2019 ANNUAL REPORT
Beacon Roofing Supply, Inc.
505 Huntmar Park Drive, Suite 300
Herndon, VA 20170
Phone: 571.323.3939
www.BECN.com
OUR MISSION
To be the preferred supplier of roofing
materials and complementary building
products in North America.
Beacon is the largest publicly traded distributor of roofing
materials and complementary building products in the
United States and Canada. Founded in 1928, we are among
the oldest and most established distributors in the industry.
We offer one of the most extensive assortments of high-
quality branded products in the industry, with over 140,000
SKUs available across our 500+ branch network that serves
over 110,000 customers across all 50 states in the U.S. as
well as six provinces in Canada. Our customer base includes
a diverse population of residential and non-residential
building contractors from the markets in which we operate.
These local, regional, and national contractors work on new
construction projects as well as the repair or remodeling of
residential and commercial properties. A significant number
of our customers have relied on us as their vendor of choice
for decades.
Our branch-based operating model enables us to benefit
from the resources and scale efficiencies of being a
national distributor while still providing our customers
with specialized products and personalized local services
tailored to their specific geographic region. We provide
our customers with a comprehensive array of value-added
benefits, including access to an industry-leading digital
platform and an innovative delivery model. The services
and tools we provide are focused on supporting the entire
business lifecycle and enhancing our customers’ ability to
meet and exceed the needs of their clientele. The diversity
of our product offerings and non-discretionary nature of
the demand for our products allow our business model to
remain stable, even during times of economic downturn.
Our successful growth strategy relies on three key initiatives:
Provide exceptional customer service
and product expertise.
Expand our product offerings and
cross-selling activities.
Pursue additional opportunities to
enhance our presence in key markets.
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We have a strong foundation for continued growth based
on our unified, highly scalable operations platform and our
ability to seamlessly pursue additional opportunities that
expand or complement our existing operations across all the
regions that we serve.
OUR PRODUCTS
Our product portfolio includes residential and non-residential roofing products as well as complementary building products.
Our product lines are designed to meet the requirements of our customers, comprised mainly of contractors that are
engaged in new construction or renovation projects. The products that we distribute are supplied by the industry’s leading
manufacturers of high-quality roofing materials, siding, insulation, wallboard, acoustical ceilings, waterproofing, windows,
doors, decking and related products.
RESIDENTIAL ROOFING PRODUCTS
• Asphalt Shingles
• Synthetic Underlayment
• Synthetic Slate and Tile
• Wood Shingles and Shakes
• Clay Tile
• Concrete Tile
• Slate
• Nails and Fasteners
• Metal Edgings and Flashings
• Prefabricated Flashings
• Nail Base Insulation
• Ridge and Soffit Vents
• Metal Roofing
• Solar Systems
• Felts
NON-RESIDENTIAL ROOFING PRODUCTS
• Single-Ply Roofing
• Metal Edges and Flashings
• Asphalt
• Metal
• Modified Bitumen
• Build-Up Roofing
• Cements and Coatings
• Insulation (flat stock/tapered)
• Commercial Fasteners
• Smoke/Roof Hatches
• Sheet Metal
(copper/aluminum/steel)
• Roofing Tools
• PVC Membrane
• TPO Membrane
• EPDM Membrane
COMPLEMENTARY BUILDING PRODUCTS
• Vinyl Siding
• Skylights
• Fiber Cement Siding
• Waterproofing
• Wallboard
• Insulation
• Gutters and Downspouts
• Decking and Railing
• Acoustic Ceilings
• Air Barrier
• Stone Veneer
• Concrete Restoration Systems
• Windows
• Doors
• Steel Stud Framing
OUR STRENGTHS
OMNI-CHANNEL APPROACH
500+ BRANCH LOCATIONS
BEACON PRO+ DIGITAL SUITE
BEACON OTC NETWORK
(ON TIME & COMPLETE)
Our branch network spans across all
50 states in the U.S. and 6 provinces in
Canada.
Tools that help our customers save
time, work more efficiently, and grow
their business.
A network of branches sharing resources
and systems to provide an optimal
customer delivery experience.
