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 and 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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

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 13(a) of the Exchange Act. ☐

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 January 31, ~~2019, 68,438,361~~2020, 68,805,794 shares of common stock, par value $0.01 per share, of the registrant were outstanding.

										December 31,			September 30,			December 31,
	December 31,			September 30,			December 31,			2019			2019			2018
	2018			2018			2017			(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	18,423		$	129,927		$	63,827		$	43,749		$	72,287		$	18,423
Restricted cash		-			-			1,300,000
Accounts receivable, less allowance of $21,353, $17,584 and $13,470 as of December 31, 2018, September 30, 2018 and December 31, 2017, respectively		881,749			1,090,533			552,703
Accounts receivable, less allowance of $15,200, $13,095 and $21,353 as of December 31, 2019, September 30, 2019 and December 31, 2018, respectively											861,087			1,108,134			881,749
Inventories, net		1,025,310			936,047			603,793			1,037,827			1,018,183			1,025,310
Prepaid expenses and other current assets		375,598			244,360			218,718			311,112			315,643			375,598
Total current assets		2,301,080			2,400,867			2,739,041			2,253,775			2,514,247			2,301,080
Property and equipment, net		273,742			280,407			154,687			253,019			260,376			273,742
Goodwill		2,489,730			2,491,779			1,251,825			2,491,166			2,490,590			2,489,730
Intangibles, net		1,282,242			1,334,366			410,857			1,077,478			1,125,540			1,282,242
Operating lease assets											463,081			-			-
Other assets, net		1,243			1,243			8,868			10			2,059			1,243
Total assets	$	6,348,037		$	6,508,662		$	4,565,278		$	6,538,529		$	6,392,812		$	6,348,037

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	551,940		$	880,872		$	315,442		$	594,613		$	822,931		$	551,940
Accrued expenses		375,672			611,539			266,049			411,169			599,155			375,672
Current operating lease liabilities											98,994			-			-
Current portions of long-term debt/obligations		20,315			19,661			14,239			13,877			18,689			20,315
Total current liabilities		947,927			1,512,072			595,730			1,118,653			1,440,775			947,927
Borrowings under revolving lines of credit, net		503,216			92,442			-			215,642			80,961			503,216
Long-term debt, net		2,497,123			2,494,725			2,000,059			2,495,135			2,494,623			2,497,123
Deferred income taxes, net		110,179			106,994			93,451			107,085			103,913			110,179
Long-term obligations under equipment financing and other, net		10,689			13,639			20,951
Non-current operating lease liabilities											358,504			-			-
Long-term obligations under equipment financing, net											1,607			4,609			10,689
Other long-term liabilities		5,532			5,290			2,743			2,018			6,383			5,532
Total liabilities	$	4,074,666		$	4,225,162		$	2,712,934			4,298,644			4,131,264			4,074,666

Commitments and contingencies (Note 9)

Convertible preferred stock; $0.01 par value; aggregate liquidation preference $400,000; 400,000 shares authorized, issued and outstanding as of December 31, 2018 and September 30, 2018; none authorized, issued or outstanding as of December 31, 2017	$	399,195		$	399,195		$	-
Convertible Preferred Stock; $0.01 par value; aggregate liquidation preference $400,000; 400,000 shares authorized, issued and outstanding as of December 31, 2019, September 30, 2019 and December 31, 2018¹											399,195			399,195			399,195

Stockholders' equity:
Common stock (voting); $0.01 par value; 100,000,000 shares authorized; 68,432,707, 68,135,790, and 67,972,383 shares issued and outstanding as of December 31, 2018, September 30, 2018 and December 31, 2017, respectively	$	684		$	681		$	679
Undesignated preferred stock; 5,000,000 shares authorized, none issued or outstanding		-			-			-
Common stock (voting); $0.01 par value; 100,000,000 shares authorized; 68,760,731, 68,574,176 and 68,432,707 shares issued and outstanding as of December 31, 2019, September 30, 2019 and December 31, 2018, respectively											687			685			684
Undesignated preferred stock; 5,000,000 shares authorized, NaN issued or outstanding											-			-			-
Additional paid-in capital		1,067,711			1,067,040			1,050,389			1,086,970			1,083,042			1,067,711
Retained earnings		826,941			833,834			815,782			769,812			799,222			826,941
Accumulated other comprehensive income (loss)		(21,160	)		(17,250	)		(14,506	)		(16,779	)		(20,596	)		(21,160	)
Total stockholders' equity		1,874,176			1,884,305			1,852,344			1,840,690			1,862,353			1,874,176
Total liabilities and stockholders' equity	$	6,348,037		$	6,508,662		$	4,565,278		$	6,538,529		$	6,392,812		$	6,348,037

	Three Months Ended December 31,						Three Months Ended December 31,
	2018			2017			2019			2018
Net sales	$	1,721,676		$	1,121,979		$	1,675,112		$	1,721,676
Cost of products sold		1,286,107			852,226			1,264,414			1,286,107
Gross profit		435,569			269,753			410,698			435,569
Operating expense:
Selling, general and administrative		327,693			193,753			326,919			327,693
Depreciation		17,601			8,709			19,072			17,601
Amortization		52,021			18,195			44,778			52,021
Total operating expense		397,315			220,657			390,769			397,315
Income (loss) from operations		38,254			49,096			19,929			38,254
Interest expense, financing costs, and other		38,361			22,568			38,293			38,361
Loss on debt extinguishment								14,678			-
Income (loss) before provision for income taxes		(107	)		26,528			(33,042	)		(107	)
Provision for (benefit from) income taxes¹		786			(41,068	)
Provision for (benefit from) income taxes								(9,632	)		786
Net income (loss)	$	(893	)	$	67,596		$	(23,410	)	$	(893	)
Dividends on preferred shares²		6,000			-
Dividends on Preferred Stock¹								6,000			6,000
Net income (loss) attributable to common shareholders	$	(6,893	)	$	67,596		$	(29,410	)	$	(6,893	)

Weighted-average common stock outstanding:
Basic		68,248,020			67,825,430			68,667,943			68,248,020
Diluted		68,248,020			69,244,678
Diluted²								68,667,943			68,248,020

Net income (loss) per share³:
Basic	$	(0.10	)	$	1.00		$	(0.43	)	$	(0.10	)
Diluted	$	(0.10	)	$	0.98		$	(0.43	)	$	(0.10	)

											Accumulated																Accumulated
					Additional						Other			Total							Additional						Other			Total
	Common Stock				Paid-in			Retained			Comprehensive			Stockholders'			Common Stock				Paid-in			Retained			Comprehensive			Stockholders'
	Shares		Amount		Capital			Earnings			Income (Loss)			Equity			Shares		Amount		Capital			Earnings			Income (Loss)			Equity
Balance as of September 30, 2017		67,700,858	$	677	$	1,047,506		$	748,186		$	(14,563	)	$	1,781,806
Issuance of common stock, net of shares withheld for taxes		271,525		2		(147	)		-			-			(145	)
Issuance costs related to secondary offering of common stock						(429	)								(429	)
Stock-based compensation		-		-		3,459			-			-			3,459
Other comprehensive income (loss)		-		-		-			-			57			57
Net income (loss)		-		-		-			67,596			-			67,596
Balance as of December 31, 2017		67,972,383	$	679	$	1,050,389		$	815,782		$	(14,506	)	$	1,852,344


											Accumulated
					Additional						Other			Total
	Common Stock				Paid-in			Retained			Comprehensive			Stockholders'
	Shares		Amount		Capital			Earnings			Income (Loss)			Equity
Three Months Ended December 31, 2018
Balance as of September 30, 2018		68,135,790	$	681	$	1,067,040		$	833,834		$	(17,250	)	$	1,884,305			68,135,790	$	681	$	1,067,040		$	833,834		$	(17,250	)	$	1,884,305
Issuance of common stock, net of shares withheld for taxes		296,917		3		(2,786	)		-			-			(2,783	)		296,917		3		(2,786	)		-			-			(2,783	)
Stock-based compensation		-		-		3,457			-			-			3,457			-		-		3,457			-			-			3,457
Other comprehensive income (loss)		-		-		-			-			(3,910	)		(3,910	)		-		-		-			-			(3,910	)		(3,910	)
Net income (loss)		-		-		-			(893	)		-			(893	)		-		-		-			(893	)		-			(893	)
Dividends on preferred shares¹		-		-		-			(6,000	)		-			(6,000	)
Dividends on Preferred Stock¹																		-		-		-			(6,000	)		-			(6,000	)
Balance as of December 31, 2018		68,432,707	$	684	$	1,067,711		$	826,941		$	(21,160	)	$	1,874,176			68,432,707	$	684	$	1,067,711		$	826,941		$	(21,160	)	$	1,874,176

Three Months Ended December 31, 2019
Balance as of September 30, 2019																		68,574,176	$	685	$	1,083,042		$	799,222		$	(20,596	)	$	1,862,353
Issuance of common stock, net of shares withheld for taxes																		186,555		2		(1,228	)		-			-			(1,226	)
Stock-based compensation																		-		-		5,156			-			-			5,156
Other comprehensive income (loss)																		-		-		-			-			3,817			3,817
Net income (loss)																		-		-		-			(23,410	)		-			(23,410	)
Dividends on Preferred Stock¹																		-		-		-			(6,000	)		-			(6,000	)
Balance as of December 31, 2019																		68,760,731	$	687	$	1,086,970		$	769,812		$	(16,779	)	$	1,840,690

¹ ~~Amount represents dividends that have been declared and paid during the three months ended December 31, 2018.~~

	Three Months Ended December 31,
	2019			2018
Operating Activities
Net income (loss)	$	(23,410	)	$	(893	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		63,850			69,622
Stock-based compensation		5,156			3,457
Certain interest expense and other financing costs		2,849			3,024
Beneficial lease amortization		-			572
Loss on debt extinguishment		14,678			-
Gain on sale of fixed assets		(330	)		(265	)
Deferred income taxes		2,357			3,201
Changes in operating assets and liabilities, net of the effects of businesses acquired in the period:
Accounts receivable		247,685			207,119
Inventories		(19,147	)		(90,712	)
Prepaid expenses and other current assets		(3,362	)		(131,638	)
Accounts payable and accrued expenses		(417,507	)		(400,616	)
Other assets and liabilities		1,874			246
Net cash provided by (used in) operating activities		(125,307	)		(336,883	)

Investing Activities
Purchases of property and equipment		(12,194	)		(11,688	)
Acquisition of businesses, net		-			(163,973	)
Proceeds from the sale of assets		396			401
Net cash provided by (used in) investing activities		(11,798	)		(175,260	)

Financing Activities
Borrowings under revolving lines of credit		750,711			1,298,654
Payments under revolving lines of credit		(616,767	)		(888,225	)
Payments under term loan		(2,425	)		-
Borrowings under senior notes		300,000			-
Payment under senior notes		(309,564	)		-
Payment of debt issuance costs		(3,582	)		-
Payments under equipment financing facilities and finance leases		(2,282	)		(1,465	)
Payment of dividends on Preferred Stock		(6,000	)		(6,000	)
Proceeds from issuance of common stock related to equity awards		875			834
Payment of taxes related to net share settlement of equity awards		(2,101	)		(3,617	)
Net cash provided by (used in) financing activities		108,865			400,181

Effect of exchange rate changes on cash and cash equivalents		(298	)		458

Net increase (decrease) in cash and cash equivalents		(28,538	)		(111,504	)
Cash and cash equivalents, beginning of period		72,287			129,927
Cash and cash equivalents, end of period	$	43,749		$	18,423

Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	57,420		$	57,732
Income taxes paid (received), net of refunds		125			1,239

Three Months Ended December 31,

2018

2017

Operating Activities

Net income (loss)
$
(893
)

$
67,596

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

69,622

26,904

Stock-based compensation

3,457

3,459

Certain interest expense and other financing costs

3,024

707

Beneficial lease amortization

572

-

Gain on sale of fixed assets

(265
)

(319
)
Deferred income taxes

3,201

(44,923
)
Changes in operating assets and liabilities, net of the effects of businesses acquired:

Accounts receivable

207,119

151,365

Inventories

(90,712
)

(52,024
)
Prepaid expenses and other assets

(131,638
)

(1,421
)
Accounts payable and accrued expenses

(400,616
)

(191,800
)
Other liabilities

246

-

Net cash provided by (used in) operating activities

(336,883
)

(40,456
)

Investing Activities

Purchases of property and equipment

(11,688
)

(7,416
)
Acquisition of businesses, net

(163,973
)

-

Proceeds from the sale of assets

401

413

Net cash provided by (used in) investing activities

(175,260
)

(7,003
)

Financing Activities

Borrowings under revolving lines of credit

1,298,654

17,402

Repayments under revolving lines of credit

(888,225
)

(20,548
)
Borrowings under senior notes

-

1,300,000

Payment of debt issuance costs

-

(21,917
)
Repayments under equipment financing facilities and other

(1,465
)

(1,968
)
Payment of stock issuance costs

-

(429
)
Payment of dividends on preferred stock

(6,000
)

-

Proceeds from issuance of common stock related to equity awards

834

3,781

Taxes paid related to net share settlement of equity awards

(3,617
)

(3,925
)
Net cash provided by (used in) financing activities

400,181

1,272,396

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

458

640

Net increase (decrease) in cash, cash equivalents, and restricted cash

(111,504
)

1,225,577

Cash, cash equivalents, and restricted cash, beginning of period

129,927

138,250

Cash, cash equivalents, and restricted cash, end of period
$
18,423

$
1,363,827

Supplemental Cash Flow Information

Cash paid during the period for:

Interest
$
57,732

$
26,781

Income taxes, net of tax refunds

1,239

22,130

Beacon Roofing Supply, Inc. ~~(the~~(“Beacon” or the “Company”) was incorporated in the state of Delaware on August 22, 1997 and is the largest publicly traded distributor of ~~residential and non-residential~~ roofing materials and complementary building products in the United States and Canada.

On January 2, 2018, the Company completed the acquisition of all the outstanding capital stock of Allied Building Products Corp. (“Allied”), a New Jersey corporation, for $2.625 billion, subject to certain working capital and other adjustments. Allied engages in the distribution of roofing materials, drywall, ceiling tile, and related accessories in the United States and was a wholly-owned subsidiary of Oldcastle Distribution, Inc. (see Note 3 for further discussion).

~~The Company operates its business under regional and local trade names and, as~~As of December 31, ~~2018,~~2019, the Company ~~serviced customers in~~operated 530 branches throughout all 50 states ~~within~~throughout the ~~United States~~U.S. and 6 provinces in Canada. The Company’s material subsidiaries are Beacon Sales Acquisition, Inc., and Beacon Roofing Supply Canada Company.

The Company prepared the condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the requirements of the Securities and Exchange Commission (“SEC”). As permitted under those rules, certain footnotes or other financial information have been condensed or omitted. Certain prior period amounts have been reclassified to conform to current period presentation. The balance sheet as of December 31, ~~2017~~2018 has been presented for a better understanding of the impact of seasonal fluctuations on the Company’s financial condition.

