UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended December 31, 20182019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number 000-50924
BEACON ROOFING SUPPLY, INC.
(Exact name of registrant as specified in its charter)
Delaware | 36-4173371 |
(State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
505 Huntmar Park Drive, Suite 300, Herndon, VA 20170
(Address of Principal Executive Offices) (Zip Code)
(571) 323-3939
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $0.01 par value | BECN | NASDAQ Global Select Market |
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:
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
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|
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, 68,438,3612020, 68,805,794 shares of common stock, par value $0.01 per share, of the registrant were outstanding.
FORM 10-Q
For the Quarter Ended December 31, 20182019
TABLE OF CONTENTS
PART I. |
| Financial Information (unaudited) |
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| Item 1. |
| Condensed Consolidated Financial Statements |
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| 6 | |||||
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| 7 | |||||
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| 8 | |||||
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| Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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30 | ||||||||||
PART II. |
| Other Information |
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| Item 6. |
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2
PART I.Financial Information (Unaudited)
Item 1. | Condensed Consolidated Financial Statements |
BEACON ROOFING SUPPLY, INC.
(Unaudited; In thousands, except share and per share amounts)
| December 31, |
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| September 30, |
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| December 31, |
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| December 31, |
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| September 30, |
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| December 31, |
| 2019 |
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| 2019 |
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| 2018 |
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| 2018 |
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| 2018 |
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| 2017 |
| (unaudited) |
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| (unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents | $ | 18,423 |
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| $ | 129,927 |
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| $ | 63,827 |
| $ | 43,749 |
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| $ | 72,287 |
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| $ | 18,423 |
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Restricted cash |
| - |
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|
| - |
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| 1,300,000 |
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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 |
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| 1,090,533 |
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| 552,703 |
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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 |
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| 1,108,134 |
|
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| 881,749 |
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Inventories, net |
| 1,025,310 |
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|
| 936,047 |
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|
| 603,793 |
|
| 1,037,827 |
|
|
| 1,018,183 |
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| 1,025,310 |
| |
Prepaid expenses and other current assets |
| 375,598 |
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|
| 244,360 |
|
|
| 218,718 |
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| 311,112 |
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|
| 315,643 |
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|
| 375,598 |
| |
Total current assets |
| 2,301,080 |
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|
| 2,400,867 |
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| 2,739,041 |
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| 2,253,775 |
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| 2,514,247 |
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| 2,301,080 |
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Property and equipment, net |
| 273,742 |
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| 280,407 |
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| 154,687 |
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| 253,019 |
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|
| 260,376 |
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| 273,742 |
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Goodwill |
| 2,489,730 |
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|
| 2,491,779 |
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| 1,251,825 |
|
| 2,491,166 |
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| 2,490,590 |
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| 2,489,730 |
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Intangibles, net |
| 1,282,242 |
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| 1,334,366 |
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| 410,857 |
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| 1,077,478 |
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| 1,125,540 |
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| 1,282,242 |
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Operating lease assets |
| 463,081 |
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|
| - |
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| - |
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Other assets, net |
| 1,243 |
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|
| 1,243 |
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|
| 8,868 |
|
| 10 |
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|
| 2,059 |
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|
| 1,243 |
| |
Total assets | $ | 6,348,037 |
|
| $ | 6,508,662 |
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| $ | 4,565,278 |
| $ | 6,538,529 |
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| $ | 6,392,812 |
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| $ | 6,348,037 |
| |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable | $ | 551,940 |
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| $ | 880,872 |
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| $ | 315,442 |
| $ | 594,613 |
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| $ | 822,931 |
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| $ | 551,940 |
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Accrued expenses |
| 375,672 |
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| 611,539 |
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| 266,049 |
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| 411,169 |
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| 599,155 |
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| 375,672 |
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Current operating lease liabilities |
| 98,994 |
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|
| - |
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|
| - |
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Current portions of long-term debt/obligations |
| 20,315 |
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|
| 19,661 |
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| 14,239 |
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| 13,877 |
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| 18,689 |
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| 20,315 |
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Total current liabilities |
| 947,927 |
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|
| 1,512,072 |
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| 595,730 |
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| 1,118,653 |
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| 1,440,775 |
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| 947,927 |
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Borrowings under revolving lines of credit, net |
| 503,216 |
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| 92,442 |
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| - |
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| 215,642 |
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| 80,961 |
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| 503,216 |
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Long-term debt, net |
| 2,497,123 |
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| 2,494,725 |
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| 2,000,059 |
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| 2,495,135 |
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| 2,494,623 |
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| 2,497,123 |
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Deferred income taxes, net |
| 110,179 |
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| 106,994 |
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| 93,451 |
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| 107,085 |
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| 103,913 |
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| 110,179 |
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Long-term obligations under equipment financing and other, net |
| 10,689 |
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| 13,639 |
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| 20,951 |
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Non-current operating lease liabilities |
| 358,504 |
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| - |
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| - |
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Long-term obligations under equipment financing, net |
| 1,607 |
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| 4,609 |
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| 10,689 |
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Other long-term liabilities |
| 5,532 |
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| 5,290 |
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| 2,743 |
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| 2,018 |
