UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 

 
FORM 10-Q
 
 

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended March 31, 2018
 
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: 001-38009
 
 
 
FOUNDATION BUILDING MATERIALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
81-4259606
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2741 Walnut Avenue, Suite 200
 
 
Tustin, CA
 
92780
(Address of principal executive offices)
 
(Zip Code)
 
(714) 380-3127
 
 
(Registrant’s telephone number, including area code)
 
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   ý     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   ý     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 definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ☐
 
Accelerated filer ☐
 
 
 
Non-accelerated filer ý
 
Smaller reporting company ☐
 
 
 
(Do not check if smaller reporting company)
 
Emerging growth company ☐

If an emerging growth company, indicate by check 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 ý
 
As of May 4, 2018, the number of shares outstanding of the registrant’s common stock, $0.001 par value, was 42,893,585.


 
 




FOUNDATION BUILDING MATERIALS, INC.

Table of Contents
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 




Part I. Financial Information

Item 1. Financial Statements

FOUNDATION BUILDING MATERIALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
 
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
8,645

 
$
12,101

Accounts receivable—net of allowance for doubtful accounts of $4,870 and $4,651, respectively
312,787

 
280,023

Other receivables
53,191

 
59,462

Inventories
192,934

 
184,436

Prepaid expenses and other current assets
11,327

 
12,636

Total current assets
578,884

 
548,658

Property and equipment, net
152,306

 
151,408

Intangible assets, net
181,856

 
189,770

Goodwill
466,614

 
458,737

Other assets
5,352

 
5,604

Total assets
$
1,385,012

 
$
1,354,177

Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
158,475

 
$
156,345

Accrued payroll and employee benefits
20,902

 
21,158

Accrued taxes
11,081

 
7,790

Tax receivable agreement
15,892

 
15,892

Other current liabilities
27,405

 
41,093

Total current liabilities
233,755

 
242,278

Asset-based revolving credit facility
89,878

 
47,486

Long-term portion of notes payable, net
536,748

 
534,379

Tax receivable agreement
119,912

 
119,912

Deferred income taxes, net
16,646

 
17,819

Other liabilities
11,264

 
13,639

Total liabilities
1,008,203

 
975,513

Commitments and contingencies

 

 
 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $0.001 par value, authorized 10,000,000 shares; 0 shares issued
—

 
—

Common stock, $0.001 par value, authorized 190,000,000 shares; 42,891,252 and 42,865,407 shares issued, respectively
13

 
13

     Additional paid-in capital
330,339

 
330,113

     Retained earnings
45,311

 
46,184

     Accumulated other comprehensive income
1,146

 
2,354

          Total stockholders' equity
376,809

 
378,664

Total liabilities and stockholders' equity
$
1,385,012

 
$
1,354,177


See accompanying notes to condensed consolidated financial statements (unaudited).


1




FOUNDATION BUILDING MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (Unaudited)
(in thousands, except share and per share data)

 
Three Months Ended March 31,
 
2018
 
2017
Net sales
$
536,297

 
$
479,457

Cost of goods sold
381,857

 
339,546

Gross profit
154,440

 
139,911

Operating expenses:

 

Selling, general and administrative
121,427

 
113,062

Depreciation and amortization
19,886

 
18,396

Total operating expenses
141,313

 
131,458

Income from operations
13,127

 
8,453

Interest expense
(15,132
)
 
(15,249
)
Other income, net
67

 
13,289

(Loss) income before income taxes
(1,938
)
 
6,493

Income tax (benefit) expense
(885
)
 
2,564

Net (loss) income
$
(1,053
)
 
$
3,929

 
 
 
 
(Loss) earnings per share data:
 
 
 
Basic
$
(0.02
)
 
$
0.11

Diluted
$
(0.02
)
 
$
0.11

Weighted average shares outstanding:
 
 
 
Basic
42,879,874

 
37,273,156

Diluted
42,879,874

 
37,273,156

 
 
 
 
Comprehensive (loss) income:
 
 
 
Net (loss) income
$
(1,053
)
 
$
3,929

     Foreign currency translation adjustment
(2,371
)
 
573

     Unrealized gain (loss) on derivative, net of taxes of $0.5 million
and $0.3 million, respectively.
1,163

 
(461
)
Total other comprehensive (loss) income
(1,208
)
 
112

Total comprehensive (loss) income
$
(2,261
)
 
$
4,041



See accompanying notes to condensed consolidated financial statements (unaudited).



2




FOUNDATION BUILDING MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
Three Months Ended March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(1,053
)
 
$
3,929

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
     Depreciation
7,970

 
7,131

     Amortization of intangible assets
11,916

 
11,265

     Amortization of debt issuance costs and debt discount
2,624

 
2,399

     Inventory fair value purchase accounting adjustment
407

 
71

     Provision for doubtful accounts
551

 
135

     Stock-based compensation
271

 
1,553

     Unrealized gain on derivative instruments, net
(74
)
 
(13,219
)
     Loss on disposal of property and equipment
13

 
152

     Deferred income taxes
(1,614
)
 
2,543

     Change in assets and liabilities, net of effects of acquisitions:
 
 
 
          Accounts receivable
(31,221
)
 
(11,273
)
          Other receivables
6,278

 
12,595

          Inventories
(6,129
)
 
(2,137
)
          Prepaid expenses and other current assets
1,423

 
787

          Other assets
36

 
158

          Accounts payable
2,423

 
8,249

          Accrued payroll and employee benefits
(202
)
 
(7,793
)
          Accrued taxes
3,301

 
(238
)
          Other liabilities
(13,461
)
 
(15,424
)
Net cash (used in) provided by operating activities
(16,541
)
 
883

Cash flows from investing activities:
 
 
 
     Purchases of property and equipment
(7,594
)
 
(7,572
)
     Payment of net working capital adjustments
(15
)
 
—

     Proceeds from net working capital adjustments
178

 
—

     Proceeds from the disposal of fixed assets
200

 
98

     Acquisitions, net of cash acquired
(21,233
)
 
(13,195
)
Net cash used in investing activities
(28,464
)
 
(20,669
)
Cash flows from financing activities:
 
 
 
     Proceeds from asset-based revolving credit facility
131,224

 
114,500

     Repayments of asset-based revolving credit facility
(88,724
)
 
(281,032
)
     Tax withholding payment related to net settlement of equity awards
(45
)
 
—

     Principal repayment of capital lease obligations
(745
)
 
(691
)
     Issuance of common stock
—

 
164,189

     Capital contributions
—

 
2,997

Net cash provided by (used in) financing activities
41,710

 
(37
)
Effect of exchange rate changes on cash
(161
)
 
64

Net decrease in cash
(3,456
)
 
(19,759
)
Cash and cash equivalents at beginning of period
12,101

 
28,552



3




Cash and cash equivalents at end of period
$
8,645

 
$
8,793


 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
—

 
$
39

Cash paid during the period for interest
$
24,201

 
$
25,308

Supplemental disclosures of non-cash investing and financing activities:
 
 
 
Change in fair value of derivatives, net of tax
$
1,163

 
$
461

Assets acquired under capital lease
$
—

 
$
378

Goodwill adjustment for purchase price allocation
$
202

 
$
723

Tax receivable agreement
$
—

 
$
203,837



See accompanying notes to condensed consolidated financial statements (unaudited).



4
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 


1. Business and Basis of Presentation

Business
    
Foundation Building Materials, Inc. (the "Company") is a specialty distributor of wallboard, suspended ceiling systems, and mechanical insulation throughout the U.S. and Canada. Based in Tustin, California, the Company employs more than 3,700 people and operates more than 220 branches across the U.S. and Canada.

Organization

The Company was formed on October 27, 2016 (inception). The initial stockholder of the Company was LSF9 Cypress Parent 2 LLC ("Parent 2") which held all of the Company's authorized, issued and outstanding shares of common stock.

Reorganization

On February 8, 2017, FBM Alpha LLC, (formerly known as LSF9 Cypress Parent, LLC) ("Alpha"), transferred its wholly owned direct subsidiary, Foundation Building Materials Holding Company LLC (formerly known as FBM Beta LLC and LSF9 Cypress Holdings, LLC) ("Holdco"), and indirectly FBM Finance, Inc. to the Company, thereby transferring the business for which historical financial information is included in these results of operations, to be indirectly held by the Company (the "Reorganization").

Initial Public Offering

Following the Reorganization, on February 15, 2017 , the Company completed an initial public offering ("IPO") in which it issued 12,800,000 shares of common stock at a public offering price of $14.00 per share. The common stock began trading on the New York Stock Exchange on February 10, 2017 under the ticker symbol "FBM." After underwriting discounts and commissions and expenses, the net proceeds to the Company from the IPO were approximately $164.0 million . The Company used these net proceeds to repay borrowings outstanding under its asset-based revolving credit facility (the "ABL Credit Facility"). The proceeds of $164.0 million were recorded in equity, with approximately $13,000 recorded for the par value of the common stock and the remaining amount recorded in additional paid-in capital. The underwriters exercised their option to purchase an additional 1,920,000 shares of common stock from Parent 2 and those shares were purchased on February 24, 2017 . The Company did not receive any proceeds from the sale of shares by Parent 2.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation with respect to the interim financial statements, have been included. The results of operations for interim periods are not necessarily indicative of the results for full fiscal years. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2018 (the "2017 10-K").

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated. The Company has two reportable segments, Specialty Building Products ("SBP") and Mechanical Insulation ("MI"). Resources are allocated and performance is assessed by the Company's CEO, who is the Chief Operating Decision Maker ("CODM").     








5
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

2. Recently Issued Accounting Standards

Recently Adopted Accounting Standards

On January 1, 2018, the Company adopted new revenue recognition guidance, Accounting Standard Codification ("ASC") 606, Revenue from Contracts with Customers and all related amendments, using the modified retrospective method. The Company has completed its evaluation of the impact of this standard and has concluded that it did not have a material impact on its consolidated financial statements.
Revenue Recognition - Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration expected to be received in exchange for those products. The applicable shipping and handling costs invoiced to the customer are included in "Selling, general and administrative" expenses in the accompanying consolidated statements of operations. All revenue recognized is net of sales taxes collected, which are subsequently remitted to the appropriate government authorities.

Performance Obligations - The performance obligation for product sales is met at a point in time, when the product is delivered and control is transferred to the customer. At inception of a contract with a customer, the price and quantity of goods are fixed. However, the Company offers discounts on terms and rebate incentives to select customers. The Company also gives customers the right to return eligible products.
Disaggregation of Revenue - Refer to Note 12, Segments, for further information, including revenue by segment by product and geography.
Contract Balances - The Company currently discloses its accounts receivable balances on the balance sheet. The Company does not have any contract assets due to the election of the practical expedient in Financial Accounting Standards Board ("FASB") ASC 340-40-25-4, which states an entity may recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. The Company does not have any material contract liabilities.

The Company is also required to disclose revenue recognized in the reporting period from performance obligations satisfied in previous reporting periods. This guidance is consistent with existing guidance related to changes in accounting estimates. The Company will continue to monitor changes in estimates related to sales returns, customer discounts and customer rebates and will disclose them if material.
Significant Judgments - The Company calculates the allowance for sales returns, early pay discounts and customer rebates using the expected value method and believes its current methodology properly constrains revenue. The Company does not believe that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is resolved.

Practical Expedients - In addition to the aforementioned practical expedient, the Company has elected the practical expedient as allowed by ASC 606-10-32-18, which states that an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers promised goods or services to a customer and when the customer pays for those goods or services will be one year or less.

In January 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-01,  Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities . The updated guidance enhances the reporting model for financial instruments by modifying how entities measure and recognize equity investments and present changes in the fair value of financial liabilities, and by simplifying the disclosure guidance for financial instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2017. The amendments in this update should be applied prospectively. The Company adopted this guidance on January 1, 2018, and it did not have a material impact on the Company’s consolidated financial statements.



6
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU No. 2016-15 amended the existing accounting standards for the statement of cash flows. The amendments provide guidance on eight classification issues related to the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this guidance on January 1, 2018, and it did not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business , which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this guidance on January 1, 2018, and it did not have a material impact on the Company’s consolidated financial statements.

On January 1, 2018, the Company adopted ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. As a result of income tax effects of the Tax Cut and Jobs Act (the “Tax Act”), which reduced the corporate federal tax rate from 35.0% to 21.0%, the Company reclassified $0.2 million from accumulated other comprehensive income to retained earnings related to its net investment hedge.

Recently Issued Accounting Standards

In February 2016 , the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either "finance" or "operating," with classification affecting the pattern of expense recognition in the income statement. This update requires a modified retrospective transition as of the beginning of the earliest comparative period presented in the financial statements. This update is effective for fiscal years beginning after December 15, 2018 , and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements; however, it does expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which eliminates the requirement to calculate the implied fair value of goodwill but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial statements.

