amendedCharter and restated certificate of incorporation and amended and restated by-lawsBy-laws, collectively:
•authorize the issuance of “blank check” preferred stock that could be issued by our boardBoard of directorsDirectors to thwart a takeover attempt;
•provide for a classified board of directors, which divides our boardBoard of directorsDirectors into three classes, with members of each class serving staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting;
•limit the ability of stockholders to remove directors;
•provide that vacancies on our boardBoard of directors,Directors, including vacancies resulting from an enlargement of our boardBoard of directors,Directors, may be filled only by a majority vote of directors then in office;
•prohibit stockholders from calling special meetings of stockholders;
•prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders; and
•establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders; andstockholders.
require the approval of holders of at least 66 2⁄3% of the outstanding shares of our common stock to amend our amended and restated by-laws and certain provisions of our amended and restated certificate of incorporation.
These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may limit the price that investors might be willing to pay in the future for shares of our common stock and/or adversely affect the prevailing market price of our common stock if the provisions are viewed as discouraging takeover attempts in the future.
Our amended and restated certificate of incorporation and amended and restated by-laws may also make it difficult for stockholders to replace or remove our management. Furthermore, the existence of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of our stockholders.
We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We do not intend to declare and pay dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to service our debt, to fund our growth, to develop our business, for working capital needs and for general corporate purposes. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares. In addition, Holdings’ operations are conducted entirely through our subsidiaries. As such, to the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to Holdings for the payment of dividends. Further, the agreements governing the Credit Facilities significantly restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated certificate of incorporationCharter provides that the Court of Chancery of the State of Delaware is, to the fullest extent permitted by law, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, other employees, agents, or stockholders, (iii) any action asserting a claim arising out of or under the General Corporation Law of the State of Delaware (the “DGCL”), or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware (including, without limitation, any action asserting a claim arising out of or pursuant to our amended and restated certificate of incorporationCharter or our amended and restated by-laws)By-laws), or (iv) any action asserting a claim that is governed by the internal affairs doctrine. By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporationCharter related to choice of forum. The choice of forum provision in our amended and restated certificate of incorporationCharter may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or any of our directors, officers, other employees, agents, or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporationCharter to be inapplicable or unenforceable in an action, we
may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
A terrorist attack or the threat of a terrorist attack could have a material adverse effect on our business.
Discretionary spending on landscape projects is generally adversely affected during times of economic or political uncertainty. The potential for terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility could create these types of uncertainties and negatively impact our business for the short or long term in ways that cannot presently be predicted.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
Risk Management and Strategy
We maintain an information security program designed to detect, identify, manage, and protect against cybersecurity and other data security threats to our information technology systems. This information security program is based in-part on, and is periodically measured against, the National Institute of Standards and Technology (“NIST”) framework. Risks identified by our information security program are monitored and analyzed to determine the severity and likelihood of occurrence. IT risks are incorporated into our annual Enterprise Risk Management process and are presented to the Audit Committee annually.
Additionally, in furtherance of detecting, identifying, managing, and protecting against cybersecurity and other data security threats, we also:
•utilize Geo-IP blocking to restrict access from outside North America to our external networks, systems, and websites;
•maintain established information security policies and processes;
•provide regular security and privacy workforce training to instruct all associates on identifying and safeguarding against cybersecurity concerns;
•deploy regular network and endpoint software updates on all company-managed systems and workstations to detect and prevent, among others, viruses, malicious code, unauthorized access, and phishing attempts;
•maintain a disaster recovery plan, and perform at least two disaster recovery exercises annually to validate and optimize our recovery efforts in event of a cybersecurity incident;
•conduct quarterly phishing exercises for all associates and, if necessary, additional training or remedial action is taken;
•regularly engage third-party cybersecurity experts to conduct vulnerability assessments and penetration testing on our information networks, systems, and applications; and
•maintain cybersecurity liability insurance.
We also have an incident response plan that includes procedures to notify, triage, contain, and investigate material cybersecurity incidents. In connection with such plan, we retain a leading cybersecurity incident response firm to provide immediate support in the event of a material cybersecurity incident.
Cybersecurity risks related to third-party IT providers and solutions are managed as part of our vendor security protocol that includes vendors, software, and cloud-based service providers. We partner with our vendors to minimize the customer data needed to provide services and ensure compliance with regulations. Vendors are reviewed annually to identify any changes to services, data requirements, and associated security and protections. Where applicable, vendors are contractually bound to protect customer data and support enforcement of all regulatory requirements. We proactively evaluate the cybersecurity risk of third-party IT providers and solutions by utilizing a repository of risk assessments and an external monitoring solution that includes threat intelligence to better inform us during contracting and vendor selection processes. When third party risks are identified, we require those third parties to agree by contract to implement appropriate security controls or refrain from doing business with them. Security issues are documented, tracked, and periodic monitoring is conducted for third parties in order to mitigate risk.
Like other companies that process a wide variety of information, our information technology systems, networks, and infrastructure have been, and may in the future be, vulnerable to cybersecurity attacks and other data security threats. These types of attacks are constantly evolving, may be difficult to detect quickly, and often are not recognized until after they have been launched against a target. For example, and as previously disclosed, in July 2020, we experienced a ransomware attack on our information technology systems. While there has been no material impact to our business strategy, results of operations, or financial condition as a result of the ransomware attack, this incident, as well as any other breach of our systems may result in cybersecurity-related risks that could have a material impact. Refer to “Risk Factors – Risks Relating to Our Business and Our Industry” for additional information regarding the cybersecurity risks faced by the Company.
Governance
The Company’s Board of Directors has ultimate oversight responsibility for risks relating to our information security program. In addition, the Company’s Board of Directors has delegated primary responsibility to its Audit Committee for reviewing and discussing with management the Company’s compliance with its information security program, as well as monitoring and controlling material risks relating to cybersecurity.
We also have a dedicated security team overseeing our information security program, which is led by our Chief Information Security Officer (“CISO”), who has over 30 years of experience working in cyber and information security roles with large companies, including senior executive positions. Members of the security team hold a variety of professional security and network credentials and certifications, including, among others, Certified Information Systems Security Professional (“CISSP”) credentials, Information Systems Security Management Professional (“ISSMP”) credentials, Certified in Risk and Information Systems Control (“CRISC”) certifications, and Certified Information Security Manager (“CISM”) certifications. The security team is responsible for leading our company-wide cybersecurity architecture, policies, procedures, strategies, and standards. In addition to our internal security team, we partner with various third-party information security providers to augment our staffing, expertise, monitoring, and response to ensure 24x7x365 coverage. Our CISO provides regular updates to our Chief Information Officer as well as to the Audit Committee, and more frequently as needed, regarding information security matters and risks, including, cybersecurity threats.
Item 2. Properties
Our corporate headquarters is located on leased premises at 300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076. Our corporate headquarters is approximately 55,000 square feet and the lease will expire in April 2026.
We and our operating companies own and lease a variety of facilities in 45 U.S. states and six Canadian provinces for our branch operations, offices, and storage. We primarily lease 5,000 to 15,000 square foot facilities in both freestanding and multi-tenant buildings with secured outside storage yards averaging from 10,000 to 20,000 square feetfeet. As of December 31, 2023, we leased four distribution center facilities across the United States. Our West distribution center operations transitioned from Colton, California (approximately 179,000 square feet) to Goodyear, Arizona (approximately 392,000 square feet) in some branches. We also lease two facilities that are operated as our South and West Distribution Centers.April 2023. The South Distribution Center is located in Fairburn, Georgia andHutchins, Texas distribution center is approximately 192,000338,000 square feet. The West Distribution Center is located in Colton, Californiafeet and the Palmetto, Georgia distribution center is approximately 179,000335,000 square feet.feet, both of which commenced operations in the fourth quarter of 2021. The South Distribution CenterCarlisle, Pennsylvania distribution center is approximately 201,000 square feet and commenced operations in the first quarter of 2017 and the West Distribution Center commenced operations in the first quarter of 2018. In addition, we have leased a facility in Carlisle, Pennsylvania that will operate as our North Distribution Center. This facility is approximately 201,000 square feet in size and is expected to commence operations in March 2018. The significant majority of our facilities are subject to operating leases, and we own 1416 properties. As of February 20, 2018,December 31, 2023, we operated 511699 branches in the following locations:
| | | | | | | | | | | | | | | | | | | | |
| State /Province | | Number of Locations | | State /Province | | Number of Locations |
| California | | 73 | | Idaho | | 5 |
| Florida | | 69 | | Louisiana | | 5 |
| Texas | | 57 | | Nevada | | 5 |
| North Carolina | | 39 | | Oklahoma | | 5 |
| Virginia | | 38 | | New Hampshire | | 4 |
| Arizona | | 33 | | Oregon | | 4 |
| Massachusetts | | 31 | | Kentucky | | 3 |
| Colorado | | 26 | | Nebraska | | 3 |
| New York | | 26 | | Rhode Island | | 3 |
| Georgia | | 24 | | Utah | | 3 |
| New Jersey | | 20 | | Arkansas | | 2 |
| Michigan | | 19 | | Delaware | | 2 |
| South Carolina | | 18 | | Iowa | | 2 |
| Illinois | | 16 | | Hawaii | | 1 |
| Ohio | | 16 | | Maine | | 1 |
| Connecticut | | 14 | | Mississippi | | 1 |
| Tennessee | | 14 | | New Mexico | | 1 |
| Maryland | | 13 | | North Dakota | | 1 |
| Missouri | | 13 | | South Dakota | | 1 |
| Washington | | 13 | | Alberta | | 9 |
| Pennsylvania | | 10 | | British Columbia | | 7 |
| Alabama | | 9 | | Ontario | | 7 |
| Indiana | | 9 | | Saskatchewan | | 1 |
| Minnesota | | 9 | | Manitoba | | 1 |
| Kansas | | 6 | | Québec | | 1 |
| Wisconsin | | 6 | | | | |
|
| | | | | | |
| State /Province | | Number of Locations | | State /Province | | Number of Locations |
| California | | 62 | | Wisconsin | | 5 |
| Florida | | 46 | | Oregon | | 4 |
| North Carolina | | 36 | | Hawaii | | 3 |
| Texas | | 35 | | Idaho | | 3 |
| New York | | 22 | | Kentucky | | 3 |
| Massachusetts | | 21 | | Nebraska | | 3 |
| Michigan | | 20 | | Nevada | | 3 |
| New Jersey | | 20 | | New Hampshire | | 3 |
| South Carolina | | 19 | | Utah | | 3 |
| Georgia | | 18 | | Delaware | | 2 |
| Illinois | | 17 | | Iowa | | 2 |
| Virginia | | 16 | | Louisiana | | 2 |
| Connecticut | | 15 | | Maine | | 2 |
| Ohio | | 14 | | Arkansas | | 1 |
| Pennsylvania | | 12 | | Mississippi | | 1 |
| Tennessee | | 12 | | New Mexico | | 1 |
| Indiana | | 10 | | North Dakota | | 1 |
| Maryland | | 10 | | Rhode Island | | 1 |
| Missouri | | 9 | | South Dakota | | 1 |
| Alabama | | 6 | | Ontario | | 5 |
| Colorado | | 6 | | British Columbia | | 4 |
| Minnesota | | 6 | | Alberta | | 2 |
| Washington | | 6 | | Manitoba | | 1 |
| Arizona | | 5 | | Québec | | 1 |
| Kansas | | 5 | | Saskatchewan | | 1 |
| Oklahoma | | 5 | | | | |
Item 3. Legal Proceedings
We are not currently involved in any material litigation or arbitration. We anticipate that we will be subject to litigation and arbitration from time to time in the ordinary course of business. At this time, we do not expect any of these proceedings to have a material effect on our reputation, business, financial position, results of operations, and cash flows. However, we can give no assurance that the results of any such proceedings will not materially affect our reputation, business, financial position, results of operations, and cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock Market Prices
Shares of our common stock have tradedtrade on the NYSE under the symbol “SITE” since May 12, 2016. Prior to that date,. As of February 16, 2024, there was no market for our common stock. The range of high and low sale pricesone registered holder of our common stock as reported by the NYSE is set forth in the table below:
|
| | | | | | | | |
| | | High Sales Price | | Low Sales Price |
| Fiscal Year 2016: | | |
| Second quarter (beginning May 12, 2016) | | $ | 35.17 |
| | $ | 21.00 |
|
| Third quarter | | $ | 40.56 |
| | $ | 34.78 |
|
| Fourth quarter | | $ | 36.85 |
| | $ | 29.82 |
|
| | | | | |
| Fiscal Year 2017: | | | | |
| First quarter | | $ | 48.41 |
| | $ | 35.72 |
|
| Second quarter | | $ | 53.18 |
| | $ | 46.24 |
|
| Third quarter | | $ | 58.10 |
| | $ | 48.40 |
|
| Fourth quarter | | $ | 76.70 |
| | $ | 58.95 |
|
Holders
As of February 20, 2018, there were four registered holders of our common stock. The actual number of holders of our common stock is greater than this number of record holders, and includes(this excludes stockholders who are beneficial owners, but whose shares are held in street nameof record by brokers, banks, or other nominees.nominees).
Dividends
On May 2, 2016, a one-time special cash dividend of $176.0 million was paid to existing stockholders of the Company as of April 29, 2016. Of the $176.0 million special cash dividend, $112.4 million was paid to holders of the Redeemable Convertible Preferred Stock (as defined below) in accordance with its right to participate in all distributions to common stockholders on an as-converted basis.
We do not expect to declare or pay dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings, if any, to service our debt, finance the growth and development of our business, fund acquisitions and share repurchases, and for working capital and general corporate purposes. Our ability to pay dividends to holders of our common stock in the future will be limited as a practical matter by the Credit Facilities, insofar as we may seek to pay dividends out of funds made available to us by Landscape or its subsidiaries, because Landscape’s debt instruments directly or indirectly restrict Landscape’s ability to pay dividends or make loans to us. Any future determination to pay dividends on our common stock is subject to the discretion of our boardBoard of directorsDirectors and will depend upon various factors, including our results of operations, financial condition, liquidity requirements, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions, and other factors that our boardBoard of directorsDirectors may deem relevant. SeeRefer to Item 7,7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations-LiquidityOperations – Liquidity and Capital Resources-Limitations ofResources – Limitations on Distributions and Dividends by Subsidiaries” for a description of the restrictions on our ability to pay dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
See Refer to Item 12,12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report on Form 10-K, which information will be set forth in SiteOne’s Proxy Statement for the 20182024 Annual Meeting of Stockholders.
Stock Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act.
The graph and table below presents the Company’spresent our cumulative total shareholderstockholder returns relative to the performance of the NYSE Composite Index, Standard & Poor'sPoor’s MidCap 400 Index, and Dow Jones US Industrial Supplier Index for the period commencing on May 12, 2016 (the Company’s initial day of trading) and ending on December 31, 2017, the end of our lastfive most recent fiscal year.years. All values assume a $100 initial investment at the openingclosing price of the Company’sour common stock on the NYSE and in each index on the last trading day of fiscal year 2018. The data for the NYSE Composite Index, Standard & Poor'sPoor’s MidCap 400 Index, and Dow Jones US Industrial Supplier Index assumes all dividends were reinvested on the date paid. The points on the graph represent fiscal quarter-endyear-end values based on the last trading day of each fiscal quarter.year. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| Company / Index | | December 30, 2018 | | December 29, 2019 | | January 3, 2021 | | January 2, 2022 | | January 1, 2023 | | December 31, 2023 |
| SiteOne Landscape Supply, Inc. | | $ | 100.00 | | | $ | 162.73 | | | $ | 285.36 | | | $ | 435.83 | | | $ | 211.05 | | | $ | 292.32 | |
| NYSE Composite | | $ | 100.00 | | | $ | 126.69 | | | $ | 135.29 | | | $ | 163.26 | | | $ | 147.99 | | | $ | 168.38 | |
| S&P 400 MidCap | | $ | 100.00 | | | $ | 127.42 | | | $ | 144.91 | | | $ | 180.79 | | | $ | 157.18 | | | $ | 183.01 | |
| Dow Jones US Industrial Suppliers Index | | $ | 100.00 | | | $ | 132.87 | | | $ | 168.02 | | | $ | 224.50 | | | $ | 194.87 | | | $ | 289.13 | |
Recent Sales of Unregistered Securities
On May 16, 2016, we issued 25,303,164 shares None.
Use of Proceeds
On May 11, 2016, the Company’s registration statement on Form S-1 (Registration No. 333-206444) relating to the IPO of its common stock was declared effective by the SEC. On May 17, 2016, the Company completed the IPO at a price to the public of $21.00 per share. In connection with the IPO, certain of the Company’s stockholders sold an aggregate of 11,500,000 shares of common stock. The selling stockholders received all of the net proceeds and bore all commissions and discounts from the sale of the Company’s common stock. The Company did not receive any proceeds from the IPO.
On November 29, 2016, the Company’s registration statement on Form S-1 (Registration No. 333-214628) relating to a secondary offering of its common stock was declared effective by the SEC. On December 5, 2016, the Company completed this secondary offering at a price to the public of $33.00 per share. In connection with the Secondary Offering, certain of the Company’s stockholders sold an aggregate of 10,350,000 shares of common stock. The selling stockholders received all of the net proceeds and bore all commissions and discounts from the sale of the Company’s common stock. The Company did not receive any proceeds from this secondary offering.
On April 25, 2017, the Company’s registration statement on Form S-1 (Registration No. 333-217327) relating to a secondary offering of its common stock was declared effective by the SEC. On May 1, 2017, the Company completed this secondary offeringat a price to the public of $47.50 per share. In connection with this secondary offering, certain of the Company’s stockholders sold an aggregate of 11,500,000 shares of common stock. The selling stockholders received all of the net proceeds and bore all commissions and discounts from the sale of the Company’s common stock. The Company did not receive any proceeds from this secondary offering.
On July 20, 2017, the Company’s shelf registration statement on Form S-3 (Registration No. 333-219370) became effective, registering the offering and sale from time to time, by certain selling stockholders, of 5,437,502 shares of the Company’s common stock. On July 26, 2017, the selling stockholders completed a secondary offering of all such shares at a price to the underwriter of $51.63 per share. The selling stockholders received all of the net proceeds and bore all commissions and discounts from the sale of the Company’s common stock. The Company did not receive any proceeds from this secondary offering.
Purchases of Equity Securities by Issuer and Affiliates Purchasers
None. The following table provides information about the purchases of our common stock made during the three months ended December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Periods | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)(a) |
| October 2, 2023 to November 5, 2023 | | — | | | $ | — | | | — | | | $ | 375.0 | |
| November 6, 2023 to December 3, 2023 | | 90,000 | | | $ | 126.21 | | | 90,000 | | | $ | 363.6 | |
| December 4, 2023 to December 31, 2023 | | — | | | $ | — | | | — | | | $ | 363.6 | |
| Total | | 90,000 | | | $ | 126.21 | | | 90,000 | | | $ | 363.6 | |
______________
(a) In October 2022, our Board of Directors approved a share repurchase authorization for up to $400.0 million of our common stock. The share repurchase authorization, which was announced on November 2, 2022, does not have an expiration date and may be amended, suspended, or terminated by our Board of Directors at any time.
Item 6. Selected Financial Data[Reserved]
The following tables set forth selected historical consolidated and combined financial data as of the dates and for the periods indicated. The selected balance sheet data as of December 31, 2017 and January 1, 2017 and the statement of operations data for each of the 2017 Fiscal Year, 2016 Fiscal Year and 2015 Fiscal Year have been derived from our audited consolidated financial statements and related notes included in this Annual Report on Form 10-K. The selected balance sheet data as of January 3, 2016, December 28, 2014, December 29, 2013 and December 22, 2013 and the statement of operations data for the fiscal year ended December 28, 2014 and for each of the 2013 Successor Period and 2013 Predecessor Period have been derived from our unaudited financial statements and related notes not included in this Annual Report on Form 10-K.
For the purpose of discussing our financial results, we refer to ourselves as the “Successor Company” in the periods following the CD&R Acquisition, and the “Predecessor Company” during the periods preceding the CD&R Acquisition.
In the opinion of our management, our consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair statement of our financial position, results of our operations and cash flows. Our historical financial data may not be indicative of our future performance. The selected historical financial and operating data are qualified in their entirety by, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included in this Annual Report on Form 10-K.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Consolidated Successor Company | | | Combined Predecessor Company |
| | | | | | | | | | Period from December 23, 2013 | | | Period from December 31, 2012 |
| | Year ended | | through | | | through |
| | December 31, 2017 | | January 1, 2017 | | January 3, 2016 | | December 28, 2014 | | December 29, 2013 (1) | | | December 22, 2013 |
| | (in millions, except share and per share data) |
| Statement of operations data: | | | | | | | | | | | | |
| Net sales | $ | 1,861.7 |
| | $ | 1,648.2 |
| | $ | 1,451.6 |
| | $ | 1,176.6 |
| | $ | 5.3 |
| | | $ | 1,072.7 |
|
| Cost of goods sold | 1,266.2 |
| | 1,132.5 |
| | 1,022.5 |
| | 865.5 |
| | 4.1 |
| | | 783.0 |
|
| Gross profit | 595.5 |
| | 515.7 |
| | 429.1 |
| | 311.1 |
| | 1.2 |
| | | 289.7 |
|
| Selling, general and administrative | 502.2 |
| | 446.5 |
| | 373.3 |
| | 269.0 |
| | 14.1 |
| | | 235.6 |
|
| Other income | 4.5 |
| | 4.8 |
| | 4.0 |
| | 3.1 |
| | — |
| | | 3.6 |
|
| Operating income (loss) | 97.8 |
| | 74.0 |
| | 59.8 |
| | 45.2 |
| | (12.9 | ) | | | 57.7 |
|
| Interest and other non-operating (income) expenses | 25.2 |
| | 22.1 |
| | 11.4 |
| | 9.1 |
| | 0.1 |
| | | 0.1 |
|
| Net income (loss) before taxes | 72.6 |
| | 51.9 |
| | 48.4 |
| | 36.1 |
| | (13.0 | ) | | | 57.6 |
|
| Income tax (benefit) expense | 18.0 |
| | 21.3 |
| | 19.5 |
| | 14.4 |
| | (3.5 | ) | | | 23.9 |
|
| Net income (loss) | $ | 54.6 |
| | $ | 30.6 |
| | $ | 28.9 |
| | $ | 21.7 |
| | $ | (9.5 | ) | | | $ | 33.7 |
|
Net income (loss) attributable to Successor Company common stock/Predecessor Company equity interests (2) | $ | 54.6 |
| | $ | (91.4 | ) | | $ | (14.8 | ) | | $ | (4.0 | ) | | $ | (9.8 | ) | | | $ | 33.7 |
|
Net income (loss) per common share: (3) | | | | | | | | | | | | |
| Basic | $ | 1.37 |
| | $ | (3.01 | ) | | $ | (1.04 | ) | | $ | (0.29 | ) | | $ | (0.73 | ) | | | NM |
|
| Diluted | $ | 1.29 |
| | $ | (3.01 | ) | | $ | (1.04 | ) | | $ | (0.29 | ) | | $ | (0.73 | ) | | | NM |
|
| Weighted average number of common shares outstanding: | | | | | | | | | | | | |
| Basic | 39,754,595 |
| | 30,316,087 |
| | 14,209,843 |
| | 13,818,138 |
| | 13,476,996 |
| | | NM |
|
| Diluted | 42,193,432 |
| | 30,316,087 |
| | 14,209,843 |
| | 13,818,138 |
| | 13,476,996 |
| | | NM |
|
|
| | | | | | | | | | | | | | | | | | |
| | Consolidated Successor Company | | | Consolidated Predecessor Company |
| | As of
December 31,
2017 | | As of
January 1,
2017 | | As of
January 3,
2016 | | As of
December 28,
2014 | | As of
December 29,
2013 | | | As of
December 22,
2013 |
| Balance sheet data: | (in millions) |
| Total assets | 910.7 |
| | 742.6 |
| | 668.7 |
| | 555.7 |
| | 544.4 |
| | | 567.3 |
|
Total debt (4) | 463.6 |
| | 375.5 |
| | 177.7 |
| | 121.7 |
| | 154.8 |
| | | — |
|
| Redeemable convertible preferred stock | — |
| | — |
| | 216.8 |
| | 192.6 |
| | 174.0 |
| | | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Consolidated Successor Company | | | Consolidated Predecessor Company |
| | | | | | | | | | Period from December 23, 2013 | | | Period from December 31, 2012 |
| | Year ended | | through | | | through |
| | December 31, 2017 | | January 1, 2017 | | January 3, 2016 | | December 28, 2014 | | December 29, 2013 (1) | | | December 22, 2013 |
| | (in millions, except share and per share data) |
| Net income (loss) | $ | 54.6 |
| | $ | 30.6 |
| | $ | 28.9 |
| | $ | 21.7 |
| | $ | (9.5 | ) | | | $ | 33.7 |
|
| Less: | | | | | | | | | | | | |
| Redeemable convertible preferred stock dividends | — |
| | 9.6 |
| | 25.1 |
| | 21.8 |
| | 0.3 |
| | | — |
|
| Redeemable convertible preferred stock beneficial conversion feature | — |
| | — |
| | 18.6 |
| | 3.9 |
| | — |
| | | — |
|
| Special cash dividend paid to preferred stockholders | — |
| | 112.4 |
| | — |
| | — |
| | — |
| | | — |
|
| Net income (loss) attributable to Successor Company common stock/Predecessor Company equity interests | $ | 54.6 |
| | $ | (91.4 | ) | | $ | (14.8 | ) | | $ | (4.0 | ) | | $ | (9.8 | ) | | | $ | 33.7 |
|
______________
| |
(1) | The consolidated statement of operations data for the Successor Company is defined as the one week period from December 23, 2013 through December 29, 2013 and includes $9.8 million of non-recurring costs related to the CD&R Acquisition. |
| |
(2) | Net income (loss) attributable to common stockholders represents net income (loss) minus accumulated Preferred Stock dividends, any beneficial conversion feature amortized in the period and any undistributed earnings allocated to the Preferred Stock to arrive at net income (loss) attributable to common stockholders, as follows: |
| |
(3) | For the Predecessor Company periods presented prior to December 23, 2013, we were not operated as a standalone entity and were carved out from Deere upon the consummation of the CD&R Acquisition. The carved out entity consisted of two separate legal entities that are presented on a combined basis, each with a different and nominal capital structure. As the results would not be comparable and may be considered not meaningful (NM), we do not present earnings per share for the predecessor periods, during which we were operated as a component of Deere. |
| |
(4) | Total debt includes current and non-current portions of long-term debt offset by associated debt discount and issuance costs. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the “Selected Financial Data” and the accompanying consolidated financial statements and related notes included in this Annual Report on Form 10-K.
For the discussion of the financial condition and results of operations for the year ended January 1, 2023 compared to the year ended January 2, 2022, refer to “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” and “Liquidity and Capital Resources” in our Annual Report on Form 10-K for the fiscal year ended January 1, 2023 filed with the SEC on February 23, 2023, which discussion is incorporated herein by reference. The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Special Note Regarding Forward-Looking Statements and Information” and “Risk Factors” included elsewhere in this Annual Report on Form 10-K..
Overview
SiteOne Landscape Supply, Inc. (collectively with all of its subsidiaries referred to in this Annual Report on Form 10-K as “SiteOne,” the “Company,” “we,” “us”“us,” and “our” or individually as “Holdings”) indirectly owns 100% of the membership interest in SiteOne Landscape Supply Holding, LLC (“Landscape Holding”). Landscape Holding is the parent and sole owner of SiteOne Landscape Supply, LLC (“Landscape”).
We are the largest and only national full product line wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation, and maintenance of lawns, gardens, golf courses, and other outdoor spaces. As of December 31, 2023, we had over 690 branch locations in 45 U.S. states and six Canadian provinces. Through our expansive North American network, of 511 branch locations in 45 states and six provinces, we offer a comprehensive selection of more than 120,000approximately 160,000 SKUs, including irrigation supplies, fertilizer and control products (e.g.(e.g., herbicides), irrigation supplies,hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, hardscapes (including paving, natural stoneoutdoor lighting, and blocks) and outdoor lighting.ice melt products to green industry professionals. We also provide complementary, value-added consultative services to supportcomplement our product offerings and to help our customers operate and grow their businesses.
Business Environment and Trends
CD&R Acquisition
Holdings indirectly owns 100%Economic headwinds, including softer markets, commodity price deflation, and operating cost inflation, were a challenge during the 2023 Fiscal Year. We expect the current macroeconomic trends of elevated interest rates, tighter financial markets, reduced consumer spending, residual inflation, and deflation in select commodity products will continue to put pressure on Net sales growth and Net income in 2024. Organic Daily Sales were flat for the 2023 Fiscal Year, compared to 11% growth for the 2022 Fiscal Year. Organic Daily Sales benefitted from higher prices in the first half of the membership2023 Fiscal Year, but were negatively impacted by lower prices for commodity products such as PVC pipe, grass seed, and fertilizer in the second half of the 2023 Fiscal Year. Overall, price deflation reduced Organic Daily Sales by less than 1% for the 2023 Fiscal Year but the negative price trend from the second half of the 2023 Fiscal Year is expected to continue before moderating in the first half of 2024. We expect prices to be down 1% to 2% for the 2024 Fiscal Year. For the 2023 Fiscal Year, we achieved Net sales growth of 7%, driven by contributions from acquisitions. Gross margin decreased 70 basis points for the 2023 Fiscal Year, primarily due to the absence of the price realization benefit that was achieved in the 2022 Fiscal Year, partially offset by acquisitions with higher gross margins as well as lower freight costs. Selling, general and administrative expenses (“SG&A”) increased 15% for the 2023 Fiscal Year, primarily due to the impact of acquisitions and cost inflation. Net income decreased 29% for the 2023 Fiscal Year, primarily due to higher SG&A and lower gross margins, partially offset by Net sales growth.
Looking forward, the trend of consumers spending more time at home and investing in their outdoor living spaces is expected to continue, although at lower levels compared to the three-year pandemic peak. Increases in home values, lack of affordable new homes, and elevated mortgage interest rates for prolonged periods have resulted in homeowners staying in their homes longer. The long-term outlook for the landscape supply industry remains strong however, driven by favorable population trends, housing demand, and increased interest in Landscape Holding. Landscape Holding isoutdoor living. We are confident in the parentlandscape supply industry growth opportunities and sole ownerour ability to continue providing our customers, suppliers, and shareholders exceptional value. We are the only national full product line wholesale distributor of Landscape. Priorlandscape supplies in the United States. With a robust acquisition pipeline and a flexible business model, we remain committed to our strategic and operational initiatives and will continue to focus on driving growth organically and through acquisitions while gaining market share and delivering margin expansion by leveraging our scale, resources, and capabilities. We are operational in four distribution center facilities across the CD&R AcquisitionUnited States that expanded our supply chain capacity in 2023. Our West distribution center operations transitioned from Colton, California (179,000 square feet) to Goodyear, Arizona (392,000 square feet) in April 2023. We operate three other distribution centers that are located in Hutchins, Texas (338,000 square feet), Palmetto, Georgia (335,000 square feet), and Carlisle, Pennsylvania (201,000 square feet). In addition, we achieved strong operating cash flows in the 2023 Fiscal Year through effective working capital management due primarily to our progress in reducing inventory levels which were elevated in response to supply chain uncertainty in the prior year.
As we continue to navigate through the current uncertainty presented by market and economic conditions, we believe that we are prepared to meet the challenges ahead due to our balanced business, strong financial condition, dedicated and experienced teams, and focused business strategy. We continue to closely monitor the impact on our business and the related uncertainties and risks of moderating prices and demand weakness resulting from the challenging market conditions described below, Deere wasabove as well as the sole ownerpotential effects of Landscape Holding.
On December 23, 2013,uncertain political conditions and geopolitical conflicts, such as the Company acquired 100%ongoing war in Ukraine, the conflict in the Gaza Strip, and unrest in the Middle East. These conditions are beyond our control, and we cannot estimate with certainty the full extent of their impact on our business, results of operations, cash flows, and/or financial condition. To mitigate the effects of these conditions, we may take actions that alter our business operations if required or that we determine are in the best interests of our associates, customers, suppliers, and shareholders. The forward-looking statements in this Business Environment and Trends section are subject to significant risks and uncertainties. See Part I, Item 1A. - “Risk Factors”, for a discussion of the ownership interest in Landscape Holding from Deere in exchange for common sharesvarious risks that could have a material adverse effect on our reputation, business, financial position, results of the Company initially representing 40% of the outstanding capital stock (on an as-converted basis) plusoperations, and cash consideration of approximately $314 million, net of pre-closing and post-closing adjustments. In order to facilitate the transaction, the Company issued cumulative convertible participating redeemable preferred stock to CD&R for total consideration of $174 million initially representing 60% of the outstanding capital stock (on an as-converted basis). As part of the same transaction, Landscape Holding also acquired from LESCO, an affiliate of Deere. The Company continues to be the sole owner of Landscape Holding.
Initial Public Offering
On May 17, 2016, we completed the IPO at a price to the public of $21.00 per share. In connection with the IPO, the CD&R Investor and Deere together sold an aggregate of 11,500,000 shares of common stock. The CD&R Investor and Deere received all of the net proceeds and bore all commissions and discounts from the sale of our common stock. We did not receive any proceeds from the IPO. On the day prior to the closing of the IPO, all of our then-outstanding Preferred Stock converted into shares of common stock, resulting in the issuance by us of an additional 25,303,164 shares of our common stock. The conversion of Preferred Stock is accounted for from the date of conversion and is not retroactively adjusted in our financial statements and related notes included in this Annual Report on Form 10-K.
Secondary Public Offerings
On December 5, 2016, certain selling stockholders completed a public offering of 10,350,000 shares of our common stock at a price of $33.00 per share. We did not receive any of the proceeds from the shares of common stock sold by the selling stockholders.
On May 1, 2017, certain selling stockholders completed a public offering of 11,500,000 shares of our common stock at a price of $47.50 per share. We did not receive any of the proceeds from the shares of common stock sold by the selling stockholders.
On July 26, 2017, certain selling stockholders completed a public offering of 5,437,502 shares of our common stock at a price to the underwriter of $51.63 per share. We did not receive any proceeds from the shares of common stock sold by the selling stockholders.
Following consummation of the secondary offering on July 26, 2017, CD&R and Deere no longer have an ownership interest in the Company.
flows.
Presentation
Our financial statements included in this report have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We use a 52/53 weekOur fiscal year with the fiscal yearis a 52- or 53-week period ending on the Sunday nearest to December 31 in each year. Our fiscal quarters end on the Sunday nearest to March 31, June 30, and September 30, respectively.
ThisThe discussion of our financial condition is presented for the 20172023 Fiscal Year, which ended on December 31, 20172023, and included 52 weeks and 252 Selling Days, the 20162022 Fiscal Year, which ended on January 1, 2017 and2023, both of which included 52 weeks and 253 Selling Days, and the 2015 Fiscal Year, which ended on January 3, 2016 and included 53 weeks and 256252 Selling Days. “Selling Days” are defined below within the Key“Key Business and Performance MetricsMetrics” section.
We manage our business as a single reportable segment. Within our organizational framework, the same operational resources support multiple geographic regions, and performance is evaluated at a consolidated level. We also evaluate performance based on discrete financial information on a regional basis. Since all of our regions have similar operations and share similar economic characteristics, we aggregate regions into a single operating and reportable segment. These similarities include (1)(i) long-term financial performance, (2)(ii) the nature of products and services, (3)(iii) the types of customers we sell to, and (4)(iv) the distribution methods used.utilized. Further, all of our product categories have similar supply chain processes and classes of customers.
Key Business and Performance Metrics
We focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and performance of our business. These metrics include:
Net sales. We generate netNet sales primarily through the sale of landscape supplies, including irrigation systems,supplies, fertilizer &and control products, hardscapes, landscape accessories, nursery goods, hardscapesoutdoor lighting, and outdoor lightingice melt products to our customers who are primarily landscape contractors serving the residential and commercial construction sectors. Our netNet sales include billings for freight and handling charges, and commissions on the sale of control products that we sell as an agent. Net sales are presented net of any discounts, returns, customer rebates, and sales or other revenue-based tax.taxes.
Non-GAAP Organic Sales. In managing our business, we consider all growth, including the opening of new greenfield branches, to be organic growth unless it results from an acquisition. When we refer to Organic Sales growth, we include increases in growth from newly-opened greenfield branches and decreases in growth from closing existing branches but exclude increases in growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period.
Non-GAAP Selling Days. Selling Days are defined as business days, excluding Saturdays, Sundays, and holidays, that our branches are open during the year. Depending upon the location and the season, our branches may be open on Saturdays and Sundays; however, for consistency, those days have been excluded from the calculation of Selling Days.
Non-GAAP Organic Daily Sales. We define Organic Daily Sales as Organic Sales divided by the number of Selling Days in the relevant reporting period. We believe Organic Sales growth and Organic Daily Sales growth are useful measures for evaluating our performance as we may choose to open or close branches in any given market depending upon the needs of our customers or our strategic growth opportunities. Refer to “Results of Operations – Quarterly Results of Operations Data” for a reconciliation of Organic Daily Sales to Net sales.
Cost of goods sold. Our costCost of goods sold includes all inventory costs, such as the purchase price paid to suppliers, net of any rebates received,volume-based incentives, as well as inbound freight and handling, and other costs associated with inventory. Cost of goods sold also includes salaries, wages, employee benefits, payroll taxes, bonuses, depreciation, and amortization related to inventory production activities. Our costCost of goods sold excludes the cost to deliver the products to our customers through our branches, which is included in selling,Selling, general and administrative expenses. Cost of goods sold is recognized primarily using the first-in, first-out method of accounting for the inventory sold.
Gross profit and gross margin. We believe that grossGross profit and gross margin are useful for evaluating our operating performance. We define grossGross profit as netNet sales less costCost of goods sold, exclusive of depreciation.sold. We define gross margin as grossGross profit divided by netNet sales.
Selling, general and administrative expenses (operating expenses). Our operating expenses are primarily comprised of selling,Selling, general and administrative costs, which include personnel expenses (salaries, wages, employee benefits, payroll taxes, stockstock-based compensation, and bonuses), rent, fuel, vehicle maintenance costs, insurance, utilities, repairs and maintenance, and professional fees. Operating expenses also include depreciation and amortization.
Non-GAAP Adjusted EBITDA. In addition to the metrics discussed above, we believe that Adjusted EBITDA is useful for evaluating ourthe operating performance and efficiency of our business. EBITDA represents our netNet income (loss) plus the sum of income tax (benefit), depreciation and amortization and expense, interest expense, net of interest income.income, and depreciation and amortization. Adjusted EBITDA represents EBITDA as further adjusted for items such as stock-based compensation expense, related party advisory fees,(gain) loss (gain) on sale of assets and termination of finance leases not in the ordinary course of business, financing fees, as well as other non-cash items,fees and expenses related to acquisitions, and other non-recurring (income) and loss. See “-ResultsRefer to “Results of Operations-QuarterlyOperations – Quarterly Results of Operations Data” for more information aboutregarding how we calculate EBITDA and Adjusted EBITDA and the limitations of those metrics.
Key Factors Affecting Our Operating Results
In addition to the metrics described above, a number of other important factors may affect our results of operations in any given period.
Weather Conditions and Seasonality
In a typical year, our operating results are impacted by seasonality. Historically, our netOur Net sales and netNet income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters. Our netNet sales have been significantly lower in the first and fourth quarters due to lower landscaping, irrigation, and turf maintenance activities in these quarters, and historically, we have historically incurred net losses in these quarters. Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as snow and ice storms, wet weather, and hurricanes, which not only impact the demand for certain products like fertilizer and ice melt, but also may delay construction projects where our products are used.
Industry and Key Economic Conditions
Our business depends on demand from customers for landscape products and services. The landscape supply industry includes a significant amount of landscape products, such as irrigation systems, outdoor lighting, lawn care supplies, nursery goods, and landscape accessories, for use in the construction of newly built homes, commercial buildings and facilities, and recreational spaces. The landscape distributionsupply industry has historically grown in line with rates of growth in residential housing and commercial building. The industry is also affected by trends in home prices, mortgage interest rates, home sales, and consumer spending. As general economic conditions improve or deteriorate, consumption of these products and services also tends to fluctuate. The landscape distributionsupply industry also includes a significant amount of landscapeagronomic products such as fertilizer, herbicides, and ice melt for use in maintaining existing landscapes or facilities. The use of these products is also tied to general economic activity, but levels of sales are not as closely correlated to construction markets.
Popular Consumer Trends
Preferences in housing, lifestyle, and environmental awareness can also impact the overall level of demand and mix for the products we offer. Examples of current trends we believe are important to our business include a heightenedan ongoing interest in professional landscape services inspired by the popularity of home and garden television shows, magazines, and magazines;social media, the increasingly popular concept of “outdoor living,” which has been a key driver of sales growth for our hardscapes and outdoor lighting products;products, and the social focus on eco-friendly products that promote water conservation, energy efficiency, and the adoption of “green” standards.
Acquisitions
In addition to our organic growth, we continue to grow our business through acquisitions in an effort to better service our existing customers and to attract new customers. These acquisitions have allowed us to further broaden our product lines and extend our geographic reach and leadership positions in local markets. In accordance with GAAP, the results of the acquisitions we have completed are reflected in our financial statements from the date of acquisition forward. WeAdditionally, we incur transaction costs in connection with identifying and completing acquisitions andas well as ongoing integration costs as we integrate acquired companies and seek to achieve synergies. As of December 31, 2017,2023, we have invested over $250$444.4 million in 1827 acquisitions since the start of 2015the 2022 Fiscal Year, with the largest being the Shemin Nurseries investment of $57.7 million.Year. The following is a summary of the acquisitions completed during the 2017, 20162023 Fiscal Year and 2015the 2022 Fiscal Years:Year:
•In October 2017,December 2023, we acquired the assets and assumed the liabilities of Harmony Gardens,Newsom Seed, Inc. (“Harmony Gardens”Newsom Seed”). With two locations in the metro Denver and Fort Collins, Colorado areas, Harmony GardensFulton, Maryland, Newsom Seed is a leading wholesale nursery distributor in the state.of seed and agronomic products to landscape professionals.