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| 6,383 |
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| 5,532 |
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Total liabilities | $ | 4,074,666 |
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| $ | 4,225,162 |
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| $ | 2,712,934 |
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| 4,298,644 |
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| 4,131,264 |
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| 4,074,666 |
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Commitments and contingencies (Note 9) |
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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 |
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| $ | 399,195 |
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| $ | - |
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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 |
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| 399,195 |
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| 399,195 |
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Stockholders' equity: |
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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 |
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| $ | 681 |
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| $ | 679 |
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Undesignated preferred stock; 5,000,000 shares authorized, none issued or outstanding |
| - |
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| - |
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|
| - |
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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 |
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| 685 |
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| 684 |
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Undesignated preferred stock; 5,000,000 shares authorized, NaN issued or outstanding |
| - |
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| - |
|
|
| - |
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Additional paid-in capital |
| 1,067,711 |
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|
| 1,067,040 |
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| 1,050,389 |
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| 1,086,970 |
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| 1,083,042 |
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| 1,067,711 |
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Retained earnings |
| 826,941 |
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|
| 833,834 |
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| 815,782 |
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| 769,812 |
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|
| 799,222 |
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| 826,941 |
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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 |
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|
| 1,852,344 |
|
| 1,840,690 |
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|
| 1,862,353 |
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| 1,874,176 |
| |
Total liabilities and stockholders' equity | $ | 6,348,037 |
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| $ | 6,508,662 |
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| $ | 4,565,278 |
| $ | 6,538,529 |
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| $ | 6,392,812 |
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| $ | 6,348,037 |
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1 | In connection with the acquisition of Allied Building Products Corp. (“Allied”) on January 2, 2018 (the “Allied Acquisition”), 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. 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 (or 9,694,619 shares of common stock). 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. |
See accompanying Notes to Condensed Consolidated Financial Statements
3
Consolidated Statements of Operations
(Unaudited; In thousands, except share and per share amounts)
| Three Months Ended December 31, |
| Three Months Ended December 31, |
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| 2018 |
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| 2017 |
| 2019 |
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| 2018 |
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Net sales | $ | 1,721,676 |
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| $ | 1,121,979 |
| $ | 1,675,112 |
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| $ | 1,721,676 |
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Cost of products sold |
| 1,286,107 |
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| 852,226 |
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| 1,264,414 |
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| 1,286,107 |
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Gross profit |
| 435,569 |
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| 269,753 |
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| 410,698 |
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| 435,569 |
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Operating expense: |
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Selling, general and administrative |
| 327,693 |
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| 193,753 |
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| 326,919 |
|
|
| 327,693 |
|
Depreciation |
| 17,601 |
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|
| 8,709 |
|
| 19,072 |
|
|
| 17,601 |
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Amortization |
| 52,021 |
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|
| 18,195 |
|
| 44,778 |
|
|
| 52,021 |
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Total operating expense |
| 397,315 |
|
|
| 220,657 |
|
| 390,769 |
|
|
| 397,315 |
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Income (loss) from operations |
| 38,254 |
|
|
| 49,096 |
|
| 19,929 |
|
|
| 38,254 |
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Interest expense, financing costs, and other |
| 38,361 |
|
|
| 22,568 |
|
| 38,293 |
|
|
| 38,361 |
|
Loss on debt extinguishment |
| 14,678 |
|
|
| - |
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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 |
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Net income (loss) | $ | (893 | ) |
| $ | 67,596 |
| $ | (23,410 | ) |
| $ | (893 | ) |
Dividends on preferred shares2 |
| 6,000 |
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|
| - |
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Dividends on Preferred Stock1 |
| 6,000 |
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|
| 6,000 |
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Net income (loss) attributable to common shareholders | $ | (6,893 | ) |
| $ | 67,596 |
| $ | (29,410 | ) |
| $ | (6,893 | ) |
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Weighted-average common stock outstanding: |
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Basic |
| 68,248,020 |
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|
| 67,825,430 |
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| 68,667,943 |
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|
| 68,248,020 |
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Diluted |
| 68,248,020 |
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| 69,244,678 |
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Diluted2 |
| 68,667,943 |
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|
| 68,248,020 |
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Net income (loss) per share3: |
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Basic | $ | (0.10 | ) |
| $ | 1.00 |
| $ | (0.43 | ) |
| $ | (0.10 | ) |
Diluted | $ | (0.10 | ) |
| $ | 0.98 |
| $ | (0.43 | ) |
| $ | (0.10 | ) |
|
| end. |
2 | Amounts do not include 9,694,619 shares issuable upon conversion of the Company’s participating Preferred Stock because such conversion would be anti-dilutive (see Note 4 for further discussion). |
3 | See Note |
See accompanying Notes to Condensed Consolidated Financial Statements
6.0
4
Consolidated Statements of Comprehensive Income
(Unaudited; In thousands)
| Three Months Ended December 31, |
| Three Months Ended December 31, |
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| 2018 |
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| 2017 |
| 2019 |
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| 2018 |
| ||||
Net income (loss) | $ | (893 | ) |
| $ | 67,596 |
| $ | (23,410 | ) |
| $ | (893 | ) |
Other comprehensive income (loss): |
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|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
| (3,910 | ) |
|
| 57 |
|
| 1,288 |
|
|
| (3,910 | ) |
Unrealized gain (loss) due to change in fair value of derivatives, net of tax |
| 2,529 |
|
|
| - |
| |||||||
Total other comprehensive income (loss) |
| (3,910 | ) |
|
| 57 |
|
| 3,817 |
|
|
| (3,910 | ) |
Comprehensive income (loss) | $ | (4,803 | ) |
| $ | 67,653 |
| $ | (19,593 | ) |
| $ | (4,803 | ) |
See accompanying Notes to Condensed Consolidated Financial Statements
5
Consolidated Statements of Stockholders’ Equity
(Unaudited; In thousands, except share amounts)
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| Accumulated |
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| Accumulated |
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| Additional |
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| Other |
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| Total |
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| Additional |
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| Other |
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| 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 respective periods presented. |
1 Amount represents dividends that have been declared and paid during the three months ended December 31, 2018.
See accompanying Notes to Condensed Consolidated Financial Statements
6
Consolidated Statements of Cash Flows
(Unaudited; In thousands)
| 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 |
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed Consolidated Financial Statements
7
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Company Overview
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, asAs of December 31, 2018,2019, the Company serviced customers inoperated 530 branches throughout all 50 states withinthroughout the United StatesU.S. and 6 provinces in Canada. The Company’s material subsidiaries are Beacon Sales Acquisition, Inc., and Beacon Roofing Supply Canada Company.
