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 March 31, 2020
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 |
☐ |
|
|
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 April 30, 2020, 68,836,430 shares of common stock, par value $0.01 per share, of the registrant were outstanding.
BEACON ROOFING SUPPLY, INC.
FORM 10-Q
For the Quarter Ended March 31, 2020
TABLE OF CONTENTS
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PART I. |
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Financial Information (unaudited) |
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Item 1. |
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Condensed Consolidated Financial Statements |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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21 |
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Item 3. |
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35 |
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Item 4. |
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35 |
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PART II. |
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Other Information |
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Item 1A. |
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36 |
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Item 6. |
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36 |
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38 |
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2
PART I.Financial Information (Unaudited)
|
Item 1. |
Condensed Consolidated Financial Statements |
BEACON ROOFING SUPPLY, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
|
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March 31, |
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September 30, |
|
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March 31, |
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||||
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2020 |
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2019 |
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2019 |
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(unaudited) |
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(unaudited) |
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Assets |
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|
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Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents |
$ |
781,172 |
|
|
$ |
72,287 |
|
|
$ |
645 |
|
|
|
Accounts receivable, less allowance of $16,003, $13,095 and $23,058 as of March 31, 2020, September 30, 2019 and March 31, 2019, respectively |
|
907,539 |
|
|
|
1,108,134 |
|
|
|
869,760 |
|
|
|
Inventories, net |
|
1,037,905 |
|
|
|
1,018,183 |
|
|
|
1,031,183 |
|
|
|
Prepaid expenses and other current assets |
|
305,367 |
|
|
|
315,643 |
|
|
|
332,100 |
|
|
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Total current assets |
|
3,031,983 |
|
|
|
2,514,247 |
|
|
|
2,233,688 |
|
|
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Property and equipment, net |
|
247,372 |
|
|
|
260,376 |
|
|
|
271,022 |
|
|
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Goodwill |
|
2,488,635 |
|
|
|
2,490,590 |
|
|
|
2,490,326 |
|
|
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Intangibles, net |
|
889,983 |
|
|
|
1,125,540 |
|
|
|
1,229,949 |
|
|
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Operating lease assets |
|
452,006 |
|
|
|
- |
|
|
|
- |
|
|
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Other assets, net |
|
10 |
|
|
|
2,059 |
|
|
|
1,243 |
|
|
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Total assets |
$ |
7,109,989 |
|
|
$ |
6,392,812 |
|
|
$ |
6,226,228 |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
$ |
643,086 |
|
|
$ |
822,931 |
|
|
$ |
510,434 |
|
|
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Accrued expenses |
|
362,817 |
|
|
|
599,155 |
|
|
|
453,889 |
|
|
|
Current operating lease liabilities |
|
98,477 |
|
|
|
- |
|
|
|
- |
|
|
|
Current portions of long-term debt/obligations |
|
13,412 |
|
|
|
18,689 |
|
|
|
19,988 |
|
|
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Total current liabilities |
|
1,117,792 |
|
|
|
1,440,775 |
|
|
|
984,311 |
|
|
|
Borrowings under revolving lines of credit, net |
|
1,001,609 |
|
|
|
80,961 |
|
|
|
416,614 |
|
|
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Long-term debt, net |
|
2,494,821 |
|
|
|
2,494,623 |
|
|
|
2,494,673 |
|
|
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Deferred income taxes, net |
|
50,365 |
|
|
|
103,913 |
|
|
|
110,064 |
|
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Non-current operating lease liabilities |
|
349,365 |
|
|
|
- |
|
|
|
- |
|
|
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Long-term obligations under equipment financing, net |
|
963 |
|
|
|
4,609 |
|
|
|
8,527 |
|
|
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Other long-term liabilities |
|
1,671 |
|
|
|
6,383 |
|
|
|
5,702 |
|
|
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Total liabilities |
|
5,016,586 |
|
|
|
4,131,264 |
|
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4,019,891 |
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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 March 31, 2020, September 30, 2019 and March 31, 20191 |
|
399,195 |
|
|
|
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; 68,836,258, 68,574,176 and 68,475,871 shares issued and outstanding as of March 31, 2020, September 30, 2019 and March 31, 2019, respectively |
|
688 |
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|
685 |
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|
684 |
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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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Additional paid-in capital |
|
1,091,469 |
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1,083,042 |
|
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1,073,243 |
|
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Retained earnings |
|
641,172 |
|
|
|
799,222 |
|
|
|
752,855 |
|
|
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Accumulated other comprehensive income (loss) |
|
(39,121 |
) |
|
|
(20,596 |
) |
|
|
(19,640 |
) |
|
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Total stockholders' equity |
|
1,694,208 |
|
|
|
1,862,353 |
|
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|
1,807,142 |
|
|
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Total liabilities and stockholders' equity |
$ |
7,109,989 |
|
|
$ |
6,392,812 |
|
|
$ |
6,226,228 |
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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
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Operations
(Unaudited; In thousands, except share and per share amounts)
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
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2020 |
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2019 |
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2020 |
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2019 |
|
||||
|
Net sales |
$ |
1,458,486 |
|
|
$ |
1,429,037 |
|
|
$ |
3,133,598 |
|
|
$ |
3,150,713 |
|
|
Cost of products sold |
|
1,116,086 |
|
|
|
1,094,049 |
|
|
|
2,380,500 |
|
|
|
2,380,156 |
|
|
Gross profit |
|
342,400 |
|
|
|
334,988 |
|
|
|
753,098 |
|
|
|
770,557 |
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
318,510 |
|
|
|
320,408 |
|
|
|
645,429 |
|
|
|
648,101 |
|
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Depreciation |
|
17,495 |
|
|
|
17,447 |
|
|
|
36,567 |
|
|
|
35,048 |
|
|
Amortization1 |
|
187,356 |
|
|
|
51,763 |
|
|
|
232,134 |
|
|
|
103,784 |
|
|
Total operating expense |
|
523,361 |
|
|
|
389,618 |
|
|
|
914,130 |
|
|
|
786,933 |
|
|
Income (loss) from operations |
|
(180,961 |
) |
|
|
(54,630 |
) |
|
|
(161,032 |
) |
|
|
(16,376 |
) |
|
Interest expense, financing costs, and other2 |
|
23,454 |
|
|
|
40,452 |
|
|
|
61,747 |
|
|
|
78,813 |
|
|
Loss on debt extinguishment |
|
- |
|
|
|
- |
|
|
|
14,678 |
|
|
|
- |
|
|
Income (loss) before provision for income taxes |
|
(204,415 |
) |
|
|
(95,082 |
) |
|
|
(237,457 |
) |
|
|
(95,189 |
) |
|
Provision for (benefit from) income taxes |
|
(81,775 |
) |
|
|
(26,996 |
) |
|
|
(91,407 |
) |
|
|
(26,210 |
) |
|
Net income (loss) |
$ |
(122,640 |
) |
|
$ |
(68,086 |
) |
|
$ |
(146,050 |
) |
|
$ |
(68,979 |
) |
|
Dividends on Preferred Stock3 |
|
6,000 |
|
|
|
6,000 |
|
|
|
12,000 |
|
|
|
12,000 |
|
|
Net income (loss) attributable to common shareholders |
$ |
(128,640 |
) |
|
$ |
(74,086 |
) |
|
$ |
(158,050 |
) |
|
$ |
(80,979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
68,820,155 |
|
|
|
68,451,920 |
|
|
|
68,743,633 |
|
|
|
68,348,850 |
|
|
Diluted4 |
|
68,820,155 |
|
|
|
68,451,920 |
|
|
|
68,743,633 |
|
|
|
68,348,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share5: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(1.87 |
) |
|
$ |
(1.08 |
) |
|
$ |
(2.30 |
) |
|
$ |
(1.18 |
) |
|
Diluted |
$ |
(1.87 |
) |
|
$ |
(1.08 |
) |
|
$ |
(2.30 |
) |
|
$ |
(1.18 |
) |
________________________________________
|
1 |
Three and six months ended March 31, 2020 amounts include non-cash accelerated intangible asset amortization of $142.6 million in connection with the Rebranding (as defined below). See Note 6 for additional information. |
|
2 |
Three and six months ended March 31, 2020 amounts include a $5.6 million settlement received in connection with a class action lawsuit and a $5.3 million refund to be received as the final true-up of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the Allied Acquisition. |
|
3 |
Three months ended March 31, 2020 and 2019 amounts are composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $1.0 million of Preferred Stock dividends that had been declared and paid as of period end. Six months ended March 31, 2020 and 2019 amounts are composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $7.0 million of Preferred Stock dividends that had been declared and paid as of period end. |
|
4 |
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). |
|
5 |
See Note 4 for detailed calculations and further discussion. |
See accompanying Notes to Condensed Consolidated Financial Statements
4
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Comprehensive Income
(Unaudited; In thousands)
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net income (loss) |
$ |
(122,640 |
) |
|
$ |
(68,086 |
) |
|
$ |
(146,050 |
) |
|
$ |
(68,979 |
) |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
(6,456 |
) |
|
|
1,520 |
|
|
|
(5,168 |
) |
|
|
(2,390 |
) |
|
Unrealized gain (loss) due to change in fair value of derivatives, net of tax |
|
(15,886 |
) |
|
|
- |
|
|
|
(13,357 |
) |
|
|
- |
|
|
Total other comprehensive income (loss) |
|
(22,342 |
) |
|
|
1,520 |
|
|
|
(18,525 |
) |
|
|
(2,390 |
) |
|
Comprehensive income (loss) |
$ |
(144,982 |
) |
|
$ |
(66,566 |
) |
|
$ |
(164,575 |
) |
|
$ |
(71,369 |
) |
See accompanying Notes to Condensed Consolidated Financial Statements
5
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Stockholders’ Equity
(Unaudited; In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Total |
|
|||
|
|
Common Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Stockholders' |
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Equity |
|
||||||
|
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018 |
|
68,432,707 |
|
|
$ |
684 |
|
|
$ |
1,067,711 |
|
|
$ |
826,941 |
|
|
$ |
(21,160 |
) |
|
$ |
1,874,176 |
|
|
Issuance of common stock, net of shares withheld for taxes |
|
43,164 |
|
|
|
- |
|
|
|
725 |
|
|
|
- |
|
|
|
- |
|
|
|
725 |
|
|
Stock-based compensation |
|
- |
|
|
|
- |
|
|
|
4,807 |
|
|
|
- |
|
|
|
- |
|
|
|
4,807 |
|
|
Other comprehensive income (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,520 |
|
|
|
1,520 |
|
|
Net income (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(68,086 |
) |
|
|
- |
|
|
|
(68,086 |
) |
|
Dividends on Preferred Stock1 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,000 |
) |
|
|
- |
|
|
|
(6,000 |
) |
|
Balance as of March 31, 2019 |
|
68,475,871 |
|
|
$ |
684 |
|
|
$ |
1,073,243 |
|
|
$ |
752,855 |
|
|
$ |
(19,640 |
) |
|
$ |
1,807,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019 |
|
68,760,731 |
|
|
$ |
687 |
|
|
$ |
1,086,970 |
|
|
$ |
769,812 |
|
|
$ |
(16,779 |
) |
|
$ |
1,840,690 |
|
|
Issuance of common stock, net of shares withheld for taxes |
|
75,527 |
|
|
|
1 |
|
|
|
(162 |
) |
|
|
- |
|
|
|
- |
|
|
|
(161 |
) |
|
Stock-based compensation |
|
- |
|
|
|
- |
|
|
|
4,661 |
|
|
|
- |
|
|
|
- |
|
|
|
4,661 |
|
|
Other comprehensive income (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(22,342 |
) |
|
|
(22,342 |
) |
|
Net income (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(122,640 |
) |
|
|
- |
|
|
|
(122,640 |
) |
|
Dividends on Preferred Stock1 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,000 |
) |
|
|
- |
|
|
|
(6,000 |
) |
|
Balance as of March 31, 2020 |
|
68,836,258 |
|
|
$ |
688 |
|
|
$ |
1,091,469 |
|
|
$ |
641,172 |
|
|
$ |
(39,121 |
) |
|
$ |
1,694,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2018 |
|
68,135,790 |
|
|
$ |
681 |
|
|
$ |
1,067,040 |
|
|
$ |
833,834 |
|
|
$ |
(17,250 |
) |
|
$ |
1,884,305 |
|
|
Issuance of common stock, net of shares withheld for taxes |
|
340,081 |
|
|
|
3 |
|
|
|
(2,061 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,058 |
) |
|
Stock-based compensation |
|
- |
|
|
|
- |
|
|
|
8,264 |
|
|
|
- |
|
|
|
- |
|
|
|
8,264 |
|
|
Other comprehensive income (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,390 |
) |
|
|
(2,390 |
) |
|
Net income (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(68,979 |
) |
|
|
- |
|
|
|
(68,979 |
) |
|
Dividends on Preferred Stock1 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12,000 |
) |
|
|
- |
|
|
|
(12,000 |
) |
|
Balance as of March 31, 2019 |
|
68,475,871 |
|
|
$ |
684 |
|
|
$ |
1,073,243 |
|
|
$ |
752,855 |
|
|
$ |
(19,640 |
) |
|
$ |
1,807,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
262,082 |
|
|
|
3 |
|
|
|
(1,390 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,387 |
) |
|
Stock-based compensation |
|
- |
|
|
|
- |
|
|
|
9,817 |
|
|
|
- |
|
|
|
- |
|
|
|
9,817 |
|
|
Other comprehensive income (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(18,525 |
) |
|
|
(18,525 |
) |
|
Net income (loss) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(146,050 |
) |
|
|
- |
|
|
|
(146,050 |
) |
|
Dividends on Preferred Stock1 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12,000 |
) |
|
|
- |
|
|
|
(12,000 |
) |
|
Balance as of March 31, 2020 |
|
68,836,258 |
|
|
$ |
688 |
|
|
$ |
1,091,469 |
|
|
$ |
641,172 |
|
|
$ |
(39,121 |
) |
|
$ |
1,694,208 |
|
|
1 |
Amount represents dividends that have been declared and paid during the respective periods presented. |
See accompanying Notes to Condensed Consolidated Financial Statements
6
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Cash Flows
(Unaudited; In thousands)
|
|
Six Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
(146,050 |
) |
|
$ |
(68,979 |
) |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
268,701 |
|
|
|
138,832 |
|
|
Stock-based compensation |
|
9,817 |
|
|
|
8,264 |
|
|
Certain interest expense and other financing costs |
|
5,721 |
|
|
|
6,051 |
|
|
Beneficial lease amortization |
|
- |
|
|
|
1,145 |
|
|
Loss on debt extinguishment |
|
14,678 |
|
|
|
- |
|
|
Gain on sale of fixed assets |
|
(884 |
) |
|
|
(1,172 |
) |
|
Deferred income taxes |
|
(49,320 |
) |
|
|
3,086 |
|
|
338(h)(10) election refund1 |
|
(5,282 |
) |
|
|
- |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
199,063 |
|
|
|
219,740 |
|
|
Inventories |
|
(21,819 |
) |
|
|
(96,052 |
) |
|
Prepaid expenses and other current assets |
|
6,527 |
|
|
|
(85,320 |
) |
|
Accounts payable and accrued expenses |
|
(434,926 |
) |
|
|
(368,154 |
) |
|
Other assets and liabilities |
|
2,950 |
|
|
|
415 |
|
|
Net cash provided by (used in) operating activities |
|
(150,824 |
) |
|
|
(242,144 |
) |
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
(25,064 |
) |
|
|
(26,320 |
) |
|
Acquisition of businesses, net |
|
- |
|
|
|
(163,973 |
) |
|
Proceeds from the sale of assets |
|
1,122 |
|
|
|
1,428 |
|
|
Net cash provided by (used in) investing activities |
|
(23,942 |
) |
|
|
(188,865 |
) |
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Borrowings under revolving lines of credit |
|
2,029,316 |
|
|
|
1,880,684 |
|
|
Payments under revolving lines of credit |
|
(1,109,903 |
) |
|
|
(1,557,615 |
) |
|
Payments under term loan |
|
(4,850 |
) |
|
|
(4,850 |
) |
|
Borrowings under senior notes |
|
300,000 |
|
|
|
- |
|
|
Payment under senior notes |
|
(309,564 |
) |
|
|
- |
|
|
Payment of debt issuance costs |
|
(3,718 |
) |
|
|
- |
|
|
Payments under equipment financing facilities and finance leases |
|
(4,427 |
) |
|
|
(2,642 |
) |
|
Payment of dividends on Preferred Stock |
|
(12,000 |
) |
|
|
(12,000 |
) |
|
Proceeds from issuance of common stock related to equity awards |
|
1,447 |
|
|
|
1,559 |
|
|
Payment of taxes related to net share settlement of equity awards |
|
(2,834 |
) |
|
|
(3,617 |
) |
|
Net cash provided by (used in) financing activities |
|
883,467 |
|
|
|
301,519 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
184 |
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
708,885 |
|
|
|
(129,282 |
) |
|
Cash and cash equivalents, beginning of period |
|
72,287 |
|
|
|
129,927 |
|
|
Cash and cash equivalents, end of period |
$ |
781,172 |
|
|
$ |
645 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
$ |
63,700 |
|
|
$ |
77,336 |
|
|
Income taxes paid (received), net of refunds |
|
(441 |
) |
|
|
(11,073 |
) |
__________________________________________________
|
1 |
Related to a gain recognized for a partial refund of the $164.0 million payment made in connection with the Allied Acquisition; payment was received subsequent to March 31, 2020. |
See accompanying Notes to Condensed Consolidated Financial Statements
7
BEACON ROOFING SUPPLY, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Company Overview
Beacon Roofing Supply, Inc. (“Beacon” or the “Company”) was incorporated in the state of Delaware on August 22, 1997 and is the largest publicly traded distributor of roofing materials and complementary building products in the United States and Canada.