SUPPORT THROUGHOUT THE PROJECT LIFECYCLE
Customer Engagement Customer Retention/Innovation
CLOSE OUT THE JOB
• Online Bill Pay &
Order History
• Promotion Tracking
DELIVERY
• SAFETY
• Product Availability
• Triple Check / Accuracy
• Regional Service Area
• Delivery Tracking
PURCHASE MATERIALS
• Beacon PRO+
• 3D+ Measure-to-Order
• TRI-BUILT®
ESTABLISH CREDIBILITY
• Certification Programs
• Custom Marketing Programs
• HomeAdvisor Partnership
LEAD GENERATION
• HomeAdvisor Partnership
• Digital Lead Generation
• Storm Tracking
SELL & MANAGE THE JOB
• In-Home Visualizer
with Beacon 3D+
• Homeowner Financing
• Project Management
OUR RESULTS
2019 REPRESENTED OUR 9TH CONSECUTIVE YEAR OF RECORD NET
SALES LEVELS, AND WE ONCE AGAIN DEMONSTRATED ROBUST
OPERATING CASH PERFORMANCE.
Consolidated net sales increased 10.7%, benefiting from the full-year contributions of our 2018 acquisitions of Allied
Building Products, Tri-State Builder’s Supply and Atlas Supply. Existing market daily sales increased 2.9%, primarily driven
by a 6.6% increase from our residential roofing product line compared to 2018. Gross margins decreased slightly relative
to the prior year, reflecting the combination of softer than expected market demand, an unfavorable price-cost dynamic
and competitive pricing pressures. Overall operating expenses increased in 2019, although the benefits of late-year cost
rationalization efforts became apparent in our fourth quarter results.
In 2019, we reached a significant milestone as we completed the successful integration of Allied Building Products;
however, the period also represents a transition year, as we turn our full focus back to our existing business. Our 2020
strategic plan looks to fully leverage the platform Beacon has built over the past 5 years, with a heightened focus on
growing organic sales, improving our operational execution and enhancing the overall value proposition for our customers.
NET SALES
OPERATING CASH FLOW
$7.11
$6.42
$4.13
$4.38
$2.52
2015
2016
2017
2018
2019
$ BILLIONS
$ MILLIONS
6
DEAR
SHAREHOLDERS
& FRIENDS
Fiscal year 2019 represented our
fifteen-year anniversary as a public
company, and also welcomed
Julian Francis as the 3rd CEO to
lead under the BECN ticker. Back
in 2004, Beacon was a regional
distributor, with 67 branches in 12
states and 3 Canadian provinces
with exterior product sales of $653
million. This year, we generated
over $7 billion in sales of exterior
and interior products from our 500+
branch network that serves all 50
states and 6 Canadian provinces.
Beacon Roofing Supply
Chief Executive Officer, Julian G. Francis
We are very proud of our Company’s legacy
of growth. In 2019, Beacon was named to the
prestigious Fortune 500 list for the first time.
2019 was a year highlighted by the successful completion
of the integration of Allied Building Products, where we
exceeded our original cost synergy objectives. Our systems,
processes, branch network and employees are now all
unified as one company. This combination, along with
our purchase of Roofing Supply Group in fiscal year 2016,
represents the culmination of our significant transformative
efforts that have positioned us well after a decade of
industry consolidation.
During 2019, we added nine new branches to our network.
Greenfield expansion has been an important historical
complement to our acquisition growth, as seen by the 89
new locations we have added since our IPO. We extended
our leadership position within digital and are creating an
omni-channel experience for customers. Our digital platform
engages contractors throughout the project lifecycle by
assisting in sourcing and winning business, creating a more
efficient ordering process, assuring reliable product delivery
and finishing the order through online bill pay. We are also
advancing our market-based branch operating model by
designating it as Beacon’s On Time & Complete (OTC)
Network. Customers are benefiting from improved delivery
timetables and increased product availability, while Beacon
simultaneously recognizes operating cost benefits, better
inventory management and fleet efficiencies.
In 2019, we achieved record net sales and once again
demonstrated robust operating cash performance. Fiscal
year 2019 net sales were $7.11 billion, a 10.7% gain relative
to 2018. Existing market sales grew 3.3%, including a 7.0%
increase from our residential roofing products line. We
generated $212.7 million in cash flow from operations in
2019, continuing our strong trend of recent results that have
generated a total of more than $1 billion in operating cash
over the past three fiscal years.
As we move forward into Fiscal 2020, the potential to
upgrade financial performance at Beacon is before us.