2. Summary of Significant Accounting Policies
Basis of Presentation
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, 20172018 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, 20182019 are not necessarily indicative of the results to be expected for the twelve months ending September 30, 20192020 (“fiscal year 2019”2020” or “2019”“2020”).
The three-month periods ended December 31, 20182019 and 20172018 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 20182019 (“2018”2019”) Annual Report on Form 10-K for the year ended September 30, 2018.2019.
Use of Estimates
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.
Recent Accounting Pronouncements—Adopted
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.
8
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.
Recent Accounting Pronouncements—Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, “Leases.” This guidance will replacereplaces 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 requirerequires the Company to record a right of useright-of-use asset and a lease liability for most of the Company’s leases, including those currentlypreviously treated as operating leases. The Company is in the process of evaluating the impact ofadopted the standard using the modified retrospective transition method as of October 1, 2019 and has decided that it will usenot apply the standard to comparative prior periods presented. The Company used the package of transition practical expedients outlined in the transition guidance. The scopemost significant effects of the overallnew 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.
Recent Accounting Pronouncements—Not Yet Adopted
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,
8
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 StatementTaxes – Reporting Comprehensive Income.Simplifying the Accounting for Income Taxes.” This guidance is intended to addresssimplify the accounting treatment for the tax effects on items within accumulated other comprehensive income as a resulttaxes 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 expectis currently evaluating the adoption ofimpact that this new guidance tomay have a material impact on its financial statements and related disclosures.
3. Acquisitions
Allied Building Products Corp.
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.
9
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):
| 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 |
|
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):
| Three Months Ended |
| |
| December 31, 2017 |
| |
| (unaudited) |
| |
Net sales | $ | 1,787,628 |
|
Net income (loss) |
| 32,257 |
|
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
10
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.
Additional Acquisitions – Fiscal Year 2018
During fiscal year 2018, the Company acquired 7 branches from the following acquisitions:
On May 1, 2018, the Company acquired Tri-State Builder’s Supply, a wholesale supplier of roofing, siding, windows, doors and related building products with 1 branch located in Duluth, Minnesota and annual sales of approximately $6 million.
On July 16, 2018, the Company acquired Atlas Supply, Inc., the Pacific Northwest’s leading distributor of sealants, coatings, adhesives and related waterproofing products, with 6 branches operating in Seattle, Tacoma, Spokane, and Mountlake Terrace in Washington, as well as locations in Portland, Oregon and Boise, Idaho, and annual sales of approximately $37 million.
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.
4. Net Sales
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, 2018each period presented (in thousands):
| 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 |
|
5.4. Net Income (Loss) Per Share
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
11
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.
9
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):
| Three Months Ended December 31, |
| Three Months Ended December 31, |
| ||||||||||
| 2018 |
|
| 2017 |
| 2019 |
|
| 2018 |
| ||||
Net income (loss) | $ | (893 | ) |
| $ | 67,596 |
| $ | (23,410 | ) |
| $ | (893 | ) |
Dividends on preferred shares |
| (6,000 | ) |
|
| - |
| |||||||
Dividends on Preferred Stock |
| 6,000 |
|
|
| 6,000 |
| |||||||
Net income (loss) attributable to common shareholders | $ | (6,893 | ) |
| $ | 67,596 |
| $ | (29,410 | ) |
| $ | (6,893 | ) |
Undistributed income allocated to participating securities |
| - |
|
|
| - |
|
| - |
|
|
| - |
|
Net income (loss) attributable to common shareholders - basic and diluted | $ | (6,893 | ) |
| $ | 67,596 |
| $ | (29,410 | ) |
| $ | (6,893 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic |
| 68,248,020 |
|
|
| 67,825,430 |
|
| 68,667,943 |
|
|
| 68,248,020 |
|
Effect of common share equivalents |
| - |
|
|
| 1,419,248 |
|
| - |
|
|
| - |
|
Weighted-average common shares outstanding - diluted |
| 68,248,020 |
|
|
| 69,244,678 |
|
| 68,667,943 |
|
|
| 68,248,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic | $ | (0.10 | ) |
| $ | 1.00 |
| $ | (0.43 | ) |
| $ | (0.10 | ) |
Net income (loss) per share - diluted | $ | (0.10 | ) |
| $ | 0.98 |
| $ | (0.43 | ) |
| $ | (0.10 | ) |
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:
| Three Months Ended December 31, |
| Three Months Ended December 31, |
| ||||||||||
| 2018 |
|
| 2017 |
| 2019 |
|
| 2018 |
| ||||
Stock options |
| 1,554,518 |
|
|
| 288,275 |
|
| 1,911,501 |
|
|
| 1,554,518 |
|
Restricted stock units |
| 318,229 |
|
|
| - |
|
| 400,914 |
|
|
| 318,229 |
|
Preferred Stock |
| 9,694,619 |
|
|
| - |
|
| 9,694,619 |
|
|
| 9,694,619 |
|
6.5. Stock-based Compensation
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 1,772,191680,568 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
12
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).
Stock Options
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.
10
The fair value of the stock options granted during the three months ended December 31, 20182019 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Risk-free interest rate |
|
| % |
Expected volatility |
|
| % |
Expected life (in years) |
|
|
|
Dividend yield | - |
|
The following table summarizes all stock option activity for the three months ended December 31, 20182019 (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 |
|
1 | Aggregate intrinsic value |
During the three months ended December 31, 20182019 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 2.32.2 years.