On January 15, 2020, the Company announced the rebranding of its exterior product branches with the trade name “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.
As of March 31, 2020, the Company operated 528 branches throughout all 50 states in the U.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 March 31, 2019 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 and six months ended March 31, 2020 are not necessarily indicative of the results to be expected for the twelve months ending September 30, 2020 (“fiscal year 2020” or “2020”).
The three-month periods ended March 31, 2020 and 2019 had 64 and 63 business days, respectively. The six-month periods ended March 31, 2020 and 2019 had 126 and 125 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 2019 (“2019”) Annual Report on Form 10-K for the year ended September 30, 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, goodwill and intangibles, and income taxes. Assumptions made in the development of these estimates contemplate the impact of the novel coronavirus (“COVID‑19”) on the economy and our anticipated results; however, actual amounts could differ from these estimates.
Recent Accounting Pronouncements—Adopted
In February 2016, the FASB issued ASU 2016-02, “Leases.” This guidance replaces most existing accounting for leases and requires enhanced disclosures. The guidance requires the Company to record a right-of-use asset and a lease liability for most of the Company’s leases, including those previously treated as operating leases. The Company adopted the standard using the modified retrospective transition method as of October 1, 2019 and will not apply the standard to comparative prior periods presented. The Company used the package of transition practical expedients outlined in the transition guidance. The most significant effects of the new standard were the recognition of $483.5 million of operating lease assets and $476.0 million of operating lease liabilities on October 1, 2019. As part of the adoption, the Company carried forward the assessment from the previous lease standard of whether Beacon’s contracts contain (or are) leases, the classification of leases, and remaining lease terms. The accounting for finance leases remains unchanged. The adoption of the new standard did not have a material impact on the Company’s consolidated results of operations or cash flows. See Note 8 for further discussion.
In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income.” This guidance is intended to address the accounting treatment for the tax effects on items within accumulated other comprehensive income as a result
8
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.
Recent Accounting Pronouncements—Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments.” This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Accounting for Goodwill Impairment.” This guidance is intended to introduce a simplified approach to measurement of goodwill impairment, eliminating the need for a hypothetical purchase price allocation and instead measuring impairment by the amount a reporting unit’s carrying value exceeds its fair value. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2019, and early adoption is permitted. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes – Simplifying the Accounting for Income Taxes.” This guidance is intended to simplify the accounting for income taxes by removing certain exceptions, clarifying existing guidance and improving consistent application of the guidance. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2020, 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 March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional practical expedients to ease the potential burden in accounting for contract modifications and hedge accounting related to reference rate reform. The standard is effective as of March 12, 2020 through December 31, 2022. However, the standard is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company expects to elect optional expedients and exceptions provided by the guidance, as needed, related to the 2023 ABL and 2025 Term Loan debt instruments, both of which include interest rates based on a LIBOR rate (with a floor) plus a fixed spread. The Company will evaluate and disclose the impact of this guidance in the period of election, as well as the nature and reason for doing so.
9
3. Net Sales
The following table presents the Company’s net sales by product line and geography for each period presented (in thousands):
|
|
U.S. |
|
|
Canada |
|
|
Total |
|
|||
|
Three Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Residential roofing products |
$ |
594,525 |
|
|
$ |
4,392 |
|
|
$ |
598,917 |
|
|
Non-residential roofing products |
|
296,156 |
|
|
|
17,470 |
|
|
|
313,626 |
|
|
Complementary building products |
|
515,721 |
|
|
|
773 |
|
|
|
516,494 |
|
|
Total net sales |
$ |
1,406,402 |
|
|
$ |
22,635 |
|
|
$ |
1,429,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Residential roofing products |
$ |
586,621 |
|
|
$ |
4,592 |
|
|
$ |
591,213 |
|
|
Non-residential roofing products |
|
335,026 |
|
|
|
17,975 |
|
|
|
353,001 |
|
|
Complementary building products |
|
513,237 |
|
|
|
1,035 |
|
|
|
514,272 |
|
|
Total net sales |
$ |
1,434,884 |
|
|
$ |
23,602 |
|
|
$ |
1,458,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Residential roofing products |
$ |
1,308,021 |
|
|
$ |
15,759 |
|
|
$ |
1,323,780 |
|
|
Non-residential roofing products |
|
682,833 |
|
|
|
47,106 |
|
|
|
729,939 |
|
|
Complementary building products |
|
1,094,443 |
|
|
|
2,551 |
|
|
|
1,096,994 |
|
|
Total net sales |
$ |
3,085,297 |
|
|
$ |
65,416 |
|
|
$ |
3,150,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
Residential roofing products |
$ |
1,277,970 |
|
|
$ |
15,503 |
|
|
$ |
1,293,473 |
|
|
Non-residential roofing products |
|
723,534 |
|
|
|
50,362 |
|
|
|
773,896 |
|
|
Complementary building products |
|
1,062,947 |
|
|
|
3,282 |
|
|
|
1,066,229 |
|
|
Total net sales |
$ |
3,064,451 |
|
|
$ |
69,147 |
|
|
$ |
3,133,598 |
|
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 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.
10
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 March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net income (loss) |
$ |
(122,640 |
) |
|
$ |
(68,086 |
) |
|
$ |
(146,050 |
) |
|
$ |
(68,979 |
) |
|
Dividends on Preferred Stock |
|
6,000 |
|
|
|
6,000 |
|
|
|
12,000 |
|
|
|
12,000 |
|
|
Net income (loss) attributable to common shareholders |
$ |
(128,640 |
) |
|
$ |
(74,086 |
) |
|
$ |
(158,050 |
) |
|
$ |
(80,979 |
) |
|
Undistributed income allocated to participating securities |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net income (loss) attributable to common shareholders - basic and diluted |
$ |
(128,640 |
) |
|
$ |
(74,086 |
) |
|
$ |
(158,050 |
) |
|
$ |
(80,979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic |
|
68,820,155 |
|
|
|
68,451,920 |
|
|
|
68,743,633 |
|
|
|
68,348,850 |
|
|
Effect of common share equivalents |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Weighted-average common shares outstanding - diluted |
|
68,820,155 |
|
|
|
68,451,920 |
|
|
|
68,743,633 |
|
|
|
68,348,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic |
$ |
(1.87 |
) |
|
$ |
(1.08 |
) |
|
$ |
(2.30 |
) |
|
$ |
(1.18 |
) |
|
Net income (loss) per share - diluted |
$ |
(1.87 |
) |
|
$ |
(1.08 |
) |
|
$ |
(2.30 |
) |
|
$ |
(1.18 |
) |
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 March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Stock options |
|
2,088,820 |
|
|
|
1,534,920 |
|
|
|
2,000,161 |
|
|
|
1,544,719 |
|
|
Restricted stock units |
|
431,381 |
|
|
|
75,599 |
|
|
|
416,148 |
|
|
|
196,914 |
|
|
Preferred Stock |
|
9,694,619 |
|
|
|
9,694,619 |
|
|
|
9,694,619 |
|
|
|
9,694,619 |
|
5. Stock-based Compensation
On December 23, 2019, the Board of Directors of the Company approved the Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock Plan (the “2014 Plan”). On February 11, 2020, the shareholders of the Company approved an additional 4,850,000 shares under the 2014 Plan. The 2014 Plan, which was originally approved by the shareholders on February 12, 2014, provides for discretionary awards of stock options, stock awards, restricted stock units, and stock appreciation rights to selected employees and non-employee directors. The 2014 Plan mandates that all forfeited, expired, and withheld shares, including those from the predecessor plan, be returned to the 2014 Plan and made available for issuance. As of March 31, 2020, there were 5,530,536 shares of common stock available for issuance under the 2014 Plan. The 2014 Plan is the only plan maintained by the Company pursuant to which equity awards are granted.
For all equity awards granted prior to October 1, 2014, in the event of a change in control of the Company, all awards are immediately vested. Beginning in fiscal 2015, equity awards contained a “double trigger” change in control mechanism. Unless an award is continued or assumed by a public company in an equitable manner, an award shall become fully vested immediately prior to a change in control (at 100% of the grant target in the case of a performance-based restricted stock unit award). If an award is so continued or assumed, vesting will continue in accordance with the terms of the award, unless there is a qualifying termination within one-year following the change in control, in which event the award shall immediately become fully vested (at 100% of the grant target in the case of a performance-based restricted stock unit award).
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.
11
The fair value of the stock options granted during the six months ended March 31, 2020 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
Risk-free interest rate |
|
1.74 |
% |
|
Expected volatility |
|
33.18 |
% |
|
Expected life (in years) |
|
5.25 |
|
|
Dividend yield |
|
- |
|
The following table summarizes all stock option activity for the six months ended March 31, 2020 (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 |
|
||||
|
Balance as of September 30, 2019 |
|
2,339,489 |
|
|
$ |
32.61 |
|
|
|
6.1 |
|
|
$ |
12,034 |
|
|
Granted |
|
407,736 |
|
|
|
33.47 |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
(76,329 |
) |
|
|
18.95 |
|
|
|
|
|
|
|
|
|
|
Canceled/Forfeited |
|
(20,728 |
) |
|
|
36.26 |
|
|
|
|
|
|
|
|
|
|
Expired |
|
(2,534 |
) |
|
|
14.45 |
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2020 |
|
2,647,634 |
|
|
$ |
33.12 |
|
|
|
6.3 |
|
|
$ |
342 |
|
|
Vested and expected to vest after March 31, 2020 |
|
2,589,890 |
|
|
$ |
33.14 |
|
|
|
6.2 |
|
|
$ |
342 |
|
|
Exercisable as of March 31, 2020 |
|
1,733,712 |
|
|
$ |
33.35 |
|
|
|
4.9 |
|
|
$ |
334 |
|
______________________________________________________
|
1 |
Aggregate intrinsic value represents the difference between the closing fair value of the underlying common stock and the exercise price of outstanding, in-the-money options on the date of measurement. |
During the three months ended March 31, 2020 and 2019, the Company recorded stock-based compensation expense related to stock options of $1.1 million and $1.1 million, respectively. During the six months ended March 31, 2020 and 2019, the Company recorded stock-based compensation expense related to stock options of $2.2 million and $2.1 million, respectively. As of March 31, 2020, there was $7.0 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.0 years.
The following table summarizes additional information on stock options for the periods presented (in thousands, except per share amounts):
|
|
Six Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Weighted-average fair value of stock options granted |
$ |
10.70 |
|
|
$ |
8.77 |
|
|
Total grant date fair value of stock options vested |
|
3,937 |
|
|
|
3,735 |
|
|
Total intrinsic value of stock options exercised |
|
1,094 |
|
|
|
1,360 |
|
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 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 their RSU grant settle simultaneously with vesting. Eligibility is determined annually based on the value of the non‑employee directors’ Beacon equity holdings as of December 1. Elections must be made by December 31 and apply only to the succeeding RSU grant following the election.
12
The following table summarizes all restricted stock unit activity for the six months ended March 31, 2020:
|
|
RSUs Outstanding |
|
|
Weighted-Average Grant Date Fair Value |
|
||
|
Balance as of September 30, 2019 |
|
1,123,358 |
|
|
$ |
37.48 |
|
|
Granted |
|
415,670 |
|
|
|
33.59 |
|
|
Released |
|
(270,264 |
) |
|
|
45.76 |
|
|
Canceled/Forfeited |
|
(12,893 |
) |
|
|
32.20 |
|
|
Balance as of March 31, 2020 |
|
1,255,871 |
|
|
$ |
34.30 |
|
|
Vested and expected to vest after March 31, 2020 |
|
1,047,567 |
|
|
$ |
35.34 |
|
During the three months ended March 31, 2020 and 2019, the Company recorded stock-based compensation expense related to restricted stock units of $3.5 million and $3.8 million, respectively. During the six months ended March 31, 2020 and 2019, the Company recorded stock-based compensation expense related to restricted stock units of $7.6 million and $6.2 million, respectively. As of March 31, 2020, there was $20.2 million of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 1.9 years.
The following table summarizes additional information on RSUs for the periods presented (in thousands, except per share amounts):
|
|
Six Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Weighted-average fair value of RSUs granted |
$ |
33.59 |
|
|
$ |
27.77 |
|
|
Total grant date fair value of RSUs vested |
|
13,362 |
|
|
|
15,920 |
|
|
Total intrinsic value of RSUs released |
|
9,093 |
|
|
|
11,319 |
|
6. Goodwill and Intangible Assets
Given the adverse impact of the COVID-19 pandemic on global markets, the Company performed impairment analyses over its intangible assets and goodwill and concluded there was no impairment as of March 31, 2020.
Goodwill
The following table sets forth the change in the carrying amount of goodwill during the six months ended March 31, 2020 and 2019, respectively (in thousands):
|
Balance as of September 30, 2018 |
$ |
2,491,779 |
|
|
Acquisitions1 |
|
(513 |
) |
|
Translation and other adjustments |
|
(940 |
) |
|
Balance as of March 31, 2019 |
$ |
2,490,326 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2019 |
$ |
2,490,590 |
|
|
Translation and other adjustments |
|
(1,955 |
) |
|
Balance as of March 31, 2020 |
$ |
2,488,635 |
|
_____________________________
|
|
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 six months ended March 31, 2020 and 2019 were driven primarily by purchase accounting and foreign currency translation adjustments.