In management’s opinion, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results. The results for the three months ended December 31, ~~2018~~2019 are not necessarily indicative of the results to be expected for the twelve months ending September 30, ~~2019~~2020 (“fiscal year ~~2019”~~2020” or ~~“2019”~~“2020”).

The three-month periods ended December 31, ~~2018~~2019 and ~~2017~~2018 each had 62 ~~and 61~~ business days ~~respectively.~~.

These interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in the Company’s fiscal year ~~2018~~2019 (“~~2018”~~2019”) Annual Report on Form 10-K for the year ended September 30, ~~2018.~~2019.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Significant items subject to such estimates include accounts receivable, inventories, purchase price allocations, ~~recoverability of~~ goodwill and intangibles, and income taxes. Actual amounts could differ from those estimates.

In ~~May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers~~.” This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and replaces most previously issued revenue recognition guidance. The new standard is effective for public business entities for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2017, and early adoption is permitted for annual reporting periods beginning after December 15, 2016. The standard permits the use of either the full retrospective or modified retrospective adoption methods. The Company elected the modified retrospective method and adopted the standard as of October 1, 2018 utilizing the portfolio practical expedient. The adoption of this guidance did not impact the Company’s retained earnings and did not have a material impact on the Company’s net sales recognition practices, income from operations, or net income per share amounts. The adoption of this guidance did result in certain balance sheet reclassifications to record estimated customer returns, specifically the recognition of a current liability for the gross amount of estimated returns and a current asset for the value of the related products. These reclassifications did not have a material impact on the Company’s consolidated balance sheet as of December 31, 2018. In addition, the adoption of this guidance resulted in additional quantitative disclosures to disaggregate net sales balances by product line and geography. See Note 4 to the Consolidated Financial Statements for further discussion.

~~In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business.”~~ This guidance is intended to assist entities when evaluating when a set of transferred assets and activities constitutes a business. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2017, and early adoption is permitted. The Company adopted the standard as of October 1, 2018 and the standard did not have a material impact on the Company’s financial statement and related disclosures.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~“Scope of Modification Accounting.”~~ This guidance is intended to provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Compensation – Stock Compensation, to a change to the terms or conditions of a share-based payment award. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2017, and early adoption is permitted. The Company adopted the standard as of October 1, 2018 and the standard did not have a material impact on the Company’s financial statement and related disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases.” This guidance ~~will replace~~replaces most existing accounting for ~~lease guidance when it becomes effective. This new standard is effective using the modified retrospective approach for annual reporting periods,~~leases and interim reporting periods contained therein, beginning after December 15, 2018, and early adoption is permitted. In July 2018, the FASB amended the new lease standard which, among other changes, allows a company to elect to adopt ASU 2016-02 using a transition option whereby a cumulative effect adjustment is recorded to the opening balance of its retained earnings on the adoption date.requires enhanced disclosures. The guidance ~~will require~~requires the Company to record a ~~right of use~~right-of-use asset and a lease liability for most of the Company’s leases, including those ~~currently~~previously treated as operating leases. The Company ~~is in the process of evaluating the impact of~~adopted the standard using the modified retrospective transition method as of October 1, 2019 and ~~has decided that it~~ will ~~use~~not apply the standard to comparative prior periods presented. The Company used the package of transition practical expedients outlined in the transition guidance. The ~~scope~~most significant effects of the ~~overall~~new standard were the recognition of $483.5 million of operating lease assets and $476.0 million of operating lease liabilities on October 1, 2019. As part of the adoption, the Company carried forward the assessment from the previous lease standard of whether Beacon’s contracts contain (or are) leases, the classification of leases, and remaining lease terms. The accounting for finance leases remains unchanged. The adoption of the new standard did not have a material impact on the Company’s consolidated results of operations or cash flows. See Note 8 for further discussion.

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income.” This guidance is intended to address the accounting treatment for the tax effects on items within accumulated other comprehensive income as a result of the adoption of the Tax Cuts and Jobs Act of 2017. This new standard became effective for the Company on October 1, 2019. The adoption of this new guidance did not have a material impact on the Company’s financial statements and related ~~disclosures is still being quantified.~~disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial ~~Instruments –~~ Instruments—Credit Losses: Measurement of Credit Losses on Financial ~~Instruments.~~Instruments.” This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses,

emphasizing an updated model based on expected losses rather than incurred losses. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Accounting for Goodwill Impairment.” This guidance is intended to introduce a simplified approach to measurement of goodwill impairment, eliminating the need for a hypothetical purchase price allocation and instead measuring impairment by the amount a reporting unit’s carrying value exceeds its fair value. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2019, and early adoption is permitted. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements and related disclosures.

In ~~February 2018,~~December 2019, the FASB issued ASU ~~2018-02,~~ 2019-12, “Income ~~Statement~~Taxes – ~~Reporting Comprehensive Income.~~Simplifying the Accounting for Income Taxes.” This guidance is intended to ~~address~~simplify the accounting ~~treatment~~ for ~~the tax effects on items within accumulated other comprehensive~~ income ~~as a result~~taxes by removing certain exceptions, clarifying existing guidance and improving consistent application of the ~~adoption of the Tax Cuts and Jobs Act of 2017.~~guidance. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, ~~2018,~~2020, and early adoption is permitted. The Company ~~does not expect~~is currently evaluating the ~~adoption of~~impact that this ~~new~~ guidance tomay have ~~a material impact~~ on its financial statements and related disclosures.

On January 2, 2018 (the “Closing Date”), the Company completed its acquisition of all the outstanding capital stock of Allied (the “Allied Acquisition”), pursuant to a certain stock purchase agreement dated August 24, 2017 (the “Stock Purchase Agreement”), among the Company, Oldcastle, Inc., as parent, and Oldcastle Distribution, Inc., as seller, for approximately $2.625 billion in cash, subject to a working capital and certain other adjustments as set forth in the Stock Purchase Agreement (the “Purchase Price”). As of December 31, 2018, the adjusted Purchase Price for Allied was $2.88 billion, including increases of (i) $164.0 million related to the impact of the Section 338(h)(10) election under the current U.S. tax code and (ii) $88.1 million from a recorded net working capital adjustment.

In connection with the Allied Acquisition, on the Closing Date the Company entered into (i) a new term loan agreement with Citibank, N.A., providing for a term loan B facility with an initial commitment of $970.0 million and (ii) an amended and restated credit agreement with Wells Fargo Bank, N.A., providing for a senior secured asset-based revolving credit facility with an initial commitment of $1.30 billion. Base borrowing rates on these facilities are at LIBOR plus 1.25% and LIBOR plus 2.25%, respectively.

In connection with the Allied Acquisition, on the Closing Date, the Company completed the sale of 400,000 shares of Series A Cumulative Convertible Participating Preferred Stock, par value $0.01 per share (the “Preferred Stock”), with an aggregate liquidation preference of $400.0 million, at a purchase price of $1,000 per share, to CD&R Boulder Holdings, L.P., pursuant to a certain investment agreement, dated as of August 24, 2017, with CD&R Boulder Holdings, L.P. and Clayton, Dubilier & Rice Fund IX, L.P. (solely for the purpose of limited provisions therein) (the “Convertible Preferred Stock Purchase”). The $400.0 million in proceeds from the Convertible Preferred Stock Purchase were used to finance, in part, the Purchase Price. The Preferred Stock is convertible perpetual participating preferred stock of the Company, and conversion of the Preferred Stock into $0.01 par value shares of the Company’s common stock will be at a conversion price of $41.26 per share. The Preferred Stock accumulates dividends at a rate of 6.0% per annum (payable in cash or in-kind, subject to certain conditions). The Preferred Stock is not mandatorily redeemable; therefore, it is classified as mezzanine equity on the Company’s consolidated balance sheets and has a balance of $399.2 million (the $400.0 million proceeds received on the Closing Date, net of $0.8 million of unamortized issuance costs) as of December 31, 2018.

Allied’s results of operations have been included with Company’s consolidated results beginning January 2, 2018. Allied distributed products in 208 locations across 31 states as of the date of the close.

~~The Allied Acquisition has been accounted for as a business combination in accordance with the requirements of ASC 805, “Business Combinations~~.” The acquisition price has been allocated among assets acquired and liabilities assumed at fair value based on information currently available, with the excess recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies from the Allied assembled workforce operating the branches as part of a larger network and the value stemming from the addition of both new customers and an established new line of business (interiors). As of December 31, 2018, the Company had finalized the purchase accounting entries for the Allied Acquisition, detailed as follows (in thousands):

The purchase accounting entries above include the impact of the Section 338(h)(10) election under the current U.S. tax code. The Company made this election on October 15, 2018 and has reflected the $164.0 million impact of this election in the purchase price and its fiscal year 2018 tax provision accordingly. The Company determined that $1.16 billion of goodwill related to the acquisition of Allied is deductible for tax purposes as of December 31, 2018.

The Company’s goodwill and indefinite-lived trade name are tested for impairment annually, and all acquired goodwill and intangible assets are subject to review for impairment should future indicators of impairment develop. There were no material contingencies assumed as part of the Allied acquisition.

~~The following table represents the unaudited pro forma consolidated net sales and net income (loss) for the Company for the periods indicated (in thousands):~~

The above pro forma results have been calculated by combining the historical results of the Company and Allied as if the Allied Acquisition had occurred on the first day of the fiscal year (October 1) for the period presented. The income tax provision used to calculate net income (loss) for the respective periods presented has been adjusted to reflect the effective tax rate for the annual periods as if it had been based on the resulting, combined results. The pro forma results include estimates for intangible asset amortization, depreciation, interest expense and debt issuance costs and are subject to change once final asset values have been determined. No other material pro forma adjustments were deemed necessary to conform to the Company’s accounting policies or for any other

situation. The pro forma information is not necessarily indicative of the results that would have been achieved had the transactions occurred on the first day of the fiscal years presented or that may be achieved in the future.

~~During fiscal year 2018, the Company acquired 7 branches from the following acquisitions:~~

The Company has recorded purchase accounting entries on a preliminary basis for these transactions that recognized the acquired assets and liabilities at their estimated fair values as of the respective acquisition dates. These transactions resulted in goodwill of $7.6 million ($7.4 million of which is deductible for tax purposes as of December 31, 2018) and $11.4 million ~~in intangible assets~~.

For those acquisitions where the acquisition accounting entries have yet to be finalized, the Company’s allocation of the purchase price is subject to change on receipt of additional information, including, but not limited to, the finalization of asset valuations (intangible and fixed) and income tax accounting, as well as the Company’s continued review of the assumed liabilities that may result in the recognition of changes to the carrying amounts on the opening balance sheet and a related adjustment to goodwill.

The Company records net sales when performance obligations with our customer are satisfied. A performance obligation is a promise to transfer a distinct good to the customer and is the unit of account. The transaction price is allocated to each distinct performance obligation and recognized as net sales when, or as, the performance obligation is satisfied. All contracts have a single performance obligation as the promise to transfer the individual good is not separately identifiable from other promises and is, therefore, not distinct. Performance obligations are satisfied at a point in time and net sales are recognized when the customer accepts the delivery of a product or takes possession of a product with rights and rewards of ownership.

The Company enters into agreements with customers to offer rebates, generally based on achievement of specified sales levels and various marketing allowances that are common industry practice. Reductions to net sales for customer programs and incentive offerings, including promotions and other volume-based incentives, are estimated using the most likely amount method and recorded in the period in which the sale occurs. Provisions for early payment discounts are accrued in the same period in which the sale occurs. The Company does not have any material payment terms as payment is received shortly after the transfer of control of the products to the customer. Commissions to internal sales teams are paid to obtain contracts. As these contracts are less than one year, these costs are expensed as incurred.

The Company includes shipping and handling costs billed to customers in net sales. Related costs are accounted for as fulfillment activities and are recognized as cost of products sold when control of the products transfers to the customer.

The following table presents the Company’s net sales by product line and geography for ~~the three months ended December 31, 2018~~each period presented (in thousands):

Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents or

the conversion of Preferred Stock. Common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock unit awards. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the fully diluted weighted-average number of common shares outstanding during the period.

Holders of Preferred Stock participate in dividends on an as-converted basis when declared on common shares. As a result, Preferred Stock is classified as a participating security and thereby requires the allocation of income that would have otherwise been available to common shareholders when calculating net income (loss) per share.

Diluted net income (loss) per share is calculated by utilizing the most dilutive result of the if-converted and two-class methods. In both methods, net income (loss) attributable to common shareholders and the weighted-average common shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules.

The following table presents the components and calculations of basic and diluted net income (loss) per share for each period presented (in thousands, except share and per share amounts):

The following table includes the number of shares that may be dilutive common shares in the future. These shares were not included in the computation of diluted net income (loss) per share because the effect was either anti-dilutive or the requisite performance conditions were not met:

On February 9, 2016, the shareholders of the Company approved the Amended and Restated Beacon Roofing Supply, Inc. 2014 Stock Plan (the “2014 Plan”). The 2014 Plan provides for discretionary awards of stock options, stock awards, restricted stock units, and stock appreciation rights for up to 5,000,000 shares of common stock to selected employees and non-employee directors. The 2014 Plan mandates that all forfeited, expired, and withheld shares, including those from the predecessor plans, be returned to the 2014 Plan and made available for issuance.

In December 2019, the Company’s Board of Directors adopted the Company’s Second Amended and Restated 2014 Plan, with a share increase of an additional 4,850,000 shares to be effective upon its approval by the shareholders at the Company’s Annual Meeting of Shareholders scheduled to be held on February 11, 2020. As of December 31, ~~2018,~~2019, there were ~~1,772,191~~680,568 shares of common stock available for issuance.

Prior to the 2014 Plan, the Company maintained the amended and restated Beacon Roofing Supply, Inc. 2004 Stock Plan (the “2004 Plan”). Upon shareholder approval of the 2014 Plan, the Company ceased issuing equity awards from the 2004 Plan and mandated that all future equity awards will be issued from the 2014 Plan.

For all equity awards granted prior to October 1, 2014, in the event of a change in control of the Company, all awards are immediately vested. Beginning in fiscal 2015, equity awards contained a “double trigger” change in control mechanism. Unless an award is continued or assumed by a public company in an equitable manner, an award shall become fully vested immediately prior to a change in control (at 100% of the grant target in the case of a performance-based restricted stock unit award). If an award is so continued or assumed, vesting will continue in accordance with the terms of the award, unless there is a qualifying termination within

one-year following the change in control, in which event the award shall immediately become fully vested (at 100% of the grant target in the case of a performance-based restricted stock unit award).

Non-qualified stock options granted to employees generally expire 10 years after the grant date and are subject to continued employment and vest evenly in three annual installments over the three-year period following the grant date.