We will do this by pivoting from major acquisitions to driving
growth organically and improving operational execution by
utilizing all the benefits afforded by our scale.
We have an incredible opportunity to lead the building
products industry into the next decade. Our management
team will continue to seek new opportunities for growth
and margin expansion while our core business continues to
demonstrate its proven ability to remain stable and generate
cash through any economic cycle. In Fiscal 2020, we are
confident that we will build upon this strong foundation.
We appreciate the continued support from the investment
community as well as our valued customers, suppliers and
employees.
Sincerely,
JULIAN G. FRANCIS
President and CEO
ROBERT R. BUCK
Chairman
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934
For the Fiscal Year Ended September 30, 2019
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Transition Period from
to
Commission File Number 000-50924
BEACON ROOFING SUPPLY, INC.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
36-4173371
I.R.S. Employer
Identification No.
505 Huntmar Park Drive, Suite 300, Herndon, VA 20170
Address of Principal Executive Offices, Zip Code
(571) 323-3939
Registrant’s telephone number, including area code
Title of each class
Common Stock, $0.01 par value
Securities registered pursuant to section 12(b) of the Act:
Trading Symbol
BECN
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes È No ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer È
Non-accelerated filer ‘
‘
Accelerated filer
Smaller reporting company ‘
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
The aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the closing price
at which the common stock was sold as of the end of the second quarter ended March 31, 2019, was $2.00 billion.
The number of shares of common stock outstanding as of October 31, 2019 was 68,585,920.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12, 13 and 14) will be incorporated by reference from the Registrant’s definitive proxy
statement, which will be filed pursuant to Regulation 14A with the United States Securities and Exchange Commission (“SEC”) within 120 days
after the end of the fiscal year to which this report relates.
BEACON ROOFING SUPPLY, INC.
Index to Annual Report on Form 10-K
Year Ended September 30, 2019
PART I
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
13
20
20
22
22
PART II
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A.
Item 9B.
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25
29
44
46
47
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51
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
Item 15.
Item 16.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
55
2
FORWARD-LOOKING STATEMENTS
The matters discussed in this Form 10-K that are forward-looking statements are based on current
management expectations that involve substantial risks and uncertainties, which could cause actual results to
differ materially from the results expressed in, or implied by, these forward-looking statements. These statements
can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as
“aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “will
be,” “will continue,” “will likely result,” “would” and other words and terms of similar meaning in conjunction
with a discussion of future operating or financial performance. You should read statements that contain these
words carefully, because they discuss our future expectations, contain projections of our future results of
operations or of our financial position or state other “forward-looking” information.
We believe that it is important to communicate our future expectations to our investors. However, there are
events in the future that we are not able to accurately predict or control. The factors listed under Item 1A, Risk
Factors, as well as any cautionary language in this Form 10-K, provide examples of risks, uncertainties and
events that may cause our actual results to differ materially from the expectations we describe in our forward-
looking statements. Although we believe that our expectations are based on reasonable assumptions, actual
results may differ materially from those in the forward-looking statements as a result of various factors,
including, but not limited to, those described under Item 1A, Risk Factors and elsewhere in this Form 10-K.
Forward-looking statements speak only as of the date of this Form 10-K. Except as required under federal
securities laws and the rules and regulations of the SEC, we do not have any intention, and do not undertake, to
update any forward-looking statements to reflect events or circumstances arising after the date of this Form 10-K,
whether as a result of new information, future events or otherwise. As a result of these risks and uncertainties,
readers are cautioned not to place undue reliance on the forward-looking statements included in this Form 10-K
or that may be made elsewhere from time to time by or on behalf of us. All forward-looking statements
attributable to us are expressly qualified by these cautionary statements.
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ITEM 1. BUSINESS
PART I
Unless the context suggests otherwise, the terms “Beacon,” the “Company,” “we,” “our” or “us” are referring
to Beacon Roofing Supply, Inc.
Overview
Beacon is the largest publicly traded distributor of roofing materials and complementary building products
in the United States and Canada. We are among the oldest and most established distributors in the industry. The
complementary building products we distribute include siding, windows, insulation, waterproofing systems,
wallboard, acoustical ceilings, and other specialty exterior and interior building products. We purchase products
from a large number of manufacturers and then distribute these goods to a customer base consisting of
contractors, and to a lesser extent, home builders, retailers, and other building materials suppliers.