13
Intangible Assets
The following table summarizes intangible assets by category (in thousands, except time period amounts):
|
|
March 31, 2020 |
|
|
September 30, 2019 |
|
|
March 31, 2019 |
|
|
Weighted-Average Remaining Life1 (Years) |
|
||||
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements |
$ |
200 |
|
|
$ |
2,824 |
|
|
$ |
2,824 |
|
|
|
2.2 |
|
|
Customer relationships |
|
1,486,267 |
|
|
|
1,530,970 |
|
|
|
1,530,902 |
|
|
|
16.9 |
|
|
Trademarks |
|
7,600 |
|
|
|
10,500 |
|
|
|
10,500 |
|
|
|
6.6 |
|
|
Beneficial lease arrangements |
|
- |
|
|
|
8,060 |
|
|
|
8,060 |
|
|
|
- |
|
|
Total amortizable intangible assets |
|
1,494,067 |
|
|
|
1,552,354 |
|
|
|
1,552,286 |
|
|
|
|
|
|
Accumulated amortization |
|
(655,417 |
) |
|
|
(619,864 |
) |
|
|
(515,387 |
) |
|
|
|
|
|
Total amortizable intangible assets, net |
$ |
838,650 |
|
|
$ |
932,490 |
|
|
$ |
1,036,899 |
|
|
|
|
|
|
Indefinite-lived trademarks |
|
51,333 |
|
|
|
193,050 |
|
|
|
193,050 |
|
|
|
|
|
|
Total intangibles, net |
$ |
889,983 |
|
|
$ |
1,125,540 |
|
|
$ |
1,229,949 |
|
|
|
|
|
_________________________________________
|
1 |
As of March 31, 2020. |
In the three months ended March 31, 2020, in connection with the Rebranding, the Company incurred non-cash accelerated intangible asset amortization of $142.6 million related to the write-off of certain trade names, primarily Allied (exterior products only), Roofing Supply Group and JGA. The Company used an income approach, specifically the relief from royalty method, to determine the fair value of remaining indefinite-lived trademarks. Various Level 3 fair value assumptions were used in the determination of the estimated fair value, including items such as sales growth rates, royalty rates, discount rates, and other prospective financial information.
During the three months ended March 31, 2020 and 2019, the Company recorded $187.4 million and $51.8 million of amortization expense relating to the above-listed intangible assets, respectively. During the six months ended March 31, 2020 and 2019, the Company recorded $232.1 million and $103.8 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 16.9 years as of March 31, 2020.
The following table summarizes the estimated future amortization expense for intangible assets (in thousands):
|
Year Ending September 30, |
|
|
|
|
2020 (Apr - Sept) |
$ |
88,344 |
|
|
2021 |
|
147,987 |
|
|
2022 |
|
120,540 |
|
|
2023 |
|
97,416 |
|
|
2024 |
|
78,771 |
|
|
Thereafter |
|
305,592 |
|
|
Total future amortization expense |
$ |
838,650 |
|
14
7. Financing Arrangements
The following table summarizes all financing arrangements from the respective periods presented (in thousands):
|
|
March 31, 2020 |
|
|
September 30, 2019 |
|
|
March 31, 2019 |
|
|||
|
Revolving Lines of Credit |
|
|
|
|
|
|
|
|
|
|
|
|
2023 ABL: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Revolver1 |
$ |
1,001,609 |
|
|
$ |
80,961 |
|
|
$ |
414,369 |
|
|
Canada Revolver2 |
|
- |
|
|
|
- |
|
|
|
2,245 |
|
|
Current portion |
|
- |
|
|
|
- |
|
|
|
- |
|
|
Borrowings under revolving lines of credit, net |
$ |
1,001,609 |
|
|
$ |
80,961 |
|
|
$ |
416,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term Debt, net |
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
2025 Term Loan3 |
$ |
924,438 |
|
|
$ |
926,535 |
|
|
$ |
928,631 |
|
|
Current portion |
|
(9,700 |
) |
|
|
(9,700 |
) |
|
|
(9,700 |
) |
|
Long-term borrowings under term loan |
|
914,738 |
|
|
|
916,835 |
|
|
|
918,931 |
|
|
Senior Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
2023 Senior Notes4 |
|
- |
|
|
|
294,886 |
|
|
|
294,246 |
|
|
2025 Senior Notes5 |
|
1,284,308 |
|
|
|
1,282,902 |
|
|
|
1,281,496 |
|
|
2026 Senior Notes6 |
|
295,775 |
|
|
|
- |
|
|
|
- |
|
|
Current portion |
|
- |
|
|
|
- |
|
|
|
- |
|
|
Long-term borrowings under senior notes |
|
1,580,083 |
|
|
|
1,577,788 |
|
|
|
1,575,742 |
|
|
Long-term debt, net |
$ |
2,494,821 |
|
|
$ |
2,494,623 |
|
|
$ |
2,494,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Financing Facilities, net |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment financing facilities7 |
$ |
4,675 |
|
|
$ |
6,885 |
|
|
$ |
9,068 |
|
|
Capital lease obligations8 |
|
- |
|
|
|
6,713 |
|
|
|
9,747 |
|
|
Current portion |
|
(3,712 |
) |
|
|
(8,989 |
) |
|
|
(10,288 |
) |
|
Long-term obligations under equipment financing, net |
$ |
963 |
|
|
$ |
4,609 |
|
|
$ |
8,527 |
|
____________________________________________________________
|
1 |
Effective rate on borrowings of 2.33%, 5.41% and 4.27% as of March 31, 2020, September 30, 2019 and March 31, 2019, respectively. |
|
2 |
Effective rate on borrowings of 4.45% as of March 31, 2019. |
|
3 |
Interest rate of 3.85%, 4.36% and 4.75% as of March 31, 2020, September 30, 2019 and March 31, 2019, respectively. |
|
4 |
Interest rate of 6.38% for all periods presented. |
|
5 |
Interest rate of 4.88% for all periods presented. |
|
6 |
Interest rate of 4.50% as of March 31, 2020. |
|
7 |
Fixed interest rates ranging from 2.33% to 2.89% as of March 31, 2020 and September 30, 2019. Fixed interest rates ranging from 2.33% to 3.25% as of March 31, 2019. |
|
8 |
As of October 1, 2019, in connection with the adoption of ASU 2016-02, capital lease obligations that were formerly included in equipment financing facilities are included either in accrued expenses or other long-term liabilities on the consolidated balance sheets. See Notes 2 and 8 for further information. |
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.
15
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 has capitalized debt issuance costs of $4.5 million related to the 2026 Senior Notes, which are being amortized over the term of the financing arrangements.
As of March 31, 2020, the outstanding balance on the 2026 Senior Notes, net of $4.2 million of unamortized debt issuance costs, was $295.8 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, which are being amortized over the term of the financing arrangements.
2023 ABL
On January 2, 2018, the Company entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2023 ABL consists of revolving loans in both the United States (“2023 U.S. Revolver”) in the amount of $1.20 billion and Canada (“2023 Canada Revolver”) in the amount of $100.0 million. The 2023 ABL has a maturity date of January 2, 2023. The 2023 ABL has various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The current unused commitment fees on the 2023 ABL are 0.25% per annum.
There is one financial covenant under the 2023 ABL, which is the Fixed Charge Coverage Ratio (the “FCCR”). The FCCR is calculated by dividing Consolidated EBITDA, less Capital Expenditures, by Consolidated Fixed Charges (all terms as defined in the agreement). Per the covenant, the Company’s FCCR must be a minimum of 1.00 at the end of each fiscal quarter, calculated on a trailing four quarter basis (or under certain circumstances, at the end of each fiscal month, calculated on a trailing twelve-month basis.) Compliance is only required at such times as borrowing availability (subject to certain adjustments) is less than the greater of (i) 10% of the lesser of the borrowing base or the aggregate commitments or (ii) $90.0 million, and for a period of thirty days thereafter. The Company was in compliance with this covenant as of March 31, 2020.
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.
In March 2020, the Company elected to draw down approximately $725 million from its revolving credit facility. This was a proactive measure to increase the Company's cash position and preserve financial flexibility in light of current uncertainty in global markets resulting from the COVID-19 pandemic. As of March 31, 2020, the total balance outstanding on the 2023 ABL, net of $6.9 million of unamortized debt issuance costs, was $1.00 billion. The Company also has outstanding standby letters of credit related to the 2023 U.S. Revolver in the amount of $13.0 million as of March 31, 2020.
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.
16
The 2025 Term Loan is secured by a first priority lien on the Term Priority Collateral and a second priority lien on the ABL Priority Collateral. Certain excluded assets will not be included in the Term Priority Collateral and the ABL Priority Collateral. The Term Loan is guaranteed jointly, severally, fully and unconditionally by the Company’s active United States subsidiaries.
As of March 31, 2020, the outstanding balance on the 2025 Term Loan, net of $26.2 million of unamortized debt issuance costs, was $924.4 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% 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. 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 March 31, 2020, the outstanding balance on the 2025 Senior Notes, net of $15.7 million of unamortized debt issuance costs, was $1.28 billion.
Financing - RSG Acquisition
2023 Senior Notes
On October 1, 2015, in connection with the acquisition of Roofing Supply Group, the Company raised $300.0 million by issuing 6.38% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes had a coupon rate of 6.38% per annum and were payable semi-annually in arrears, beginning April 1, 2016. There were early payment provisions in the indenture under which the Company would be subject to redemption premiums. On October 28, 2019, the Company redeemed all $300.0 million aggregate principal amount outstanding of the 2023 Senior Notes at a redemption price of 103.188% plus accrued interest and, as a result, wrote off $5.1 million of unamortized debt issuance costs.
Equipment Financing Facilities
As of March 31, 2020, the Company had $4.7 million outstanding under equipment financing facilities, with fixed interest rates ranging from 2.33% to 2.89% and payments due through September 2021.
8. 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 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.
In 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 sheets. Finance lease assets are included in property and equipment, net. The current portion of the finance lease liabilities is included in accrued expenses, and the noncurrent portion is included in other long-term liabilities.
Operating lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, because the interest rates implicit in most of the leases are not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments.
Operating lease assets include any prepaid lease payments and lease incentives. The Company’s lease terms include periods under options to extend or terminate the lease when it is reasonably certain that those options will be exercised. The Company generally uses the base, non-cancelable lease term when determining the lease assets and liabilities. Operating lease expense is recognized on a straight-line basis over the lease term.
17
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 March 31, 2020 |
|
|
Six Months Ended March 31, 2020 |
|
||
|
Operating lease costs |
|
$ |
30,967 |
|
|
$ |
62,428 |
|
|
Variable lease costs |
|
|
2,954 |
|
|
|
5,611 |
|
|
Total operating lease costs |
|
$ |
33,921 |
|
|
$ |
68,039 |
|
The following table presents supplemental cash flow information related to operating leases (in thousands):
|
|
|
Six Months Ended March 31, 2020 |
|
|
|
Operating cash flows for operating lease liabilities |
|
$ |
59,046 |
|
As of March 31, 2020, the Company’s operating leases had a weighted-average remaining lease term of 5.7 years and a weighted-average discount rate of 3.99%. Future lease payments under operating leases as of March 31, 2020 were as follows (in thousands):
|
Year Ending September 30, |
|
|
|
|
|
2020 (Apr - Sept) |
|
$ |
57,919 |
|
|
2021 |
|
|
108,453 |
|
|
2022 |
|
|
92,762 |
|
|
2023 |
|
|
75,755 |
|
|
2024 |
|
|
58,649 |
|
|
Thereafter |
|
|
106,081 |
|
|
Total future lease payments |
|
|
499,619 |
|
|
Imputed interest |
|
|
(51,777 |
) |
|
Total operating lease liabilities |
|
$ |
447,842 |
|
9. Commitments and 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.
The Company participates in multi-employer defined benefit plans for which it is not the sponsor. As of March 31, 2020, 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 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.
18
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.
The following table summarizes the components of and changes in accumulated other comprehensive loss (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 |
|
(5,168 |
) |
|
|
(13,357 |
) |
|
|
(18,525 |
) |
|
Reclassifications out of other comprehensive loss |
|
- |
|
|
|
- |
|
|
|
- |
|
|
Balance as of March 31, 2020 |
$ |
(24,152 |
) |
|
$ |
(14,969 |
) |
|
$ |
(39,121 |
) |
Gains (losses) on derivative instruments are recognized in the consolidated statements of operations in interest expense, financing costs, and other.
11. Geographic Data
The following table summarizes certain geographic information for the periods presented (in thousands):
|
|
March 31, 2020 |
|
|
September 30, 2019 |
|
|
March 31, 2019 |
|
|||
|
Long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
$ |
1,075,534 |
|
|
$ |
1,182,552 |
|
|
$ |
1,297,327 |
|
|
Canada |
|
10,498 |
|
|
|
12,373 |
|
|
|
11,837 |
|
|
Total long-lived assets |
$ |
1,086,032 |
|
|
$ |
1,194,925 |
|
|
$ |
1,309,164 |
|
12. Fair Value Measurement
As of March 31, 2020, 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 March 31, 2020, based upon recent trading prices (Level 2), the fair value of the Company’s $300.0 million Senior Notes due in 2026 was $279.1 million and the fair value of the $1.30 billion Senior Notes due 2025 was $1.17 billion.
As of March 31, 2020, 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. Financial Derivatives
The Company uses interest rate derivative instruments to manage the risk related to fluctuating cash flows from interest rate changes by converting a portion of its variable-rate borrowings into fixed-rate borrowings.
On September 11, 2019, the Company entered into two 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 swaps the thirty-day LIBOR with a fixed-rate of 1.49%. The second agreement (the “3-year swap”) will expire on August 30, 2022 and swaps the thirty-day LIBOR with a fixed-rate of 1.50%. At the inception of the swap agreements, the Company determined that both swaps qualified for cash flow hedge accounting under ASC 815. Therefore, changes in the 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 other in the period in which the hedged transaction affects earnings. Any ineffective portions of the hedges are immediately recognized in earnings as a component of interest expense, financing costs and other.
The effectiveness of the swaps will be assessed qualitatively by the Company during the lives of the hedges by a) comparing the current terms of the hedges with the related hedged debt to assure they continue to coincide and b) through an evaluation of the ability of the counterparty to the hedges to honor their obligations under the hedges. The Company performed a qualitative analysis as
19
of March 31, 2020 and concluded that the swap agreements continue to meet the requirements under ASC 815 to qualify for cash flow hedge accounting. As of March 31, 2020, the fair value of the 3‑year and 5‑year swaps, net of tax, were $5.6 million and $9.4 million, respectively, both in favor of the counterparty. These amounts are included in accrued expenses in the accompanying consolidated balance sheets.
The Company records any differences paid or received on its interest rate hedges to interest expense, financing costs and other. The following table summarizes the combined fair values, net of tax, of the interest rate derivative instruments (in thousands):
|
|
|
|
|
Assets/(Liabilities) as of: |
|
|||||||||
|
Instrument |
|
Fair Value Hierarchy |
|
March 31, 2020 |
|
|
September 30, 2019 |
|
|
March 31, 2019 |
|
|||
|
Designated interest rate swaps1 |
|
Level 2 |
|
$ |
(14,969 |
) |
|
$ |
(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 as market interest rates that are observable at commonly quoted intervals (generally referred to as the “LIBOR Curve”) for the full terms of the hedge agreements. These values reflect a Level 2 measurement under the applicable fair value hierarchy.
The following table summarizes the amounts of gain (loss) on the interest rate derivative instruments recognized in other comprehensive income (in thousands):
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
Instrument |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Designated interest rate swaps |
|
$ |
(15,886 |
) |
|
$ |
- |
|
|
$ |
(13,357 |
) |
|
$ |
- |
|
14. Income Taxes
On March 27, 2020, the U.S. federal government officially signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). ASC 740, “Accounting for Income Taxes,” requires companies to recognize the effect of tax law changes in the period of enactment. The CARES Act allows companies a five-year carryback for Net Operating Losses (“NOLs”) arising in tax years beginning after December 31, 2017 and before January 1, 2021. The Company is projecting to generate a taxable loss for the year ending September 30, 2020, which the Company will be able carryback to the year ending September 30, 2015 with an enacted federal tax rate of 35%. This resulted in the recognition of a $33.3 million income tax benefit for the three months ended March 31, 2020, which is composed of the following items:
|
|
• |
The Company remeasured its deferred tax assets and liabilities that existed at the beginning of the year that, upon reversal, will be taxed in a fiscal year that permits a carryback claim and will be taxed at the 35% federal enacted rate. As a result, the Company recognized a $17.4 million decrease of its deferred tax liabilities related to this remeasurement, which also resulted in an income tax benefit for the same amount. |
|
|
• |
In determining the annual effective tax rate (“ETR”) for the year ending September 30, 2020, the Company recognized a benefit of $15.9 million associated with the application of the tax rate differential between the enacted federal rate of 21% and 35% on the year-to-date pre-tax net loss. |
Other provisions in the CARES Act that will impact the Company include the ability to carry back losses due to the technical correction for fiscal year filers with an NOL in the 2017-2018 straddle year, the technical correction regarding qualified improvement property, the increase in Section 163(j) interest limitation percentage, and the allowance of remaining AMT credits to be fully refundable in 2019.