3. Derivatives and Hedging Activities

The Company uses derivatives to manage selected foreign exchange exposures for its investments in foreign subsidiaries. In general, the types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates and interest rates. The Company documents its risk management strategy and hedge effectiveness at the inception of and during the term of each hedge.

Net Investment Hedge

As of March 31, 2018 , and December 31, 2017, the amount of notional foreign exchange contracts outstanding was approximately $88.0 million. There is no significant credit risk associated with the potential failure of any counterparty to perform under the terms of any derivative financial instrument.
The net investment hedge is measured at fair value within the consolidated balance sheet either as an asset or a liability. At March 31, 2018 and December 31, 2017, the fair value of the derivative instrument was $0.5 million and $2.4 million , respectively, recorded in other long-term liabilities.



7
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

The Company recognized a gain of $1.2 million, net of taxes of $0.6 million , for the three months ended March 31, 2018, recorded in other comprehensive (loss) income related to the net investment hedge. The Company recognized a gain of $0.5 million , net of taxes of $0.3 million , for the three months ended March 31, 2017, recorded in other comprehensive (loss) income related to the net investment hedge.

The Company recorded a gain of $19,000 for the three months ended March 31, 2018, in other income, net, related to the ineffective portion of the net investment hedge. The Company recorded a loss of $67,000 for the three months ended March 31, 2017, in other income, net, related to the ineffective portion of the net investment hedge.

Embedded Derivative

The Company has the option to prepay its $575.0 million Senior Secured Notes due 2021 (the "Notes") at any time prior to August 15, 2018 at a price equal to 100% of the principal amount, plus the applicable premium and any accrued and unpaid interest.
In addition, prior to August 15, 2018 and in the event of equity offerings, the Company has the option to prepay up to 40% of the Notes using the proceeds from such offering within 180 days from closing of the offering. However, 50% of the principal needs to remain outstanding. The redemption price is determined at 108.25% of the principal amount plus accrued and unpaid interest.

On or after August 15, 2018, the Company may redeem the Notes subject to a redemption price equal to a percentage of the principal amount of the Notes, with such percentage set forth in the indenture governing the Notes, plus accrued and unpaid interest.

The optional prepayment subsequent to an equity offering constitutes an embedded derivative and is bifurcated from the debt host and accounted for separately. The embedded derivative is recorded at fair value at inception and on an ongoing basis, with any changes in fair value from inception recorded in earnings. The fair value of the embedded derivative at March 31, 2018, and December 31, 2017 was $0 , due to a minimal probability of an equity offering occurring where the proceeds are used to pay down the Notes prior to the expiration of the optional prepayment time period on August 15, 2018.

For the three months ended March 31, 2018, the change in fair value was $0 . For the three months ended March 31, 2017, the change in fair value of $13.2 million was included in other income, net.     

4. Acquisitions

The Company accounts for its acquisitions under the acquisition method, and accordingly, the results of operations of acquired entities are included in the Company’s consolidated financial statements from the acquisition date. Acquisition related costs are expensed as incurred. The purchase price is allocated to the assets acquired based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. Purchase accounting adjustments associated with the intangible asset valuations have been recorded as of March 31, 2018. The fair value of acquired intangible assets, primarily related to customer relationships, was estimated by applying a discounted cash flow model. That measure is based on significant Level 3 inputs not observable in the market. Key assumptions were developed based on the Company’s historical experience, future projections and comparable market data including future cash flows, long-term growth rates, implied royalty rates, attrition rates and discount rates. The purchase price allocations for the acquisitions set forth below are preliminary and subject to adjustment as additional information is obtained about facts and circumstances that existed as of the applicable acquisition date.

    











8
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

During the three months ended March 31, 2018, the Company completed the following two acquisitions:

ArmCom Distributing Company

On February 1, 2018, the Company acquired the operations and substantially all of the assets of ArmCom Distributing Company ("ArmCom"), a division of St. Paul Linoleum and Carpet Company. ArmCom was an independent distributor of ceilings products and operated five branches in Minnesota, North Dakota, South Dakota and Nebraska.

RM Supply

On February 1, 2018, the Company acquired all of the stock of RM Supply, Inc. and certain assets of JMB Transportation, L.L.C. (collectively, “RM Supply”). RM Supply was an independent distributor of wallboard, steel framing, insulation, and wallboard accessories. RM Supply operated two branches in Missouri.

During the three months ended March 31, 2018, the Company completed the above acquisitions for an aggregate purchase price of $21.9 million . These acquisitions are not considered material, individually or in aggregate. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date for the acquisitions summarized above ("2018 acquisitions") (in thousands):
 
 
Three Months Ended March 31, 2018
Assets acquired:
 
 
     Cash
 
$
671

     Accounts receivable
 
3,320

     Other receivables
 
448

     Inventories
 
3,390

     Prepaid and other current assets
 
146

     Property and equipment
 
1,984

     Goodwill
 
8,573

     Intangible assets
 
4,200

     Other assets
 
50

          Total assets acquired:
 
22,782

Liabilities assumed:
 
 
     Accounts payable
 
(530
)
     Accrued expenses and other current liabilities
 
(348
)
          Total liabilities assumed
 
(878
)
Total net assets acquired
 
$
21,904


The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisitions. Goodwill attributable to the acquisitions has been recorded as a non-current asset and is not amortized, but is subject to review at least on an annual basis for impairment. Goodwill recognized was primarily attributable to expected operating efficiencies and expansion opportunities in the businesses acquired. Goodwill and intangible assets recognized from asset acquisitions are expected to be tax deductible. One of the 2018 acquisitions was treated as an asset purchase and the other as a stock purchase for tax purposes. Generally, the most significant intangible asset acquired is customer relationships. The Company's acquisitions are generally subject to working capital adjustments, however, the Company does not expect any such adjustments to have a material impact on its consolidated financial statements. Any adjustments to the purchase price allocation of these acquisitions will be made as soon as practicable but no later than one year from the acquisition date. The pro forma impact of the 2018 acquisitions is not presented as the 2018 acquisitions are not considered material to the Company's consolidated financial statements.





9
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

5. Goodwill and Intangible Assets

The change in goodwill from December 31, 2017, to March 31, 2018, consisted of the following (in thousands):
    
 
Carrying Value
Balance at December 31, 2017
$
458,737

   Goodwill acquired
8,573

   Purchase price allocation adjustments
39

   Impact of foreign exchange rates
(735
)
Balance at March 31, 2018
$
466,614


As of March 31, 2018, goodwill allocated to the SBP and MI segments was $460.7 million and $5.9 million , respectively. As of December 31, 2017, goodwill allocated to the SBP and MI segments was $452.8 million and $5.9 million , respectively. Changes to initial purchase price allocations related to acquisitions may arise from changes in estimates from conditions that existed at the applicable acquisition date and as a result of net working capital adjustments.

Identifiable intangible assets that are separable and have determinable useful lives are valued separately and amortized over their benefit period. The following is the gross carrying value and accumulated amortization of the Company’s identifiable intangible assets as of March 31, 2018, and December 31, 2017 (in thousands):

 
March 31, 2018
 
December 31, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Trade names
$
15,980

 
$
(8,068
)
 
$
7,912

 
$
15,980

 
$
(7,283
)
 
$
8,697

Customer relationships
260,564

 
(89,413
)
 
171,151

 
256,650

 
(78,406
)
 
178,244

Other intangible assets
3,649

 
(856
)
 
2,793

 
3,640

 
(811
)
 
2,829

 
$
280,193

 
$
(98,337
)
 
$
181,856

 
$
276,270

 
$
(86,500
)
 
$
189,770


The weighted average amortization period of these intangible assets in the aggregate is 4.3 years .

6. Long-Term Debt

(in thousands)
March 31, 2018
 
December 31, 2017
Senior secured notes
$
575,000

 
$
575,000

Unamortized debt issuance costs - senior secured notes
(38,252
)
 
(40,621
)
Revolving asset-based credit facility
89,878

 
47,486

Unamortized debt issuance costs - asset-based revolving credit facility
(2,910
)
 
(3,164
)
 
$
623,716

 
$
578,701

Senior Secured Notes Due 2021
On August 9, 2016, the Company, together with FBM Finance, its wholly owned subsidiary which was created for the purpose of issuing the Notes (together, the "Issuers"), issued $575 million in aggregate principal amount of 8.25% senior secured notes due 2021 at an issue price of 100% of the principal amount of the Notes in a private placement.
The Notes are fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by Alpha and each of Alpha's domestic wholly owned restricted subsidiaries (other than certain excluded subsidiaries) (the "Guarantors"). The Notes are senior secured obligations that have priority over certain collateral of the Issuers and the Guarantors of the Notes and are effectively subordinated to the obligations under the ABL Credit Facility in respect of certain other collateral of the Issuers and the Guarantors of the Notes.


10
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

The Notes will mature on August 15, 2021, and bear interest at an annual rate of 8.25% . Interest on the Notes is payable semi-annually in arrears in February and August of each year. The Notes are governed by an indenture, dated August 9, 2016, among the Issuers, the Guarantors and Wilmington Trust, National Association, as trustee (the "Indenture").

Before August 15, 2018, the Issuers may redeem all or a portion of the Notes, at a redemption price equal to 100% of the principal amount thereof, plus an applicable premium and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, prior to August 15, 2018 and in the event of equity offerings, the Issuers are entitled to redeem up to 40% of the aggregate principal amount of the Notes at a redemption price equal to 108.25% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. The Issuers may, at their option, redeem all or a portion of the Notes at any time on or after August 15, 2018, at the applicable redemption prices specified in the Indenture, plus any accrued and unpaid interest to, but excluding, the applicable redemption date.

Upon certain kinds of changes of control, holders of the Notes have the right to require the Issuers to repurchase all or any portion of such holder’s Notes at 101% of the principal amount of the Notes being repurchased, plus any accrued and unpaid interest to, but excluding, the date of repurchase.

ABL Credit Facility

On August 9, 2016, Holdco as the initial borrower along with Alpha and additional U.S. and Canadian borrowers entered into the ABL Credit Facility with Goldman Sachs Bank USA as administrative agent, which matures on February 9, 2021. The ABL Credit Facility bears interest, at the applicable borrower's option, at either a Eurodollar rate or an alternate base rate plus an applicable margin. Based on the historical excess availability under the ABL Credit Facility, the margin can range from 1.25% to 1.75%  per annum in the case of Eurodollar rate loans and 0.25% to 0.75%  per annum in the case of alternate base rate loans. The available borrowing capacity, or borrowing base, is derived from a percentage of the borrowers' eligible receivables and inventory in both the United States and Canada, as defined in the ABL Credit Facility, subject to certain reserves, with a $75 million sub-limit on the Canadian borrowing base. As of the closing of the ABL Credit Facility, the available borrowing capacity was $250 million . A variable commitment fee, ranging from 0.25% to 0.375% and currently 0.25%  per annum, is charged on the unused amount of the ABL Credit Facility based on quarterly average loan utilization. Letters of credit under the ABL Credit Facility are assessed at a rate equal to the applicable Eurodollar margin currently 1.50% as well as a fronting fee at a rate of 0.125%  per annum.

These fees are payable quarterly in arrears at the end of March, June, September, and December. In addition, an administrative agent fee of $75,000 for the ABL Credit Facility is due and payable each year in quarterly installments on the last day of each quarter. The ABL Credit Facility is a senior secured obligation of Alpha, Holdco, and the borrowers, with priority over certain collateral of the Company and its subsidiaries. There are no prepayment premiums associated with the ABL Credit Facility.

On September 23, 2016, Alpha, Holdco and the additional U.S. and Canadian borrowers entered into an Incremental Facility Amendment to the ABL Credit Facility which extended borrowing commitments under the ABL Credit Facility by an additional $50 million , resulting in total borrowing capacity of $300 million .

As of March 31, 2018, the Company had $89.9 million of outstanding borrowings and $210.1 million of available aggregate undrawn borrowing capacity under the ABL Credit Facility. The weighted average interest rate for borrowings under the ABL Credit Facility for the three months ended March 31, 2018 was 3.1% .