As of September 30, 2019, we operated 529 branches throughout all 50 states in the U.S. and 6 provinces in
Canada. We offer one of the most extensive assortments of high-quality branded products in the industry, with
approximately 140,000 SKUs available across our branch network, enabling us to deliver products to serve over
110,000 customers on a timely basis.
For the fiscal year ended September 30, 2019 (“fiscal year 2019” or “2019”), residential roofing products
comprised 43.3% of our sales, non-residential roofing products accounted for 24.0% of our sales, and
complementary products provided the remaining 32.7% of our sales. Approximately 97.4% of our net sales were
to customers located in the United States.
We provide our customers with a comprehensive array of value-added benefits, including access to an
industry-leading digital platform that we continue to enhance and improve. The services and tools we provide are
focused on supporting the entire business lifecycle and enhancing our customers’ ability to meet and exceed the
needs of their clientele (see “Our Products and Services” for a full listing). We believe these value-added benefits
distinguish us from our competition and promote high levels of customer retention. Our ability to save our
customers time and money also enables us to achieve attractive gross profit margins on our product sales. We
have earned a reputation for providing a high level of product availability and high-quality customer service
thanks to our experienced employees who provide timely, accurate, and safe delivery of our products.
Our customer base includes a diverse population of residential and non-residential building contractors from
the markets in which we operate. These local, regional, and national contractors work on new construction
projects as well as the repair or remodeling of residential and commercial properties, particularly in the areas of
roofing/re-roofing. We utilize a branch-based operating model that allows branches to maintain local customer
relationships and benefit from our centralized infrastructure. This operating model allows us to benefit from the
resources and scale efficiencies of being a national distributor while still providing customers with specialized
products and personalized local services tailored to their specific geographic region.
Since our initial public offering (“IPO”) in 2004, we have achieved growth through completing strategic and
complementary acquisitions, opening new branch locations, and broadening the scope of our product offerings.
We have grown from net sales of $652.9 million in fiscal year 2004 to net sales of $7.1 billion in fiscal year
2019, representing a compound annual growth rate (“CAGR”) of 17.3%. Over the same period, income from
operations has increased from $34.7 million to $147.8 million, representing a CAGR of 10.1%. Our organic
growth, which includes growth from existing and newly opened branches (“greenfields”) but excludes growth
from recently acquired branches, has averaged a CAGR of 4.7% per annum since 2004. The successful execution
of our growth strategy is summarized by the following:
• We have completed 46 strategic and complementary acquisitions since 2004, highlighted by the
acquisitions of Allied Building Products Corp. (“Allied”) for $2.88 billion in 2018 (the “Allied
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Acquisition”) and Roofing Supply Group, LLC (“RSG”) for $1.17 billion in 2016 (the “RSG
Acquisition”). These acquisitions expanded our geographic footprint, enhanced our scale and market
presence, diversified our product offerings, and positioned us to provide new growth opportunities that
will increase our long-term profitability.
• We have opened 89 new branch locations since 2004, allowing us to establish a greater presence across
the regions that we serve. In 2019 alone, we opened nine new branch locations across Alabama,
California, Florida, Nevada, North Carolina, Pennsylvania and Texas.
Our Industry
Market Size
Based on management’s estimates, we believe the roofing distribution market in the United States and
Canada represents approximately $26 billion in revenue with roughly 60% of the market in residential roofing
and 40% in commercial. We also participate in other exterior and interior building products categories, including
siding, wallboard, acoustical ceilings, waterproofing, windows and insulation. Collectively, we believe these
other building products have a larger addressable market opportunity than our primary roofing distribution
business.
Demand Drivers
We believe the majority of roofing demand is driven by re-roofing activity (estimated at 80-90%), with the
remaining balance being tied to new construction. Re-roofing projects are considered to be necessary
maintenance and repair expenditures and are therefore less likely to be postponed during periods of recession or
slower economic growth. As a result, demand for roofing products historically has been less volatile than overall
demand for construction products.
Our complementary building products demand shows exposure to both the residential and commercial
sectors. These products possess greater exposure to new residential/commercial construction than within roofing,
but they also have less seasonality, and lower exposure to weather conditions and severe storm volatility.