The following table summarizes additional information on stock options for the periods presented (in thousands, except per share amounts):
| 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 |
|
Restricted Stock Units
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
13
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 futuretheir RSU grantsgrant 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.
11
The following table summarizes all restricted stock unit activity for the three months ended December 31, 2018:2019:
| 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 |
|
During the three months ended December 31, 20182019 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 2.32.2 years.
The following table summarizes additional information on RSUs for the periods presented (in thousands, except per share amounts):
| Three Months Ended December 31, |
| Three Months Ended December 31, |
| ||||||||||
| 2018 |
|
| 2017 |
| 2019 |
|
| 2018 |
| ||||
Weighted-average fair value of RSUs granted | $ | 27.28 |
|
| $ | 55.17 |
| $ | 33.47 |
|
| $ | 27.28 |
|
Total grant date fair value of RSUs vested |
| 14,840 |
|
|
| 5,786 |
|
| 8,082 |
|
|
| 14,840 |
|
Total intrinsic value of RSUs released |
| 11,160 |
|
|
| 10,683 |
|
| 6,826 |
|
|
| 11,160 |
|
7.6. Goodwill and Intangible Assets
Goodwill
The following table sets forth the change in the carrying amount of goodwill during the three months ended December 31, 20182019 and 2017,2018, respectively (in thousands):
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 |
|
_____________________________
| 1 | Reflects purchase accounting adjustments related to fiscal year 2018 acquisition of Atlas Supply, Inc. |
|
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.
12
Intangible Assets
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).
14
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 |
|
|
|
|
|
1 | As of December 31, |
For the three months ended December 31, 20182019 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 18.217.3 years as of December 31, 2018.2019.
The following table summarizes the estimated future amortization expense for intangible assets (in thousands):
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 |
|
___________________________
1 | Amounts included in the table are as of December 31, 2019 and do not reflect the incremental amortization of indefinite-lived intangible assets that is expected to occur in connection with the rebranding efforts that were announced in January 2020 (see Note 14 for further discussion). |
1513
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 |
|
____________________________________________________________
1 | Effective rate on borrowings of |
2 | Effective rate on borrowings of |
3 |
|
| Interest rate of |
| Interest rate of 6.38% |
| Interest rate of 4.88% |
6 | Interest rate of 4.50% as of December 31, 2019. |
7 | Fixed interest rates ranging from 2.33% to |
8 |
|
Debt Refinancing
2026 Senior Notes
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.
14
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.
Financing - Allied Acquisition
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.
16
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 one1 financial covenant under the 2023 ABL, which is a Consolidatedthe 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.
2025 Term Loan
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.
15
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, 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.
Financing - RSG Acquisition
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”).
17
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.
2020 ABL
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.
2022 Term Loan
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.
2023 Senior Notes
On October 1, 2015, in connection with the acquisition of Roofing Supply Group, the Company raised $300.0 million by issuing senior notes6.38% Senior Notes due 2023.2023 (the “2023 Senior Notes”). The 2023 Senior Notes havehad a coupon rate of 6.38% per annum and arewere payable semi-annually in arrears, beginning April 1, 2016. There arewere early payment provisions in the indenture in which the Company would be subject to “make whole” provisions. Theredemption premiums. On October 28, 2019, the Company anticipates repayingredeemed 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, fullyat 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.
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, 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.
9. Commitments and Contingencies
Operating8. Leases
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 commitmentsfinance 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 alloptions 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.
16
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):
|
| Three Months Ended December 31, 2019 |
| |
Operating lease costs |
| $ | 31,461 |
|
Variable lease costs |
|
| 2,657 |
|
Total operating lease costs |
| $ | 34,118 |
|
The following table presents supplemental cash flow information related to operating leases with initial or(in thousands):
|
| Three Months Ended December 31, 2019 |
| |
Operating cash flows for operating lease liabilities |
| $ | 29,500 |
|
As of December 31, 2019, the Company’s operating leases had a weighted-average remaining termslease term of more than one year5.8 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):
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 |
|
18
For the three months ended December 31, 20189. Commitments and 2017, rent expense was $27.5 million and $15.2 million, respectively. Sublet income was immaterial for each of these periods.
Contingencies
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.
10. Geographic Data
The following table summarizes certain geographic informationCompany 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.
17
| December 31, 2018 |
|
| September 30, 2018 |
|
| December 31, 2017 |
| |||
Long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
U.S. | $ | 1,352,081 |
|
| $ | 1,409,742 |
|
| $ | 488,137 |
|
Canada |
| 12,096 |
|
|
| 13,224 |
|
|
| 13,225 |
|
Total long-lived assets | $ | 1,364,177 |
|
| $ | 1,422,966 |
|
| $ | 501,362 |
|
11.10. Accumulated Other Comprehensive Income (Loss)
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 changecomponents of and changes in accumulated other comprehensive income (loss) was $(3.9) millionloss (in thousands):
| 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 | ) |
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).
11. Geographic Data
The following table summarizes certain geographic information for the three months ended December 31, 2018.periods presented (in thousands):
| December 31, 2019 |
|
| September 30, 2019 |
|
| December 31, 2018 |
| |||
Long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
U.S. | $ | 1,125,415 |
|
| $ | 1,182,552 |
|
| $ | 1,352,081 |
|
Canada |
| 12,042 |
|
|
| 12,373 |
|
|
| 12,096 |
|
Total long-lived assets | $ | 1,137,457 |
|
| $ | 1,194,925 |
|
| $ | 1,364,177 |
|
12. Fair Value Measurement
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 20232026 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).