•In September 2017,August 2023, we acquired the assets and assumed the liabilities of Marshall Stone, Inc. and Davis Supply, LLC (collectively, “Marshall Stone”JMJ Organics LTD (“JMJ Organics”). With twofive locations in Greensboro, North Carolina and Roanoke, Virginia, Marshall StoneHouston, Texas, JMJ Organics is a market leader in the distributionwholesale distributor of natural stonelandscape supplies, nursery products, and hardscape materialshardscapes to landscape professionals.
•In August 2017,2023, we acquired the assets and assumed the liabilities of Bondaze Enterprises, Inc., a California corporation doing business as South Coast Supply (“South Coast Supply”Regal Chemical Company and Monarch Scientific, LLC (collectively, “Regal”). With two locationsone location in Orange County, California, South Coast SupplyAlpharetta, Georgia, Regal is a market leader in the distributionwholesale distributor of hardscape, natural stone and relatedagronomic products to landscape professionals.
•In May 2017,August 2023, we acquired all of the outstanding stock of Pioneer Landscape Centers, Inc. and JLL Pioneer LLC (collectively, “Pioneer”). With 18 locations in Colorado and 16 locations in Arizona, Pioneer is a wholesale distributor of hardscapes and landscape supply products, including decorative rock, pavers, bulk materials, artificial turf, and supporting products to landscape professionals.
•In August 2023, we acquired the assets and assumed the liabilities of Evergreen Partners of Raleigh,Timothy’s Center for Gardening, LLC Evergreen Partners of Myrtle Beach, LLC, and Evergreen Logistics, LLC (collectively, “Evergreen”(“Timothy’s”). With two locationsone location in Raleigh, North Carolina and Myrtle Beach, South Carolina, EvergreenRobbinsville, New Jersey, Timothy’s is a market leader in the distributionwholesale distributor of hardscapes, nursery suppliesproducts, and bulk materials to landscape professionals.
•In March 2017, we acquired all of the outstanding stock of American Builders Supply, Inc. and MasonryClub, Inc. and subsidiary (collectively, “AB Supply”) with 10 locations in the greater Los Angeles, California area and two locations in Las Vegas, Nevada. AB Supply is a market leader in the distribution of hardscape, natural stone and related products to landscape professionals.
In March 2017,August 2023, we acquired the assets and assumed the liabilities of Angelo’sNew England Silica, Inc. (“New England Silica”). With one location in South Windsor, Connecticut, New England Silica is a wholesale distributor of hardscapes to landscape professionals.
•In July 2023, we acquired the assets and assumed the liabilities of Hickory Hill Farm & Garden, LLC (“Hickory Hill”). With one location in Eatonton, Georgia, Hickory Hill is a wholesale distributor of irrigation, nursery, and landscape supplies to landscape professionals.
•In May 2023, we acquired the assets and assumed the liabilities of Link Inc., doing business as Link Outdoor Lighting Distributors (“Link”). With four locations in Altamonte Springs and Naples, Florida, Nashville, Tennessee, and Houston, Texas, Link is a wholesale distributor of landscape lighting products to landscape professionals.
•In May 2023, we acquired the assets and assumed the liabilities of Adams Wholesale Supply, Inc. (“Adams Wholesale Supply”). With three locations in the San Antonio, Houston, and Dallas, Texas markets, Adams Wholesale Supply is a wholesale distributor of landscape supplies and agronomic products to landscape professionals.
•In March 2023, we acquired the assets and assumed the liabilities of Triangle Landscape Supplies, Inc., Triangle Landscape Supplies of J.C., LLC, and Angelo’s WholesaleTriangle Landscape Supplies of Apex, Inc. (collectively, “Angelo’s”“Triangle”) with two. With four locations in Wixom and Farmington Hills, Michigan, both suburbs of Detroit. Angelo’sthe Raleigh-Durham, North Carolina market, Triangle is a hardscapewholesale distributor of hardscapes and landscape supplysupplies to landscape professionals.
•In March 2023, we acquired the assets and assumed the liabilities of J&J Materials Corp. (“J&J Materials”). With five locations in Rhode Island and Southeastern Massachusetts, J&J Materials is a wholesale distributor of hardscapes to landscape professionals.
•In December 2022, we acquired all of the outstanding stock of Whittlesey Landscape Supplies and has beenRecycling, Inc. (“Whittlesey”). With seven locations in the greater Austin, Texas market, Whittlesey is a market leader since 1984.producer and wholesale distributor of bulk landscape supplies and hardscapes to landscape professionals.
•In February 2017,December 2022, we acquired the assets and assumed the liabilities of Telluride Natural Stone, Inc. (“Telluride Natural Stone”). With one location in Phoenix, Arizona, Telluride Natural Stone is a wholesale distributor of hardscape products and landscape supplies to landscape professionals.
•In October 2022, we acquired the assets and assumed the liabilities of Madison Block & Stone, LLC (“Madison Block & Stone”). With one location in Madison, Wisconsin, Madison Block & Stone is a wholesale distributor of natural stone, pavers, bulk materials, and landscape supplies to landscape professionals.
•In August 2022, we acquired the assets and assumed the liabilities of Kaknes Landscape Supply, Inc. (“Kaknes”). With one location in Naperville, Illinois, Kaknes is a wholesale distributor of nursery products to landscape professionals.
•In August 2022, we acquired the assets and assumed the liabilities of Stone Forest Materials,Plus, LLC (“Stone Forest”Plus”) with one location. With three locations in Kennesaw, Georgia.Northeast Florida, Stone ForestPlus is a market leader in the distributionwholesale distributor of hardscape productslandscape supplies and hardscapes to landscape professionals.
•In January 2017,August 2022, we acquired the assets and assumed the liabilities of Aspen Valley Landscape Supply, Inc.JimStone Co. of Louisiana, LLC (“Aspen Valley”Jim Stone”) with. With three locations. Headquarteredlocations in Homer Glen, Illinois, Aspen ValleySouthern Louisiana, Jim Stone is a market leader in the distributionwholesale distributor of natural stone and other hardscapes andto landscape supplies in the Chicago Metropolitan Area.professionals.
•In December 2016,August 2022, we acquired the assets and assumed the liabilities of East Haven Landscape Products, headquarteredLinzel Distributing Inc. (“Linzel”). With one location in East Haven, Connecticut, addingHamilton, Ontario, Canada, Linzel is a full-service landscape supply location along the southeastern Connecticut coast and extending our networkwholesale distributor of existing full-service locations in Greenwich, Connecticut, Bedford Hills, New York and Windsor, Connecticut. The acquisition gives SiteOne a leading position for nursery, hardscapesoutdoor lighting and landscape supplies in the East Haven area.to landscape professionals.
•In November 2016,August 2022, we acquired the assets and assumed the liabilities of theCape Cod Stone & Masonry Supply, Inc. (“Cape Cod Stone”). With one location in Orleans, Massachusetts, Cape Cod Stone is a wholesale distributor of hardscapes to landscape distribution business of Loma Vista Nursery, Inc., which includes two locations serving customers in Missouri and Kansas. The acquisition gives SiteOne a leading position for nursery products in the Kansas City market and bolsters our position in hardscapes.professionals.
•In September 2016,July 2022, we acquired the assets and assumed the liabilities of Glen Allen Nursery & Garden Center,River Valley Horticultural Products, Inc., which includes and River Valley Equipment Rental and Sales, LLC (collectively, “River Valley”). With one branch location in Richmond, Virginia. The acquisition gives SiteOneLittle Rock, Arkansas, River Valley is a leading position forwholesale distributor of nursery products, hardscapes, and landscape supplies to landscape professionals.
•In July 2022, we acquired all of the outstanding stock of A&A Stepping Stone Manufacturing, Inc. (“A&A Stepping Stone”). With four locations in the Richmond area.Sacramento, California, A&A Stepping Stone is a wholesale distributor of hardscapes and landscape supplies to landscape professionals.
•In August 2016,June 2022, we acquired the assets and assumed the liabilities of Bissett Nursery Corp.Prescott Dirt, LLC (“Prescott Dirt”). With two locations in Prescott and acquired allPrescott Valley, Arizona, Prescott Dirt is a wholesale distributor of the outstanding stocklandscape supplies to landscape professionals.
•In April 2016,June 2022, we acquired the assets and assumed the liabilities of Blue Max Materials, Inc., Blue Max MaterialsYard Works, LLC (“Yard Works”). With 13 locations in Central Virginia, Yard Works is a wholesale distributor of Charleston, Inc., Blue Max Materials of Columbia, Inc. and Blue Max Materials of the Grand Strand, Inc., which together comprise Blue Max Materials. Blue Max Materials includes five locations serving both North and South Carolina. The acquisition creates a leading position for SiteOne in the North and South Carolina hardscapes andbulk landscape accessories markets.supplies to landscape professionals.
•In January 2016, we acquired the outstanding stock of Hydro-Scape Products, Inc., which includes 17 locations serving Southern California. The acquisition creates a leading position for SiteOne in the Southern California irrigation and landscape accessories markets.
In August 2015,June 2022, we acquired the assets and assumed the liabilities of Tieco,Across the Pond, Inc. (“Across the Pond”). With one location in Huntsville, Alabama, Across the Pond is a wholesale distributor of hardscapes and bulk landscape supplies to landscape professionals.
•In April 2022, we acquired the assets and assumed the liabilities of Preferred Seed Company, Inc. (“Preferred Seed”). With one location in Buffalo, New York, Preferred Seed is a wholesale distributor of seed and agronomic products to landscape professionals.
•In April 2022, we acquired the assets and assumed the liabilities of RTSB Enterprises, Inc., which includes six branch locations serving Alabamadoing business as Bellstone Masonry Supply (“Bellstone”). With one location in Fort Worth, Texas, Bellstone is a wholesale distributor of hardscapes and Florida with irrigation, lighting, pump and well products. The acquisition creates a leading position for SiteOne in Alabama and the Florida panhandle irrigation markets.landscape supplies to landscape professionals.
•In August 2015,March 2022, we acquired all of the outstanding stock of Green Resource,J K Enterprise, Inc., Culpeper Recycling Hauling LLC, which includes five branchCulpeper Recycling Transport LLC, Gateway Home & Garden Center, LLC, JK Enterprise Landscape Supply, Limited Liability Company, Madera Farm Transport, LLC, Saunders LS, LLC, and Tilden Farm Nursery, LLC, and also acquired the assets of Metro Landscape Supply, Limited and Culpeper Recycling, LLC (collectively, “JK Enterprise”). With six locations serving Northin Northern Virginia and South Carolina with chemicals, seed, fertilizerone location in Maryland, JK Enterprise is a wholesale distributor of bulk and erosion control products. The acquisition creates a leading position for SiteOne in Northbagged mulches and South Carolina across all of our product lines.
In May 2015, we acquired all of the outstanding stock of AMC Industries, Inc., which includes nine branch locations serving Texassoil, hardscapes, and Oklahoma with irrigation products and domestic water systems. The acquisition creates a leading position for SiteOne in the South Texas and Oklahoma irrigation markets.
In February 2015, we acquired all of the outstanding stock of CLP SN Holdings, Inc., the parent company of Shemin Nurseries, which includes 30 branch locations supplying primarily nursery goods in 18 major metropolitan markets across 14 states of the Eastern region of the United States and Texas. The acquisition gives SiteOne a leading position in the distribution of nursery products in the Northeast, Southeast, Midwest and Texas regions.to landscape professionals.
We expect the execution of synergistic acquisitions to continue to be an integral part of our growth strategy, and we intend to continue expanding our product line, geographic reach, market share, and operational capabilities through future acquisitions.
Volume-Based Pricing
We generally procure our products through purchase orders rather than under long-term contracts with firm commitments. We work to develop strong relationships with a select group of suppliers that we target based on a number of factors, including brand and market recognition, price, quality, product support, service levels, delivery terms, and their strategic positioning. We generallytypically have annual supplier agreements, and while they generally do not provide for specific product pricing, many include volume-based financial incentives that we earn by meeting or exceeding target purchase volumes.volume targets. Our ability to earn these volume-based incentives is an important factor in our financial results. In limitedcertain cases, we have enteredenter into supply contracts with terms that exceed one year for the manufacture of our LESCO® branded fertilizer, and some nursery stockgoods, grass seed, and grass seed,landscape supply products, which may require us to purchase products in the future.
Strategic Initiatives
We continue to undertake operational initiatives, utilizing our scale to improve our profitability, enhance supply chain efficiency, strengthen our pricing and category management capabilities, streamline and refine our marketing process, and invest in more sophisticated information technology systems and data analytics. We are increasingly focusing on our procurement and supply chain management initiatives to better serve our customers and reduce sourcing costs. We are also implementing new inventory planning and stocking systemssystem functionalities and evaluating ways to further improve the freight and logistics processesnew transportation management systems in an effort to reduce costs as well as improve our reliability and level of service. In addition, we continue to enhance our website and B2B e-Commerce platform. We also work closely with our local branches to improve sales, delivery, and branch productivity. We believe we will continue to benefit from the following initiatives, among others:
Pricing initiatives, including the development of a centralized pricing and discounting strategy and the implementation of data analytics to aid special pricing and bidding, were initiated beginning in the second quarter of 2015 and are expected to continue through 2019.
•Category management initiatives, including the implementation of organic growth strategies, the development of ourassortment planning, private label product strategy, the expansion, line of product lines,business training, and the reorganization of brands and products by preferred suppliers, were initiated beginning in the first quarter of 2015 and are expected to continue through 2019.supplier management.
•Supply chain initiatives, including the implementation of new inventory planning and stocking systems and functionalities, the installationcontinued expansion of newour distribution centers,network footprint and capabilities, local hubs in large markets, inbound freight optimization, and local fleet utilization and cost improvement, were initiated in the fourth quarter of 2016 and are expected to continue through 2019.improvements.
•Sales force performance initiatives, including optimizing our commercial sales strategies, leads, and opportunities, while improving the implementationskills and performance of new compensation plans, the restructuring of our sales force, and the formal sales and product training for sales force and management, were initiated beginning in the third quarter of 2015 and are expected to continue through 2019.team.
•Marketing initiatives, including a relaunchcustomer analytics and lifecycle marketing, product marketing, Hispanic customer engagement, optimization of the Partners Program and implementation of aour digital marketing strategy, were initiated beginning inand a continued focus on the third quarter of 2015 and are expected to continue through 2020.new Partners Program.
E-commerce•Digital initiatives, including the relaunchincreasing customer demand as well as adoption of our website, mobile application, and the implementation of aoverall B2B e-commercee-Commerce platform, SiteOne.com, which provides the convenience of an online sales channel, enhanced account management functionality, and industry specific productivity tools for our customers, are expected to continue through 2020.customers.
•Operational excellence initiatives, including the implementation of best practices in branch operations which encompasses safety, merchandising, stocking and assortment, customer engagement, delivery, labor management, as well as the additional automation and enhancement of branch systems, including the rollout of improved associate mobile capabilities.
Working Capital
Our business is characterized by a relatively high level of reported working capital, the effects of which can be compounded by changes in prices. In addition to affecting our netNet sales, fluctuations in prices of supplies tend to result in changes in our reported inventories, trade receivables, and trade payables, even when our sales volumes and our rate of turnover of these working capital items remain relatively constant. Our business is characterized by a relatively high level of reported working capital, the effects of which can be compounded by changes in prices. Our working capital needs are exposed to these price fluctuations, as well as to fluctuations in our cost for transportation
and distribution. We mightmay not always be able to reflect these increaseschanges in our pricing. The strategic initiatives described above are designed to reduce our exposure to these fluctuations and maintain and improve our efficiency.
Results of Operations
In the following discussion of our results of operations, we make comparisons amongbetween the 2017 Fiscal Year, the 20162023 Fiscal Year and the 20152022 Fiscal Year.Year (in millions, except percentages).
| | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Operations |
| January 2, 2023 to December 31, 2023 | | January 3, 2022 to January 1, 2023 |
| Net sales | $ | 4,301.2 | | | 100.0 | % | | $ | 4,014.5 | | | 100.0 | % |
| Cost of goods sold | 2,810.0 | | | 65.3 | % | | 2,593.0 | | | 64.6 | % |
| Gross profit | 1,491.2 | | | 34.7 | % | | 1,421.5 | | | 35.4 | % |
| Selling, general and administrative expenses | 1,256.6 | | | 29.2 | % | | 1,097.0 | | | 27.3 | % |
| Other income | 15.7 | | | 0.4 | % | | 8.6 | | | 0.2 | % |
| Operating income | 250.3 | | | 5.8 | % | | 333.1 | | | 8.3 | % |
| Interest and other non-operating expenses, net | 27.1 | | | 0.6 | % | | 20.0 | | | 0.5 | % |
| Income tax expense | 49.8 | | | 1.2 | % | | 67.7 | | | 1.7 | % |
| Net income | $ | 173.4 | | | 4.0 | % | | $ | 245.4 | | | 6.1 | % |
|
| | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Operations |
| | | | | | | | | | |
| | | January 2, 2017 to December 31, 2017 | | January 4, 2016 to January 1, 2017 | | December 29, 2014 to January 3, 2016 |
| | | (in millions) |
| Net sales | | $ | 1,861.7 |
| 100.0 | % | | $ | 1,648.2 |
| 100.0 | % | | $ | 1,451.6 |
| 100.0 | % |
| Cost of goods sold | | 1,266.2 |
| 68.0 | % | | 1,132.5 |
| 68.7 | % | | 1,022.5 |
| 70.4 | % |
| Gross profit | | 595.5 |
| 32.0 | % | | 515.7 |
| 31.3 | % | | 429.1 |
| 29.6 | % |
| Selling, general and administrative expenses | | 502.2 |
| 27.0 | % | | 446.5 |
| 27.1 | % | | 373.3 |
| 25.7 | % |
| Other income | | 4.5 |
| 0.2 | % | | 4.8 |
| 0.3 | % | | 4.0 |
| 0.3 | % |
| Operating income | | 97.8 |
| 5.3 | % | | 74.0 |
| 4.5 | % | | 59.8 |
| 4.1 | % |
| Interest and other non-operating (income) expenses | | 25.2 |
| 1.4 | % | | 22.1 |
| 1.3 | % | | 11.4 |
| 0.8 | % |
| Income tax expense | | 18.0 |
| 1.0 | % | | 21.3 |
| 1.3 | % | | 19.5 |
| 1.3 | % |
| Net income | | $ | 54.6 |
| 2.9 | % | | $ | 30.6 |
| 1.9 | % | | $ | 28.9 |
| 2.0 | % |
Comparison of the 20172023 Fiscal Year to the 20162022 Fiscal Year
Net sales
Net sales for the 20172023 Fiscal Year increased 13%7% to $1,861.7$4,301.2 million as compared to $1,648.2$4,014.5 million for the 20162022 Fiscal Year.Year primarily due to contributions from acquisitions. Organic Daily Sales growth for 2017the 2023 Fiscal Year was 5%.were flat compared to the 2022 Fiscal Year due to moderating economic conditions in our end markets. Based upon year-over-year price changes in our highest selling SKUs, we estimate price deflation reduced Organic Daily Sales growth was driven by growthless than 1% in the irrigation, nursery, landscape accessories, hardscapes and outdoor lighting categories, which together grew over 7% as the Company continued to benefit from strength in the construction and the repair and upgrade end markets.2023 Fiscal Year. Organic Daily Sales for agronomic products (fertilizer, control products, ice melt, equipment, and other products) decreased 4% due primarily to lower prices for fertilizer and grass seed, partially offset by increased 2%volume for those products. Organic Daily Sales for landscaping products (irrigation supplies, hardscapes, landscape accessories, nursery goods, and outdoor lighting) grew 1% reflecting steady economic growthmodest end market demand and strong sales to golf end market.slightly higher prices. Acquisitions contributed 8%$278.7 million, or $135.0 million7%, to netNet sales growth.growth for the 2023 Fiscal Year.
Costs
Cost of goods sold
Cost of goods sold for the 20172023 Fiscal Year increased 12%8% to $1,266.2$2,810.0 million from $1,132.5$2,593.0 million for the 20162022 Fiscal Year. The increase in costCost of goods sold was primarily driven by the increased net sales growth, including acquisitions, partially offset by lower material cost, including manufacturing incentives.attributable to acquisitions.
Gross profit and gross margin
Gross profit for the 20172023 Fiscal Year increased 15%5% to $595.5$1,491.2 million as compared to $515.7$1,421.5 million for the 20162022 Fiscal Year. Gross profit growth was driven by the netNet sales increase resulting from Organic Sales growth, and acquisitions in addition to margin expansion resulting from our operational initiatives.including acquisitions. Gross margin increaseddecreased 70 basis points to 32.0% in34.7% for the 20172023 Fiscal Year as compared to 31.3%35.4% for the 2022 Fiscal Year. The decrease in gross margin primarily reflects the absence of the price realization benefit recognized in the 20162022 Fiscal Year. Operational improvement in category management was the primary contributor to the growth. Product mix did not have a significant impact onYear, partially offset by contributions from acquisitions with higher gross margins. Acquisitions did not contribute to the margin improvement.margins as well as lower freight costs.
Selling, general and administrative expenses (operating expenses)
Operating Selling, general and administrative expenses (“SG&A”) for the 20172023 Fiscal Year increased 12%15% to $502.2$1,256.6 million from $446.5$1,097.0 million for the 20162022 Fiscal Year. The increase in operating expenses was primarily driven by our growth from acquisitions. Operating expenses expressedSG&A as a percentage of netNet sales decreasedincreased 190 basis points to 27.0%29.2% for the 20172023 Fiscal Year compared to 27.1%27.3% for the 20162022 Fiscal Year. The decrease inThis increase was primarily due to the impact of acquisitions and operating expenses as a percentage of sales reflects non-recurrence of IPO related costs which occurred in the 2016 Fiscal Year partially offset by increased
investment in marketing, e-commerce and the sales force.cost inflation. Depreciation and amortization increased $6.1$23.9 million to $43.1$127.7 million primarily as result ofdue to our acquisitions.
Interest expense and other non-operating (income) expense, net
Interest expense and other non-operating (income) expense, net increased $3.1 million36% to $25.2$27.1 million in the 20172023 Fiscal Year from $22.1$20.0 million in the 20162022 Fiscal Year. The increase in interest expense was principally driven by theprimarily due to increased borrowings and a higher debt levels resulting from the refinancing of the Term Loan Facility in the 2016 Fiscal Year and the acquisition investments in the 2017 Fiscal Year.
Income tax (benefit) expense
Income tax expense was $18.0 millionaverage interest rate during the 20172023 Fiscal Year as compared to incomethe 2022 Fiscal Year.
Income tax expense of $21.3
Income tax expense was $49.8 million duringfor the 20162023 Fiscal Year as compared to $67.7 million for the 2022 Fiscal Year. The effective tax rate was 24.8% during22.3% for the 20172023 Fiscal Year as compared to 41.0%21.6% for the 2016 Fiscal Year. The decrease in the effective tax rate was due primarily to (i) the adoption of ASU 2016-09 in the first quarter of 2017, which resulted in the recognition of excess tax benefits as a reduction of Income tax expense in the Company’s Consolidated Statements of Operations, and (ii) the December 2017 enactment of the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act includes a number of changes to existing U.S. tax laws, most notably a reduction of the U.S. corporate income tax rate from 35% to 21%, which required us to re-measure certain deferred tax assets and liabilities in the reporting period in which the 2017 Tax Act was signed into law, and a one-time transition tax on certain foreign earnings that were previously deferred.
Net income
Net income for the 2017 Fiscal Year increased 78% to $54.6 million as compared to $30.6 million for the 2016 Fiscal Year. The increase in net income was primarily attributable to our lower effective tax rate, growth in sales both organically and through acquisitions, and the expansion of gross margin resulting from operational improvements.
Comparison of the 2016 Fiscal Year to the 2015 Fiscal Year
Net sales
Net sales for the 2016 Fiscal Year increased 14% to $1,648.2 million as compared to $1,451.6 million for the 2015 Fiscal Year. Organic Sales growth contributed 3% to overall growth, and acquisitions contributed an additional 11%. Net sales growth for the 2016 Fiscal Year, adjusted for one less week in the 2016 Fiscal Year compared to the 2015 Fiscal Year, would have been approximately one percentage point greater, or total net sales growth of 15% and Organic Sales growth of 4%. Organic Sales growth was driven by growth in the irrigation, nursery, landscape accessories, hardscapes and outdoor lighting categories, which together grew over 6% as a result of continued growth in residential and commercial construction. Organic Sales for fertilizer and control products decreased 2% reflecting modest market demand, fewer Selling Days, and the negative impact of branch consolidations. Acquisitions contributed $157.0 million to net sales growth.
Costs of goods sold
Cost of goods sold for the 2016 Fiscal Year increased 11% to $1,132.5 million from $1,022.5 million for the 2015 Fiscal Year. The increase in cost of goods sold was primarily driven by the increased net sales growth, including acquisitions, partially offset by lower material cost, including manufacturing incentives.
Gross profit and gross margin
Gross profit for the 2016 Fiscal Year increased 20% to $515.7 million as compared to $429.1 million for the 2015 Fiscal Year. Gross profit growth was driven by the net sales increase resulting from Organic Sales growth and acquisitions in addition to margin expansion resulting from our operational initiatives. Gross margin increased 170 basis points to 31.3% in the 2016 Fiscal Year as compared to 29.6% in the 2015 Fiscal Year. Operational improvements in pricing and category management were the primary contributors, each accounting for approximately half of the increase. Product mix did not have a significant impact on gross margins. Acquisitions contributed approximately 20 basis points to the margin improvement.
Selling, general and administrative expenses (operating expenses)
Operating expenses for the 2016 Fiscal Year increased 20% to $446.5 million from $373.3 million for the 2015 Fiscal Year. The increase in operating expenses was primarily driven by our growth from acquisitions. In addition, we incurred approximately $12.1 million in transition expenses related to our stock offerings, debt refinancing and subsequent amendment, and the termination of our
consulting agreements with CD&R and Deere. Operating expenses expressed as a percentage of net sales increased to 27.1% for the 2016 Fiscal Year compared to 25.7% for the 2015 Fiscal Year. The increase was driven primarily by the transition expenses discussed above, in addition to acquisitions and higher personnel costs to support our growth. Depreciation and amortization increased $5.8 million to $37.0 million primarily as result of our acquisitions.
Interest expense and other non-operating (income) expense
Interest expense and other non-operating (income) expense increased $10.7 million to $22.1 million in the 2016 Fiscal Year from $11.4 million in the 2015 Fiscal Year. The increase in interest expense was principally driven by the higher debt levels, a higher blended interest rate on our debt, and the write-off of unamortized debt discounts and issuance costs in connection with the refinancing and subsequent amendment transaction.
Income tax (benefit) expense
Income tax expense was $21.3 million during the 2016 Fiscal Year as compared to income tax expense of $19.5 million during the 2015 Fiscal Year. The effective tax rate was 41.0% during the 2016 Fiscal Year as compared to 40.3% for the 20152022 Fiscal Year. The increase in the effective tax rate was due primarily to nondeductible transaction costs relateda decrease in the amount of excess tax benefits from stock-based compensation recognized as a component of Income tax expense in the Consolidated Statements of Operations.Excess tax benefits of $5.9 million were recognized for the 2023 Fiscal Year as compared to our 2016 stock offerings.$10.4 million for the 2022 Fiscal Year.
Net income
Net income
Net income for the 20162023 Fiscal Year increased 6%decreased 29% to $30.6$173.4 million as compared to $28.9$245.4 million for the 20152022 Fiscal Year. The increasedecrease in netNet income was primarily attributabledue to the growth in sales both organically and through acquisitions, and the expansion oflower gross margin resulting from operational improvements,and higher SG&A, partially offset by increased operating expenses to support our sales growth and initiatives.an increase in Net sales.
Quarterly Results of Operations Data
The following tables set forth certain financial data for each of the most recent eight fiscal quarters including our unaudited netNet sales, costCost of goods sold, grossGross profit, selling,Selling, general and administrative expenses, netNet income (loss), and Adjusted EBITDA data (including a reconciliation of Adjusted EBITDA to netNet income (loss)) for each of the most recent eight fiscal quarters.. We have prepared the quarterly data on a basis that is consistent with the financial statements included in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of thesethis data. This information is not a complete set of financial statements and should be read in conjunction with our financial statements and related notes included in this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.
| | (In millions except per share information and percentages, unaudited) | |
| 2023 Fiscal Year | |
| 2023 Fiscal Year | |
| 2023 Fiscal Year | | | 2022 Fiscal Year |
| Year | | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 |
| | (In millions, unaudited) | | | | | | | | | | | | | | | | | | |
| | 2017 Fiscal Year | | 2016 Fiscal Year |
| | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 |
| | | | | | | | | | | | | | | | | | | | |
| Net sales | |
| Net sales | |
| Net sales | $ | 1,861.7 |
| | $ | 415.7 |
| | $ | 502.4 |
| | $ | 608.6 |
| | $ | 335.0 |
| | $ | 1,648.2 |
| | $ | 361.8 |
| | $ | 444.5 |
| | $ | 513.4 |
| | $ | 328.5 |
|
| Cost of goods sold | 1,266.2 |
| | 283.8 |
| | 342.1 |
| | 406.2 |
| | 234.1 |
| | 1,132.5 |
| | 250.0 |
| | 306.1 |
| | 344.9 |
| | 231.5 |
|
| Gross profit | 595.5 |
| | 131.9 |
| | 160.3 |
| | 202.4 |
| | 100.9 |
| | 515.7 |
| | 111.8 |
| | 138.4 |
| | 168.5 |
| | 97.0 |
|
| Selling, general and administrative expenses | 502.2 |
| | 133.8 |
| | 128.1 |
| | 126.6 |
| | 113.7 |
| | 446.5 |
| | 116.2 |
| | 107.7 |
| | 118.0 |
| | 104.6 |
|
| Other income | 4.5 |
| | 0.7 |
| | 1.6 |
| | 1.3 |
| | 0.9 |
| | 4.8 |
| | 1.4 |
| | 1.2 |
| | 1.0 |
| | 1.2 |
|
| Other income, net | |
| Operating income (loss) | 97.8 |
| | (1.2 | ) | | 33.8 |
| | 77.1 |
| | (11.9 | ) | | 74.0 |
| | (3.0 | ) | | 31.9 |
| | 51.5 |
| | (6.4 | ) |
| Interest and other non-operating (income) expenses | 25.2 |
| | 6.2 |
| | 6.2 |
| | 6.6 |
| | 6.2 |
| | 22.1 |
| | 6.7 |
| | 6.3 |
| | 6.5 |
| | 2.6 |
|
| Income tax (benefit) expense | 18.0 |
| | (11.4 | ) | | 10.7 |
| | 26.3 |
| | (7.6 | ) | | 21.3 |
| | (4.1 | ) | | 10.7 |
| | 18.1 |
| | (3.4 | ) |
| Interest and other non-operating expenses, net | |
| Income tax expense (benefit) | |
| Net income (loss) | $ | 54.6 |
| | $ | 4.0 |
| | $ | 16.9 |
| | $ | 44.2 |
| | $ | (10.5 | ) | | $ | 30.6 |
| | $ | (5.6 | ) | | $ | 14.9 |
| | $ | 26.9 |
| | $ | (5.6 | ) |
| Net income (loss) per common share: | | | | | | | | | | | | | | | | | | | |
| Basic | $ | 1.37 |
| | $ | 0.10 |
| | $ | 0.42 |
| | $ | 1.11 |
| | $ | (0.26 | ) | | $ | (3.01 | ) | | $ | (0.14 | ) | | $ | 0.38 |
| | $ | (3.18 | ) | | $ | (0.85 | ) |
| Basic | |
| Basic | |
| Diluted | $ | 1.29 |
| | $ | 0.09 |
| | $ | 0.41 |
| | $ | 1.07 |
| | $ | (0.26 | ) | | $ | (3.01 | ) | | $ | (0.14 | ) | | $ | 0.36 |
| | $ | (3.18 | ) | | $ | (0.85 | ) |
Adjusted EBITDA(1) | $ | 157.2 |
| | $ | 15.3 |
| | $ | 48.4 |
| | $ | 92.3 |
| | $ | 1.2 |
| | $ | 134.3 |
| | $ | 11.2 |
| | $ | 43.7 |
| | $ | 74.9 |
| | $ | 4.5 |
|
| Net sales as a percentage of annual net sales | 100.0 | % | | 22.3 | % | | 27.0 | % | | 32.7 | % | | 18.0 | % | | 100.0 | % | | 22.0 | % | | 27.0 | % | | 31.1 | % | | 19.9 | % |
| Gross profit as a percentage of annual gross profit | 100.0 | % | | 22.2 | % | | 26.9 | % | | 34.0 | % | | 16.9 | % | | 100.0 | % | | 21.7 | % | | 26.8 | % | | 32.7 | % | | 18.8 | % |
Adjusted EBITDA(a) | |
| | Net sales as a percentage of annual Net sales | |
| Net sales as a percentage of annual Net sales | |
| Net sales as a percentage of annual Net sales | | 100.0 | % | | 22.4 | % | | 26.6 | % | | 31.5 | % | | 19.5 | % | | 100.0 | % | | 22.2 | % | | 27.5 | % | | 30.3 | % | | 20.0 | % |
| Gross profit as a percentage of annual Gross profit | | Gross profit as a percentage of annual Gross profit | 100.0 | % | | 21.9 | % | | 26.0 | % | | 32.8 | % | | 19.3 | % | | 100.0 | % | | 21.3 | % | | 27.3 | % | | 32.4 | % | | 19.0 | % |
| Adjusted EBITDA as a percentage of annual Adjusted EBITDA | 100.0 | % | | 9.7 | % | | 30.8 | % | | 58.7 | % | | 0.8 | % | | 100.0 | % | | 8.3 | % | | 32.5 | % | | 55.8 | % | | 3.4 | % | Adjusted EBITDA as a percentage of annual Adjusted EBITDA | 100.0 | % | | 9.7 | % | | 29.2 | % | | 51.4 | % | | 9.7 | % | | 100.0 | % | | 8.4 | % | | 29.2 | % | | 47.8 | % | | 14.6 | % |
47
| |
(1) | In addition to our net income (loss) determined in accordance with GAAP, we present Adjusted EBITDA in this Annual Report on Form 10-K to evaluate the operating performance and efficiency of our business. EBITDA represents our net income (loss) plus the sum of income tax (benefit), depreciation and amortization and interest expense, net of interest income. Adjusted EBITDA is further adjusted for stock-based compensation expense, related party advisory fees, loss (gain) on sale of assets, other non-cash items, other non-recurring (income) and loss. We believe that Adjusted EBITDA is an important supplemental measure of operating performance because: |
(a) In addition to our Net income (loss) determined in accordance with GAAP, we present Adjusted EBITDA in this Annual Report on Form 10-K to evaluate the operating performance and efficiency of our business. EBITDA represents our Net income (loss) plus the sum of Income tax expense (benefit), interest expense, net of interest income, and depreciation and amortization. Adjusted EBITDA is further adjusted for stock-based compensation expense, (gain) loss on sale of assets and termination of finance leases not in the ordinary course of business, financing fees, as well as other fees and expenses related to acquisitions, and other non-recurring (income) loss. We believe that Adjusted EBITDA is an important supplemental measure of operating performance because:
•Adjusted EBITDA is used to test compliance with certain covenants under our long-term debt agreements;
we believe •Adjusted EBITDA is frequently used by securities analysts, investors, and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results;
we believe •Adjusted EBITDA is helpful in highlighting operating trends because it excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, age and book depreciation of facilities, and capital investments;
•we consider (gains) losses on the acquisition, disposal, and impairment of assets as resulting from investing decisions rather than ongoing operations; and
•other significant non-recurring items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of our results.
Adjusted EBITDA is not a measure of our liquidity or financial performance under GAAP and should not be considered as an alternative to netNet income, operatingOperating income, or any other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of Adjusted EBITDA instead of netNet income has limitations as an analytical tool. For example, this measure:
•does not reflect changes in, or cash requirements for, our working capital needs;
•does not reflect our interest expense, net, or the cash requirements necessary to service interest or principal payments, on our debt;
•does not reflect our incomeIncome tax expense (benefit) expense or the cash requirements to pay our income taxes;
•does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and does not reflect any cash requirements for such replacements.
Management compensates for these limitations by relying primarily on ourthe GAAP results and by using Adjusted EBITDA only as a supplement to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies limiting their usefulness as a comparative measure.
The following table presents a reconciliation of Adjusted EBITDA to Net income (loss) (in millions, unaudited):
| | | (In millions, unaudited) | | | | | | | | | | | | | | | | | | | |
| | | 2017 Fiscal Year | | 2016 Fiscal Year |
| | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 |
| | 2023 Fiscal Year | | | | 2023 Fiscal Year | | 2022 Fiscal Year |
| | Year | | | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 |
| | | | | | | | | | | | | | | | | | | | | |
| Reported Net income (loss) | Reported Net income (loss) | $ | 54.6 |
| | $ | 4.0 |
| | $ | 16.9 |
| | $ | 44.2 |
| | $ | (10.5 | ) | | $ | 30.6 |
| | $ | (5.6 | ) | | $ | 14.9 |
| | $ | 26.9 |
| | $ | (5.6 | ) |
| | Income tax (benefit) expense | 18.0 |
| | (11.4 | ) | | 10.7 |
| | 26.3 |
| | (7.6 | ) | | 21.3 |
| | (4.1 | ) | | 10.7 |
| | 18.1 |
| | (3.4 | ) |
| | Interest expense, net | 25.2 |
| | 6.2 |
| | 6.2 |
| | 6.6 |
| | 6.2 |
| | 22.1 |
| | 6.7 |
| | 6.3 |
| | 6.5 |
| | 2.6 |
|
| | Depreciation & amortization | 43.1 |
| | 11.4 |
| | 11.1 |
| | 10.8 |
| | 9.8 |
| | 37.0 |
| | 9.6 |
| | 9.7 |
| | 9.1 |
| | 8.6 |
|
| Reported Net income (loss) | |
| Reported Net income (loss) | |
| Income tax expense (benefit) | |
| Interest expense, net | |
| Depreciation & amortization | |
| EBITDA | EBITDA | 140.9 |
| | 10.2 |
| | 44.9 |
| | 87.9 |
| | (2.1 | ) | | 111.0 |
| | 6.6 |
| | 41.6 |
| | 60.6 |
| | 2.2 |
|
| | Stock-based compensation(a) | 5.9 |
| | 1.4 |
| | 1.5 |
| | 1.6 |
| | 1.4 |
| | 5.3 |
| | 1.3 |
| | 1.1 |
| | 2.2 |
| | 0.7 |
|
| | (Gain) loss on sale of assets(b) | 0.6 |
| | 0.4 |
| | — |
| | 0.1 |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | — |
| | (0.1 | ) |
| | Advisory fees(c) | — |
| | — |
| | — |
| | — |
| | — |
| | 8.5 |
| | — |
| | — |
| | 8.0 |
| | 0.5 |
|
| | Financing fees(d) | 1.7 |
| | 0.2 |
| | 0.4 |
| | 1.1 |
| | — |
| | 4.6 |
| | 1.1 |
| | 0.4 |
| | 3.1 |
| | — |
|
| | Rebranding and other adjustments(e) | 8.1 |
| | 3.1 |
| | 1.6 |
| | 1.6 |
| | 1.8 |
| | 4.9 |
| | 2.1 |
| | 0.6 |
| | 1.0 |
| | 1.2 |
|
Adjusted EBITDA(f) | $ | 157.2 |
| | $ | 15.3 |
| | $ | 48.4 |
| | $ | 92.3 |
| | $ | 1.2 |
| | $ | 134.3 |
| | $ | 11.2 |
| | $ | 43.7 |
| | $ | 74.9 |
| | $ | 4.5 |
|
| Stock-based compensation(a) | |
| (Gain) loss on sale of assets(b) | |
| Financing fees(c) | |
| Acquisitions and other adjustments(d) | |
Adjusted EBITDA(e) | |
| |
(a) | Represents stock-based compensation expense recorded during the period. |
| |
(b) | Represents any gain or loss associated with the sale or write-down of assets not in the ordinary course of business. |
| |
(c) | Represents fees paid to CD&R and Deere for consulting services. In connection with the IPO, we entered into termination agreements with CD&R and Deere pursuant to which the parties agreed to terminate the related consulting agreements. |
| |
(d) | Represents fees associated with our debt refinancing and debt amendments, as well as fees incurred in connection with our initial public offering and secondary offerings. |
| |
(e) | Represents (i) expenses related to our rebranding to the name SiteOne and (ii) professional fees, retention and severance payments, and performance bonuses related to historical acquisitions. Although we have incurred professional fees, retention and severance payments, and performance bonuses related to acquisitions in several historical periods and expect to incur such fees and payments for any future acquisitions, we cannot predict the timing or amount of any such fees or payments. |
| |
(f) | Adjusted EBITDA excludes any earnings or loss of acquisitions prior to their respective acquisition dates for all periods presented. |
(a) Represents stock-based compensation expense recorded during the period.
(b) Represents any gain or loss associated with the sale of assets and termination of finance leases not in the ordinary course of business.
(c) Represents fees associated with our debt refinancing and debt amendments.
(d) Represents professional fees, retention and severance payments, and performance bonuses related to historical acquisitions. Although we have incurred professional fees, retention and severance payments, and performance bonuses related to acquisitions in several historical periods and expect to incur such fees and payments for any future acquisitions, we cannot predict the timing or amount of any such fees or payments. These amounts are recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations.
(e) Adjusted EBITDA excludes any earnings or loss of acquisitions prior to their respective acquisition dates for all periods presented.