In addition to the CARES Act, the Company also recognized the impact of the Rebranding during the three months ended March 31, 2020 with non-cash accelerated intangible asset amortization of $142.6 million related to the write-off of certain trade names. The Company determined that the Rebranding was an unusual or infrequent occurring item; therefore, the tax effect is recognized in the interim period the transaction arose. As a result, the Company recognized a $36.5 million decrease of its deferred tax liabilities, which also resulted in the recognition of an income tax benefit for the same amount in its consolidated statement of operations for the three months ended March 31, 2020.
20
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis included in our 2019 Annual Report on Form 10-K and our Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this document. Unless otherwise indicated, references to “2020” refer to the three or six months ended March 31, 2020 being discussed and references to “2019” refer to the three or six months ended March 31, 2019 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 roofing materials and complementary building products in the United States and Canada. 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, home builders, retailers, and other building materials suppliers.
On January 15, 2020, we announced the rebranding of our exterior product branches with the trade name “Beacon Building Products” (the “Rebranding”). The new name, and a related logo, will be adopted at over 450 Beacon one-step exterior products branches. Our interior, insulation, weatherproofing and two-step branches will continue to operate under current brand names.
As of March 31, 2020, we operated 528 branches throughout all 50 states in the U.S. and 6 provinces in Canada. We offer one of the most extensive assortments of high-quality branded products in the industry with approximately 140,000 SKUs available across our branch network, enabling us to deliver products to serve over 110,000 customers on a timely basis.
Effective execution of both our sales and operating plans enables us to grow beyond the relative strength of the markets we serve. Our business model is a bottom-up approach, where each of our branches uses its regional knowledge and experience to assist with the development of a marketing plan and 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 operating model and branch level autonomy differentiate us from the competition.
We provide our customers with industry-leading digital solutions, including Beacon PRO+, our innovative e-commerce portal, and Beacon 3D+, an in-home visualizer and dynamic modeling tool for our residential customers. These platforms help our customers save time, work more efficiently and grow their business. Additional value-added services 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 that drives service excellence, productivity and 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. We pursue organic growth opportunities that allow us to penetrate deeper into target 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 three new branches in fiscal year 2020 to date, including locations in Georgia, Virginia and Oregon. In fiscal year 2019, we opened a total of nine new branch locations across Alabama, California, Florida, Nevada, North Carolina, Pennsylvania and Texas. |
21
Recent Developments
COVID-19 Pandemic
The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption, and it is likely to adversely affect our business. As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic.
In this unprecedented time, we continue to emphasize the health and safety of our employees, customers and the communities in which we operate. Amid the current COVID-19 backdrop, our employees are practicing social distancing and are handwashing and cleaning in accordance with CDC standards. We have been designated an essential business in all the local markets that we serve, and we have yet to experience a significant amount of forced temporary branch closures due to COVID-19 business disruptions. We continue to deliver building products to both the residential and commercial construction markets. We continue to serve customers in every way possible, and our online platform has stood out as an increasingly valuable tool in this current remote operating environment.
Our average daily sales levels for the three and six months ended March 31, 2020 increased 0.5% and decreased 1.3%, respectively, compared to the prior year. Our average daily sales for the month of April 2020 were down approximately 20% compared to the prior year period; however, there were indications of relative stability in our sales volumes toward the second half of the month.
In response to the potential business disruptions, we have implemented a series of operational and financial actions to combat the effects of the COVID‑19 induced slowdown. We immediately responded to changes in localized demand through aggressive cost-cutting actions, including a reduction in seasonal and temporary hiring, cuts in overtime hours and reduced hourly schedules. We have also implemented furloughs in both operating and non-operating functions, reduced salaries, significantly restricted capital expenditures, improved working capital metrics by reducing inventory, and heightened our organizational focus on managing all expenses. We have taken meaningful actions to improve our financial flexibility and ensure the strength of our balance sheet, and we are prepared to take additional steps to appropriately manage the business through this uncertain period. We are also monitoring input costs to ensure we are well-positioned to take advantage of any opportunities that present themselves over the next several quarters.
Comparison of the Three Months Ended March 31, 2020 and 2019
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 March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Net sales |
$ |
1,458,486 |
|
|
$ |
1,429,037 |
|
|
Cost of products sold |
|
1,116,086 |
|
|
|
1,094,049 |
|
|
Gross profit |
|
342,400 |
|
|
|
334,988 |
|
|
Operating expense: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
318,510 |
|
|
|
320,408 |
|
|
Depreciation |
|
17,495 |
|
|
|
17,447 |
|
|
Amortization |
|
187,356 |
|
|
|
51,763 |
|
|
Total operating expense |
|
523,361 |
|
|
|
389,618 |
|
|
Income (loss) from operations |
|
(180,961 |
) |
|
|
(54,630 |
) |
|
Interest expense, financing costs, and other |
|
23,454 |
|
|
|
40,452 |
|
|
Loss on debt extinguishment |
|
- |
|
|
|
- |
|
|
Income (loss) before provision for income taxes |
|
(204,415 |
) |
|
|
(95,082 |
) |
|
Provision for (benefit from) income taxes |
|
(81,775 |
) |
|
|
(26,996 |
) |
|
Net income (loss) |
$ |
(122,640 |
) |
|
$ |
(68,086 |
) |
|
Dividends on Preferred Stock |
|
6,000 |
|
|
|
6,000 |
|
|
Net income (loss) attributable to common shareholders |
$ |
(128,640 |
) |
|
$ |
(74,086 |
) |
22
|
|
Three Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Net sales |
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of products sold |
|
76.5 |
% |
|
|
76.6 |
% |
|
Gross profit |
|
23.5 |
% |
|
|
23.4 |
% |
|
Operating expense: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
21.9 |
% |
|
|
22.4 |
% |
|
Depreciation |
|
1.2 |
% |
|
|
1.2 |
% |
|
Amortization |
|
12.8 |
% |
|
|
3.6 |
% |
|
Total operating expense |
|
35.9 |
% |
|
|
27.2 |
% |
|
Income (loss) from operations |
|
(12.4 |
%) |
|
|
(3.8 |
%) |
|
Interest expense, financing costs, and other |
|
1.6 |
% |
|
|
2.8 |
% |
|
Loss on debt extinguishment |
|
0.0 |
% |
|
|
0.0 |
% |
|
Income (loss) before provision for income taxes |
|
(14.0 |
%) |
|
|
(6.6 |
%) |
|
Provision for (benefit from) income taxes |
|
(5.6 |
%) |
|
|
(1.8 |
%) |
|
Net income (loss) |
|
(8.4 |
%) |
|
|
(4.8 |
%) |
|
Dividends on Preferred Stock |
|
0.4 |
% |
|
|
0.4 |
% |
|
Net income (loss) attributable to common shareholders |
|
(8.8 |
%) |
|
|
(5.2 |
%) |
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 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 March 31, 2020, we had a total of 528 branches in operation. All 528 branches were acquired prior to the start of the second quarter of fiscal year 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.
Net Sales
Net sales increased 2.1% to $1.46 billion in 2020, from $1.43 billion in 2019. The comparative increase in net sales was influenced by our sales initiatives around contractor conversions, national account sales, and the continued positive impact of our industry-leading digital platform, partially offset by decreased hurricane-related demand in the Mid-Atlantic.
Net sales by geographical region increased (decreased) from 2019 to 2020 as follows: Northeast 1.7%; Mid-Atlantic (3.9%); Southeast (0.4%); Southwest (2.6%); Midwest 6.8%; West 8.8%; and Canada 4.3%.
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).
The following table summarizes net sales by product line for the periods presented (in thousands):
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|||||||||||||||
|
|
Net Sales |
|
|
% |
|
|
Net Sales |
|
|
% |
|
|
$ |
|
|
% |
|
||||||
|
Residential roofing products |
$ |
591,213 |
|
|
|
40.5 |
% |
|
$ |
598,917 |
|
|
|
42.0 |
% |
|
$ |
(7,704 |
) |
|
|
(1.3 |
%) |
|
Non-residential roofing products |
|
353,001 |
|
|
|
24.2 |
% |
|
|
313,626 |
|
|
|
21.9 |
% |
|
|
39,375 |
|
|
|
12.6 |
% |
|
Complementary building products |
|
514,272 |
|
|
|
35.3 |
% |
|
|
516,494 |
|
|
|
36.1 |
% |
|
|
(2,222 |
) |
|
|
(0.4 |
%) |
|
Total net sales |
$ |
1,458,486 |
|
|
|
100.0 |
% |
|
$ |
1,429,037 |
|
|
|
100.0 |
% |
|
$ |
29,449 |
|
|
|
2.1 |
% |
23
Gross Profit
The following table summarizes gross profit and gross margin for the periods presented (in thousands):
|
|
Three Months Ended March 31, |
|
|
Change1 |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||
|
Gross profit |
$ |
342,400 |
|
|
$ |
334,988 |
|
|
$ |
7,412 |
|
|
|
2.2 |
% |
|
Gross margin |
|
23.5 |
% |
|
|
23.4 |
% |
|
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. |
|
Gross profit increased 2.2% to $342.4 million in 2020, from $335.0 million in 2019.
Gross margin was 23.5% in 2020, up 0.1% from 23.4% in 2019. The comparative increase in gross margin was influenced by a net product cost decrease of approximately 1%, partially offset by a price decrease of less than 1% and a product mix shift.
Operating Expense
The following table summarizes operating expense for the periods presented (in thousands):
|
|
Three Months Ended March 31, |
|
|
Change1 |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||
|
Operating expense |
$ |
523,361 |
|
|
$ |
389,618 |
|
|
$ |
133,743 |
|
|
|
34.3 |
% |
|
% of net sales |
|
35.9 |
% |
|
|
27.3 |
% |
|
N/A |
|
|
|
8.6 |
% |
|
_________________________________________________________________
|
|
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. |
|
Operating expense increased 34.3% to $523.4 million in 2020, from $389.6 million in 2019. The comparative increase in operating expense was mainly influenced by the following factors:
|
|
• |
a $135.6 million increase in amortization expense, which includes the gross impact of accelerated amortization of $142.6 million related to the write-off of certain trade names in connection with the Rebranding; and |
|
|
• |
a $6.3 million increase due to merit increases, higher health insurance costs, and volume-driven payroll increases; |
partially offset by:
|
|
• |
a $2.1 million decrease in selling expenses, mainly due to lower vehicle costs; and |
|
|
• |
a $6.1 million decrease due to recently implemented labor cost efficiency initiatives. |
Interest Expense, Financing Costs and Other
Interest expense, financing costs and other expense was $23.5 million in 2020, compared to $40.5 million in 2019. The decrease is primarily due to:
|
|
• |
a $5.6 million settlement received in connection with a class action lawsuit; |
|
|
• |
a $5.3 million refund to be received as the final true-up of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the Allied Acquisition; and |
|
|
• |
a lower weighted-average interest rate on our outstanding debt. |
Income Taxes
There was an income tax benefit of $81.8 million in 2020, compared to $27.0 million in 2019. The comparative increase in income tax benefit was primarily due to tax benefits from deferred tax adjustments of $36.5 million related to the Rebranding and $33.3 million related to the impact of the recently announced CARES Act related to the COVID-19 pandemic that allows the Company to carry back net operating losses for five years and tax effects current year net losses at a 35% rate.
The effective tax rate, excluding any discrete items, was 39.8% in 2020, compared to 27.9% in 2019. We expect our fiscal year 2020 effective tax rate, excluding any discrete items, will range from approximately 38.0% to 40.0%.
24
Net Income (Loss)/Net Income (Loss) Per Share
Net income (loss) was $(122.6) million in 2020, compared to $(68.1) million in 2019. There were $6.0 million of dividends on preferred shares in both 2020 and 2019, making net income (loss) attributable to common shareholders of $(128.6) million and $(74.1) million, 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 4 in the Notes to Condensed Consolidated Financial Statements for further discussion).
The following table presents 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 March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Net income (loss) |
$ |
(122,640 |
) |
|
$ |
(68,086 |
) |
|
Dividends on Preferred Stock |
|
6,000 |
|
|
|
6,000 |
|
|
Net income (loss) attributable to common shareholders |
|
(128,640 |
) |
|
|
(74,086 |
) |
|
Undistributed income allocated to participating securities |
|
- |
|
|
|
- |
|
|
Net income (loss) attributable to common shareholders - basic and diluted (if-converted method) |
$ |
(128,640 |
) |
|
$ |
(74,086 |
) |
|
Undistributed income allocated to participating securities |
|
- |
|
|
|
- |
|
|
Re-allocation of undistributed income to Preferred Stock |
|
- |
|
|
|
- |
|
|
Net income (loss) attributable to common shareholders - diluted (two-class method) |
$ |
(128,640 |
) |
|
$ |
(74,086 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic |
|
68,820,155 |
|
|
|
68,451,920 |
|
|
Effect of common share equivalents |
|
- |
|
|
|
- |
|
|
Weighted-average common shares outstanding - diluted (if-converted and two-class method) |
|
68,820,155 |
|
|
|
68,451,920 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic |
$ |
(1.87 |
) |
|
$ |
(1.08 |
) |
|
Net income (loss) per share - diluted (two-class method) |
|
(1.87 |
) |
|
|
(1.08 |
) |
|
Net income (loss) per share - diluted (if-converted method) |
|
(1.87 |
) |
|
|
(1.08 |
) |
Comparison of the Six Months Ended March 31, 2020 and 2019
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):
|
|
Six Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Net sales |
$ |
3,133,598 |
|
|
$ |
3,150,713 |
|
|
Cost of products sold |
|
2,380,500 |
|
|
|
2,380,156 |
|
|
Gross profit |
|
753,098 |
|
|
|
770,557 |
|
|
Operating expense: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
645,429 |
|
|
|
648,101 |
|
|
Depreciation |
|
36,567 |
|
|
|
35,048 |
|
|
Amortization |
|
232,134 |
|
|
|
103,784 |
|
|
Total operating expense |
|
914,130 |
|
|
|
786,933 |
|
|
Income (loss) from operations |
|
(161,032 |
) |
|
|
(16,376 |
) |
|
Interest expense, financing costs, and other |
|
61,747 |
|
|
|
78,813 |
|
|
Loss on debt extinguishment |
|
14,678 |
|
|
|
- |
|
|
Income (loss) before provision for income taxes |
|
(237,457 |
) |
|
|
(95,189 |
) |
|
Provision for (benefit from) income taxes |
|
(91,407 |
) |
|
|
(26,210 |
) |
|
Net income (loss) |
$ |
(146,050 |
) |
|
$ |
(68,979 |
) |
|
Dividends on Preferred Stock |
|
12,000 |
|
|
|
12,000 |
|
|
Net income (loss) attributable to common shareholders |
$ |
(158,050 |
) |
|
$ |
(80,979 |
) |
25
|
|
Six Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Net sales |
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of products sold |
|
76.0 |
% |
|
|
75.5 |
% |
|
Gross profit |
|
24.0 |
% |
|
|
24.5 |
% |
|
Operating expense: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
20.6 |
% |
|
|
20.6 |
% |
|
Depreciation |
|
1.2 |
% |
|
|
1.1 |
% |
|
Amortization |
|
7.4 |
% |
|
|
3.3 |
% |
|
Total operating expense |
|
29.2 |
% |
|
|
25.0 |
% |
|
Income (loss) from operations |
|
(5.1 |
%) |
|
|
(0.5 |
%) |
|
Interest expense, financing costs, and other |
|
2.0 |
% |
|
|
2.5 |
% |
|
Loss on debt extinguishment |
|
0.5 |
% |
|
|
0.0 |
% |
|
Income (loss) before provision for income taxes |
|
(7.6 |
%) |
|
|
(3.0 |
%) |
|
Provision for (benefit from) income taxes |
|
(2.9 |
%) |
|
|
(0.8 |
%) |
|
Net income (loss) |
|
(4.7 |
%) |
|
|
(2.2 |
%) |
|
Dividends on Preferred Stock |
|
0.3 |
% |
|
|
0.4 |
% |
|
Net income (loss) attributable to common shareholders |
|
(5.0 |
%) |
|
|
(2.6 |
%) |
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 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 March 31, 2020, we had a total of 528 branches in operation. All 528 branches were acquired prior to the start of fiscal year 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.