13. Supplemental Guarantor InformationFinancial Derivatives
The 2023 Senior NotesCompany 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 jointlyswaps 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 allswaps the United States subsidiariesthirty-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 notother 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 subsidiariesCompany 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
18
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 guaranteesThese amounts are fullincluded 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 informationother. The following table summarizes the combined fair values, net of tax, of the Company, includinginterest rate derivative instruments (in thousands):
|
|
|
| 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 | ) |
| $ | - |
|
_______________________
1 | Assets are included on the consolidated balance sheets in prepaid expenses and other current assets, while liabilities are included in accrued expenses. |
The fair value of the interest rate swaps is determined through the use of a pricing model, which utilizes verifiable inputs such informationas 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 presentedfollowing table summarizes the amounts of gain (loss) on the interest rate derivative instruments recognized in accordanceother comprehensive income (in thousands):
|
| Three Months Ended December 31, |
| |||||
Instrument |
| 2019 |
|
| 2018 |
| ||
Designated interest rate swaps |
| $ | 2,529 |
|
| $ | - |
|
14. Subsequent Events
On January 14, 2020, the Company determined to rebrand its exterior product branches with the requirementstradename “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 underapproximately $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 necessarilyaccelerated amortization will be indicativerecognized in the three months ending March 31, 2020. The physical rebranding of resultsbranch 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.
19
Condensed Consolidating Balance Sheets
(Unaudited; In thousands)
| 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 |
|
20
Condensed Consolidating Balance Sheets
(Unaudited; In thousands)
| 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 |
|
21
Condensed Consolidating Balance Sheets
(Unaudited; In thousands)
| 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 |
|
22
Condensed Consolidating Statements of Operations
(Unaudited; In thousands)
| 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 |
|
23
Condensed Consolidating Statements of Comprehensive Income
(Unaudited; In thousands)
| Three Months Ended December 31, 2018 |
| |||||||||||||||||
| Parent |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations and Other |
|
| Consolidated |
| |||||
Net income (loss) | $ | (893 | ) |
| $ | 20,899 |
|
| $ | (661 | ) |
| $ | (20,238 | ) |
| $ | (893 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
| (3,910 | ) |
|
| - |
|
|
| (3,910 | ) |
|
| 3,910 |
|
|
| (3,910 | ) |
Total other comprehensive income (loss) |
| (3,910 | ) |
|
| - |
|
|
| (3,910 | ) |
|
| 3,910 |
|
|
| (3,910 | ) |
Comprehensive income (loss) | $ | (4,803 | ) |
| $ | 20,899 |
|
| $ | (4,571 | ) |
| $ | (16,328 | ) |
| $ | (4,803 | ) |
| Three Months Ended December 31, 2017 |
| |||||||||||||||||
| Parent |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Eliminations and Other |
|
| Consolidated |
| |||||
Net income (loss) | $ | 67,596 |
|
| $ | 90,490 |
|
| $ | (11,789 | ) |
| $ | (78,701 | ) |
| $ | 67,596 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
| 57 |
|
|
| - |
|
|
| 57 |
|
|
| (57 | ) |
|
| 57 |
|
Total other comprehensive income (loss) |
| 57 |
|
|
| - |
|
|
| 57 |
|
|
| (57 | ) |
|
| 57 |
|
Comprehensive income (loss) | $ | 67,653 |
|
| $ | 90,490 |
|
| $ | (11,732 | ) |
| $ | (78,758 | ) |
| $ | 67,653 |
|
24
Condensed Consolidating Statements of Cash Flows
(Unaudited; In thousands)
| 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 |
|
25
Condensed Consolidating Statements of Cash Flows
(Unaudited; In thousands)
| 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 |
|
26
The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis included in our 20182019 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.
Overview
We are the largest publicly traded distributor of residentialroofing materials and non-residential roofing materialscomplementary 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 544530 branches inthroughout all 50 states throughoutin the United StatesU.S. and 6 provinces in Canada. We stockoffer one of the most extensive assortments of high-quality branded products in the industry with approximately 90,000140,000 SKUs available across our branch network, enabling us to deliver products to serve over 100,000110,000 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 theour 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 operationaloperating model combined with significantand branch level autonomy differentiatesdifferentiate 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 drivingthat 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 ourWe pursue organic growth strategy is highlighted by the following:
On May 1, 2018, we acquired Tri-State Builder’s Supply, a wholesale supplier of roofing, siding, windows, doors and related building products with 1 branch located in Duluth, Minnesota and annual sales of approximately $6 million.
On July 16, 2018, we acquired Atlas Supply, Inc., the Pacific Northwest’s leading distributor of sealants, coatings, adhesives and related waterproofing products, with 6 branches operating in Seattle, Tacoma, and Mountlake Terrace in Washington, as well as locations in Portland, Oregon and Boise, Idaho, and annual sales of approximately $37 million.