The following table presents a reconciliation of Organic Daily Sales to Net sales:sales (in millions, except Selling Days; unaudited):
| | | (In millions, except Selling Days; unaudited) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2017 Fiscal Year | | 2016 Fiscal Year |
| | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 |
| | 2023 Fiscal Year | | | | 2023 Fiscal Year | | 2022 Fiscal Year |
| | Year | | | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 | | Year | | Qtr 4 | | Qtr 3 | | Qtr 2 | | Qtr 1 |
| | | | | | | | | | | | | | | | | | | | | |
| Reported Net sales | Reported Net sales | $ | 1,861.7 |
| | $ | 415.7 |
| | $ | 502.4 |
| | $ | 608.6 |
| | $ | 335.0 |
| | $ | 1,648.2 |
| | $ | 361.8 |
| | $ | 444.5 |
| | $ | 513.4 |
| | $ | 328.5 |
|
| | Organic sales | 1,694.0 |
| | 370.0 |
| | 457.4 |
| | 548.1 |
| | 318.5 |
| | 1,615.5 |
| | 346.8 |
| | 433.6 |
| | 506.6 |
| | 328.5 |
|
| | Acquisition contribution(a) | 167.7 |
| | 45.7 |
| | 45.0 |
| | 60.5 |
| | 16.5 |
| | 32.7 |
| | 15.0 |
| | 10.9 |
| | 6.8 |
| | — |
|
| Reported Net sales | |
| Reported Net sales | |
| Organic sales(a) | |
| Acquisition contribution(b) | |
| Selling Days | Selling Days | 252 |
| | 61 |
| | 63 |
| | 64 |
| | 64 |
|
| 253 |
| | 61 |
| | 63 |
| | 64 |
| | 65 |
|
| Organic Daily Sales | Organic Daily Sales | $ | 6.7 |
| | $ | 6.1 |
| | $ | 7.3 |
| | $ | 8.6 |
| | $ | 5.0 |
| | $ | 6.4 |
| | $ | 5.7 |
| | $ | 6.9 |
| | $ | 7.9 |
| | $ | 5.1 |
|
| |
(a) | Represents net sales from acquired branches that have not been under our ownership for at least four full fiscal quarters at the start of the 2017 Fiscal Year. |
(a) Organic sales equal Net sales less Net sales from branches acquired in 2023 and 2022.
(b) Represents Net sales from acquired branches that have not been under our ownership for at least four full fiscal quarters at the start of the 2023 Fiscal Year. Includes Net sales from branches acquired in 2023 and 2022.
Liquidity and Capital Resources
Our ongoingWe assess our liquidity needs are expected to be funded byin terms of our cash and cash equivalents on hand netand the ability to generate cash provided byto fund our operating and investing activities, repurchase shares, and as required,service our debt, taking into consideration available borrowings underand the ABL Facility.seasonal nature of our business. We expect that cash and cash equivalents on hand, cash provided from operations, and available capacity under the ABL Facility will provide sufficient funds to operate our business, make expected capital expenditures, complete acquisitions and share repurchases, and meet all of our liquidity requirements for the followingnext 12 months, including payment of interest and principal on our debt. Longer-term projects or significant investments in acquisitions may be financed through borrowings under our credit facilities or other forms of financing and will depend on then-existing conditions.
In October 2022, our Board of Directors approved a share repurchase authorization for up to $400.0 million of our common stock. We intend to purchase shares under the repurchase authorization from time to time on the open market at the discretion of management, subject to strategic considerations, market conditions, and other factors. The share repurchase authorization does not have an expiration date and may be amended, suspended, or terminated by our Board of Directors at any time. During the 2023 Fiscal Year, we repurchased 90,000 shares of our common stock at an average price per share of $126.21. As of December 31, 2023, the dollar value of shares that may yet be purchased under the share repurchase authorization was $363.6 million.
Our borrowing base capacity under the ABL Facility was $162.0$578.2 million as of December 31, 2017,2023, after giving effect to approximately $127.0$7.5 million of revolving credit loans under the ABL Facility a $36.0and outstanding letters of credit of $14.3 million. Our borrowing base capacity under the ABL Facility was $487.4 million increase from $91.0as of January 1, 2023, after giving effect to $100.0 million of revolving credit loans asunder the ABL Facility and outstanding letters of January 1, 2017.credit of $11.5 million. As of December 31, 2017,2023, we had total cash and cash equivalents of $16.7$82.5 million, total gross long-term debt (net of debt discounts and issuance costs) of $463.6$379.0 million, and capital leasestotal finance lease obligations (excluding interest) of $11.7$91.6 million.
Working capital was $396.1$827.0 million as of December 31, 2017,2023, an increase of $91.6$67.5 million as compared to $304.5$759.5 million as of January 1, 2017.2023. The increasechange in working capital iswas primarily attributable to growthan increase in the business primarily through acquisitions.cash and cash equivalents and higher receivables supporting our sales growth.
Capital expenditures were $14.5of $32.1 million for the 20172023 Fiscal Year and represent an averagewere 0.7% of 0.8% netNet sales overfor the year. Capital expenditures have averaged $11.3$30.6 million annually from the 20152021 Fiscal Year to the 20172023 Fiscal Year and representrepresenting an average of 0.7% net0.8% of Net sales over this time period. We expect capital expenditures to be in a range of 0.8% to 1.4% as a percentage of Net sales for the 2024 Fiscal Year.
The following table summarizes current and long-term material cash requirements for our aggregate contractual obligations and other commercial commitments as of December 31, 2023 (in millions):
| | | | | | | | | | | | | | | | | |
| Total | | Next 12 Months | | Beyond 12 Months |
| Long-term debt, including current maturities | $ | 379.0 | | | $ | 5.3 | | | $ | 373.7 | |
| Interest on long-term debt | $ | 112.4 | | | $ | 20.4 | | | $ | 92.0 | |
| Finance leases, including interest | $ | 104.9 | | | $ | 26.6 | | | $ | 78.3 | |
| Operating leases, including interest | $ | 471.9 | | | $ | 93.6 | | | $ | 378.3 | |
| Purchase obligations | $ | 162.4 | | | $ | 87.8 | | | $ | 74.6 | |
Our gross long-term debt balance increased $22.9 million since January 1, 2023 to $379.0 million. This increase was primarily attributable to higher working capital as described above and our acquisition investments. We have current maturities on our long-term debt of $5.3 million, which includes $3.8 million related to the term loan facility and $1.5 million related to the hybrid debt instruments. The projected interest payments on our debt only pertain to obligations and agreements outstanding as of December 31, 2023 and expected payments for agent administration fees. The projected interest payments are calculated for future periods through maturity dates of our long-term debt using interest rates in effect as of December 31, 2023. Certain of these projected interest payments may differ in the future based on changes in floating interest rates or other factors and events, including our entry into amendments of the term loan facility and the ABL Facility. The total amount of interest on long-term debt increased $14.5 million since January 1, 2023 to $112.4 million, primarily due to the increase in borrowings under the term loans and rising interest rates. Refer to “Note 8. Long-Term Debt” in the notes to the consolidated financial statements for further information regarding our debt instruments. Our finance leases consist primarily of leases for our vehicle fleet. Our operating leases consist primarily of leases for equipment and real estate, which includes office space, branch locations, and distribution centers. The table above provides our expected payments of finance lease obligations including interest and the undiscounted rental payment obligations under operating lease agreements for the amounts due in the next 12 months and beyond 12 months. Refer to “Note 6. Leases” in the notes to the consolidated financial statements for additional information regarding our lease arrangements.
Our purchase obligations include various commitments with vendors to purchase goods and services, primarily inventory. The largest purchase obligations include contracts with various farmers that run through the 2026 Fiscal Year and obligate us to make payments for grass seeds for approximately $76.1 million, which includes expected payments of $44.5 million for the 2024 Fiscal Year. There are also other supplier and service arrangements with vendors totaling $86.3 million, of which $43.3 million of payments are expected to be made in the 2024 Fiscal Year. These purchase obligations are generally cancelable, but we have no intent to cancel and incur a penalty for not meeting the minimum required purchases. We have excluded purchase orders and agreements made in the ordinary course of business that are cancelable without penalty. Any amounts for which we are liable under purchase orders for goods received are reflected in Accounts payable on our Consolidated Balance Sheets and are excluded from the table above. Refer to “Note 10. Commitments and Contingencies” in the notes to the consolidated financial statements for additional information regarding our purchase commitments. Cash Flow Summary
Information about our cash flows, by category, is presented in our statements of cash flows and is summarized below:below (in millions):
| | | | | | | | | | | | | | |
| | For the year |
| Net cash provided by (used in): | | January 2, 2023 to December 31, 2023 | | January 3, 2022 to January 1, 2023 |
| Operating activities | | $ | 297.5 | | | $ | 217.2 | |
| Investing activities | | $ | (226.0) | | | $ | (284.4) | |
| Financing activities | | $ | (18.3) | | | $ | 43.4 | |
|
| | | | | | | | | | | |
| | For the year |
| | January 2, 2017 to December 31, 2017 | | January 4, 2016 to January 1, 2017 | | December 29, 2014 to January 3, 2016 |
| | (in millions) |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | 16.3 |
| | $ | 72.9 |
| | $ | 71.0 |
|
| Investing activities | $ | (98.6 | ) | | $ | (74.9 | ) | | $ | (111.0 | ) |
| Financing activities | $ | 82.5 |
| | $ | (1.8 | ) | | $ | 49.7 |
|
Cash flow fromprovided by operating activities
Cash flow fromNet cash provided by operating activities for the 20172023 Fiscal Year was $16.3$297.5 million compared to $72.9$217.2 million for the 20162022 Fiscal Year. The decrease in operating cash flow reflects increasedincrease reflected improved working capital resulting from growth in our operations and transitionmanagement due primarily to our new supply chain strategy.progress in reducing inventory levels.
Cash flow from operating activities for the 2016 Fiscal Year was $72.9 million compared to $71.0 million for the 2015 Fiscal Year. Cash flow from operations in the 2016 Fiscal Year benefited from our improvement in EBITDA resulting from our sales growth and operational initiatives.
Cash flow used in investing activities
Cash
Net cash used in investing activities for the 20172023 Fiscal Year was $98.6$226.0 million compared to $74.9$284.4 million for the 2022 Fiscal Year. The decrease reflects lower acquisition investments in the 2016 Fiscal Year. Acquisition investment increased to $82.9 million in the 2017 Fiscal Year compared to 66.4 million the 2016 Fiscal Year, reflecting an increase in the number of transactions. Capital expenditures of $14.5 million were $5.7 million higher in the 20172023 Fiscal Year compared to the 2016 Fiscal Year, driven primarily by investments in information technology and supply chain related to company initiatives.
Cash used in investing activities for the 2016 Fiscal Year was $74.9 million compared to $111.0 million in the 2015 Fiscal Year. The decrease reflects a lower investment in acquisitions during the 2016 Fiscal Year compared to the 2015 Fiscal Year primarily because we did not have an acquisition as large as the $57.7 million invested in Shemin Nurseries during the 20152022 Fiscal Year. Capital expenditures of $8.8$32.1 million were also $1.7$5.0 million lowerhigher in the 20162023 Fiscal Year compared to $27.1 million in the 20152022 Fiscal Year driven primarily by the timing of investmentsdue to increased investment in certain company initiatives.branch improvements including relocations.
Cash flow (used in) provided by (used in) financing activities
Cash flow from financing activities was $82.5 million for the 2017 Fiscal Year compared to
Net cash used by financing activities of $1.8 million in the 2016 Fiscal Year. The increase in cash from financing activities was primarily attributable to increased borrowings to support our acquisition strategy.
Cash used in financing activities was $1.8$(18.3) million for the 20162023 Fiscal Year compared to net cash provided by financing activities of $49.7$43.4 million in the 20152022 Fiscal Year. The decreaseincrease in net cash from financing activities was primarily driven by the lower investment in acquisitions. Cash used in financing activities for dividend payments was $189.0 million forprimarily reflects higher net repayments under the 2016ABL Facility, partially offset by increased borrowings under the term loan facility, as a result of lower investments in working capital and acquisitions during the 2023 Fiscal Year duecompared to a one-time special cash dividend of $176.0 million and preferred stock dividends of $13.0 million. During the 20152022 Fiscal Year, the preferred stock dividends were paid in-kind and no dividends were paid in cash. Net cash provided by borrowings of $197.7 million in the 2016 Fiscal Year was primarily used to pay the dividends.Year.
External Financing
Term Loan FacilityLoans
Landscape Holding and Landscape, as borrowers (collectively, the “Term Loan Borrower”“Borrowers”) are parties, entered into the Fifth Amendment to the Amended and Restated Term Loan Credit Agreement, the (“Fifth Amendment”), dated as of March 23, 2021, with JPMorgan Chase Bank, N.A. (the “Amended and Restated Term Loan Credit Agreement”“New Agent”) dated April 29, 2016, as amended on November 23, 2016, May 24, 2017 and December 12, 2017, with UBS AG, Stamford Branch, as administrative agent and collateral agent, the several banks and the other financial institutions party thereto and certain other parties party thereto from time to time. The Fifth Amendment amended and restated the Amended and Restated Credit Agreement, dated as of April 29, 2016, among the Borrowers, the lenders from time to time party thereto providing for a senior secured term loan facility in an aggregate principal amount of approximately $350.0 millionand UBS AG, Stamford Branch (the “Term Loan Facility”“Existing Agent”). Landscape Holding as administrative agent and Landscape arecollateral agent (as amended prior to March 23, 2021, the borrowers under“Existing Credit Agreement” and, as so amended and restated pursuant to the Term Loan Facility.
The final maturity date ofFifth Amendment, the Term Loan Facility is April 29, 2022. In addition, however, the“Second Amended and Restated Credit Agreement”) in order to, among other things, incur $325.0 million of term loans (the “New Term LoanLoans”). The New Term Loans mature on March 23, 2028.
On March 27, 2023, Landscape Holding, as representative for the Borrowers, entered into the First Amendment to the Second Amended and Restated Credit Agreement provides the right for individual lenders(the “Sixth Amendment”) to extend the maturity dateimplement a forward-looking interest rate based on SOFR in lieu of their loans upon the request ofLIBOR.
On July 12, 2023, Landscape Holding, withoutas representative for the consentBorrowers, entered into the Increase Supplement (the “Increase Supplement”) to the Second Amended and Restated Credit Agreement to provide for an additional $120.0 million of any other lender.New Term Loans.
Subject to certain conditions, without the consent of the then existing lenders (but subject to the receipt of commitments), the New Term Loan FacilityLoans may be increased (or a new term loan facility, revolving credit facility, or letter of credit facility added) by up to (i) $100.0the greater of (a) $275.0 million and (b) 100% of Consolidated EBITDA (as defined in the Second Amended and Restated Credit Agreement) for the trailing 12-month period plus (ii) an additional amount that will not cause the net secured leverage ratio after giving effect to the incurrence of such additional amount and any use of proceeds thereof to exceed 3.504.00 to 1.00.
The New Term Loan Facility isLoans are subject to mandatory prepayment provisions, covenants, and events of default. Failure to comply with these covenants and other provisions could result in an event of default under the Term Loan Facility.Second Amended and Restated Credit Agreement. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the New Term Loan FacilityLoans to be immediately due and payable and enforce their interest in collateral pledged under the agreement.
RefinancingAmendments of Term Loans
On April 29, 2016, we refinanced our then-existing term loan facility, orJuly 12, 2023, Landscape Holding, as representative for the “Prior Term Loan Facility,” withBorrowers, entered into the Term Loan Facility. We refer to this refinancing transaction in this Annual Report as the “Refinancing.” We used borrowings under the Term Loan Facility to repay all $60.3Increase Supplement, which provided for an additional $120.0 million of borrowings outstanding underNew Term Loans and made such other changes to the Prior Term Loan Facility,Second Amended and Restated Credit Agreement as agreed between Landscape Holding and JPMorgan Chase Bank, N.A. Proceeds of the term loans borrowed pursuant to the Increase Supplement were used, among other things, to (i) repay $29.9 million of borrowingscertain loans outstanding under the ABL Facility pay a special cash dividend of $176.0 million, or the “Special Cash Dividend,” to holders of our common stock and Preferred Stock as of April 29, 2016 and(ii) pay fees and expenses associated withrelated to the Refinancing.Increase Supplement. The maturity date of the New Term Loans of March 23, 2028 did not change as a result of the Increase Supplement.
Term Loan Facility Amendments
On November 23, 2016, weMarch 27, 2023, Landscape Holding entered into Sixth Amendment, which amended the Term Loan Facility (the “First Amendment”)Second Amended and Restated Credit Agreement to among other things, (i) add the Tranche B Term Loans under the Term Loan Facilityimplement a forward-looking interest rate based on SOFR in an aggregate principal amountlieu of $273.6 million and (ii) increase the aggregate principal amount of Tranche B Term Loans under the Term Loan Facility to $298.6 million pursuant to an increase supplement. Proceeds of the Tranche B Term Loans were used to, among other things, (i) repay in full the term loans outstanding under the Term Loan Facility immediately prior to effectiveness of the Term Loan Facility Amendments (the “Existing Term Loans”) and (ii) repay $21.0 million of borrowings outstanding under the ABL Facility.
On May 24, 2017, we amended the Term Loan Facility (the “Second Amendment”) to, among other things, add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche C Term Loans”) in an aggregate principal amount of $299.5 million. Proceeds of the Tranche C Term Loans were used to, among other things, repay in full the Tranche B Term Loans outstanding under the Term Loan Facility immediately prior to effectiveness of the Second Amendment and pay fees and expenses associated with the transaction.
On December 12, 2017, we amended the Term Loan Facility (the “Third Amendment”) to, among other things, (i) add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche D Term Loans”) in an aggregate principal amount of $298.0 million and (ii) increase the aggregate principal amount of Tranche D Term Loans under the Term Loan Facility to $350.0 million. Proceeds of the Tranche D Term Loans were used to, among other things, (i) repay in full the Tranche C Term Loans and (ii) repay approximately $50.7 million of borrowings outstanding under the ABL Facility.
LIBOR. The Tranche DNew Term Loans bear interest, at Landscape Holding’s option, at either (i) an adjusted LIBORTerm SOFR rate plus an applicable margin equal to 2.75%2.00% (with a Term SOFR floor of 0.50% on initial term loans and 0.00% on all other term loans) or (ii) an alternative base rate plus an applicable margin equal to 1.75%1.00%. Voluntary prepayments of the Tranche DNew Term Loans are permitted at any time, in minimum principal amounts, without premium or penalty, subject to a 1.00% premium payableunless in connection with certain repricing transactions that occurred within the first six12 months after the date of the initial funding of the Tranche D Term
Loans. The other terms of the Tranche D Term Loans are generally the same as the terms applicable to the ExistingNew Term Loans.The interest rate on the outstanding balance of the Term Loan FacilityNew Terms Loans was 4.32%7.47044% as of December 31, 2017.2023.
On March 23, 2021, the Borrowers entered into the Fifth Amendment in order to, among other things, (i) incur $325.0 million of term loans, (ii) replace the Existing Agent as administrative and collateral agent with the New Agent, and (iii) make such other changes in the Second Amended and Restated Credit Agreement as agreed among the Borrowers and the lenders. Proceeds of the New Term Loans were used to, among other things, (i) to repay in full the term loans outstanding under the Existing Credit Agreement immediately prior to effectiveness of the Fifth Amendment (the “Tranche E Term Loans”), (ii) to pay fees and expenses related to the Fifth Amendment and the Second Amended and Restated Credit Agreement, and (iii) for working capital and other general corporate purposes.
The Term Loan FacilitySecond Amended and Restated Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants limit the ability of Landscape Holding and Landscape to:
•incur additional indebtedness;
•pay dividends, redeem stock, or make other distributions;
•repurchase, prepay, or redeem subordinated indebtedness;
•make investments;
•create restrictions on the ability of Landscape Holding’s restricted subsidiaries to pay dividends or make other intercompany transfers;
•create liens;
•transfer or sell assets;
•make negative pledges;
•consolidate, merge, sell, or otherwise dispose of all or substantially all of Landscape Holding’s assets;
conduct, transact, or otherwise engage in businesses or operations at Landscape Holding other than certain specified exceptions relating to its role as a holding company•change lines of Landscapebusiness; and its subsidiaries;
•enter into certain transactions with affiliates; and
designate subsidiaries as unrestricted subsidiaries.affiliates.
ABL Facility
Landscape Holding and Landscape (collectively, the “ABL Borrower”Borrowers”) are parties to the Credit Agreementcredit agreement dated December 23, 2013 as(as amended by the First Amendment to the Credit Agreement, dated June 13, 2014, the Second Amendment to the Credit Agreement, dated January 26, 2015, the Third Amendment to the Credit Agreement, dated February 13, 2015, and the Fourth Amendment to the Credit Agreement, dated October 20, 2015, the Omnibus Amendment to the Credit Agreement, dated May 24, 2017, the Sixth Amendment to the Credit Agreement, dated February 1, 2019, and the Seventh Amendment to the Credit Agreement, dated July 22, 2022, the “ABL Credit Agreement”) with UBS AG, Stamford Branch as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto, providing for an asset-based credit facility (the “ABL Facility”) of up to $325.0$600.0 million, subject to borrowing base availability.availability, with a maturity date of July 22, 2027. The ABL Facility is secured by a first lien on the inventory and receivables.receivables of the ABL Borrowers. The ABL Facility is guaranteed by Bidco.SiteOne Landscape Supply Bidco, Inc. (“Bidco”), an indirect wholly-owned subsidiary of the Company, and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape. Availability is determined using borrowing base calculations of eligible inventory and receivable balances less the current outstanding ABL Facility and letters of credit balances.
On July 22, 2022, the ABL Borrowers, entered into the Seventh Amendment to the ABL Credit Agreement (the “Seventh Amendment”). The Seventh Amendment amended and restated the ABL Credit Agreement in order to, among other things, (i) increase the aggregate principal amount of the commitments to $600.0 million, (ii) extend the final scheduled maturity of the revolving credit facility to July 22, 2027, (iii) establish an alternate rate of interest to the LIBOR rate, (iv) replace the administrative and collateral agent, and (v) make such other changes as agreed among the ABL Borrowers and the lenders. Proceeds of the initial borrowings under the ABL Credit Agreement on the closing date of the Seventh Amendment were used, among other things, (i) to repay in full the loans outstanding under the ABL Credit Agreement immediately prior to the effectiveness of the Seventh Amendment, (ii) to pay fees and expenses related to the Seventh Amendment and the ABL Credit Agreement, and (iii) for working capital and other general corporate purposes.
Loans under the ABL Credit Agreement bear interest, at Landscape Holding’s option, at either (i) an adjusted term SOFR rate equal to term SOFR plus 0.10% (subject to a floor of 0.00%) plus an applicable margin of 1.25% or 1.50% or (ii) an alternate base rate plus an applicable margin of 0.25% or 0.50%, in each case depending on the average daily excess availability under the ABL Credit Agreement, and in each case subject to a 0.125% reduction when the Consolidated First Lien Leverage Ratio (as defined in the ABL Credit Agreement) is less than 1.50:1.00. Additionally, undrawn commitments under the ABL Credit Agreement bear a commitment fee of 0.20% or 0.25%, depending on the average daily undrawn portion of the commitments under the ABL Credit Agreement.
The interest rate on outstanding balances under the ABL Facility was 6.69508% as of December 31, 2023 and ranged from 5.68561% to 5.77336% as of January 1, 2023. The commitment fee paid on unfunded amounts was 0.25% and 0.20% as of December 31, 2023 and January 1, 2023, respectively.
The ABL Facility is subject to mandatory prepayments if the outstanding loans and letters of credit exceed either the aggregate revolving commitments or the current borrowing base, in an amount equal to such excess. Additionally, the ABL Facility is LIBOR plussubject to various covenants, including incurrence covenants that require the Company to meet minimum financial ratios, and additional borrowings and other corporate transactions may be limited by failure to meet these financial ratios. Failure to meet any of these covenants could result in an applicable margin ranging from 1.25%event of default under these agreements. If an event of default occurs, the lenders could elect to 2.00%declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interest in collateral pledged under the agreement, or an alternate base rate for U.S. dollar-denominated borrowings plus an applicable margin ranging from 0.25% to 1.00%. The interest rates on outstanding balances range from 3.25% to 3.32% and 2.49% to 4.50% as of December 31, 2017 and January 1, 2017, respectively. Additionally,restrict the ABL Borrower pays a 0.250% and 0.375% commitment fee on the unfunded amount of as of December 31, 2017 and January 1, 2017, respectively. As of December 31, 2017, the outstanding balance on the ABL Facility was $127.0 million.Borrowers’ ability to obtain additional borrowings under these agreements. The ABL Facility matures on October 20, 2020.is secured by a first lien security interest over inventory and receivables and a second lien security interest over all other assets pledged as collateral.
The ABL Facility contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants are limited to the following: limitations onfinancial condition, fundamental changes, dividends and distributions, acquisitions, dispositions of collateral, payments and modifications of restricted indebtedness, dividends, distributions and other restricted payments, investments, acquisitions, prepayments or redemptions of indebtedness under the Term Loan Facility, amendments of the Term Loan Facility, transactions with affiliates, asset sales, mergers, consolidations and sales of all or substantially all assets, liens, negative pledge clauses, changes in fiscal periods, changes in line of business, currency, commodity and other hedging transactions.transactions, transactions with affiliates, investments, indebtedness, and liens. The negative covenants are subject to customary exceptions and also permit the payment of dividends and distributions, investments, permitted acquisitions, payments or redemptions of indebtedness under the Term Loan Facility,Second Amended and Restated Credit Agreement, asset sales and mergers, consolidations, and sales of all or substantially all assets involving subsidiaries upon satisfaction of a “payment condition.” The payment condition is deemed satisfied upon 30-day specified excess availability and specified availability exceeding agreed upon thresholds and, in certain cases, the absence of specified events of default or known events of default and pro forma compliance with a consolidated fixed charge coverage ratio of 1.00 to 1.00.
Subject to certain conditions without the consent of the then existing lenders (butand subject to the receipt of commitments),commitments, the ABL Facility may be increased (or a new term loan facility added) by up to (i) $100.0the greater of (a) $450.0 million and (b) 100% of Consolidated EBITDA (as defined in the ABL Credit Agreement) for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination plus (ii) an additional amount that will not cause the net secured leverage ratioConsolidated First Lien Leverage Ratio after giving effect to the incurrence of such additional amount and any use of proceeds thereof to exceed 5.00 to 1.00.
There are no financial covenants included in the ABL Credit Agreement, other than a springing minimum consolidated fixed charge coverage ratio of at least 1.00 to 1.00, which is tested only when specified availability is less than 10.0% of the lesser of (x) the then applicable borrowing base and (y) the then aggregate effective commitments under the ABL Facility, and continuing until such time as specified availability has been in excess of such threshold for a period of 3020 consecutive calendar days.
Failure to comply with the covenants and other provisions included in the ABL Credit Agreement could result in an event of default under the ABL Facility. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the ABL Facility to be immediately due and payable, enforce their interest in collateral pledged under the agreement, or restrict the borrowers’ABL Borrowers’ ability to obtain additional borrowings thereunder.
Limitations on Distributions and Dividends by Subsidiaries
The ability of our subsidiaries to make distributions and dividends to us depends on their operating results, cash requirements, and financial condition, and general business conditions, as well as restrictions under the laws of our subsidiaries’ jurisdictions.
The agreements governing the Term Loan FacilitySecond Amended and Restated Credit Agreement and the ABL Facility restrict the ability of our subsidiaries to pay dividends, make loans, or otherwise transfer assets to us. Further, our subsidiaries are permitted under the terms of the Term Loan FacilitySecond Amended and Restated Credit Agreement and the ABL Facility and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends, or the making of loans to us.
Interest Rate Swaps
We are subject to interest rate risk with regard to existing and future issuances of debt. We utilize interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments on our unsecured syndicated senior Term Loan Facility. In June 2017, we entered into two forward-startingexisting debt. We are party to interest rate swap contracts to convert the variable interest rate to a fixed interest rate on portions of the borrowings under the term loans.
On March 31, 2023, we amended the terms of our interest rate swaps to implement a forward-looking interest rate based on SOFR in place of LIBOR. Since the interest rate swaps were affected by reference rate reform, we applied the expedients and exceptions provided in Topic 848 to preserve the past presentation of our derivatives without de-designating the existing hedging relationships. All interest rate swap amendments were executed with the existing counterparties and did not change the notional amounts, maturity dates, or other critical terms of the hedging relationships. The interest rate swaps will continue to be net settled on a quarterly basis with the counterparties for the difference between the fixed rates and the variable rates based upon three-month Term Loan Facility. TheSOFR (subject to a floor) as applied to the notional amounts of each interest rate swap.
During the first quarter of 2021, we amended and restructured certain of our interest rate swap contracts become effectiveusing a strategy referred to as a “blend and extend”. In a blend and extend arrangement, the liability position of the existing interest rate swap arrangement is blended into the amended or new interest rate swap arrangement and the term to maturity of the hedged position is extended. We reclassified $5.9 million from Accrued liabilities and Other long-term liabilities to long-term debt with $1.5 million classified as Long-term debt, current portion and $4.4 million classified as Long-term debt, less current portion on March 11, 2019our Consolidated Balance Sheets since the interest rate swap arrangements executed during the first quarter of 2021 were determined to be hybrid debt instruments containing embedded at-market swap derivatives. As of December 31, 2023, approximately $1.5 million was classified as Long-term debt, current portion and terminateapproximately $0.4 million was classified as Long-term debt, less current portion on June 11, 2021.our Consolidated Balance Sheets.
We will recognize any differences between the variable interest rate payments and the fixed interest rate settlements from the swap counterparties as an adjustment to interest expense over the life of the swaps. We have designated these swaps as cash flow hedges and will record the changes in the estimated fair value of the swaps to Accumulated other comprehensive income(loss)income (loss) (“AOCI”) on our Consolidated Balance Sheets. If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be de-designated and amounts accumulated in AOCI will be reclassified to Interest and other non-operating expenses, net in the current period. To the extent the interest rate swaps are determined to be ineffective, we will recognize the changes in the estimated fair value of the swaps in earnings.
Failure of the swap counterparties to make payments would result in the loss of any potential benefit to us under the swap agreements. In this case, we would still be obligated to pay the variable interest payments underlying the debt agreements. Additionally, failure of the swap counterparties would not eliminate our obligation to continue to make payments under the existing swap agreements if it continues to bethey were in a net pay position.
Contractual Obligations For additional information, refer to “Note 1. Nature of Business and Significant Accounting Policies” and “Note 8. Long-Term Debt” in the notes to the consolidated financial statements.The following table presents our contractual obligations and commitments as of December 31, 2017.
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| | | | | | | | | | | | | | | | | | | |
| | | | Less than |
| | | | | | More than |
|
| | Total |
| | 1 Year |
| | 1-3 Years |
| | 3-5 Years |
| | 5 Years |
|
| | (in millions) |
Long term debt, including current maturities(1) | $ | 476.1 |
| | $ | 2.6 |
| | $ | 134.9 |
| | $ | 338.6 |
| | $ | — |
|
Interest on long term debt(2) | 80.5 |
| | 19.1 |
| | 40.5 |
| | 20.9 |
| | — |
|
Capital leases(3) | 12.4 |
| | 5.3 |
| | 5.2 |
| | 1.9 |
| | — |
|
| Operating leases | 227.1 |
| | 46.0 |
| | 69.0 |
| | 39.6 |
| | 72.5 |
|
Purchase obligations(4) | 68.2 |
| | 41.8 |
| | 25.7 |
| | 0.7 |
| | — |
|
| Total obligations and commitments | $ | 864.3 |
| | $ | 114.8 |
| | $ | 275.3 |
| | $ | 401.7 |
| | $ | 72.5 |
|
| |
(1) | For additional information see “Note 7. Long-Term Debt” in the notes to the condensed consolidated financial statements. In addition, the table excludes the debt issuance costs and debt discounts of $12.5 million. |
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(2) | The interest on long term debt includes payments for agent administration fees. Interest payments on debt are calculated for future periods using interest rates in effect as of December 31, 2017. Certain of these projected interest payments may differ in the future based on changes in floating interest rates or other factors and events, including our entry into the Term Loan Facility Amendments. The projected interest payments only pertain to obligations and agreements outstanding as of December 31, 2017. See “Note 7. Long-Term Debt” in the notes to the condensed consolidated financial statements for further information regarding our debt instruments. |
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(3) | Capital leases consist primarily of leases for delivery vehicles. |
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(4) | Purchase obligations include various commitments with vendors to purchase goods and services, primarily inventory as well as definitive agreements to acquire an entity or group of assets. These purchase obligations are generally cancelable, but we have no intent to cancel and incur a penalty for not meeting the minimum required purchases. In addition, this table excludes purchase obligations of acquisitions made since December 31, 2017. |
Critical Accounting Policies and Estimates
Critical accounting policies are those that are both important to the accurate portrayal of a company’s consolidated financial statements and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
In order to prepare our financial statements in accordance with GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Such estimates are based upon management’s current judgments, which are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.
WeWhile there are a number of accounting policies and estimates affecting our financial statements, we have identified the following critical accounting policiesestimates that require us to make the most subjective or complex judgments in order to fairly present our consolidated financial statements.
Revenue Recognition
We recognize revenue when the following four basic criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price to the buyer is fixed or determinable; and (4) collectability is reasonably assured.
Sales of products are recorded when the sales price is determinable and the risks and rewards of ownership are transferred to independent parties. This transfer occurs primarily when goods are picked up by a customer at the branch or when goods are delivered to a customer location. In all cases, when a sale is recorded by the Company, no significant uncertainty exists surrounding the purchaser’s obligation to pay.
Our net sales include billings for freight and handling charges and commissions on the sale of control products that we sell as an agent. Net sales are presented net of any discounts, returns, customer rebates and sales or other revenue-based tax. Provisions for returns are estimated and accrued at the time a sale is recognized. We make appropriate provisions based on experience for costs such as doubtful receivables and sales incentives. We also have entered into agency agreements with certain suppliers whereby we operate as a sales agent of those suppliers. The suppliers retain title to their merchandise until we sell it and determine the prices at which we can sell the suppliers’ merchandise. As such, we recognize these agency sales on a net basis and record only their product margin as commission revenue within net sales.
Sales Incentives
We offer certain customers rebates which are accrued based on sales volumes. In addition, we offer a points-based reward program whereby reward points can be redeemed for credit on account or merchandise (such as gift cards or vacation trips). We accrue a liability for this program based on sales volumes and an estimate of points that will be redeemed before expiration. Liabilities for these sales incentives are included in accrued liabilities.
Inventory Valuation
Summary:
Product inventories represent one of our largest assetsasset and are recorded at the lower of actual cost or estimated net realizable value. Our goal is to manage our inventory so that we minimize out of stock positions. To do this, we maintain an adequate inventory of more than 120,000approximately 160,000 SKUs and manage inventory at each branch based on sales history. At the same time, we continuously strive to better manage our slower moving classes of inventory. We monitor our inventory levels by branch and record provisions for excess inventories based on slower moving inventory. We define potential excess inventory as the amount of inventory on hand in excess of the historical usage, excluding items purchased in the last three months. We then review our most recent history of sales and adjustments of such excess inventory and apply our judgment as to forecasted demand and other factors, including liquidation value, to determine the required adjustments to net realizable value. In addition, at the end of each year, we evaluate our inventory at each branch and write off and dispose of obsolete products. Our inventories are generally not susceptible to technological obsolescence.
During the year, we perform periodic cycle counts and write off excess or damagedobsolete inventory as needed. Prior to year-end, we takeconduct a physical inventory at each branch and record any necessary additional write-offs.write-offs to dispose of excess or obsolete products. Our inventories are generally not susceptible to technological obsolescence.
Judgments and Uncertainties:
Judgment is required to estimate the net realizable value of our inventory as it requires assumptions and projections to be made based off the historical recovery rates for our slower moving inventory. We monitor our inventory levels by branch and record provisions for excess inventories. The assumptions we make to record adjustments for excess or obsolete inventory are based on these historical recovery rates, such as recent history of usage of our products, expected future demand for our products, current market conditions, and other factors, including liquidation value.
Sensitivity of Estimates to Change:
Changes to the relevant assumptions and projections would impact our consolidated financial results in periods subsequent to recording these estimates. If we anticipate a change in assumptions such as future demand or market conditions to be less favorable than our previous estimates, additional inventory write-downs may be required. Conversely, if we are able to sell inventories that had been written down to a level below the ultimate realized selling price in a previous period, sales would be recorded with a lower or no offsetting charge to cost of sales. A 10% change to our current reserve for excess and obsolete inventory would not result in a material change to our consolidated financial statements; however, given the value of inventory on hand, a significant change in demand or market conditions could result in a material adjustment to our reserve in future periods. We have not recorded any material net adjustments or such changes to our inventory reserves during the 2023 Fiscal Year or the 2022 Fiscal Year.
Acquisitions
Summary:
From time to time, we enter into strategic acquisitions in an effort to better service existing customers and to attainattract new customers. When we acquire a controlling financial interest in an entity or group of assets that are determined to meet the definition of a business, we apply the acquisition method described in ASCAccounting Standards Codification Topic 805, Business Combinations. In accordance with GAAP, the results of the acquisitions we have completed are reflected in our financial statements from the date of acquisition forward.
We allocate the purchase consideration paid to acquire the business to the assets acquired and liabilities acquiredassumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. The value of residual goodwill is not amortized but is tested at least annually for impairment as described below in “Goodwill”. If during the measurement period (a period not to exceed 12 months from the acquisition date) we receive additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown to us, we make the appropriate adjustments to the purchase price allocation in the reporting period the amounts are determined.
Significant judgmentJudgments and Uncertainties:
Judgment is required to estimate the fair value of intangible assets and in assigning their respective useful lives. Accordingly, we typically engage third-party valuation specialists, who work under the direction of management, for the more significant acquired tangible and intangible assets. The fair value of the assets acquired and liabilities assumed is determined through established valuation techniques, such as the income, cost, or market approach, and estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain.
We typically use an incomethe multi-period excess earnings method to estimate the fair value of customer relationship intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimatesassets and includes the selection of discount rates. Estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), a brand’s relative market position, and the appropriate discount rate applied to the cash flows. UnanticipatedChanges in the underlying assumptions and estimates, including the selected discount rates, could have a material impact on the fair value of intangible assets. Further, unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.
Determining the useful life of an intangible asset also requires judgment. All of our acquired intangible assets (e.g., trademarks, customer relationships, trademarks, and non-compete arrangements) are expected to have finite useful lives. Our assessment as to whether trademarks have an indefinite life or a finite life is based on a number of factors including competitive environment, market share, brand history, underlying product life cycles, operating plans, and the macroeconomic environment of the regions in which the brands are sold. Our estimates of the useful lives of finite-lived intangible assets are primarily based on these same factors.
The costs We consider the period of finite-livedexpected cash flows and the underlying data used to measure the fair value of the intangible assets when selecting a useful life. Customer relationship intangible assets are amortized on an accelerated method.
Sensitivity of Estimates to expense over their estimated lives. The valueChange:
We completed 11 acquisitions during the 2023 Fiscal Year for an aggregate purchase price of residual goodwill is not amortized,$195.7 million and the preliminary valuations of the assets acquired included customer relationship intangible assets of $58.4 million and trademarks and other intangible assets of $7.4 million. Key assumptions used in determining the fair values of customer relationships included future earnings projections, customer attrition rates, and discount rates, among others. Additionally, assumptions used to calculate the fair values of trademarks and other intangible assets included relief-from-royalty models and revenue projections, royalty rates, future earnings projections, discount rates, and probabilities of competition and successful competition, among others. Estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired. We believe the estimates applied to be based on reasonable assumptions, but is tested at least annually forwhich are inherently uncertain. As a result, actual results may differ from the assumptions and judgments used to determine the fair values of the assets acquired, which could result in impairment as describedlosses in the following note.future. Changes in business conditions may also require future adjustments to the useful lives of the assets acquired. If we determine that the useful lives of the assets acquired are shorter than we had originally estimated, the rate of amortization would be accelerated over the assets’ new, shorter useful lives. Changes in key assumptions resulting in a 10% revision of the estimated fair values of the finite-lived intangible assets acquired during the 2023 Fiscal Year would impact amortization of acquisition intangible assets by $6.6 million over a weighted-average amortization period of 18.2 years primarily on an accelerated basis. No material adjustments to the valuation of such assets, impairment loss, or accelerated amortization of intangible assets due to revised useful lives was recorded in the 2023 Fiscal Year or the 2022 Fiscal Year.
Goodwill
Summary:
Goodwill represents the acquired fair value of a business in excess of the fair values of tangible and identified intangible assets acquired and liabilities assumed. We test goodwill on an annual basis as of July fiscal month end and additionally if an event occurs or circumstances change that would indicate the carrying amount may be impaired.
The goodwill impairment test is a single-step process. The process requires the Companyus to estimate and compare the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, the goodwill is not considered impaired. To the extent a reporting unit’s carrying amount exceeds its fair value, the reporting unit’s goodwill is deemed impaired, and an impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value. Each
Judgments and Uncertainties:
Judgment is required to determine whether impairment indicators exist and to estimate the fair value of our reporting units’units. Estimating the fair value has substantially exceeded its carryingof reporting units using the discounted cash flow model requires us to make assumptions and projections of revenue growth rates, gross margins, SG&A, capital expenditures, working capital, depreciation, terminal values, and weighted average cost of capital, among other factors.
The assumptions used to estimate fair value at each test date.consider historical trends, macroeconomic conditions, and projections consistent with our operating strategy. Changes in these estimates could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods.
Stock-Based CompensationSensitivity of Estimates to Change:
Stock compensation expense for common stock options is based onDuring the third quarter of the 2023 Fiscal Year, we performed our annual quantitative assessment of goodwill. No goodwill impairment charge was recorded as a result of the testing and the estimated fair value onof each of our reporting units significantly exceeded its carrying value. In addition, a 10% decline in the grant date using the Black-Scholes option pricing model. With respect to the deferred stock units (“DSUs”) and restricted stock units (“RSUs”), grant date fair values are equal to the fair market value of the underlying stock on the date of grant. Stock compensation expense is recorded in selling, general and administrative expenses withprojected cash flows or a corresponding10% increase in stockholders’ equity and generally recognized straight-line over the vesting periods. We issue new sharesdiscount rate assumption utilized in our annual quantitative testing would not result in an impairment of common stock upon exerciseany of stock options, vesting of RSUs and upon settlement of DSUs.
our reporting units.