The fair value of the stock options granted during the three months ended December 31, ~~2018~~2019 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

The following table summarizes all stock option activity for the three months ended December 31, ~~2018~~2019 (in thousands, except share, per share, and time period amounts):

	Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value¹		Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value¹
Balance as of September 30, 2018		1,969,037		$	33.08		5.7	$	14,088
Balance as of September 30, 2019											2,339,489		$	32.61		6.1	$	12,034
Granted		605,184			27.26						407,736			33.47
Exercised		(48,800	)		17.11						(48,122	)		18.18
Canceled/Forfeited		(12,967	)		41.12						(10,906	)		37.79
Expired		(950	)		12.25						(2,534	)		14.45
Balance as of December 31, 2018		2,511,504		$	31.96		6.6	$	11,478
Vested and expected to vest after December 31, 2018		2,455,082		$	31.94		6.5	$	11,275
Exercisable as of December 31, 2018		1,645,162		$	30.75		5.1	$	8,511
Balance as of December 31, 2019											2,685,663		$	32.99		6.5	$	9,099
Vested and expected to vest after December 31, 2019											2,616,347		$	33.01		6.5	$	8,979
Exercisable as of December 31, 2019											1,759,950		$	33.14		5.1	$	7,278

During the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, the Company recorded stock-based compensation expense related to stock options of ~~$1.0~~$1.1 million and ~~$1.1~~$1.0 million, respectively. As of December 31, ~~2018,~~2019, there was $8.1 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of ~~2.3~~2.2 years.

The following table summarizes additional information on stock options for the periods presented (in thousands, except per share amounts):

Restricted stock unit (“RSU”) awards granted to employees are subject to continued employment and generally vest on the third anniversary of the grant date. The Company also grants certain RSU awards to management that contain one or more additional vesting conditions tied directly to a defined performance metric for the Company. The actual number of RSUs that will vest can range from 0% to 200% of the original grant amount, depending upon the terms of the award and actual Company performance above or below the established performance metric targets. The Company estimates performance in relation to the defined targets when determining the projected number of RSUs that are expected to vest and calculating the related stock-based compensation expense.

RSUs granted to non-employee directors are subject to continued service and vest on the first anniversary of the grant date (except under certain conditions). Generally, the common shares underlying the RSUs are not eligible for distribution until the non-employee director’s service on the Board has terminated, and for non-employee director RSU grants made prior to fiscal year 2014, the share distribution date is six months after the director’s termination of service on the board. Beginning in fiscal year 2016, the

Company enacted a policy that allows any non-employee directors who have Beacon equity holdings (defined as common stock and outstanding vested equity awards) with a total fair value that is greater than or equal to five times the annual Board cash retainer to elect to have ~~any future~~their RSU ~~grants~~grant settle simultaneously with vesting. Eligibility is determined annually based on the value of the non‑employee directors’ Beacon equity holdings as of December 1. Elections must be made by December 31 and apply only to the succeeding RSU grant following the election.

The following table summarizes all restricted stock unit activity for the three months ended December 31, ~~2018:~~2019:

During the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, the Company recorded stock-based compensation expense related to restricted stock units of ~~$2.4~~$4.1 million and $2.4 million, respectively. As of December 31, ~~2018,~~2019, there was ~~$27.2~~$22.3 million of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of ~~2.3~~2.2 years.

The following table summarizes additional information on RSUs for the periods presented (in thousands, except per share amounts):

The following table sets forth the change in the carrying amount of goodwill during the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, respectively (in thousands):

The changes in the carrying amount of goodwill for the three months ended December 31, 2019 and 2018 ~~and 2017~~ were driven primarily by purchase accounting and foreign currency translation ~~adjustments~~.adjustments.

In connection with transactions finalized during fiscal year 2018, the Company recorded intangible assets of $1.05 billion ($920.8 million of customer relationships, $120.0 million of indefinite-lived trademarks, and $7.0 million of beneficial lease arrangements).

The following table summarizes intangible assets by category (in thousands, except time period amounts):

	December 31, 2018			September 30, 2018			December 31, 2017			Weighted-Average Remaining Life¹ (Years)		December 31, 2019			September 30, 2019			December 31, 2018			Weighted-Average Remaining Life¹ (Years)
Amortizable intangible assets:
Non-compete agreements	$	2,824		$	2,824		$	2,824			2.47	$	2,824		$	2,824		$	2,824			2.4
Customer relationships		1,530,748			1,530,565			609,984			18.38		1,531,120			1,530,970			1,530,748			17.4
Trademarks		10,500			10,500			10,500			7.41		10,500			10,500			10,500			6.7
Beneficial lease arrangements		8,060			8,060			1,060			4.24		-			8,060			8,060			-
Total amortizable intangible assets		1,552,132			1,551,949			624,368					1,544,444			1,552,354			1,552,132
Accumulated amortization		(462,940	)		(410,633	)		(286,561	)				(660,016	)		(619,864	)		(462,940	)
Total amortizable intangible assets, net	$	1,089,192		$	1,141,316		$	337,807				$	884,428		$	932,490		$	1,089,192
Indefinite lived trademarks		193,050			193,050			73,050					193,050			193,050			193,050
Total intangibles, net	$	1,282,242		$	1,334,366		$	410,857				$	1,077,478		$	1,125,540		$	1,282,242

For the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, the Company recorded ~~$52.0~~$44.8 million and ~~$18.2~~$52.0 million of amortization expense relating to the above-listed intangible assets, respectively. The intangible asset lives range from 5 to 20 years and have a weighted-average remaining life of ~~18.2~~17.3 years as of December 31, ~~2018.~~2019.

The following table summarizes the estimated future amortization expense for intangible assets (in thousands):

The following table summarizes all financing arrangements from the respective periods presented (in thousands):

	December 31, 2018			September 30, 2018			December 31, 2017			December 31, 2019			September 30, 2019			December 31, 2018
Revolving Lines of Credit
2023 ABL:
U.S. Revolver, expires January 2023¹	$	496,619		$	89,352		$	-
Canada Revolver, expires January 2023²		6,597			3,090			-
U.S. Revolver¹										$	209,482		$	80,961		$	496,619
Canada Revolver²											6,160			-			6,597
Current portion		-			-			-			-			-			-
Borrowings under revolving lines of credit, net	$	503,216		$	92,442		$	-		$	215,642		$	80,961		$	503,216

Long-term Debt, net
Term Loans:
Term Loan, matures October 2022³	$	-		$	-		$	433,828
Term Loan, matures January 2025⁴		932,102			930,726			-
2025 Term Loan³										$	925,486		$	926,535		$	932,102
Current portion		(9,700	)		(9,700	)		(4,500	)		(9,700	)		(9,700	)		(9,700	)
Long-term borrowings under term loans		922,402			921,026			429,328
Long-term borrowings under term loan											915,786			916,835			922,402
Senior Notes:
Senior Notes, mature October 2023⁵		293,926			293,607			292,648
Senior Notes, mature November 2025⁶		1,280,795			1,280,092			1,278,083
2023 Senior Notes⁴											-			294,886			293,926
2025 Senior Notes⁵											1,283,605			1,282,902			1,280,795
2026 Senior Notes⁶											295,744			-			-
Current portion		-			-			-			-			-			-
Long-term borrowings under senior notes		1,574,721			1,573,699			1,570,731			1,579,349			1,577,788			1,574,721
Long-term debt, net	$	2,497,123		$	2,494,725		$	2,000,059		$	2,495,135		$	2,494,623		$	2,497,123

Equipment Financing Facilities and Other
Equipment financing facilities, various maturities through September 2021⁷	$	10,148		$	11,222		$	11,657
Capital lease obligations, various maturities through November 2021⁸		11,156			12,378			19,033
Equipment Financing Facilities, net
Equipment financing facilities⁷										$	5,784		$	6,885		$	10,148
Capital lease obligations⁸											-			6,713			11,156
Current portion		(10,615	)		(9,961	)		(9,739	)		(4,177	)		(8,989	)		(10,615	)
Long-term obligations under equipment financing and other, net	$	10,689		$	13,639		$	20,951
Long-term obligations under equipment financing, net										$	1,607		$	4,609		$	10,689

On October 9, 2019, the Company, and certain subsidiaries of the Company as guarantors, executed a private offering of $300.0 million aggregate principal amount of 4.50% Senior Notes due 2026 (the “2026 Senior Notes”) at an issue price of 100%. The 2026 Senior Notes mature on November 15, 2026 and bear interest at a rate of 4.50% per annum, payable on May 15 and November 15 of each year, commencing on May 15, 2020.

The 2026 Senior Notes and related subsidiary guarantees were offered and sold in a private transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to non-U.S. persons outside of the United States pursuant to Regulation S under the Securities Act. The 2026 Senior Notes and related subsidiary guarantees have not been, and will not be, registered under the Securities Act or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and other applicable securities laws.

On October 28, 2019, the Company used the net proceeds from the offering, together with cash on hand and available borrowings under the 2023 ABL (as defined below), to redeem all $300.0 million aggregate principal amount outstanding of the 2023 Senior Notes (as defined below) at a redemption price of 103.188% and to pay all related accrued interest, fees and expenses.

The intent of the transaction was to take advantage of lower market interest rates by refinancing the existing 2023 Senior Notes with the 2026 Senior Notes. The Company has accounted for the refinance as a debt extinguishment of the 2023 Senior Notes and an issuance of the 2026 Senior Notes. As a result, the Company recorded a loss on debt extinguishment of $14.7 million in the three months ended December 31, 2019. The Company capitalized new debt issuance costs of $4.4 million related to the 2026 Senior Notes, which are being amortized over the term of the financing arrangements.

As of December 31, 2019, the outstanding balance on the 2026 Senior Notes, net of $4.3 million of unamortized debt issuance costs, was $295.7 million.

In connection with the Allied Acquisition, the Company entered into various financing arrangements totaling $3.57 billion, including an asset-based revolving line of credit of $1.30 billion (“2023 ABL”), $525.0 million of which was drawn at closing, and a $970.0 million term loan (“2025 Term Loan”). The Company also raised an additional $1.30 billion through the issuance of senior notes (the “2025 Senior Notes”).

The proceeds from these financing arrangements were used to finance the Allied Acquisition, to refinance or otherwise extinguish all third-party indebtedness, to pay fees and expenses associated with the acquisition, and to provide working capital and funds for other general corporate purposes. The Company capitalized new debt issuance costs totaling approximately $65.3 million related to the 2023 ABL, the 2025 Term Loan and the 2025 Senior ~~Notes.~~

Since the financing arrangements entered into in connection with the Allied Acquisition had certain lenders who also participated in previous financing arrangements entered into by the Company, portions of the transactions were accounted for as either a debt modification or a debt extinguishment. In accordance with the accounting for debt modification, the Company expensed $2.0 million of debt issuance costs related to the Allied financing arrangements and recognized a loss on debt extinguishment of $1.7 million. The remainder of the debt issuance costs will beNotes, which are being amortized over the term of the ~~Allied~~ financing arrangements.

On January 2, 2018, the Company entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2023 ABL consists of revolving loans in both the United States (“2023 U.S. Revolver”) in the amount of $1.20 billion and Canada (“2023 Canada Revolver”) in the amount of $100.0 million. The 2023 ABL has a maturity date of January 2, 2023. The 2023 ABL has various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The current unused commitment fees on the 2023 ABL are 0.25% per annum.

There is ~~one~~1 financial covenant under the 2023 ABL, which is ~~a Consolidated~~the Fixed Charge Coverage Ratio. The ~~Consolidated~~ Fixed Charge Coverage Ratio is calculated by dividing ~~consolidated earnings before interest, taxes, depreciation and amortization (EBITDA)~~Consolidated EBITDA, less Capital Expenditures, by Consolidated Fixed Charges ~~(both~~(all terms as defined in the agreement). Per the covenant, the Company’s ~~Consolidated~~ Fixed Charge Coverage Ratio must be a minimum of 1.00 at the end of each fiscal quarter, calculated on a trailing four quarter basis. The Company was in compliance with this covenant as of December 31, 2019.

The 2023 ABL is secured by a first priority lien over substantially all of the Company’s and each guarantor’s accounts, chattel paper, deposit accounts, books, records and inventory (as well as intangibles related thereto), subject to certain customary exceptions (the “ABL Priority Collateral”), and a second priority lien over substantially all of the Company’s and each guarantor’s other assets, including all of the equity interests of any subsidiary held by the Company or any guarantor, subject to certain customary exceptions (the “Term Priority Collateral”). The 2023 ABL is guaranteed jointly, severally, fully and unconditionally by the Company’s active United States subsidiaries.

As of December 31, ~~2018,~~2019, the total balance outstanding on the 2023 ABL, net of ~~$10.0~~$7.5 million of unamortized debt issuance costs, was ~~$503.2~~$215.6 million. The Company also has outstanding standby letters of credit related to the 2023 U.S. Revolver in the amount of ~~$13.4~~$13.0 million as of December 31, ~~2018.~~2019.

On January 2, 2018, the Company entered into a $970.0 million Term Loan with Citibank N.A., and a syndicate of other lenders. The 2025 Term Loan requires quarterly principal payments in the amount of $2.4 million, with the remaining outstanding principal to be paid on its January 2, 2025 maturity date. The interest rate is based on a LIBOR rate (with a floor) plus a fixed spread. The Company has the option of selecting a LIBOR period that determines the rate at which interest can accrue on the Term Loan as well as the period in which interest payments are made.

The 2025 Term Loan is secured by a first priority lien on the Term Priority Collateral and a second priority lien on the ABL Priority Collateral. Certain excluded assets will not be included in the Term Priority Collateral and the ABL Priority Collateral. The Term Loan is guaranteed jointly, severally, fully and unconditionally by the Company’s active United States subsidiaries.

As of December 31, ~~2018,~~2019, the outstanding balance on the 2025 Term Loan, net of ~~$33.0~~$27.5 million of unamortized debt issuance costs, was ~~$932.1~~$925.5 million.

On October 25, 2017, Beacon Escrow Corporation, a wholly owned subsidiary of the Company (the “Escrow Issuer”), completed a private offering of $1.30 billion aggregate principal amount of ~~4.875%~~4.875% Senior Notes due 2025 at an issue price of 100%. The 2025 Senior Notes bear interest at a rate of ~~4.875%~~4.875% per annum, payable semi-annually in arrears, beginning May 1, 2018. The Company anticipates repaying the 2025 Senior Notes at the maturity date of November 1, 2025. Per the terms of the Escrow Agreement, the net proceeds from the 2025 Senior Notes remained in escrow until they were used to fund a portion of the purchase price of the Allied Acquisition payable at closing on January 2, 2018.

Upon closing of the Allied Acquisition on January 2, 2018, (i) the Escrow Issuer merged with and into the Company, and the Company assumed all obligations under the 2025 Senior Notes; and (ii) all existing domestic subsidiaries of the Company (including the entities acquired in the Allied Acquisition) became guarantors of the 2025 Senior Notes.

As of December 31, ~~2018,~~2019, the outstanding balance on the 2025 Senior Notes, net of ~~$19.2~~$16.4 million of unamortized debt issuance costs, was $1.28 billion.