7. Tax Receivable Agreement Liability

In connection with the IPO, the Company entered into a tax receivable agreement ("TRA") with Parent 2 that provides for the payment by the Company to Parent 2 of 90% of the amount of cash savings, if any, in U.S. federal, state, local and non-U.S. income tax that the Company realizes (or in some circumstances are deemed to realize) as a result of the utilization of the Company and the Company’s subsidiaries’ (i) depreciation and amortization deductions, and any offset to taxable income and gain or increase to taxable loss, resulting from the tax basis the Company has in its assets at the consummation of the IPO, (ii) net operating losses, (iii) tax credits and (iv) certain other tax attributes. During the three months ended March 31, 2017, the Company recorded a liability of $203.8 million , with a corresponding offset to additional paid-in capital for the TRA. At the end of each reporting period, any changes in the Company's estimate of the liability are recorded in the consolidated statement of operations as a component of other income (expense). The timing and amount of future tax benefits associated with the TRA are subject to change, and future payments may be required which could be materially different from the current estimated liability. The TRA will remain in effect until all tax benefits have been used or expired, unless the agreement is terminated early.


11
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

At March 31, 2018, and December 31, 2017, the TRA liability balance was $135.8 million . There have been no payments related to the TRA from inception to March 31, 2018. The first payment related to the TRA is anticipated to be made during the fourth quarter of 2018 and is estimated to be $15.9 million and was reflected as a current liability as of March 31, 2018 and December 31, 2017.

8. Accumulated Other Comprehensive Income

Accumulated other comprehensive income consists of cumulative unrealized foreign currency translation adjustments and unrealized changes in fair value on certain derivative instruments. During the three months ended March 31, 2018, $0.2 million was reclassified to retained earnings as a result of income tax effects of the Tax Act, which reduced the corporate federal tax rate from 35.0% to 21.0%. During the three months ended March 31, 2017, there were no reclassifications out of accumulated other comprehensive income.
The components of accumulated other comprehensive income for the three months ended March 31, 2018 were as follows (in thousands):
 
Cumulative unrealized foreign currency translation gain (loss)
 
Unrealized (loss) gain on derivative, net of tax
 
Total
Balance at December 31, 2017
$
3,863

 
$
(1,509
)
 
$
2,354

Other comprehensive (loss) income
(2,371
)
 
1,163

 
(1,208
)
Balance at March 31, 2018
$
1,492

 
$
(346
)
 
$
1,146


9. Contingencies

The Company is involved in certain legal actions arising in the ordinary course of business. Management believes that such litigation and claims will be resolved without material effect on the Company’s consolidated financial position.

The Company regularly assesses such matters to determine the degree of probability that the Company will incur a material loss as a result of such matters as well as the range of possible loss. An estimated loss contingency is accrued in the Company’s financial statements if it is probable the Company will incur a loss and the amount of the loss can be reasonably estimated. The Company reviews all claims, proceedings and investigations at least quarterly and establishes or adjusts any accruals for such matters to reflect the impact of negotiations, settlements, advice of legal counsel and other information and events pertaining to a particular matter. All legal costs associated with such matters are expensed as incurred.

Historically, the claims, proceedings and investigations brought against the Company, individually and in the aggregate, have not had a material adverse effect on the consolidated results of operations, cash flows or financial position of the Company. As of March 31, 2018 , there were no proceedings or litigation involving the Company that management believes would have a material adverse impact on its business, financial position, results of operations, or cash flows.

10. Fair Value Measurements

The Company’s financial instruments consist primarily of cash and cash equivalents, trade and other receivables, derivative instruments, accounts payable, long-term debt and accrued liabilities. The carrying value of the Company’s accounts receivable, trade payables and accrued liabilities approximates fair value due to their short-term maturity. The Company may adjust the carrying amount of certain non-financial assets to fair value on a non-recurring basis when they are impaired.
    






12
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

The estimated carrying amount and fair value of the Company’s financial instruments measured and recorded at fair value on a recurring basis at March 31, 2018 is as follows (in thousands):
 
Fair Value Measurements at March 31, 2018
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total Fair Value
Recurring:

 

 

 

Non-current liabilities

 

 

 

     Derivative liability (Note 3)
$
—

 
$
(484
)
 
$
—

 
$
(484
)
The estimated carrying amount and fair value of the Company’s financial instruments measured and recorded at fair value on a recurring basis at December 31, 2017 is as follows (in thousands):
 
Fair Value Measurements at December 31, 2017

Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total Fair Value
Recurring:

 

 

 

Non-current liabilities

 

 

 

     Derivative liability (Note 3)
$
—

 
$
(2,364
)
 
$
—

 
$
(2,364
)
The fair values of derivative assets and liabilities are determined using quantitative models that utilize multiple market inputs including interest rates and exchange rates to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other instrument-specific factors, where appropriate. In addition, the Company incorporates within its fair value measurements a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by counterparties, and fair value for net long exposures is adjusted for counterparty credit risk while the fair value for net short exposures is adjusted for the Company’s own credit risk.
The estimated carrying amount and fair value of the Company’s financial instruments for which fair value is only disclosed is as follows (in thousands):
 
Fair Value Measurements at March 31, 2018
 
Carrying Amount
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total Fair Value
Senior secured notes
$
536,748

 
$
—

 
$
602,140

 
$
—

 
$
602,140


11. Income Taxes

For the three months ended March 31, 2018 and 2017, the Company's effective tax rates were 45.7% and 39.5% , respectively. The variance from the statutory federal tax rate of 21.0% for the three months ended March 31, 2018, was primarily due to a refinement of the provisional estimate of the one-time repatriation tax under the Tax Act, treated as a discrete item during the quarter, state income taxes and foreign rate differential. The variance from the statutory federal tax rate of 35.0% for the three months ended March 31, 2017, was primarily due to state income taxes.

    



13
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

On January 1, 2018, the Company adopted ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. As a result of income tax effects of the Tax Act, which reduced the corporate federal tax rate from 35.0% to 21.0%, the Company reclassified $0.2 million from accumulated other comprehensive income to retained earnings related to its net investment hedge.

On December 22, 2017, the United States government enacted the Tax Act resulting in significant modifications to existing law. The Company follows the guidance in Securities and Exchange Commission Staff Accounting Bulletin ("SAB") 118, which provides additional clarification regarding the application of ASC Topic 740 in situations where the Company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act for the reporting period in which the Tax Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Tax Act’s enactment date and ending when the Company has obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstance should the measurement period extend beyond one year from the enactment date.

At March 31, 2018, the Company has completed the accounting for the effects of the Tax Act except for the repricing of ending deferred taxes due to the reduction in the corporate tax rate and the impact of the one-time deemed repatriation transition tax on unrepatriated foreign earnings. As a result, the Company's financial statements reflect these effects of the Tax Act as provisional based on a reasonable estimate of the income tax effects. At December 31, 2017, the Company had included a provisional reduction in deferred tax liability and corresponding provisional reduction in tax provision expense of  $9.1 million  in relation to the repricing of its ending deferred tax balance. The provisional amount was and is based on information currently available at that time, including estimated book to tax adjustments. The Company continues to gather and analyze information, including any future legislative tax developments at the federal or state jurisdictions, in order to complete the accounting for the repricing of the ending deferred balances as of March 31, 2018.

The Company has also included a provisional income tax payable in the amount of  $0.2 million  related to the one-time deemed repatriation transition tax on unrepatriated foreign earnings. The provisional amount is based on information currently available, including estimated tax earnings and profits and tax pools from foreign investments. In addition, the income tax payable has been calculated by electing out of the use of net operating losses in order to maximize the use of foreign tax credits. The Company has also estimated the state tax impact of the Tax Act. The Company continues to gather and analyze information, including historical adjustments to earnings and profits of foreign subsidiaries and the available elections, in order to complete the accounting for the effects of the estimated transition tax. Any future legislative tax developments at the federal or state jurisdictions will need to be examined for potential application. It is the intention of the Company to complete the necessary analysis within the measurement period.

The Company considers the earnings of non-U.S. subsidiaries to be indefinitely invested outside the United States based on estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and the Company's specific plans for reinvestment of those subsidiary earnings.  As required by the Tax Act, as of March 31, 2018 and December 31, 2017, the Company has recorded a provisional tax liability related to the U.S. federal income taxes of approximately  $8.2 million  and $10.2 million , respectively, of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. However, the Company has not recorded a deferred tax liability for state and foreign withholding taxes associated with the repatriation of those foreign earnings.  If the Company decides to repatriate the foreign earnings, it would need to adjust its income tax provision in the period it determined that the earnings will no longer be indefinitely invested outside the United States. The Company has no present intention to repatriate any of its foreign earnings.

12. Segments

Segment information is presented in accordance with ASC 280, Segment Reporting , which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about customers, products and geographic areas. Operating segments are defined as components of an enterprise that engage in business activities that earn revenues, incur expenses and prepare separate financial information that is evaluated regularly by the Company’s CODM in order to allocate resources and assess performance. Resources are allocated and performance is assessed by the CODM.

    





14
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

Based on the provisions of ASC 280, the Company has defined its operating segments by considering management structure and product offerings. This evaluation resulted in the following reportable segments:

•
Specialty Building Products—SBP distributes wallboard, metal framing, suspended ceiling systems and complementary and other products. Complementary and other products includes stucco and exterior insulation and finish systems, as well tools, safety accessories and fasteners. The primary end markets served are new non-residential, new residential and non-residential repair and remodel construction markets.

•
Mechanical Insulation—MI distributes and fabricates commercial and industrial insulation for pipes and mechanical systems and the primary end markets served are new non-residential construction, non-residential repair and remodel construction and industrial markets.
In addition to the two reportable segments, the Company’s consolidated results include corporate activities and depreciation and amortization.
For purposes of evaluation under these segment reporting principles, the CODM assesses the Company’s ongoing performance based on the periodic review of net sales and gross profit. The Company has not disclosed asset information by segment as its CODM does not use such information for purposes of allocating resources and assessing performance.
The following tables present net sales and gross profit for each reportable segment (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
 
Net Sales
Gross Profit
 
Net Sales
Gross Profit
SBP
$
463,661

$
134,437

 
$
418,463

$
122,426

MI
72,636

20,003

 
60,994

17,485

Consolidated
$
536,297

$
154,440

 
$
479,457

$
139,911

Total gross profit
$
154,440


 
$
139,911


Total operating expenses
(141,313
)

 
(131,458
)

Interest expense
(15,132
)

 
(15,249
)

Other income, net
67


 
13,289


(Loss) income before income taxes
$
(1,938
)

 
$
6,493


    
Revenues are attributed to each country based on the location in which sales originate and in which assets are located. The following table provides information about the Company by geographic areas (in thousands):

 
Three Months Ended March 31,
 
2018
2017
United States
$
472,941

$
426,941

Canada
63,356

52,516

Total
$
536,297

$
479,457


    










15
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

The following table sets forth property, plant and equipment, goodwill and intangibles by geographic area (in thousands):
 
March 31, 2018
 
December 31, 2017
Property, plant and equipment, net


 


United States
$
136,706

 
$
135,330

Canada
15,600

 
16,078

Total property, plant and equipment, net
$
152,306

 
$
151,408

Goodwill


 


United States
$
440,090

 
$
431,476

Canada
26,524

 
27,261

Total goodwill
$
466,614

 
$
458,737

Intangibles, net


 


United States
$
174,852

 
$
182,070

Canada
7,004

 
7,700

Total intangibles, net
$
181,856

 
$
189,770

The Company’s net sales by segment and major product line, and segment gross profit and gross margin, are as follows:
 
Three Months Ended March 31,
 
Change
 
2018
 
2017
 
$
 
%
(dollars in thousands)
 
 
 
 
 
 
 
 
 
SBP Segment



 



 


 

     Wallboard (1)
$
180,653

39.0
%
 
$
168,239

40.2
%
 
$
12,414

 
7.4
%
     Suspended ceiling systems
86,179

18.6
%
 
72,716

17.4
%
 
13,463

 
18.5
%
     Metal framing
73,967

16.0
%
 
68,662

16.4
%
 
5,305

 
7.7
%
     Complementary and other products
122,862

26.4
%
 
108,846

26.0
%
 
14,016

 
12.9
%
Total SBP net sales
$
463,661

100.0
%
 
$
418,463

100.0
%
 
$
45,198

 
10.8
%
 



 



 


 

MI Segment



 



 


 

Total MI net sales (2)
$
72,636

100.0
%
 
$
60,994

100.0
%
 
$
11,642

 
19.1
%
Total net sales
$
536,297


 
$
479,457


 
$
56,840

 
11.9
%
 



 



 


 

Gross profit - SBP
$
134,437


 
$
122,426


 
$
12,011

 
9.8
%
Gross profit - MI
20,003


 
17,485


 
2,518

 
14.4
%
Total gross profit
$
154,440


 
$
139,911


 
$
14,529

 
10.4
%
 



 



 


 

Gross margin - SBP
29.0
%

 
29.3
%

 
(0.3
)%
 


Gross margin - MI
27.5
%

 
28.7
%

 
(1.2
)%
 


Total gross margin
28.8
%

 
29.2
%

 
(0.4
)%
 


(1) For the three months ended March 31, 2017, wallboard accessories have been reclassified from “Wallboard” to “Complementary and other products” to conform to the current year presentation.
(2) MI contains sales from Commercial and industrial insulation and Non-insulation products.