Recently Issued and Adopted Accounting Pronouncements
See Refer to “Note 1. Nature of Business and Significant Accounting Policies” to our audited consolidated financial statements included in this Annual Report on Form 10-K, for a description of recently issued and adopted accounting pronouncements.Accounting Pronouncements Issued But Not Yet Adopted
See Refer to “Note 1. Nature of Business and Significant Accounting Policies” to our audited consolidated financial statements included in this Annual Report on Form 10-K, for a description of accounting pronouncements that have been issued but not yet adopted.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures about Market Risk
The economy and its impact on discretionary consumer spending, labor wages, fuel, fertilizer, and other material costs, home sales, unemployment rates, insurance costs, foreign exchange, and medical costs could have a material adverse impact on future results of operations.
We are awareexposed to market risk in the ordinary course of our business, primarily in the form of commodity risk, product price risk, interest rate risk, and credit risk. To mitigate these risks, we utilize various financial instruments in the ordinary course of business, which are not held for any speculative or trading purposes.
Inflationary pressures may also cause potentially unfavorable effects inflationary pressures may create through higher asset replacement costs and related depreciation, higher interest rates, and higher material costs.
Commodity Risk
Our operating performance may be affected by price fluctuations in commodity-based products like PVC pipe, grass seed, fertilizer and glyphosatefertilizer that we purchase and sell. We are also exposed to fluctuations in fuel costs as we deliver a substantial portion of the products we sell by truck. We seek to minimize the effects of inflation and changing prices through economies of purchasing and inventory management, resulting in cost reductions and productivity improvements as well as price increasesadjustments to maintain gross margins.
Product Price Risk
Our business model is to buy and sell at current market prices in quantities approximately equal to estimated customer demand. We do not take significant “long” or “short” positions in the products we sell in an attempt to speculate on changes in product prices. Because we maintain inventories in order to serve the needs of our customers, we are subject to the risk of reductions in market prices for the products we hold in inventory, butinventory; however, we actively manage this risk by adjusting prices and managing our inventory levels.
Interest Rate Risk
We are subject to interest rate risk associated with our debt. While changes in interest rates do not affect the fair value of our variable-rate debt, they do affect future earnings and cash flows through higher interest expense. Interest rate swaps are entered into with the objective of converting variable to fixed rate debt, thereby reducing volatility in borrowing costs.
The ABL Facility bears interest (i) in the case of U.S. dollar-denominated loans, either at LIBOR or the Prime Rate, at our option, plus applicable borrowing margins and (ii) in the case of Canadian dollar denominated loans, either at the Bankers’ Acceptances Rate or the Canadian Prime Rate, at our option, plus applicable borrowing margins. The borrowing margins are defined by a pricing grid, as included in•Loans under the ABL Facility agreement, based on average excess availability for the previous quarter.
The Term Loan Facility bearsCredit Agreement bear interest, at LIBORLandscape Holding’s option, at either (i) an adjusted term SOFR rate equal to term SOFR plus 0.10% (subject to a floor of 1.00%0.00%) plus a borrowingan applicable margin of 2.75%1.25% or the Prime Rate1.50% or (ii) an alternate base rate plus a borrowingan applicable margin of 1.75%0.25% or 0.50%, in each case depending on the average daily excess availability under the ABL Credit Agreement, and in each case subject to a 0.125% reduction when the Consolidated First Lien Leverage Ratio (as defined in the ABL Credit Agreement) is less than 1.50:1.00.
•The New Term Loans bear interest, at Landscape Holding’s option, at either (i) an adjusted Term SOFR rate plus an applicable margin equal to 2.00% (with a Term SOFR floor of 0.50% on initial term loans and 0.00% on all other term loans) or (ii) an alternative base rate plus an applicable margin equal to 1.00%.
The portions of our outstanding balance under the borrower’s election.
A 1%New Term Loans that are not covered by interest rate swap contracts and outstanding balances under the ABL Credit Agreement are subject to variable interest rates. We performed a sensitivity analysis and determined that an increase of one percentage point in interest rates on our variable-rate debt outstanding at December 31, 2023 would increase our annual forecastedprojected interest expensepayments by approximately $4.8$1.9 million for the 2024 Fiscal Year. Actual interest payments may differ in the future based on additional changes in floating interest rates or other factors and events, including our entry into amendments of the ABL Facility and the New Term Loans.
Credit Risk
We have a credit policy in place and monitor exposure to credit risk on an ongoing basis. We perform credit evaluations on all customers requesting credit above a specified exposure level. In the normal course of business, we provide credit to our customers, perform ongoing credit evaluations of these customers, and maintain reserves for potential credit losses. Our typical credit terms extend 30 days from the date of purchase, but terms of up to 60 days are not uncommon. We typically have limited risk from a concentration of credit risk as no individual customer represents greater than 10%5% of the outstanding accounts receivable balance. Bad debt reserves, which we use as a proxy for our bad debt exposure, were 2.1%approximately 5% of gross receivables as of December 31, 2017.2023.
Investments, if any, are only in liquid securities and only with counterparties with appropriate credit ratings. Transactions involving derivative financial instruments are with counterparties with which we have a signed netting agreement and which have appropriate credit ratings. We do not expect any counterparty to fail to meet its obligations.
Item 8. Financial Statements and Supplementary Data
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| INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of SiteOne Landscape Supply, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SiteOne Landscape Supply, Inc. and subsidiaries (the "Company") as of December 31, 20172023 and January 1, 2017,2023, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2017,2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and January 1, 2017,2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 31, 2017,February 22, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisitions – Customer Relationship Intangible Assets – Refer to Note 1 (Intangible Assets) and Note 5 to the financial statements
Critical Audit Matter Description
The Company completed various acquisitions during the year ended December 31, 2023. The Company accounted for the acquisitions under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including customer relationship intangible assets of $58.4 million. Management estimated the fair value of the customer relationship intangible assets using the multi-period excess earnings method, which is a specific discounted cash flow method. The fair value determination of customer relationship intangible assets required management to make estimates and assumptions, including the selection of the discount rates. Significant changes in the discount rates could have a material impact on the fair value of customer relationship intangible assets.
We identified the initial valuation of customer relationship intangible assets as a critical audit matter because of the judgment associated with the determination of the discount rates. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s selection of the discount rates used in the determination of the initial fair value of the customer relationship intangible assets.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the selection of the discount rates for the determination of fair value of customer relationship intangible assets included the following, among others:
•We tested the effectiveness of controls over the fair value of the customer relationship intangible assets, including management’s controls over the selection of the discount rates.
•For a sample of acquisitions, with the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates by:
1)Testing the source information underlying the determination of the discount rates and testing the mathematical accuracy of the calculation.
2)Developing a range of independent estimates and comparing those to the discount rates selected by management.
/s/ DELOITTEDeloitte & TOUCHETouche LLP
Atlanta, Georgia
February 28, 201822, 2024
We have served as the Company'sCompany’s auditor since 2014.
SiteOne Landscape Supply, Inc.
Consolidated Balance Sheets
(In millions, except share and per share data)
| | | | | December 31, 2017 | | January 1, 2017 |
| Assets | | | | | Assets | | December 31, 2023 | | January 1, 2023 |
| Current assets | | | | |
| Current assets: | |
| Cash and cash equivalents | | $ | 16.7 |
| | $ | 16.3 |
|
| Accounts receivable, net of allowance for doubtful accounts of $4.7 and $4.3 for 2017 and 2016, respectively | | 219.9 |
| | 169.0 |
|
| Cash and cash equivalents | |
| Cash and cash equivalents | |
| Accounts receivable, net of allowance for doubtful accounts of $27.3 and $21.7, respectively | |
| Inventory, net | | 338.3 |
| | 289.6 |
|
| Income tax receivable | | 2.7 |
| | 1.6 |
|
| | Prepaid expenses and other current assets | |
| Prepaid expenses and other current assets | |
| Prepaid expenses and other current assets | | 24.3 |
| | 13.5 |
|
| Total current assets | | 601.9 |
| | 490.0 |
|
| | | | | |
| Property and equipment, net (Note 3) | | 75.5 |
| | 69.8 |
|
| Goodwill (Note 4) | | 106.5 |
| | 70.8 |
|
| Intangible assets, net (Note 4) | | 112.8 |
| | 103.3 |
|
Property and equipment, net (Note 4) | |
Property and equipment, net (Note 4) | |
Property and equipment, net (Note 4) | |
Operating lease right-of-use assets, net (Note 6) | |
| |
Intangible assets, net (Note 5) | |
| |
| Other assets | | 14.0 |
| | 8.7 |
|
| Total assets | | $ | 910.7 |
| | $ | 742.6 |
|
| | | | | |
| Liabilities and Stockholders’ Equity | | | | |
| Liabilities and Stockholders’ Equity | |
| Liabilities and Stockholders’ Equity | |
| Current liabilities: | |
| Current liabilities: | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 124.1 |
| | $ | 108.3 |
|
| Current portion of capital leases (Note 5) | | 4.9 |
| | 4.3 |
|
| Accounts payable | |
| Accounts payable | |
Current portion of finance leases (Note 6) | |
Current portion of operating leases (Note 6) | |
| Accrued compensation | | 40.1 |
| | 36.7 |
|
| Long term debt, current portion (Note 7) | | 3.5 |
| | 3.0 |
|
Long-term debt, current portion (Note 8) | |
| Income tax payable | |
| Accrued liabilities | | 33.2 |
| | 33.2 |
|
| Total current liabilities | | 205.8 |
| | 185.5 |
|
| | | | | |
| Other long-term liabilities | | 16.8 |
| | 9.1 |
|
| Capital leases, less current portion (Note 5) | | 6.8 |
| | 6.7 |
|
| Deferred tax liabilities (Note 1 and Note 8) | | 8.4 |
| | 20.0 |
|
| Long term debt, less current portion (Note 1 and Note 7) | | 460.1 |
| | 372.5 |
|
| Other long-term liabilities | |
| Other long-term liabilities | |
Finance leases, less current portion (Note 6) | |
Operating leases, less current portion (Note 6) | |
| |
| |
| Total liabilities | | 697.9 |
| | 593.8 |
|
| | | | | |
| Commitment and contingencies (Note 10) | |
| |
|
| Redeemable convertible preferred stock (Note 11) | | — |
| | — |
|
Commitments and contingencies (Note 10) | |
Commitments and contingencies (Note 10) | |
Commitments and contingencies (Note 10) | | | |
| | | | | |
| Stockholders’ equity (Note 1 and Note 11): | | | | |
| Common stock, par value $0.01; 1,000,000,000 shares authorized; 39,977,181 and 39,597,532 shares issued, and 39,956,270 and 39,576,621 shares outstanding at December 31, 2017 and January 1, 2017, respectively | | 0.4 |
| | 0.4 |
|
Stockholders’ equity (Note 1): | |
Stockholders’ equity (Note 1): | |
Stockholders’ equity (Note 1): | |
| Common stock, par value $0.01; 1,000,000,000 shares authorized; 45,404,091 and 45,148,312 shares issued, and 45,082,070 and 44,916,291 shares outstanding at December 31, 2023 and January 1, 2023, respectively | |
| Common stock, par value $0.01; 1,000,000,000 shares authorized; 45,404,091 and 45,148,312 shares issued, and 45,082,070 and 44,916,291 shares outstanding at December 31, 2023 and January 1, 2023, respectively | |
| Common stock, par value $0.01; 1,000,000,000 shares authorized; 45,404,091 and 45,148,312 shares issued, and 45,082,070 and 44,916,291 shares outstanding at December 31, 2023 and January 1, 2023, respectively | |
| Additional paid-in capital | | 227.8 |
| | 219.3 |
|
| Accumulated deficit | | (15.1 | ) | | (69.7 | ) |
| Accumulated other comprehensive loss | | (0.3 | ) | | (1.2 | ) |
| Retained earnings | |
| Accumulated other comprehensive income | |
| Treasury stock, at cost, 322,021 and 232,021 shares at December 31, 2023 and January 1, 2023, respectively | |
| Total stockholders’ equity | | 212.8 |
| | 148.8 |
|
| Total liabilities and stockholders’ equity | | $ | 910.7 |
| | $ | 742.6 |
|
See Notes to Consolidated Financial Statements.
SiteOne Landscape Supply, Inc.
Consolidated Statements of Operations
(In millions, except share and per share data)
| | | | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 | | For the year
December 29, 2014 to January 3, 2016 |
| | For the year
January 2, 2023 to December 31, 2023 | | | | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 |
| Net sales | | $ | 1,861.7 |
| | $ | 1,648.2 |
| | $ | 1,451.6 |
|
| Cost of goods sold | | 1,266.2 |
| | 1,132.5 |
| | 1,022.5 |
|
| Gross profit | | 595.5 |
| | 515.7 |
| | 429.1 |
|
| | | | | | | |
| Selling, general and administrative expenses | | 502.2 |
| | 446.5 |
| | 373.3 |
|
| Selling, general and administrative expenses | |
| Selling, general and administrative expenses | |
| Other income | | 4.5 |
| | 4.8 |
| | 4.0 |
|
| Operating income | | 97.8 |
| | 74.0 |
| | 59.8 |
|
| | | | | | | |
| Interest and other non-operating (income) expenses | | 25.2 |
| | 22.1 |
| | 11.4 |
|
| Net income before taxes | | 72.6 |
| | 51.9 |
| | 48.4 |
|
| Interest and other non-operating expenses, net | |
| Interest and other non-operating expenses, net | |
| Interest and other non-operating expenses, net | |
| Income before taxes | |
| Income tax expense | | 18.0 |
| | 21.3 |
| | 19.5 |
|
| Net income | | 54.6 |
| | 30.6 |
| | 28.9 |
|
| Less: | | | | | | |
| Redeemable convertible preferred stock dividends | | — |
| | 9.6 |
| | 25.1 |
|
| Redeemable convertible preferred stock beneficial conversion feature | | — |
| | — |
| | 18.6 |
|
| Special cash dividend paid to preferred stockholders | | — |
| | 112.4 |
| | — |
|
| Net income (loss) attributable to common shares | | $ | 54.6 |
| | $ | (91.4 | ) | | $ | (14.8 | ) |
| | | | | | | |
| Net income (loss) per common share: | | | | | | |
| Net income per common share: | |
| Net income per common share: | |
| Net income per common share: | |
| Basic | |
| Basic | |
| Basic | | $ | 1.37 |
| | $ | (3.01 | ) | | $ | (1.04 | ) |
| Diluted | | $ | 1.29 |
| | $ | (3.01 | ) | | $ | (1.04 | ) |
| Weighted average number of common shares outstanding: | | | | | | |
| Basic | | 39,754,595 |
| | 30,316,087 |
| | 14,209,843 |
|
| Basic | |
| Basic | |
| Diluted | | 42,193,432 |
| | 30,316,087 |
| | 14,209,843 |
|
See Notes to Consolidated Financial Statements.
SiteOne Landscape Supply, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
| | | | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 | | For the year
December 29, 2014 to January 3, 2016 |
| | For the year
January 2, 2023 to December 31, 2023 | | | | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 |
| Net income | | $ | 54.6 |
| | $ | 30.6 |
| | $ | 28.9 |
|
| Other comprehensive income (loss): | |
| Foreign currency translation adjustments | | 0.5 |
| | — |
| | (0.8 | ) |
Unrealized gains on interest rate swaps, net of taxes
| | 0.4 |
| | — |
| | — |
|
| Foreign currency translation adjustments | |
| Foreign currency translation adjustments | |
| Interest rate swaps - net unrealized gains and reclassifications into earnings, net of taxes of $1.7, $(4.8), and $(1.4), respectively | |
| Total other comprehensive (loss) income | |
| Comprehensive income | | $ | 55.5 |
| | $ | 30.6 |
| | $ | 28.1 |
|
See Notes to Consolidated Financial Statements.
SiteOne Landscape Supply, Inc.
Consolidated Statements of Equity
(In millions, shares in thousands) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Common
Stock
Shares | | Common
Stock
Amount | | Additional
Paid-in-Capital | | Accumulated
Deficit | | Accumulated
Other
Comprehensive
Loss | | Total Equity |
| Balance at December 28, 2014 | | 14,088.7 |
| | $ | 0.1 |
| | $ | 89.4 |
| | $ | (10.3 | ) | | $ | (0.4 | ) | | $ | 78.8 |
|
| Net income | | — |
| | — |
| | — |
| | 28.9 |
| | — |
| | 28.9 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | (0.8 | ) | | (0.8 | ) |
| Redeemable convertible preferred stock dividends | | — |
| | — |
| | — |
| | (24.2 | ) | | — |
| | (24.2 | ) |
| Redeemable convertible preferred stock beneficial conversion feature | | — |
| | — |
| | 18.6 |
| | (18.6 | ) | | — |
| | — |
|
| Shares purchased by employees | | 171.3 |
| | — |
| | 2.2 |
| | — |
| | — |
| | 2.2 |
|
| Treasury stock | | (9.9 | ) | | — |
| | (0.1 | ) | | — |
| | — |
| | (0.1 | ) |
| Stock based compensation | | — |
| | — |
| | 3.0 |
| | — |
| | — |
| | 3.0 |
|
| Balance at January 3, 2016 | | 14,250.1 |
| | $ | 0.1 |
| | $ | 113.1 |
| | $ | (24.2 | ) | | $ | (1.2 | ) | | $ | 87.8 |
|
| Net income | | — |
| | — |
| | — |
| | 30.6 |
| | — |
| | 30.6 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Redeemable convertible preferred stock dividends | | — |
| | — |
| | 0.8 |
| | (13.8 | ) | | — |
| | (13.0 | ) |
| Special cash dividend paid to preferred and common stockholders | | — |
| | — |
| | (113.7 | ) | | (62.3 | ) | | — |
| | (176.0 | ) |
| Issuance of common shares from conversion of redeemable convertible preferred stock | | 25,303.1 |
| | 0.3 |
| | 216.5 |
| | — |
| | — |
| | 216.8 |
|
| Issuance of common shares under stock based compensation plan | | 34.4 |
| | — |
| | 0.2 |
| | — |
| | — |
| | 0.2 |
|
| Excess tax benefits from stock based compensation | | — |
| | — |
| | 0.3 |
| | — |
| | — |
| | 0.3 |
|
| Treasury stock | | (11.0 | ) | | | | (0.1 | ) | | — |
| | — |
| | (0.1 | ) |
| Stock based compensation | | — |
| | — |
| | 2.2 |
| | — |
| | — |
| | 2.2 |
|
| Balance at January 1, 2017 | | 39,576.6 |
| | $ | 0.4 |
| | $ | 219.3 |
| | $ | (69.7 | ) | | $ | (1.2 | ) | | $ | 148.8 |
|
| Net income | | — |
| | — |
| | — |
| | 54.6 |
| | — |
| | 54.6 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | 0.9 |
| | 0.9 |
|
| Issuance of common shares under stock based compensation plan | | 379.6 |
| | — |
| | 2.6 |
| | — |
| | — |
| | 2.6 |
|
| Stock based compensation | | — |
| | — |
| | 5.9 |
| | — |
| | — |
| | 5.9 |
|
| Balance at December 31, 2017 | | 39,956.2 |
| | $ | 0.4 |
| | $ | 227.8 |
| | $ | (15.1 | ) | | $ | (0.3 | ) | | $ | 212.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock Shares | | Common Stock Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive
Income (Loss) | | Treasury Stock | | Total
Equity |
| Balance at January 3, 2021 | | 44,279.5 | | | $ | 0.4 | | | $ | 542.1 | | | $ | 259.1 | | | $ | (6.3) | | | $ | (0.3) | | | $ | 795.0 | |
| Net income | | — | | | — | | | — | | | 238.4 | | | — | | | — | | | 238.4 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 4.1 | | | — | | | 4.1 | |
| Issuance of common shares under stock-based compensation plan | | 488.0 | | | — | | | 5.9 | | | — | | | — | | | — | | | 5.9 | |
| Stock-based compensation | | — | | | — | | | 14.3 | | | — | | | — | | | — | | | 14.3 | |
| Balance at January 2, 2022 | | 44,767.5 | | | $ | 0.4 | | | $ | 562.3 | | | $ | 497.5 | | | $ | (2.2) | | | $ | (0.3) | | | $ | 1,057.7 | |
| Net income | | — | | | — | | | — | | | 245.4 | | | — | | | — | | | 245.4 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 9.9 | | | — | | | 9.9 | |
| Issuance of common shares under stock-based compensation plan | | 359.9 | | | 0.1 | | | (3.5) | | | — | | | — | | | — | | | (3.4) | |
| Stock-based compensation | | — | | | — | | | 18.3 | | | — | | | — | | | — | | | 18.3 | |
| Repurchases of common stock | | (211.1) | | | — | | | — | | | — | | | — | | | (25.0) | | | (25.0) | |
| Balance at January 1, 2023 | | 44,916.3 | | | $ | 0.5 | | | $ | 577.1 | | | $ | 742.9 | | | $ | 7.7 | | | $ | (25.3) | | | $ | 1,302.9 | |
| Net income | | — | | | — | | | — | | | 173.4 | | | — | | | — | | | 173.4 | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (3.5) | | | — | | | (3.5) | |
| Issuance of common shares under stock-based compensation plan | | 255.8 | | | — | | | (1.0) | | | — | | | — | | | — | | | (1.0) | |
| Stock-based compensation | | — | | | — | | | 25.7 | | | — | | | — | | | — | | | 25.7 | |
| Repurchases of common stock | | (90.0) | | | — | | | — | | | — | | | — | | | (11.4) | | | (11.4) | |
| Balance at December 31, 2023 | | 45,082.1 | | | $ | 0.5 | | | $ | 601.8 | | | $ | 916.3 | | | $ | 4.2 | | | $ | (36.7) | | | $ | 1,486.1 | |
See Notes to Consolidated Financial Statements.
SiteOne Landscape Supply, Inc.
Consolidated Statements of Cash Flows
(In millions)
|
| | | | | | | | | | | | |
| | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 | | For the year
December 29, 2014 to January 3, 2016 |
| Cash Flows from Operating Activities: | | | | | | |
| Net income | | $ | 54.6 |
| | $ | 30.6 |
| | $ | 28.9 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation | | 17.6 |
| | 14.2 |
| | 12.8 |
|
| Stock-based compensation | | 5.9 |
| | 4.7 |
| | 3.0 |
|
| Amortization of software and intangible assets | | 25.5 |
| | 22.8 |
| | 18.4 |
|
| Amortization of debt related costs | | 3.0 |
| | 2.5 |
| | 3.0 |
|
| Loss on extinguishment of debt | | 0.1 |
| | 1.7 |
| | 1.2 |
|
| Loss on sale of equipment | | 0.6 |
| | — |
| | 0.4 |
|
| Deferred income taxes | | (16.5 | ) | | (9.9 | ) | | (7.5 | ) |
| Other | | 0.1 |
| | (0.3 | ) | | 0.3 |
|
| Changes in operating assets and liabilities, net of the effects of acquisitions: | | | | | | |
| Receivables | | (40.5 | ) | | (18.7 | ) | | (11.4 | ) |
| Inventory | | (31.0 | ) | | (0.6 | ) | | 3.7 |
|
| Income tax receivable | | (1.0 | ) | | 6.6 |
| | 6.3 |
|
| Prepaid expenses and other assets | | (12.2 | ) | | 0.2 |
| | 5.0 |
|
| Accounts payable | | 7.1 |
| | 8.2 |
| | (8.9 | ) |
| Accrued expenses and other liabilities | | 3.0 |
| | 10.9 |
| | 15.8 |
|
| Net Cash Provided By Operating Activities | | $ | 16.3 |
| | $ | 72.9 |
| | $ | 71.0 |
|
| | | | | | | |
| Cash Flows from Investing Activities: | | | | | | |
| Purchases of property and equipment | | (14.5 | ) | | (8.8 | ) | | (10.5 | ) |
| Purchases of intangible assets | | (1.5 | ) | | — |
| | — |
|
| Acquisitions, net of cash acquired | | (82.9 | ) | | (66.4 | ) | | (100.7 | ) |
| Proceeds from the sale of property and equipment | | 0.3 |
| | 0.3 |
| | 0.2 |
|
| Net Cash Used In Investing Activities | | $ | (98.6 | ) | | $ | (74.9 | ) | | $ | (111.0 | ) |
| | | | | | | |
| Cash Flows from Financing Activities: | | | | | | |
| Equity proceeds from common stock | | 2.7 |
| | 0.2 |
| | 2.2 |
|
| Purchase of treasury stock | | — |
| | (0.2 | ) | | (0.1 | ) |
| Special cash dividend | | — |
| | (176.0 | ) | | — |
|
| Other dividends paid | | — |
| | (13.0 | ) | | — |
|
| Borrowings under term loan | | 649.5 |
| | 570.9 |
| | — |
|
| Repayments under term loan | | (598.3 | ) | | (336.2 | ) | | (0.8 | ) |
| Borrowings on asset-based credit facility | | 386.4 |
| | 355.5 |
| | 364.1 |
|
| Repayments on asset-based credit facility | | (350.4 | ) | | (392.5 | ) | | (310.4 | ) |
| Debt issue costs paid | | (2.2 | ) | | (4.2 | ) | | (1.0 | ) |
| Payments on capital lease obligations | | (5.1 | ) | | (4.2 | ) | | (4.3 | ) |
| Other financing activities | | (0.1 | ) | | (2.1 | ) | | — |
|
| Net Cash Provided By (Used In) Financing Activities | | $ | 82.5 |
| | $ | (1.8 | ) | | $ | 49.7 |
|
| | | | | | | |
| Effect of exchange rate on cash | | 0.2 |
| | — |
| | (0.2 | ) |
| Net Change In Cash | | 0.4 |
| | (3.8 | ) | | 9.5 |
|
| | | | | | | |
| Cash and cash equivalents: | | | | | | |
| Beginning | | 16.3 |
| | 20.1 |
| | 10.6 |
|
| Ending | | $ | 16.7 |
| | $ | 16.3 |
| | $ | 20.1 |
|
| | | | | | | |
| Supplemental Disclosures of Cash Flow Information: | | | | | | |
| Cash paid during the year for interest | | 23.9 |
| | 16.5 |
| | 8.4 |
|
| Cash paid during the year for income taxes | | 35.9 |
| | 24.3 |
| | 21.9 |
|
| | | | | | | |
| Supplemental Disclosures of Noncash Investing and Financing Information: | | | | | | |
| Acquisition of property and equipment through capital leases | | 5.8 |
| | 4.3 |
| | 4.8 |
|
| | | | | | | | | | | | | | | | | | | | |
| | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 |
| Cash Flows from Operating Activities: | | | | | | |
| Net income | | $ | 173.4 | | | $ | 245.4 | | | $ | 238.4 | |
| Adjustments to reconcile Net income to net cash provided by operating activities: | | | | | | |
| Amortization of finance lease right-of-use assets and depreciation | | 64.1 | | | 51.6 | | | 36.2 | |
| Stock-based compensation | | 25.7 | | | 18.3 | | | 14.3 | |
| Amortization of software and intangible assets | | 63.6 | | | 52.2 | | | 46.8 | |
| Amortization of debt related costs | | 1.2 | | | 1.1 | | | 2.3 | |
| Loss on extinguishment of debt | | — | | | 0.6 | | | 0.8 | |
| Gain on sale of equipment | | (0.5) | | | (0.8) | | | (0.1) | |
| Deferred income taxes | | (14.5) | | | (5.2) | | | (3.1) | |
| Other | | (5.6) | | | 2.3 | | | 6.5 | |
| Changes in operating assets and liabilities, net of the effects of acquisitions: | | | | | | |
| Receivables | | (17.4) | | | (44.6) | | | (92.1) | |
| Inventory | | 38.1 | | | (99.3) | | | (156.9) | |
| Income tax receivable | | 10.9 | | | (7.6) | | | 3.5 | |
| Prepaid expenses and other assets | | (4.3) | | | 3.5 | | | (3.2) | |
| Accounts payable | | (35.1) | | | 8.9 | | | 74.4 | |
| Income tax payable | | 7.9 | | | — | | | — | |
| Accrued expenses and other liabilities | | (10.0) | | | (9.2) | | | 43.0 | |
| Net Cash Provided By Operating Activities | | $ | 297.5 | | | $ | 217.2 | | | $ | 210.8 | |
| | | | | | |
| Cash Flows from Investing Activities: | | | | | | |
| Purchases of property and equipment | | (32.1) | | | (27.1) | | | (32.5) | |
| Purchases of intangible assets | | (3.9) | | | (14.6) | | | (4.5) | |
| Acquisitions, net of cash acquired | | (192.7) | | | (244.9) | | | (147.2) | |
| Proceeds from the sale of property and equipment | | 2.7 | | | 2.2 | | | 2.2 | |
| Net Cash Used In Investing Activities | | $ | (226.0) | | | $ | (284.4) | | | $ | (182.0) | |
| | | | | | |
| Cash Flows from Financing Activities: | | | | | | |
| Equity proceeds from common stock | | 5.2 | | | 3.6 | | | 9.3 | |
| Repurchases of common stock | | (12.0) | | | (24.4) | | | — | |
| | | | | | |
| | | | | | |
| Borrowings under term loan | | 120.0 | | | — | | | 325.0 | |
| Repayments under term loan | | (3.2) | | | (2.6) | | | (338.6) | |
| Borrowings on asset-based credit facility | | 434.3 | | | 732.8 | | | 161.9 | |
| Repayments on asset-based credit facility | | (526.8) | | | (632.8) | | | (161.9) | |
| Payments of debt issuance costs | | (1.8) | | | (2.3) | | | (2.4) | |
| Payments on finance lease obligations | | (18.5) | | | (12.6) | | | (10.4) | |
| Payments of acquisition related contingent obligations | | (8.0) | | | (10.0) | | | (8.6) | |
| Other financing activities | | (7.5) | | | (8.3) | | | (4.7) | |
| Net Cash (Used In) Provided By Financing Activities | | $ | (18.3) | | | $ | 43.4 | | | $ | (30.4) | |
| | | | | | |
| Effect of exchange rate on cash | | 0.2 | | | (0.8) | | | 0.1 | |
| Net Change In Cash | | 53.4 | | | (24.6) | | | (1.5) | |
| | | | | | |
| Cash and cash equivalents: | | | | | | |
| Beginning | | 29.1 | | | 53.7 | | | 55.2 | |
| Ending | | $ | 82.5 | | | $ | 29.1 | | | $ | 53.7 | |
| | | | | | |
| Supplemental Disclosures of Cash Flow Information: | | | | | | |
| Cash paid during the year for interest | | $ | 26.8 | | | $ | 15.5 | | | $ | 15.6 | |
| Cash paid during the year for income taxes | | $ | 46.0 | | | $ | 82.1 | | | $ | 55.8 | |
See Notes to Consolidated Financial Statements.
SiteOne Landscape Supply, Inc.
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:Business
SiteOne Landscape Supply, Inc. (hereinafter collectively with all its consolidated subsidiaries referred to as the “Company” or individually as “Holdings”) is a supplierwholesale distributor of irrigation supplies, fertilizer and control products (e.g., herbicides), hardscapes (including pavers, natural stone, and blocks), landscape accessories, nursery goods, hardscapesoutdoor lighting, and outdoor lightingice melt products to green industry professionals. The Company also provides value-added consultative services to complement its product offering and to help customers operate and grow their businesses. Substantially all of SiteOne Landscape Supply, Inc.’sthe Company’s sales are to customers located in the United States of America (“U.S.”), with less than twofour percent of sales and less than four percent of total assets in Canada and other countries.for all periods presented. As of December 31, 2017,2023, the Company had over 475690 branches. Based on the nature of SiteOne Landscape Supply, Inc.’sthe Company’s products and customers’ business cycles, sales are significantly higher in the springsecond and summer months.third quarters of each fiscal year.
Common Stock Split
Share Repurchase Program
On April 29, 2016,October 20, 2022, the Company’s Board of Directors authorized the Company filed a Certificate of Amendment to amend and restate the Company’s Certificate of Incorporation in the State of Delaware, effecting an 11.6181 for 1 common stock split. Each stockholder’s percentage ownership and proportional voting power remained unchanged as a result of the stock split. All applicable share data, per share amounts and related information in the consolidated financial statements and notes thereto have been adjusted retroactivelyrepurchase, at any time or from time to give effect to the 11.6181 for 1 common stock split.
Refinancing and Amendments of Term Loan and Special Cash Dividend
On April 29, 2016, the Company refinanced the existing term loan facility (the “Prior Term Loan Facility”) with an amended and restated $275.0 million term loan facility maturing in April 2022 (the “Term Loan Facility”). On April 29, 2016, the proceeds from the Term Loan Facility were used to repay all $60.3 million of borrowings outstanding under the Prior Term Loan Facility, to repay $29.9 million of borrowings outstanding under the senior asset-based credit facility (the “ABL Facility”), and to pay fees and expenses associated with the refinancing transaction.
On May 2, 2016, a one-time special cash dividend of $176.0 million was paid to existing holderstime, shares of the Company’s common stock and cumulative convertible participating redeemable preferred stock (“Redeemable Convertible Preferred Stock”) as of April 29, 2016 out of the proceeds from the Refinancing of the Term Loan Facility. Of the $176.0 million paid to stockholders, $112.4 million was paid to holders of the Redeemable Convertible Preferred Stock in accordance with their right to participate in all distributions to common stockholders on an as-converted basis. The Redeemable Convertible Preferred Stock converted to common stock in accordance with its terms on May 16, 2016 resulting in the issuance by the Company of an additional 25,303,164 shares of its common stock which common shares are included in the weighted average common shares outstanding from that date forward. Prior to May 16, 2016, the Company’s earnings (loss) per share calculation reflected the impact of the Redeemable Convertible Preferred Stock. Since the special cash dividend was paid prior to conversion of the Redeemable Convertible Preferred Stock, the $112.4 million is reported as a reduction of net income attributable to common shares for the year ended January 1, 2017. In conjunction with the payment of the special cash dividend, the Company reduced the exercise price of certain outstanding options and made a cash payment of $2.8 million to certain holders of options to offset the dilutive impact of the special cash dividend.
On November 23, 2016, the Company amended the Term Loan Facility to, among other things, (i) add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche B Term Loans”) inhaving an aggregate principal amount of $273.6 million and (ii) increase the aggregate principal amount of Tranche B Term Loans under the Term Loan Facilitypurchase price not to $298.6exceed $400.0 million pursuant to a Rule 10b5-1 plan and/or pursuant to open market or accelerated share repurchase arrangements, tender offers, or privately negotiated transactions. The repurchase authorization does not have an increase supplement. Proceedsexpiration date and may be amended, suspended, or terminated by the Company’s Board of Directors at any time.
The following table summarizes the Tranche B Term Loans were used to, among other things, (i) repay in full the term loans outstandingactivity under the Term Loan Facility immediately prior to effectiveness ofshare repurchase program during the Term Loan Facility Amendments (the “Existing Term Loans”) and (ii) repay $21.0 million of borrowings outstanding under the ABL Facility.periods presented.
On May 24, 2017, the Company amended the Term Loan Facility (the “Second Amendment”) to, among other things, add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche C Term Loans”) in an aggregate principal amount of $299.5 million. Proceeds of the Tranche C Term Loans were used to, among other things, repay in full the Tranche B Term Loans outstanding under the Term Loan Facility immediately prior to effectiveness of the Second Amendment and pay fees and expenses associated with the transaction.
On December 12, 2017, the Company amended the Term Loan Facility (the “Third Amendment”) to, among other things, (i) add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche D Term Loans”) in an aggregate principal amount of $298.0 million and (ii) increase the aggregate principal amount of Tranche D Term Loans under the Term Loan
Facility to $350.0 million. Proceeds of the Tranche D Term Loans were used to, among other things, (i) repay in full the Tranche C Term Loans and (ii) repay approximately $50.7 million of borrowings outstanding under the ABL Facility.
Initial Public Offering
On May 11, 2016, the Company’s registration statement on Form S-1 (Registration No. 333-206444) relating to an initial public offering (“IPO”) of its common stock was declared effective by the U.S. Securities and Exchange Commission (“SEC”). On May 17, 2016, the Company completed the IPO at a price to the public of $21.00 per share. In connection with the IPO, certain of the Company’s stockholders sold an aggregate of 10,000,000 shares of common stock. The underwriters also exercised their option to purchase an additional 1,500,000 shares of common stock, at the public offering price less the underwriting discounts and commissions. The selling stockholders received all of the net proceeds and bore all commissions and discounts from the sale of the Company’s common stock. The Company did not receive any proceeds from the IPO.
Secondary Offerings
On November 29, 2016, the Company’s registration statement on Form S-1 (Registration No. 333-214628) relating to a secondary offering (the “Secondary Offering”) of its common stock was declared effective by the SEC. On December 5, 2016, the Company completed the Secondary Offering at a price to the public of $33.00 per share. In connection with the Secondary Offering, certain of the Company’s stockholders sold an aggregate of 9,000,000 shares of common stock. The underwriters also exercised their option to purchase an additional 1,350,000 shares of common stock at the public offering price less the underwriting discounts and commissions. The selling stockholders received all of the net proceeds and bore all commissions and discounts from the sale of the Company’s common stock. The Company did not receive any proceeds from this secondary offering.
On April 25, 2017, the Company’s registration statement on Form S-1 (Registration No. 333-217327) relating to a secondary offering of its common stock was declared effective by the SEC. On May 1, 2017, the Company completed this secondary offeringat a price to the public of $47.50 per share. In connection with this secondary offering, certain of the Company’s stockholders sold an aggregate of 10,000,000 shares of common stock. The underwriters also exercised their option to purchase an additional 1,500,000 shares of common stock from the selling stockholders at the public offering price less the underwriting discounts and commissions. The selling stockholders received all of the net proceeds and bore all commissions and discounts from the sale of the Company’s common stock. The Company did not receive any proceeds from this secondary offering.
On July 20, 2017, the Company’s shelf registration statement on Form S-3 (Registration No. 333-219370) became effective, registering the offering and sale from time to time, by certain selling stockholders, of 5,437,502 shares of the Company’s common stock. On July 26, 2017, the selling stockholders completed a secondary offering of all such shares at a price to the underwriter of $51.63 per share. The selling stockholders received all of the net proceeds and bore all commissions and discounts from the sale of the Company’s common stock. The Company did not receive any proceeds from this secondary offering. | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year | | Total Number of
Shares Purchased | | Average Price Paid
Per Share | | Amount Remaining
(in millions) |
| 2022 | | 211,110 | | $ | 118.40 | | | $ | 375.0 | |
| 2023 | | 90,000 | | $ | 126.21 | | | $ | 363.6 | |
Basis of financial statement presentation:Financial Statement Presentation
SiteOne Landscape Supply, Inc. (hereinafter, collectively with all its consolidated subsidiaries, referred to as the “Company” or individually as “Holdings”)Holdings indirectly owns 100% of the membership interest in SiteOne Landscape Supply Holding, LLC (referred to herein as “Landscape Holding”). Landscape Holding is the parent and sole owner of SiteOne Landscape Supply, LLC (referred to herein as “Landscape”). Prior to the transaction described below, Deere & Company (“Deere”) was the sole owner of SiteOne Landscape Supply Holding, LLC.
On December 23, 2013 (the “Closing Date”), the Company acquired 100% of the ownership interest in Landscape Holding from Deere in exchange for common shares of the Company initially representing 40% of the outstanding capital stock (on an as-converted basis) plus cash consideration of approximately $314 million, net of pre-closing and post-closing adjustments. In order to facilitate the transaction, the Company issued cumulative convertible participating redeemable preferred stock (“Redeemable Convertible Preferred Stock”)Stock to Clayton, Dubilier & Rice, LLC (“CD&R”) for total consideration of $174 million initially representing 60% of the outstanding capital stock (on an as-converted basis). As part of the same transaction, Landscape Holding also acquired from Deere the affiliated company LESCO, Inc. (“LESCO”). The Company continues to be the sole owner of Landscape Holding. The aforementioned transactions described in this paragraph are referred to herein as the “CD&R Acquisition”.
FollowingOn May 17, 2016, the Company completed its initial public offering of its common stock and following consummation of the Company’s secondary offering on July 26, 2017, CD&R and Deere no longer have an ownership interest in the Company.
The Company’s chief operating decision maker (“CODM”) manages the business as a single reportable segment. Within the organizational framework, the same operational resources support multiple geographicalgeographic regions and performance is evaluated primarily by the CODM at a consolidated level. The CODM also evaluates regional performance based on financial and operational measures and receives discrete financial information on a regional basis. Since all of the Company’s regions have similar operations and share similar economic characteristics, the Company aggregates regions into a single operating and reportable segment. These similarities include 1)(i) long-term financial performance, 2)(ii) the nature of products and services, 3)(iii) the types of customers the Company sells to, and 4)(iv) the distribution methods used. Further, all of the Company’s product categories have similar supply chain processes and classes of customers and economic characteristics.customers.
The accompanying audited consolidated financial statements of the Company included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Certain prior period amounts, which are not material, have been reclassified to conform to the current period presentation on the Consolidated Balance Sheets and Consolidated Statements of Equity. For the year ended January 1, 2023, the Company reclassified Treasury stock shares of 20,911 and the corresponding share amount of $0.3 million, which in previous years were reported in Common stock shares and Additional paid-in capital, respectively.
The Consolidated Statements of Operations, Comprehensive income (loss),Income, Equity, and Cash Flows for the Company are presented for the fiscal years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016.2, 2022. The consolidated financial statements for the Company include the assets and liabilities used in operating the Company’s business, including entities in which the Company owns or controls more than 50% of the voting shares. The Company owns 100%All of allthe Company’s subsidiaries presented in these financial statements.are wholly owned. All intercompany balances and transactions have been eliminated in consolidation.
Significant accounting policies:Accounting Policies
Use of estimates in the preparation of financial statements: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fiscal year: The Company’s fiscal year is a 52- or 53-week period ending on the Sunday nearest to December 31. The yearfiscal years ended December 31, 2017 includes2023, January 1, 2023, and January 2, 2022 each included 52 weeks. The year ended January 1, 2017 includes 52 weeks. The year ended January 3, 2016 includes 53 weeks.