Regional variations in economic activity influence the level of demand for roofing products across the
United States. Of particular importance are regional differences in the level of new home construction and
renovation. Demographic trends, including population growth and migration, contribute to the regional variations
through their influence on regional housing starts and existing home sales.
In addition to our domestic operations, we also operate in 6 provinces across Canada. These international
locations represented approximately 2.6% of our total net sales for the fiscal year ended September 30, 2019. We
expect overall demand for operations in Canada to grow at rate similar to our United States operations. For
further geographic information, see Notes 4 and 14 in the Notes to the Consolidated Financial Statements.
Distribution Channels
Wholesale distribution is the primary distribution channel for both residential and commercial roofing
products. Wholesale roofing product distributors serve the important role of facilitating the purchasing
relationships between roofing materials manufacturers and thousands of contractors. Wholesale distributors can
maintain localized inventories, extend trade credit, give product advice and provide delivery and logistics
services.
Given significant consolidation in the past decade, Beacon and two other distributors now represent over
50% of the industry. The industry is characterized by these “national” distributors, a large number of local and
regional roofing supply participants, as well as home improvement retailers and lumberyards. Our competition
primarily involves the local, regional and national specialty roofing distributors.
5
Our complementary products are distributed from traditional exteriors locations or branches designed to
address a specific product and customer subset (e.g., interiors). The competitive landscape within interiors shares
similar fragmentation characteristics to roofing, as four large participants, including Beacon, hold approximately
a 50% combined position in the market. The other product categories are typically more fragmented and have
more meaningful involvement from manufacturer direct sales, home improvement and specialty retailers and
lumber yards.
Our Strengths
We believe the sales and earnings growth we have achieved over time has been, and will continue to be,
driven by our primary competitive strengths, which include the following:
• Leading distribution platform with a national scope. We maintain leading positions in key
metropolitan markets across all regions that we serve, which currently includes all 50 states throughout
the U.S. and 6 Canadian provinces. We utilize a branch-based operating model that benefits from the
resources and scale efficiencies of a national distributor.
•
Strategic geographic presence and regional specialization. Our geographic footprint is designed to
provide advantages in the regional markets we serve. We provide our customers with specialized
products and personalized local services tailored to their specific geographic region. This focus on
customer service allows us to provide useful guidance to our customers throughout the project
lifecycle.
• Diversified and stable business model. Our business has been protected in times of economic
downturn because of the non-discretionary nature of the demand for our products as well as the
diversity of both our product offerings and our customer base. For the fiscal year ended September 30,
2019, no single customer accounted for more than 1% of our net sales. We have a long history of
organic sales growth and healthy gross margins through a variety of economic cycles.
•
•
Industry-leading digital platform. We provide industry-leading digital solutions, including Beacon
PRO+, our innovative e-commerce portal, and Beacon 3D+, an in-home visualizer and dynamic
modeling tool for our residential customers. These platforms help our customers save time, work more
efficiently and grow their business.
Strong cash flow generation. We have increased net sales in thirteen of the fifteen fiscal years since
our IPO, including increases in each of the last nine consecutively. Our track record of growth,
combined with limited capital expenditure requirements, has resulted in strong cash flow generation
that has allowed us to manage our debt leverage effectively.
• Experienced management team with a successful track record of growth and integration. Our key
employees, including executive officers, division presidents, and branch managers, are among the most
experienced members of the roofing and building materials industry and have a track record of
achieving growth and delivering profitability. Since our 2004 IPO, the Beacon management team has
successfully completed and integrated 46 acquisitions and opened 89 new greenfield locations. We
have a history of improving the financial and operating performance of our acquired businesses,
allowing us to achieve incremental growth following integration onto our platform.
• Well-designed technological infrastructure that continues to evolve. We have made a significant
investment in our internal information systems and technological resources. Nearly our entire branch
network operates on the same management information systems, providing us with a consistent
platform to deliver excellent customer service and achieve operating efficiencies in purchasing, pricing
and inventory management. Our unified platform has promoted the seamless integration of all our
acquired businesses and allows us to pursue additional growth opportunities without concerns of
significant additional investment.