In connection with the Roofing Supply Group (“RSG”) acquisition in fiscal year 2016, the Company entered into various financing arrangements totaling $1.45 billion, including an asset-based revolving line of credit (“2020 ABL”) of $700.0 million ($350.0 million of which was drawn at closing) and a $450.0 million term loan (“2022 Term Loan”). The Company also raised an additional $300.0 million through the issuance of senior notes (the “2023 Senior Notes”).

The proceeds from these financing arrangements were used to provide working capital and funds for other general corporate purposes, to refinance or otherwise extinguish all third-party indebtedness for borrowed money under Company’s and RSG’s existing senior secured credit facilities and RSG’s unsecured senior notes due 2020, to finance the acquisition, and to pay fees and expenses associated with the RSG acquisition. The Company incurred debt issuance costs totaling approximately $31.3 million related to the 2020 ABL, 2022 Term Loan and 2023 Senior Notes.

On October 1, 2015, the Company entered into a $700.0 million asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2020 ABL had an original maturity date of October 1, 2020 and consisted of revolving loans in both the United States, in the amount of $670.0 million, and Canada, in the amount of $30.0 million. The 2020 ABL had various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The full balance of the 2020 ABL was paid on January 2, 2018 in conjunction with the Allied Acquisition.

On October 1, 2015, the Company entered into a $450.0 million Term Loan with Citibank N.A., and a syndicate of other lenders. The 2022 Term Loan required quarterly principal payments in the amount of $1.1 million, with the remaining outstanding principal to be paid on its original maturity date of October 1, 2022. The interest rate was based on a LIBOR rate (with a floor) plus a fixed spread. The Company had the option of selecting a LIBOR period that determined the rate at which interest would accrue, as well as the period in which interest payments are made. The full balance of the 2022 Term Loan was paid on January 2, 2018 in conjunction with the Allied Acquisition, including the write-off of $0.7 million in debt issuance costs.

On October 1, 2015, in connection with the acquisition of Roofing Supply Group, the Company raised $300.0 million by issuing ~~senior notes~~6.38% Senior Notes due ~~2023.~~2023 (the “2023 Senior Notes”). The 2023 Senior Notes ~~have~~had a coupon rate of 6.38% per annum and ~~are~~were payable semi-annually in arrears, beginning April 1, 2016. There ~~are~~were early payment provisions in the indenture in which the Company would be subject to ~~“make whole” provisions. The~~redemption premiums. On October 28, 2019, the Company ~~anticipates repaying~~redeemed all $300.0 million aggregate principal amount outstanding of the ~~notes at the maturity date of October 1, 2023.~~

~~The~~ 2023 Senior Notes ~~are guaranteed jointly, severally, fully~~at a redemption price of 103.188% plus accrued interest and, ~~unconditionally by the Company’s active United States subsidiaries.~~as a result, wrote off $5.1 million of unamortized debt issuance costs.

As of December 31, ~~2018, the outstanding balance on the 2023 Senior Notes, net of $6.1 million of unamortized debt issuance costs, was $293.9 million.~~

~~As of December 31, 2018,~~2019, the Company had ~~a $10.1~~$5.8 million outstanding under equipment financing facilities, with fixed interest rates ranging from 2.33% to ~~3.25%~~2.89% and payments due through September ~~2021.~~2021.

~~As of December 31, 2018, the Company had $11.2 million of capital lease obligations outstanding. These leases have interest rates ranging from 2.72% to 10.39% with payments due through November 2021.~~

The Company mostly operates in leased facilities, which are accounted for as operating leases. The leases typically provide for a base rent plus real estate ~~taxes.~~taxes and insurance. Certain of the leases provide for escalating rents over the lives of the leases, and rent expense is recognized over the terms of those leases on a straight-line basis. The real estate leases expire between 2020 and 2038.

AtIn addition, the Company leases equipment such as trucks and forklifts. Equipment leases are primarily accounted for as operating leases; however, the Company also accounts for some equipment leases as finance leases. The equipment leases expire between 2020 and 2026.

The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are included on the consolidated balance sheet as of December 31, ~~2018,~~2019. Finance lease assets are included in property and equipment, net. The current portion of the ~~minimum rental commitments~~finance lease liabilities is included in accrued expenses, and the noncurrent portion is included in other long-term liabilities.

Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, because the interest rates implicit in most of the leases are not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments.

Operating lease assets include any prepaid lease payments and lease incentives. The Company’s lease terms include periods under ~~all~~options to extend or terminate the lease when it is reasonably certain that those options will be exercised. The Company generally uses the base, non-cancelable lease term when determining the lease assets and liabilities. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company’s lease agreements generally contain lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company has elected to combine fixed payments for non-lease components with lease payments and account for them together as a single lease component, which increases the lease assets and liabilities.

Payments under the Company’s lease agreements are primarily fixed. However, certain lease agreements contain variable payments, which are expensed as incurred and are not included in the operating lease assets and liabilities. These amounts include payments affected by the Consumer Price Index and payments for maintenance and utilities. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The following table summarizes components of operating lease costs recognized within selling, general and administrative expenses (in thousands):

The following table presents supplemental cash flow information related to operating leases ~~with initial or~~(in thousands):

As of December 31, 2019, the Company’s operating leases had a weighted-average remaining ~~terms~~lease term of ~~more than one year~~5.8 years and a weighted-average discount rate of 3.98%. Future lease payments under operating leases as of December 31, 2019 were as follows (in thousands):

~~For the three months ended December 31, 2018~~9. Commitments and ~~2017, rent expense was $27.5 million and $15.2 million, respectively. Sublet income was immaterial for each of these periods.~~

The Company is subject to loss contingencies pursuant to various federal, state and local environmental laws and regulations; however, the Company is not aware of any reasonably possible losses that would have a material impact on its results of operations, financial position, or liquidity. Potential loss contingencies include possible obligations to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical or other substances by the Company or by other parties. In connection with its acquisitions, the Company’s practice is to request indemnification for any and all known material liabilities of significance as of the respective dates of acquisition. Historically, environmental liabilities have not had a material impact on the Company’s results of operations, financial position or liquidity.

The Company is subject to litigation from time to time in the ordinary course of business; however, the Company does not expect the results, if any, to have a material adverse impact on its results of operations, financial position or liquidity.

The ~~following table summarizes certain geographic information~~Company participates in multi-employer defined benefit plans for which it is not the sponsor. As of December 31, 2019, some of the Company’s multi-employer defined benefit plans were reported to have underfunded liabilities. Withdrawal from participation in one of these plans requires the Company to make a lump-sum contribution to the plan. The Company’s withdrawal liability depends on the extent of the plan’s funding of vested benefits, among other factors. The Company has withdrawn from the Central States Pension Fund and Local 408 Pension fund. As a result, the Company has recorded contingent liabilities for the ~~periods presented (in thousands):~~estimated pension plan exit costs. The Company does not believe that the finalized lump-sum contributions to exit these plans will have a material impact on its results of operations.

Other comprehensive income (loss) is composed of certain gains and losses that are excluded from net income under GAAP and instead recorded as a separate element of stockholders’ equity. ~~For~~

The following table summarizes the ~~three months ended December 31, 2018, the change~~components of and changes in accumulated other comprehensive ~~income (loss) was $(3.9) million~~loss (in thousands):

Gains (losses) on derivative instruments are recognized in the consolidated statements of operations in interest expense, financing costs, and ~~composed solely of foreign currency translation effects. There were no reclassifications out of accumulated~~ other ~~comprehensive income (loss)~~.

The following table summarizes certain geographic information for the ~~three months ended December 31, 2018.~~periods presented (in thousands):

As of December 31, ~~2018,~~2019, the carrying amount of cash and cash equivalents, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses approximated fair value because of the short-term nature of these instruments. The Company measures its cash equivalents at amortized cost, which approximates fair value based upon quoted market prices (Level 1).

As of December 31, ~~2018,~~2019, based upon recent trading prices (Level 2), the fair value of the Company’s $300.0 million Senior Notes due in ~~2023~~2026 was ~~$299.3~~$309.8 million and the fair value of the $1.30 billion Senior Notes due 2025 was ~~$1.15~~$1.31 billion.

As of December 31, ~~2018,~~2019, the fair value of the Company’s term loan and revolving asset-based line of credit approximated the amount outstanding. The Company estimates the fair value of its Senior Secured Credit Facility by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles (Level 3).

The ~~2023 Senior Notes~~Company uses interest rate derivative instruments to manage the risk related to fluctuating cash flows from interest rate changes by converting a portion of its variable-rate borrowings into fixed-rate borrowings.

On September 11, 2019, the Company entered into 2 interest rate swap agreements to manage the interest rate risk associated with the variable rate on the 2025 Term Loan (see Note 7 for more information). Each swap agreement has a notional amount of $250 million. One agreement (the “5-year swap”) will expire on August 30, 2024 and ~~2025 Senior Notes are guaranteed jointly~~swaps the thirty-day LIBOR with a fixed-rate of 1.49%. The second agreement (the “3-year swap”) will expire on August 30, 2022 and ~~severally by all~~swaps the ~~United States subsidiaries~~thirty-day LIBOR with a fixed-rate of 1.50%. At the inception of the swap agreements, the Company ~~(collectively,~~determined that both swaps qualified for cash flow hedge accounting under ASC 815. Therefore, changes in the ~~“Guarantors”),~~fair value of the effective portions of the swaps, net of taxes, will be recognized in other comprehensive income each period, then reclassified into the consolidated statements of operations as a component of interest expense, financing costs, and ~~not~~other in the period in which the hedged transaction affects earnings. Any ineffective portions of the hedges are immediately recognized in earnings as a component of interest expense, financing costs and other.

The effectiveness of the swaps will be assessed qualitatively by the ~~Canadian subsidiaries~~Company during the lives of the hedges by a) comparing the current terms of the hedges with the related hedged debt to assure they continue to coincide and b) through an evaluation of the ability of the counterparty to the hedges to honor their obligations under the hedges. The Company performed a qualitative analysis as

of December 31, 2019 and concluded that the swap agreements continue to meet the requirements under ASC 815 to qualify for cash flow hedge accounting. As of December 31, 2019, the fair value of the 3‑year and 5‑year swaps, net of tax, were $0.2 million and $0.8 million, respectively, both in favor of the Company. ~~Such guarantees~~These amounts are ~~full~~included in accrued expenses in the accompanying consolidated balance sheets.

The Company records any differences paid or received on its interest rate hedges to interest expense, financing costs and ~~unconditional. Supplemental condensed consolidating financial information~~other. The following table summarizes the combined fair values, net of tax, of the ~~Company, including~~interest rate derivative instruments (in thousands):

The fair value of the interest rate swaps is determined through the use of a pricing model, which utilizes verifiable inputs such ~~information~~as market interest rates that are observable at commonly quoted intervals (generally referred to as the “LIBOR Curve”) for the ~~Guarantors, is presented below.~~ full terms of the hedge agreements. These values reflect a Level 2 measurement under the applicable fair value hierarchy.

The ~~information is presented~~following table summarizes the amounts of gain (loss) on the interest rate derivative instruments recognized in ~~accordance~~other comprehensive income (in thousands):

On January 14, 2020, the Company determined to rebrand its exterior product branches with the ~~requirements~~tradename “Beacon Building Products” (the “Rebranding”). The new name, and a related logo, will be adopted at over 450 Beacon one-step exterior products branches.The Company’s interior, insulation, weatherproofing and two-step branches will continue to operate under current brand names.

In connection with the Rebranding, the Company has determined that it will incur non-cash accelerated intangible asset amortization of ~~Rule 3-10 under~~approximately $135.0 million to $140.0 million related to the ~~SEC’s Regulation S-X.~~write-off of certain tradenames, primarily Allied (exterior products only), Roofing Supply Group and JGA. The ~~financial information may not necessarily~~accelerated amortization will be ~~indicative~~recognized in the three months ending March 31, 2020. The physical rebranding of ~~results~~branch locations and equipment is expected to result in cash expenditures of operations, cash flows or financial position had the non-guarantor subsidiaries operated as independent entities. Investments in subsidiaries are presented using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Separate financial statements of the Guarantors are not provided as the consolidating financial information contained herein provides a more meaningful disclosure to allow investors to determine the nature of the assets held by, and the operations of, the combined groups.approximately $5.0 million.

December 31, 2018

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

Assets

Current assets:

Cash and cash equivalents
$
-

$
30,877

$
2,775

$
(15,229
)

$
18,423

Accounts receivable, net

-

856,373

26,516

(1,140
)

881,749

Inventories, net

-

998,450

26,860

-

1,025,310

Prepaid expenses and other current assets

6,065

361,431

8,102

-

375,598

Total current assets

6,065

2,247,131

64,253

(16,369
)

2,301,080

Intercompany receivable, net

-

1,526,435

-

(1,526,435
)

-

Investments in consolidated subsidiaries

6,289,626

-

-

(6,289,626
)

-

Deferred income taxes, net

20,767

-

-

(20,767
)

-

Property and equipment, net

19,775

243,911

10,056

-

273,742

Goodwill

-

2,461,212

28,518

-

2,489,730

Intangibles, net

-

1,280,202

2,040

-

1,282,242

Other assets, net

1,243

-

-

-

1,243

Total assets
$
6,337,476

$
7,758,891

$
104,867

$
(7,853,197
)

$
6,348,037

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable
$
28,808

$
532,526

$
6,975

$
(16,369
)

$
551,940

Accrued expenses

40,834

327,027

7,811

-

375,672

Current portions of long-term debt/obligations

9,700

10,615

-

-

20,315

Total current liabilities

79,342

870,168

14,786

(16,369
)

947,927

Intercompany payable, net

1,487,640

-

38,795

(1,526,435
)

-

Borrowings under revolving lines of credit, net

-

496,619

6,597

-

503,216

Long-term debt, net

2,497,123

-

-

-

2,497,123

Deferred income taxes, net

-

130,847

99

(20,767
)

110,179

Long-term obligations under equipment financing and other, net

-

10,689

-

-

10,689

Other long-term liabilities

-

5,453

79

-

5,532

Total liabilities
$
4,064,105

$
1,513,776

$
60,356

$
(1,563,571
)

$
4,074,666

Convertible preferred stock
$
399,195

$
-

$
-

$
-

$
399,195

Total stockholders' equity
$
1,874,176

$
6,245,115

$
44,511

$
(6,289,626
)

$
1,874,176

Total liabilities and stockholders' equity
$
6,337,476

$
7,758,891

$
104,867

$
(7,853,197
)

$
6,348,037

September 30, 2018

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

Assets

Current assets:

Cash and cash equivalents
$
-

$
136,499

$
1,959

$
(8,531
)

$
129,927

Accounts receivable, net

-

1,051,410

40,262

(1,139
)

1,090,533

Inventories, net

-

907,605

28,442

-

936,047

Prepaid expenses and other current assets

23,711

214,011

6,638

-

244,360

Total current assets

23,711

2,309,525

77,301

(9,670
)

2,400,867

Intercompany receivable, net

-

1,361,615

-

(1,361,615
)