Cash and cash equivalents: Cash and cash equivalents include primarily cash on deposit with banks which, at times, may exceed federally insured limits. The Company has not experienced any losses in these accounts. Cash and cash equivalents also include unsettled credit card transactions.
Accounts receivable: The Company carries accountsAccounts receivable is presented at the original invoice amount, less any charge-offs and the allowance for credit losses and doubtful accounts. Allowances for credit losses and doubtful accounts are maintained in amounts considered to be appropriate in relation to the receivables outstanding based on collection experience, economic conditions, and credit risk quality.quality, and reasonable supportable forecasts. Receivables are written-off to the allowance when an account is considered uncollectible.
Activity in the allowance for doubtful accounts for the periods was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 |
| Beginning balance | | $ | 21.7 | | | $ | 13.5 | | | $ | 9.1 | |
| Provision for allowance | | 10.8 | | | 10.9 | | | 4.3 | |
| (Write-offs) recoveries, net | | (5.2) | | | (2.7) | | | 0.1 | |
| Ending balance | | $ | 27.3 | | | $ | 21.7 | | | $ | 13.5 | |
|
| | | | | | | | | | | | |
| | | | | | | |
| | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 | | For the year
December 29, 2014 to January 3, 2016 |
| Beginning balance | | $ | 4.3 |
| | $ | 3.6 |
| | $ | 3.0 |
|
| Provision (reduction) for allowance | | 2.0 |
| | 1.1 |
| | 1.0 |
|
| Write-offs, net of recoveries | | (1.6 | ) | | (0.4 | ) | | (0.4 | ) |
| Ending balance | | $ | 4.7 |
| | $ | 4.3 |
| | $ | 3.6 |
|
Inventory: The majority of the Company’s inventories are valued at the lower of actual cost or estimated net realizable value, with cost determined by the first-in, first-out (“FIFO”) method. Inventory is primarily considered to be finished goods. The Company establishes a reserve for excess, slow-moving, and obsolete inventory that is equal to the difference between the cost and estimated net realizable value for that inventory. These reserves are based on a review of planned and historical sales. The reserve for obsolete and excess inventory was approximately $5.1$13.7 million and $4.8$14.0 million as of December 31, 20172023 and January 1, 2017,2023, respectively.
Property and equipment, net: Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed on property and equipment using the straight-line method over the estimated useful lives of the assets, as noted below. Leasehold improvements are depreciated over the lesser of their estimated useful lives or the remaining lease terms. Depreciation on property and equipmentThe amortization of the right-of-use (“ROU”) assets under
capital lease finance leases is included in depreciationamortization expense. Expenditures for replacement or major renewals of significant items are capitalized. Expenditures for maintenance, repairs, and minor renewals are generally charged to expense as incurred.
| | | | | | | | |
| | |
| Asset Class | | Estimated Useful Life |
| Buildings and improvements | | 20 years |
| Branch equipment | | 2 to 12 years |
| Furniture and fixtures | | 2 to 12 years |
| Auto and truck | | 2 to 6 years |
| Tooling | | 7 years |
| Leasehold improvements | | Shorter of the estimated useful life or the term of the lease, considering renewal options expected to be exercised. |
Acquisitions: When the Company acquires a controlling financial interest in an entity or group of assets that are determined to meet the definition of a business, the acquisition method described in ASCAccounting Standards Codification (“ASC”) Topic 805, Business Combinations, is applied. The Company allocates the purchase consideration paid to acquire the business to the assets acquired and liabilities acquiredassumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. If during the measurement period (a period not to exceed 12 months from the acquisition date) the Company receives additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown, the Company makes the appropriate adjustmentadjustments to the purchase price allocation in the reporting period in which the adjustment isadjustments are identified.
Goodwill impairment: Goodwill represents the acquired fair value of a business in excess of the fair values of tangible and identified intangible assets acquired and liabilities assumed. The Company tests goodwill on an annual basis as of July fiscal month endmonth-end and additionally if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Examples of such indicators include a significant change in the business climate, unexpected competition, loss of key personnel, or a decline in the Company’s market capitalization below the Company’s net book value. The Company performs impairment assessments at the reporting unit level, which is defined as an operating segment or one level below an operating segment, also known as a component.
With the issuance of Accounting Standards Update 2017-04 Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) in January 2017, and adopted byFor impairment tests using a quantitative approach, the Company in July 2017 with its annual goodwill impairment test, the impairment test is now a single-step process. The process requires the Companyrequired to estimate and compare the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, the goodwill is not considered impaired. To the extent a reporting unit’s carrying amount exceeds its fair value, the reporting unit’s goodwill is deemed impaired, and an impairment charge is recognized based on the excess of a reporting unit’s carrying amount over its fair value.No impairment of goodwill has occurred during the periods presented. See Refer to “Note 45. Goodwill and Intangible Assets, Net” for a more detailed description ofinformation regarding goodwill.Intangible assets, net: Intangible assets include customer relationships andas well as trademarks and other intangibles acquired through acquisitions. IntangiblesThe fair value of customer relationships is determined using the multi-period excess earnings method, which is a specific discounted cash flow method that requires management to make estimates and assumptions, including the selection of the discount rates. Intangible assets with finite useful lives are amortized on an accelerated method or a straight-line method of amortization over their estimated useful lives. An accelerated amortization method reflecting the pattern in which the asset will be consumed is utilized if that pattern can be reliably determined. If that pattern cannot be reliably determined, a straight-line amortization method is used. The Company considers the period of expected cash flows and the underlying data used to measure the fair value of the intangible assets when selecting a useful life. The Company’s customer relationships are amortized on an accelerated method. Refer to “Note 45. Goodwill and Intangible Assets, Net” for a more detailed descriptioninformation regarding amortization of intangible asset amortization.assets. Impairment of Long-livedlong-lived assets: Long-lived assets, primarily property and equipment, finite-lived intangible assets, and long-term contracts included in other assets, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset group may not be recoverable. The recoverability of an asset group is measured by a comparison of the carrying amount of the asset group to its future undiscounted cash flows.
If the recoverability test indicates the asset group balances are not recoverable, the Company would recognize an impairment charge in the current period to reduce the long-lived asset balances based on the fair value of the asset group. The amount of such impairment would be charged to operations in the current period. There were no impairment charges recognized during the years ended December 31, 2017, January 1, 2017 and January 3, 2016.periods presented.
Fair value measurement: Fair value is defined as an exit price, representing an amount that would be received to sell an asset or the amount paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The inputs used to measure fair value are prioritized into the following three-tiered value hierarchy:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs, other than quoted prices in active markets, which are observable either directly or indirectly.
•Level 3: Unobservable inputs for which there is little or no market data.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The classification of fair value measurement within the hierarchy is based upon the lowest level of input that is significant to the measurement.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivables, forward-starting interest rate swap contracts, and long-term debt. The variable interest rate on the long-term debt is reflective of current market borrowing rates. As such, the Company has determined that the carrying value of these financial instruments approximates fair value.
Interest Rate Swaps:
rate swaps: The Company is subject to interest rate risk with regard to existing and future issuances of debt. The Company utilizes interest rate swap contracts to reduce its exposure to fluctuations in variable interest rates for future interest payments on existing debt. In 2021, the Company amended and restructured its syndicated senior Term Loan Facility. For determininginterest rate swap contracts using a strategy commonly referred to as a “blend and extend”. In a blend and extend arrangement, the liability position of the existing interest rate swap arrangement is effectively blended into the amended or new interest rate swap arrangement and the term to maturity of the hedged position is extended. The Company evaluates its blend and extend arrangements under ASC Topic 815: Derivatives and Hedging, to determine if they are stand-alone derivative instruments or hybrid instruments.
The Company recognizes the unrealized gains or unrealized losses for interest rate swap contracts as either assets or liabilities at fair value on its Consolidated Balance Sheets. The interest rate swap contracts are subject to master netting arrangements. The Company has elected not to offset the fair value of assets with the interest rate swap contracts, thefair value of liabilities related to these contracts. The Company uses significant observable market data or assumptions (Level 2 inputs) that market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk.risk to determine the fair value of the interest rate swap contracts. The fair value estimates reflect an income approach based on the terms of the interest rate swap contracts and inputs corroborated by observable market data including interest rate curves.
The Company recognizes any differences between the variable interest rate payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense over the life of the swaps. The Company has designated these swaps as cash flow hedges for which the Companyand records the effective portions of changes in their fair value, net of tax, in other comprehensive income (loss). To the extent the interest rate swaps are determined to be ineffective, the Company recognizes the changes in the estimated fair value of the swaps to Accumulated other comprehensive income (loss) (“AOCI”) on its Consolidated Balance Sheets. If it becomes probable the forecasted transactions will not occur, the hedge relationship will be de-designated and amounts accumulated in earnings.AOCI will be reclassified to Interest and other non-operating expenses, net in the current period. Future changes in the fair value of derivatives not designated as hedging instruments will be reported in Interest and other non-operating expenses, net in the Consolidated Statements of Operations.
Revenue recognitionTreasury stock: The Company recognizerecords purchases of treasury stock at cost, which is reflected as a reduction to Stockholders’ equity on the Company’s Consolidated Balance Sheets. Incremental direct costs to purchase treasury stock are included in the cost of the shares acquired.
Revenue recognition: The Company recognizes revenue when the following four basic criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurredcontrol over a product or services have been rendered; (3) the price to the buyerservice is fixed or determinable; and (4) collectability is reasonably assured.
Sales of products are recorded when the sales price is determinable and the risks and rewards of ownership are transferred to independent parties.a customer. This transfer occurs primarily when goods are picked up by a customer at the Company’s branch or when goods are delivered to a customer location. Revenue is measured at the transaction price, which is based on the amount of consideration the Company expects to receive in exchange for transferring the promised goods or services to the customer. The transaction price will include estimates of variable consideration, such as returns, provisions for doubtful accounts, and sales incentives, to the extent it is probable that a significant reversal of revenue recognized will not occur. In all cases, when a sale is recorded by the Company, no significant uncertainty exists surrounding the purchaser’scustomer’s obligation to pay. Returns are estimated and accrued at the time a sale is recognized. The Company makes appropriate provisions based on experience for costs such as doubtful receivables and sales incentives. The Company also has enteredenters into agency agreements with certain of its suppliers whereby the Company operates as a sales agent of those suppliers. The suppliers retain title to their merchandise until it is sold by the Company and determine the prices at which the Company can sell the suppliers’their merchandise. As such, theThe Company recognizes these agency sales on a net basis and records only the product margin as commission revenue withinrevenue. Net sales.sales include billings for freight and handling charges and commissions on the sale of control products that the Company sells as an agent. Net sales are presented net of any discounts, returns, customer rebates, and sales or other revenue-based taxes. Provisions for returns are estimated and accrued at the time a sale is recognized.
Sales incentives: The Company offers rebates to certain customers, rebates which are accrued based on sales volumes. In addition, the Company offers a points-based reward program whereby reward points canwhich allows enrolled customers to earn loyalty rewards on purchases to be redeemedused on future purchases, to pay for merchandiseannual customer trips hosted by the Company, or credit on account (such asto obtain gift cards or vacation trips).to other third-party retailers. The Company accruesoften receives cash payments from customers in advance of the Company’s performance of the customer loyalty rewards program resulting in contract liabilities, which are determined on a liability for this program based on sales volumes and an estimate of points that will be redeemed before expiration. Liabilities for these sales incentivescontract-by-contract basis. These contract liabilities are includedclassified in Accrued Liabilities.liabilities on the Company’s Consolidated Balance Sheets. Refer to “Note 2. Revenue from Contracts with Customer” for further details regarding the Company’s customer loyalty rewards program. Sales taxes: The Company collects and remits taxes assessed by different governmental authorities that are both imposed on and concurrent with revenue producing transactions between the Company and its customers. These taxes may include sales, use, value-added, and some excise taxes. The Company reports the collection of these taxes on a net basis (excluded from sales).
Cost of goods sold: Cost of goods sold includes all inventory costs, such as the purchase price from suppliers, net of any rebates received,volume-based incentives, as well as inbound freight and handling, and other costs associated with the inventory, and is exclusive of the costcosts to deliver the products to customers.
Shipping and handling costs: Shipping and handling costs associated with inbound freight are included in Cost of goods sold.
Warranty Reserves: Provisions for estimated warranty costs for the return of nursery product are provided for in the same period the related sales are recorded.Leases: The Company offers product warranties on selected nursery items. The warranty reservedetermines if an arrangement is based on historical and current trends. The warranty reserve included in Accrued liabilities was approximately $0.5 million and $0.4 million asa lease at inception of December 31, 2017 and January 1, 2017, respectively.
Leases:a contract. The Company leases the majority of its facilitiesequipment and enters into various otherreal estate including office space, branch locations, and distribution centers under operating leases. Finance lease agreements in conducting its business. At the inception of each lease, the Company evaluates the lease agreement to determine whether the lease is an operating or capital lease. Operating lease expenses are recognized in the statements of operations on a straight-line basis over the term of the related lease. Someobligations consist primarily of the Company’s vehicle fleet. Most leases include one or more options to renew, with renewal terms that can extend the lease agreements may containterm from one year to five years or more. The exercise of lease renewal options tenant improvement allowances, rent holidays or rent
escalation clauses. When such items are included in afixed lease agreement,payments over the lease term. As most of the Company's operating leases do not provide an implicit interest rate, the Company records a deferred rent asset or liabilityuses an incremental borrowing rate based on the consolidated balance sheets equal toinformation available at the difference between the rent expense and cash rent payments.
The cost of property and equipment acquired under capital lease arrangements represents the lesser ofcommencement date in determining the present value of
lease payments. Finance lease agreements generally include an interest rate that is used to determine the
minimumpresent value of future lease payments. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments
based on changes in index rates or
usage, are not included in the
fair valueROU assets or lease liabilities and are expensed as incurred and recorded as variable lease expense. Leases with an initial term of
12 months or less are not recorded in the
leased asset as of the inception of the lease.Consolidated Balance Sheets. Refer to “Note 6. Leases” for further details regarding leases.Advertising costs: Advertising costs are charged to expense as incurred and were approximately $2.1$13.7 million, $0.9$13.5 million, and $0.4$10.4 million, during the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022, respectively.
Stock-based compensation: The Company applies the fair value method to recognize compensation expense for stock-based awards. Using this method, the estimated grant-date fair value of the award is recognized on a straight-line basis over the requisite service period based on the portion of the award that is expected to vest.
Stock-based compensation expense for restricted stock units is measured based on the fair value of the Company’s common stock on the grant date. The Company utilizes the Black-Scholes option pricing model to estimate the grant-date fair value of option awards. The exercise price of option awards is set to equal the estimated fair value of the common stock at the date of the grant. The following weighted-average assumptions are also used to calculate the estimated fair value of option awards:
•Expected volatility: The expected volatility of the Company’s shares is estimated using the Company’s historical stock price volatility over the most recent period commensurate with the estimated expected term of the awards.
•Expected term: For employee stock option awards, the Company determines the weighted average expected term equal to the weighted period between the vesting period and the contract life of all outstanding options.
•Dividend yield: The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero.
•Risk-free interest rate: The Company bases the risk-free interest rate on the implied yield available on a U.S. Treasury note with a term equal to the estimated expected term of the awards.
Refer to “Note 67. Employee Benefit and Stock Incentive Plans” for further details regarding stock-based compensation. Other income: Other income consists primarily of financing charges, and net gain/loss on sale of assets.assets, foreign currency gain/loss, and the fair value adjustments of acquisition related contingent obligations.
Income taxes: The Company files a consolidated federal income tax return and files both combined or unitary state income tax returns as well as separate state income tax returns in certain jurisdictions.
Deferred taxes are provided on an asset and liability method in which deferred tax assets are recognized for deductible temporary differences andas well as operating loss and tax credit carry forwards,carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Realization of deferred tax assets is dependent upon sufficient future taxable income.
The Company’s operations involve dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return based on its estimate of whether, and the extent to which, additional taxes will be due. The Company recognizes interest, if any, related to unrecognized tax benefits within the Interest and other non-operating expenses, line item, and recognizes penalties in Selling, general and administrative expenses.
In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted, which, among other things, implemented a 15% corporate alternative minimum tax on book income of certain large corporations effective for tax years beginning after December 2017,31, 2022, and imposes a 1% excise tax on corporate stock repurchases after December 31, 2022. The legislation has not had a material impact on the Company’s consolidated financial statements and related disclosures.
Effective for tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. The legislation has not had a material impact on the Company’s consolidated financial statements and related disclosures.
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The 2017 Tax Act includes a number ofenacted which included several changes to existing U.S. tax laws that impactimpacted the Company, most notably a reductionthe limitation on U.S. interest deductibility, the ability to defer the payment of qualifying employer payroll taxes to December 31, 2021 and December 31, 2022, and certain changes to the depreciable life of qualified improvement property. In accordance with the CARES Act, the Company deferred the payment of qualifying employer payroll taxes of $12.2 million during the fiscal year ended January 3, 2021, which were required to be paid over two years, with 50% to be paid by December 31, 2021 and the remainder by December 31, 2022. During the fiscal year ended January 2, 2022, the Company paid $6.1 million of the U.S. corporate income tax rate from 35% to 21%, which requiredpreviously deferred employer payroll taxes. During the fiscal year ended January 1, 2023, the Company to re-measure certain deferred tax assets and liabilities inpaid the reporting period in whichremaining $6.1 million of the 2017 Tax Act was signed into law, a one-time transition tax on certain foreign earnings that were previously deferred and immediate expensing for certain assets placed into service after September 27, 2017. The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, employer payroll taxes.
Refer to “Note 9. Income Taxes. At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the 2017 Tax Act. In certain instances, however, the Company has made a reasonable estimate (provisional amount) of the effects with respect to existing deferred tax balances and the one-time transition tax. In other cases, the Company has not been able to make a
reasonable estimate and continues to account for those items based on existing accounting under ASC Topic 740, and the provisions of the tax laws that were in effect prior to enactment. In all cases, the Company will continue to make and refine its calculations as additional analysis is completed, and provisional estimates may also be affected as the Company gains a more thorough understanding of the 2017 Tax Act. See Note 8Taxes” for further information pertaining to income taxes.
Foreign currency translation: The functional currency for the Company’s Canadian operations is the Canadian dollar, which is the local currency. The assets and liabilities of these operations are translated into U.S. dollars using the exchange rates at the end of the period exchange rates.reporting period. The revenues and expenses are translated at average exchange rates for the period. The gains or losses from these translations are recorded in otherOther comprehensive income (loss). Gains or losses recognized on transactions denominated in a currency other than the functional currency are included in net income (loss).
Beneficial conversion features: The Company had issued Redeemable Convertible Preferred Stock with dividends that were paid-in-kind during the years ended January 3, 2016 and December 28, 2014. The Company recorded paid-in-kind dividends at carrying value on the issuance date. The paid-in-kind dividends in the form of Redeemable Convertible Preferred Stock contained the same conversion rate as the Redeemable Convertible Preferred Stock issued on the Closing Date. For certain Redeemable Convertible Preferred Stock issued as dividends paid-in-kind, the stated conversion price was determined to be less than the common stock price as of the dividend payment date resulting in the recognition of a beneficial conversion feature (“BCF”) in additional paid-in capital. Since the Redeemable Convertible Preferred Stock did not have a fixed or determinable redemption date and was readily convertible at any time, the Company immediately amortized any BCF recognized through retained earnings. The Redeemable Convertible Preferred Stock converted to common stock in accordance to its terms on May 16, 2016.Other income.
Recently Issued and Adopted Accounting Pronouncements
In September 2015,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-16, Business Combinations, an update to2019-12, “Simplifying the existing guidance under the Business Combinations topic. This update simplifiesAccounting for Income Taxes” (“ASU 2019-12”). The amendments in ASU 2019-12 simplified the accounting for measurement-period adjustments.income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes. The amendments inalso improved consistent application of and simplified U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. ASU 2019-12 required adoption on either a prospective or retrospective basis, dependent upon each amendment within this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This update will be effective for all annual and interim periods beginning after December 15, 2015. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update with earlier application permitted for financial statements that have not been issued. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015-11”), which requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market. Net realizable value is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation.update. The Company adopted ASU 2015-112019-12 when it became effective in the first quarter of the 2017 Fiscal Year.fiscal year 2021. The adoption of ASU 2015-112019-12 did not have a material impact on the Company’sits consolidated financial statements.statements and related disclosures.
In March 2016,October 2021, the FASB issued ASU 2016-09,2021-08, “Compensation-Stock CompensationBusiness Combinations (Topic 718)805): Improvements to Employee Share-Based Payment Accounting”Accounting for Contract Assets and Contact Liabilities from Contracts with Customers” (“ASU 2016-09”2021-08”), which simplifies several aspects of the accounting for employee share-based payment transactions for both public. The guidance requires an acquirer in a business combination to recognize and nonpublic entities, including the accounting for income taxes, forfeituresmeasure contract assets and statutory tax withholding requirements, as well as classificationliabilities in the statement of cash flows.accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) rather than at fair value. The Company adopted ASU 2016-092021-08 on a prospective basis when it became effective in the first quarter of the 2017 Fiscal Year on a prospective basis and as such, the Company’s priorfiscal year presentation has not changed. The primary impact of the adoption was the recognition of excess tax benefits as a reduction of Income tax expense on the Company’s Consolidated Statements of Operations. As a result, excess tax benefits of $6.8 million were recognized as a reduction of Income tax expense for the year ended December 31, 2017. Historically, these amounts were recorded as Additional paid-in capital in Stockholders’ equity on the Company’s Consolidated Balance Sheets. The Company also elected to adopt the cash flow presentation of the excess tax benefits prospectively commencing in the first quarter of 2017. The Company now presents excess tax benefits or tax deficiencies within operating cash flows versus financing activities on the Consolidated Statements of Cash Flows. Another impact of the adoption is that the calculation of the effect of dilutive securities now excludes any derived excess tax benefits or deficiencies from assumed future proceeds, resulting in an increase in diluted weighted average shares outstanding. Additionally, the Company elected to account for forfeitures of share-based payments as they occur and there was no material financial impact as a result. None of the other provisions in ASU 2016-09 had a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (also known as Step 2 under the current guidance). Rather, the measurement of a goodwill impairment charge will be based on the excess of a reporting unit’s carrying value over its fair value (Step 1 under the current guidance). ASU 2017-04 will be effective for annual and interim goodwill impairment tests performed in periods beginning after December 15, 2019 and should be applied
prospectively. Early adoption is permitted for annual and interim goodwill impairment tests beginning after January 1, 2017. The Company adopted ASU 2017-04 in July 2017 with its annual goodwill impairment test.2023. The adoption of ASU 2017-042021-08 did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In August 2017,March 2020, the FASB issued ASU 2017-12,2020-04, “Derivatives and HedgingReference Rate Reform (Topic 815)848): Targeted Improvements to Accounting for Hedging ActivitiesFacilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2017-12”2020-04”), which seeksas amended in January 2021 by ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), and in December 2022 by ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”).
•ASU 2020-04 provided optional expedients and exceptions for applying U.S. GAAP to improve the financial reporting ofcontracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria were met.
•ASU 2021-01 amended the scope of the guidance in ASU 2020-04 on the facilitation of the effects of reference rate reform on financial reporting. The amendments in ASU 2021-01 clarified that “certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting can apply to better portrayderivatives that are affected by the economic resultsdiscounting transition”. These amendments applied only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The expedients are applicable to contract modifications made and hedging relationships entered into on or before December 31, 2022. The guidance was permitted to be elected over time as reference rate reform activities occurred.
•ASU 2022-06 deferred the expiration date of an entity’s risk management activities in its financial statements. Additionally,the reference rate reform relief guidance provided by ASU 2017-12 makes certain targeted improvements2020-04 and ASU 2021-01 to simplify the application ofDecember 31, 2024.
The Company previously elected to apply the hedge accounting guidance in current GAAPexpedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions would be based matches the index for the corresponding derivatives. On March 27, 2023, the Company amended its term loans to implement a forward-looking interest rate based on the feedback received from preparers, auditors, users, and other stakeholders. ASU 2017-12 adds new disclosure requirements, amends existing ones and removessecured overnight financing rate (“SOFR”) in lieu of LIBOR. On March 31, 2023, the requirement for entitiesCompany amended the terms of its interest rate swaps to disclose amountsimplement SOFR in place of hedge ineffectiveness. In addition, an entity must now provide tabular disclosures about: both (i)LIBOR. Concurrent with the total amounts reported inamendments to its interest rate swaps, the statement of financial performance for each income and expense line item that is affected by fair value or cash flow hedging and (ii) the effects of hedging on those line items; and the carrying amounts and cumulative basis adjustments of items designated and qualifying as hedged items in fair value hedges. Early adoption is permitted in any interim period after issuance of ASU 2017-12. The Company adopted ASU 2017-12 in the third quarterelected certain of the 2017 Fiscal Year.optional expedients provided in Topic 848 that allowed the Company to preserve the past presentation of its derivatives without de-designating the existing hedging relationships. The adoption of ASU 2017-12Topic 848 did not have a material impact on the Company’s consolidated financial statements. Refer to “Note 8. Long-Term Debt” for additional information regarding these amended agreements.
In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)” (“ASU 2023-03”). This ASU amends or supersedes various SEC paragraphs in the Accounting Standards Codification to primarily reflect the issuance of Staff Accounting Bulletin No. 120. ASU 2023-03 provides clarifying guidance related to employee and non-employee share-based payment accounting, including guidance to companies issuing share-based awards shortly before announcing material, nonpublic information to consider such material nonpublic information to adjust observable market prices if the release of material nonpublic information is expected to affect the share price. ASU 2023-03 does not provide new guidance so there is no transition or effective date associated with it. Therefore, these updates were immediately effective. The adoption of ASU 2023-03 did not have a material impact on the Company’s consolidated financial statements and related disclosures.
Accounting Pronouncements Issued But Not Yet Adopted
In May 2014,November 2023, the FASB issued ASU 2014-09,2023-07, “Revenue from Contracts with CustomersSegment Reporting (Topic 606)280): Improvements to Reportable Segment Disclosures” (“ASU 2014-09”2023-07”), which amends existing revenue recognition standardsexpands reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 requires disclosure of (i) significant segment expenses that are regularly provided to the CODM and establishes a new Accounting Standards Codification (“ASC”) Topic 606. The core principleincluded within the segment measure of this amendment is that an entity should recognize revenue to depict the transfer of promised goodsprofit or services to customers inloss, (ii) an amount that reflectsand description of its composition for other segment items to reconcile to segment profit or loss, and (iii) the considerationtitle and position of the Company’s CODM. The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to which the entity expects todetermine its reportable segments. The new standard will be entitled in exchangeeffective on a retrospective basis for these goods or services.fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company has concluded that it will have substantially similar performance obligations underis currently evaluating the segment disclosure impact of the amended guidance as compared with deliverables and units of account currently being recognized. Additionally, the Company has made policy elections within the amended standard that are consistent with its current accounting. The Company has evaluated the effect thatguidance; however, ASU 2014-09 will2023-07 is not expected to have an impact on its consolidated financial statements and related disclosures and controls. Based on its assessment, the Company has determined that the adoption of ASU 2014-09 will result in additional revenue recognition disclosures, and will have an immaterial impact on the timing of revenue recognition related to its incentive programs. The Company also evaluated other considerations within the guidance and concluded that there are no additional changes required with adopting ASU 2014-09. The Company will adopt ASU 2014-09 in the first quarter of 2018 using the modified retrospective transition method.statements.
In February 2016,December 2023, the FASB issued ASU 2016-02,2023-09, “LeasesIncome Taxes (Topic 842)740): Improvements to Income Tax Disclosures” (“(“ASU 2016-02”2023-09”), which amends. The amendments in ASU 2023-09 require public entities, on an annual basis, to provide disclosure of specific categories in the guidance for recognition, measurement, presentation and disclosuresrate reconciliation, as well as disclosure of lease arrangements and establishes a new ASC Topic 842. The amended standard will require recognition on the balance sheet for all leases with terms longer than 12 months as a lease liability and as a right-of-use asset. The lease liability is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and the right-of-use asset is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today.income taxes paid disaggregated by jurisdiction. The new standard requires lessors to accountwill be effective on a prospective basis for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leasesfiscal years beginning after December 15, 2024 and operating leases. ASU 2016-02 is effective for the Company commencing in the first quarter of fiscal year 2019.interim periods therein, with early adoption permitted. The Company is currently evaluating the amended guidance and does not expect the adoption to have a material impact on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. ASU 2016-13 will be effective for the Company commencing in the first quarter of fiscal year 2020. The guidance must be applied using a cumulative-effect transition method. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to provide clarification on cash flow classification related to eight specific issues including debt prepayment or debt extinguishment costs and contingent consideration payments made after a business combination. The guidance in ASU 2016-15 should be applied using a retrospective transition method to each period presented. ASU 2016-15 becomes effective for the Company in the first quarter of fiscal year 2018. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”(“ASU 2016-16”), which amends existing guidance to require entities to recognize income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-16 will be effective for the Company commencing in the
first quarter of fiscal year 2018 using a modified retrospective method. The Company is currently evaluating the impact of this amended guidance; however, the provisions of ASU 2016-16 are not expected to have a significant impact on the Company’s consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Transfers between cash and cash equivalents and restricted cash or restricted cash equivalents are not reported as cash flow activities in the statement of cash flows. ASU 2016-18 will be effective for the Company in the first quarter of fiscal year 2018, using a retrospective transition method. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. ASU 2017-01 provides a screen to determine when an integrated set of assets and activities (collectively a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, ASU 2017-01 requires that to be considered a business, a set must include an input and a substantive process that together significantly contribute to the ability to create output. ASU 2017-01 will be effective for the Company in the first quarter of fiscal year 2018, and should be applied prospectively. The Company is currently evaluating the amended guidance; however, the provisions of ASU 2017-01 are not expected to have a material impact on the Company's consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718) - Scope of Modification” (“ASU 2017-09”), which provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718 when there are changes to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 will be effective for the Company in the first quarter of fiscal year 2018 on a prospective basis. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures.
Note 2. Revenue from Contracts with Customers
The following table presents Net sales disaggregated by product category (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | For the year January 2, 2023 to December 31, 2023 | | For the year January 3, 2022 to January 1, 2023 | | For the year January 4, 2021 to January 2, 2022 |
Landscaping products(a) | | $ | 3,359.6 | | | $ | 3,059.6 | | | $ | 2,584.8 | |
Agronomic and other products(b) | | 941.6 | | | 954.9 | | | 890.9 | |
| | $ | 4,301.2 | | | $ | 4,014.5 | | | $ | 3,475.7 | |
______________(a) Landscaping products include irrigation supplies, hardscapes, landscape accessories, nursery goods, and outdoor lighting.
(b) Agronomic and other products include fertilizer, control products, ice melt, equipment, and other products.
Remaining Performance Obligations
Remaining performance obligations related to ASC Topic 606 represent the aggregate transaction price allocated to performance obligations with an original contract term greater than one year that are fully or partially unsatisfied at the end of the period. Remaining performance obligations include the outstanding points balance related to the customer loyalty rewards program. The program allows enrolled customers to earn loyalty rewards on purchases to be used on future purchases, to pay for annual customer trips hosted by the Company, or to obtain gift cards to other third-party retailers.
As of December 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $12.4 million. The Company expects to recognize revenue on the remaining performance obligations over the next 12 months.
Contract Balances
The timing of revenue recognition, billings, and cash collections results in billed accounts receivable, deferred revenue, and billings in excess of revenue recognized in the Company’s Consolidated Balance Sheets.
Contract Liabilities
As of December 31, 2023 and January 1, 2023, contract liabilities were $12.4 million and $10.5 million, respectively, and were included within Accrued liabilities in the accompanying Consolidated Balance Sheets. The increase in the contract liability balance during the year ended December 31, 2023 is primarily a result of cash payments received in advance of satisfying performance obligations, partially offset by $12.8 million of revenue recognized and the expiration of points related to the customer loyalty rewards program during the period.
Note 3. Acquisitions
From time to time theThe Company enters into strategic acquisitions in an effort to better service existing customers and to attainattract new customers. The Company made various acquisitions during the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016.2, 2022. The following acquisitions had an aggregate purchase price of approximately $83.1$195.7 million, $67.9$248.7 million, $104.0and $147.2 million, and deferred contingent consideration of $5.0$12.6 million, $0.0$17.4 million, and $0.0$4.8 million, for the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022, respectively. The aggregate assets acquired were $67.6$199.4 million, $67.4$196.6 million, and $99.9$108.6 million, aggregate liabilities assumed were $15.4$66.5 million, $21.9$32.3 million, and $32.5$15.5 million, and excess purchase price attributed to goodwill acquired were $35.9was $75.4 million, $22.4$101.8 million, and $36.6$58.9 million for the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022, respectively. The Company has completed the acquisition accounting for Triangle Landscape Supplies, Inc. and Hickory Hill Farm & Garden, LLC, each made during the 2023 Fiscal Year, as well as each acquisition made during the 20162022 Fiscal Year ended January 1, 2017 and the acquisitions of Aspen Valley Landscape Supply, Inc. in January 2017 and Stone Forest Materials, LLC in February 2017.2021 Fiscal Year. The Company recorded the preliminary acquisition accounting for the remaining acquisitions completed during the 20172023 Fiscal Year ended December 31, 2017 at their estimated fair values as of the respective acquisition dates.
•In October 2017,December 2023, the Company acquired the assets and assumed the liabilities of Harmony Gardens,Newsom Seed, Inc. (“Harmony Gardens”Newsom Seed”). With two locations in the metro Denver and Fort Collins, Colorado areas, Harmony GardensFulton, Maryland, Newsom Seed is a leading wholesale nursery distributor in the state.of seed and agronomic products to landscape professionals.
•In September 2017,August 2023, the Company acquired the assets and assumed the liabilities of Marshall Stone, Inc. and Davis Supply, LLC (collectively, “Marshall Stone”JMJ Organics LTD (“JMJ Organics”). With twofive locations in Greensboro, North Carolina and Roanoke, Virginia, Marshall StoneHouston, Texas, JMJ Organics is a market leader in the distributionwholesale distributor of natural stonelandscape supplies, nursery products, and hardscape materialshardscapes to landscape professionals.
•In August 2017,2023, the Company acquired the assets and assumed the liabilities of Bondaze Enterprises, Inc., a California corporation doing business as South Coast Supply (“South Coast Supply”Regal Chemical Company and Monarch Scientific, LLC (collectively, “Regal”). With two locationsone location in Orange County, California, South Coast SupplyAlpharetta, Georgia, Regal is a market leader in the distributionwholesale distributor of hardscape, natural stone and relatedagronomic products to landscape professionals.
•In August 2023, the Company acquired all of the outstanding stock of Pioneer Landscape Centers, Inc. and JLL Pioneer LLC (collectively, “Pioneer”). With 18 locations in Colorado and 16 locations in Arizona, Pioneer is a wholesale distributor of hardscapes and landscape supply products, including decorative rock, pavers, bulk materials, artificial turf, and supporting products to landscape professionals.
•In May 2017,August 2023, the Company acquired the assets and assumed the liabilities of Evergreen Partners of Raleigh,Timothy’s Center for Gardening, LLC Evergreen Partners of Myrtle Beach, LLC, and Evergreen Logistics, LLC (collectively, “Evergreen”(“Timothy’s”). With two locationsone location in Raleigh, North Carolina and Myrtle Beach, South Carolina, EvergreenRobbinsville, New Jersey, Timothy’s is a market leader in the distributionwholesale distributor of hardscapes, nursery suppliesproducts, and bulk materials to landscape professionals.
•In March 2017,August 2023, the Company acquired the assets and assumed the liabilities of Angelo’sNew England Silica, Inc. (“New England Silica”). With one location in South Windsor, Connecticut, New England Silica is a wholesale distributor of hardscapes to landscape professionals.
•In July 2023, the Company acquired the assets and assumed the liabilities of Hickory Hill Farm & Garden, LLC (“Hickory Hill”). With one location in Eatonton, Georgia, Hickory Hill is a wholesale distributor of irrigation, nursery, and landscape supplies to landscape professionals.
•In May 2023, the Company acquired the assets and assumed the liabilities of Link Inc., doing business as Link Outdoor Lighting Distributors (“Link”). With four locations in Altamonte Springs and Naples, Florida, Nashville, Tennessee, and Houston, Texas, Link is a wholesale distributor of landscape lighting products to landscape professionals.
•In May 2023, the Company acquired the assets and assumed the liabilities of Adams Wholesale Supply, Inc. (“Adams Wholesale Supply”). With three locations in the San Antonio, Houston, and Dallas, Texas markets, Adams Wholesale Supply is a wholesale distributor of landscape supplies and agronomic products to landscape professionals.
•In March 2023, the Company acquired the assets and assumed the liabilities of Triangle Landscape Supplies, Inc., Triangle Landscape Supplies of J.C., LLC, and Angelo’s WholesaleTriangle Landscape Supplies of Apex, Inc. (collectively, “Angelo’s”“Triangle”) with two. With four locations in Wixom and Farmington Hills, Michigan, both suburbs of Detroit. Angelo’sthe Raleigh-Durham, North Carolina market, Triangle is a hardscapewholesale distributor of hardscapes and landscape supply distributor, and has been a market leader since 1984.supplies to landscape professionals.
•In March 2017,2023, the Company acquired the assets and assumed the liabilities of J&J Materials Corp. (“J&J Materials”). With five locations in Rhode Island and Southeastern Massachusetts, J&J Materials is a wholesale distributor of hardscapes to landscape professionals.
•In December 2022, the Company acquired all of the outstanding stock of American Builders Supply,Whittlesey Landscape Supplies and Recycling, Inc. and MasonryClub, Inc. and subsidiary (collectively, “AB Supply”(“Whittlesey”) with 10. With seven locations in the greater Los Angeles, California area and two locations in Las Vegas, Nevada. AB SupplyAustin, Texas market, Whittlesey is a market leaderproducer and wholesale distributor of bulk landscape supplies and hardscapes to landscape professionals.
•In December 2022, the Company acquired the assets and assumed the liabilities of Telluride Natural Stone, Inc. (“Telluride Natural Stone”). With one location in the distributionPhoenix, Arizona, Telluride Natural Stone is a wholesale distributor of hardscape products and landscape supplies to landscape professionals.
•In October 2022, the Company acquired the assets and assumed the liabilities of Madison Block & Stone, LLC (“Madison Block & Stone”). With one location in Madison, Wisconsin, Madison Block & Stone is a wholesale distributor of natural stone, pavers, bulk materials, and relatedlandscape supplies to landscape professionals.
•In August 2022, the Company acquired the assets and assumed the liabilities of Kaknes Landscape Supply, Inc. (“Kaknes”). With one location in Naperville, Illinois, Kaknes is a wholesale distributor of nursery products to landscape professionals.
•In February 2017,August 2022, the Company acquired the assets and assumed the liabilities of Stone Forest Materials,Plus, LLC (“Stone Forest”Plus”) with one location. With three locations in Kennesaw, Georgia.Northeast Florida, Stone ForestPlus is a market leader in the distributionwholesale distributor of hardscape productslandscape supplies and hardscapes to landscape professionals.
•In January 2017,August 2022, the Company acquired the assets and assumed the liabilities of Aspen Valley Landscape Supply, Inc.JimStone Co. of Louisiana, LLC (“Aspen Valley”Jim Stone”) with. With three locations. Headquarteredlocations in Homer Glen, Illinois, Aspen ValleySouthern Louisiana, Jim Stone is a market leader in the distributionwholesale distributor of natural stone and other hardscapes andto landscape supplies in the Chicago Metropolitan Area.professionals.
•In December, 2016,August 2022, the Company acquired the assets and assumed the liabilities of East Haven Landscape ProductsLinzel Distributing Inc. (“East Haven”Linzel”). With one location in East Haven, Connecticut, East HavenHamilton, Ontario, Canada, Linzel is a leader in the distributionwholesale distributor of nursery, hardscapes,outdoor lighting and landscape supplies in that area.to landscape professionals.
•In November 2016,August 2022, the Company acquired the assets and assumed the liabilities of the landscape distribution businesses of Loma Vista Nursery, Inc., a leader in the distribution of nursery and hardscape products to landscape professionals with two locations serving customers in Missouri and Kansas.
In September 2016, the Company acquired the assets and assumed liabilities of Glen Allen NurseryCape Cod Stone & Garden Center,Masonry Supply, Inc. (“Glen Allen”Cape Cod Stone”). With one location in Richmond, VA, Glen Allen wasOrleans, Massachusetts, Cape Cod Stone is a leader in the distributionwholesale distributor of nursery productshardscapes to landscape professionals.
•In August 2016, the Company acquired the assets and assumed liabilities of Bissett Nursery Corp. and acquired all of the outstanding stock of Bissett Equipment Corp. (collectively, “Bissett”). Headquartered in Holtsville, NY, Bissett is a leader in the distribution of nursery, hardscapes, landscape supplies as well as equipment sales, rental and repairs to landscape professionals with three locations serving customers throughout the New York City metropolitan area.
In April 2016, the Company acquired the assets and assumed liabilities of Blue Max Materials, Inc., Blue Max Materials of Charleston, Inc., Blue Max Materials of Columbia, Inc. and Blue Max Materials of the Grand Strand, Inc., which together comprise Blue Max (“Blue Max”), a hardscapes and landscape supplier with five locations serving North Carolina and South Carolina.
In January 2016, the Company acquired all of the outstanding stock of Hydro-Scape Products, Inc. (“Hydro-Scape”), a leading provider of landscape products (irrigation, lighting, agronomic, outdoor living and hardscapes) with 17 locations serving customers throughout Southern California.
In January 2016, the Company acquired the outstanding stock of Hydro-Scape Products, Inc., which includes 17 locations serving Southern California. The acquisition creates a leading position for SiteOne in the Southern California irrigation and landscape accessories markets.
In August 2015,July 2022, the Company acquired the assets and assumed the liabilities of Tieco,River Valley Horticultural Products, Inc., which includes six branch locations serving Alabama and Florida with irrigation, lighting, pumpRiver Valley Equipment Rental and well products. The acquisition createsSales, LLC (collectively, “River Valley”). With one location in Little Rock, Arkansas, River Valley is a leading position for SiteOne in Alabamawholesale distributor of nursery products, hardscapes, and the Florida panhandle irrigation markets.landscape supplies to landscape professionals.