Net Sales
Net sales decreased 0.5% to $3.13 billion in 2020, from $3.15 billion in 2019. The comparative decrease in net sales was influenced by decreased hurricane-related demand in the Mid-Atlantic and Southeast, partially offset by the continued positive impact of our industry-leading digital platform.
Net sales by geographical region increased (decreased) from 2019 to 2020 as follows: Northeast (2.3%); Mid-Atlantic (9.2%); Southeast (2.4%); Southwest (0.3%); Midwest 2.0%; West 5.7%; and Canada 5.7%.
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).
The following table summarizes net sales by product line for the periods presented (in thousands):
|
|
Six Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|||||||||||||||
|
|
Net Sales |
|
|
% |
|
|
Net Sales |
|
|
% |
|
|
$ |
|
|
% |
|
||||||
|
Residential roofing products |
$ |
1,293,473 |
|
|
|
41.3 |
% |
|
$ |
1,323,780 |
|
|
|
42.0 |
% |
|
$ |
(30,307 |
) |
|
|
(2.3 |
%) |
|
Non-residential roofing products |
|
773,896 |
|
|
|
24.7 |
% |
|
|
729,939 |
|
|
|
23.2 |
% |
|
|
43,957 |
|
|
|
6.0 |
% |
|
Complementary building products |
|
1,066,229 |
|
|
|
34.0 |
% |
|
|
1,096,994 |
|
|
|
34.8 |
% |
|
|
(30,765 |
) |
|
|
(2.8 |
%) |
|
Total net sales |
$ |
3,133,598 |
|
|
|
100.0 |
% |
|
$ |
3,150,713 |
|
|
|
100.0 |
% |
|
$ |
(17,115 |
) |
|
|
(0.5 |
%) |
26
Gross Profit
The following table summarizes gross profit and gross margin for the periods presented (in thousands):
|
|
Six Months Ended March 31, |
|
|
Change1 |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||
|
Gross profit |
$ |
753,098 |
|
|
$ |
770,557 |
|
|
$ |
(17,459 |
) |
|
|
(2.3 |
%) |
|
Gross margin |
|
24.0 |
% |
|
|
24.5 |
% |
|
N/A |
|
|
|
(0.5 |
%) |
|
________________________________
|
|
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. |
|
Gross profit decreased 2.3% to $753.1 million in 2020, from $770.6 million in 2019.
Gross margin was 24.0% in 2020, down 0.5% from 24.5% in 2019. The comparative decrease in gross margin was influenced by a price decrease of less than 1% and a product mix shift, partially offset by a net product cost decrease of less than 1%.
Operating Expense
The following table summarizes operating expense for the periods presented (in thousands):
|
|
Six Months Ended March 31, |
|
|
Change1 |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
$ |
|
|
% |
|
||||
|
Operating expense |
$ |
914,130 |
|
|
$ |
786,933 |
|
|
$ |
127,197 |
|
|
|
16.2 |
% |
|
% of net sales |
|
29.2 |
% |
|
|
25.0 |
% |
|
N/A |
|
|
|
4.2 |
% |
|
________________________________
|
|
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. |
|
Operating expense increased 16.2% to $914.1 million in 2020, from $786.9 million in 2019. The comparative increase in operating expense was mainly influenced by the following factors:
|
|
• |
a $128.3 million increase in amortization expense, which includes the gross impact of accelerated amortization of $142.6 million related to the write-off of certain trade names in connection with the Rebranding; |
partially offset by:
|
|
• |
a net $3.7 million decrease in general and administrative expense, mainly due to higher incursion of acquisition-related costs in the prior period. |
Interest Expense, Financing Costs and Other
Interest expense, financing costs and other expense was $61.7 million in 2020, compared to $78.8 million in 2019. The decrease is primarily due to:
|
|
• |
a $5.6 million settlement received in connection with a class action lawsuit; |
|
|
• |
a $5.3 million refund to be received as the final true-up of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the Allied Acquisition; and |
|
|
• |
a lower weighted-average interest rate on our outstanding debt. |
Income Taxes
There was an income tax benefit of $91.4 million in 2020, compared to $26.2 million in 2019. The comparative increase in income tax benefit was primarily due to tax benefits from deferred tax adjustments of $36.5 million related to the Rebranding and $33.3 million related to the impact of the recently announced CARES Act related to the COVID-19 pandemic that allows the Company to carry back net operating losses for five years and tax effects current year net losses at a 35% rate.
The effective tax rate, excluding any discrete items, was 39.8% in 2020, compared to 27.9% in 2019. We expect our fiscal year 2020 effective tax rate, excluding any discrete items, will range from approximately 38.0% to 40.0%.
27
Net Income (Loss)/Net Income (Loss) Per Share
Net income (loss) was $(146.1) million in 2020, compared to $(69.0) million in 2019. There were $12.0 million of dividends on preferred shares in both 2020 and 2019, making net income (loss) attributable to common shareholders $(158.1) million and $(81.0) million, 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 4 in the Notes to Condensed Consolidated Financial Statements for further discussion).
The following table presents all the components utilized to calculate basic and diluted net income (loss) per share (in thousands, except share and per share amounts):
|
|
Six Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Net income (loss) |
$ |
(146,050 |
) |
|
$ |
(68,979 |
) |
|
Dividends on Preferred Stock |
|
12,000 |
|
|
|
12,000 |
|
|
Net income (loss) attributable to common shareholders |
|
(158,050 |
) |
|
|
(80,979 |
) |
|
Undistributed income allocated to participating securities |
|
- |
|
|
|
- |
|
|
Net income (loss) attributable to common shareholders - basic and diluted (if-converted method) |
$ |
(158,050 |
) |
|
$ |
(80,979 |
) |
|
Undistributed income allocated to participating securities |
|
- |
|
|
|
- |
|
|
Re-allocation of undistributed income to Preferred Stock |
|
- |
|
|
|
- |
|
|
Net income (loss) attributable to common shareholders - diluted (two-class method) |
$ |
(158,050 |
) |
|
$ |
(80,979 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic |
|
68,743,633 |
|
|
|
68,348,850 |
|
|
Effect of common share equivalents |
|
- |
|
|
|
- |
|
|
Weighted-average common shares outstanding - diluted (if-converted and two-class method) |
|
68,743,633 |
|
|
|
68,348,850 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic |
$ |
(2.30 |
) |
|
$ |
(1.18 |
) |
|
Net income (loss) per share - diluted (two-class method) |
|
(2.30 |
) |
|
|
(1.18 |
) |
|
Net income (loss) per share - diluted (if-converted method) |
|
(2.30 |
) |
|
|
(1.18 |
) |
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 excluding the impact of acquisition costs, business restructuring costs, the effects of tax reform, and the direct financial impact of the COVID-19 pandemic. We define Adjusted EBITDA as net income excluding the impact of interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, acquisition costs, business restructuring costs, and the direct financial impact of the COVID 19 pandemic.
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 permit investors to better understand changes over comparative periods by providing financial results that are unaffected by certain items that are not indicative of ongoing operating performance.
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. These non-GAAP measures should not be considered 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 to which the excluded costs are related. In addition, these non-GAAP financial measures may differ from similarly titled measures presented by other companies.
28
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 Net Income (Loss) for each of the periods indicated (in thousands):
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net income (loss) |
$ |
(122,640 |
) |
|
$ |
(68,086 |
) |
|
$ |
(146,050 |
) |
|
$ |
(68,979 |
) |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs1 |
|
43,875 |
|
|
|
61,479 |
|
|
|
94,509 |
|
|
|
125,440 |
|
|
Business restructuring costs2 |
|
144,461 |
|
|
|
- |
|
|
|
164,991 |
|
|
|
- |
|
|
COVID-19 impact3 |
|
(33,322 |
) |
|
|
- |
|
|
|
(33,322 |
) |
|
|
- |
|
|
Effects of tax reform |
|
- |
|
|
|
(462 |
) |
|
|
- |
|
|
|
(462 |
) |
|
Total adjustments |
|
155,014 |
|
|
|
61,017 |
|
|
|
226,178 |
|
|
|
124,978 |
|
|
Tax impact of total adjustments4 |
|
(44,854 |
) |
|
|
(17,815 |
) |
|
|
(64,282 |
) |
|
|
(34,383 |
) |
|
Total adjustments, net of tax |
|
110,160 |
|
|
|
43,202 |
|
|
|
161,896 |
|
|
|
90,595 |
|
|
Adjusted Net Income (Loss) |
$ |
(12,480 |
) |
|
$ |
(24,884 |
) |
|
$ |
15,846 |
|
|
$ |
21,616 |
|
_______________________________
|
1 |
The following table presents a breakout of the components of acquisition costs for each of the periods indicated: |
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Amortization of intangible assets |
$ |
44,707 |
|
|
$ |
51,764 |
|
|
$ |
89,485 |
|
|
$ |
103,784 |
|
|
Costs classified as selling, general, and administrativea |
|
2,447 |
|
|
|
6,687 |
|
|
|
6,299 |
|
|
|
15,605 |
|
|
Non-operating (income) expensesb |
|
(3,279 |
) |
|
|
3,028 |
|
|
|
(1,275 |
) |
|
|
6,051 |
|
|
Total acquisition costs |
$ |
43,875 |
|
|
$ |
61,479 |
|
|
$ |
94,509 |
|
|
$ |
125,440 |
|
__________________________________
|
|
a. |
Mainly composed of professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses. |
|
|
|
b. |
Amounts include the amortization of debt issuance costs. For the three and six months ended March 31, 2020, amounts are offset by a $5.3 million refund to be received as the final true-up of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the Allied Acquisition. |
|
|
2 |
The following table presents a breakout of the components of business restructuring costs for each of the periods indicated: |
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Amortization in connection with the Rebranding |
$ |
142,649 |
|
|
$ |
- |
|
|
$ |
142,649 |
|
|
$ |
- |
|
|
Costs classified as selling, general, and administrativea |
|
816 |
|
|
|
- |
|
|
|
821 |
|
|
|
- |
|
|
Non-operating (income) expensesb |
|
996 |
|
|
|
- |
|
|
|
21,521 |
|
|
|
- |
|
|
Total business restructuring costs |
$ |
144,461 |
|
|
$ |
- |
|
|
$ |
164,991 |
|
|
$ |
- |
|
__________________________________
|
|
a. |
Mainly composed of costs stemming from headcount rationalization efforts and certain Rebranding costs. |
|
|
|
b. |
Amounts include accrued estimated costs related to employee benefit plan withdrawals and amortization of debt issuance costs. For the six months ended March 31, 2020, amount also includes a loss on debt extinguishment of $14.7 million in connection with the October 2019 debt refinancing. |
|
|
3 |
Mainly composed of a $33.3 million income tax benefit resulting from our application of the CARES Act (see Note 14 in the Notes to Condensed Consolidated Financial Statements), partially offset by severance and other costs directly related to the Company’s response to the COVID-19 pandemic. |
|
4 |
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 March 31, 2020 and 2019 were calculated using a blended effective tax rate of 28.9% and 29.2%, respectively. The tax impact of adjustments for the six months ended March 31, 2020 and 2019 were calculated using an effective tax rate of 28.4% and 27.5%, respectively. |
29
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):
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net income (loss) |
$ |
(122,640 |
) |
|
$ |
(68,086 |
) |
|
$ |
(146,050 |
) |
|
$ |
(68,979 |
) |
|
Interest expense, net |
|
35,625 |
|
|
|
41,815 |
|
|
|
70,421 |
|
|
|
81,631 |
|
|
Income taxes1 |
|
(81,775 |
) |
|
|
(26,996 |
) |
|
|
(91,407 |
) |
|
|
(26,210 |
) |
|
Depreciation and amortization2 |
|
204,851 |
|
|
|
69,210 |
|
|
|
268,701 |
|
|
|
138,832 |
|
|
Stock-based compensation |
|
4,661 |
|
|
|
4,807 |
|
|
|
9,817 |
|
|
|
8,264 |
|
|
Acquisition costs3 |
|
(2,835 |
) |
|
|
6,687 |
|
|
|
1,017 |
|
|
|
15,605 |
|
|
Business restructuring costs4 |
|
943 |
|
|
|
- |
|
|
|
20,627 |
|
|
|
- |
|
|
COVID-19 impact5 |
|
23 |
|
|
|
- |
|
|
|
23 |
|
|
|
- |
|
|
Adjusted EBITDA |
$ |
38,853 |
|
|
$ |
27,437 |
|
|
$ |
133,149 |
|
|
$ |
149,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA as a % of net sales |
|
2.7 |
% |
|
|
1.9 |
% |
|
|
4.2 |
% |
|
|
4.7 |
% |
____________________________________________________________
|
1 |
Three and six months ended March 31, 2020 amounts include tax benefits from deferred tax adjustments of $36.5 million related to the Rebranding and $33.3 million related to the impact of the recently announced CARES Act related to the COVID-19 pandemic that allows the Company to carry back net operating losses for five years and tax effects current year net losses at a 35% rate. |
|
2 |
Three and six months ended March 31, 2020 amounts include the impact of non-cash accelerated intangible asset amortization of $142.6 million related to the write-off of certain trade names in connection with the Rebranding. |
|
3 |
Includes selling, general, and administrative costs related to acquisitions (excluding the impact of tax). For the three and six months ended March 31, 2020, amounts are offset by a $5.3 million refund to be received as the final true-up of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the Allied Acquisition. Other items the Company classifies as acquisition costs are embedded within the other balances reported in the table. |
|
4 |
Six months ended March 31, 2020 amount is mainly composed of a loss on debt extinguishment of $14.7 million in connection with debt refinancing, as well as accrued estimated costs related to employee benefit plan withdrawals, costs stemming from headcount rationalization efforts, and certain Rebranding costs. Other items the Company classifies as business restructuring costs are embedded within the other balances reported in the table. |
|
5 |
Mainly composed of severance and other costs directly related to the Company’s response to the COVID-19 pandemic. Other items the Company classifies as part of the COVID-19 impact are embedded within the other balances reported in the table. |
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.
The impact of the COVID-19 pandemic may cause fluctuations in our financial results and working capital that are not aligned with the seasonality we generally experience.