16
Foundation Building Materials, Inc.
 
 
Notes to Condensed Consolidated Financial Statements
 

13. Other Current Liabilities    

The balance of other current liabilities consisted of the following at March 31, 2018 and December 31, 2017 (in thousands):
 
March 31, 2018
 
December 31, 2017
Accrued expenses
$
5,761

 
$
6,919

Accrued interest
6,343

 
18,093

Accrued other
15,301

 
16,081

Total other current liabilities
$
27,405

 
$
41,093


14. (Loss) Earnings Per Share

Basic (loss) earnings per share represents net (loss) income for the period, divided by the weighted average number of shares of common stock outstanding for the period.

The following are the number of shares of common stock used to compute the basic and diluted (loss) earnings per share for each period:
 
Three Months Ended March 31,
 
2018
 
2017
Weighted average shares used in basic computations
42,879,874

 
37,273,156

Dilutive effect of stock options and restricted stock units
—

 
—

Weighted average shares used in diluted computations
42,879,874

 
37,273,156


For the three months ended March 31, 2018 and 2017, there were approximately 290,000 and 108,000 shares respectively, not included in the computation of diluted weighted average shares because their effect would have been antidilutive.


17




Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and the results of operations as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the "Consolidated Financial Statements" and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. In some cases, forward-looking statements can be identified by words such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "will," "would" or similar expressions. Such forward-looking statements are based on current expectations, estimates and projections about our industry, and our management’s beliefs and assumptions. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on February 27, 2018, or the 2017 10-K, as updated by our subsequent filings under the Securities and Exchange Act of 1934, as amended, or the Exchange Act.
 
Unless required by law, we expressly undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are the second largest specialty distributor of wallboard and suspended ceiling systems in the United States and Canada. We are also the second largest specialty distributor and one of the largest fabricators of commercial and industrial mechanical insulation in the United States. Since our founding in 2011, we are the fastest growing publicly-traded specialty building products distributor by revenue and branch count, with over 220 branches and more than 35,000 SKUs.

We have a national operating model supported by local market expertise and an entrepreneurial, customer centric culture. Our strong national brand and acquisition expertise have established us as the distributor of choice for leading suppliers, and we have over 28,000 customers across a balanced mix of construction-related end markets. We believe that we are able to maintain our local market excellence due to our longstanding customer relationships, dependable service and market-specific product offerings that cater to local market trends and preferences.

First Quarter Update

Financial Results

We reported net sales of $536.3 million for the three months ended March 31, 2018 an increase of $56.8 million, or 11.9%, compared to the three months ended March 31, 2017, including base business net sales growth of 4.9%. Our gross margin for the three months ended March 31, 2018 was 28.8% compared to 29.2% for the three months ended March 31, 2017, which reflected a change in our product mix with a higher contribution from lower margin products such as ceilings and mechanical insulation on a percentage of net sales basis. Selling, general and administrative, or SG&A, expenses, as a percentage of net sales was 22.6% for the three months ended March 31, 2018 as compared to 23.6% for the three months ended March 31, 2017. Excluding non-recurring adjustments of $1.6 million and $5.6 million, respectively, SG&A expenses as a percentage of net sales for the three months ended March 31, 2018 was 22.3% compared to 22.4% for the three months ended March 31, 2017. The decrease was due to our continued focus on operating efficiencies and cost reduction initiatives. We reported a net loss of $1.1 million and Adjusted EBITDA (1) of $35.0 million for the three months ended March 31, 2018. We also continued to execute our acquisition strategy by completing two acquisitions during the quarter.


(1) Adjusted EBITDA is a non-GAAP measure. See the Non-GAAP Financial Information at the end of the Management's Discussion and Analysis of Financial Condition and Results of Operations section for a discussion of how we define and calculate this measure, why we believe it is important and a reconciliation thereof to the most directly comparable GAAP measure.
18




Acquisitions

We supplement our organic growth strategy with selective acquisitions, and since January 2018 through the date of this filing, we have completed 2 acquisitions totaling 7 branches. See Note 4, Acquisitions, to the condensed consolidated financial statements. We believe that significant opportunities exist to continue to expand our geographic footprint and product offerings by executing additional strategic acquisitions, and we maintain an extensive and active acquisition pipeline. We are typically evaluating several acquisition opportunities at any given time. In executing our acquisition strategy and integrating acquired companies, we focus on the cost savings we can achieve through integrated procurement and pricing programs and brand consolidation. The two acquisitions completed in the first quarter of 2018, contributed approximately $5.0 million to net sales for the three months ended March 31, 2018.
Acquisitions
 
Effective Date of Acquisition
 
Branch Locations
 
# of Branches Acquired
ArmCom Distributing Company
 
February 1, 2018
 
MN, ND, SD, NE
 
5
RM Supply
 
February 1, 2018
 
MO
 
2
     Total
 
 
 
 
 
7

Description of Segments

We have two reportable segments. Resources are allocated and performance is assessed by our CEO, whom we have determined to be our Chief Operating Decision Maker, or CODM. Management evaluates performance for each segment based on gross profit. The reportable segments are:

Specialty Building Products - Specialty building products, or SBP, distributes wallboard, metal framing, suspended ceiling systems and complementary and other products. Complementary and other products includes stucco and exterior insulation and finish systems, or EIFS, as well as tools, safety accessories and fasteners. The primary end markets served are new non-residential, new residential and non-residential repair and remodel construction markets.

Mechanical Insulation - Mechanical insulation, or MI, includes insulation solutions for pipes and mechanical systems and the primary end markets served are new non-residential construction, non-residential repair and remodel construction and industrial markets.

Factors and Trends Affecting Our Business and Results of Operations

See Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the 2017 10-K for a discussion of the general and specific factors and trends affecting our business and results of operations, which include general economic conditions, new non-residential construction, new residential construction, non-residential repair and remodel construction, industrial end markets, volume, costs and pricing programs. There were no material changes to those matters during the three months ended March 31, 2018. We believe each of our end markets is currently in an extended period of recovery following a deep and prolonged recession.

Initial Public Offering

On February 15, 2017, we completed our initial public offering, or IPO, in which we issued 12,800,000 shares of our common stock at a public offering price of $14.00 per share. Our common stock began trading on the New York Stock Exchange on February 10, 2017 under the ticker symbol "FBM." After underwriting discounts and commissions and expenses payable by us, net proceeds from the IPO were approximately $164.0 million. We used these proceeds to repay borrowings outstanding under our 2016 Asset-Based Revolving Credit Facility, or the ABL Credit Facility.












19




Results of Operations

Three Months Ended March 31, 2018 Compared to the Three Months Ended March 31, 2017

The following table summarizes certain consolidated financial information related to our operating results for the periods indicated:

 
Three Months Ended March 31,
 
2018
 
2017
(dollars in thousands)
 
 
 
 
 
Statements of operations data
 
 
 
 
 
Net sales
$
536,297

100.0
 %
 
$
479,457

100.0
 %
Cost of goods sold
381,857

71.2
 %
 
339,546

70.8
 %
Gross profit
154,440

28.8
 %
 
139,911

29.2
 %
Operating expenses:
 
 
 
 
 
Selling, general and administrative
121,427

22.6
 %
 
113,062

23.6
 %
Depreciation and amortization
19,886

3.7
 %
 
18,396

3.8
 %
Total operating expenses
141,313

26.3
 %
 
131,458

27.4
 %
Income from operations
13,127

2.5
 %
 
8,453

1.8
 %
Interest expense
(15,132
)
(2.8
)%
 
(15,249
)
(3.2
)%
Other income, net
67

—
 %
 
13,289

2.8
 %
(Loss) income before income taxes
(1,938
)
(0.3
)%
 
6,493

1.4
 %
Income tax (benefit) expense
(885
)
(0.2
)%
 
2,564

0.5
 %
Net (loss) income
$
(1,053
)
(0.1
)%
 
$
3,929

0.9
 %

    






























20




The Company’s net sales by segment and major product line, and segment gross profit and gross margin, are as follows:
 
Three Months Ended March 31,
 
Change
 
2018
 
2017
 
$
 
%
(dollars in thousands)
 
 
 
 
 
 
 
 
 
SBP Segment
 
 
 
 
 
 
 
 
 
     Wallboard (1)
$
180,653

39.0
%
 
$
168,239

40.2
%
 
$
12,414

 
7.4
%
     Suspended ceiling systems
86,179

18.6
%
 
72,716

17.4
%
 
13,463

 
18.5
%
     Metal framing
73,967

16.0
%
 
68,662

16.4
%
 
5,305

 
7.7
%
     Complementary and other products
122,862

26.4
%
 
108,846

26.0
%
 
14,016

 
12.9
%
Total SBP net sales
$
463,661

100.0
%
 
$
418,463

100.0
%
 
$
45,198

 
10.8
%
 
 
 
 
 
 
 
 
 
 
MI Segment
 
 
 
 
 
 
 
 
 
Total MI net sales (2)
$
72,636

100.0
%
 
$
60,994

100.0
%
 
$
11,642

 
19.1
%
Total net sales
$
536,297

 
 
$
479,457

 
 
$
56,840

 
11.9
%
 
 
 
 
 
 
 
 
 
 
Gross profit - SBP
$
134,437

 
 
$
122,426

 
 
$
12,011

 
9.8
%
Gross profit - MI
20,003

 
 
17,485

 
 
2,518

 
14.4
%
Total gross profit
$
154,440

 
 
$
139,911

 
 
$
14,529

 
10.4
%
 
 
 
 
 
 
 
 
 
 
Gross margin - SBP
29.0
%
 
 
29.3
%
 
 
(0.3
)%
 
 
Gross margin - MI
27.5
%
 
 
28.7
%
 
 
(1.2
)%
 
 
Total gross margin
28.8
%
 
 
29.2
%
 
 
(0.4
)%
 
 
(1) For the three months ended March 31, 2017, wallboard accessories have been reclassified from “Wallboard” to “Complementary and other products” to conform to the current year presentation.
(2) MI contains sales from Commercial and industrial insulation and Non-insulation products.

Net Sales    

Consolidated net sales for the three months ended March 31, 2018, were $536.3 million compared to $479.5 million for the three months ended March 31, 2017, representing an increase of $56.8 million, or 11.9%. Base business net sales, as defined in the table below, increased $22.5 million, or 4.9% to $485.2 million, for the three months ended March 31, 2018, compared to the three months ended March 31, 2017. Net sales from acquired branches and existing branches that were strategically combined contributed $34.3 million of the increase.
    
The change in our base business net sales was primarily driven by the following factors:

•
a decrease in wallboard sales of $1.6 million, or 1.0%, primarily due to a decrease in wallboard unit volume of 4.0% impacted by adverse weather conditions, partially offset by an increase in average selling price of 3.0%;
•
an increase in suspended ceiling systems sales of $6.7 million, or 9.7%, primarily due to increases in commercial activity;
•
an increase in Complementary and other product sales of $7.4 million, or 7.0%, primarily due to our continued initiatives to increase complementary product sales; and
•
an increase in MI net sales of $9.3 million, or 15.5%, primarily due to higher net sales to industrial end markets.




21




The table below highlights net sales from our base business and acquired and combined branches:
 
Three Months Ended March 31,
 
Change
 
2018
 
2017
 
$
 
%
(dollars in thousands)
 
 
 
 
 
 
 
Base business (1)
$
485,241

 
$
462,743

 
$
22,498

 
4.9
%
Acquired and combined (2)
51,056

 
16,714

 
34,342

 
205.5
%
Net sales
$
536,297

 
$
479,457

 
$
56,840

 
11.9
%
(1) Represents net sales from branches that were owned by us since January 1, 2017 and branches that were opened by us during such period.
(2) Represents branches acquired and existing branches combined with acquired branches after January 1, 2017.
    