-

Investments in consolidated subsidiaries

6,109,325

-

-

(6,109,325
)

-

Deferred income taxes, net

22,475

-

-

(22,475
)

-

Property and equipment, net

18,929

250,517

10,961

-

280,407

Goodwill

-

2,461,725

30,054

-

2,491,779

Intangibles, net

-

1,332,104

2,262

-

1,334,366

Other assets, net

1,243

-

-

-

1,243

Total assets
$
6,175,683

$
7,715,486

$
120,578

$
(7,503,085
)

$
6,508,662

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable
$
24,154

$
843,907

$
22,482

$
(9,671
)

$
880,872

Accrued expenses

41,448

564,331

5,760

-

611,539

Current portions of long-term debt/obligations

9,700

9,961

-

-

19,661

Total current liabilities

75,302

1,418,199

28,242

(9,671
)

1,512,072

Intercompany payable, net

1,322,156

-

39,459

(1,361,615
)

-

Borrowings under revolving lines of credit, net

-

89,352

3,090

-

92,442

Long-term debt, net

2,494,725

-

-

-

2,494,725

Deferred income taxes, net

-

128,846

622

(22,474
)

106,994

Long-term obligations under equipment financing and other, net

-

13,639

-

-

13,639

Other long-term liabilities

-

5,207

83

-

5,290

Total liabilities
$
3,892,183

$
1,655,243

$
71,496

$
(1,393,760
)

$
4,225,162

Convertible preferred stock
$
399,195

$
-

$
-

$
-

$
399,195

Total stockholders' equity
$
1,884,305

$
6,060,243

$
49,082

$
(6,109,325
)

$
1,884,305

Total liabilities and stockholders' equity
$
6,175,683

$
7,715,486

$
120,578

$
(7,503,085
)

$
6,508,662

December 31, 2017

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

Assets

Current assets:

Cash and cash equivalents
$
-

$
70,698

$
2,122

$
(8,993
)

$
63,827

Restricted cash

-

-

1,300,000

-

1,300,000

Accounts receivable, net

-

526,068

27,775

(1,140
)

552,703

Inventories, net

-

581,288

22,505

-

603,793

Prepaid expenses and other current assets

17,713

194,007

6,998

-

218,718

Total current assets

17,713

1,372,061

1,359,400

(10,133
)

2,739,041

Intercompany receivable, net

-

730,364

-

(730,364
)

-

Investments in consolidated subsidiaries

3,239,031

-

-

(3,239,031
)

-

Deferred income taxes, net

18,286

-

-

(18,286
)

-

Property and equipment, net

8,271

135,925

10,491

-

154,687

Goodwill

-

1,220,813

31,012

-

1,251,825

Intangibles, net

-

408,123

2,734

-

410,857

Other assets, net

3,341

5,527

-

-

8,868

Total assets
$
3,286,642

$
3,872,813

$
1,403,637

$
(3,997,814
)

$
4,565,278

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable
$
21,511

$
296,547

$
7,517

$
(10,133
)

$
315,442

Accrued expenses

27,467

232,131

6,451

-

266,049

Current portions of long-term debt/obligations

4,500

9,739

-

-

14,239

Total current liabilities

53,478

538,417

13,968

(10,133
)

595,730

Intercompany payable, net

680,761

-

49,603

(730,364
)

-

Long-term debt, net

700,059

-

1,300,000

-

2,000,059

Deferred income taxes, net

-

111,066

671

(18,286
)

93,451

Long-term obligations under equipment financing and other, net

-

20,881

70

-

20,951

Other long-term liabilities

-

2,743

-

-

2,743

Total liabilities
$
1,434,298

$
673,107

$
1,364,312

$
(758,783
)

$
2,712,934

Total stockholders' equity
$
1,852,344

$
3,199,706

$
39,325

$
(3,239,031
)

$
1,852,344

Total liabilities and stockholders' equity
$
3,286,642

$
3,872,813

$
1,403,637

$
(3,997,814
)

$
4,565,278

Three Months Ended December 31, 2018

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

Net sales
$
-

$
1,678,895

$
42,781

$
-

$
1,721,676

Cost of products sold

-

1,252,295

33,812

-

1,286,107

Gross profit

-

426,600

8,969

-

435,569

Operating expense:

Selling, general and administrative

9,775

309,548

8,370

-

327,693

Depreciation

764

16,372

465

-

17,601

Amortization

-

51,911

110

-

52,021

Total operating expense

10,539

377,831

8,945

-

397,315

Intercompany charges (income)

(6,687
)

6,687

-

-

-

Income (loss) from operations

(3,852
)

42,082

24

-

38,254

Interest expense, financing costs, and other

34,313

3,485

563

-

38,361

Intercompany interest expense (income)

(9,680
)

9,298

382

-

-

Income (loss) before provision for income taxes

(28,485
)

29,299

(921
)

-

(107
)
Provision for (benefit from) income taxes

(7,354
)

8,400

(260
)

-

786

Income (loss) before equity in net income of subsidiaries

(21,131
)

20,899

(661
)

-

(893
)
Equity in net income of subsidiaries

20,238

-

-

(20,238
)

-

Net income (loss)
$
(893
)

$
20,899

$
(661
)

$
(20,238
)

$
(893
)

Three Months Ended December 31, 2017

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

Net sales
$
-

$
1,076,262

$
45,717

$
-

$
1,121,979

Cost of products sold

-

816,436

35,790

-

852,226

Gross profit

-

259,826

9,927

-

269,753

Operating expense:

Selling, general and administrative

(133
)

184,881

9,005

-

193,753

Depreciation

456

7,810

443

-

8,709

Amortization

-

18,064

131

-

18,195

Total operating expense

323

210,755

9,579

-

220,657

Intercompany charges (income)

893

(893
)

-

-

-

Income (loss) from operations

(1,216
)

49,964

348

-

49,096

Interest expense, financing costs, and other

10,076

825

11,667

-

22,568

Intercompany interest expense (income)

(5,708
)

5,321

387

-

-

Income (loss) before provision for income taxes

(5,584
)

43,818

(11,706
)

-

26,528

Provision for (benefit from) income taxes

5,521

(46,672
)

83

-

(41,068
)
Income (loss) before equity in net income of subsidiaries

(11,105
)

90,490

(11,789
)

-

67,596

Equity in net income of subsidiaries

78,701

-

-

(78,701
)

-

Net income (loss)
$
67,596

$
90,490

$
(11,789
)

$
(78,701
)

$
67,596

Three Months Ended December 31, 2018

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

Net cash provided by (used in) operating activities
$
12,792

$
(336,407
)

$
(2,659
)

$
(10,609
)

$
(336,883
)

Investing Activities

Purchases of property and equipment

(1,610
)

(9,971
)

(107
)

-

(11,688
)
Acquisition of businesses, net

-

(163,973
)

-

-

(163,973
)
Proceeds from the sale of assets

-

400

1

-

401

Intercompany activity

(2,399
)

-

-

2,399

-

Net cash provided by (used in) investing activities

(4,009
)

(173,544
)

(106
)

2,399

(175,260
)

Financing Activities

Borrowings under revolving lines of credit

-

1,285,017

13,637

-

1,298,654

Repayments under revolving lines of credit

-

(878,376
)

(9,849
)

-

(888,225
)
Payment of debt issuance costs

-

-

-

-

-

Repayments under equipment financing facilities and other

-

(1,465
)

-

-

(1,465
)
Payment of dividends on preferred stock

(6,000
)

-

-

-

(6,000
)
Proceeds from issuance of common stock related to equity awards

834

-

-

-

834

Taxes paid related to net share settlement of equity awards

(3,617
)

-

-

-

(3,617
)
Intercompany activity

-

(847
)

(561
)

1,408

-

Net cash provided by (used in) financing activities

(8,783
)

404,329

3,227

1,408

400,181

Effect of exchange rate changes on cash and cash equivalents

-

-

354

104

458

Net increase (decrease) in cash and cash equivalents

-

(105,622
)

816

(6,698
)

(111,504
)
Cash and cash equivalents, beginning of period

-

136,499

1,959

(8,531
)

129,927

Cash and cash equivalents, end of period
$
-

$
30,877

$
2,775

$
(15,229
)

$
18,423

Three Months Ended December 31, 2017

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations
and Other

Consolidated

Net cash provided by (used in) operating activities
$
(37,331
)

$
2,338

$
(9,658
)

$
4,195

$
(40,456
)

Investing Activities

Purchases of property and equipment

(2,117
)

(4,874
)

(425
)

-

(7,416
)
Acquisition of businesses

-

-

-

-

-

Proceeds from the sale of assets

-

398

15

-

413

Intercompany activity

61,938

-

-

(61,938
)

-

Net cash provided by (used in) investing activities

59,821

(4,476
)

(410
)

(61,938
)

(7,003
)

Financing Activities

Borrowings under revolving lines of credit

-

878

16,524

-

17,402

Repayments under revolving lines of credit

-

(877
)

(19,671
)

-

(20,548
)
Repayments under term loan

-

-

-

-

-

Borrowings under Senior Notes

-

-

1,300,000

-

1,300,000

Payment of debt issuance costs

(21,917
)

-

-

-

(21,917
)
Repayments under equipment financing facilities and other

-

(1,973
)

5

-

(1,968
)
Payment of issuance costs from secondary offering of common stock

(429
)

-

-

-

(429
)
Proceeds from issuance of common stock related to equity awards

3,781

-

-

-

3,781

Taxes paid related to net share settlement of equity awards

(3,925
)

-

-

-

(3,925
)
Intercompany activity

-

(74,991
)

13,110

61,881

-

Net cash provided by (used in) financing activities

(22,490
)

(76,963
)

1,309,968

61,881

1,272,396

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

-

-

640

-

640

Net increase (decrease) in cash, cash equivalents, and restricted cash

-

(79,101
)

1,300,540

4,138

1,225,577

Cash, cash equivalents, and restricted cash, beginning of period

-

149,799

1,582

(13,131
)

138,250

Cash, cash equivalents, and restricted cash, end of period
$
-

$
70,698

$
1,302,122

$
(8,993
)

$
1,363,827

The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis included in our ~~2018~~2019 Annual Report on Form 10-K and our Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this document. Unless otherwise indicated, references to “2020” refer to the three months ended December 31, 2019being discussed and references to “2019” refer to the three months ended December 31, 2018 ~~being discussed and references to “2018” refer to the three months ended December 31, 2017~~ being discussed. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

We are the largest publicly traded distributor of ~~residential~~roofing materials and ~~non-residential roofing materials~~complementary building products in the United States and Canada. ~~We also distribute complementary building products, including siding, windows, specialty exterior building products, insulation, waterproofing systems, wallboard and acoustical ceiling tiles.~~ We are among the oldest and most established distributors in the industry. The complementary building products we distribute include siding, windows, insulation, waterproofing systems, wallboard, acoustical ceilings, and other specialty exterior and interior building products. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors and, to a lesser extent, ~~general contractors,~~home builders, retailers, and other building materials suppliers.

As of December 31, ~~2018,~~2019, we operated ~~544~~530 branches inthroughout all 50 states ~~throughout~~in the ~~United States~~U.S. and 6 provinces in Canada. We ~~stock~~offer one of the most extensive assortments of high-quality branded products in the industry with approximately ~~90,000~~140,000 SKUs available across our branch network, enabling us to deliver products to serve over ~~100,000~~110,000 customers on a timely basis.

On January 2, 2018, we completed the acquisition of all the outstanding capital stock of Allied Building Products Corp. (“Allied”), a New Jersey Corporation (the “Allied Acquisition”), for approximately $2.625 billion, subject to working capital and other adjustments (the “Purchase Price”). As of December 31, 2018, the adjusted Purchase Price for Allied was $2.88 billion and purchase accounting entries were finalized. Headquartered in East Rutherford, New Jersey, Allied was one of the country’s largest exterior and interior building products distributors, distributing products across 208 locations in 31 states in the U.S. with a strong presence in New York, New Jersey, Florida, California, Hawaii and the upper Midwest at the time of the acquisition. We believe the acquisition of Allied was a strategically and financially compelling transaction that expanded our geographic footprint, enhanced our scale and market presence, diversified our product offerings, and positioned us to provide new growth opportunities that will increase our long-term profitability.

Effective execution of both ~~the~~our sales and operating plans enables us to grow beyond the relative strength of the markets we serve. Our business model is a bottom-up approach, where each of our branches uses its regional knowledge and experience to assist with the development of a marketing plan and ~~stocking a~~ product mix that is best suited for its respective market. Local alignment with overall strategic goals provides the foundation for significant ownership of results at the branch level.

Our distinctive ~~operational~~operating model ~~combined with significant~~and branch level autonomy ~~differentiates~~differentiate us from the competition.

We provide our customers with industry-leading digital solutions, including Beacon PRO+, our innovative e-commerce portal, and Beacon 3D+, an in-home visualizer and dynamic modeling tool for our residential customers. These platforms help our customers save time, work more efficiently and grow their business. Additional value-added services ~~including,~~we offer include, but are not limited to, job site delivery, custom designed tapered roofing systems, metal fabrication and trade credit. We consider customer relations and our employees’ knowledge of roofing and building materials to be vital to our ability to increase customer loyalty and maintain customer satisfaction. Our customers’ business success can be enhanced when they are supported by our efficient and effective distribution network. We invest significant resources in professional development, management skills, product knowledge, and operational proficiency. We pride ourselves on providing these capabilities developed on a foundation of continuous improvement ~~driving~~that drives service excellence, productivity and ~~efficiencies.~~efficiency.

We seek opportunities to expand our business operations through both acquisitions and organic growth (opening branches, growing sales with existing customers, adding new customers and introducing new products). Our main acquisition strategy is to target market leaders that do business in geographic areas that we currently do not service or that complement our existing regional operations. ~~In addition to our acquisition of Allied, our recent success in delivering on our~~We pursue organic growth ~~strategy is highlighted by the following:~~

~~In addition, we opened one new branch in fiscal year 2019. New branch locations~~opportunities that allow us to penetrate deeper into ~~our existing~~target markets and establish a greater presence. The most recent successful execution of our growth strategy is summarized by the following:

The following tables set forth consolidated statement of operations data and such data as a percentage of total net sales for the periods presented (in thousands):

In managing our business, we consider all growth, including the opening of new branches, to be organic growth unless it results from an acquisition. When we refer to growth in existing markets or organic growth, we include growth from existing and newly opened branches but exclude 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. We believe the existing market information is useful to investors because it helps explain organic growth or decline. When ~~combined, our existing market information and acquired market information equal our consolidated company totals. When~~ we refer to regions, we are referring to our geographic regions. When we refer to our net product costs, we are referring to our invoice cost less the impact of short-term buying programs (also referred to as “special buys”) given the manner in which they are offered).

As of December 31, ~~2018,~~2019, we had a total of ~~544~~530 branches in operation. ~~Our existing market calculations include the operating results of the 330 branches that meet our definition (214~~All 530 branches were ~~excluded because they were~~ acquired ~~after~~prior to the start of ~~the first quarter of~~ fiscal year ~~2018).~~2019 and therefore meet our existing market definition. As a result, operating results for existing markets are equal to consolidated operating results for all periods presented.