•In August 2015,July 2022, the Company acquired all of the outstanding stock of Green Resource,A&A Stepping Stone Manufacturing, Inc. (“A&A Stepping Stone”). With four locations in Sacramento, California, A&A Stepping Stone is a wholesale distributor of hardscapes and landscape supplies to landscape professionals.
•In June 2022, the Company acquired the assets and assumed the liabilities of Prescott Dirt, LLC which includes five branch(“Prescott Dirt”). With two locations serving Northin Prescott and South Carolina with chemicals,Prescott Valley, Arizona, Prescott Dirt is a wholesale distributor of landscape supplies to landscape professionals.
•In June 2022, the Company acquired the assets and assumed the liabilities of Yard Works, LLC (“Yard Works”). With 13 locations in Central Virginia, Yard Works is a wholesale distributor of bulk landscape supplies to landscape professionals.
•In June 2022, the Company acquired the assets and assumed the liabilities of Across the Pond, Inc. (“Across the Pond”). With one location in Huntsville, Alabama, Across the Pond is a wholesale distributor of hardscapes and bulk landscape supplies to landscape professionals.
•In April 2022, the Company acquired the assets and assumed the liabilities of Preferred Seed Company, Inc. (“Preferred Seed”). With one location in Buffalo, New York, Preferred Seed is a wholesale distributor of seed fertilizer and erosion control products. The acquisition createsagronomic products to landscape professionals.
•In April 2022, the Company acquired the assets and assumed the liabilities of RTSB Enterprises, Inc., doing business as Bellstone Masonry Supply (“Bellstone”). With one location in Fort Worth, Texas, Bellstone is a leading position for SiteOne in Northwholesale distributor of hardscapes and South Carolina across all of our product lines.landscape supplies to landscape professionals.
•In May 2015,March 2022, the Company acquired all of the outstanding stock of AMC Industries,J K Enterprise, Inc., which includes nine branchCulpeper Recycling Hauling LLC, Culpeper Recycling Transport LLC, Gateway Home & Garden Center, LLC, JK Enterprise Landscape Supply, Limited Liability Company, Madera Farm Transport, LLC, Saunders LS, LLC, and Tilden Farm Nursery, LLC, and also acquired the assets of Metro Landscape Supply, Limited and Culpeper Recycling, LLC (collectively, “JK Enterprise”). With six locations serving Texasin Northern Virginia and Oklahoma with irrigationone location in Maryland, JK Enterprise is a wholesale distributor of bulk and bagged mulches and soil, hardscapes, and nursery products to landscape professionals.
•In December 2021, the Company acquired the assets and domestic water systems. The acquisition createsassumed the liabilities of Bothe Trucking, Inc., doing business as Seffner Rock and Gravel (“Seffner”). With one location in Tampa, Florida, Seffner is a leading position for SiteOnewholesale distributor of natural stone, bulk aggregates, mulch, soil, and other landscape supplies to landscape professionals.
•In November 2021, the Company acquired the assets and assumed the liabilities of Semco Distributing, Inc. (“Semco”). With four locations in Ohio and Missouri, Semco is a wholesale distributor of natural stone and landscape supplies to landscape professionals.
•In August 2021, the Company acquired the assets and assumed the liabilities of Green Brothers Earth Works and Southern Landscape Supply (“Green Brothers”). With four locations in the South Texasgreater Atlanta, Georgia market, Green Brothers is a distributor of landscape supplies and Oklahoma irrigation markets.hardscapes to landscape professionals.
•In February 2015,May 2021, the Company acquired all of the outstanding stock of CLP SN Holdings,Rodvold Enterprises, Inc., doing business as Rock & Block Hardscape Supply (“Rock & Block”). With two locations in the parent companySan Diego, Southern Orange County and Inland Empire markets in California, Rock & Block is a distributor of Shemin Nurseries, which includes 30 branchhardscapes, masonry, and landscape supplies to landscape professionals.
•In April 2021, the Company acquired the assets and assumed the liabilities of Melrose Supply & Sales Corp (“Melrose”). With six locations supplying primarily nursery goods in 18 major metropolitan markets across 14throughout Florida, Melrose is a distributor of irrigation, lighting, and drainage products to landscape professionals.
states•In April 2021, the Company acquired all of the Eastern regionoutstanding stock of Timberwall Landscape & Masonry Products, Inc. (“Timberwall”). With one location in Victoria, Minnesota, Timberwall is a distributor of hardscapes and landscape supplies to landscape professionals.
•In April 2021, the United StatesCompany acquired the assets and Texas. The acquisition gives SiteOne a leading positionassumed the liabilities of Arizona Stone & Architectural Products and Solstice Stone (“Arizona Stone and Solstice”). With seven locations throughout Arizona and two locations in the distributionLas Vegas, Nevada market, Arizona Stone and Solstice is a distributor of hardscapes, natural stone, and landscape supplies to landscape professionals.
•In February 2021, the Company acquired the assets and assumed the liabilities of Lucky Landscape Supply, LLC (“Lucky Landscape Supply”). With one location in the greater Houston, Texas market, Lucky Landscape Supply is a distributor of nursery products in the Northeast, Southeast, Midwest and Texas regions.
to landscape professionals.
These transactions were accounted for by the acquisition method, and accordingly, the results of operations were included in the Company’s consolidated financial statements from their respective acquisition dates.
Shemin Acquisition Accounting:
The Shemin transaction has been accounted for as a business combination using the acquisition method of accounting, whereby the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. Transaction related costs incurred in connection with the Shemin acquisition were approximately $2.7 million. These level 3 fair value measurements have been determined based on assumptions that market participants would use in the pricing of the asset or liability. Independent third-party appraisers were engaged under the direction of management to perform valuation of certain tangible and intangible assets acquired and liabilities assumed.
The real and personal property was valued using the cost, market and income approaches. The income approach was utilized to estimate the fair value of the lease interests via the discounted cash flow methodology. Personal property was valued using the indirect method of the cost approach and the market approach. Using the indirect approach a reproduction cost of new personal property was determined from the historical cost.
Intangible assets separately valued in the transaction were customer relationships. Customer relationships were valued using the discounted cash flow method form of the income approach. After tax cash flow was discounted to present value using a 16.0% discount rate. Revenue growth was estimated based on long-term growth rates. Annual attrition was estimated at 10.0%.
The following table summarized the adjusted aggregate fair values of the assets acquired and liabilities assumed at the acquisition date of February 27, 2015 and subsequent adjustments. The estimate of the fair values of assets acquired and liabilities assumed is as follows (in millions):
|
| | | |
| Fair value of consideration transferred: | |
| Cash consideration | $ | 57.8 |
|
| Working capital adjustment | (0.1 | ) |
| Net consideration transferred | $ | 57.7 |
|
| | |
| Assets acquired, at fair market value: | |
| Cash and cash equivalents | $ | 2.3 |
|
| Accounts receivable | 5.7 |
|
| Inventory | 9.3 |
|
| Deferred tax assets | 3.5 |
|
| Prepaid expenses and other current assets | 2.2 |
|
| Total current assets | 23.0 |
|
| Property and equipment | 9.9 |
|
| Intangible assets | 27.2 |
|
| Other assets | 1.3 |
|
| Total assets | $ | 61.4 |
|
| | |
| Liabilities assumed, at fair market value: | |
| Accounts payable | $ | 6.1 |
|
| Accrued liabilities | 6.7 |
|
| Deferred tax liabilities | 12.0 |
|
| Total liabilities assumed | 24.8 |
|
| | |
| Identifiable net assets acquired | $ | 36.6 |
|
| Goodwill | 21.1 |
|
| Net assets acquired | $ | 57.7 |
|
Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed in the acquisition, and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The amount allocated to goodwill associated with the Shemin acquisition is primarily the result of anticipated synergies. None of the goodwill associated with this transaction will be deductible for income tax purposes.
On an unaudited pro forma basis, the following represents the consolidated results of the Company had the Company acquired Shemin as of December 29, 2014 (the first day of the Company’s fiscal year 2015):
|
| | | | |
| | | |
| (In millions, except for per share data) | | January 3, 2016 |
| Net sales | | $ | 1,459.1 |
|
| Net loss available to SiteOne common shareholders | | $ | (17.6 | ) |
| Net loss per share of common stock attributable to SiteOne - diluted | | $ | (1.24 | ) |
The Company began consolidating the results of operations effective February 28, 2015. The acquisition added $130.6 million of net sales and $2.8 million of net income for the fiscal year ended January 1, 2017.
Note 3.4. Property and Equipment, Net
Property and equipment consisted of the following (in millions):
| | | | | | | | | | | | | | | | |
| | | | December 31, 2023 | | January 1, 2023 |
| Land | | | | $ | 13.2 | | | $ | 13.2 | |
| Buildings and leasehold improvements: | | | | | | |
| Buildings | | | | 8.4 | | | 8.1 | |
| Leasehold improvements | | | | 55.7 | | | 46.2 | |
| Branch equipment | | | | 121.5 | | | 114.7 | |
| Office furniture and fixtures and vehicles: | | | | | | |
| Office furniture and fixtures | | | | 30.4 | | | 28.2 | |
| Vehicles | | | | 77.5 | | | 43.2 | |
| Finance lease right-of-use assets | | | | 151.0 | | | 103.1 | |
| Mineral rights | | | | 2.2 | | | — | |
| Tooling | | | | — | | | 0.1 | |
| Construction in process | | | | 14.0 | | | 7.7 | |
| Total Property and equipment, gross | | | | 473.9 | | | 364.5 | |
| Less: accumulated depreciation and amortization | | | | 224.5 | | | 175.7 | |
| Total Property and equipment, net | | | | $ | 249.4 | | | $ | 188.8 | |
|
| | | | | | | | |
| | | December 31, 2017 | | January 1, 2017 |
| Land | | $ | 14.5 |
| | $ | 14.5 |
|
| Buildings and leasehold improvements: | | | | |
| Buildings | | 8.6 |
| | 8.6 |
|
| Leasehold improvements | | 17.0 |
| | 14.0 |
|
| Branch equipment | | 24.8 |
| | 17.6 |
|
| Office furniture and fixtures and vehicles: | | | | |
| Office furniture and fixtures | | 14.6 |
| | 11.1 |
|
| Vehicles | | 44.2 |
| | 36.1 |
|
| Tooling | | 0.1 |
| | 1.0 |
|
| Construction in process | | 3.0 |
| | 3.3 |
|
| Total Property and equipment, gross | | 126.8 |
| | 106.2 |
|
| Less: accumulated depreciation | | 51.3 |
| | 36.4 |
|
| Total Property and equipment, net | | $ | 75.5 |
| | $ | 69.8 |
|
PropertyAmortization of finance ROU assets and equipment includes vehicles under capital lease of approximately $35.2depreciation expense was $64.1 million, $51.6 million, and $29.4 million and related accumulated depreciation of approximately $20.1 million and $13.7 million as of December 31, 2017 and January 1, 2017, respectively.
Depreciation expense was approximately $17.6 million, $14.2 million and $12.8$36.2 million for the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 20162, 2022, respectively.
Capitalized software has an estimated useful life of three years. The amounts of total capitalized software costs, including purchased and internally developed software, included in Other assets at December 31, 20172023 and January 1, 20172023 were approximately $7.7$19.7 million and $3.6$10.8 million, less accumulated amortization of approximately $3.5$11.1 million and $1.9$10.2 million, respectively. Amortization of these software costs was approximately $1.6$1.0 million, $1.1$1.4 million, and $0.6$1.8 million for the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022, respectively.
Note 4.5. Goodwill and Intangible Assets, Net
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 20172023 and January 1, 20172023 are as follows (in millions):
70 | | | | | | | | | | | | | | |
| | | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 |
| Beginning balance | | $ | 411.9 | | | $ | 311.1 | |
| Goodwill acquired during the year | | 75.4 | | | 101.8 | |
| Goodwill adjusted during the year | | (1.8) | | | (1.0) | |
| Ending balance | | $ | 485.5 | | | $ | 411.9 | |
Additions to goodwill during the years ended December 31, 2023 and January 1, 2023 related to the acquisitions during the 2023 Fiscal Year and the 2022 Fiscal Year as described in “Table of ContentsNote 3
|
| | | | | | | | |
| | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 |
| Beginning balance | | $ | 70.8 |
| | $ | 48.0 |
|
| Goodwill acquired during the year | | 35.9 |
| | 22.4 |
|
| Goodwill adjusted during the year | | (0.2 | ) | | 0.4 |
|
| Ending balance | | $ | 106.5 |
| | $ | 70.8 |
|
. Acquisitions.” There have been no impairments of ourthe Company’s goodwill for the years ended December 31, 2017,2023 and January 1, 2017 and January 3, 2016.2023.
Intangible Assets
The following table summarizes the components of intangible assets (in millions)millions, except weighted average remaining useful life):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2023 | | January 1, 2023 |
| | | Weighted Average Remaining Useful Life | | Amount | | Accumulated
Amortization | | Net | | Amount | | Accumulated
Amortization | | Net |
| Customer relationships | | 17.0 years | | $ | 551.8 | | | $ | 295.7 | | | $ | 256.1 | | | $ | 490.5 | | | $ | 241.2 | | | $ | 249.3 | |
| Trademarks and other | | 3.4 years | | 49.5 | | | 24.8 | | | 24.7 | | | 47.9 | | | 21.2 | | | 26.7 | |
| Total intangibles | | | | $ | 601.3 | | | $ | 320.5 | | | $ | 280.8 | | | $ | 538.4 | | | $ | 262.4 | | | $ | 276.0 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2017 | | January 1, 2017 |
| | | Weighted Average Remaining Useful Life (in Years) | | Amount | | Accumulated
Amortization | | Net | | Amount | | Accumulated
Amortization | | Net |
| Customer relationships | | 17.4 years | | $ | 178.5 |
| | $ | 70.2 |
| | $ | 108.3 |
| | $ | 147.7 |
| | $ | 47.5 |
| | $ | 100.2 |
|
| Trademarks and other | | 4.5 years | | 7.7 |
| | 3.2 |
| | $ | 4.5 |
| | 5.0 |
| | 1.9 |
| | 3.1 |
|
| Total intangibles | | | | $ | 186.2 |
| | $ | 73.4 |
| | $ | 112.8 |
| | $ | 152.7 |
| | $ | 49.4 |
| | $ | 103.3 |
|
During the year ended December 31, 2017,2023, the Company recorded $33.5$67.7 million of intangible assets, including $30.8$61.3 million in customerCustomer relationship intangibles and $2.7$6.4 million in trademarksTrademarks and other intangibles. The change in Customer relationship intangibles and Trademarks and other intangibles included additions of $58.4 million and $7.4 million, respectively, as a result of the eight business acquisitions discussedcompleted in 2023 as described in “Note 2.3. Acquisitions.” Updates of purchase price allocations related to prior year acquisitions during the allowable measurement period and currency translation adjustments of Customer relationship intangibles and Trademarks and other intangibles, net were $2.9 million and $(1.0) million, respectively. During the year ended January 1, 2023, the Company recorded $112.5 million of intangible assets, including $95.7 million in Customer relationship intangibles and $16.8 million in Trademarks and other intangibles. The customerchange in Customer relationship intangibles and Trademarks and other intangibles included additions of $95.8 million and $15.4 million, respectively, as a result of the acquisitions completed in 2022 as described in “Note 3. Acquisitions.” Updates of purchase price allocations related to prior year acquisitions during the allowable measurement period and currency translation adjustments of Customer relationship intangibles and Trademarks and other intangibles, net were $(0.1) million and $1.4 million, respectively. The Customer relationship intangible assets will beare amortized over a weighted-average period of approximately 20 years. The trademarksTrademarks and other intangible assets recorded will beare amortized over a weighted-average period of sevenapproximately five years.
During the year ended January 1, 2017, the Company recorded $20.6 million of intangible assets, including $20.0 million in customer relationship intangibles and $0.6 million in trademarks and other as a result of six business acquisitions discussed in Note 2.
Amortization expense for intangible assets for the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 20162, 2022 was approximately $23.9$62.6 million, $21.7$50.8 million, and $17.9$45.0 million, respectively.
Total future amortization estimated as of December 31, 2017,2023, is as follows (in millions):
| | | | | |
| Fiscal year ending: | |
| 2024 | $ | 56.6 | |
| 2025 | 46.8 | |
| 2026 | 38.3 | |
| 2027 | 30.0 | |
| 2028 | 22.8 | |
| Thereafter | 86.3 | |
| Total future amortization | $ | 280.8 | |
|
| | | |
| Fiscal year ending: | |
| 2018 | $ | 22.0 |
|
| 2019 | 17.8 |
|
| 2020 | 14.7 |
|
| 2021 | 12.1 |
|
| 2022 | 9.9 |
|
| Thereafter | 36.3 |
|
| Total future amortization | $ | 112.8 |
|
Note 5. Capital Leases
Capital leases, consisting of vehicle leases, included the following (in millions except payment information):
Note 6. Leases
|
| | | | | | | | |
| | | December 31, 2017 | | January 1, 2017 |
| Capital lease obligations with rates ranging from 2.0% to 4.0% maturing through October 2022; with current monthly payments of approximately $0.5 million | | $ | 11.7 |
| | $ | 11.0 |
|
| Less current maturities | | 4.9 |
| | 4.3 |
|
| Total Capital leases, less current portion | | $ | 6.8 |
| | $ | 6.7 |
|
Future minimumThe components of lease payments under capital leases are dueexpense were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lease cost | | Classification | | For the year January 2, 2023 to December 31, 2023 | | For the year January 3, 2022 to January 1, 2023 | | For the year January 4, 2021 to January 2, 2022 |
| Finance lease cost: | | | | | | | | |
| Amortization of right-of-use assets | | Selling, general and administrative expenses | | $ | 19.9 | | | $ | 13.2 | | | $ | 10.8 | |
| Interest on lease liabilities | | Interest and other non-operating expenses, net | | 4.0 | | | 2.0 | | | 1.5 | |
| Operating lease cost | | Cost of goods sold | | 8.2 | | | 5.7 | | | 3.7 | |
| Operating lease cost | | Selling, general and administrative expenses | | 87.7 | | | 76.2 | | | 70.4 | |
| Short-term lease cost | | Selling, general and administrative expenses | | 3.3 | | | 2.1 | | | 1.5 | |
| Variable lease cost | | Selling, general and administrative expenses | | 1.9 | | | 1.4 | | | 0.9 | |
| Sublease income | | Selling, general and administrative expenses | | (0.9) | | | (1.1) | | | (1.1) | |
| Total lease cost | | | | $ | 124.1 | | | $ | 99.5 | | | $ | 87.7 | |
|
| | | |
| Fiscal year: | |
| 2018 | $ | 5.3 |
|
| 2019 | 3.1 |
|
| 2020 | 2.1 |
|
| 2021 | 1.6 |
|
| 2022 and Thereafter | 0.3 |
|
| Total minimum lease payments | 12.4 |
|
| Less amounts representing interest | 0.7 |
|
| Present value of future minimum lease payments | $ | 11.7 |
|
Interest expense on capitalSupplemental cash flow information related to leases was approximately $0.5 million, $0.4 millionas follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| Other information | | For the year January 2, 2023 to December 31, 2023 | | For the year January 3, 2022 to January 1, 2023 | | For the year January 4, 2021 to January 2, 2022 |
| Cash paid for amounts included in the measurements of lease liabilities: | | | | | | |
| Operating cash flows from finance leases | | $ | 4.0 | | | $ | 2.0 | | | $ | 1.5 | |
| Operating cash flows from operating leases | | $ | 96.0 | | | $ | 81.5 | | | $ | 72.5 | |
| Financing cash flows from finance leases | | $ | 18.5 | | | $ | 12.6 | | | $ | 10.4 | |
| Right-of-use assets obtained in exchange for new lease liabilities: | | | | | | |
| Finance leases | | $ | 51.4 | | | $ | 26.0 | | | $ | 14.2 | |
| Operating leases | | $ | 114.8 | | | $ | 86.7 | | | $ | 94.9 | |
The aggregate future lease payments for operating and $0.5 million for the years endedfinance leases as of December 31, 2017, January 1, 2017 and January 3, 2016, respectively.2023 were as follows (in millions):
| | | | | | | | | | | | | | |
| Maturity of Lease Liabilities | | Operating Leases | | Finance Leases |
| Fiscal year: | | | | |
| 2024 | | $ | 93.6 | | | $ | 26.6 | |
| 2025 | | 86.0 | | | 23.5 | |
| 2026 | | 70.2 | | | 20.4 | |
| 2027 | | 56.6 | | | 16.6 | |
| 2028 | | 44.4 | | | 12.9 | |
| Thereafter | | 121.1 | | | 4.9 | |
| Total lease payments | | 471.9 | | | 104.9 | |
| Less: interest | | 75.0 | | | 13.3 | |
| Present value of lease liabilities | | $ | 396.9 | | | $ | 91.6 | |
The weighted-average lease terms and discount rates were as follows:
| | | | | | | | | | | | | | |
| Lease Term and Discount Rate | | December 31, 2023 | | January 1, 2023 |
| Weighted-average remaining lease term: | | | | |
| Finance leases | | 4.5 years | | 4.3 years |
| Operating leases | | 6.3 years | | 6.5 years |
| Weighted-average discount rate: | | | | |
| Finance leases | | 6.0 | % | | 4.7 | % |
| Operating leases | | 5.1 | % | | 4.7 | % |
Note 6.7. Employee Benefit and Stock Incentive Plans
The Company sponsors a defined contribution benefit plan for substantially all of its employees. Company contributions to the plan are based on a percentage of employee wages. The Company’s contributions to the plan were approximately $6.4$16.5 million, $5.7$14.5 million, and $4.2$11.4 million for the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022, respectively.
Prior to the adoption of theThe Company’s Omnibus Equity Incentive Plan (the “Omnibus Incentive Plan”), as described below, the Company offered to key employees the ability to purchase common shares of the Company under a stock incentive plan (“Stock Incentive“2016 Plan”), which commenced in May 2014 as approved by the stockholders. Common stock options (“options”) were granted with the purchased shares at a predetermined number of options per purchased share. Prior to a public offering these shares were not transferrable except upon the employee’s death, repurchase at the option of the Company, or with the Company’s consent. The Stock Incentive Plan provided for drag-along and tag-along rights if the stockholders sold more than 50.01% of their shares prior to a public offering. As of the date of IPO, 762,079 shares were purchased by employees and outstanding under the Stock Incentive Plan. For the years ended December 31, 2017 and January 1, 2017 respectively, 0 shares and 11,036 shares were repurchased from certain terminated employees by the Company. The Company’s policy was to retain these repurchased shares as treasury shares and not to retire them.
The Company adopted the Omnibus Incentive Planbecame effective on April 28, 2016, in connection withprovided for the IPO. Upon the adoptiongrant of the Omnibus Incentive Plan, the Stock Incentive Plan terminated and no additional awards were made thereunder. However, awards previously granted under the Stock Incentive Plan were unaffected by the termination of the Stock Incentive Plan. Awards under the Omnibus Incentive Plan may be made in the form of stock options whichthat may be either incentive stock options or non-qualified stock options; stock purchase rights; restricted stock; restricted stock units (“RSUs”); performance shares; performance units;stock units (“PSUs”); stock appreciation rights (“SARs”);rights; dividend equivalents; deferred stock units (“DSUs”); andor other stock-based awards. The Company also has outstanding stock-based awards under its stock incentive plan (“Stock Incentive Plan”), which commenced in May 2014 and terminated upon adoption of the 2016 Plan. However, awards previously granted under the Stock Incentive Plan were unaffected by the termination of the Stock Incentive Plan.
At the 2020 Annual Meeting of Stockholders of the Company on May 13, 2020 (the “Effective Date”), the Company’s stockholders approved the Company’s 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), which replaced the 2016 Plan. The 2020 Plan reserves 2,155,280 shares of the Company’s common stock for issuance under the 2020 Plan, consisting of 1,600,000 new shares plus 555,280 shares that were previously authorized for issuance under the 2016 Plan and that, as of the Effective Date, were not subject to outstanding awards. No further grants of awards will be made under the 2016 Plan; however, outstanding awards granted under the 2016 Plan will remain outstanding and will continue to be administered in accordance with the terms of the 2016 Plan and the applicable award agreements. Any shares covered by an award, or any portion thereof, granted under the Omnibus Incentive2020 Plan, 2016 Plan, or Stock Incentive Plan that terminates, is forfeited, is repurchased, expires, or lapses for any reason will again be available for the grant of awards. Additionally, any shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligations pursuant to any award under the Omnibus2020 Plan, 2016 Plan, or Stock Incentive Plan will again be available for issuance. The aggregate number of shares that may be issued under the 2020 Plan is 2,155,280 shares, of which 2,006,912 remain available as of December 31, 2023.
The Company granted 400,415 options, 19,346 DSUs and 49,323 RSUs; in addition, 53,732
Stock options and RSUs were forfeited during the year ended December 31, 2017; and, the Company granted 223,970 options, 26,020 DSUs and 18,973 RSUs; in addition, 17,427 options were forfeited during the year ended January 1, 2017 under the Omnibus Incentive Plan. The RSUs and options granted to employees vest over a four-year period at 25 percent25% per year. The DSUs granted to non-employee directors vest immediately. Options and RSUsStock options expire ten years after the date of grant. The compensation cost forPSUs granted to employees vest upon the achievement of the performance conditions, over a three-year period, measured by the growth of the Company’s pre-tax income plus amortization relative to a select peer group, subject to adjustment based upon the application of a return on invested capital modifier.
RSUs granted to non-employee directors vest at the earlier of the day preceding the next annual meeting of stockholders of the Company at which directors are elected or the first anniversary of the grant date, in each case, subject to the participant’s continued service as a director or other service provider (as applicable) from the grant date through such vesting date. Vested RSUs granted to non-employee directors settle into the Company’s common stock at the earlier to occur of the vesting date, termination of the director’s service on the Company’s Board of Directors, or until a change of control of the Company. Settlement may also be deferred at the director’s election until a specified date after the vesting date. DSUs granted to non-employee directors vest immediately but settlement is deferred until termination of the director’s service on the Company’s Board of Directors or until a change of control of the Company.
In February 2023, the Company’s Human Resources and Compensation Committee approved amendments to the applicable equity award agreements governing the terms of the stock options, RSUs, and PSUs granted under the 2020 Plan. Pursuant to such amendments, all unvested stock options and RSUs is recognized on a straight-line basis overgranted to an associate after the requisite vesting period. The aggregate numbereffective date of shares which may be issuedthe amendments under an applicable award agreement, as amended, will fully vest following the Omnibus Incentive Plan is 2,000,000 sharesend of which 1,334,749 remain astheir employment, generally in four equal annual installments and expire in 10 years from date of December 31, 2017.
The estimated grant-date fair value ofgrant for stock options, was calculated usingif such associate’s combined age (minimum of 55 years of age) and completed years of employment with the Black-Scholes option-pricing model, basedCompany (minimum of five years of service) equals 65 or more (the “Rule of 65”). The amendments did not alter any equity award agreements outstanding on the following weighted-average assumptions:
|
| | | | | | |
| | | December 31, 2017 | | January 1, 2017 | | January 3, 2016 |
| Risk-free interest rate | | 2.11% | | 1.43% | | 1.87% |
| Expected dividends | | — | | — | | — |
| Expected volatility | | 30% | | 30% | | 36% |
| Expected term (in years) | | 6.25 | | 6.25 | | 6.50 |
Prioror prior to the Company’s IPO, determiningeffective date or the fair valuepro-rated vesting schedule with respect to PSUs, other than to change the definition of retirement to reflect the sharesRule of common stock underlying stock options was historically based upon a valuation provided by a third-party valuation specialist. The Company’s approach to valuation, which required making complex and subjective judgments, was based on a combination of a discounted cash flow method of income approach and market approaches. The discounted cash flow method used estimates of revenue, driven by assumed market growth rates, and estimated costs as well as appropriate discount rates. These estimates were consistent with the plans and estimates that were used to manage the business. There was inherent uncertainty in making these estimates. Subsequent to the completion of the IPO, the Company uses the market closing price of its common stock as reported on the New York Stock Exchange to determine the fair value of the shares of common stock underlying stock options.65.
The fair value of each stock option award wasis estimated on the date of grant using the Black-Scholes optionsoption pricing model. ExpectedSince the start of fiscal year 2023, expected volatilities are based on the historical volatility of the Company’s common stock. Prior to fiscal year 2023, expected volatilities were based on the historical equity volatility of comparable publicly-tradedpublicly traded companies. The change in estimate was due to the length of time the Company’s common stock had been publicly traded, which exceeded the expected term of the stock options at the start of fiscal year 2023. The expected term of stock options granted is derived from the output of the option valuation model and represents the period of time that stock options granted are expected to be outstanding. The
risk-free rates utilized for periods throughout the contractual life of the stock options are based on the U.S. Treasury security yields at the time of grant. The DSUs, RSUs, and RSUsPSUs have grant date fair values equal to the fair market value of the underlying stock on the date of grant. Share-based compensation expense is recognized in the financial statements based upon fair value on the date of grant. The compensation costs for stock options and RSUs are recognized on a straight-line basis over the requisite vesting periods. The Company recognizes compensation expense for PSUs when it is probable that the performance conditions will be achieved. The Company reassesses the probability of vesting at each reporting period and adjusts its compensation cost accordingly.
The estimated grant-date fair value of stock options is calculated using the Black-Scholes option pricing model, based on the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | January 1, 2023 | | January 2, 2022 |
| Risk-free interest rate | | 3.82% | | 2.26% | | 0.70% |
| Expected dividends | | — | | — | | — |
| Expected volatility | | 43.5% | | 28.0% | | 28.0% |
| Expected term | | 6.25 years | | 6.25 years | | 6.25 years |
The following table summarizes the information about stock options as of and for the years ended December 31, 20172023 and January 1, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of
Shares
(in thousands) | | Weighted
Average
Exercise
Price | | Weighted Average
Remaining
Contractual Term | | Aggregate
Intrinsic Value
(in millions) |
| Outstanding as of January 2, 2022 | | 1,193.3 | | | $ | 48.09 | | | 5.2 years | | $ | 231.7 | |
| Granted | | 77.1 | | | 169.27 | | | | | |
| Exercised | | (284.9) | | | 12.45 | | | | | |
| Expired or forfeited | | (13.6) | | | 136.29 | | | | | |
| Outstanding as of January 1, 2023 | | 971.9 | | | $ | 66.91 | | | 5.2 years | | $ | 56.0 | |
| Granted | | 56.6 | | | 149.42 | | | | | |
| Exercised | | (185.3) | | | 28.30 | | | | | |
| Expired or forfeited | | (6.2) | | | 151.46 | | | | | |
| Outstanding as of December 31, 2023 | | 837.0 | | | $ | 80.40 | | | 5.0 years | | $ | 70.0 | |
Exercisable as of December 31, 2023(a) | | 667.5 | | | $ | 62.66 | | | 4.3 years | | $ | 67.0 | |
| Unvested and expected to vest after December 31, 2023 | | 169.5 | | | $ | 150.27 | | | 7.9 years | | $ | 3.0 | |
|
| | | | | | | | | | | | | |
| | | Number of
Shares
(in thousands) | | Weighted
Average
Exercise
Price | | Weighted Average
Remaining
Contractual Term
(Years) | | Aggregate
Intrinsic Value
(in millions) |
| Outstanding as of January 4, 2016 | | 3,060.2 |
| | $ | 10.05 |
| | 8.74 | | |
| Granted | | 224.0 |
| | 27.54 |
| | | | |
| Exercised | | (34.4 | ) | | 6.57 |
| | | | |
| Expired or forfeited | | (87.2 | ) | | 7.47 |
| | | | |
| Outstanding as of January 1, 2017 | | 3,162.6 |
| | $ | 7.98 |
| | 7.86 | | $ | 84.6 |
|
| Granted | | 400.4 |
| | 40.28 |
| | | | |
| Exercised | | (355.8 | ) | | 7.52 |
| | | | |
| Expired or forfeited | | (53.3 | ) | | 11.83 |
| | | | |
| Outstanding as of December 31, 2017 | | 3,153.9 |
| | $ | 12.07 |
| | 7.13 | | $ | 203.8 |
|
| Exercisable as of December 31, 2017 | | 1,655.3 |
| | 6.50 |
| | 6.63 | | 116.2 |
|
| Unvested and expected to vest after December 31, 2017 | | 1,498.6 |
| | $ | 18.22 |
| | 7.67 | | $ | 87.6 |
|
(a) Does not include 21.3 thousand stock options granted to retirement eligible associates under the Rule of 65. While these shares immediately vested, they are not exercisable.
The weighted-average grant-date fair values of optionsfollowing table summarizes other stock-based compensation award activities for the year ended December 31, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | RSUs | | DSUs | | PSUs |
| Outstanding as of January 1, 2023 | | 205.3 | | | 52.0 | | | 52.2 | |
Granted(a) | | 124.1 | | | 2.7 | | | 42.9 | |
Exercised/Vested/Settled(a)(b) | | (80.0) | | | — | | | (32.0) | |
| Expired or forfeited | | (9.9) | | | — | | | (0.6) | |
| Outstanding as of December 31, 2023 | | 239.5 | | | 54.7 | | | 62.5 | |
______________
(a) Includes 16.0 thousand PSUs granted and settled during the year ended December 31, 2017 was $13.70 per option.2023 at greater than 100% of their original grant amount.
(b) Does not include 19.0 thousand RSUs granted to retirement eligible associates under the Rule of 65. While these shares immediately vested, they have not been settled.
The total stock optionweighted average grant date fair value of awards granted were as follows:
| | | | | | | | | | | |
| December 31, 2023 | | January 1, 2023 |
| Stock options | $ | 72.27 | | | $ | 54.91 | |
| RSUs | $ | 148.78 | | | $ | 164.36 | |
| DSUs | $ | 148.09 | | | $ | 120.12 | |
PSUs(a) | $ | 148.89 | | | $ | 143.86 | |
______________
(a) Includes PSUs granted and DSUsettled during the years ended December 31, 2023 and January 1, 2023 at greater than 100% of their original grant amount.
A summary of stock-based compensation expenses recognized during the periods was as follows (in millions):
| | | | | | | | | | | | | | | | | |
| For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 |
Stock options(a) | $ | 4.7 | | | $ | 3.7 | | | $ | 4.0 | |
RSUs(a) | 15.1 | | | 9.6 | | | 6.4 | |
| DSUs | 0.4 | | | 0.7 | | | 0.6 | |
| PSUs | 5.5 | | | 4.3 | | | 3.3 | |
| Total stock-based compensation | $ | 25.7 | | | $ | 18.3 | | | $ | 14.3 | |
______________
(a) Stock-based compensation expense was $5.4 million for the year ended December 31, 2017 and $5.22023 included accelerated expense related to retirement eligible associates under the Rule of 65. These amounts on a net expense basis included $1.2 million for the year ended January 1, 2017. There were $9.4 million and $8.4 million of unrecognized compensation cost fromrelated to stock options and DSUs granted under the plan at December 31, 2017 and January 1, 2017, respectively. The$2.2 million related to RSUs.
A summary of unrecognized option and DSU relatedstock-based compensation is expected to be recognized over a weighted-average period of approximately 2.39 years.
The following table summarizes the information about RSUs as of and for the years ended December 31, 2017 and January 1, 2017:
|
| | | | | | | |
| | | Number of
Shares
(in thousands) | | Weighted Average
Grant Date Fair Value |
| Outstanding as of January 1, 2017 | | 19.0 |
| | $ | 27.40 |
|
| Granted | | 49.3 |
| | 40.35 |
|
| Vested | | (4.7 | ) | | 27.41 |
|
| Expired or forfeited | | (0.4 | ) | | 38.73 |
|
| Outstanding as of December 31, 2017 | | 63.2 |
| | $ | 37.45 |
|
The total RSU expense was $0.5 million for the year ended December 31, 2017 and $0.1 million for the year ended January 1, 2017. There were $1.9 million and $0.4 millionas follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | January 1, 2023 |
| Unrecognized Compensation
(in millions) | | Weighted Average
Remaining Period | | Unrecognized Compensation
(in millions) | | Weighted Average
Remaining Period |
| Stock options | $ | 4.9 | | | 2.3 years | | $ | 5.6 | | | 2.5 years |
| RSUs | $ | 23.7 | | | 2.5 years | | $ | 21.7 | | | 2.7 years |
| DSUs | $ | 0.2 | | | 0.9 years | | $ | 0.1 | | | 0.9 years |
| PSUs | $ | 3.9 | | | 1.7 years | | $ | 3.3 | | | 1.7 years |
Note 7.8. Long-Term Debt
Long-term debt was as follows (in millions):
| | | | | | | | | | | | | | |
| | December 31, 2023 | | January 1, 2023 |
| ABL facility | | $ | 7.5 | | | $ | 100.0 | |
| Term loans | | 369.6 | | | 252.8 | |
| Hybrid debt instruments | | 1.9 | | | 3.3 | |
| Total gross long-term debt | | 379.0 | | | 356.1 | |
| Less: unamortized debt issuance costs and discounts on debt | | (6.1) | | | (5.5) | |
| Total debt | | $ | 372.9 | | | $ | 350.6 | |
| Less: current portion | | (5.3) | | | (4.0) | |
| Total long-term debt | | $ | 367.6 | | | $ | 346.6 | |
|
| | | | | | | | |
| | | December 31, 2017 | | January 1, 2017 |
| ABL facility | | $ | 127.0 |
| | $ | 91.0 |
|
| Term loan facility | | 349.1 |
| | 297.9 |
|
| Total gross long-term debt | | 476.1 |
| | 388.9 |
|
| Less: unamortized debt issuance costs and discounts on debt | | (12.5 | ) | | (13.4 | ) |
| Total debt | | $ | 463.6 |
| | $ | 375.5 |
|
| Less: current portion | | (3.5 | ) | | (3.0 | ) |
| Total long-term debt | | $ | 460.1 |
| | $ | 372.5 |
|
ABL Facility:Facility
SiteOne Landscape Supply Holding, LLC (“Landscape Holding”) and SiteOne Landscape Supply, LLC (“Landscape,”Landscape” and together with Landscape Holding, the “Borrowers”), each an indirect wholly-owned subsidiary of the Company, entered into an amendedare parties to the credit agreement during 2015 (such agreement, asdated December 23, 2013 (as amended by the First Amendment to the Credit Agreement, dated June 13, 2014, the Second Amendment to the Credit Agreement, dated January 26, 2015, the Third Amendment to the Credit Agreement, dated February 13, 2015, and the Fourth Amendment to the Credit Agreement, dated October 20, 2015, the Omnibus Amendment to the Credit Agreement, dated May 24, 2017, the Sixth Amendment to the Credit Agreement, dated February 1, 2019, and the Seventh Amendment to the Credit Agreement, dated July 22, 2022, the “ABL Credit Agreement”) providing for an asset-based credit facility (the “ABL Facility”) of up to $325.0$600.0 million, subject to borrowing base availability. The final maturity date of the ABL Facility is October 20, 2020. The ABL Facility is secured by a first lien on the inventory and receivables of the Borrowers. The ABL Facility is guaranteed by SiteOne Landscape Supply Bidco, Inc. (“Bidco”), an indirect wholly-owned subsidiary of the Company, and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape. The availability under the ABL Facility was $162.0$578.2 million and $164.5$487.4 million as of December 31, 20172023 and January 1, 2017,2023, respectively. Availability is determined using borrowing base calculations of eligible inventory and receivable balances less the current outstanding ABL Facility and letters of credit balances.
On May 24, 2017,July 22, 2022, the Company, through its subsidiaries, entered into the OmnibusSeventh Amendment to the ABL Credit Agreement (the “Omnibus“Seventh Amendment”) which amends, among other things,. The Seventh Amendment amended and restated the ABL Credit Agreement in order to, among other things, update certain provisions relating(i) increase the aggregate principal amount of the commitments to secured cash management$600.0 million, (ii) extend the final scheduled maturity of the revolving credit facility to July 22, 2027, (iii) establish an alternate rate of interest to the LIBOR rate, (iv) replace the administrative and hedging obligations.collateral agent, and (v) make such other changes as agreed among the Borrowers and the lenders. Proceeds of the initial borrowings under the ABL Credit Agreement on the closing date of the Seventh Amendment were used, among other things, (i) to repay in full the loans outstanding under the ABL Credit Agreement immediately prior to the effectiveness of the Seventh Amendment, (ii) to pay fees and expenses related to the Seventh Amendment and the ABL Credit Agreement, and (iii) for working capital and other general corporate purposes.
Loans under the ABL Credit Agreement bear interest, at Landscape Holding’s option, at either (i) an adjusted term SOFR rate equal to term SOFR plus 0.10% (subject to a floor of 0.00%) plus an applicable margin of 1.25% or 1.50% or (ii) an alternate base rate plus an applicable margin of 0.25% or 0.50%, in each case depending on the average daily excess availability under the ABL Credit Agreement, and in each case subject to a 0.125% reduction when the Consolidated First Lien Leverage Ratio (as defined in the ABL Credit Agreement) is less than 1.50:1.00. Additionally, undrawn commitments under the ABL Credit Agreement bear a commitment fee of 0.20% or 0.25%, depending on the average daily undrawn portion of the commitments under the ABL Credit Agreement.
The interest rate on outstanding balances under the ABL Facility is LIBOR plus an applicable margin ranging from 1.25% to 2.00% or an alternate base rate for U.S. denominated borrowings plus an applicable margin ranging from 0.25% to 1.00%. The interest rates on outstanding balances range from 3.25% to 3.32% and 2.49% to 4.50%was 6.69508% as of December 31, 20172023 and ranged from 5.68561% to 5.77336% as of January 1, 2017, respectively. Additionally, the Borrowers pay a 0.250% and 0.375%2023. The commitment fee on the unfunded amount ofamounts was 0.25% and 0.20% as of December 31, 20172023 and January 1, 2017,2023, respectively.