The table below highlights our changes in base business net sales and net sales from branches acquired and strategically combined by segment and major product line:

Three Months Ended March 31, 2017

Base Business Net Sales (Decrease) Increase

Acquired and Combined Net Sales Increase

Three Months Ended March 31, 2018

Total Net Sales % Increase
Base Business Net Sales % (Decrease) Increase (1)

Acquired and Combined Net Sales % Increase (2)
(dollars in thousands)












Wallboard
$
168,239

 
$
(1,641
)
 
$
14,055

 
$
180,653

 
7.4
%
(1.0
)%
 
203.2
%
Suspended ceiling systems
72,716

 
6,719

 
6,744

 
86,179

 
18.5
%
9.7
 %
 
186.3
%
Metal framing
68,662

 
776

 
4,529

 
73,967

 
7.7
%
1.2
 %
 
210.0
%
Complementary and other products
108,846

 
7,373

 
6,643

 
122,862

 
12.9
%
7.0
 %
 
236.1
%
SBP net sales
418,463

 
13,227

 
31,971

 
463,661

 
10.8
%
3.3
 %
 
206.2
%
MI net sales
60,994

 
9,271

 
2,371

 
72,636

 
19.1
%
15.5
 %
 
196.4
%
Total net sales
$
479,457

 
$
22,498

 
$
34,342

 
$
536,297

 
11.9
%
4.9
 %
 
205.5
%
Average daily net sales
$
7,492

 
$
352

 
$
537

 
$
8,380

 
11.9
%
4.9
 %
 
205.5
%
(1) Represents base business net sales (decrease) increase as a percentage of base business net sales for the three months ended March 31, 2017.
(2) Represents acquired and combined net sales increase as a percentage of acquired and combined net sales for the three months ended March 31, 2017.

Specialty Building Products . SBP net sales for the three months ended March 31, 2018 were $463.7 million compared to $418.5 million for the three months ended March 31, 2017, representing an increase of $45.2 million, or 10.8%. Net sales from acquired branches and existing branches that were strategically combined with acquired branches contributed $32.0 million of the increase. The change in our SBP base business net sales was driven by a decrease in wallboard sales of $1.6 million, offset by an increase in suspended ceiling systems sales and complementary other product sales of $6.7 million and $7.4 million, respectively. Wallboard volume decreased 4.0% due to adverse weather conditions, partially offset by an increase in our average selling price of 3.0%. The increase in suspended ceiling systems and complementary and other product sales was driven by an increase in commercial activity and by our continued initiatives to increase complementary product sales, respectively.

Mechanical Insulation.  MI net sales for the three months ended March 31, 2018 were $72.6 million compared to $61.0 million for the three months ended March 31, 2017, representing an increase of $11.6 million, or 19.1%. Net sales from base business branches contributed $9.3 million of the increase, which was primarily due to higher net sales to industrial end markets.







22




Gross Profit and Gross Margin

Consolidated gross profit for the three months ended March 31, 2018 was $154.4 million compared to $139.9 million for the three months ended March 31, 2017, representing an increase of $14.5 million, or 10.4%. The increase in gross profit was primarily due to the increase in net sales from our base business and acquired sales. Consolidated gross margin for the three months ended March 31, 2018 was 28.8% compared to 29.2% for the three months ended March 31, 2017. The decrease in gross margin was primarily due to a change in product mix with a higher contribution from lower gross margin products such as suspended ceilings systems and mechanical insulation on a percentage of net sales basis.

Specialty Building Products.  SBP gross profit for the three months ended March 31, 2018 was $134.4 million compared to $122.4 million for the three months ended March 31, 2017, representing an increase of $12.0 million, or 9.8%. SBP gross profit increased due to higher net sales from our base business and acquired sales. SBP gross margin for the three months ended March 31, 2018 was 29.0% compared to 29.3% for the three months ended March 31, 2017. The decrease in gross margin was primarily due to a change in product mix with a higher contribution from lower gross margin products such as suspended ceilings systems on a percentage of net sales basis.

Mechanical Insulation.  MI gross profit for the three months ended March 31, 2018 was $20.0 million compared to $17.5 million for the three months ended March 31, 2017, representing an increase of $2.5 million, or 14.4%. MI gross profit increased due to higher net sales from our base business. MI gross margin for the three months ended March 31, 2018 was 27.5% compared to 28.7% for the three months ended March 31, 2017. This decrease was primarily due to a higher contribution from large industrial projects for the three months ended March 31, 2018, which generally have lower margins relative to the overall MI segment.  

Selling, General & Administrative

SG&A expenses consist of warehouse, delivery and general and administrative expenses.  SG&A expenses for the three months ended March 31, 2018 were $121.4 million compared to $113.1 million for the three months ended March 31, 2017, representing an increase of $8.4 million, or 7.4%. As a percentage of net sales, SG&A expenses were 22.6% for the three months ended March 31, 2018 compared to 23.6% for the three months ended March 31, 2017. Excluding non-recurring adjustments of $1.6 million and $5.6 million, respectively, SG&A as a percentage of net sales for the three months ended March 31, 2018 were 22.3% compared to 22.4% for the three months ended March 31, 2017. The SG&A decrease as a percentage of net sales was due to our continued focus on operating efficiencies and cost reduction initiatives.

Depreciation and Amortization

Depreciation and amortization for the three months ended March 31, 2018 was $19.9 million compared to $18.4 million for the three months ended March 31, 2017, representing an increase of $1.5 million, or 8.1%. The increase in depreciation and amortization was primarily due to acquisitions subsequent to March 31, 2017, which increased the value of property and equipment and intangible assets subject to depreciation and amortization.

Interest Expense

Interest expense for the three months ended March 31, 2018 was $15.1 million compared to $15.2 million for the three months ended March 31, 2017, representing a decrease of $0.1 million, or 0.8%.

Other Income, Net

Other income, net for the three months ended March 31, 2018 was $0.1 million compared to $13.3 million for the three months ended March 31, 2017, representing a decrease of $13.2 million. In the 2017 period, there was a $13.2 million change in fair value of the embedded derivative related to our $575.0 million Senior Secured Notes due 2021, or the Notes, which was recorded as other income, net. There was no change in the fair value in the 2018 period. See Note 3, Derivatives and Hedging Activities, to the condensed consolidated financial statements.








23




Income Taxes

Income tax benefit for the three months ended March 31, 2018 was $0.9 million compared to an income tax expense of $2.6 million for the three months ended March 31, 2017, for a variance of $3.5 million. The effective tax rate for the three months ended March 31, 2018 was 45.7% compared to 39.5% for the three months ended March 31, 2017. The difference in the effective tax rates between periods was due primarily to the Tax Cut and Jobs Act, which decreased the statutory federal tax rate, offset by the refinement of the provisional estimate of the one-time repatriation tax.

Liquidity and Capital Resources

Summary

We depend on cash flow from operations, cash on hand and funds available under our asset-backed revolving credit facility, or ABL Credit Facility, and in the future we may depend on other debt financings allowed under the terms of the indenture governing the Notes, or the Indenture, and the agreement governing the ABL Credit Facility, or the ABL Credit Agreement, and equity financings, to finance our acquisition strategy, working capital needs and capital expenditures, which approximate 1.0% of net sales. We believe that these sources of funds will be adequate to fund debt service requirements and provide cash, as required, to support our strategy, ongoing operations, capital expenditures, lease obligations and working capital for at least the next twelve months. However, we cannot ensure that we will be able to obtain future debt or equity financings adequate for our future cash requirements on commercially reasonable terms or at all. The Tax Receivable Agreement, or TRA, may also have a negative impact on our liquidity if, among other things, payments we make under the TRA exceed the actual cash savings we and our subsidiaries realize in respect of the tax benefits covered by the TRA after we have paid our taxes and other obligations. In addition, as a result of either an early termination of the TRA or a change of control, we could be required to make payments under the TRA that exceed our actual cash savings under the TRA. In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing, among other things, capital expenditures and acquisitions.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay additional acquisitions, future investments and capital expenditures, seek additional capital, restructure or refinance our indebtedness, including the Notes, or sell assets. Significant delays in our ability to finance planned acquisitions or capital expenditures may materially and adversely affect our future sales prospects. In addition, we cannot assure you that we will be able to refinance any of our indebtedness, including the Notes and our ABL Credit Facility, on commercially reasonable terms or at all. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Our TRA requires that, after Lone Star Fund IX (U.S.) L.P., or Lone Star, no longer controls us, any senior debt document that refinances or replaces our existing indebtedness permits our subsidiaries to make dividends to us, without any conditions, to the extent required for us to make its payments under the TRA, unless Lone Star otherwise consents. At the time of any such refinancing, it may not be possible to include this term in such senior debt documents, and as a result, we may need Lone Star’s consent to complete such refinancing. The ABL Credit Agreement and the Indenture restrict our ability to enter into certain asset sales transactions. We may not be able to consummate those asset sales to raise capital or sell assets at prices that we believe are fair, and proceeds that we do receive may not be adequate to meet any debt service obligations then due.
    
As of March 31, 2018, we had $89.9 million of outstanding borrowings and $210.1 million of available aggregate undrawn borrowing capacity under the ABL Credit Facility. Total liquidity was $218.6 million inclusive of $8.6 million in cash and cash equivalents as of March 31, 2018.

Cash Flows

A summary of net cash provided by, or (used in), operating, investing and financing activities is shown in the following table:
 
Three Months Ended March 31,
 
2018
 
2017
(in thousands)
 
 
 
Net cash (used in) provided by operating activities
$
(16,541
)
 
$
883

Net cash used in investing activities
$
(28,464
)
 
$
(20,669
)
Net cash provided by (used in) financing activities
$
41,710

 
$
(37
)


24




Operating Activities

Net cash used in operating activities increased by $17.4 million to $16.5 million in the three months ended March 31, 2018 as compared to $0.9 million provided by operating activities for the same period in 2017. The increase was primarily due to a decrease in net income of $5.0 million, higher working capital requirements of $22.5 million as the business continues to grow and lower deferred taxes of $4.2 million, partially offset by lower unrealized gains related to the change in fair value of our derivatives of $13.1 million.

Investing Activities

Net cash used in investing activities increased by $7.8 million to $28.5 million in the three months ended March 31, 2018 as compared to $20.7 million in the same period in 2017. The increase was primarily due to two acquisitions in the current period compared to one acquisition in the prior year period, resulting in a higher aggregate purchase price of $8.0 million.

Financing Activities

Net cash provided by financing activities increased by $41.7 million to $41.7 million in the three months ended March 31, 2018 as compared to cash used in financing activities of $0 in the same period in 2017. For the three months ended March 31, 2018 net borrowings were $42.5 million, which were used to fund business operations. For the three months ended March 31, 2017 IPO proceeds and capital contributions of $167.2 million were used to repay borrowings outstanding under the ABL Credit Facility.

Tax Receivable Agreement

At March 31, 2018 and December 31, 2017, the TRA liability balance was $135.8 million . There have been no payments related to the TRA from inception to March 31, 2018. The first payment is anticipated to be made during the fourth quarter of 2018 and is estimated to be $15.9 million and is reflected in current liabilities. Payments related to the TRA are expected to be funded through one, or a combination of the following: existing cash balances, cash flow from operations, or availability under the ABL Credit Agreement. The discounted present value of the TRA at March 31, 2018, was estimated to be between $85.0 million and $95.0 million. There were no material changes during the three months ended March 31, 2018 to the estimates of annual payments related to the TRA set forth in the Contractual Obligations Table in the 2017 10-K.
    
Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, allowance for doubtful accounts, inventories, taxes, and goodwill. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions.

There have been no material changes made to the critical accounting estimates during the periods presented in the consolidated financial statements from those disclosed in the 2017 10-K except for the following:

The Company adopted Accounting Standard Codification 606, Revenue from Contracts with Customers, which became effective on January 1, 2018. For further discussion on the adoption of this new accounting standard, see Note 2 "Basis of Presentation" to the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.








25




Off-Balance Sheet Arrangements

As of March 31, 2018, we had no material off-balance sheet arrangements or similar obligations, such as financing or unconsolidated variable interest entities.

New Accounting Standards

Please refer to Note 2, Recently Issued Accounting Standards to the notes to our condensed consolidated financial statements for a discussion of new accounting pronouncements and accounting pronouncements adopted during the three months ended March 31, 2018.

Non-GAAP Financial Information

In addition to our results under GAAP, we also present Adjusted EBITDA for historical periods. Adjusted EBITDA is a non-GAAP financial measure and has been presented as a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We calculate EBITDA as net (loss) income before interest expense net, income tax (benefit) expense, and depreciation and amortization. We calculate Adjusted EBITDA as EBITDA before unrealized gains on derivative financial instruments, IPO and public company readiness expenses, stock-based compensation, and other non-recurring adjustments such as non-cash purchase accounting effects, losses on the disposal of property and equipment, transaction costs and management fees.

EBITDA and Adjusted EBITDA are presented because they are important metrics used by management as one of the means by which it assesses our financial performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. These measures, when used in conjunction with related GAAP financial measures, provide investors with an additional financial analytical framework that may be useful in assessing our Company and its results of operations.