~~The following table summarizes our results of operations by market type (existing and acquired) for the periods presented (in thousands):~~Net Sales

Existing Markets

Acquired Markets

Consolidated

Three Months Ended December 31,

2018

2017

2018

2017

2018

2017

Net sales
$
997,009

$
1,016,628

$
724,667

$
105,351

$
1,721,676

$
1,121,979

Gross profit
$
240,037

$
243,221

$
195,532

$
26,532

$
435,569

$
269,753

Gross margin

24.1
%

23.9
%

27.0
%

25.2
%

25.3
%

24.0
%

Operating expense:

Selling, general, and administrative
$
185,635

$
176,509

$
142,058

$
17,244

$
327,693

$
193,753

Depreciation

8,360

7,815

9,241

894

17,601

8,709

Amortization

12,841

15,519

39,180

2,676

52,021

18,195

Operating expense¹
$
206,836

$
199,843

$
190,479

$
20,814

$
397,315

$
220,657

Operating expense as a % of net sales

20.7
%

19.7
%

26.3
%

19.8
%

23.2
%

19.7
%

Operating income (loss)
$
33,202

$
43,378

$
5,052

$
5,718

$
38,254

$
49,096

Operating margin

3.3
%

4.3
%

0.7
%

5.4
%

2.1
%

4.3
%

~~Consolidated net~~ sales ~~increased $599.7 million, or 53.4%,~~decreased 2.7% to $1.68 billion in 2020, from $1.72 billion in ~~2019, up from $1.12 billion in 2018. Existing market net sales decreased $19.6 million, or 1.9%, over the~~2019. The comparative ~~2018 period. The year-over-year~~ decrease in ~~existing market~~ net sales was mainly influenced by decreased hurricane-related demand in the ~~following factors:~~

~~Existing markets net~~Net sales by geographical region increased (decreased) from 2019 to ~~2018~~2020 as follows: Northeast ~~12.7%~~(5.3%); Mid-Atlantic ~~20.2%~~(13.6%); Southeast ~~(1.7%~~(4.7%); Southwest ~~(14.6%)~~2.0%; Midwest ~~(6.7%~~(1.2%); West ~~(19.9%)~~3.0%; and Canada ~~(6.4%)~~6.5%.

We estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins (discussed below).

~~Product line~~The following table summarizes net sales by product line for ~~our existing markets were as follows~~the periods presented (in thousands):

Acquired market net sales were $724.7 million in 2019. We recognized acquired market product line net sales of $216.3 million in residential roofing products, $123.2 million in non-residential roofing products and $385.2 million in complementary building products.

~~Gross~~The following table summarizes gross profit and gross margin for ~~our consolidated and existing markets were as follows~~the periods presented (in thousands):

~~Consolidated gross~~Gross profit ~~increased $165.8~~decreased 5.7% to $410.7 million ~~or 61.5%, to~~in 2020, from $435.6 million in ~~2019, up~~2019.

Gross margin was 24.5% in 2020, down 0.8% from ~~$269.8 million~~25.3% in ~~2018. Existing market gross profit decreased $3.2 million, or 1.3%, over the~~2019. The comparative ~~2018 period.~~

~~Consolidated~~decrease in gross margin was 25.3% in 2019, up 1.3% from 24.0% in 2018. Existing market gross margin increased 0.2% over the comparative 2018 period, to 24.1%. The year-over-year increase in existing market gross margin was mainly influenced by ~~a price increase of approximately 7%, partially offset by a~~an overall product cost increase of ~~approximately 6-7% across all products and a shift in mix to product lines with lower gross margins over the comparative period.~~

~~Consolidated gross margin was slightly higher~~less than ~~existing market gross margin due to the positive impact of recent acquisitions. Consolidated direct sales (products shipped~~1%, accompanied by our vendors directly to our customers), which typically have substantially lower gross margins (and operating expense) compared to our warehouse sales, represented 11.3% and 13.5% of our net sales in 2019 and 2018, respectively.comparatively flat pricing.

~~Operating~~The following table summarizes operating expense for ~~consolidated and existing markets was as follows~~the periods presented (in thousands):

~~Consolidated operating~~Operating expense ~~increased $176.7~~decreased 1.6% to $390.8 million ~~or 80.1%, to~~in 2020, from $397.3 million in ~~2019, up from $220.7 million~~2019. The comparative decrease in ~~2018. Existing market operating expense increased $7.0 million, or 3.5% in 2019, to $206.8 million, compared to $199.8 million in 2018. The year-over-year increase in existing market~~ operating expense was mainly influenced by the following factors:

~~During~~ ~~2019~~ ~~and~~ ~~2018~~, we recorded amortization expense related to the intangible assets recorded under purchase accounting within our existing markets of $12.8 million and $15.5 million, respectively. Our existing markets operating expense as a percentage of the related net sales in ~~2019~~ ~~was 20.7%, compared to 19.7% in~~ ~~2018~~.

Interest expense, financing costs and other expense ~~was~~remained flat at $38.3 million in 2020, compared to $38.4 million in 2019, compared to $22.6 million in 2018. The increase was mainly driven by the additional interest costs related to a higher average outstanding debt balance over the comparative periods as a direct result of the Allied Acquisition.2019.

There was an income tax ~~provision~~benefit of $9.6 million in 2020, compared to income tax expense of $0.8 million in ~~2019, compared to an income tax benefit of $41.1 million in 2018.~~2019. The comparative increase in income tax ~~provision~~benefit was ~~mainly driven by the impact of the Tax Cuts and Jobs Act of 2017. In 2018, the Company remeasured its deferred tax assets and liabilities based on the revised corporate tax rate, resulting~~primarily due to a $32.9 million increase in ~~a $46.5 million non-recurring~~pre-tax net ~~tax benefit.~~loss. The ~~first quarter~~ effective tax rate, excluding any discrete items, was 28.5% in 2020, compared to 26.9% in ~~2019, compared to 29.0% in 2018. Discrete items in 2019 totaled $0.8 million and were composed solely of tax shortfall amounts related to restricted stock unit awards that vested during the period.~~2019. We expect our fiscal year ~~2019~~2020 effective tax rate, excluding any discrete items, will range from approximately ~~27.0%~~28.0% to ~~28.0%~~29.0%.

Net income (loss) was $(23.4) million in 2020, compared to $(0.9) million in ~~2019, compared to $67.6 million in 2018.~~2019. There were $6.0 million of dividends on preferred shares in ~~2019~~both 2020 and ~~none in 2018,~~2019, making net income (loss) attributable to common shareholders of$(29.4) million and $(6.9) million, ~~in 2019, compared to $67.6 million in 2018.~~respectively. We calculate net income (loss) per share by dividing net income (loss), less dividends on preferred shares and adjustments for participating securities, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by utilizing the most dilutive result after applying and comparing the two-class method and if-converted method (see Note 54 in the Notes to Condensed Consolidated Financial Statements for further discussion).

The following table presents the all the components utilized to calculate basic and diluted net income (loss) per share (in thousands, except share and per share amounts):

To provide investors with additional information regarding our financial results, we prepare certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), specifically:

We define Adjusted Net Income (Loss) as net income that excludes acquisition costs, business restructuring costs, and the effects of tax reform. We define Adjusted EBITDA as net income plus interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, acquisition costs, and business restructuring costs.

We use these supplemental non-GAAP measures to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources. We expect to compute our non-GAAP financial measures consistently using the same methods each period.

We believe these non-GAAP measures are useful measures because they allow investors to better understand changes in underlying operating performance over comparative periods by providing investors with financial results that are unaffected by cyclical variances that can be driven by items such as investment activity or purchase accounting adjustments.

While we believe that these non-GAAP measures are useful to investors when evaluating our business, they are not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature. You should not consider these non-GAAP measures in isolation or as a substitute for other financial performance measures presented in accordance with GAAP. These non-GAAP financial measures may have material limitations including, but not limited to, the exclusion of certain costs without a corresponding reduction of net income for the income generated by the assets that the excluded costs are related to. In addition, these non-GAAP financial measures may differ from similarly titled measures presented by other companies.

The following table presents a reconciliation of net income, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted ~~EPS~~Net Income (Loss) for each of the periods indicated (in thousands):

The following table presents a reconciliation of net income, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated (in thousands):

Three Months Ended December 31,

2019

2018

Net income (loss)

(23,410

)

(893

)

Interest expense, net

34,796

39,816

Income taxes

(9,632

)

786

Depreciation and amortization

63,850

69,622

Stock-based compensation

5,156

3,457

Acquisition costs¹

3,852

8,917

Business restructuring costs²

19,683

Adjusted EBITDA

We define Adjusted Net Income (Loss) as net income that excludes non-recurring acquisition costs, the amortization of intangibles, business restructuring costs, and the non-recurring effects of tax reform. Adjusted net income per share (“Adjusted EPS”)$

3194,295

is calculated by dividing the Adjusted Net Income (Loss) for the period by the weighted-average diluted shares outstanding for the period after assuming the full conversion of the participating Preferred Stock.

We define Adjusted EBITDA as net income plus interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, non-recurring acquisition costs, and business restructuring costs. EBITDA is a measure commonly used in the distribution industry, and we present Adjusted EBITDA to enhance your understanding of our operating performance.

While we believe that these non-GAAP measures are useful to investors when evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared and presented in accordance with GAAP. You should not consider any of these measures as a substitute alongside other financial performance measures presented in accordance with GAAP. In addition, these non-GAAP measures may have material limitations and may differ from similarly titled measures presented by other companies.

~~Adjusted Net Income (Loss)/Adjusted EPS~~

The following table presents a reconciliation of net income, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted Net Income (Loss)/Adjusted EPS for each of the periods indicated (in thousands, except per share amounts):

Three Months Ended December 31,

2018

2017

Amount

Per
Share¹

Amount

Per
Share¹

Net income (loss)
$
(893
)

$
(0.01
)

$
67,596

$
0.98

Acquisition costs²

47,393

0.61

25,633

0.37

Effects of tax reform³

-

-

(46,492
)

(0.67
)
Adjusted Net Income (Loss)
$
46,500

$
0.60

$
46,737

$
0.68

The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended December 31, 2018 is 77,942,639. This amount is the 68,248,020 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock, which were excluded from the GAAP net income (loss) per share calculation for the period due to their anti-dilutive nature. The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended December 31, 2017 is 69,244,678.121,705

Three months ended December 31, 2018 amount is composed of $11.9 million of non-recurring acquisition costs ($8.8 million, net of tax) and $52.0 million of amortization expense related to intangibles ($38.5 million, net of tax). Three months ended December 31, 2017 amount is composed of $17.8 million of non-recurring acquisition costs ($12.7 million, net of tax) and $18.2 million of amortization expense related to intangibles ($12.9 million, net of tax).

~~Impact of the Tax Cuts and Jobs Act of 2017.~~

Adjusted EBITDA

~~The following table presents~~ as a ~~reconciliation~~% of net ~~income,~~sales

5.6%

7.1%

In general, sales and net income are highest during our first, third and fourth fiscal quarters, which represent the peak months of construction and re-roofing, especially in our branches in the northern and mid-western U.S. and in Canada. We have historically incurred low net income levels or net losses during the second quarter when our sales are substantially lower.

We generally experience an increase in inventory, accounts receivable and accounts payable during the third and fourth quarters of the year as a result of the seasonality of our business. Our peak cash usage generally occurs during the third quarter, primarily because accounts payable terms offered by our suppliers typically have due dates in April, May and June, while our peak accounts receivable collections typically occur from June through November.

We generally experience a slowing of our accounts receivable collections during our second quarter, mainly due to the inability of some of our customers to conduct their businesses effectively in inclement weather in certain divisions. We continue to attempt to collect those receivables, which require payment under our standard terms. We do not provide material concessions to our customers during this quarter of the year.

We generally experience our peak working capital needs during the third quarter after we build our inventories following the winter season but before we begin collecting on most of our spring receivables.

The following table sets forth certain unaudited quarterly data for the first quarter of 2020 and fiscal year 2019, ~~and fiscal year 2018,~~ which, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of this data. Results of any one or more quarters are not necessarily indicative of results for an entire fiscal year or of continuing trends (in thousands, except per share amounts):

2019

2018

Qtr 1

Qtr 4

Qtr 3

Qtr 2

Qtr 1¹

Net sales
$
1,721,676

$
1,935,756

$
1,934,951

$
1,425,625

$
1,121,979

% of fiscal year’s net sales

100.0
%

30.2
%

30.1
%

22.2
%

17.5
%

Gross profit

435,569

491,297

493,894

338,377

269,753

% of fiscal year’s gross profit

100.0
%

30.8
%

31.0
%

21.2
%

16.9
%

Income (loss) from operations

38,254

108,115

104,813

(57,398
)

49,096

% of fiscal year’s income (loss) from operations

100.0
%

52.8
%

51.2
%

(28.1
%)

24.0
%

Net income (loss)
$
(893
)

$
48,310

$
49,375

$
(66,655
)

$
67,596

Dividends on preferred shares

6,000

6,000

6,000

6,000

-

Net income (loss) attributable to common shareholders
$
(6,893
)

$
42,310

$
43,375

$
(72,655
)

$
67,596

Net income (loss) per share - basic
$
(0.10
)

$
0.54

$
0.56

$
(1.07
)

$
1.00

Net income (loss) per share - diluted
$
(0.10
)

$
0.54

$
0.55

$
(1.07
)

$
0.98

Liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash. We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities, taking into consideration available borrowings and the seasonal nature of our business.

~~Our principal sources of liquidity as of December 31, 2018 were our cash and cash equivalents of $18.4 million and our available borrowings of $680.0~~

	2020			2019
	Qtr 1			Qtr 4			Qtr 3			Qtr 2			Qtr 1
Net sales	$	1,675,112		$	2,029,913		$	1,924,534		$	1,429,037		$	1,721,676
% of fiscal year’s net sales		100.0	%		28.6	%		27.1	%		20.1	%		24.2	%

Gross profit		410,698			493,462			472,536			334,988			435,569
% of fiscal year’s gross profit		100.0	%		28.4	%		27.2	%		19.3	%		25.1	%

Income (loss) from operations		19,929			89,874			74,254			(54,630	)		38,254
% of fiscal year’s income (loss) from operations		100.0	%		60.8	%		50.3	%		(37.0	%)		25.9	%

Net income (loss)	$	(23,410	)	$	27,380		$	30,987		$	(68,086	)	$	(893	)
Dividends on Preferred Stock		6,000			6,000			6,000			6,000			6,000
Net income (loss) attributable to common shareholders	$	(29,410	)	$	21,380		$	24,987		$	(74,086	)	$	(6,893	)

Net income (loss) per share - basic	$	(0.43	)	$	0.27		$	0.32		$	(1.08	)	$	(0.10	)
Net income (loss) per share - diluted	$	(0.43	)	$	0.27		$	0.32		$	(1.08	)	$	(0.10	)

Our principal sources of liquidity as of December 31, 2019 were our cash and cash equivalents of $43.7 million and our available borrowings of $943.9 million under our asset-based lending revolving credit facility.