In addition, we opened one new branch in fiscal year 2019. New branch locationsopportunities that allow us to penetrate deeper into our existingtarget markets and establish a greater presence. The most recent successful execution of our growth strategy is summarized by the following:
• | On January 2, 2018, we completed the acquisition of Allied Building Products Corp. (“Allied”), one of the country’s largest exterior and interior building products distributors, for $2.88 billion (the “Allied Acquisition”). This significant acquisition 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. |
• | We opened two new branches in fiscal year 2020, including locations in Georgia and Virginia. In 2019, we opened a total of nine new branch locations across Alabama, California, Florida, Nevada, North Carolina, Pennsylvania and Texas. |
2720
Comparison of the Three Months Ended December 31, 20182019 and 20172018
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):
| 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 |
| |||||||
Selling, general and administrative1 |
| 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 taxes |
| 786 |
|
|
| (41,068 | ) |
| (9,632 | ) |
|
| 786 |
|
Net income (loss) | $ | (893 | ) |
| $ | 67,596 |
| $ | (23,410 | ) |
| $ | (893 | ) |
Dividends on preferred shares |
| 6,000 |
|
|
| - |
| |||||||
Dividends on Preferred Stock |
| 6,000 |
|
|
| 6,000 |
| |||||||
Net income (loss) attributable to common shareholders | $ | (6,893 | ) |
| $ | 67,596 |
| $ | (29,410 | ) |
| $ | (6,893 | ) |
_________________________
1 | Includes acquisition and business restructuring costs of $3.9 million ($2.8 million, net of taxes) and $8.9 million ($6.6 million, net of taxes), for the three months ended December 31, 2019 and 2018, respectively. |
| Three Months Ended December 31, | Three Months Ended December 31, |
| |||||||||||
| 2018 |
| 2017 | 2019 |
|
| 2018 |
| ||||||
Net sales |
| 100.0 | % |
|
| 100.0 | % |
| 100.0 | % |
|
| 100.0 | % |
Cost of products sold |
| 74.7 | % |
|
| 76.0 | % |
| 75.5 | % |
|
| 74.7 | % |
Gross profit |
| 25.3 | % |
|
| 24.0 | % |
| 24.5 | % |
|
| 25.3 | % |
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
| 19.1 | % |
|
| 17.3 | % |
| 19.5 | % |
|
| 19.1 | % |
Depreciation |
| 1.0 | % |
|
| 0.8 | % |
| 1.1 | % |
|
| 1.0 | % |
Amortization |
| 3.1 | % |
|
| 1.6 | % |
| 2.7 | % |
|
| 3.1 | % |
Total operating expense |
| 23.2 | % |
|
| 19.7 | % |
| 23.3 | % |
|
| 23.2 | % |
Income (loss) from operations |
| 2.1 | % |
|
| 4.3 | % |
| 1.2 | % |
|
| 2.1 | % |
Interest expense, financing costs, and other |
| 2.2 | % |
|
| 2.0 | % |
| 2.3 | % |
|
| 2.2 | % |
Loss on debt extinguishment |
| 0.9 | % |
|
| 0.0 | % | |||||||
Income (loss) before provision for income taxes |
| (0.1 | %) |
|
| 2.3 | % |
| (2.0 | %) |
|
| (0.1 | %) |
Provision for (benefit from) income taxes |
| 0.0 | % |
|
| (3.7 | %) |
| (0.6 | %) |
|
| 0.0 | % |
Net income (loss) |
| (0.1 | %) |
|
| 6.0 | % |
| (1.4 | %) |
|
| (0.1 | %) |
Dividends on preferred shares |
| 0.3 | % |
|
| 0.0 | % | |||||||
Dividends on Preferred Stock |
| 0.4 | % |
|
| 0.3 | % | |||||||
Net income (loss) attributable to common shareholders |
| (0.4 | %) |
|
| 6.0 | % |
| (1.8 | %) |
|
| (0.4 | %) |
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 544530 branches in operation. Our existing market calculations include the operating results of the 330 branches that meet our definition (214All 530 branches were excluded because they were acquired afterprior 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.
2821
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 | % |
|
|
Net Sales
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 the2019. 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:
decreased storm activity compared to the prior year;Mid-Atlantic and
high rainfall levels in November and December;
partially offset by:
higher pricing across all product lines; and
double-digit Southeast. Combined net sales growth infrom those regions unaffected by hurricane-related activity were flat over the Northeast and Mid-Atlantic.comparative periods.
Existing markets netNet sales by geographical region increased (decreased) from 2019 to 20182020 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 lineThe following table summarizes net sales by product line for our existing markets were as followsthe periods presented (in thousands):
| Three Months Ended December 31, |
|
|
|
|
|
|
|
|
| Three Months Ended December 31, |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
| 2018 |
|
| 2017 |
|
| Change |
| 2019 |
|
| 2018 |
|
| Change |
| ||||||||||||||||||||||||||||||
| Net Sales |
|
| % |
|
| Net Sales |
|
| % |
|
| $ |
|
| % |
| Net Sales |
|
| % |
|
| Net Sales |
|
| % |
|
| $ |
|
| % |
| ||||||||||||
Residential roofing products | $ | 515,896 |
|
|
| 51.7 | % |
| $ | 525,115 |
|
|
| 51.7 | % |
| $ | (9,219 | ) |
|
| (1.8 | %) | $ | 702,236 |
|
|
| 41.9 | % |
| $ | 732,190 |
|
|
| 42.5 | % |
| $ | (29,954 | ) |
|
| (4.1 | %) |
Non-residential roofing products |
| 296,700 |
|
|
| 29.8 | % |
|
| 302,882 |
|
|
| 29.8 | % |
|
| (6,182 | ) |
|
| (2.0 | %) |
| 420,853 |
|
|
| 25.1 | % |
|
| 419,909 |
|
|
| 24.4 | % |
|
| 944 |
|
|
| 0.2 | % |
Complementary building products |
| 184,413 |
|
|
| 18.5 | % |
|
| 188,631 |
|
|
| 18.5 | % |
|
| (4,218 | ) |
|
| (2.2 | %) |
| 552,023 |
|
|
| 33.0 | % |
|
| 569,577 |
|
|
| 33.1 | % |
|
| (17,554 | ) |
|
| (3.1 | %) |
Total existing market sales | $ | 997,009 |
|
|
| 100.0 | % |
| $ | 1,016,628 |
|
|
| 100.0 | % |
| $ | (19,619 | ) |
|
| (1.9 | %) | |||||||||||||||||||||||
Total net sales | $ | 1,675,112 |
|
|
| 100.0 | % |
| $ | 1,721,676 |
|
|
| 100.0 | % |
| $ | (46,564 | ) |
|
| (2.7 | %) |
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.