EBITDA and Adjusted EBITDA have certain limitations. EBITDA and Adjusted EBITDA should not be considered as alternatives to net (loss) income, or any other measures of financial performance derived in accordance with GAAP. These measures also should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items for which these non-GAAP measures make adjustments. Additionally, EBITDA and Adjusted EBITDA are not intended to be liquidity measures because of certain limitations such as:

•
They do not reflect our cash outlays for capital expenditures or future contractual commitments;
•
They do not reflect changes in, or cash requirements for, working capital;
•
They do not reflect interest expense or the cash requirements necessary to service interest or principal payments on indebtedness;
•
They do not reflect income tax expense or the cash necessary to pay income taxes; and
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and these non-GAAP measures do not reflect cash requirements for such replacements.
 
Other companies, including other companies in our industry, may not use the measures or may calculate one or both differently than as presented in this Quarterly Report on Form 10-Q, limiting their usefulness as a comparative measure.

In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments made in our calculations, and our presentation of EBITDA and Adjusted EBITDA should not be construed to mean that our future results will be unaffected by such adjustments. Management compensates for these limitations by using EBITDA and Adjusted EBITDA as supplemental financial metrics and in conjunction with our results prepared in accordance with GAAP. The non-GAAP information should be read in conjunction with our consolidated financial statements and the related notes.
    





26




The following is a reconciliation of EBITDA and Adjusted EBITDA to the nearest GAAP measure, net (loss) income:
 
Three Months Ended March 31,
 
2018
 
2017
(in thousands)
 
 
 
Net (loss) income
$
(1,053
)
 
$
3,929

Interest expense, net
15,111

 
15,214

Income tax (benefit) expense
(885
)
 
2,564

Depreciation and amortization
19,886

 
18,396

EBITDA
33,059

 
40,103

 
 
 
 
Unrealized gain on derivative financial instruments
(74
)
 
(13,219
)
IPO and public company readiness expenses
89

 
2,975

Stock-based compensation
271

 
1,553

Non-cash purchase accounting effects (a)
407

 
71

Loss on disposal of property and equipment
13

 
152

Transaction costs (b)
1,218

 
592

Management fees (c)
—

 
353

Adjusted EBITDA
$
34,983

 
$
32,580

Adjusted EBITDA margin (d)
6.5
%
 
6.8
%
(a)
Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of acquisitions.
(b)
Represents one-time costs related to our acquisitions, including fees to financial advisors, accountants, attorneys, other professionals and certain internal corporate development costs. Certain amounts have been reclassified for the three months ended March 31, 2017 to conform our presentation of Adjusted EBITDA to the current year presentation.
(c)
Represents fees paid to our former private equity sponsor for services provided pursuant to past management agreements. These fees are no longer being incurred.
(d)
Adjusted EBITDA margin represents Adjusted EBITDA divided by net sales.


27




Item 3.    Quantitative and Qualitative Disclosures about Market Risk

There were no material changes to the Company’s market risk disclosures set forth in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of the 2017 10-K during the three months ended March 31, 2018.

Item 4.    Controls and Procedures. 

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of March 31, 2018, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2018, the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.

Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our system of internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system of internal control are met. The design of our control system reflects the fact that there are resource constraints, and that the benefits of such control system must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.



28




Part II. Other Information

Item 1.    Legal Proceedings

We are not currently a party to any material legal proceedings. We are, however, subject to lawsuits, government investigations, audits and other legal proceedings from time to time in the ordinary course of our business. It is not possible to predict the outcome of any legal proceeding with any certainty. The outcome or costs we incur in connection with a legal proceeding could adversely impact our operating results and financial position.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under Item 1A, "Risk Factors," in the 2017 10-K.

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosure

Not applicable.

Item 5.    Other Information 

 None.

Item 6.     Exhibits

Exhibit Number
 
Description
 
 
 
 
101 INS
 
XBRL Instance Document.
101 SCH
 
XBRL Taxonomy Extension Schema Document.
101 CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
101 DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
101 LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101 PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
# Denotes management compensatory plan or arrangement



29




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FOUNDATION BUILDING MATERIALS, INC.

Date: May 9, 2018
BY:
/s/ John Gorey
 
 
John Gorey
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)
 
 
 
 
 
/s/ Barbara J. Bitzer
 
 
Barbara J. Bitzer
 
 
Chief Accounting Officer
 
 
(Principal Accounting Officer)
 
 
 

 




EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the of March 11, 2016, between Foundation Building Materials, LLC (the "Company") and Richard J. Tilley (the "Employee") (each of the foregoing individually a "Party" and collectively the "Parties").

WHEREAS, the Company wishes to employ the Employee and the Employee wishes to be employed by the Company, in each case, on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment. The Employee's employment hereunder shall commence on April 4, 2016, or such other date as may be mutually agreed between the Parties (the "Effective Date") and end on the date the Employee's employment is terminated pursuant to Section 3 hereof (the "Employment Period"). During the Employment Period, the Employee will devote his full business time and use his best efforts to advance the business and welfare of the Company and its subsidiaries and affiliates and will not engage in (i) any other employment or business activities, or (ii) any other activities for any direct or indirect remuneration that would be harmful or detrimental to the business and affairs of the Company or that would materially interfere with his duties hereunder. The foregoing, however, shall not preclude the Employee from serving on civic or charitable boards or committees, managing personal or family investments, or engaging in such other activities as the Board of Directors of the Company or its equivalent (such entity, the "Board") may approve from time to time, so long as such activities do not materially interfere with the performance of the Employee's responsibilities hereunder.

2.
Compensation.

(a) Base Salary . During the Employment Period, the Employee shall receive a base salary at a rate of $235,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company, and shall be subject to review on an annual basis as determined by the Board or a committee thereof (the "Base Salary") . The Employee's Base Salary shall not be subject to decrease, other than a reduction which is part of a general cost reduction approved by the Board affecting other similarly situated employees and which does not exceed ten percent (10%) of the Employee's then Base Salary when combined with any such prior reductions.

(b) Annual Bonus. With respect to each calendar year ending during the Employment Period, in addition to the Base Salary, the Employee may be eligible to earn an annual cash performance bonus based upon the achievement of performance targets established by the Board (or a committee thereof). The target amount for such annual cash performance bonus shall be no less than 40% of Base Salary (the "Target Bonus"), but in no event shall the annual cash performance bonus exceed 200% of the Target Bonus. Except as otherwise provided in Section 3, in order to receive payment of any such annual cash performance bonus, the Employee must be continuously employed by the Company or any of its subsidiaries through the date of actual payment.


(c) Participation in Benefit Plans. During the Employment Period, the Employee shall be entitled to receive all perquisites and participate in all benefit plans, programs and policies maintained by the Company from time to time that are available generally to its similarly-situated senior executives; provided, however, that the Employee's right to receive such perquisites and participate in such plans, programs and policies shall not affect the Company's right to amend or tenninate the general applicability of such perquisites, plans, programs and policies. The Company may, in its sole discretion and from time to time, amend, eliminate or establish benefit programs as it deems appropriate.

(d) Expenses. The Company shall reimburse the Employee for all reasonable travel and other business expenses incurred by him in the performance of his duties to the Company in accordance with the Company's applicable expense reimbursement policies and procedures. Any expenses shall be reimbursed promptly in accordance with such policies and procedures .

(e) Paid Time Off . The Employee shall be entitled to such periods of paid time off ("PTO") each year as provided from time to time under the Company's PTO policy and as otherwise agreed upon.

3. Termination of Employment. Subject to the further provisions of this Section 3, the Employment Period and




the Employee's employment hereunder may be terminated by either Party at any time and for any or no reason;provided, however, that the Company and the Employee will be required to give written notice of any termination of the Employee's employment as set forth in this Section 3. Notwithstanding any other provision of this Agreement, the provisions of this Section 3 shall exclusively govern the Employee's rights to compensation and benefits upon termination of employment with the Company.

(a) Notice of Termination. Any termination or resignation of the Employee's employment by the Company or by the Employee, as applicable, under this Section 3 (other than termination of employment as a result of the Employee's death) shall be communicated by a written notice (a "Notice of Termination") to the other Party hereto (i) indicating whether the termination is for or without Cause (as defined below) or the resignation is for or without Good Reason (as defined below), (ii) indicating the specific termination provision in this Agreement relied upon, and (iii) specifying a date of termination (the "Date of Termination") , which, if submitted by the Employee, shall be thirty (30) days following the date of such notice (or the first business day following the last day of the Cure Period, in the case of Employee's resignation for Good Reason, or such other date as mutually agreed by the Company and the Employee).

(b) Accrued Rights. Upon a termination of the Employee's employment for any reason, the Employee (or the Employee's estate) shall be entitled to receive the sum of the Employee's Base Salary through the Date of Termination not theretofore paid (payable as soon as practicable following, but in all events within 30 days of the Date of Termination); any unreimbursed business expenses; and any amount arising from the Employee's participation in, or benefits under, any employee benefit plans, programs or arrangements (including without limitation, any disability or life insurance benefit plans, programs or arrangements), which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the "Accrued Rights").

(c) Termination by the Company without Cause or Resignation For Good Reason. If the Employee's employment shall be terminated by the Company without Cause (and not by reason of Employee's death or Disability), or by the Employee for Good Reason, then, in addition to the Accrued Rights, the Company shall (subject to the Employee's execution, within twenty-one (21) days following receipt, of a waiver and general release of claims in substantially the form attached hereto as Exhibit A (the "Release"), and such Release becoming effective and irrevocable in accordance with its terms within thirty (30) days following the Date of Termination):

(i) pay to the Employee any annual bonus earned by the Employee pursuant to Section 2(b) for any calendar year completed prior to the Date of Termination that remains unpaid as of the Date of Termination (payable at the same time as such annual bonuses are paid to executives generally);

(ii) pay to the Employee the annual bonus earned by the Employee pursuant to Section 2(b) for the calendar year that includes the Date of Termination (based on actual performance during such year), which amount shall be pro­ rated to reflect the number of days that the Employee was employed by the Company during such calendar year and which shall be payable at the same time as such annual bonuses are paid to executives generally; and

(iii) pay to the Employee, in accordance with the Company's regular payroll practice following the Date of Termination, the Employee's Base Salary (as in effect immediately prior to the Date of Termination) for a period of six (6) months following the Date of Termination.


Notwithstanding the foregoing, (x) any payments pursuant to this Section 3(c) that would otherwise be payable in the first thirty (30) days following the Date of Termination shall be withheld and become payable in a lump sum on the thirtieth (30 th ) day following the Date of Termination and (y) the Company shall not be obligated to make any such payments described in this Section 3(c) after the date the Employee first violates any of the restrictive covenants set forth in Section 4.

(iv) "Cause" shall be deemed to exist if any of the following items shall apply: (i) a material breach of any written agreement between the Employee and the Company or any affiliate, including, without limitation, a breach by the Employee of the Employee's obligations under this Agreement or any other written agreement between the Employee and the Company or an affiliate; (ii) ongoing and repeated non­ performance by the Employee of his duties and responsibilities to the Company (other than any such non-performance resulting from the Employee's incapacity due to physical or mental illness or any such non-performance after his issuance of a written notice to the Company of his intention to resign for Good Reason), intentional or negligent misconduct by the Employee in the performance of his duties to the Company a material violation by the Employee of any written




policies of the Company or the specific written and lawful directions of the Board or Employee's direct supervisor; (iii) a breach of any fiduciary duty which the Employee owes to the Company or any affiliate in his capacity as an employee or officer; (iv) the conviction or plea of guilty or no contest by the Employee with respect
to (A) a felony or (B) embezzlement, dishonesty, a crime involving moral turpitude, or intentional and actual fraud; (v) the use of illicit drugs or other illicit substances or the abuse of licit drugs or other substances on Company premises or during the performance of the Employees duties or that otherwise causes material harm to the Company or any affiliate; or (vi) an unexplained absence from work for more than ten (I 0) days in any twelve (12) month period (vacation, Company-approved personal leave, Company­ approved sick leave, and Disability excepted). The Employee's employment will be deemed to have been terminated for Cause if it is determined subsequent to his termination of employment that grounds for termination of his employment for Cause existed at the time of his termination of employment.

(v) "Good Reason" shall be deemed to exist if, without the Employee's consent: (A) there is a material diminution in the duties, responsibilities, or authority of the Employee; (B) there is a reduction in the Employee's then Base Salary and Target Bonus, other than a reduction which is part of a general cost reduction affecting other similarly situated employees and which does not exceed ten percent (I 0%) of the Employee's then target base compensation in the aggregate when combined with any such prior reductions; or (C) there is a material breach by the Company of any agreement between the Employee and the Company or any affiliate, including, without limitation, a material breach by the Company of the Company's obligations under this Agreement or any other agreement between the Employee and the Company or an affiliate. In each such case of Good Reason, the Employee shall provide the Company with written notice of the grounds for a Good Reason termination within ninety (90) days of the initial occurrence thereof, and the Company shall have a period of thirty (30) days to cure after receipt of the written notice (the "Cure Period"). Resignation by the Employee following the Company's cure or before the expiration of the Cure Period shall constitute a voluntary resignation and not a termination or resignation for Good Reason. If the alleged Good Reason event has not been cured at the end of the Cure Period, the Employee's termination of employment for Good Reason will be effective on the first business day following the last day of the Cure Period.