The ABL Facility is subject to mandatory prepayments if the outstanding loans and letters of credit exceed either the aggregate revolving commitments ofor the current borrowing base, in an amount equal to such excess. Additionally, the credit facilityABL Facility is subject to various covenants, requiringincluding incurrence covenants that require the Company to meet minimum financial ratios, and additional borrowings and other corporate transactions may be limited by failure to meet these financial ratios. Failure to meet any of these covenants could result in an event of default under these agreements. If an event of default occurs, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interest in collateral pledged under the agreement, or restrict the Borrowers’ ability to obtain additional borrowings under these agreements. The ABL Facility is secured by a first lien security interest over inventory and receivables and a second lien security interest over all other assets pledged as collateral.
The ABL Facility contains customary representations and warranties and customary affirmative and negative covenants which fully restrict retained earnings of the Borrowers.covenants. The negative covenants are limited to the following: financial condition, fundamental changes, dividends and distributions, acquisitions, dispositions of collateral, payments and modifications of restricted indebtedness, negative pledge clauses, changes in line of business, currency, commodity and other hedging transactions, transactions with affiliates, investments, limitations on indebtedness, and liens. The negative covenants are subject to the customary exceptions and also permit the payment of dividends and distributions, investments, permitted acquisitions, and payments or redemptions of junior indebtedness under the Second Amended and Restated Credit Agreement, asset sales and mergers, consolidations, and sales of all or substantially all assets involving subsidiaries upon satisfaction of a “payment condition.” The payment condition.condition is deemed satisfied upon 30-day specified excess availability and specified availability exceeding agreed upon thresholds and, in certain cases, the absence of specified events of default or known events of default and pro forma compliance with a consolidated fixed charge coverage ratio of 1.00 to 1.00. As of December 31, 2017,2023, the Company iswas in compliance with all of the ABL Facility covenants.
Term Loan Facility:Loans
The Borrowers entered into the Term Loan Facilitya syndicated senior term loan facility dated April 29, 2016, in the amount of $275.0 million, andwhich was amended on November 23, 2016, (seeMay 24, 2017, December 12, 2017, and August 14, 2018. On March 23, 2021, the Borrowers entered into the Fifth Amendment to the Amended and Restated Credit Agreement (the “Fifth Amendment”), in order to, among other things, incur $325.0 million of term loans (the “New Term Loan Facility Amendments below)Loans”) which were used in part to prepay all of the existing term loans outstanding immediately prior to effectiveness of the Fifth Amendment (the “Tranche E Term Loans”). On March 27, 2023, Landscape Holding, as representative for the Borrowers, entered into the First Amendment to the Second Amended and Restated Credit Agreement (the “Sixth Amendment”), to implement a forward-looking interest rate based on SOFR in lieu of LIBOR. On July 12, 2023, Landscape Holding, as representative for the Borrowers, entered into the Increase Supplement (the “Increase Supplement”) to the Second Amended and Restated Credit Agreement, providing for an additional $120.0 million of New Term Loans. The New Term Loan Facility isLoans are guaranteed by Bidco and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape. The New Term Loan Facility hasLoans are secured by a second lien security interest over inventory and receivables and a first lien security interest over all other assets pledged as collateral. The New Term Loans mature on PropertyMarch 23, 2028.
Amendments of Term Loans
On July 12, 2023, the Company, through its subsidiary, Landscape Holding, entered into the Increase Supplement by and equipment, Intangibles,between Landscape Holding, as borrower representative, and equity interestsJPMorgan Chase Bank, N.A., as increasing lender (the “Increasing Lender”), to the Second Amended and Restated Credit Agreement. The Increase Supplement provided for an additional $120.0 million of New Term Loans and made such other changes to the Second Amended and Restated Credit Agreement as agreed between Landscape Holding and second lien on ABL Facility assets. The final maturity datethe Increasing Lender. Proceeds of the Term Loan Facility is April 29, 2022.
Refinancing:
On April 29, 2016,term loans borrowed pursuant to the Company refinanced its Prior Term Loan Facility with the Term Loan Facility. The proceeds under the Term Loan FacilityIncrease Supplement were used, among other things, to (i) repay all $60.3 million of borrowings outstanding under the Prior Term Loan Facility, repay $29.9 million of borrowingscertain loans outstanding under the ABL Facility pay a special cash dividend of $176.0 million to existing holders of the Company’s common stock and Redeemable Convertible Preferred Stock (on an as-converted basis) as of April 29, 2016 and(ii) pay fees and expenses associated withrelated to the refinancing transaction.Increase Supplement. The maturity date of the New Term Loans of March 23, 2028 did not change as a result of the Increase Supplement.
Term Loan Facility Amendments:
On November 23, 2016,March 27, 2023, the Company, through its subsidiary, Landscape Holding, entered into the Sixth Amendment, which amended the Term Loan Facility (the “First Amendment”)Second Amended and Restated Credit Agreement to among other things, (i) add the Tranche B Term Loans under the Term Loan Facilityimplement a forward-looking interest rate based on SOFR in an aggregate principal amountlieu of $273.6 million and (ii) increase the aggregate principal amount of Tranche B Term Loans under the Term Loan Facility to $298.6 million pursuant to an increase supplement. Proceeds of the Tranche B Term Loans were used to, among other things, (i) repay in full the term loans outstanding under the Existing Term Loans and (ii) repay $21.0 million of borrowings outstanding under the ABL Facility.
On May 24, 2017, the Company amended the Term Loan Facility (the “Second Amendment”) to, among other things, add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche C Term Loans”) in an aggregate principal amount of $299.5 million. Proceeds of the Tranche C Term Loans were used to, among other things, repay in full the Tranche B Term Loans outstanding under the Term Loan Facility immediately prior to effectiveness of the Second Amendment and pay fees and expenses associated with the transaction.
On December 12, 2017, the Company amended the Term Loan Facility (the “Third Amendment”) to, among other things, (i) add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche D Term Loans”) in an aggregate principal amount of $298.0 million and (ii) increase the aggregate principal amount of Tranche D Term Loans under the Term Loan Facility to $350.0 million. Proceeds of the Tranche D Term Loans were used to, among other things, (i) repay in full the Tranche C Term Loans and (ii) repay approximately $50.7 million of borrowings outstanding under the ABL Facility.
LIBOR. The Tranche DNew Term Loans bear interest, at Landscape Holding’s option, at either (i) an adjusted LIBORTerm SOFR rate plus an applicable margin equal to 2.75%2.00% (with a Term SOFR floor of 0.50% on initial term loans and 0.00% on all other term loans) or (ii) an alternative base rate plus an applicable margin equal to 1.75%1.00%. The other termsVoluntary prepayments of the Tranche DNew Term Loans are generallypermitted at any time, in minimum principal amounts, without premium or penalty, unless in connection with certain repricing transactions that occurred within the same asfirst 12 months after the terms applicable todate of the Existinginitial funding of the New Term Loans.The interest rate on the outstanding balance of the Term Loan FacilityNew Terms Loans was 4.32%7.47044% as of December 31, 2017.2023.
On March 23, 2021, the Company, through its subsidiaries, entered into the Fifth Amendment, by and among the Borrowers, JPMorgan Chase Bank, N.A. (the “New Agent”), as administrative agent and collateral agent, the several banks and other financial institutions party thereto and certain other parties party thereto from time to time. The Fifth Amendment amended and restated the Amended and Restated Credit Agreement, dated as of April 29, 2016, among the Borrowers, the lenders from time to time party thereto and UBS AG, Stamford Branch (the “Existing Agent”) as administrative agent and collateral agent (as amended prior to March 23, 2021, the “Existing Credit Agreement” and, as so amended and restated pursuant to the Fifth Amendment, the “Second Amended and Restated Credit Agreement”) in order to, among other things, (i) incur $325.0 million of term loans, (ii) replace the Existing Agent as administrative and collateral agent with the New Agent, and (iii) make such other changes in the Second Amended and Restated Credit Agreement as agreed among the Borrowers and the lenders. Proceeds of the New Term Loans were used, among other things, (i) to repay in full the Tranche E Term Loans outstanding under the Existing Credit Agreement immediately prior to effectiveness of the Fifth Amendment, (ii) to pay fees and expenses related to the Fifth Amendment and the Second Amended and Restated Credit Agreement, and (iii) for working capital and other general corporate purposes.
The Term Loan FacilitySecond Amended and Restated Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, which fully restrict retained earnings of the Borrowers.covenants. The negative covenants are limited to the following: limitations on indebtedness, restricted payments, restrictive agreements, sales of assets and subsidiary stock, transactions with affiliates, liens, fundamental changes, amendments, and lines of business and limitations on certain actions of the parent borrower.business. The negative covenants are subject to exceptions customary for transactions of the customary exceptions.type.
The New Term Loan Facility isLoans are payable in consecutive quarterly installments equal to 0.25% of the aggregate initial principal amount of the New Term Loans until the maturity date. In addition, the New Term Loans are subject to annual mandatory prepayments in an amount equal to 50% of excess cash flow, as defined in the Term LoanSecond Amended and Restated Credit Agreement which information is hereby incorporated by reference, for the applicable fiscal year if 50% of excess cash flow exceeds $15.0 million and the secured leverage ratio is greater than 3.00 to 1.00. There are also mandatory prepayments with the proceeds of certain asset sales and from the issuance of debt not permitted to be incurred under the Second Amended and Restated Credit Agreement. As of December 31, 2017,2023, the Company iswas in compliance with all of the Term Loan FacilitySecond Amended and Restated Credit Agreement covenants.
Interest Expense
During the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022, the Company incurred total interest expensesexpense of $25.2$27.1 million, $22.1$20.0 million, and $11.4$19.2 million, respectively, of which $21.8$23.0 million, $17.6$16.5 million, and $6.9$14.7 million, respectively, related to interest on the ABL Facility and the Term Loan Facility. The debtterm loans. Debt issuance costs and discounts are amortized as interest expense over the life of the debt. As a result of the refinancingIncrease Supplement, new debt fees and amendmentsissuance costs of $1.8 million were capitalized during the year ended December 31, 2023. As a result of the Term Loan Facility andSeventh Amendment to the ABL Facility,Credit Agreement, unamortized debt issuance costs and discounts in the amount of $0.1$0.6 million $1.7were written off to expense in accordance with ASC 470-50, “Debt Modifications and Extinguishments”, and new debt fees and issuance costs of $2.3 million were capitalized during the year ended January 1, 2023. In addition, as a result of the Fifth Amendment to the Amended and $1.2Restated Credit Agreement, unamortized debt issuance costs and discounts in the amount of $0.8 million were written off to expense and new discountsdebt fees and debt issuance costs of $2.2 million, $7.0 million and $1.0$2.4 million were capitalized during the year ended January 2, 2022. No gain or loss was recorded as it related to all participating lenders for the years ended December 31, 2017, January 1, 20172023 and January 3, 2016, respectively.2, 2022. During the year ended January 2, 2022, the Company paid down $68.0 million of the New Term Loans principal with cash on hand. As a result of the repayment, unamortized debt issuance costs and discounts in the amount of $0.9 million were charged to interest expense. Amortization expense related to debt issuance costs and discounts was $3.0$1.2 million, $2.5$1.1 million, and $3.0$2.3 million for the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022, respectively. The remaining $0.3$2.9 million, $0.3$1.8 million, and $0.3$1.4 million of interest expense is primarily related to capitalinterest attributable to finance leases, partially offset by purchase accounting adjustmentsinterest income for the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022, respectively.
Hybrid Debt Instruments
During the first quarter of 2021, the Company reclassified $5.9 million from Accrued liabilities and Other long-term liabilities to long-term debt with $1.5 million classified as Long-term debt, current portion and $4.4 million classified as Long-term debt, less current portion on its Consolidated Balance Sheets since the interest rate swap arrangements executed on March 23, 2021 were determined to be hybrid debt instruments containing embedded at-market swap derivatives. As of December 31, 2023, approximately $1.5 million was classified as Long-term debt, current portion and approximately $0.4 million was classified as Long-term debt, less current portion on the Company’s Consolidated Balance Sheets. Refer to “Note 1. Nature of Business and Significant Accounting Policies” and “Interest Rate Swaps” below for additional information regarding interest rate swaps and hybrid debt instruments.
Debt Maturities
Maturities of long-term debt outstanding, in principal amounts at December 31, 20172023, are summarized below (in millions):
| | | | | |
| Fiscal year: | |
| 2024 | $ | 4.3 | |
| 2025 | 4.2 | |
| 2026 | 4.8 | |
| 2027 | 11.3 | |
| 2028 | 354.4 | |
| Thereafter | — | |
| Total | $ | 379.0 | |
|
| | | |
| Fiscal year: | |
| 2018 | $ | 2.6 |
|
| 2019 | 3.5 |
|
| 2020 | 131.4 |
|
| 2021 | 3.5 |
|
| 2022 | 335.1 |
|
| Thereafter | — |
|
| Total | $ | 476.1 |
|
Interest Rate Swaps
The Company is subject to interest rate risk with regard to existing and future issuances of debt. The Company utilizes interest rate swap contracts to reduce its exposure to fluctuations in variable interest rates for future interest payments on its syndicated senior Term Loan Facility. In June 2017, theexisting debt. The Company entered into two forward-startingis party to interest rate swap contracts to convert the variable interest rate to a fixed interest rate on portions of the borrowings under the term loans.
On March 31, 2023, the Company amended the terms of its interest rate swaps to implement a forward-looking interest rate based on SOFR in place of LIBOR. Since the interest rate swaps were affected by reference rate reform, the Company applied the expedients and exceptions provided in Topic 848 to preserve the past presentation of its derivatives without de-designating the existing hedging relationships. All interest rate swap amendments were executed with the existing counterparties and did not change the notional amounts, maturity dates, or other critical terms of the hedging relationships. The interest rate swaps will continue to be net settled on a quarterly basis with the counterparties for the difference between the fixed rates and the variable rates based upon three-month Term Loan Facility. The contracts are scheduledSOFR (subject to become effectivea floor of 0.73839% for interest rate swap 3 and 0.23839% for interest rate swaps 7, 8, and 9) as applied to the notional amounts of each interest rate swap.
On March 23, 2021, the Company restructured the interest rate swap positions of its Forward-starting interest rate swaps 4, 5, and 6 to extend the terms to maturity using a strategy referred to as a “blend and extend” in order to continue to manage its exposure to interest rate risk on borrowings under the term loans. Refer to “Term Loans” and “Amendments of the Term Loans” above for additional information regarding the Company’s term loans. As a result of these transactions, all existing agreements for Forward-starting interest rate swaps 4, 5, and 6 at that time were amended and restructured as new agreements designated by the Company as interest rate swaps 7, 8, and 9 with the same counterparties. Each of the liability positions of the Forward-starting interest rate swaps were blended into the amended interest rate swap agreements and the term of the hedged positions were extended to mature on March 11, 201923, 2025. The interest rate swaps were net settled on a quarterly basis with the counterparties for the difference between the fixed rates and terminatethe variable rates based upon three-month LIBOR as applied to the notional amounts of each interest rate swap. Due to the size of the initial net investment amounts resulting from the termination values of the Forward-starting interest rate swaps that were rolled into the interest rate swap arrangements, interest rate swaps 7, 8, and 9 were determined to be hybrid debt instruments containing embedded at-market interest rate swap derivatives. As a result, the Company bifurcated the derivative instruments from the debt host instruments for accounting purposes. Refer to “Note 1. Nature of Business and Significant Accounting Policies” and “Hybrid Debt Instruments” above for additional information regarding the Company’s hybrid debt instruments. The Company also de-designated the hedging relationships for Forward-starting interest rate swaps 1 and 2 on June 11,March 23, 2021. The swaps were not terminated upon de-designation; however, hedge accounting was discontinued since these swaps were no longer designated as hedging instruments. The related accumulated losses for these swaps remained in AOCI upon de-designation and were recognized in earnings at the time the hedged interest payments impacted earnings.
The following table provides additional details related to the swap contracts (in millions except fixed interest rate):designated as hedging instruments as of December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives designated as hedging instruments | | Inception Date | | Effective Date | | Maturity Date | | Notional Amount
(in millions) | | Fixed Interest Rate | | Type of Hedge |
| Interest rate swap 3 | | December 17, 2018 | | April 14, 2023 | | January 14, 2024 | | $ | 34.0 | | | 2.73040 | % | | Cash flow |
| Interest rate swap 7 | | March 23, 2021 | | March 31, 2023 | | March 23, 2025 | | $ | 50.0 | | | 0.73300 | % | | Cash flow |
| Interest rate swap 8 | | March 23, 2021 | | March 31, 2023 | | March 23, 2025 | | $ | 90.0 | | | 0.74300 | % | | Cash flow |
| Interest rate swap 9 | | March 23, 2021 | | March 31, 2023 | | March 23, 2025 | | $ | 70.0 | | | 0.75424 | % | | Cash flow |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Fair Value of Hedge Assets |
| Derivatives accounted for as hedges | | Inception Date | | Notional Amount | | Fixed Interest Rate | | Type of Hedge | | Balance Sheet Classification | | December 31, 2017 | | January 1, 2017 |
| Forward-starting interest rate swap 1 | | June 30, 2017 | | $ | 58.0 |
| | 2.1345 | % | | Cash flow | | Other assets | | $ | 0.2 |
| | $ | — |
|
| Forward-starting interest rate swap 2 | | June 30, 2017 | | $ | 116.0 |
| | 2.1510 | % | | Cash flow | | Other assets | | $ | 0.4 |
| | $ | — |
|
The Company recognizesfollowing table provides additional details related to the unrealized gains or unrealized lossesswap contracts not designated as either assets or liabilities athedging instruments, which were terminated upon maturity on June 11, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives not designated as hedging instruments | | Inception Date | | Effective Date | | Maturity Date | | Notional Amount
(in millions) | | Fixed Interest Rate |
| Forward-starting interest rate swap 1 | | June 30, 2017 | | March 11, 2019 | | June 11, 2021 | | $ | 58.0 | | | 2.13450 | % |
| Forward-starting interest rate swap 2 | | June 30, 2017 | | March 11, 2019 | | June 11, 2021 | | $ | 116.0 | | | 2.15100 | % |
The following table summarizes the fair value on itsof the derivative instruments and the respective lines in which they were recorded in the Consolidated Balance Sheets. Sheets as of December 31, 2023 and January 1, 2023 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivative Assets |
| | December 31, 2023 | | January 1, 2023 |
| | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
| Derivatives designated as hedging instruments | | | | | | | | |
| Interest rate contracts | | Prepaid expenses and other current assets | | $ | 8.4 | | | Prepaid expenses and other current assets | | $ | 8.6 | |
| | Other assets | | 1.3 | | | Other assets | | 7.7 | |
| Total derivative assets | | | | $ | 9.7 | | | | | $ | 16.3 | |
As of December 31, 2017,2023, the net fair value changes of the forward-starting interest rate swaps in the amount of $0.6$7.2 million, net of taxes, was recorded in Other assets.
The Company will recognize any differences betweenAOCI for the variable interest rate payments and the fixed interest rate settlements with the swap counterpartiesderivatives designated as an adjustment to interest expense over the life of the swaps. The Company has designated these swaps as cash flow hedges and records the changes in the estimated fair value of the swaps to Accumulated other comprehensive income (loss) on its Consolidated Balance Sheets. As of December 31, 2017, the fair value changes of the forward-starting interest rate swaps in the amount of $0.6 million was recorded in Accumulated other comprehensive income (loss) as a component of other comprehensive income (loss).hedging instruments. To the extent the interest rate swaps designated as hedging instruments are determined to be ineffective, the Company recognizes the changes in the estimated fair value of the swaps in earnings.
For the yearyears ended December 31, 2017,2023 and January 1, 2023, there was no ineffectiveness recognized in earnings. The netafter-tax amount of unrealized gain or loss on derivative instruments included in Accumulated other comprehensive income (loss)AOCI related to the forward-starting interest rate swap contracts maturing and expected to be realizedreclassified into earnings during the next twelve12 months was zero$6.3 million as of December 31, 2017.2023. The ultimate amount recognized will vary based on fluctuations of interest rates through the maturity dates.
The table below provides details regarding pre-tax amounts in AOCI and gain (loss) reclassified into income for derivatives designated as cash flow hedges for the years ended December 31, 2023 and January 1, 2023 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | January 1, 2023 |
| Derivatives in cash flow hedging relationships | | Gain (Loss) Recorded in OCI | | Classification of Gain (Loss) Reclassified from AOCI into Income | | Gain (Loss) Reclassified from AOCI into Income | | Gain (Loss) Recorded in OCI | | Classification of Gain (Loss) Reclassified from AOCI into Income | | Gain (Loss) Reclassified from AOCI into Income |
| Interest rate contracts | | $ | 3.0 | | | Interest and other non-operating expenses, net | | $ | 9.6 | | | $ | 17.2 | | | Interest and other non-operating expenses, net | | $ | 1.6 | |
The table below provides details regarding gain (loss) reclassified from AOCI into income and gain (loss) recorded in income for derivatives not designated as hedging instruments for the years ended December 31, 2023 and January 1, 2023 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Gain (Loss) Reclassified from AOCI into Income | | Gain (Loss) Recognized in Income |
| Derivatives not designated as hedging instruments | | Location of Gain (Loss) | | December 31, 2023 | | January 01, 2023 | | December 31, 2023 | | January 01, 2023 |
| Interest rate contracts | | Interest and other non-operating expenses, net | | $ | (0.1) | | | $ | (3.0) | | | $ | — | | | $ | — | |
Failure of the swap counterparties to make payments would result in the loss of any potential benefit to the Company under the swap agreements. In this case, the Company would still be obligated to pay the variable interest payments underlying the debt agreements. Additionally, failure of the swap counterparties would not eliminate the Company’s obligation to continue to make payments under the existing swap agreements if it continues to be in a net pay position.
Note 8.9. Income Taxes
In December 2017,August 2022, the Tax Cuts and Jobs Act (the “2017 Tax Act”)IRA was enacted. The 2017 Tax Act includesenacted, which, among other things, implemented a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S.15% corporate income tax rate from 35% to 21%, effective as of January 1, 2018. The 2017 Tax Act also provides for a one-time transitionalternative minimum tax on book income of certain foreign earnings that were previously deferred, immediate expensinglarge corporations effective for certain assets placed into servicetax years beginning after September 27, 2017,December 31, 2022, and imposes a Global intangible low-taxed income (“GILTI”) provision which requires U.S. income inclusion of foreign subsidiary earnings in excess of an allowable return1% excise tax on the foreign subsidiary’s tangible assets.
The Company recognized the incomecorporate stock repurchases after December 31, 2022. In addition, effective for tax effects ofyears beginning after December 31, 2021, the 2017 Tax Act eliminated the option to deduct research and development expenditures immediately in its 2017 financial statements in accordance with Staffthe year incurred and requires taxpayers to capitalize and amortize such expenses. Refer to “Note 1. Nature of Business and Significant Accounting Bulletin No. 118 (“SAB 118”), which provides SEC staff guidancePolicies” for additional information regarding this legislation.The Company recorded Income tax expense of $49.8 million, $67.7 million, and $56.1 million for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act was signed into law. At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the 2017 Tax Act; however, in certain instances, as described below, the Company has made a reasonable estimate (provisional amount) of the effects on its existing deferred tax balances and one-time transition tax. In other cases, the Company has not been able to make a reasonable estimate and continues to account for those items based on the existing accounting under ASC Topic 740, and the provisions of the tax laws that were in effect prior to enactment. For the items which the Company was able to determine a reasonable estimate, a provisional benefit of $3.2 million was recognized, as described below, which is included as a component of income tax expense from continuing operations. In all cases, the Company will continue to make and refine its calculations as additional analysis is completed. Moreover, the Company’s provisional estimates may also be affected as it gains a more thorough understanding of the 2017 Tax Act. Finally, the Company is evaluating whether it will be subject to incremental U.S. tax on GILTI, beginning in 2018, due to expense allocations required under the U.S. foreign tax credit rules. The Company has provisionally elected to account for GILTI tax in the period in which it is incurred, and therefore, has not provided any provisional deferred tax impacts of GILTI in its consolidated financial statements for the yearyears ended December 31, 2017.2023, January 1, 2023, and January 2, 2022, respectively.
Provisional amounts
Deferred tax assets and liabilities - the Company re-measured certain deferred tax assets and liabilities based on the rates at which these items are expected to reverse in the future, which is 21%. However, the Company is still analyzing certain aspects of the 2017 Tax Act and refining its calculations, which potentially could affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of the Company’s deferred tax balance was a benefit of $4.5 million.
Foreign tax effects - the one-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes. The Company recorded a provisional amount for the one-time transition tax liability on E&P from its Canadian subsidiary, resulting in an increase in income tax expense of $1.3 million. The Company has not yet completed its calculation of the total post-1986 E&P for the Canadian subsidiary. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes its calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation, and finalizes the amounts held in cash or other specified assets.
Components of net incomeIncome before taxes were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 |
| U.S. | | $ | 221.1 | | | $ | 309.4 | | | $ | 286.3 | |
| Foreign | | 2.1 | | | 3.7 | | | 8.2 | |
| Total | | $ | 223.2 | | | $ | 313.1 | | | $ | 294.5 | |
|
| | | | | | | | | | | | |
| | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 | | For the year
December 29, 2014 to January 3, 2016 |
| U.S. | | $ | 69.2 |
| | $ | 49.6 |
| | $ | 47.1 |
|
| Foreign | | 3.4 |
| | 2.3 |
| | 1.3 |
|
| Total | | $ | 72.6 |
| | $ | 51.9 |
| | $ | 48.4 |
|
Components of incomeIncome tax expense (benefit) were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 |
| Current income tax expense: | | | | | | |
| U.S. federal | | $ | 49.9 | | | $ | 56.6 | | | $ | 44.1 | |
| U.S. state and local | | 13.6 | | | 15.2 | | | 12.4 | |
| Foreign | | 0.8 | | | 1.1 | | | 2.7 | |
| Total current | | 64.3 | | | 72.9 | | | 59.2 | |
| Deferred income tax benefit: | | | | | | |
| U.S. federal | | (11.6) | | | (3.5) | | | (1.8) | |
| U.S. state and local | | (2.7) | | | (1.4) | | | (0.7) | |
| Foreign | | (0.2) | | | (0.3) | | | (0.6) | |
| Total deferred | | (14.5) | | | (5.2) | | | (3.1) | |
| Income tax expense | | $ | 49.8 | | | $ | 67.7 | | | $ | 56.1 | |
|
| | | | | | | | | | | | |
| | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 | | For the year
December 29, 2014 to January 3, 2016 |
| Current income tax expense | | | | | | |
| U.S. federal | | $ | 28.7 |
| | $ | 26.1 |
| | $ | 21.7 |
|
| U.S. state and local | | 4.9 |
| | 4.5 |
| | 4.9 |
|
| Foreign | | 0.9 |
| | 0.6 |
| | 0.4 |
|
| Total current | | 34.5 |
| | 31.2 |
| | 27.0 |
|
| Deferred income tax (benefit) expense | | | | | | |
| U.S. federal | | (15.5 | ) | | (8.9 | ) | | (6.8 | ) |
| U.S. state and local | | (1.0 | ) | | (1.0 | ) | | (0.7 | ) |
| Foreign | | — |
| | — |
| | — |
|
| Total deferred | | (16.5 | ) | | (9.9 | ) | | (7.5 | ) |
| Total | | $ | 18.0 |
| | $ | 21.3 |
| | $ | 19.5 |
|
The Company’s effective tax rate was 24.8%22.3%, 41.0%21.6%, and 40.3%19.0% for the years ended December 31, 2017,2023, January 1, 2017,2023, and January 3, 2016,2, 2022, respectively. The following table provides a reconciliation of incomeIncome tax expense (benefit) at the statutory U.S. federal tax rate to actual incomeIncome tax expense (benefit) for the periods presented (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 | |
| U.S. federal statutory expense | | $ | 46.9 | | | $ | 65.8 | | | $ | 61.9 | | |
State and local income taxes, net(a) | | 8.1 | | | 10.6 | | | 9.1 | | |
| Excess tax benefits | | (4.8) | | | (8.5) | | | (16.5) | | |
| | | | | | | |
| Other, net | | (0.4) | | | (0.2) | | | 1.6 | | |
| Income tax expense | | $ | 49.8 | | | $ | 67.7 | | | $ | 56.1 | | |
|
| | | | | | | | | | | | |
| | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 | | For the year
December 29, 2014 to January 3, 2016 |
| U.S. federal statutory expense (benefit) | | $ | 25.4 |
| | $ | 18.2 |
| | $ | 16.9 |
|
| State and local income taxes, net | | 2.0 |
| * | 1.9 |
| | 2.5 |
|
| Excess tax benefits pursuant to ASU 2016-09 | | (6.1 | ) | | — |
| | — |
|
| Enactment of 2017 Tax Act - deferred tax re-measurement, net | | (4.5 | ) | | — |
| | — |
|
| Enactment of 2017 Tax Act - transition tax | | 1.3 |
| | — |
| | — |
|
| Transaction costs | | 0.4 |
| | 1.1 |
| | — |
|
| Other, net | | (0.5 | ) | | 0.1 |
| | 0.1 |
|
| Income tax expense (benefit) | | $ | 18.0 |
| | $ | 21.3 |
| | $ | 19.5 |
|
*(a) Includes excess tax benefits pursuant to ASU 2016-09 of $(0.7) million.$(1.1) million, $(1.9) million, and $(3.7) million for the years ended December 31, 2023, January 1, 2023, and January 2, 2022, respectively.
Historically,Undistributed earnings of the Company’s foreign subsidiaries approximate $27.6 million as of December 31, 2023. Those earnings are considered indefinitely reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company may be subject to U.S. income taxes, state and local income taxes, and withholding taxes payable to the foreign country. From a U.S. income tax has not been recognizedperspective, however, the Company expects to claim a 100% dividends received deduction to offset any U.S. federal income tax liability on the excessundistributed earnings. Determination of the amount for financial reporting overof unrecognized state and local tax liability is not practicable due to the tax basiscomplexities associated with its hypothetical calculation. Withholding taxes of the Company’s investment in its Canadian subsidiary caused by foreignapproximately $1.4 million may be payable upon remittance of all previously unremitted earnings that are indefinitely reinvested outside the U.S. Atas of December 31, 2017, unremitted earnings2023.
Deferred income taxes reflect the expected future tax consequences of temporary differences between the financial statement carrying amount of the Company’s assets and liabilities, tax credits, and loss carry forwards.carryforwards. The significant components of deferred income taxes are as follows (in millions):
| | | | | | | | | | | | | | |
| | December 31, 2023 | | January 1, 2023 |
| Deferred tax assets: | | | | |
| Net operating losses | | $ | 3.0 | | | $ | 3.5 | |
| Allowance for uncollectible accounts | | 11.7 | | | 8.9 | |
| Inventory | | 6.1 | | | 4.7 | |
| Intangible assets | | 13.9 | | | 6.9 | |
| | | | |
| Accrued compensation | | 4.2 | | | 4.0 | |
| Stock compensation | | 9.7 | | | 7.4 | |
| | | | |
| Environmental reserve | | 0.6 | | | 0.6 | |
| Deferred transaction costs | | 3.2 | | | 2.9 | |
| Operating lease liabilities | | 102.1 | | | 83.4 | |
Capitalized research and development expenditures(a) | | 9.9 | | | 4.2 | |
| Other | | 2.9 | | | 4.3 | |
| Total gross deferred tax assets | | 167.3 | | | 130.8 | |
| Valuation allowance | | (2.7) | | | (3.4) | |
| Total net deferred tax assets | | 164.6 | | | 127.4 | |
| Deferred tax liabilities: | | | | |
| Fixed assets and land | | (43.8) | | | (30.7) | |
| | | | |
| Goodwill | | (15.8) | | | (12.7) | |
| Deferred financing costs | | — | | | (0.1) | |
| Operating lease right-of-use assets | | (97.6) | | | (81.5) | |
| Interest rate swaps | | (2.4) | | | (4.1) | |
| Other | | (2.0) | | | (2.4) | |
| Total deferred tax liabilities | | (161.6) | | | (131.5) | |
| Net deferred tax assets (liabilities) | | $ | 3.0 | | | $ | (4.1) | |
______________
(a) Effective for tax years beginning after December 31, 2021, research and development expenditures must be capitalized and amortized for tax-purposes as part of the 2017 Tax Act.
Deferred taxes are recorded as follows in the Consolidated Balance Sheets (in millions):
| | | | | | | | | | | | | | |
| | December 31, 2023 | | January 1, 2023 |
| U.S. state and local net deferred tax assets | | $ | 4.4 | | | $ | 3.1 | |
| Foreign net deferred tax assets | | 0.9 | | | 0.6 | |
| U.S. state and local and foreign net deferred tax assets | | 5.3 | | | 3.7 | |
| | | | |
| U.S. federal net deferred tax liabilities | | (2.3) | | | (7.8) | |
| | | | |
| U.S. federal net deferred tax liabilities | | (2.3) | | | (7.8) | |
| | | | |
| Net deferred tax assets (liabilities) | | $ | 3.0 | | | $ | (4.1) | |
92
|
| | | | | | | | |
| | | December 31, 2017 | | January 1, 2017 |
| Deferred tax assets: | | | | |
| Net operating losses | | $ | 5.2 |
| | $ | 4.1 |
|
| Allowance for uncollectible accounts | | 3.2 |
| | 4.2 |
|
| Inventory | | 2.2 |
| | 3.1 |
|
| Reserve for sales bonuses | | 3.6 |
| | 4.2 |
|
| Accrued compensation | | 2.8 |
| | 3.1 |
|
| Stock compensation | | 2.5 |
| | 2.5 |
|
| Rent accrual | | 1.6 |
| | 2.1 |
|
| Environmental reserve | | 0.6 |
| | 0.9 |
|
| Deferred transaction costs | | 1.8 |
| | 2.3 |
|
| Other | | 1.1 |
| | 1.8 |
|
| Total gross deferred tax assets | | 24.6 |
| | 28.3 |
|
| Valuation allowance | | (5.2 | ) | | (4.1 | ) |
| Total net deferred tax assets | | 19.4 |
| | 24.2 |
|
| Deferred tax liabilities: | | | | |
| Fixed assets and land | | (5.8 | ) | | (8.0 | ) |
| Intangible assets | | (16.9 | ) | | (30.3 | ) |
| Goodwill | | (2.5 | ) | | (2.8 | ) |
| Deferred financing costs | | (1.7 | ) | | (2.4 | ) |
| Other | | (0.9 | ) | | (0.7 | ) |
| Total deferred tax liabilities | | (27.8 | ) | | (44.2 | ) |
| Net deferred tax liabilities | | $ | (8.4 | ) | | $ | (20.0 | ) |
The Company evaluates its deferred tax assets to determine the need for a valuation allowance, and to conclude whether it is more likely than not that those deferred income tax assets will be realized. Management assesses the available positive and negative evidence to establish whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. On the basis of this evaluation, as of December 31, 20172023 and January 1, 2017,2023, a valuation allowance of $5.2$2.7 million and $4.1$3.4 million, respectively, has been recorded against deferred tax assets related primarily to state net operating loss carryforwards for separate returns the Company believes are more likely than not to expire unused. Activity within the tax valuation allowance for the periods was as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 |
| Beginning balance | | $ | 3.4 | | | $ | 4.2 | | | $ | 4.5 | |
| | | | | | |
| Decrease in valuation allowance | | (0.7) | | | (0.8) | | | (0.3) | |
| Ending balance | | $ | 2.7 | | | $ | 3.4 | | | $ | 4.2 | |
|
| | | | | | | | | | | | |
| | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 | | For the year
December 29, 2014 to January 3, 2016 |
| Beginning balance | | $ | 4.1 |
| | $ | 4.2 |
| | $ | 4.6 |
|
| Increase in valuation allowance | | 1.1 |
| | — |
| | — |
|
| Decrease in valuation allowance | | — |
| | (0.1 | ) | | (0.4 | ) |
| Ending balance | | $ | 5.2 |
| | $ | 4.1 |
| | $ | 4.2 |
|
As of December 31, 2017,2023, the Company had available a tax-effected federal net operating loss carryforward of approximately $0.3 million that is indefinite-lived, and state NOLnet operating loss carryforwards of approximately $5.2$2.7 million that willgenerally expire at various dates from 2017 through 2028,2037, if not utilized.
The Company recognizes the tax effects of uncertain tax positions only if such positions are more likely than not to be sustained based solely upon its technical merits at the reporting date. The Company refers to the difference between the tax benefit recognized in its financial statements and the tax benefit claimed in the income tax return as an unrecognized tax benefit. There was no expense or liability recorded for unrecognized tax benefits for each period presented. The Company does not expect that the unrecognized tax benefit will materially change over the next 12 months.
The Company’s policy for recording interest and penalties, if any, associated with uncertain tax positions is to recognize interest within the Interest and other non-operating expenses, line item, and to recognize penalties inas a component of Selling, general and administrative expenses.expenses in the Company’s Consolidated Statements of Operations. For each period presented, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company is subject to U.S. federal income tax, income tax in multiple state jurisdictions, and Canadian federal and provincial income tax with respect to its foreign subsidiary.subsidiaries. With limited exceptions, years prior to 2009the 2020 Fiscal Year are no longer open to U.S. federal, state, and local examination by the taxing authorities. As part
Deere has indemnified the Company against any taxes, penalties or interest for tax periods prior to the CD&R Acquisition, accruing after the CD&R Acquisition date.
Note 9. Related Party Transactions
Following consummation of the secondary offering on July 26, 2017 (as described in Note 1), CD&R and Deere no longer have an ownership interest in the Company. Transactions with customers and entities that were under the common ownership of CD&R and Deere through July 26, 2017 are considered related-party transactions and are discussed below.
The Company offers a financing plan to its customers through John Deere Financial, f.s.b. (“John Deere Financial”) a wholly-owned subsidiary of Deere. The Company pays John Deere Financial a fee related to the financing offered, which was approximately $0.3 million, $0.5 million and $0.3 million for the period from January 2, 2017 through July 26, 2017 and for the years ended January 1, 2017, and January 3, 2016, respectively.
In connection with the CD&R Acquisition, the Company entered into consulting agreements (the “Consulting Agreements”) with each of CD&R and Deere. CD&R and Deere each provided consulting services under the Consulting Agreements at an annual fee of approximately $1.3 million and $0.7 million plus expense reimbursement for a 10 year term or earlier termination if CD&R’s or Deere’s ownership, respectively, of the Company was reduced below 10%. On May 17, 2016, the Company entered into termination agreements with CD&R and Deere pursuant to which the Company paid CD&R and Deere an aggregate fee of approximately $7.5 million to terminate the Consulting Agreements in connection with the consummation of the IPO. See “Note 11. Redeemable Convertible Preferred Stock” for a discussion of dividends paid to the CD&R investor.
TruGreen is a customer under common ownership of CD&R and therefore became a related party at the time of the CD&R Acquisition. As provided above, TruGreen is no longer a related party as a result of the consummation of the secondary offering on July 26, 2017. Net sales included in the Company’s Consolidated Statement of Operations with TruGreen were $4.3 million for the period from January 2, 2017 through July 26, 2017 and $3.9 million for the year ended January 1, 2017. Accounts receivable included in the Company’s consolidated balance sheets was $0.4 million as of January 1, 2017.
Note 10. Commitments and Contingencies
Litigation:
From time to time, the Company is subject to certain claims and lawsuits that have been filed in the ordinary course of business. The Company believes the reasonably possible range of losses for these unresolved legal actions in addition to amounts accrued would not have a material effect on the Company’s assets and liabilities as of December 31, 20172023 and January 1, 20172023, and revenues,sales, expenses, changes in equity, and cash flows for the years ended December 31, 2017,2023, January 1, 2017,2023, and January 3, 2016.2, 2022.
Environmental liability: Liability
As part of the sale by LESCO of LESCOits manufacturing assets in 2005, the Company retained the environmental liability associated with those assets. Remediation activities can vary substantially in duration and cost, and it is difficult to develop precise estimates of future site remediation costs. The Company estimatedrecorded in accruedOther long-term liabilities the undiscounted cost estimate of future remediation efforts to be approximately $3.8of $3.9 million and $4.0$3.9 million as of December 31, 20172023 and January 1, 2017,2023, respectively. As part of the CD&R Acquisition, Deere agreed to pay the first $2.5 million of the liability and cap the CompanyCompany’s exposure to approximatelyis capped at $2.4 million. The Company has recorded an indemnification asset in Other assets against the liability as a result of these actions of $1.4$1.5 million and $1.6$1.5 million as of December 31, 20172023 and January 1, 2017,2023, respectively.
Letter
Letters of credit: Credit
As of December 31, 20172023 and January 1, 2017,2023, outstanding letters of credit were $4.5$14.3 million and $2.9$11.5 million, respectively. There were no amounts drawn on the letters of credit for either period presented.
Purchase commitments: Commitments
The Company has entered into contracts with various farmers that obligate the Company to purchase certain nursery products and grass seeds. These contracts run through fiscal year 2021.2026. The total future obligation was approximately $58.8$76.1 million as of December 31, 20172023 with expected payments of approximately $33.1$44.5 million, $16.1 million, $8.9 million, $0.7$25.0 million, and $0.0$6.6 million during thefiscal years ending December 2018, 2019, 2020, 20212024, 2025, and 2022,2026, respectively. The Company’s purchases were approximately $33.7$73.9 million, $28.1$67.4 million, and $20.4$68.3 million for the years ended December 31, 2017,2023, January 1, 20172023, and January 3,
2016, respectively.18,000 tons of fertilizer annually for 10 years or until the total purchase commitment of 180,000 tons of product is fulfilled. If the Company does not meet minimum volume commitments, the Company must pay a $195 per tonnage shortfall. As of December 31, 2023, the total remaining amount contracted with this supplier was $18.6 million. Other supplier contracts total $20.8 million for arrangements that run through fiscal year 2027. In addition, the Company has entered into various service commitments, and definitive agreements to acquire an entity or group of assets; of which, the maximum total future obligation was approximately $9.4$46.9 million as of December 31, 2017.2023.
Operating leases: The Company leases buildings and equipment under certain non-cancelable operating leases that expire in various periods through December 2022. Rent expense under operating leases was approximately $48.2 million, $43.5 million and $37.3 million during the years ended December 31, 2017, January 1, 2017 and January 3, 2016, respectively. Certain leases have been subleased to third parties.