29
GrossThe following table summarizes gross profit and gross margin for our consolidated and existing markets were as followsthe periods presented (in thousands):
| 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 | % |
| Three Months Ended December 31, |
|
| Change1 |
| ||||||||||
| 2019 |
|
| 2018 |
|
| $ |
|
| % |
| ||||
Gross profit | $ | 410,698 |
|
| $ | 435,569 |
|
| $ | (24,871 | ) |
|
| (5.7 | %) |
Gross margin |
| 24.5 | % |
|
| 25.3 | % |
| N/A |
|
|
| (0.8 | %) |
___________________________________________________________
| 1 | Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points. |
|
Consolidated grossGross profit increased $165.8decreased 5.7% to $410.7 million or 61.5%, toin 2020, from $435.6 million in 2019, up2019.
Gross margin was 24.5% in 2020, down 0.8% from $269.8 million25.3% in 2018. Existing market gross profit decreased $3.2 million, or 1.3%, over the2019. The comparative 2018 period.
Consolidateddecrease 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 aan 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 higherless than existing market gross margin due to the positive impact of recent acquisitions. Consolidated direct sales (products shipped1%, 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 Expense
OperatingThe following table summarizes operating expense for consolidated and existing markets was as followsthe periods presented (in thousands):
| Three Months Ended December 31, |
|
| Change1 |
| ||||||||||
| 2018 |
|
| 2017 |
|
| $ |
|
| % |
| ||||
Operating expense - consolidated | $ | 397,315 |
|
| $ | 220,657 |
|
| $ | 176,658 |
|
|
| 80.1 | % |
Operating expense - existing markets |
| 206,836 |
|
|
| 199,843 |
|
|
| 6,993 |
|
|
| 3.5 | % |
% of net sales - consolidated |
| 23.2 | % |
|
| 19.7 | % |
| N/A |
|
|
| 3.5 | % | |
% of net sales - existing markets |
| 20.7 | % |
|
| 19.7 | % |
| N/A |
|
|
| 1.0 | % |
| Three Months Ended December 31, |
|
| Change1 |
| ||||||||||
| 2019 |
|
| 2018 |
|
| $ |
|
| % |
| ||||
Operating expense | $ | 390,769 |
|
| $ | 397,315 |
|
| $ | (6,546 | ) |
|
| (1.6 | %) |
% of net sales |
| 23.3 | % |
|
| 23.2 | % |
| N/A |
|
|
| 0.1 | % |
_________________________________________________________________
| 1 | Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points. |
|
Consolidated operatingOperating expense increased $176.7decreased 1.6% to $390.8 million or 80.1%, toin 2020, from $397.3 million in 2019, up from $220.7 million2019. 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:
a net increase in general and administrative expense of $5.4 million, mainly due to one-time costs incurred as part of the Allied acquisition;
a net increase in payroll and employee benefit costs of $1.4 million, mainly due to higher salaries and wages from annual merit increases; and
an increase in bad debt expense of $1.4 million, mainly due to a slowdown in collections stemming from seasonal payment cycles;
• | a $7.2 million decrease in amortization expense, due to the scheduled declining run-rate of intangible asset amortization related to acquisitions; |
22
partially offset by:
a decrease in amortization expense of $2.7 million due to the scheduled declining run-rate of intangible asset amortization related to the fiscal year 2016 acquisition of Roofing Supply Group.
• | a net increase of $1.8 million in payroll and employee benefit costs, which includes the combined impact of a $6.9 million increase from merit increases and higher insurance costs and a $5.1 million decrease from recently implemented labor cost efficiency initiatives. |
30
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
Interest expense, financing costs and other expense wasremained 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 provisionbenefit 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 provisionbenefit 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, resultingprimarily due to a $32.9 million increase in a $46.5 million non-recurringpre-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 20192020 effective tax rate, excluding any discrete items, will range from approximately 27.0%28.0% to 28.0%29.0%.
Net Income (Loss)/Net Income (Loss) Per Share
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 $6.0 million of dividends on preferred shares in 2019both 2020 and none in 2018,2019, making net income (loss) attributable to common shareholders of$(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):
| Three Months Ended December 31, |
| Three Months Ended December 31, |
| ||||||||||
| 2018 |
|
| 2017 |
| 2019 |
|
| 2018 |
| ||||
Net income (loss) | $ | (893 | ) |
| $ | 67,596 |
| $ | (23,410 | ) |
| $ | (893 | ) |
Dividends on preferred shares |
| (6,000 | ) |
|
| - |
| |||||||
Dividends on Preferred Stock |
| 6,000 |
|
|
| 6,000 |
| |||||||
Net income (loss) attributable to common shareholders |
| (6,893 | ) |
|
| 67,596 |
|
| (29,410 | ) |
|
| (6,893 | ) |
Undistributed income allocated to participating securities |
| - |
|
|
| - |
|
| - |
|
|
| - |
|
Net income (loss) attributable to common shareholders - basic and diluted (if-converted method) | $ | (6,893 | ) |
| $ | 67,596 |
| $ | (29,410 | ) |
| $ | (6,893 | ) |
Undistributed income allocated to participating securities |
| - |
|
|
| - |
|
| - |
|
|
| - |
|
Re-allocation of undistributed income to preferred shares |
| - |
|
|
| - |
| |||||||
Re-allocation of undistributed income to Preferred Stock |
| - |
|
|
| - |
| |||||||
Net income (loss) attributable to common shareholders - diluted (two-class method) | $ | (6,893 | ) |
| $ | 67,596 |
| $ | (29,410 | ) |
| $ | (6,893 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic |
| 68,248,020 |
|
|
| 67,825,430 |
|
| 68,667,943 |
|
|
| 68,248,020 |
|
Effect of common share equivalents |
| - |
|
|
| 1,419,248 |
|
| - |
|
|
| - |
|
Weighted-average common shares outstanding - diluted (if-converted and two-class method) |
| 68,248,020 |
|
|
| 69,244,678 |
|
| 68,667,943 |
|
|
| 68,248,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic | $ | (0.10 | ) |
| $ | 1.00 |
| $ | (0.43 | ) |
| $ | (0.10 | ) |
Net income (loss) per share - diluted (two-class method) |
| (0.10 | ) |
|
| 0.98 |
|
| (0.43 | ) |
|
| (0.10 | ) |
Net income (loss) per share - diluted (if-converted method) |
| (0.10 | ) |
|
| 0.98 |
|
| (0.43 | ) |
|
| (0.10 | ) |
Non-GAAP Financial Measures
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:
• | Adjusted Net Income (Loss) |
• | Adjusted EBITDA |
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.