Following the Employee's termination of employment by the Company without Cause (and not by reason of Employee's death or Disability), or by the Employee for Good Reason, except as set forth in this Section 3(c), the Employee shall have no further rights to any compensation or any other benefits under this Agreement.

(d) Termination by the Company for Cause; Resignation Without Good Reason. If the Employee's employment shall be terminated by the Company for Cause or upon the Employee's resignation without Good Reason, the Employee shall only be entitled to receive the Accrued Rights. Following the Employee's termination of employment by the Company for Cause or upon the Employee's resignation without Good Reason, except as set forth in this Section 3(d), the Employee shall have no further rights to any compensation or any other benefits under this Agreement.

(e) Disability or Death. The Employment Period and the Employee's employment hereunder shall terminate immediately upon the Employee's death and may be terminated by the Company if the Employee becomes or is reasonably expected to be (in the good
faith judgment of the Board) physically or mentally incapacitated and therefore unable for a period of one hundred twenty (120) consecutive days to perform the essential functions of Employee's position, with or without a reasonable accommodation (such incapacity is hereinafter referred to as "Disability") , in each case, in a manner consistent with applicable state and federal law. Upon termination of the Employee's employment hereunder by reason of his Disability or death, the Employee or the Employee's estate (as the case may be) shall only be entitled to receive (i) the Accrued Rights and (ii) such additional payments, if any, as determined by the Board in its sole and absolute discretion. Following the termination of the Employee's employment by reason of the Employee's Disability or death, except as set forth in this Section 3(e), the Employee shall have no further rights to any compensation or any other benefits under this Agreement.

(t) Return of Property. Upon cessation of the Employee's employment with the Company for any reason, whether voluntary or involuntary, the Employee shall immediately deliver to the Company (i) all physical, computerized, electronic or other types of records, documents, proposals, notes, lists, files and any and all other materials, including computerized and electronic information, that refers, relates or otherwise pertains to the Company or any affiliate of the Company (or business dealings thereof) that are in the Employee's possession, subject to the Employee's control or held by the Employee for others; and (ii) all property or equipment that the Employee has been issued by the Company or any affiliate of the Company during the course of his employment or property or equipment thereof that the Employee otherwise possesses, including any computers, cellular phones, pagers and other devices. The Employee acknowledges that he is not authorized




to retain any physical, computerized, electronic or other types of copies of any such physical, computerized, electronic or other types of records, documents, proposals, notes, lists, files or materials, and is not authorized to retain any other property or equipment of the Company or any affiliate of the Company. The Employee further agrees that the Employee will promptly forward to the Company (and thereafter destroy any physical or electronic copies thereof) any confidential business information relating to the Company or any affiliate of the Company that has been or is inadvertently directed to the Employee following the Employee's last day of employment. The provisions of this Section 3(t) are in addition to any other written obligations on the subjects covered herein that the Employee may have with the Company and its affiliates, and are not meant to and do not excuse such obligations. Upon the termination of his employment with the Company and its subsidiaries, the Employee shall, upon the Company's request, promptly execute and deliver to the Company a certificate (in form and substance satisfactory to the Company) to the effect that the Employee has complied with the provisions of this Section 3(t).

(a) Resignation of Offices . Promptly following any termination of the Employee's employment with the Company (other than by reason of the Employee's death), the Employee shall be deemed to have resigned from all positions that the Employee may then hold as an employee or officer of the Company or any affiliate of the Company. The Employee shall promptly deliver to the Company any additional documents reasonably required by the Company to confirm such resignations.

(b) Further Assurances; Cooperation. Following the termination of the Employee's employment with the Company, the Employee shall execute any and all documents to secure the Company's right to any Work Product (as defined in Section 4(b)), and the Employee agrees to make himself available as reasonably practical with respect to, and to use reasonable
efforts to cooperate in conjunction with, any litigation or investigation arising from events that occurred during the Employee's employment with the Company and its affiliates (whether such litigation or investigation is then pending or subsequently initiated) involving the Company or any affiliate of the Company, including providing testimony and preparing to provide testimony if so requested by the Company. The Company shall pay to the Employee an hourly retainer of $300 for any such assistance and testimony.

4.
Restrictive Covenants.

(a) Confidential Information. During the course of the Employee's employment with the Company, the Employee will be given access to and receive Confidential Information (as defined below) regarding the business of the Company and its affiliates. The Employee agrees that the Confidential Information constitutes a protectable business interests of the Company and its affiliates and covenants and agrees that at all times during the Employee's employment with the Company, and at all times following the Employee's termination, the Employee will not, directly or indirectly, disclose any Confidential Information. As used in this Agreement, the term "Confidential Information" means any and all confidential, proprietary or trade secret information of the Company or an affiliate not within the public domain, whether disclosed, directly or indirectly, verbally, in writing (including electronically) or by any other means in tangible or intangible form, including that which is conceived or developed by the Employee, applicable to or in any way related to: (i) the present or future business activities, products and services, and customers of the Company or its affiliates; (ii) the research and development of the Company or its affiliates; or (iii) the business of any client or vendor of the Company or its affiliates. Such Confidential Information includes the following property or information of the Company or its affiliates, by way of example and without limitation, trade secrets, processes, formulas, data, program documentation, customer lists, designs, drawings, algorithms, source code, object code, know-how, improvements, inventions, licenses, techniques, all plans or strategies for marketing, development and pricing, business plans, financial statements, profit margins and all information concerning existing or potential clients, suppliers or vendors. Confidential Information of the Company also means all similar information disclosed to any member of the Company by third parties that is subject to confidentiality obligations. The Company shall not be required to advise the Employee specifically of the confidential nature of any such information, nor shall the Company be required to affix a designation of confidentiality to any tangible item, in order to establish and maintain its confidential nature. Notwithstanding the preceding to the contrary, Confidential Information shall not include general industry information or information that is publicly available or readily discernable from publicly available products or literature; information that the Employee lawfully acquires from a source other than the Company or its affiliates or any client or vendor of the Company or any of its affiliates (provided that such source is not bound by a confidentiality agreement with the Company or any of its affiliates); information that is required to be disclosed pursuant to any law, regulation, rule of any governmental body or authority, or stock exchange, or court order; or information that reflects employee's own skills, knowledge, know-how and experience gained prior to employment or service and outside of any connection to or relationship with the Company or any of its affiliates, or the predecessors of any such entities.

(b) Intellectual Property Ownership. The Employee hereby assigns to the Company all rights, including,




without limitation, copyrights, patents, trade secret rights, and other
intellectual property rights associated with any ideas, concepts, techniques, inventions, processes, works of authorship, Confidential Information or trade secrets (i) developed or created by the Employee, solely or jointly with others, during the course of performing work for or on behalf of the Company or any affiliate of the Company, or the predecessors of any such entities, whether as an employee or independent contractor, (ii) that the Employee conceives, develops, discovers or makes in whole or in part during the Employee's employment by the Company that relate to the business of the Company or any affiliate of the Company or the actual or demonstrably anticipated research or development of the Company or any affiliate of the Company, (iii) that the Employee conceives, develops, discovers or makes in whole or in part during or after the Employee's employment by the Company that are made through the use of any of the equipment, facilities, supplies, trade secrets or time of the Company or any affiliate of the Company, or that result from any work the Employee performs for the Company or any affiliate of the Company, or (iv) developed or created by the Employee, solely or jointly with others, at any time before the Employment Period, that relate to or involve the Company's businesses (including, but not limited to, the business of the Company Group) (collectively, the "Work Product"). Without limiting the foregoing, to the extent possible, all software, compilations and other original works of authorship included in the Work Product will be considered a "work made for hire" as that term is defined in Title 17 of the United States Code. If, notwithstanding the foregoing, the Employee for any reason retains any right, title or interest in or relating to any Work Product, the Employee agrees promptly to assign, in writing and without any requirement of further consideration, all such right, title, and interest to the Company. Upon request of the Company at any time during or after the Employment Period, the Employee will take such further actions, including execution and delivery of instruments of conveyance, as may be appropriate to evidence, perfect, record or otherwise give full and proper effect to any assignments of rights under or pursuant to this Agreement. The Employee will promptly disclose to the Company any such Work Product in writing.

(c) Agreement Not to Solicit Employees. The Employee agrees that during the period commencing on the Effective Date and ending on the date that is twelve (12) months after the Date of Termination (the "Restricted Period") the Employee shall not, directly or indirectly, solicit or recruit any person who is as of the Date of Termination (or was within twelve (12) months prior to the Date of Termination) an employee of the Company or an affiliate (provided, however, that the foregoing provision shall not prohibit solicitations made by the Employee to the general public).

(d) Non-Disparagement. The Employee shall not, while employed by the Company or at any time thereafter, disparage the Company (or any affiliate) in any way that materially and adversely affects the goodwill, reputation or business relationships of the Company or the affiliate with the public generally, or with any of its customers, vendors or employees. The Company shall not (and shall use reasonable efforts to procure that its directors and officers shall not) disparage the Employee in any way that materially and adversely affects him or his reputation or business relationships. Notwithstanding the foregoing, this Section shall not prohibit either Party from rebutting claims or statements made by any other person.

(e) Enforcement. The Employee acknowledges that he has carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed upon him pursuant to this Section 4. The Employee agrees that each of the restraints contained herein are necessary for the protection of the goodwill, Confidential Information and other legitimate
interests of the Company; that each and every one of these restraints is reasonable in respect to subject matter, length of time and geographic area. The Employee further acknowledges that, were he to breach any of the covenants contained in this Section 4, the damage to the Company would be irreparable. The Employee therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to injunctive relief against any breach or threatened breach by the Employee of any of said covenants.

5. Severability. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

6. Mutual Drafting. Each Party has had the opportunity to be represented by counsel of its choice in negotiating this Agreement. This Agreement shall therefore be deemed to have been negotiated and prepared at the joint request, direction and construction of the Parties, at arm's length, with the advice and participation of counsel, and shall be interpreted in accordance with its terms without favor to either Party, and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any of the provisions of this Agreement.





7.
Section 409A of the Internal Revenue Code .

(a) Notwithstanding anything contained in this Agreement to the contrary, to the maximum extent permitted by applicable law, amounts payable to the Employee pursuant to Section 3 are intended to be made in reliance upon Treas. Reg. § l.409A-l(b)(4) (short-term deferral) or Treas. Reg. § l .409A-l (b)(9) (involuntary separation pay) or any other applicable exemption under Section 409A of the Code. No amounts payable under this Agreement upon the Employee's termination of employment shall be payable unless the Employee's termination of employment constitutes a "separation from service" within the meaning of Treas. Reg. § l.409A­ l(h) (a "Separation from Service") . The Company and the Employee intend that their exercise of authority or discretion under this Agreement shall be consistent with the foregoing exemptions under, or comply with, Section 409A of the Internal Revenue Code of 1986, as amended ("Section 409A"). If any provision of this Agreement does not satisfy the requirements of Section 409A, such provision shall nevertheless be applied in a manner consistent with those requirements.

(b) If the Employee is a "specified employee" (as defined in Section 409A of the Code), as determined by the Company in accordance with Section 409A of the Code, on the date of the Employee's Separation from Service, to the extent that the payments or benefits under this Agreement are subject to Section 409A of the Code and the delayed payment or distribution of all or any portion of such amounts to which the Employee is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, then such portion deferred pursuant to this Section 7(b) shall be paid or distributed to the Employee in a lump sum on the earlier of (i) the date that is six (6)-months following the Employee's Separation from Service, (ii) the date of the Employee's death or (iii) the earliest date as is permitted under Section 409A of the Code. Any remaining payments due under the Agreement shall be paid as otherwise provided herein.
(c) If any prov1s10n of this Agreement would subject the Employee to additional tax or interest under Section 409A, the Company and the Employee shall amend this Agreement, or take such other actions as the Employee and the Company deem reasonably necessary or appropriate, to comply with the requirements of Section 409A of the Code and the Treasury Regulations thereunder (and any applicable transition relief) while preserving the economic agreement of the parties. In no event whatsoever shall the Company be liable for any tax, interest or penalties that may be imposed on the Employee under Section 409A. Notwithstanding the foregoing, no particular tax result for the Employee with respect to any income recognized by the Employee in connection with this Agreement is guaranteed. Neither the Company nor any of its affiliates shall have any obligation to indemnify or otherwise hold the Employee harmless from any or all such taxes, interest, or penalties, or liability for any damages related thereto. The Employee acknowledges that he has been advised to obtain independent legal, tax or other counsel in connection with Section 409A. Each payment under this Agreement is intended to be a "separate payment" and not a series of payments for purposes of Section 409A. Any payments or reimbursements of any expenses provided for under this Agreement shall be made in accordance with Treas. Reg. § l.409A-3(i)(l)(iv). All references in this Agreement to Section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under Section 409A.