30
Certain Quarterly Financial Data
The following table sets forth certain unaudited quarterly data for the first two quarters of 2020 and fiscal year 2019, 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):
|
|
2020 |
|
|
2019 |
|
||||||||||||||||||
|
|
Qtr 2 |
|
|
Qtr 1 |
|
|
Qtr 4 |
|
|
Qtr 3 |
|
|
Qtr 2 |
|
|
Qtr 1 |
|
||||||
|
Net sales |
$ |
1,458,486 |
|
|
$ |
1,675,112 |
|
|
$ |
2,029,913 |
|
|
$ |
1,924,534 |
|
|
$ |
1,429,037 |
|
|
$ |
1,721,676 |
|
|
% of fiscal year’s net sales |
n/m |
|
|
n/m |
|
|
|
28.6 |
% |
|
|
27.1 |
% |
|
|
20.1 |
% |
|
|
24.2 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
342,400 |
|
|
|
410,698 |
|
|
|
493,462 |
|
|
|
472,536 |
|
|
|
334,988 |
|
|
|
435,569 |
|
|
% of fiscal year’s gross profit |
n/m |
|
|
n/m |
|
|
|
28.4 |
% |
|
|
27.2 |
% |
|
|
19.3 |
% |
|
|
25.1 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
(180,961 |
) |
|
|
19,929 |
|
|
|
89,874 |
|
|
|
74,254 |
|
|
|
(54,630 |
) |
|
|
38,254 |
|
|
% of fiscal year’s income (loss) from operations |
n/m |
|
|
n/m |
|
|
|
60.8 |
% |
|
|
50.3 |
% |
|
|
(37.0 |
%) |
|
|
25.9 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
(122,640 |
) |
|
$ |
(23,410 |
) |
|
$ |
27,380 |
|
|
$ |
30,987 |
|
|
$ |
(68,086 |
) |
|
$ |
(893 |
) |
|
Dividends on Preferred Stock |
|
6,000 |
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
6,000 |
|
|
Net income (loss) attributable to common shareholders |
$ |
(128,640 |
) |
|
$ |
(29,410 |
) |
|
$ |
21,380 |
|
|
$ |
24,987 |
|
|
$ |
(74,086 |
) |
|
$ |
(6,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic |
$ |
(1.87 |
) |
|
$ |
(0.43 |
) |
|
$ |
0.27 |
|
|
$ |
0.32 |
|
|
$ |
(1.08 |
) |
|
$ |
(0.10 |
) |
|
Net income (loss) per share - diluted |
$ |
(1.87 |
) |
|
$ |
(0.43 |
) |
|
$ |
0.27 |
|
|
$ |
0.32 |
|
|
$ |
(1.08 |
) |
|
$ |
(0.10 |
) |
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 March 31, 2020 were our cash and cash equivalents of $781.2 million and our available borrowings of $197.5 million under our asset-based revolving credit facility. During March 2020, we elected to borrow an additional $725.0 million under our revolving credit facility as a proactive measure to increase our cash position and preserve financial flexibility in response to the current uncertainty in global markets resulting from the COVID-19 pandemic.
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 may explore additional or replacement financing sources in order to bolster liquidity and strengthen our capital structure.
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 may 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.
31
The following table summarizes our cash flows for the periods indicated (in thousands):
|
|
Six Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
Net cash provided by (used in) operating activities |
$ |
(150,824 |
) |
|
$ |
(242,144 |
) |
|
Net cash provided by (used in) investing activities |
|
(23,942 |
) |
|
|
(188,865 |
) |
|
Net cash provided by (used in) financing activities |
|
883,467 |
|
|
|
301,519 |
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
184 |
|
|
|
208 |
|
|
Net increase (decrease) in cash and cash equivalents |
$ |
708,885 |
|
|
$ |
(129,282 |
) |
Operating Activities
Net cash used in operating activities was $150.8 million in 2020, compared to $242.1 million in 2019. Cash from operations increased $91.3 million due to a incremental cash inflow of $81.2 million stemming from changes to our net working capital, mainly driven by decreases in inventory and prepaid expenses and other assets. In addition, there was an increase in net income after adjustments for non-cash items of $10.2 million.
Investing Activities
Net cash used in investing activities was $23.9 million in 2020, compared to $188.9 million in 2019. The $164.9 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 $883.5 million in 2020, compared to $301.5 million in 2019. The financing cash flow increase of $581.9 million was primarily due to a $596.3 million increase in net borrowings under our revolving lines of credit over the comparative periods, partially offset by an additional $13.3 million cash outflow in the current period related to the refinancing of our outstanding senior notes.
Capital Resources
As of March 31, 2020, 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 absent registration or an applicable exemption from the registration requirements of the Securities Act and other applicable securities laws.
On October 28, 2019, we used the net proceeds from the offering, together with cash on hand and available borrowings under the 2023 ABL (as defined below), to redeem all $300.0 million aggregate principal amount outstanding of the 2023 Senior Notes (as defined below) at a redemption price of 103.188% and to pay all related accrued interest, fees and expenses.
The intent of the transaction was to take advantage of lower market interest rates by refinancing the existing 2023 Senior Notes with the 2026 Senior Notes. We have accounted for the refinance as a debt extinguishment of the 2023 Senior Notes and an issuance of the 2026 Senior Notes. As a result, we recorded a loss on debt extinguishment of $14.7 million in the three months ended
32
December 31, 2019. We have capitalized debt issuance costs of $4.5 million related to the 2026 Senior Notes, which are being amortized over the term of the financing arrangements.
As of March 31, 2020, the outstanding balance on the 2026 Senior Notes, net of $4.2 million of unamortized debt issuance costs, was $295.8 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, which are being amortized over the term of the financing arrangements.
2023 ABL
On January 2, 2018, we entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2023 ABL consists of revolving loans in both the United States (“2023 U.S. Revolver”) in the amount of $1.20 billion and Canada (“2023 Canada Revolver”) in the amount of $100.0 million. The 2023 ABL has a maturity date of January 2, 2023. The 2023 ABL has various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The current unused commitment fees on the 2023 ABL are 0.25% per annum.
There is one financial covenant under the 2023 ABL, which is the Fixed Charge Coverage Ratio (the “FCCR”). The FCCR is calculated by dividing Consolidated EBITDA, less Capital Expenditures, by Consolidated Fixed Charges (all terms as defined in the agreement). Per the covenant, the Company’s FCCR must be a minimum of 1.00 at the end of each fiscal quarter, calculated on a trailing four quarter basis (or under certain circumstances, at the end of each fiscal month, calculated on a trailing twelve-month basis.) Compliance is only required at such times as borrowing availability (subject to certain adjustments) is less than the greater of (i) 10% of the lesser of the borrowing base or the aggregate commitments or (ii) $90.0 million, and for a period of thirty days thereafter. The Company was in compliance with this covenant as of March 31, 2020.
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 March 31, 2020, the total balance outstanding on the 2023 ABL, net of $6.9 million of unamortized debt issuance costs, was $1.00 billion. We also have outstanding standby letters of credit related to the 2023 U.S. Revolver in the amount of $13.0 million as of March 31, 2020.
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 January 2, 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 March 31, 2020, the outstanding balance on the 2025 Term Loan, net of $26.2 million of unamortized debt issuance costs, was $924.4 million.
2025 Senior Notes
On October 25, 2017, Beacon Escrow Corporation, our wholly owned subsidiary (the “Escrow Issuer”), completed a private offering of $1.30 billion aggregate principal amount of 4.875% Senior Notes due 2025 at an issue price of 100%. The 2025 Senior
33
Notes bear interest at a rate of 4.875% per annum, payable semi-annually in arrears, beginning May 1, 2018. We anticipate repaying the 2025 Senior Notes at the maturity date of November 1, 2025. Per the terms of the Escrow Agreement, the net proceeds from the 2025 Senior Notes remained in escrow until they were used to fund a portion of the purchase price of the Allied Acquisition payable at closing on January 2, 2018.
Upon closing of the Allied Acquisition on January 2, 2018, (i) the Escrow Issuer merged with and into us, and we assumed all obligations under the 2025 Senior Notes; and (ii) all our existing domestic subsidiaries (including the entities acquired in the Allied Acquisition) became guarantors of the 2025 Senior Notes.
As of March 31, 2020, the outstanding balance on the 2025 Senior Notes, net of $15.7 million of unamortized debt issuance costs, was $1.28 billion.
Financing - RSG Acquisition
2023 Senior Notes
On October 1, 2015, in connection with the acquisition of Roofing Supply Group, the Company raised $300.0 million by issuing 6.38% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes had a coupon rate of 6.38% per annum and were payable semi-annually in arrears, beginning April 1, 2016. There were early payment provisions in the indenture under which the Company would be subject to redemption premiums. On October 28, 2019, the Company redeemed all $300.0 million aggregate principal amount outstanding of the 2023 Senior Notes at a redemption price of 103.188% plus accrued interest and, as a result, wrote off $5.1 million of unamortized debt issuance costs.
Equipment Financing Facilities
As of March 31, 2020, we had $4.7 million outstanding under equipment financing facilities, with fixed interest rates ranging from 2.33% to 2.89% and payments due through September 2021.
34
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” contained herein, as well as those in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.
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Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
Our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of its 2019 Annual Report on Form 10-K have not changed materially during the three-month period ended March 31, 2020.
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Item 4. |
Controls and Procedures |
As of March 31, 2020, 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 March 31, 2020, 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.
There has been no change to our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II.OTHER INFORMATION
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Item 1A. |
Risk Factors |
Other than as set forth below, our risk factors disclosures set forth in Part I, Item 1A, “Risk Factors” of our 2019 Annual Report on Form 10-K have not changed materially during the three months ended March 31, 2020.
The impact of the COVID-19 pandemic, or similar global health concerns, could have a significant effect on supply and/or demand for our products and have a negative impact on our business operations and financial results.
A significant outbreak of epidemic, pandemic, or contagious diseases in the human population, including the COVID‑19 pandemic, could result in a widespread health crisis that could adversely affect global markets, resulting in an economic downturn that could affect the supply and/or demand for our products. Any quarantines, labor shortages or other disruptions to us, our suppliers, or our customers would likely adversely impact our sales and operating results. A prolonged economic downturn may result in reduced cash flows or a reduction to our market capitalization, triggering the potential need to recognize significant non-cash intangible asset impairment charges in our results of operations. It could also result in an adverse impact on the creditworthiness of our customers and the collectability of trade receivables, thereby affecting our liquidity. In addition, order lead times could be extended or delayed, and pricing could increase. Some products or services may become unavailable if the regional spread became significant enough to prevent alternative sourcing. We are unable to predict the potential future impact that the COVID‑19 pandemic, or another such virus or health concern, could have on the Company if the spread is unable to be contained.
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Item 6. |
Exhibits |
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Incorporated by Reference |
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10.1+ |
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Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock Plan |
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DEF 14A |
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Appendix A |
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January 9, 2020 |
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10.2*+ |
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10.3*+ |
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31.1* |
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Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) |
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Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) |
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101* |
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101.INS Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH Inline XBRL Taxonomy Extension Schema |
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101.CAL Inline XBRL Taxonomy Extension Calculation |
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101.PRE Inline XBRL Taxonomy Extension Presentation |
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101.LAB Inline XBRL Taxonomy Extension Labels |
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101.DEF Inline XBRL Taxonomy Extension Definition |
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104* |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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________________________________________________
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+ |
Management contract or compensatory plan/arrangement |
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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 (iXBRL) are attached as Exhibit 101 to this Quarterly Report on Form 10-Q: (i) the Consolidated Balance Sheets as of March 31, 2020; September 30, 2019; and March 31, 2019, (ii) the Consolidated Statements of Operations for the three and six months ended March 31, 2020 and 2019, (iii) the Consolidated Statements of Comprehensive Income for the three and six months
36
ended March 31, 2020 and 2019, (iv) the Consolidated Statements of Stockholders’ Equity for the three and six months ended March 31, 2020 and 2019, (v) the Consolidated Statements of Cash Flows for the six months ended March 31, 2020 and 2019, and (vi) the Notes to Condensed Consolidated Financial Statements.
37
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BEACON ROOFING SUPPLY, INC. |
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Date: May 8, 2020 |
BY: |
/s/ JOSEPH M. NOWICKI |
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Joseph M. Nowicki |
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Executive Vice President & Chief Financial Officer |
38
Exhibit 10.2
BEACON ROOFING SUPPLY, INC.
SECOND AMENDED AND RESTATED 2014 STOCK PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
(Settlement at Retirement)
Grant Information:
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Name: |
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Grant Date: |
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Amount (# Granted): |
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Vesting Schedule:
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Vesting Date1 |
Vesting Quantity |
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1 In the event the Grantee’s term as a Director ends prior to the Vesting Date as the result of not standing for re-election at an annual meeting of stockholders, the Vesting Date shall be deemed to be the date of such annual meeting.
A Restricted Stock Unit (RSU) Award (the “Award”) granted by Beacon Roofing Supply, Inc., a Delaware corporation (the “Company”), to the non-employee Director named above (the “Grantee”), relating to the common stock, par value $.01 per share (the “Common Stock”), of the Company, shall be subject to the following terms and conditions and the provisions of the Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock Plan (“Plan”), a copy of which is attached hereto and the terms of which are hereby incorporated by reference:
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1. |
Acceptance by Grantee |
The receipt of the Award is conditioned upon its acceptance by the Grantee no later than 30 days from the date the Agreement was delivered. If the Grantee shall fail to accept this Award by the due date, the Grantee’s Award shall be forfeited to the Company.
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2. |
Grant of RSUs |
The Company hereby grants to the Grantee the Award of RSUs, as set forth above. An RSU is the right, subject to the terms and conditions of the Plan and this Agreement, to receive a distribution of a share of Common Stock for each RSU as described in Section 6 of this Agreement.
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3. |
RSU Account |
The Company shall maintain an account (“RSU Account”) on its books in the name of the Grantee which shall reflect the number of RSUs awarded to the Grantee and any dividend equivalents paid to the Grantee as described in Section 4.
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4. |
Dividend Equivalents |
Upon the payment of any dividends on Common Stock occurring during the period preceding the date the RSUs are settled in Common Stock and distributed to the Grantee as described in Section 6, the Company shall credit the Grantee’s RSU Account with an amount equal in value to the dividends that the Grantee would have received had the Grantee been the actual owner of the
number of shares of Common Stock represented by the RSUs in the Grantee’s RSU Account on that date. Such amounts shall be paid to the Grantee in cash at the time and to the extent the RSUs are distributed to the Grantee. Any dividend equivalents relating to RSUs that are forfeited shall also be forfeited.
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5. |
Vesting |
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(a) |
Except as described in (b) and (c) below, the Grantee shall become vested in this Award as set forth above if the Grantee remains in continuous service on the Board until such date. |
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(b) |
If the Grantee’s service on the Board terminates prior to the Vesting Date due to death or disability, the Award shall become fully vested on such date. For this purpose “disability” means (as determined by the Committee in its sole discretion) the inability of the Grantee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which is expected to result in death or disability or which has lasted or can be expected to last for a continuous period of not less than 12 months. |
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(c) |
The Award shall be forfeited to the Company upon the Grantee’s termination of service on the Board for any reason other than the Grantee’s death or disability (as described above) that occurs prior to the Vesting Date. |
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6. |
Settlement of RSUs |
No later than 10 business days following the date of the Grantee’s termination of service on the Board, the Company shall distribute to the Grantee or the Grantee’s personal representative, beneficiary or estate, as applicable, (a) a number of shares of Common Stock equal to the number of vested RSUs subject to the Award and held in the Grantee’s RSU Account, and (b) a cash payment equal to the dividend equivalents credited to the Grantee’s RSU Account attributable to such vested RSUs.
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7. |
Change in Control |
Notwithstanding the foregoing provisions of the Agreement, upon a Change in Control of the Company, (a) the Grantee shall become vested in any then unvested Award and (b) the Company shall immediately distribute to the RSU Account to the Grantee as described in Section 6; provided, however, that if the Change in Control does not constitute a “change in control” as described in Treas. Reg. §1.409A-3(i)(5), then distribution of the RSU Account shall be deferred until the date of the Grantee’s termination of service on the Board.
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8. |
Rights as Stockholder |
The Grantee shall not be entitled to any of the rights of a stockholder of the Company with respect to the Award, including the right to vote and to receive dividends and other distributions, until and to the extent the Award is settled in shares of Common Stock.
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9. |
Award Not Transferable |
The Award may not be transferred other than by will or the applicable laws of descent or distribution or pursuant to a qualified domestic relations order. The Award shall not otherwise be assigned, transferred, or pledged for any purpose whatsoever and is not subject, in whole or in part, to attachment, execution or levy of any kind. Any attempted assignment, transfer, pledge, or encumbrance of the Award, other than in accordance with its terms, shall be void and of no effect.