Approximate future minimum lease payments under non-cancelable operating leases, net of sublease income, are as follows (in millions):
|
| | | | | | | | | | | | |
| | | Gross lease
payments | | Sublease
Income | | Net lease
payments |
| Fiscal year: | | | | | | |
| 2018 | | $ | 46.1 |
| | $ | (0.1 | ) | | $ | 46.0 |
|
| 2019 | | 38.9 |
| | (0.1 | ) | | 38.8 |
|
| 2020 | | 30.2 |
| | — |
| | 30.2 |
|
| 2021 | | 23.5 |
| | — |
| | 23.5 |
|
| 2022 | | 16.1 |
| | — |
| | 16.1 |
|
| Thereafter | | 72.5 |
| | — |
| | 72.5 |
|
| Total minimum lease payments | | $ | 227.3 |
| | $ | (0.2 | ) | | $ | 227.1 |
|
During the past several years the Company has closed locations under operating leases. The remaining lease payments are accrued and included in accrued liabilities and other long-term liabilities. The aggregate reserve liability was approximately $0.3 million and $0.0 million at December 31, 2017 and January 1, 2017, respectively.
Note 11. Redeemable Convertible Preferred Stock
The CD&R Equity Investment
In connection with the CD&R Acquisition, the Company issued Redeemable Convertible Preferred Stock to the CD&R Investor. On the day prior to the closing of the IPO, all of the then-outstanding Redeemable Convertible Preferred Stock converted into shares of common stock, resulting in the issuance by the Company of an additional 25,303,164 shares of common stock.
Accounting for the Redeemable Convertible Preferred Stock
In accordance with the SEC guidance within ASC Topic 480, Distinguishing Liabilities from Equity: Classification and Measurement of Redeemable Securities, the Company classified the Redeemable Convertible Preferred Stock as mezzanine equity because the Redeemable Convertible Preferred Stock contained a redemption feature which was contingent upon certain change of control events, the occurrence of which was not solely within the control of the Company. These contingent events were not considered probable of occurring and as such the Company did not accrete the mezzanine equity to its redemption value each period. The Company determined that none of the features included in the Redeemable Convertible Preferred Stock were required to be accounted for separately as a derivative under ASC Topic 815, Derivatives and Hedging.
The initial issuance of Redeemable Convertible Preferred Stock did not include a beneficial conversion feature (“BCF”) because the conversion price used to set the conversion ratio at the time of issuance was greater than the initial common stock price. The paid-in-kind dividends in the form of Redeemable Convertible Preferred Stock contained the same conversion price as the original issuance and in certain cases did include a BCF as of the dividend payment date. Since the Redeemable Convertible Preferred Stock did not have a fixed or determinable redemption date and was freely convertible at any time, the Company immediately amortized any BCF recognized through retained earnings. As disclosed in Note 1, on May 2, 2016, the Company paid a one-time special cash dividend to all existing stockholders as of April 29, 2016. CD&R Investor received $112.4 million in accordance with its right to participate in all distributions to common stock on an as-converted basis, in accordance with its right as a preferred stockholder. The Redeemable Convertible Preferred Stock converted to common stock in accordance with its terms on May 16, 2016. During the year ended January 1, 2017, the Company paid the cumulative dividends in cash; and accordingly, no BCF was recognized.
The below table summarizes the changes in the carrying value of the Redeemable Convertible Preferred Stock (in millions):
|
| | | |
| |
|
| Balance as of January 3, 2016 | $ | 216.8 |
|
| Shares converted to Common Stock | (216.8 | ) |
| Balance as of January 1, 2017 | — |
|
| Balance as of December 31, 2017 | $ | — |
|
Note 12. Net Sales by Product
Net Sales from external customers by product category were as follows:
|
| | | | | | | | | | | | |
| | | For the year
January 2, 2017 to December 31, 2017 | | For the year
January 4, 2016 to January 1, 2017 | | For the year
December 29, 2014 to January 3, 2016 |
| Agronomic | | $ | 596.3 |
| | $ | 567.9 |
| | $ | 525.1 |
|
| Irrigation and Outdoor Lighting | | 621.4 |
| | 605.9 |
| | 512.4 |
|
| Landscape and other | | 408.0 |
| | 283.9 |
| | 233.3 |
|
| Nursery | | 236.0 |
| | 190.5 |
| | 180.8 |
|
| | | $ | 1,861.7 |
| | $ | 1,648.2 |
| | $ | 1,451.6 |
|
Agronomic Net sales include fertilizer and control product categories.
Note 13.11. Earnings (Loss) Per Share
BasicThe Company computes basic earnings (loss) per common share is computed(“EPS”) by dividing netNet income (loss) attributable to common shares by the weighted average number of common shares outstanding for the period. The Redeemable Convertible Preferred Stock had the right to participateCompany includes vested RSUs, DSUs, and PSUs that have not been settled in all distributions declared and paid on the Company’s common stock on an as-converted basis, and was therefore considered a participating security. The Company calculates basic earnings per share using the “two-class” method, and for the years ended January 1, 2017 and January 3, 2016 did not allocate the loss available to common stockholders to the Redeemable Convertible Preferred Stock as those holders did not have a contractual obligation to share in net losses. In periods with income available to common stockholders, the Company would reduce income available to common stockholders to reflect the hypothetical distribution of undistributed earnings to the Redeemable Convertible Preferred Stock in accordance with its contractual rights. The Company reduced income available to common stockholders and increased loss attributable to common stockholders to reflect the cumulative dividend on the Company’s Redeemable Convertible Preferred Stock whether or not declared or paid during the period. Similarly, the Company reduced income available to common stockholders and increased loss attributable to common stockholders for any amortization of beneficial conversion features recorded during each period. See Note 11 for a detailed description of the terms of the Redeemable Convertible Preferred Stock.
As disclosed in Note 1, on May 2, 2016, a one-time special cash dividend of $176.0 million was paid to existing stockholders of the Company as of April 29, 2016. Of the $176.0 million special cash dividend, $112.4 million was paid to holders of the Redeemable Convertible Preferred Stock in accordance with its right to participate in all distributions to common stockholders on an as-converted basis. Prior to May 16, 2016, the earnings (loss) per share calculation reflected the impact of the Redeemable Convertible Preferred Stock. Since the special cash dividend was paid prior to conversion of the Redeemable Convertible Preferred Stock, the $112.4 million is reported as a reduction of net income attributable to common shares duringin the year ended January 1, 2017.
basic weighted average number of common shares calculation. The Company’s computation of diluted earnings (loss) perEPS reflects the potential dilution that could occur if dilutive securities or other obligations to issue common share includesstock were exercised or converted into common stock, which include in-the-money outstanding stock options and RSUs. PSUs are excluded from the calculation of dilutive potential common shares until the performance conditions have been achieved on the basis of the assumption that the end of the reporting period was the end of the contingency period, if such shares issuable are dilutive. Using the treasury stock method, the effect of potentialdilutive securities includes the additional shares of common stock if dilutive. Forthat would have been outstanding based on the assumption that these potentially dilutive securities had been issued. The treasury stock method assumes proceeds from the exercise price of stock options and the unamortized compensation expense of RSUs and stock options are used to repurchase common shares at the average market price during the period, thus reducing the dilutive effect. RSUs and stock options with assumed proceeds per unit above the Company’s average share price for the periods presented are excluded from the diluted EPS calculation because the effect is anti-dilutive.
The following table sets forth the computation of the weighted average number of diluted common shares outstanding for the years ended December 31, 2017,2023, January 1, 20172023, and January 3, 2016,2, 2022:
| | | | | | | | | | | | | | | | | | | | |
| | For the year
January 2, 2023 to December 31, 2023 | | For the year
January 3, 2022 to January 1, 2023 | | For the year
January 4, 2021 to January 2, 2022 |
| Shares used in the computation of basic earnings per share | | 45,112,977 | | | 45,048,218 | | | 44,578,649 | |
| Effect of dilutive securities: | | | | | | |
| Stock options | | 492,075 | | | 619,508 | | | 1,066,589 | |
| RSUs and PSUs | | 71,686 | | | 99,013 | | | 156,074 | |
| DSUs | | 9,530 | | | 14,097 | | | 4,061 | |
| Shares used in the computation of diluted earnings per share | | 45,686,268 | | | 45,780,836 | | | 45,805,373 | |
The diluted earnings per common share calculation for the assumed exercisesyears ended December 31, 2023, January 1, 2023, and January 2, 2022 excluded the Company’s employee stock options, RSUseffect of 182,467, 262,510, and DSUs and the conversion of Redeemable Convertible Preferred Stock were anti-dilutive and, therefore, the following4,690 potential shares of common stock, were not included inrespectively, because the diluted loss per common share calculation:
|
| | | | | | | | | |
| | | December 31, 2017 | | January 1, 2017 | | January 3, 2016 |
| Weighted average potential common shares excluded because anti-dilutive | | | | | | |
| Redeemable Convertible Preferred Stock | | — |
| | 9,202,870 |
| | 23,876,230 |
|
| Employee Stock Options | | 13,798 |
| | 3,160,457 |
| | 2,836,919 |
|
Certaina portion of the Company’s employee stock options and RSUs and DSUs were dilutive and resulted in additional potential common shares included in the Company’s calculation of diluted earnings per common share of 2,438,835, 0 and 0 for the years ended December 31, 2017, January 1, 2017 and January 3, 2016, respectively.anti-dilutive.
Note 14. Subsequent Events
On January 3, 2018, the Company acquired the assets and assumed the liabilities of Pete Rose, Inc. (“Pete Rose”) with one location in Richmond, Virginia. Pete Rose is a market leader in the distribution of natural stone and hardscape material to landscape professionals.
On February 12, 2018, the Company acquired the outstanding stock of Atlantic Irrigation Specialties, Inc. and the limited liability company interests of Atlantic Irrigation South, LLC (collectively, “Atlantic”) with 33 locations in 12 states within the Eastern U.S. and two provinces in Eastern Canada. Atlantic is a leader in the distribution of irrigation, lighting, drainage, and landscaping equipment to green industry professionals.
The acquisitions are not material and not expected to have a significant impact on the consolidated financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended) as of December 31, 2017.2023. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2017,2023, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (SEC)(“SEC”), and that such information is accumulated and communicated to our management, including our CEOChief Executive Officer and CFO,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, and effected by the Company’s boardBoard of directors,Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations which may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2017.2023. In making this assessment, we used the criteria set forth in Internal Control -– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO)(“COSO”). Based on our assessment, we believe that, as of December 31, 2017,2023, our internal control over financial reporting was effective at a reasonable assurance level based on those criteria.
Under guidelines established by the SEC, companies are allowed to exclude an acquired business from management'smanagement’s report on internal control over financial reporting for the first year subsequent to the acquisition while integrating the acquired operations. Accordingly, management has excluded Evergreen, Marshall StoneJ&J Materials, Adams Wholesale Supply, Link, Hickory Hill, New England Silica, Timothy’s, Pioneer Landscape, Regal, JMJ Organics, and Harmony GardensNewsom Seed from its annual report on internal control over financial reporting as of December 31, 2017. Evergreen, Marshall Stone and Harmony Gardens2023. These excluded acquisitions collectively represented less than 2% and 1%approximately 4% of the Company'sCompany’s consolidated totalTotal assets (excluding goodwill and intangible assets acquired in the transactions, which are included in management’s report on internal control over financial reporting) and approximately 3% of the Company’s consolidated netNet sales respectively, as of and for the year ended December 31, 2017.2023.
Changes in Internal Control Over Financial Reporting
There are no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Our Independent Registered Public Accounting Firm has issued a report on the Company’s internal control over financial reporting. This report appears below.
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of SiteOne Landscape Supply, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of SiteOne Landscape Supply, Inc. and subsidiaries (the “Company”) as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017,2023, of the Company and our report dated February 28, 2018,22, 2024 expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Evergreen, Marshall StoneJ&J Materials, Adams Wholesale Supply, Link, Hickory Hill, New England Silica, Timothy’s, Pioneer Landscape, Regal, JMJ Organics, and Harmony GardensNewsom Seed from its annual report on internal control over financial reporting as of December 31, 2017. Evergreen, Marshall Stone and Harmony Gardens2023. These excluded acquisitions collectively represented less than 2% and 1%approximately 4% of the Company'sCompany’s consolidated totalTotal assets (excluding goodwill and intangible assets acquired in the transactions, which are included in management’s report on internal control over financial reporting) and approximately 3% of the Company’s consolidated netNet sales respectively, as of and for the year ended December 31, 2017.2023. Accordingly, our audit did not include the internal control over financial reporting at Evergreen, Marshall Stone,J&J Materials, Adams Wholesale Supply, Link, Hickory Hill, New England Silica, Timothy’s, Pioneer Landscape, Regal, JMJ Organics, and Harmony Gardens.Newsom Seed.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTEDeloitte & TOUCHETouche LLP
Atlanta, Georgia
February 28, 2018 22, 2024
Item 9B. Other Information
None.Rule 10b5-1 Trading Plans
During the three months ended December 31, 2023, none of our directors or executive officers adopted, modified, or terminated any contracts, instructions, or written plans for the purchase or sale of our common stock that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement”.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
PART III
Item 10. Directors, Executive Officers, of the Registrant and Corporate Governance
The information required by this Item for SiteOne will be set forth in SiteOne’s Proxy Statement for the 20182024 Annual Meeting of Stockholders, which information is hereby incorporated by reference. SiteOne has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
Item 11. Executive Compensation
The information required by this Item for SiteOne will be set forth in SiteOne’s Proxy Statement for the 20182024 Annual Meeting of Stockholders, which information is hereby incorporated by reference. SiteOne has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item for SiteOne will be set forth in SiteOne’s Proxy Statement for the 20182024 Annual Meeting of Stockholders, which information is hereby incorporated by reference. SiteOne has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item for SiteOne will be set forth in SiteOne’s Proxy Statement for the 20182024 Annual Meeting of Stockholders, which information is hereby incorporated by reference. SiteOne has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
Item 14. Principal Accountant Fees and Services
The information required by this Item for SiteOne will be set forth in SiteOne’s Proxy Statement for the 20182024 Annual Meeting of Stockholders, which information is hereby incorporated by reference. SiteOne has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a). Financial Statements, Schedules and Exhibits.
1. Financial Statements
2. Financial Statements Schedules
3. Exhibits
The exhibits filed with this report are listed on the Exhibit Index. Entries marked by the symbol † next to the exhibit’s number identify management contracts or compensatory plans or arrangements.
Exhibit Index
Note Regarding Reliance on Statements in Our Contracts: In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Holdings, its subsidiaries or affiliates, or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and (i) should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; (iii) may apply standards of materiality in a way that is different from what may be viewed as material to investors; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about Holdings, its subsidiaries and affiliates may be found elsewhere in this Annual Report on Form 10-K.
| | | | | |
| Exhibit Number | Description |
| |
Exhibit Number | Description |
| |
2.13.1 | Investment Agreement, dated as of October 26, 2013, by and among CD&R Landscapes Holdings, L.P., SiteOne Landscape Supply Bidco, Inc. (f/k/a CD&R Landscapes Bidco, Inc.), CD&R Landscapes Merger Sub, Inc., CD&R Landscapes Merger Sub 2, Inc., SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), Deere & Company and SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), is incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-1 of SiteOne Landscape Supply, Inc., Registration No. 333-206444 (the “Form S-1”). |
| |
3.1 | |
| |
| 3.2 | |
| |
| 4.1 | |
| |
10.14.2* | Amended and Restated Stockholders Agreement, dated asDescription of Maythe Registrant’s Securities Registered Pursuant to Section 12 2016, by and among SiteOne Landscape Supply, Inc., CD&R Landscapes Holdings, L.P. and Deere & Company, is incorporated by reference to Exhibit 10.1 toof the Form 10-QSecurities Exchange Act of SiteOne Landscape Supply, Inc., for the quarter ended April 3, 2016, file number 001-37760 (the “Q1 2016 Form 10-Q”).1934. |
| |
10.210.1 | ABL Credit Agreement, dated as of December 23, 2013, by and among CD&R Landscapes Merger Sub, Inc., CD&R Landscapers Merger Sub 2, Inc., the Lenders (as defined therein), the Borrowers (as defined therein), UBS AG, Stamford Branch, as issuing lender, swingline lender, administrative agent and collateral agent, ING Capital LLC, as syndication agent, and the Co-Documentation Agents and Joint Lead Arrangers and Joint Bookrunners (each as defined therein), is incorporated by reference to Exhibit 10.10 to the Form S-1. |
| |
10.310.2 | Amendment No. 1 to the ABL Credit Agreement, dated as of June 13, 2014, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), other subsidiary borrowers and the several banks and other financial institutions from time to time party thereto, and UBS AG, Stamford Branch, as administrative agent, is incorporated by reference to Exhibit 10.11 to the Form S-1. |
| |
10.410.3 | Amendment No. 2 to the ABL Credit Agreement, dated as of January 26, 2015, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), other subsidiary borrowers and the several banks and other financial institutions from time to time party thereto, and UBS AG, Stamford Branch, as administrative agent, is incorporated by reference to Exhibit 10.12 to the Form S-1. |
| |
10.510.4 | Amendment No. 3 to the ABL Credit Agreement, dated as of February 13, 2015, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), other subsidiary borrowers and the several banks and other financial institutions from time to time party thereto, and UBS AG, Stamford Branch, as administrative agent, is incorporated by reference to Exhibit 10.13 to the Form S-1. |
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|
| |
Exhibit Number | Description |
10.610.5 | Amendment No. 4 to the ABL Credit Agreement, dated October 20, 2015, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), other subsidiary borrowers and the several banks and other financial institutions from time to time party thereto, and UBS AG, Stamford Branch, as administrative agent is incorporated by reference to Exhibit 10.14 to the Form S-1. |
| |
| 10.6 | Sixth Amendment to Credit Agreement, dated as of February 1, 2019, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), UBS AG, Stamford Branch, as administrative agent and collateral agent, and the several banks and other financial institutions party thereto, is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc. filed February 4, 2019. |
| |
| 10.7 | Term Loan Credit Agreement, dated as of December 23, 2013, by and among CD&R Landscapes Merger Sub, Inc., CD&R Landscapers Merger Sub 2, Inc., lenders party thereto, ING Capital LLC, as administrative agent and collateral agent, UBS Securities LLC, as syndication agent, and the Co-Documentation Agents, Joint Leader Arrangers and Joint Bookrunners (each as defined herein) is incorporated by reference to Exhibit 10.14 to the Form S-1. |
| |
| 10.8 | Amendment No. 1 to the Term Loan Credit Agreement, dated as of June 13, 2014, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), other subsidiary borrowers and the several banks and other financial institutions from time to time party thereto, and ING Capital LLC, as administrative agent, is incorporated by reference to Exhibit 10.15 to the Form S-1. |
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| 10.9 | Amendment No. 2 to the Term Loan Credit Agreement, dated as of January 26, 2015, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), other subsidiary borrowers and the several banks and other financial institutions from time to time party thereto, and ING Capital LLC, as administrative agent, is incorporated by reference to Exhibit 10.16 to the Form S-1. |
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| | | | | |
| Exhibit Number | Description |
| |
| 10.10 | Amendment No. 3 to the Term Loan Credit Agreement, dated as of April 29, 2016, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), other subsidiary borrowers and the several banks and other financial institutions from time to time party thereto, and UBS AG, Stamford Branch LLC, as successor administrative agent, is incorporated by reference to Exhibit 10.18 to the Form S-1. |
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| 10.10A | Amended and Restated Term Loan Credit Agreement, dated as of April 29, 2016 SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), other subsidiary borrowers and the several banks and other financial institutions from time to time party thereto, and UBS AG, Stamford Branch, as administrative agent, is incorporated by reference to Exhibit 10.18A to the Form S-1. |
| |
| 10.11 | ABL Guarantee and Collateral Agreement, dated as of December 23, 2013, by and among SiteOne Landscape Supply Bidco, Inc. (f/k/a CD&R Landscapes Bidco, Inc.), SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC) and UBS AG, Stamford Branch, as collateral agent, is incorporated by reference to Exhibit 10.17 to the Form S-1. |
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| 10.12 | |
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| 10.13† | |
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| 10.14† | |
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| 10.15† | |
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| 10.16† | |
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10.17† | |
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10.18†10.17† | |
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|
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Exhibit Number | Description |
10.1910.18† | Consulting Agreement Termination Letter Agreement, dated May 17, 2016, by and amongAmendment to SiteOne Landscape Supply, Inc., SiteOne Landscape Supply Midco, Inc., SiteOne Landscape Supply Bidco, Inc., SiteOne Landscape Supply Holding, LLC, SiteOne Landscape Supply, LLC and Clayton, Dubilier & Rice, LLC, 2016 Omnibus Incentive Plan effective as of January 1, 2019, is incorporated by reference to Exhibit 10.12 to10.4 of the Q1 2016 Form 10-Q.10-Q filed on May 1, 2019. |
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10.2010.19† | ConsultingForm of Performance Stock Unit Award Agreement Termination Letter Agreement, dated May 17, 2016, by and amongunder the SiteOne Landscape Supply, Inc., SiteOne Landscape Supply Midco, Inc., SiteOne Landscape Supply Bidco, Inc., SiteOne Landscape Supply Holding, LLC, SiteOne Landscape Supply, LLC and Deere & Company,2016 Omnibus Incentive Plan, is incorporated by reference to Exhibit 10.1310.1 to the Q1 2016Current Report on Form 10-Q. |
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10.21 | |
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10.22†10.20† | |
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10.23†10.21† | |
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10.24†10.22† | |
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10.25†10.23† | |
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10.26†10.24† | |
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10.27†10.25† | |
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10.28†10.26† | |
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10.29† | |
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10.30†10.27† | |
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10.31† | |
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10.32† | |
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10.33† | |
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10.34† | |
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10.35†10.28† | |
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10.3610.29 | First Amendment to Amended and Restated Credit Agreement, dated as of November 23, 2016, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), UBS AG, Stamford Branch, as administrative agent and collateral agent, and the several banks and other financial institutions party thereto, is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc., filed November 23, 2016. |
| |
| | | | | |
| Exhibit Number | Description |
| 10.37 |
| 10.30 | Increase Supplement, dated as of November 23, 2016, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC) and UBS AG, Stamford Branch, as increasing lender, is incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc., filed November 23, 2016. |
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|
| |
Exhibit Number | Description |
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10.3810.31 | Second Amendment to Amended and Restated Credit Agreement, dated as of May 24, 2017, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), UBS AG, Stamford Branch, as administrative agent and collateral agent, and the several banks and other financial institutions party thereto, is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc., filed May 24, 2017. |
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10.3910.32 | Omnibus Amendment, dated as of May 24, 2017, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), UBS AG, Stamford Branch, as administrative agent and collateral agent, the several banks and other financial institutions party thereto and certain other parties party thereto from time to time, , is incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc., filed May 24, 2017. |
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10.4010.33 | Third Amendment to Amended and Restated Credit Agreement, dated as of December 12, 2017, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), UBS AG, Stamford Branch, as administrative agent and collateral agent, and the several banks and other financial institutions party thereto, is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc., filed December 12, 2017. |
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10.4110.34 | Increase Supplement, dated as of December 12, 2017, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC) and UBS AG, Stamford Branch, as increasing lender, is incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc., filed December 12, 2017. |
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10.42†10.35† | |
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10.43†10.36† | |
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10.44†10.37† | |
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| 10.38† | |
| 21.1* |
| 10.39† | |
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| 10.40† | |
| |
| 10.41 | Fourth Amendment to Amended and Restated Credit Agreement, dated August 14, 2018, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC), SiteOne Landscape Supply, LLC (f/k/a John Deere Landscapes LLC), UBS AG, Stamford Branch, as administrative agent and collateral agent, and the several banks and other financial institutions party thereto, is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc., filed August 15, 2018. |
| |
| 10.42 | Increase Supplement, dated as of August 14, 2018, by and among SiteOne Landscape Supply Holding, LLC (f/k/a JDA Holding LLC) and UBS AG, Stamford Branch, as increasing lender, is incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc., filed August 15, 2018. |
| |
| 10.43† | |
| |
| 10.44† | |
| |
| 10.45† | |
| |
| 10.46† | |
| |
| | | | | |
| Exhibit Number | Description |
| |
| 10.47† | |
| |
| 10.48† | |
| |
| 10.49† | |
| |
| 10.50† | |
| |
| 10.51† | |
| |
| 10.52† | |
| |
| 10.53 | Fifth Amendment to Amended and Restated Credit Agreement dated as of March 23, 2021, by and among SiteOne Landscape Supply Holding, LLC, SiteOne Landscape Supply, LLC, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the several banks and other financial institutions party thereto, is incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 30, 2021. |
| |
| 10.54† | |
| |
| 10.55 | Seventh Amendment to the Credit Agreement, dated as of July 22, 2022, by and among SiteOne Landscape Supply Holding, LLC, SiteOne Landscape Supply, LLC, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the several banks and other financial institutions party thereto, is incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of SiteOne Landscape Supply, Inc. filed July 25, 2022. |
| |
| 10.56† | |
| |
| 10.57† | |
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| 10.58† | |
| |
| 10.59† | |
| |
| 10.60† | |
| |
| 10.61 | |
| |
| 10.62† | |
| |
| 10.63 | |
| |
| 10.64*† | |
| |
| 10.65† | |
| |
| | | | | |
| Exhibit Number | Description |
| |
| 10.66*† | |
| |
| 10.67*† | |
| |
| 21.1* | |
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| 23.1* | |
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| 31.1* | |
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31.2* | |
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32.1* | |
| |
32.2*31.2* | |
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| 32.1+ | |
| |
| 32.2+ | |
| 101.INS* |
| 97* | XBRL Instance Document |
| |
| 101* | The following audited financial information from this Annual Report on Form 10-K for the year ended December 31, 2023 is formatted in Inline XBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. |
| 101.SCH* | XBRL Taxonomy Extension Schema
| 104* | |
101.CAL* | Cover Page Interactive Data File (formatted in Inline XBRL Taxonomy Extension Calculation Linkbase |
| |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase |
| |
101.LAB* | XBRL Taxonomy Extension Label Linkbase |
| |
101.PRE* | XBRL Extension Presentation Linkbasewith applicable taxonomy extension information contained in Exhibit 101). |
______________
* Filed herewith.
+ Furnished herewith.
† Denotes management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
Not applicable.
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.
| | | | | | | | | | | | | | |
| | | | | |
| | SITEONE LANDSCAPE SUPPLY, INC. |
| | (Registrant) |
| | | | | |
| Date: | February 28, 201822, 2024 | By: | /s/ John T. Guthrie |
| | | Name: | Name: | John T. Guthrie |
| | | | Title: | Executive Vice President, Chief Financial Officer and Assistant Secretary |
| | | |
(Principal Financial Officer and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Date: | February 22, 2024 | By: | | |
Date: | February 28, 2018 | By: | /s/ Doug Black |
| | | Name: | | | Name: | Doug Black |
| | | Title: | | | Title: | Chairman and Chief Executive Officer, Director (Principal
(Principal Executive Officer) |
| | | | |
| Date: | February 28, 201822, 2024 | By: | /s/ John T. Guthrie |
| | | Name: | | | Name: | John T. Guthrie |
| | | Title: | | | Title: | Executive Vice President, Chief Financial Officer and Assistant Secretary (Principal
(Principal Financial Officer and Principal Accounting Officer) |
| | | | |
| Date: | February 28, 201822, 2024 | By: | /s/ Fred M. Diaz |
| | | Name: | | | Name: | Fred M. Diaz
|
| | | Title: | | | Title: | Director |
| | | | |
| Date: | February 28, 201822, 2024 | By: | /s/ William W. Douglas, III |
| | | Name: | | | Name: | William W. Douglas, III |
| | | Title: | | | Title: | Director |
| | | | |
| Date: | February 22, 2024 | By: | | /s/ Larisa J. Drake |
| Date: | | Name: | February 28, 2018 | By: | /s/ MichaelLarisa J. GrebeDrake |
| | | Title: | | | Name: | Michael J. GrebeDirector |
| | | | |
| Date: | February 22, 2024 | By: | Title: | Director/s/ W. Roy Dunbar |
| | | Name: | | | | W. Roy Dunbar |
| Date: | | Title: | Director |
| | | | |
| Date: | February 28, 201822, 2024 | By: | /s/ Jeri L. Isbell |
| | | Name: | | | Name: | Jeri L. Isbell |
| | | Title: | | | Title: | Director |
| | | | |
| Date: | February 28, 201822, 2024 | By: | /s/ W. Roy Dunbar |
| | | Name: | W. Roy Dunbar
|
| | | Title: | Director |
| | | | |
Date: | February 28, 2018 | By: | /s/ Paul S. Pressler |
| | | Name: | Paul S. Pressler |
| | | Title: | Director |
| | | | |
Date: | February 28, 2018 | By: | /s/ Jack L. Wyszomierski |
| | | Name: | | | Name: | Jack L. Wyszomierski |
| | | Title: | | | Title: | Director |
Schedule I - SiteOne Landscape Supply, Inc.’s Condensed Financial Statements
SiteOne Landscape Supply, Inc.
Parent Company Only
Condensed Balance Sheets
(In millions, except share data)
| | | | | December 31, 2017 | | January 1, 2017 |
| | December 31, 2023 | | | | December 31, 2023 | | January 1, 2023 |
| Assets | | | | |
| Investment in wholly owned subsidiary | | $ | 211.8 |
| | $ | 147.0 |
|
| Investment in wholly-owned subsidiary | |
| Investment in wholly-owned subsidiary | |
| Investment in wholly-owned subsidiary | |
| Deferred tax asset (Note 3) | | 1.0 |
| | 1.8 |
|
| Total assets | | $ | 212.8 |
| | $ | 148.8 |
|
| | | | | |
| Liabilities and Stockholders' Equity | | | | |
| Liabilities and Stockholders' Equity | |
| Liabilities and Stockholders' Equity | |
| Total liabilities | |
| Total liabilities | |
| Total liabilities | | — |
| | — |
|
| | | | | |
| Stockholders' Equity: | | | | |
| Common stock, par value $0.01; 1,000,000,000 shares authorized; 39,977,181 and 39,597,532 shares issued, and 39,956,270 and 39,576,621 shares outstanding at December 31, 2017 and January 1, 2017, respectively | | 0.4 |
| | 0.4 |
|
| Additional paid in capital | | 227.8 |
| | 219.3 |
|
| Accumulated deficit | | (15.1 | ) | | (69.7 | ) |
| Accumulated other comprehensive loss | | $ | (0.3 | ) | | $ | (1.2 | ) |
| | Stockholders' equity: | |
| | Stockholders' equity: | |
| | Stockholders' equity: | |
| Common stock, par value $0.01; 1,000,000,000 shares authorized; 45,404,091 and 45,148,312 shares issued, and 45,082,070 and 44,916,291 shares outstanding at December 31, 2023 and January 1, 2023, respectively | |
| Common stock, par value $0.01; 1,000,000,000 shares authorized; 45,404,091 and 45,148,312 shares issued, and 45,082,070 and 44,916,291 shares outstanding at December 31, 2023 and January 1, 2023, respectively | |
| Common stock, par value $0.01; 1,000,000,000 shares authorized; 45,404,091 and 45,148,312 shares issued, and 45,082,070 and 44,916,291 shares outstanding at December 31, 2023 and January 1, 2023, respectively | |
| Additional paid-in capital | |
| Retained earnings | |
| Accumulated other comprehensive income | |
| Treasury stock, at cost, 322,021 and 232,021 shares at December 31, 2023 and January 1, 2023, respectively | |
| Total stockholders' equity | | 212.8 |
| | 148.8 |
|
| Total liabilities and stockholders' equity | | $ | 212.8 |
| | $ | 148.8 |
|
See Notes to Condensed Financial Statements.
SiteOne Landscape Supply, Inc.
Parent Company Only
Condensed Statements of Operations and Comprehensive Income
(In millions)
|
| | | | | | | | | | | | |
| | | For the year | | For the year | | For the year |
| | | January 2, 2017 | | January 4, 2016 | | December 29, 2014 |
| | | to December 31, 2017 | | to January 1, 2017 | | to January 3, 2016 |
| | | | | | | |
| Equity in net income of subsidiary | | $ | 54.6 |
| | $ | 30.6 |
| | $ | 28.9 |
|
| | | | | | | |
| Net income before taxes | | 54.6 |
| | 30.6 |
| | 28.9 |
|
| Net income | | $ | 54.6 |
| | $ | 30.6 |
| | $ | 28.9 |
|
| | | | | | | |
| Other comprehensive income (loss), net of tax | | 0.9 |
| | — |
| | (0.8 | ) |
| Comprehensive income | | $ | 55.5 |
| | $ | 30.6 |
| | $ | 28.1 |
|
| | | | | | | | | | | | | | | | | | | | |
| | For the year |
| | January 2, 2023 | | January 3, 2022 | | January 4, 2021 |
| | to December 31, 2023 | | to January 1, 2023 | | to January 2, 2022 |
| Equity in Net income of subsidiary | | $ | 173.4 | | | $ | 245.4 | | | $ | 238.4 | |
| | | | | | |
| Income before taxes | | 173.4 | | | 245.4 | | | 238.4 | |
| | | | | | |
| Net income | | $ | 173.4 | | | $ | 245.4 | | | $ | 238.4 | |
| | | | | | |
| Other comprehensive (loss) income, net of tax | | (3.5) | | | 9.9 | | | 4.1 | |
| Comprehensive income | | $ | 169.9 | | | $ | 255.3 | | | $ | 242.5 | |
See Notes to Condensed Financial Statements.
SiteOne Landscape Supply, Inc.
Parent Company Only
Condensed Statements of Cash Flows
(In millions)
| | | For the year | | | | For the year |
| | January 2, 2023 | | | | January 2, 2023 | | January 3, 2022 | | January 4, 2021 |
| | to December 31, 2023 | | | | to December 31, 2023 | | to January 1, 2023 | | to January 2, 2022 |
| Cash Flows from Operating Activities: | |
| Net income | |
| Net income | |
| Net income | |
| Adjustments to reconcile Net income to net cash provided by operating activities: | |
| Equity in Net income of subsidiary | |
| Equity in Net income of subsidiary | |
| Equity in Net income of subsidiary | |
| | | Net cash provided by operating activities | |
| | | For the year | | For the year | | For the year |
| Net cash provided by operating activities | |
| | | January 2, 2017 | | January 4, 2016 | | December 29, 2014 |
| | | to December 31, 2017 | | to January 1, 2017 | | to January 3, 2016 |
| Cash Flows from Operating Activities: | | | | | | |
| Net income | | $ | 54.6 |
| | $ | 30.6 |
| | $ | 28.9 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Equity in net income of subsidiary | | (54.6 | ) | | (30.6 | ) | | (28.9 | ) |
| Distribution from subsidiary | | — |
| | 49.6 |
| | — |
|
| Net cash provided by operating activities | | $ | — |
| | $ | 49.6 |
| | $ | — |
|
| | | | | | | |
| Cash Flows from Investing Activities: | | | | | | |
| Cash Flows from Investing Activities: | |
| Cash Flows from Investing Activities: | |
| Distribution to subsidiary | |
| Distribution to subsidiary | |
| Distribution to subsidiary | |
| Distribution received from subsidiary | | — |
| | 142.2 |
| | — |
|
| Net cash provided by investing activities | | $ | — |
| | $ | 142.2 |
| | $ | — |
|
| | | | | | | |
| Cash Flows from Financing Activities: | | | | | | |
| Special cash dividend | | — |
| | (176.0 | ) | | — |
|
| Other dividends paid | | — |
| | (13.0 | ) | | — |
|
| Other financing activities | | — |
| | (2.8 | ) | | — |
|
| Cash Flows from Financing Activities: | |
| Cash Flows from Financing Activities: | |
| Equity proceeds from common stock | |
| Equity proceeds from common stock | |
| Equity proceeds from common stock | |
| Repurchases of common stock | |
| | Net cash used in financing activities | |
| Net cash used in financing activities | |
| Net cash used in financing activities | | $ | — |
| | $ | (191.8 | ) | | $ | — |
|
| | | | | | | |
| Net change in cash and cash equivalents | | — |
| | — |
| | — |
|
| Net change in cash and cash equivalents | |
| Net change in cash and cash equivalents | |
| | | | | | | |
| Cash and cash equivalents: | | | | | | |
| Cash and cash equivalents: | |
| Cash and cash equivalents: | |
| Beginning | |
| Beginning | |
| Beginning | | — |
| | — |
| | — |
|
| Ending | | $ | — |
| | $ | — |
| | $ | — |
|
See Notes to Condensed Financial Statements.
Notes to Condensed Parent Company Only Financial Statements
Note 1. Description of SiteOne Landscape Supply, Inc.
SiteOne Landscape Supply, Inc. (“Holdings” or the “Parent”) indirectly owns 100% of the membership interest in SiteOne Landscape Supply Holding, LLC (“Landscape Holding” or “subsidiary”), which it acquired from Deere & Company on December 23, 2013 (the “Closing Date”) in exchange for its common stock initially representing 40% of the outstanding capital stock (on an as-converted basis). In addition, Holdings issued cumulative convertible participating redeemable preferred stock (“Redeemable Convertible Preferred Stock”) to Clayton, Dubilier & Rice, LLC (“CD&R”) initially representing 60% of its remaining outstanding capital stock (on an as-converted basis) (both events collectively referred to herein as the “CD&R Acquisition”). On May 2, 2016, Holdings paid a one-time special cash dividend to all existing stockholders as of April 29, 2016. CD&R received $112.4 million in accordance with its right to participate in all distributions to common stock on an as-converted basis, in accordance with its right as a preferred stockholder. On the day prior to the closing of the initial public offering, all of the then-outstanding Redeemable Convertible Preferred Stock converted into shares of common stock, resulting in the issuance by Holdings of an additional 25,303,164 shares of common stock. On December 5, 2016, May 1, 2017, and July 26, 2017, Holdings completed secondary offerings of its common stock in which Deere and CD&R were the sole sellers. Following consummation of the secondary offering on July 26, 2017, , CD&R and Deere no longer have an ownership interest in Holdings. Holdings has no significant operations or assets other than its indirect ownership of the equity of Landscape Holding. Accordingly, the Holdings is dependent upon distributions from Landscape Holding to fund its obligations. However, under the terms of Landscape Holding’s credit agreements governing Landscape Holding’s ABL Facility and New Term Loan Facility,Loans, Landscape Holding’s ability to pay dividends or lend to Holdings is restricted. Landscape Holding has no obligation to pay dividends to Holdings except to pay specified amounts to Holdings in order to fund the payment of Holdings’ tax obligations.
Share Repurchase Program
On October 20, 2022, Holdings’ Board of Directors authorized Holdings to repurchase, at any time or from time to time, shares of Holdings’ common stock having an aggregate purchase price not to exceed $400.0 million pursuant to a Rule 10b5-1 plan and/or pursuant to open market or accelerated share repurchase arrangements, tender offers, or privately negotiated transactions. The repurchase authorization does not have an expiration date and may be amended, suspended, or terminated by Holdings’ Board of Directors at any time.
The following table summarizes the activity under the share repurchase program during the periods presented.
| | | | | | | | | | | | | | | | | | | | |
| Fiscal Year | | Total Number of
Shares Purchased | | Average Price Paid
Per Share | | Amount Remaining
(in millions) |
| 2022 | | 211,110 | | $ | 118.40 | | | $ | 375.0 | |
| 2023 | | 90,000 | | $ | 126.21 | | | $ | 363.6 | |
Note 2. Basis of Presentation
The accompanying Condensed Parent Company Only Financial Statements include theHoldings’ amounts of Holdings and its investment in subsidiary since the Closing Date under the equity method, and do not present the financial statements of Holdings and its subsidiary on a consolidated basis. Under the equity method, investment in subsidiary is stated at cost plus contributions and equity in undistributed income (loss) of subsidiary less distributions received since the date of acquisition. TheseThe condensed Parent Company Only Financial Statements should be read in conjunction with SiteOne Landscape Supply, Inc. Consolidated Financial Statements and their accompanying Notes to Consolidated Financial Statements.
Note 3. Income Taxes
With respect toIn connection with the CD&R Acquisition, transaction expenses of $9.8 million of transaction expenses were recorded within the period ended December 29, 2013. Of the $9.8 million of transaction expenses, $3.7 million were not deductible for tax purposes and the remaining $6.1 million ($2.2 million tax-effected) were capitalized for tax purposes as a deferred tax asset. DuringAmortization of the deferred tax asset for the years endended December 31, 20172023 and January 1, 2017, respectively,2023 was $0.4 million ($0.20.1 million tax-effected) and $0.4 million ($0.1 million tax-effected) has been amortized,, respectively, which gives rise to a net operating loss and current tax benefit that offsets the deferred tax expense by the same amount.
In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35% to 21%, effective as of January 1, 2018. As a result, the Company re-measured its deferred tax asset based on the rates at which this item is expected to reverse in the future, which is 21%. The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act was signed into law. At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the 2017 Tax Act; however, the Company has made a reasonable estimate (provisional amount) of the effect on its existing deferred tax asset. The Company is still analyzing certain aspects of the 2017 Tax Act and refining its calculations, which potentially could affect the measurement of this balance or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of our deferred tax asset was an expense of $0.6 million. As of December 31, 2017,2023, the deferred tax asset related to these transaction expenses has a balance of $1.0$0.4 million.
In August 2022, the Inflation Reduction Act of 2022 was enacted, which, among other things, implemented a 15% corporate alternative minimum tax on book income of certain large corporations effective for tax years beginning after December 31, 2022, and imposes a 1% excise tax on corporate stock repurchases after December 31, 2022. The legislation has not had a material impact on Holdings’ consolidated financial statements and related disclosures.
Effective for tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. The legislation has not had a material impact on Holdings’ consolidated financial statements and related disclosures.
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted which included several changes to existing U.S. tax laws that impacted Holdings, most notably the limitation on U.S. interest deductibility, the ability to defer the payment of qualifying employer payroll taxes to December 31, 2021 and December 31, 2022, and certain changes to the depreciable life of qualified improvement property.