8. Governing Law . This Agreement shall be construed and enforced under and be governed in all respects by the laws of the State of California, without regard to the conflict of laws principles thereof.

9.
Binding Arbitration.

(a) Generally. The Employee and the Company agree that any controversy or claim arising out of or relating to this Agreement, the employment relationship between the Employee and the Company, or the termination thereof, including the arbitrability of any controversy or claim, which cannot be settled by mutual agreement will be finally settled by binding arbitration in accordance with the Expedited Arbitration Procedures of Judicial Arbitration & Mediation Service, Inc. ("JAMS"), as set forth in Section 16.1 et seq. of the JAMS rules, or any successor provision thereto, as follows: Any Party aggrieved will deliver a notice to the other Party setting forth the specific points in dispute. Any points remaining in dispute twenty (20) days after the giving of such notice may, upon ten ( I 0) days' notice to the other party, be submitted to JAMS arbitration conducted before a single neutral arbitrator in Dallas, Texas. The arbitrator shall be appointed by agreement of the parties hereto or, if no agreement can be reached, by JAMS. The arbitrator may enter a default decision against any Party who fails to participate in the arbitration proceedings. Notwithstanding the foregoing, a Party who seeks equitable relief, including injunctive relief, shall not be obligated to utilize the arbitration proceedings required hereunder and instead may seek such relief in any state or federal court sitting in Dallas, Texas.

(b) Binding Effect. The decision of the arbitrator on the points in dispute will be final, unappealable and binding, and judgment on the award may be entered in any court having jurisdiction thereof. The arbitrator shall only be authorized to interpret the provisions of this Agreement, and shall not amend, change or add to any such provisions. The




Parties agree that this provision has been adopted by the Parties to rapidly and inexpensively resolve any disputes between them and that this provision will be grounds for dismissal of any court action commenced
by either Party with respect to this Agreement, other than post-arbitration actions seeking to enforce an arbitration award or proceedings seeking equitable relief as permitted under Section 9(a). In the event that any court determines that this arbitration procedure is not binding, or otherwise allows any litigation regarding a dispute, claim, or controversy covered by this Agreement to proceed, the Parties hereto hereby waive any and all right to a trial by jury in or with respect to such litigation.

(c) Fees and Expenses. Except as otherwise provided in this Agreement or by applicable law, the arbitrator will be authorized to apportion its fees and expenses as the arbitrator deems appropriate and the arbitrator will be authorized to award the prevailing party its fees and expenses (including attorneys' fees). In the absence of any such apportionment or award, each Party will bear its own expenses and the fees of its own attorney.

(d) Confidentiality . The Parties and the arbitrator will keep confidential, and will not disclose to any person, except the parties' advisors and legal representatives, or as may be required by law, the existence of any controversy under this Section 9, the referral of any such controversy to arbitration or the status or resolution thereof.

(e) Waiver. The Employee acknowledges that arbitration pursuant to this Agreement includes all controversies or claims of any kind (e.g., whether in contract or in tort, statutory or common law, legal or equitable) now existing or hereafter arising under any federal, state, local or foreign law, including, but not limited to, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Americans With Disabilities Act and all similar federal, state and local laws, and the Employee hereby waives all rights thereunder to have a judicial tribunal and/or a jury determine such claims.

(f) Acknowledgment . The Employee acknowledges that before agreeing to participate in this Agreement, the Employee has had the opportunity to consult with any attorney or other advisor of the Employee's choice, and that this provision constitutes advice from the Company to do so if the Employee chooses. The Employee further acknowledges that the Employee has agreed to enter into this Agreement of the Employee's own free will, and that no promises or representations have been made to the Employee by any person to induce the Employee to enter into this Agreement other than the express terms set forth herein. The Employee further acknowledges that the Employee has read this Agreement and understands all of its terms, including the waiver of rights set forth in this Section 9.

10. Assignment. Neither the Company nor the Employee may make any assignment of this Agreement or any interest herein, by operation oflaw or otherwise, without the prior written consent of the other; provided, however, that the Company may assign its rights and obligations to any affiliate or a successor to the business of the Company or all or substantially all of the assets of the Company without the consent of the Employee. This Agreement shall inure to the benefit of and be binding upon the Company and the Employee, their respective successors, executors, administrators, heirs and permitted assigns.

11. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving Party. The failure of either Party to require the performance of
any term or obligation of this Agreement, or the waiver by either Party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

12. Notices. Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person, consigned to a reputable national courier service or deposited in the United States mail, postage prepaid, registered or certified, and addressed to the Employee at his last known address on the books of the Company or, in the case of the Company, at its principal place of business, attention of the Legal Department or to such other address as any Party may specify by notice to the other actually received.

13. Entire Agreement. This Agreement constitutes the entire agreement between the Parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the Parties with respect to such subject matter, including without limitation any previous employment agreements entered into between Employee and the Company or any of its affiliates.

14. Amendment. This Agreement may be amended or modified only by a written instrument signed by the Employee and by an expressly authorized representative of the Company .





15. Headings. The headings and captions in this Agreement are for convenience only, and in no way define or describe the scope or content of any provision of this Agreement.

16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.
[Remainder of page is intentionally blank.]










































SIGNATURE PAGE TO EMPLOYMENT AGREEMENT
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound hereby, have hereunto set their hands under seal, effective as of the date first set forth above.


EXECUTIVE
 
 
 
/s/ Richard Tilley
 
Richard Tilley
 
 
 
FOUNDATION BUILDING MATERIALS, LLC
 
 
By:   /s/ Ruben Mendoza
 
Name: Ruben Mendoza
 
Title: President and CEO
 






































SIGNATURE PAGE TO EMPLOMENT AGREEMENT




Exhibit A

GENERAL RELEASE OF CLAIMS

[The language in this Release may change based on legal developments and evolving best practices; this form is provided as an example of what will he included in the final Release document.]


This General Release of Claims (“ Release ”) is entered into as of this _____ day of ________, ____, between _________ (“ Employee ”), and Foundation Building Materials, LLC (the “ Company ”) (collectively referred to herein as the “ Parties ”).

WHEREAS, the Employee and the Company are parties to that certain Employment Agreement dated as of __________, 2015 (the “ Agreement ”);

WHEREAS, the Parties agree that Employee is entitled to certain severance benefits under the Agreement, subject to Employee’s execution of this Release; and

WHEREAS, the Company and the Employee now wish to fully and finally to resolve all matters between them.
NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to the Employee pursuant to the Agreement, the adequacy of which is hereby acknowledged by the Employee, and which the Employee acknowledges that he or she would not otherwise be entitled to receive, the Employee and the Company hereby agree as follows:

1. General Release of Claims by the Employee.
(a) The Employee, on behalf of himself or herself and his or her executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which the Employee is or has been a participant by virtue of his or her employment with or service to the Company (collectively, the "Company Releasees"), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys' fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, "Claims"), which the Employee has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever the Employee's employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, and claims of any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, et seq. : the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et seq. : the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, et seq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C Section 621, et seq . (the "ADEA''); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, et @.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 et seq. : the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 et seq. ; and the California Fair Employment and Housing Act, California Government Code Section 12940, et seq .
Notwithstanding the generality of the foregoing, the Employee does not release the following claims:
(i) Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;
(ii) Claims for workers' compensation insurance benefits under the terms of any worker's compensation insurance policy or fund of the Company;
(iii) Claims pursuant to the terms and conditions of the federal law known as COBRA;
(iv) Claims for indemnity under the bylaws of the Company, as provided for by applicable law or under any applicable insurance policy with respect to the Employee's liability as an employee, director or officer of the Company;
(v) Claims based on any right the Employee may have to enforce the Company's executory obligations under the Agreement; and




(vi) Claims the Employee may have to vested or earned compensation and benefits.

(b) THE EXECUTIVE ACKNOWLEDGES THAT HE OR SHE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR."
BEING AWARE OF SAID CODE SECTION, THE EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS HE OR SHE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.
[Note: Clauses (c), (d) and (e) apply only if the Employee is age 40 or older at time of termination]

(c) The Employee acknowledges that this Release was presented to him or her on the date indicated above and that the Employee is entitled to have twenty-one (21) days' time in which to consider it. The Employee further acknowledges that the Company has advised him or her that he or she is waiving his or her rights under the ADEA, and that the Employee should
consult with an attorney of his or her choice before signing this Release, and the Employee has had sufficient time to consider the terms of this Release. The Employee represents and acknowledges that if Employee executes this Release before twenty-one (21) days have elapsed, the Employee does so knowingly, voluntarily, and upon the advice and with the approval of the Employee's legal counsel (if any), and that the Employee voluntarily waives any remaining consideration period.

(d) The Employee understands that after executing this Release, the Employee has the right to revoke it within seven (7) days after his or her execution of it. The Employee understands that this Release will not become effective and enforceable unless the seven (7) day revocation period passes and the Employee does not revoke the Release in writing. The Employee understands that this Release may not be revoked after the seven (7) day revocation period has passed. The Employee also understands that any revocation of this Release must be made in writing and delivered to the Company at its principal place of business within the seven (7) day period.

(e) The Employee understands that this Release shall become effective, irrevocable, and binding upon the Employee on the eighth (8 th ) day after his or her execution of it, so long as the Employee has not revoked it within the time period and in the manner specified in clause (d) above.

(f) The Employee further understands that the Employee will not be given any severance benefits under the Agreement unless this Release is effective on or before the date that is thirty (30) days following the date of the Employee's termination of employment.

2. No Assignment. The Employee represents and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim that the Employee may have against the Company Releasees. The Employee agrees to indemnify and hold harmless the Company Releasees from any liability, claims, demands, damages, costs, expenses and attorneys' fees incurred as a result of any such assignment or transfer from the Employee.

3. Severability . If any portion or provision of this Release shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Release, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

4. Headings. The headings and captions in this Release are for convenience only, and in no way define or describe the scope or content of any provision of this Agreement.

5. Mutual Drafting. Each Party has had the opportunity to be represented by counsel of its choice in negotiating this Agreement. This Agreement shall therefore be deemed to have been negotiated and prepared at the joint request, direction and construction of the Parties, at arm's length, with the advice and participation of counsel, and shall be interpreted in accordance with its terms without favor to either Party, and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any of the provisions of this Agreement.





6. Governing Law . This Release shall be construed and enforced under and be governed in all respects by the laws of the State of California, without regard to the conflict of laws principles thereof.

7. Entire Agreement. This Release and the Agreement constitute the entire agreement of the Parties in respect of the subject matter contained herein and therein and supersede all prior or simultaneous representations, discussions, negotiations and agreements, whether written or oral. This Release may be amended or modified only with the written consent of the Employee and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

8. Counterparts. This Release may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

(Signature Page Follows)































IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing Release as of the date first written above.


EXECUTIVE

______________________________



FOUNDATION BUILDING MATERIALS, LLC


By:_________________________
Name:
Title



























SIGNATURE PAGE TO RELEASE





Certification of Principal Executive Officer
Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
 
I, Ruben Mendoza, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Foundation Building Materials, Inc.;
 
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;
 
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;
 
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:
 
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;

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;

 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; and
 
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
 
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):
 
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
 
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.
 
 
 
Date: May 9, 2018
/s/ Ruben Mendoza
 
Ruben Mendoza
 
President and Chief Executive Officer
 
 
 
 





Certification of Principal Financial Officer
Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
 
I, John Gorey, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Foundation Building Materials, Inc.;
 
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;
 
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;
 
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:
 
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;

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;
 
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; and
 
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
 
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):
 
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
 
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.
 
 
 
Date: May 9, 2018
/s/ John Gorey
 
John Gorey
 
Chief Financial Officer
 
 
 
 





Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
 
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) (the “Act”), each of the undersigned officers of Foundation Buildings Materials, Inc., a Delaware corporation (the “Company”), does hereby certify, to each such officer’s knowledge, that:
 
The Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 (the “Periodic Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
Date: May 9, 2018
/s/ Ruben Mendoza
 
Ruben Mendoza
 
President and Chief Executive Officer
 
 
 
/s/ John Gorey
 
John Gorey
 
Chief Financial Officer
 
 
 
 
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.