Delivery of shares pursuant to Section 6 will be by book-entry credit to an account in the Grantee’s name established by the Company with the Company’s transfer agent; provided that the Company shall, upon written request from the Grantee (or the Grantee’s estate or personal representative, as the case may be), issue certificates in the name of the Grantee (or the Grantee’s estate or personal representative) representing such shares.
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11. |
Administration |
The Award shall be administered in accordance with such regulations as the Committee shall from time to time adopt.
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12. |
Governing Law |
This Agreement, and the Award, shall be construed, administered and governed in all respects under and by the laws of the State of Delaware.
By accepting this agreement, the Grantee agrees to be bound by the terms hereof.
BEACON ROOFING SUPPLY, INC.
Exhibit 10.3
BEACON ROOFING SUPPLY, INC.
SECOND AMENDED AND RESTATED 2014 STOCK PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
(Settlement at Vest)
Grant Information:
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Name: |
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Grant Date: |
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Amount (# Granted): |
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Vesting Schedule:
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Vesting Date1 |
Vesting Quantity |
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1 In the event the Grantee’s term as a Director ends prior to the Vesting Date as the result of not standing for re-election at an annual meeting of stockholders, the Vesting Date shall be deemed to be the date of such annual meeting.
A Restricted Stock Unit (RSU) Award (the “Award”) granted by Beacon Roofing Supply, Inc., a Delaware corporation (the “Company”), to the non-employee Director named above (the “Grantee”), relating to the common stock, par value $.01 per share (the “Common Stock”), of the Company, shall be subject to the following terms and conditions and the provisions of the Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock Plan (“Plan”), a copy of which is attached hereto and the terms of which are hereby incorporated by reference:
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1. |
Acceptance by Grantee |
The receipt of the Award is conditioned upon its acceptance by the Grantee no later than 30 days from the date the Agreement was delivered. If the Grantee shall fail to accept this Award by the due date, the Grantee’s Award shall be forfeited to the Company.
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2. |
Grant of RSUs |
The Company hereby grants to the Grantee the Award of RSUs, as set forth above. An RSU is the right, subject to the terms and conditions of the Plan and this Agreement, to receive a distribution of a share of Common Stock for each RSU as described in Section 6 of this Agreement.
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3. |
RSU Account |
The Company shall maintain an account (“RSU Account”) on its books in the name of the Grantee which shall reflect the number of RSUs awarded to the Grantee and any dividend equivalents paid to the Grantee as described in Section 4.
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4. |
Dividend Equivalents |
Upon the payment of any dividends on Common Stock occurring during the period preceding the date the RSUs are settled in Common Stock and distributed to the Grantee as described in Section 6, the Company shall credit the Grantee’s RSU Account with an amount equal in value to the dividends that the Grantee would have received had the Grantee been the actual owner of the
number of shares of Common Stock represented by the RSUs in the Grantee’s RSU Account on that date. Such amounts shall be paid to the Grantee in cash at the time and to the extent the RSUs are distributed to the Grantee. Any dividend equivalents relating to RSUs that are forfeited shall also be forfeited.
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5. |
Vesting |
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(a) |
Except as described in (b) and (c) below, the Grantee shall become vested in this Award as set forth above if the Grantee remains in continuous service on the Board until such date. |
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(b) |
If the Grantee’s service on the Board terminates prior to the Vesting Date due to death or disability, the Award shall become fully vested on such date. For this purpose “disability” means (as determined by the Committee in its sole discretion) the inability of the Grantee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which is expected to result in death or disability or which has lasted or can be expected to last for a continuous period of not less than 12 months. |
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(c) |
The Award shall be forfeited to the Company upon the Grantee’s termination of service on the Board for any reason other than the Grantee’s death or disability (as described above) that occurs prior to the Vesting Date. |
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6. |
Settlement of RSUs |
No later than 10 business days following the Vesting Date of this Grant, the Company shall distribute to the Grantee or the Grantee’s personal representative, beneficiary or estate, as applicable, (a) a number of shares of Common Stock equal to the number of vested RSUs subject to the Award and held in the Grantee’s RSU Account, and (b) a cash payment equal to the dividend equivalents credited to the Grantee’s RSU Account attributable to such vested RSUs.
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7. |
Change in Control |
Notwithstanding the foregoing provisions of the Agreement, upon a Change in Control of the Company, (a) the Grantee shall become vested in any then unvested Award and (b) the Company shall immediately distribute to the RSU Account to the Grantee as described in Section 6; provided, however, that if the Change in Control does not constitute a “change in control” as described in Treas. Reg. §1.409A-3(i)(5), then distribution of the RSU Account shall be deferred until the date of the Grantee’s termination of service on the Board.
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8. |
Rights as Stockholder |
The Grantee shall not be entitled to any of the rights of a stockholder of the Company with respect to the Award, including the right to vote and to receive dividends and other distributions, until and to the extent the Award is settled in shares of Common Stock.
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9. |
Award Not Transferable |
The Award may not be transferred other than by will or the applicable laws of descent or distribution or pursuant to a qualified domestic relations order. The Award shall not otherwise be assigned, transferred, or pledged for any purpose whatsoever and is not subject, in whole or in part, to attachment, execution or levy of any kind. Any attempted assignment, transfer, pledge, or encumbrance of the Award, other than in accordance with its terms, shall be void and of no effect.
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10. |
Share Delivery |
Delivery of shares pursuant to Section 6 will be by book-entry credit to an account in the Grantee’s name established by the Company with the Company’s transfer agent; provided that the Company shall, upon written request from the Grantee (or the Grantee’s estate or personal representative, as the case may be), issue certificates in the name of the Grantee (or the Grantee’s estate or personal representative) representing such shares.
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11. |
Administration |
The Award shall be administered in accordance with such regulations as the Committee shall from time to time adopt.
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12. |
Governing Law |
This Agreement, and the Award, shall be construed, administered and governed in all respects under and by the laws of the State of Delaware.
By accepting this agreement, the Grantee agrees to be bound by the terms hereof.
BEACON ROOFING SUPPLY, INC.
Exhibit 10.4
BEACON ROOFING SUPPLY, INC.
SECOND AMENDED AND RESTATED 2014 STOCK PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
(Performance-based Vesting)
Grant Information:
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Name: |
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Grant Date: |
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Target Amount: |
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Vesting Date1: |
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1 Actual vesting subject to additional provisions found in Section 5 and Section 6 of this agreement
A Restricted Stock Unit (RSU) Award (the “Award”) granted by Beacon Roofing Supply, Inc., a Delaware corporation (the “Company”), to the employee named above (the “Grantee”), relating to the common stock, par value $.01 per share (the “Common Stock”), of the Company, shall be subject to the following terms and conditions and the provisions of the Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock Plan (“Plan”), a copy of which is attached hereto and the terms of which are hereby incorporated by reference:
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1. |
Acceptance by Grantee |
The receipt of the Award is conditioned upon its acceptance by the Grantee no later than 30 days from the date the Agreement was delivered. If the Grantee shall fail to accept this Award by the due date, the Grantee’s Award shall be forfeited to the Company.
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2. |
Grant of RSUs |
The Company hereby grants to the Grantee the Award of RSUs, as set forth above. An RSU is the right, subject to the terms and conditions of the Plan and this Agreement, to receive a distribution of a share of Common Stock for each RSU as described in Section 7 of this Agreement. The Award shall vest in accordance with Section 5 of this Agreement and the vested award shall be adjusted in accordance with Section 6 of this Agreement.
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3. |
RSU Account |
The Company shall maintain an account (“RSU Account”) on its books in the name of the Grantee which shall reflect the number of RSUs awarded to the Grantee and any dividend equivalents paid to the Grantee as described in Section 4.
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4. |
Dividend Equivalents |
Upon the payment of any dividends on Common Stock occurring during the period preceding the date the RSUs are settled in Common Stock and distributed to the Grantee as described in Section 7, the Company shall credit the Grantee’s RSU Account with an amount equal in value to the dividends that the Grantee would have received had the Grantee been the actual owner of the number of shares of Common Stock represented by the RSUs in the Grantee’s RSU Account on that date. Such amounts shall be paid to the Grantee in cash at the time and to the extent the RSUs are distributed to the Grantee. Any dividend equivalents relating to RSUs that are forfeited shall also be forfeited.
(a) Except as described in (b), (c) and (d) below, the Grantee shall become vested in the Award on the third anniversary of the date of grant as set forth above (the “Vesting Date”) if the Grantee remains in continuous employment with the Company or its affiliates until such date.
(b) If the Grantee’s employment with the Company and its affiliates terminates prior to the Vesting Date due to death or disability, the Award shall become vested on the date of such termination of employment. For this purpose “disability” means (as determined by the Committee in its sole discretion) the inability of the Grantee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which is expected to result in death or disability or which has lasted or can be expected to last for a continuous period of not less than 12 months.
(c) If the Grantee’s employment with the Company and its affiliates terminates prior to the Vesting Date due to the Grantee’s retirement, the Award shall become vested on the Vesting Date (in which case the Award shall be adjusted as described in Section 6), or if earlier, the date of the Grantee’s death (in which case the Award shall not be adjusted as described in Section 6). For this purpose, “retirement” means termination of the Grantee’s employment for any reason other than cause (as determined by the Company in its sole discretion) on or after the Grantee’s attainment age of 65.
(d) The Award shall be forfeited to the Company upon the Grantee’s termination of employment with the Company and its affiliates for any reason other than the Grantee’s death, disability or retirement (as described above) that occurs prior to the Vesting Date.
The foregoing provisions of this Section 5 shall be subject to the provisions of any written employment security agreement or severance agreement that has been or may be executed by the Grantee and the Company, and the provisions in such employment security agreement or severance agreement concerning the lapse of restrictions of an Award in connection with the Grantee’s termination of employment shall supersede any inconsistent or contrary provision of this Section 5.
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6. |
Adjustment of RSUs |
The number of RSUs subject to the Award shall be adjusted by the Committee following the end of the three-year period that begins on ________, ____ and ends on ________, ____ based on the level of performance goal achievement as described in Exhibit A to this Agreement. Any Award that vests in accordance with Section 5(b) prior to the Vesting Date shall not be adjusted pursuant to this Section 6.
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7. |
Settlement of RSUs |
If a Grantee becomes vested in this Award in accordance with Section 5, the Company shall distribute to Grantee, or the Grantee’s personal representative, beneficiary or estate, as applicable, a number of shares of Common Stock equal to the number of vested RSUs subject to the Award, as adjusted in accordance with Section 6, if applicable. Such shares shall be delivered within 30 days following the date of vesting.
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8. |
Forfeiture of Award |
Except as described in Section 5(b) and (c), a Grantee’s Award shall be forfeited to the Company if the Grantee does not remain in continuous employment with the Company or its affiliates until the Vesting Date.
The Grantee shall pay to the Company an amount sufficient to satisfy all minimum Federal, state and local withholding tax requirements prior to the delivery of any certificate for shares. Payment of such taxes may be made by one or more of the following methods: (a) in cash, (b) in cash received from a broker-dealer to whom the Grantee has submitted irrevocable instructions to deliver the amount of tax to the Company from the proceeds of the sale of shares subject to the Award, (c) by directing the Company to withhold a number of shares otherwise issuable pursuant to the Award with a Fair Market Value equal to the tax required to be withheld, (d) by delivery to the Company of other Common Stock owned by the Grantee that is acceptable to the Company, valued at its Fair Market Value on the date of payment, or (e) by certifying to ownership by attestation of such previously owned Common Stock.
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10. |
Change in Control |
(a) In the event of a Change in Control, as defined in the Plan, unless the Award is continued or assumed by a public company in an equitable manner, the RSU shall become fully vested immediately prior to the Change in Control as if the performance criteria set forth in Exhibit A had been met at 100 percent. The Award shall settle in accordance with Section 7.
(b) If the Award is continued or assumed by a public company in an equitable manner, then the performance criteria set forth in Exhibit A shall be deemed to have been satisfied at 100 percent and the vesting of the Award shall be contingent only upon the Grantee’s employment through the end of the three year period set forth in Section 6 unless there is a Qualifying Termination within one-year following the Change in Control. If a Qualifying Termination occurs within one-year following the Change in Control, the Award shall become fully vested immediately and be settled in accordance with Section 7.
For purposes of this Section 10: (1)“Qualifying Termination” means the termination of a Grantee’s employment (a) by the employer for any reason other than Cause; or (b) by a Grantee who was an officer of the Company immediately prior to the Change in Control for Good Reason; (2) “Cause” means (unless otherwise expressly provided in the Grantee’s employment agreement) the termination of the Grantee’s employment following the occurrence of any one or more of the following: (a) the Grantee’s conviction of, or plea of guilty or nolo contendere to, a felony; (b) the Grantee’s willful and continual failure to substantially perform the Grantee’s duties after written notification; (c) the Grantee’s willful engagement in conduct that is materially injurious to the employer, monetarily or otherwise; (d) the Grantee’s commission of an act of gross misconduct in connection with the performance of the Grantee’s duties; or (e) the Grantee’s material breach of any employment, confidentiality, or other similar agreement with the employer that, if capable of cure, remains uncured 10 days after written notice thereof; (3) “Good Reason” means, without the Grantee’s consent, (a) a material reduction in the position, duties, or responsibilities of the Grantee from those in effect immediately prior to such change; (b) a
reduction in the Grantee’s base salary; (c) a relocation of the Grantee’s primary work location to a distance of more than 50 miles from its location as of immediately prior to such change; or (d) a material breach by the Grantee’s employer of any employment agreement between such employer and the Grantee provided, however, in all cases, a Grantee must give the Company written notice of the circumstances giving rise to the Good Reason event and thirty (30) days to cure such circumstance.
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11. |
Rights as Stockholder |
The Grantee shall not be entitled to any of the rights of a stockholder of the Company with respect to the Award, including the right to vote and to receive dividends and other distributions, until and to the extent the Award is settled in shares of Common Stock.
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12. |
Award Not Transferable |
The Award may not be transferred other than by will or the applicable laws of descent or distribution or pursuant to a qualified domestic relations order. The Award shall not otherwise be assigned, transferred, or pledged for any purpose whatsoever and is not subject, in whole or in part, to attachment, execution or levy of any kind. Any attempted assignment, transfer, pledge, or encumbrance of the Award, other than in accordance with its terms, shall be void and of no effect.
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13. |
Share Delivery |
Delivery of shares pursuant to Section 7 will be by book-entry credit to an account in the Grantee’s name established by the Company with the Company’s transfer agent; provided that the Company shall, upon written request from the Grantee (or the Grantee’s estate or personal representative, as the case may be), issue certificates in the name of the Grantee (or the Grantee’s estate or personal representative) representing such shares.
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14. |
Administration |
The Award shall be administered in accordance with such regulations as the Committee shall from time to time adopt.
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15. |
Governing Law |
This Agreement, and the Award, shall be construed, administered and governed in all respects under and by the laws of the State of Delaware.
By accepting this agreement, the Grantee agrees to be bound by the terms hereof.
BEACON ROOFING SUPPLY, INC.
Exhibit 10.5
BEACON ROOFING SUPPLY, INC.
SECOND AMENDED AND RESTATED 2014 STOCK PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
(Time-based Vesting)
Grant Information:
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Name: |
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Grant Date: |
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Amount (# Granted): |
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Vesting Schedule:
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Vesting Date |
Vesting Quantity |
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A Restricted Stock Unit (RSU) Award (the “Award”) granted by Beacon Roofing Supply, Inc., a Delaware corporation (the “Company”), to the employee named above (the “Grantee”), relating to the common stock, par value $.01 per share (the “Common Stock”), of the Company, shall be subject to the following terms and conditions and the provisions of the Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock Plan (“Plan”), a copy of which is attached hereto and the terms of which are hereby incorporated by reference:
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1. |
Acceptance by Grantee |
The receipt of the Award is conditioned upon its acceptance by the Grantee no later than 30 days from the date the Agreement was delivered. If the Grantee shall fail to accept this Award by the due date, the Grantee’s Award shall be forfeited to the Company.