23
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.
Adjusted Net Income (Loss)/
The following table presents a reconciliation of net income, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted EPSNet Income (Loss) for each of the periods indicated (in thousands):
| Three Months Ended December 31, |
| |||||
| 2019 |
|
| 2018 |
| ||
Net income (loss) | $ | (23,410 | ) |
| $ | (893 | ) |
Adjustments: |
|
|
|
|
|
|
|
Acquisition costs1 |
| 51,479 |
|
|
| 63,962 |
|
Business restructuring costs2 |
| 19,683 |
|
|
| - |
|
Total adjustments |
| 71,162 |
|
|
| 63,962 |
|
Tax impact of total adjustments3 |
| (19,424 | ) |
|
| (16,569 | ) |
Total adjustments, net of tax |
| 51,738 |
|
|
| 47,393 |
|
Adjusted Net Income (Loss) | $ | 28,328 |
|
| $ | 46,500 |
|
1 | The following table presents a breakout of the components of acquisition costs for each of the periods indicated: |
| Three Months Ended December 31, |
| |||||
| 2019 |
|
| 2018 |
| ||
Amortization of intangible assets | $ | 44,778 |
|
| $ | 52,021 |
|
Costs classified as selling, general, and administrativea |
| 3,852 |
|
|
| 8,917 |
|
Amortization of debt issuance costs |
| 2,849 |
|
|
| 3,024 |
|
Total acquisition costs | $ | 51,479 |
|
| $ | 63,962 |
|
a. | Selling, general, and administrative costs related to acquisitions are mainly composed of professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses. |
2 | Business restructuring costs are mainly composed of a loss on debt extinguishment of $14.7 million in connection with debt refinancing. Also included are accrued estimated costs related to employee benefit plan withdrawals, costs stemming from headcount rationalization efforts, and re-branding costs. |
3 | The effective tax rate applied to these adjustments is calculated by using forecasted adjusted pre-tax income while factoring in estimated discrete tax adjustments for the fiscal year. The tax impact of adjustments for the three months ended December 31, 2019 and 2018 were calculated using an effective tax rate of 27.3% and 25.9%, respectively. |
24
Adjusted EBITDA
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):
____________________________________________________________
1 | Represents selling, general, and administrative costs related to acquisitions (excluding the
|
2 | Business restructuring costs are mainly composed of a loss on debt extinguishment of $14.7 million in connection with debt refinancing. Also included are accrued estimated costs related to employee benefit plan withdrawals, costs stemming from headcount rationalization efforts, and
|
Seasonality and Quarterly Fluctuations
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.
25
Certain Quarterly Financial Data
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
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.
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, 2018 were our cash and cash equivalents of $18.4 million and our available borrowings of $680.0
Liquidity
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, 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.
Significant factors which could affect future liquidity include the following:
• | 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.
26
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.
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
34
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.
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;
States absent registration or an asset-based revolving lineapplicable exemption from the registration requirements of creditthe 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; andof the financing arrangements.
two separate senior notes instrumentsAs 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.
35
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 Consolidatedthe 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.
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 our 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.
2025 Senior Notes
On October 25, 2017, Beacon Escrow Corporation, our wholly-ownedwholly 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
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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”).
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, to finance the acquisition, and to pay fees and expenses
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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 notes6.38% Senior Notes due 2023.2023 (the “2023 Senior Notes”). The 2023 Senior Notes havehad a coupon rate of 6.38% per annum and arewere payable semi-annually in arrears, beginning April 1, 2016. There arewere early payment provisions in the indenture in which wethe Company would be subject to “make whole” provisions. We anticipate repayingredemption premiums. On October 28, 2019, the notes atCompany 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, fullyat 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.
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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.
Our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of its 20172019 Annual Report on Form 10-K have not changed materially during the three-month period ended December 31, 2018.2019.
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, thereThere 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.
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| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* | 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, 20182019 and December 31, 2017,2018, (iii) the Consolidated Statements of Comprehensive Income for the three months ended December 31, 20182019 and December 31, 2017,2018, (iv) the Consolidated Statements of Stockholders’ Equity for the three months ended December 31, 20182019 and December 31, 2017,2018, (v) the Consolidated Statements of Cash Flows for the three months ended December 31, 20182019 and December 31, 2017,2018, and (vi) the Notes to Condensed Consolidated Financial Statements.
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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. | |
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Date: February | BY: | /s/ JOSEPH M. NOWICKI |
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| Joseph M. Nowicki |
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| Executive Vice President & Chief Financial Officer |
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