•

the adequacy of available bank lines of credit;

•

the ability to attract long-term capital with satisfactory terms;

•

cash flows generated from operating activities;

•

acquisitions; and

•

capital expenditures.

Our primary capital needs are for working capital obligations and other general corporate purposes, including acquisitions and capital expenditures. Our primary sources of working capital are cash from operations and bank borrowings. We have financed large acquisitions through increased bank borrowings and the issuance of long-term debt and common or preferred stock. We then repay any such borrowings with cash flows from operations. We have funded most of our capital expenditures with cash on hand, increased bank borrowings, or equipment financing, and then reduced those obligations with cash flows from operations.

We believe we currently have adequate liquidity and availability of capital to fund our present operations, meet our commitments on our existing debt and fund anticipated growth, including expansion in existing and targeted market areas. We seek potential acquisitions from time to time and hold discussions with certain acquisition candidates. If suitable acquisition opportunities or working capital needs arise that require additional financing, we believe that our financial position and earnings history provide a sufficient base for obtaining additional financing resources at reasonable rates and terms. We may also choose to issue additional shares of common stock or preferred stock in order to raise funds.

The following table summarizes our cash flows for the periods indicated (in thousands):

	Three Months Ended December 31,
	2019			2018
Net cash provided by (used in) operating activities	$	(125,307	)	$	(336,883	)
Net cash provided by (used in) investing activities		(11,798	)		(175,260	)
Net cash provided by (used in) financing activities		108,865			400,181
Effect of exchange rate changes on cash and cash equivalents		(298	)		458
Net increase (decrease) in cash and cash equivalents	$	(28,538	)	$	(111,504	)

Operating Activities

Net cash used in operating activities was $125.3 million in 2020, compared to $336.9 million in 2019. Cash from operations increased $211.6 million due to an incremental cash inflow of $225.1 million stemming from changes to our net working capital, mainly driven by decreases in prepaid expenses and other assets. This increase was partially offset by a decrease in net income after adjustments for the loss on debt extinguishment and other non-cash items of $13.6 million.

Investing Activities

Net cash used in investing activities was $11.8 million in 2020, compared to $175.3 million in 2019. The $163.5 million decrease in investing cash spend was primarily due to the $164.0 million payment resulting from the 338(h)(10) election made in 2019 in connection with the Allied Acquisition.

Financing Activities

Net cash provided by financing activities was $108.9 million in 2020, compared to $400.2 million in 2019. The financing cash flow decrease of $291.3 million was primarily due to a $276.5 million decrease in net borrowings under our revolving lines of credit over the comparative periods.

~~sufficient base for obtaining additional financing resources at reasonable rates and terms. We may also choose to issue additional shares of common stock or preferred stock in order to raise funds.~~

~~The following table summarizes our cash flows for the periods indicated (in thousands):~~

Three Months Ended December 31,

2018

2017

Net cash provided by (used in) operating activities
$
(336,883
)

$
(40,456
)
Net cash provided by (used in) investing activities

(175,260
)

(7,003
)
Net cash provided by (used in) financing activities

400,181

1,272,396

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

458

640

Net increase (decrease) in cash, cash equivalents, and restricted cash
$
(111,504
)

$
1,225,577

~~Operating Activities~~

Net cash used in operating activities was $336.9 million in 2019, compared to $40.5 million in 2018. Cash from operations decreased $296.4 million due to an incremental cash outflow of $321.7 million stemming from changes to our net working capital, mainly driven by decreases in accounts payable and accrued expenses. This decrease was partially offset by an increase in net income after adjustments for non-cash items of $25.3 million.

~~Investing Activities~~

Net cash used in investing activities was $175.3 million in 2019, compared to $7.0 million in 2018. The $168.3 million of additional investing cash spend was primarily due to the $164.0 million payment resulting from the 338(h)(10) election made in October 2018 (see Note 3 in the Notes to Condensed Consolidated Financial Statements).

~~Financing Activities~~

Net cash provided by financing activities was $400.2 million in 2019, compared to $1.27 billion in 2018. The financing cash flow decrease of $872.2 million was primarily due to the $1.30 billion impact of the 2025 Senior Notes that we entered into in 2018 in connection with the Allied Acquisition (see Note 8 in the Notes to Condensed Consolidated Financial Statements for further discussion), partially offset by a $413.6 million net increase in borrowings from our revolving lines of credit in 2019.

Capital Resources

As of December 31, ~~2018,~~2019, we had access to the following financing arrangements:

•

an asset-based revolving line of credit in the United States;

•

an asset-based revolving line of credit in Canada;

•

a term loan; and

•

two separate senior notes instruments

Debt Refinancing

2026 Senior Notes

On October 9, 2019, we and certain of our subsidiaries as guarantors executed a private offering of $300.0 million aggregate principal amount of 4.50% Senior Notes due 2026 (the “2026 Senior Notes”) at an issue price of 100%. The 2026 Senior Notes mature on November 15, 2026 and bear interest at a rate of 4.50% per annum, payable on May 15 and November 15 of each year, commencing on May 15, 2020.

States absent registration or an ~~asset-based revolving line~~applicable exemption from the registration requirements of ~~credit~~the Securities Act and other applicable securities laws.

On October 28, 2019, we used the net proceeds from the offering, together with cash on hand and available borrowings under the 2023 ABL (as defined below), to redeem all $300.0 million aggregate principal amount outstanding of the 2023 Senior Notes (as defined below) at a redemption price of 103.188% and to pay all related accrued interest, fees and expenses.

The intent of the transaction was to take advantage of lower market interest rates by refinancing the existing 2023 Senior Notes with the 2026 Senior Notes. We have accounted for the refinance as a debt extinguishment of the 2023 Senior Notes and an issuance of the 2026 Senior Notes. As a result, we recorded a loss on debt extinguishment of $14.7 million in ~~Canada;~~the three months ended

a27

December 31, 2019. We capitalized new debt issuance costs of $4.4 million related to the 2026 Senior Notes, which are being amortized over the term ~~loan; and~~of the financing arrangements.

~~two separate senior notes instruments~~As of December 31, 2019, the outstanding balance on the 2026 Senior Notes, net of $4.3 million of unamortized debt issuance costs, was $295.7 million.

Financing - Allied Acquisition

In connection with the Allied Acquisition, we entered into various financing arrangements totaling $3.57 billion, including an asset-based revolving line of credit of $1.30 billion (“2023 ABL”), $525.0 million of which was drawn at closing, and a $970.0 million term loan (“2025 Term Loan”). We also raised an additional $1.30 billion through the issuance of senior notes (the “2025 Senior Notes”).

The proceeds from these financing arrangements were used to finance the Allied Acquisition, to refinance or otherwise extinguish all third-party indebtedness, to pay fees and expenses associated with the acquisition, and to provide working capital and funds for other general corporate purposes. We capitalized new debt issuance costs totaling approximately $65.3 million related to the 2023 ABL, the 2025 Term Loan and the 2025 Senior ~~Notes.~~

Since the financing arrangements entered into in connection with the Allied Acquisition had certain lenders who also participated in our previous financing arrangements, portions of the transactions were accounted for as either a debt modification or a debt extinguishment. In accordance with the accounting for debt modification, we expensed $2.0 million of debt issuance costs related to the Allied financing arrangements and recognized a loss on debt extinguishment of $1.7 million. The remainder of the debt issuance costs will beNotes, which are being amortized over the term of the ~~Allied~~ financing arrangements.

2023 ABL

On January 2, 2018, we entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2023 ABL consists of revolving loans in both the United States (“2023 U.S. Revolver”) in the amount of $1.20 billion and Canada (“2023 Canada Revolver”) in the amount of $100.0 million. The 2023 ABL has a maturity date of January 2, 2023. The 2023 ABL has various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The current unused commitment fees on the 2023 ABL are 0.25% per annum.

There is one financial covenant under the 2023 ABL, which is ~~a Consolidated~~the Fixed Charge Coverage Ratio. The ~~Consolidated~~ Fixed Charge Coverage Ratio is calculated by dividing ~~consolidated earnings before interest, taxes, depreciation and amortization (EBITDA)~~Consolidated EBITDA, less Capital Expenditures, by Consolidated Fixed Charges ~~(both~~(all terms as defined in the agreement). Per the covenant, our Consolidated Fixed Charge Ratio must be a minimum of 1.00 at the end of each fiscal quarter, calculated on a trailing four quarter basis. The Company was in compliance with this covenant as of December 31, 2019.

The 2023 ABL is secured by a first priority lien over substantially all of our and each guarantor’s accounts, chattel paper, deposit accounts, books, records and inventory (as well as intangibles related thereto), subject to certain customary exceptions (the “ABL Priority Collateral”), and a second priority lien over substantially all of our and each guarantor’s other assets, including all of the equity interests of any subsidiary held by us or any guarantor, subject to certain customary exceptions (the “Term Priority Collateral”). The 2023 ABL is guaranteed jointly, severally, fully and unconditionally by our active United States subsidiaries.

As of December 31, ~~2018,~~2019, the total balance outstanding on the 2023 ABL, net of ~~$10.0~~$7.5 million of unamortized debt issuance costs, was ~~$503.2~~$215.6 million. We also have outstanding standby letters of credit related to the 2023 U.S. Revolver in the amount of ~~$13.4~~$13.0 million as of December 31, ~~2018.~~2019.

2025 Term Loan

On January 2, 2018, we entered into a $970.0 million Term Loan with Citibank N.A., and a syndicate of other lenders. The 2025 Term Loan requires quarterly principal payments in the amount of $2.4 million, with the remaining outstanding principal to be paid on its ~~maturity date of~~ January 2, ~~2025.~~2025 maturity date. The interest rate is based on a LIBOR rate (with a floor) plus a fixed spread. We have the option of selecting a LIBOR period that determines the rate at which interest can accrue on the Term Loan as well as the period in which interest payments are made.

As of December 31, ~~2018,~~2019, the outstanding balance on the 2025 Term Loan, net of ~~$33.0~~$27.5 million of unamortized debt issuance costs, was ~~$932.1~~$925.5 million.

2025 Senior Notes

On October 25, 2017, Beacon Escrow Corporation, our ~~wholly-owned~~wholly owned subsidiary (the “Escrow Issuer”), completed a private offering of $1.30 billion aggregate principal amount of 4.875% Senior Notes due 2025 at an issue price of 100%. The 2025 Senior Notes bear interest at a rate of 4.875% per annum, payable semi-annually in arrears, beginning May 1, 2018. We anticipate repaying the 2025 Senior Notes at the maturity date of November 1, 2025. Per the terms of the Escrow Agreement, the net proceeds from the

2025 Senior Notes remained in escrow until they were used to fund a portion of the purchase price of the Allied Acquisition payable at closing on January 2, 2018.

Upon closing of the Allied Acquisition on January 2, 2018, (i) the Escrow Issuer merged with and into us, and we assumed all obligations under the 2025 Senior Notes; and (ii) all our existing domestic subsidiaries (including the entities acquired in the Allied Acquisition) became guarantors of the 2025 Senior Notes.

As of December 31, ~~2018,~~2019, the outstanding balance on the 2025 Senior Notes, net of ~~$19.2~~$16.4 million of unamortized debt issuance costs, was $1.28 billion.

Financing - RSG Acquisition

In connection with the Roofing Supply Group (“RSG”) acquisition in fiscal year 2016, we entered into various financing arrangements totaling $1.45 billion, including an asset-based revolving line of credit (“2020 ABL”) of $700.0 million ($350.0 million of which was drawn at closing) and a $450.0 million term loan (“2022 Term Loan”). We also raised an additional $300.0 million through the issuance of senior notes (the “2023 Senior Notes”).

~~associated with the RSG acquisition. We incurred debt issuance costs totaling approximately $31.3 million related to the 2020 ABL, 2022 Term Loan, and 2023 Senior Notes.~~

~~2020 ABL~~

On October 1, 2015, we entered into a $700.0 million asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2020 ABL had an original maturity date of October 1, 2020 and consisted of revolving loans in both the United States, in the amount of $670.0 million, and Canada, in the amount of $30.0 million. The 2020 ABL had various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The full balance of the 2020 ABL was paid on January 2, 2018 in conjunction with the Allied Acquisition.

~~2022 Term Loan~~

On October 1, 2015, we entered into a $450.0 million Term Loan with Citibank N.A., and a syndicate of other lenders. The 2022 Term Loan required quarterly principal payments in the amount of $1.1 million, with the remaining outstanding principal to be paid on its original maturity date of October 1, 2022. The interest rate was based on a LIBOR rate (with a floor) plus a fixed spread. We had the option of selecting a LIBOR period that determines the rate at which interest would accrue, as well as the period in which interest payments are made. The full balance of the 2022 Term Loan was paid on January 2, 2018 in conjunction with the Allied Acquisition, including the write-off of $0.7 million in debt issuance costs.

2023 Senior Notes

On October 1, 2015, wein connection with the acquisition of Roofing Supply Group, the Company raised $300.0 million by issuing ~~senior notes~~6.38% Senior Notes due ~~2023.~~2023 (the “2023 Senior Notes”). The 2023 Senior Notes ~~have~~had a coupon rate of 6.38% per annum and ~~are~~were payable semi-annually in arrears, beginning April 1, 2016. There ~~are~~were early payment provisions in the indenture in which wethe Company would be subject to ~~“make whole” provisions. We anticipate repaying~~redemption premiums. On October 28, 2019, the ~~notes at~~Company redeemed all $300.0 million aggregate principal amount outstanding of the ~~maturity date of October 1, 2023.~~

~~The~~ 2023 Senior Notes ~~are guaranteed jointly, severally, fully~~at a redemption price of 103.188% plus accrued interest and, ~~unconditionally by our active United States subsidiaries.~~as a result, wrote off $5.1 million of unamortized debt issuance costs.

Equipment Financing Facilities

As of December 31, ~~2018, the outstanding balance on the 2023 Senior Notes, net of $6.1 million of unamortized debt issuance costs, was $293.9 million.~~

~~Equipment Financing Facilities and Other~~

~~As of December 31, 2018,~~2019, we had ~~$10.1~~$5.8 million outstanding under equipment financing facilities, with fixed interest rates ranging from 2.33% to ~~3.25%~~2.89% and payments due through September 2021.

~~As of December 31, 2018, we had $11.2 million of capital lease obligations outstanding. These leases have interest rates ranging from 2.72% to 10.39% with payments due through November 2021.~~

3729

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

Our disclosure and analysis in this report contains forward-looking information that involves risks and uncertainties. Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, statements of management’s plans and objectives, future contracts, and forecasts of trends and other matters. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate,” “estimate,” “expect,” “believe,” “will likely result,” “outlook,” “project” and other words and expressions of similar meaning. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.

Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of its ~~2017~~2019 Annual Report on Form 10-K have not changed materially during the three-month period ended December 31, ~~2018.~~2019.

Item 4.

Controls and Procedures

As of December 31, ~~2018,~~2019, management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”)). Based on that evaluation, management, including the CEO and CFO, concluded that as of December 31, ~~2018,~~2019, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. We maintain a system of internal control over financial reporting that is 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 in the United States.

On January 2, 2018, we completed our acquisition of Allied Building Products Corp. ("Allied"). As permitted under existing SEC staff guidance, management elected to exclude Allied from our internal controls assessment for fiscal year 2018. However, for fiscal year 2019, the acquired Allied business is within the scope of management’s assessment of internal controls. Although management has not fully integrated all of the acquired Allied branches, the internal controls at the Allied branches were part of management’s assessment of internal controls for effectiveness as of December 31, 2018. The full integration of the remaining Allied branches may lead to changes in future periods, but we do not expect these changes to materially affect our internal controls over financial reporting.

~~Including the Allied acquisition, there~~There has been no change to our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

3830

PART II.OTHER INFORMATION

Item 6.

Exhibits

Incorporated by Reference

Exhibit

Number

Description

Form

File No.

Exhibit

Filing Date

Description

Form

Exhibit

Filing Date

10.1+*

Description of Executive Annual Incentive Plan

4.1

Indenture, dated as of October 9, 2019, by and among Beacon Roofing Supply, Inc., the subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee and collateral agent.

8-K

4.1

October 9, 2019

10.2

Letter Agreement, dated as of November 20, 2018, by and among Beacon Roofing Supply, Inc., CD&R Boulder Holdings, L.P. and Clayton, Dubilier & Rice Fund IX, L.P. (solely for the purposes described therein)

8-K

000-50924

10.1

November 21, 2018

4.2

Form of 4.500% Senior Secured Notes due 2026 (included as Exhibit A to the Indenture incorporated by reference as Exhibit 4.1).

8-K

4.1

October 9, 2019

10.1*+

Separation Agreement, dated as of November 24, 2019, between Beacon Roofing Supply, Inc. and Joseph Nowicki.

10.2*+

Description of Executive Annual Incentive Plan.

31.1*

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)

31.2*

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)

32.1*

Certification pursuant to 18 U.S.C. Section 1350

101*

101.INS XBRL Instance

101.INS Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH XBRL Taxonomy Extension Schema

101.SCH Inline XBRL Taxonomy Extension Schema

101.CAL XBRL Taxonomy Extension Calculation

101.CAL Inline XBRL Taxonomy Extension Calculation

101.LAB XBRL Taxonomy Extension Labels

101.PRE Inline XBRL Taxonomy Extension Presentation

101.CAL XBRL Taxonomy Extension Calculation

101.LAB Inline XBRL Taxonomy Extension Labels

101.PRE XBRL Taxonomy Extension Presentation

101.DEF Inline XBRL Taxonomy Extension Definition

101.LAB XBRL Taxonomy Extension Labels

101.DEF XBRL Taxonomy Extension Definition

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+	Management contract or compensatory plan/arrangement

*	Filed herewith

Pursuant to Rule 405 of Regulation S-T, the following interactive data files formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL) are attached as Exhibit 101 to this Quarterly Report on Form 10-Q: (i) the Consolidated Balance Sheets as of December 31, ~~2018;~~2019; September 30, ~~2018;~~2019; and December 31, ~~2017,~~2018, (ii) the Consolidated Statements of Operations for the three months ended December 31, ~~2018~~2019 and ~~December 31, 2017,~~2018, (iii) the Consolidated Statements of Comprehensive Income for the three months ended December 31, ~~2018~~2019 and ~~December 31, 2017,~~2018, (iv) the Consolidated Statements of Stockholders’ Equity for the three months ended December 31, ~~2018~~2019 and ~~December 31, 2017,~~2018, (v) the Consolidated Statements of Cash Flows for the three months ended December 31, ~~2018~~2019 and ~~December 31, 2017,~~2018, and (vi) the Notes to Condensed Consolidated Financial Statements.

3931

~~SIGNATURE~~SIGNATURE

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.

	BEACON ROOFING SUPPLY, INC.

Date: February ~~8, 2019~~4, 2020	BY:	/s/ JOSEPH M. NOWICKI
		Joseph M. Nowicki
		Executive Vice President & Chief Financial Officer

4032


Title of each class	Trading Symbol	Name of each exchange on which registered

Common Stock, $0.01 par value	BECN	NASDAQ Global Select Market

	January 2, 2018						January 2, 2018
	(as reported at March 31, 2018)			Adjustments			(as adjusted at December 31, 2018)
Cash	$	19,322		$	(19,153	)	$	169
Accounts receivable		315,485			22,064			337,549
Inventory		322,705			(7,920	)		314,785
Prepaid and other current assets		59,279			16,161			75,440
Property, plant, and equipment		139,528			(168	)		139,360
Goodwill		1,130,635			102,145			1,232,780
Intangible assets		1,037,000			-			1,037,000
Current liabilities		(271,252	)		11,963			(259,289	)
Non-current liabilities		(6,820	)		6,097			(723	)
Total purchase price	$	2,745,882		$	131,189		$	2,877,071

	Three Months Ended December 31, 2018						U.S.		Canada		Total
	U.S.		Canada		Total
Three Months Ended December 31, 2018
Residential roofing products	$	720,511	$	11,679	$	732,190	$	720,511	$	11,679	$	732,190
Non-residential roofing products		390,268		29,641		419,909		390,268		29,641		419,909
Complementary building products		568,116		1,461		569,577		568,116		1,461		569,577
Total net sales	$	1,678,895	$	42,781	$	1,721,676	$	1,678,895	$	42,781	$	1,721,676

Three Months Ended December 31, 2019
Residential roofing products							$	691,307	$	10,929	$	702,236
Non-residential roofing products								388,482		32,371		420,853
Complementary building products								549,779		2,244		552,023
Total net sales							$	1,629,568	$	45,544	$	1,675,112

Risk-free interest rate	~~3.00~~1.74	%
Expected volatility	~~29.34~~33.18	%
Expected life (in years)	~~5.18~~5.25
Dividend yield	-

	Three Months Ended December 31,				Three Months Ended December 31,
	2018		2017		2019		2018
Weighted-average fair value of stock options granted	$	8.75	$	15.86	$	10.70	$	8.75
Total grant date fair value of stock options vested		3,680		3,773		3,902		3,680
Total intrinsic value of stock options exercised		712		5,448		665		712


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

PART I.	Financial Information (unaudited)
	Item 1.	Condensed Consolidated Financial Statements
		Consolidated Balance Sheets	3
		Consolidated Statements of Operations	4
		Consolidated Statements of Comprehensive Income	5
		Consolidated Statements of Stockholders’ Equity	6
		Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2720
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3830
	Item 4.	Controls and Procedures	38
			30
PART II.	Other Information
	Item 6.	Exhibits	3931
Signatures
~~Signatures~~			4032

	Three Months Ended
	December 31, 2017
	(unaudited)
Net sales	$	1,787,628
Net income (loss)		32,257

	RSUs Outstanding			Weighted-Average Grant Date Fair Value		RSUs Outstanding			Weighted-Average Grant Date Fair Value
Balance as of September 30, 2018		934,023		$	47.00
Balance as of September 30, 2019							1,123,358		$	37.48
Granted		630,745			27.28		378,320			33.47
Released		(366,779	)		40.46		(199,960	)		40.24
Canceled/Forfeited		(77,455	)		47.52		(2,906	)		29.15
Balance as of December 31, 2018		1,120,534		$	38.00
Vested and expected to vest after December 31, 2018		1,040,181		$	37.78
Balance as of December 31, 2019							1,298,812		$	35.75
Vested and expected to vest after December 31, 2019							1,077,493		$	36.98

Balance as of September 30, 2017	$	1,251,986
Translation and other adjustments		(161	)
Balance as of December 31, 2017	$	1,251,825


Balance as of September 30, 2018	$	2,491,779		$	2,491,779
Acquisitions¹		(513	)		(513	)
Translation and other adjustments		(1,536	)		(1,536	)
Balance as of December 31, 2018	$	2,489,730		$	2,489,730


Balance as of September 30, 2019				$	2,490,590
Translation and other adjustments					576
Balance as of December 31, 2019				$	2,491,166

Year Ending September 30,
2019 (Jan - Sept)	$	156,534
2020		179,541
Year Ending September 30,¹
2020 (Jan - Sept)			$	133,109
2021		149,974		148,318
2022		121,426		120,666
2023		97,517		97,522
2024				78,873
Thereafter		384,200		305,940
Total future amortization expense	$	1,089,192	$	884,428

	Three Months Ended December 31, 2019
Operating lease costs	$	31,461
Variable lease costs		2,657
Total operating lease costs	$	34,118

		Three Months Ended December 31, 2019
Operating cash flows for operating lease liabilities		$	29,500

Year Ending September 30,
2019 (Jan - Sept)	$	110,514
2020		101,743
2020 (Jan - Sept)			$	85,742
2021		90,734		105,322
2022		71,869		89,230
2023		55,048		71,987
2024				54,834
Thereafter		146,410		95,205
Total minimum lease payments	$	576,318
Total future lease payments				502,320
Imputed interest				(44,822	)
Total operating lease liabilities			$	457,498

	Foreign			Derivative			Accumulated Other
	Currency Translation			Financial Instruments			Comprehensive Loss
Balance as of September 30, 2019	$	(18,984	)	$	(1,612	)	$	(20,596	)
Other comprehensive income before reclassifications		1,288			2,529			3,817
Reclassifications out of other comprehensive loss		-			-			-
Balance as of December 31, 2019	$	(17,696	)	$	917		$	(16,779	)

		Assets/(Liabilities) as of:
Instrument	Fair Value Hierarchy	December 31, 2019		September 30, 2019			December 31, 2018
Designated interest rate swaps¹	Level 2	$	917	$	(1,612	)	$	-

	December 31, 2018
	Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations and Other			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	-	$	30,877	$	2,775	$	(15,229	)	$	18,423
Accounts receivable, net		-		856,373		26,516		(1,140	)		881,749
Inventories, net		-		998,450		26,860		-			1,025,310
Prepaid expenses and other current assets		6,065		361,431		8,102		-			375,598
Total current assets		6,065		2,247,131		64,253		(16,369	)		2,301,080
Intercompany receivable, net		-		1,526,435		-		(1,526,435	)		-
Investments in consolidated subsidiaries		6,289,626		-		-		(6,289,626	)		-
Deferred income taxes, net		20,767		-		-		(20,767	)		-
Property and equipment, net		19,775		243,911		10,056		-			273,742
Goodwill		-		2,461,212		28,518		-			2,489,730
Intangibles, net		-		1,280,202		2,040		-			1,282,242
Other assets, net		1,243		-		-		-			1,243
Total assets	$	6,337,476	$	7,758,891	$	104,867	$	(7,853,197	)	$	6,348,037

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	28,808	$	532,526	$	6,975	$	(16,369	)	$	551,940
Accrued expenses		40,834		327,027		7,811		-			375,672
Current portions of long-term debt/obligations		9,700		10,615		-		-			20,315
Total current liabilities		79,342		870,168		14,786		(16,369	)		947,927
Intercompany payable, net		1,487,640		-		38,795		(1,526,435	)		-
Borrowings under revolving lines of credit, net		-		496,619		6,597		-			503,216
Long-term debt, net		2,497,123		-		-		-			2,497,123
Deferred income taxes, net		-		130,847		99		(20,767	)		110,179
Long-term obligations under equipment financing and other, net		-		10,689		-		-			10,689
Other long-term liabilities		-		5,453		79		-			5,532
Total liabilities	$	4,064,105	$	1,513,776	$	60,356	$	(1,563,571	)	$	4,074,666

Convertible preferred stock	$	399,195	$	-	$	-	$	-		$	399,195

Total stockholders' equity	$	1,874,176	$	6,245,115	$	44,511	$	(6,289,626	)	$	1,874,176
Total liabilities and stockholders' equity	$	6,337,476	$	7,758,891	$	104,867	$	(7,853,197	)	$	6,348,037

	Three Months Ended December 31, 2017
	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations and Other			Consolidated
Net sales	$	-		$	1,076,262		$	45,717		$	-		$	1,121,979
Cost of products sold		-			816,436			35,790			-			852,226
Gross profit		-			259,826			9,927			-			269,753
Operating expense:
Selling, general and administrative		(133	)		184,881			9,005			-			193,753
Depreciation		456			7,810			443			-			8,709
Amortization		-			18,064			131			-			18,195
Total operating expense		323			210,755			9,579			-			220,657
Intercompany charges (income)		893			(893	)		-			-			-
Income (loss) from operations		(1,216	)		49,964			348			-			49,096
Interest expense, financing costs, and other		10,076			825			11,667			-			22,568
Intercompany interest expense (income)		(5,708	)		5,321			387			-			-
Income (loss) before provision for income taxes		(5,584	)		43,818			(11,706	)		-			26,528
Provision for (benefit from) income taxes		5,521			(46,672	)		83			-			(41,068	)
Income (loss) before equity in net income of subsidiaries		(11,105	)		90,490			(11,789	)		-			67,596
Equity in net income of subsidiaries		78,701			-			-			(78,701	)		-
Net income (loss)	$	67,596		$	90,490		$	(11,789	)	$	(78,701	)	$	67,596

	Existing Markets						Acquired Markets						Consolidated
	Three Months Ended December 31,
	2018			2017			2018			2017			2018			2017
Net sales	$	997,009		$	1,016,628		$	724,667		$	105,351		$	1,721,676		$	1,121,979

Gross profit	$	240,037		$	243,221		$	195,532		$	26,532		$	435,569		$	269,753
Gross margin		24.1	%		23.9	%		27.0	%		25.2	%		25.3	%		24.0	%

Operating expense:
Selling, general, and administrative	$	185,635		$	176,509		$	142,058		$	17,244		$	327,693		$	193,753
Depreciation		8,360			7,815			9,241			894			17,601			8,709
Amortization		12,841			15,519			39,180			2,676			52,021			18,195
Operating expense¹	$	206,836		$	199,843		$	190,479		$	20,814		$	397,315		$	220,657
Operating expense as a % of net sales		20.7	%		19.7	%		26.3	%		19.8	%		23.2	%		19.7	%

Operating income (loss)	$	33,202		$	43,378		$	5,052		$	5,718		$	38,254		$	49,096
Operating margin		3.3	%		4.3	%		0.7	%		5.4	%		2.1	%		4.3	%

	Three Months Ended December 31,						Change¹
	2018			2017			$			%
Gross profit - consolidated	$	435,569		$	269,753		$	165,816			61.5	%
Gross profit - existing markets		240,037			243,221			(3,184	)		(1.3	%)
Gross margin - consolidated		25.3	%		24.0	%	N/A				1.3	%
Gross margin - existing markets		24.1	%		23.9	%	N/A				0.2	%