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2. |
Grant of RSUs |
The Company hereby grants to the Grantee the Award of RSUs, as set forth above. An RSU is the right, subject to the terms and conditions of the Plan and this Agreement, to receive a distribution of a share of Common Stock for each RSU as described in Section 6 of this Agreement.
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3. |
RSU Account |
The Company shall maintain an account (“RSU Account”) on its books in the name of the Grantee which shall reflect the number of RSUs awarded to the Grantee and any dividend equivalents paid to the Grantee as described in Section 4.
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4. |
Dividend Equivalents |
Upon the payment of any dividends on Common Stock occurring during the period preceding the date the RSUs are settled in Common Stock and distributed to the Grantee as described in Section 6, the Company shall credit the Grantee’s RSU Account with an amount equal in value to the dividends that the Grantee would have received had the Grantee been the actual owner of the number of shares of Common Stock represented by the RSUs in the Grantee’s RSU Account on
that date. Such amounts shall be paid to the Grantee in cash at the time and to the extent the RSUs are distributed to the Grantee. Any dividend equivalents relating to RSUs that are forfeited shall also be forfeited.
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5. |
Vesting |
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(a) |
Except as described in (b) and (c) below, the Grantee shall become vested in this Award as set forth above (each date on which a portion of an Award vests is a “Vesting Date”), if the Grantee remains in continuous employment with the Company or its affiliates until such date. |
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(b) |
If the Grantee’s employment with the Company and its affiliates terminates prior to a Vesting Date due to death, disability or retirement, the then unvested portion of the Award shall become vested on the date of such termination of employment. For this purpose (i) “disability” means (as determined by the Committee in its sole discretion) the inability of the Grantee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which is expected to result in death or disability or which has lasted or can be expected to last for a continuous period of not less than 12 months and (ii) “retirement” means termination of the Grantee’s employment for any reason other than cause (as determined by the Company in its sole discretion) on or after the Grantee’s attainment age of 65. |
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(c) |
The then unvested portion of the Award shall be forfeited to the Company upon the Grantee’s termination of employment with the Company and its affiliates for any reason other than the Grantee’s death, disability or retirement (as described above) that occurs prior to a Vesting Date. |
The foregoing provisions of this Section 5 shall be subject to the provisions of any written employment security agreement or severance agreement that has been or may be executed by the Grantee and the Company, and the provisions in such employment security agreement or severance agreement concerning the lapse of restrictions of an Award in connection with the Grantee’s termination of employment shall supersede any inconsistent or contrary provision of this Section 5.
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6. |
Settlement of RSUs |
If a Grantee becomes vested in this Award (or portion thereof) in accordance with Section 5, the Company shall distribute to the Grantee, or the Grantee’s personal representative, beneficiary or estate, as applicable, a number of shares of Common Stock equal to the number of vested RSUs subject to the Award. Such shares shall be delivered within 30 days following a Vesting Date.
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7. |
Forfeiture of Award |
Except as described in Section 5(b), the then unvested portion of the Grantee’s Award shall be forfeited to the Company if the Grantee does not remain in continuous employment with the Company or its affiliates until the applicable Vesting Date.
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8. |
Withholding Taxes |
The Grantee shall pay to the Company an amount sufficient to satisfy all minimum Federal, state and local withholding tax requirements prior to the delivery of any certificate for shares. Payment of such taxes may be made by one or more of the following methods: (a) in cash, (b) in cash received from a broker-dealer to whom the Grantee has submitted irrevocable instructions to deliver the amount of tax to the Company from the proceeds of the sale of shares subject to the Award, (c) by directing the Company to withhold a number of shares otherwise issuable pursuant to the Award with a Fair Market Value equal to the tax required to be withheld, (d) by delivery to the Company of other Common Stock owned by the Grantee that is acceptable to the Company, valued
at its Fair Market Value on the date of payment, or (e) by certifying to ownership by attestation of such previously owned Common Stock.
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9. |
Change in Control |
(a) In the event of a Change in Control, as defined in the Plan, unless the Award is continued or assumed by a public company in an equitable manner, the RSU shall become fully vested immediately prior to the Change in Control as if the time vesting criterion set forth in Section 5(a) had been met. The Award shall settle in accordance with Section 6.
(b) If the Award is continued or assumed by a public company in an equitable manner, then the vesting of the Award shall be contingent only upon the Grantee’s employment through the applicable Vesting Date(s) unless there is a Qualifying Termination within one year following the Change in Control. If a Qualifying Termination occurs within one year following the Change in Control, the Award shall become fully vested immediately and be settled in accordance with Section 6.
(c) For purposes of this Section 10: (1) “Qualifying Termination” means the termination of a Grantee’s employment (a) by the employer for any reason other than Cause; or (b) by a Grantee who was an officer of the Company immediately prior to the Change in Control for Good Reason; (2) “Cause” means (unless otherwise expressly provided in the Grantee’s employment agreement) the termination of the Grantee’s employment following the occurrence of any one or more of the following: (a) the Grantee’s conviction of, or plea of guilty or nolo contendere to, a felony; (b) the Grantee’s willful and continual failure to substantially perform the Grantee’s duties after written notification; (c) the Grantee’s willful engagement in conduct that is materially injurious to the employer, monetarily or otherwise; (d) the Grantee’s commission of an act of gross misconduct in connection with the performance of the Grantee’s duties; or (e) the Grantee’s material breach of any employment, confidentiality, or other similar agreement with the employer that, if capable of cure, remains uncured 10 days after written notice thereof; (3) “Good Reason” means, without the Grantee’s consent, (a) a material reduction in the position, duties, or responsibilities of the Grantee from those in effect immediately prior to such change; (b) a reduction in the Grantee’s base salary; (c) a relocation of the Grantee’s primary work location to a distance of more than 50 miles from its location as of immediately prior to such change; or (d) a material breach by the Grantee’s employer of any employment agreement between such employer and the Grantee provided, however, in all cases, a Grantee must give the Company written notice of the circumstances giving rise to the Good Reason event and thirty (30) days to cure such circumstance.
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10. |
Rights as Stockholder |
The Grantee shall not be entitled to any of the rights of a stockholder of the Company with respect to the Award, including the right to vote and to receive dividends and other distributions, until and to the extent the Award is settled in shares of Common Stock.
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11. |
Award Not Transferable |
The Award may not be transferred other than by will or the applicable laws of descent or distribution or pursuant to a qualified domestic relations order. The Award shall not otherwise be assigned, transferred, or pledged for any purpose whatsoever and is not subject, in whole or in part, to attachment, execution or levy of any kind. Any attempted assignment, transfer, pledge, or encumbrance of the Award, other than in accordance with its terms, shall be void and of no effect.
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12. |
Share Delivery |
Delivery of shares pursuant to Section 6 will be by book-entry credit to an account in the Grantee’s name established by the Company with the Company’s transfer agent; provided that the Company shall, upon written request from the Grantee (or the Grantee’s estate or personal representative, as the case may be), issue certificates in the name of the Grantee (or the Grantee’s estate or personal representative) representing such shares.
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13. |
Administration |
The Award shall be administered in accordance with such regulations as the Committee shall from time to time adopt.
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14. |
Governing Law |
This Agreement, and the Award, shall be construed, administered and governed in all respects under and by the laws of the State of Delaware.
By accepting this agreement, the Grantee agrees to be bound by the terms hereof.
BEACON ROOFING SUPPLY, INC.
Exhibit 10.6
BEACON ROOFING SUPPLY, INC.
SECOND AMENDED AND RESTATED 2014 STOCK PLAN
STOCK OPTION AGREEMENT
Grant Information:
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Name: |
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Grant Date: |
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Type: |
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Exercise Price/Share: |
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Amount (# Granted): |
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Expiration Date: |
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Vesting Schedule:
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Vesting Date |
Vesting Quantity |
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A Stock Option (the “Option”) granted as of the date set forth above by Beacon Roofing Supply, Inc., a Delaware corporation (the “Company”), to the employee named above (the “Optionee”), for common stock, par value $.01 per share (the “Common Stock”), of the Company shall be subject to the following terms and conditions:
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1. |
Stock Option Grant |
Subject to the provisions set forth herein and the terms and conditions of the Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock Plan, (the “Plan”), a copy of which is attached hereto, and in consideration of the agreements of the Optionee herein provided, the Company hereby grants to the Optionee an Option to purchase from the Company the number of shares of Common Stock, at the purchase price per share, and on the schedule, set forth above. Any Incentive Stock Option is intended to be an incentive stock option within the meaning of Section 422A of the Internal Revenue Code of 1986.
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2. |
Acceptance by Optionee |
The exercise of the Option is conditioned upon its acceptance by the Optionee no later than 30 days from the date the Agreement was delivered. If the Optionee shall fail to accept this Option by the due date, the Optionee’s Option shall be forfeited to the Company.
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3. |
Exercise of Options |
Written notice of an election to exercise any portion of the Option shall be given by the Optionee, or the Optionee’s personal representative in the event of the Optionee’s death, in accordance with procedures established by the Compensation Committee of the Board of Directors of the Company (the “Committee”) as in effect at the time of such exercise.
At the time of exercise of the Option, payment of the purchase price for the shares of Common Stock with respect to which the Option is exercised must be made by one or more of the following methods: (i) in cash, or (ii) in cash received from a broker-dealer to whom the Optionee has submitted an exercise notice and irrevocable instructions to deliver the purchase price to the Company from the proceeds of the sale of shares subject to the Option.
If applicable, an amount sufficient to satisfy all minimum Federal, state and local withholding tax requirements prior to delivery of any certificate for shares of Common Stock must also accompany the exercise. Payment of such taxes can be made by a method specified above, and/or by directing the Company to withhold such number of shares of Common Stock otherwise issuable upon exercise of the Option with a fair market value equal to the amount of tax to be withheld.
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4. |
Exercise Upon Termination of Employment |
Except as set forth in Section 6 below, if the Optionee’s employment with the Company and all affiliates terminates for any reason other than death, disability or retirement, the then vested portion of the Option shall continue to be exercisable until the earlier of the 90th day after the date of the Optionee’s termination or the date the Option expires by its terms.
In the event of the Optionee’s death, disability or retirement during employment with the Company or any affiliate, the outstanding portion of the Option shall become fully vested on such date and shall continue to be exercisable until the earlier of the first anniversary of the date of the Optionee’s death, disability or retirement or the date the Option expires by its terms. For this purpose (i) “disability” means (as determined by the Committee in its sole discretion) the inability of the Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which is expected to result in death or disability or which has lasted or can be expected to last for a continuous period of not less than 12 months, and (ii) “retirement” means the Optionee’s termination from employment with the Company and all affiliates without cause (as determined by the Committee in its sole discretion) when the Optionee is 65 or older. (Full vesting of an Incentive Stock Option may result in all or part of the Option being treated as a Non-Qualified Stock Option in accordance with Section 5.4 of the Plan.)
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5. |
Option Not Transferable |
The Option may be exercised only by the Optionee and may not be transferred other than by will or the applicable laws of descent or distribution or pursuant to a qualified domestic relations order. The Option shall not otherwise be assigned, transferred, or pledged for any purpose whatsoever and is not subject, in whole or in part, to attachment, execution or levy of any kind. Any attempted assignment, transfer, pledge, or encumbrance of the Option, other than in accordance with its terms, shall be void and of no effect.
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6. |
Surrender of or Changes to Agreement |
In the event the Option shall be exercised in whole, this Agreement shall be surrendered to the Company for cancellation. In the event this Option shall be exercised in part, this Agreement shall be delivered by the Optionee to the Company for the purpose of making appropriate notation thereon, or of otherwise reflecting, in such manner as the Company shall determine, the change in the number of shares.
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7. |
Forfeiture of Options |
If an Optionee's employment with the Company or its subsidiaries terminates due to Cause, all of the Optionee's Options, including the vested and unvested portions, shall be forfeited as of the date of such termination. For purposes hereof, “Cause” shall mean: (a) conviction of a felony connected with Optionee’s employment with the Company or its subsidiaries, (b) misappropriation or theft of property of the Company or its subsidiaries, (c) gross negligence or willful misconduct in the
performance of employee's duties, (d) any act of fraud against the Company or its subsidiaries, and (e) any unauthorized dissemination of confidential information or trade or business secrets of the Company or its subsidiaries.
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8. |
Change in Control |
(a) In the event of a Change in Control, as defined in the Plan, unless the Grant is continued or assumed by a public company in an equitable manner, the Grant shall become fully vested and exercisable immediately prior to the Change in Control.
(b) If the Grant is continued or assumed by a public company in an equitable manner, then the Grant shall continue pursuant to its terms unless there is a Qualifying Termination within one-year following the Change in Control. If a Qualifying Termination occurs within one-year following the Change in Control, the Grant shall become fully vested and exercisable immediately.
(c) For purposes of this Section 8: (1) “Qualifying Termination” means the termination of a Grantee’s employment (a) by the employer for any reason other than Cause; or (b) by a Grantee who was an officer of the Company immediately prior to the Change in Control for Good Reason; (2) “Cause” means (unless otherwise expressly provided in the Grantee’s employment agreement) the termination of the Grantee’s employment following the occurrence of any one or more of the following: (a) the Grantee’s conviction of, or plea of guilty or nolo contendere to, a felony; (b) the Grantee’s willful and continual failure to substantially perform the Grantee’s duties after written notification; (c) the Grantee’s willful engagement in conduct that is materially injurious to the employer, monetarily or otherwise; (d) the Grantee’s commission of an act of gross misconduct in connection with the performance of the Grantee’s duties; or (e) the Grantee’s material breach of any employment, confidentiality, or other similar agreement with the employer that, if capable of cure, remains uncured 10 days after written notice thereof; (3) “Good Reason” means, without the Grantee’s consent, (a) a material reduction in the position, duties, or responsibilities of the Grantee from those in effect immediately prior to such change; (b) a reduction in the Grantee’s base salary; (c) a relocation of the Grantee’s primary work location to a distance of more than 50 miles from its location as of immediately prior to such change; or (d) a material breach by the Grantee’s employer of any employment agreement between such employer and the Grantee provided, however, in all cases, a Grantee must give the Company written notice of the circumstances giving rise to the Good Reason event and thirty (30) days to cure such circumstance.
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9. |
Administration |
The Option shall be exercised in accordance with such administrative regulations as the Committee shall from time to time adopt.
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10. |
Governing Law |
This Agreement, and the Option, shall be construed, administered and governed in all respects under and by the laws of the State of Delaware.
By accepting this agreement, the Optionee agrees to be bound by the terms hereof.
BEACON ROOFING SUPPLY, INC.
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Julian G. Francis, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Beacon Roofing Supply, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 8, 2020 |
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/s/ JULIAN G. FRANCIS |
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Julian G. Francis |
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President & Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph M. Nowicki, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Beacon Roofing Supply, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 8, 2020 |
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/s/ JOSEPH M. NOWICKI |
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Joseph M. Nowicki |
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Executive Vice President & Chief Financial Officer |
EXHIBIT 32.1
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the Quarterly Report on Form 10-Q of Beacon Roofing Supply, Inc. (the “Company”) for the period ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Julian G. Francis, as President & Chief Executive Officer of the Company, and Joseph M. Nowicki, as Executive Vice President & Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: May 8, 2020 |
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/s/ JULIAN G. FRANCIS |
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Julian G. Francis |
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President & Chief Executive Officer |
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/s/ JOSEPH M. NOWICKI |
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Joseph M. Nowicki |
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Executive Vice President & Chief Financial Officer |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by Section 906 has been provided to Beacon Roofing Supply, Inc. and will be retained by Beacon Roofing Supply, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.