6
Our Growth Strategy
Our objective is to be the preferred supplier of roofing and other complementary building product materials
across markets in the United States and Canada while continuing to increase net sales, maximize profitability and
maintain a strong balance sheet. We plan to attain these goals by executing the following initiatives:
•
Selectively pursue opportunities for organic growth and strategic acquisitions. We believe that there
will be meaningful opportunities to further expand or intensify our geographic focus in contiguous or
existing regions. Our disciplined approach to opening new branches focuses on locations that are:
(1) within existing markets; (2) where existing customers have expanded into new markets; or (3) in
areas that have limited or no acquisition candidates and are a good fit with our business model and
culture. We believe we can continue to expand and improve our distribution platform by strategically
acquiring additional building product distributors in locations that are new or complement our existing
operations in an area.
• Expand product offerings and increase cross-selling activities. Due to the unique characteristics of
each geographic region, our local customers typically require market-specific product offerings. We
believe we have one of the most extensive offerings of high-quality branded products in the industry,
with approximately 140,000 SKUs available across our branch network, and we feel that there are
opportunities for our branches to expand their current product rosters. This will create additional
opportunities for our branches to cross-sell more products throughout our existing network. In
particular, we seek to expand non-residential roofing sales into markets where we currently sell mostly
residential roofing. In addition, we work closely with customers and suppliers to identify new products
and services, and continue to expand our product offering to include complementary building materials
such as windows, siding, doors, waterproofing systems, insulation and metal fabrication.
• Continue to provide exceptional customer service and expertise. We provide a comprehensive array
of high-quality products and offer value-added services. In fiscal year 2019, we were able to support
our customers by fulfilling approximately 99.1% of warehouse orders through our in-stock inventory as
a result of the breadth and depth of the inventory maintained at our local branches. We believe that our
focus on providing both value-added services and accurate and rapid order fulfillment enables us to
attract and retain customers.
Our Products and Services
Products
The ability to provide a broad range of products is essential to success in roofing materials distribution. We
carry one of the most extensive arrays of high-quality branded products in the industry, enabling us to deliver a
wide variety of products to our customers on a timely basis. We are able to fulfill the vast majority of our
warehouse orders with inventory on hand because of the breadth and depth of the inventories at our branches.
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Our product portfolio includes residential and non-residential roofing products as well as complementary
building products, including:
Residential
Roofing Products
Asphalt shingles
Synthetic slate and tile
Clay tile
Concrete tile
Slate
Nail base insulation
Metal roofing
Felts
Synthetic underlayment
Wood shingles and shakes
Nails and fasteners
Metal edgings and flashings
Prefabricated flashings
Ridge and soffit vents
Solar systems
Product Portfolio
Non-Residential
Roofing Products
Single-ply roofing
Asphalt
Metal
Modified bitumen
Build-up roofing
Cements and coatings
Insulation (flat stock/tapered)
Commercial fasteners
Metal edges and flashings
Smoke/roof hatches
Sheet metal (copper/aluminum/steel)
Roofing tools
PVC membrane
TPO membrane
EPDM membrane
Complementary
Building Products
Vinyl siding
Fiber cement siding
Wallboard
Insulation
Acoustical ceilings
Stone veneer
Windows
Doors
Skylights
Waterproofing
Gutters and downspouts
Decking and railing
Air barrier
Concrete restoration systems
Steel stud framing
Our product lines are designed to meet the requirements of our customers, comprised mainly of contractors
that are engaged in new construction or renovation projects. The products that we distribute are supplied by the
industry’s leading manufacturers of high-quality roofing materials, siding, insulation, wallboard, acoustical
ceilings, waterproofing, windows, doors, decking and related products (See “Purchasing and Suppliers”).
In the residential market, asphalt shingles comprise the largest share of the products we sell. We also
distribute additional types of shingles, as well as roofing tile, gutters and accessories to complement any type of
roof.
In the non-residential market, single-ply roofing systems and the associated insulation products comprise the
largest share of our product offering. Our single-ply roofing systems consist primarily of Ethylene Propylene
Diene Monomer (synthetic rubber) or “EPDM” and Thermoplastic Olefin or “TPO”, along with other roofing
materials and related components. In addition to the broad range of single-ply roofing components, we sell
asphaltic membranes and the insulation required in most non-residential roofing applications, such as tapered
insulation.
In the area of complementary building products, siding, wallboard, waterproofing and acoustical ceilings
comprise the largest share of the products we sell out of our portfolio. Additionally, we distribute windows,
decking and related exterior shelter products to meet the expansive needs of our customers.
Services
We emphasize superior value-added services to our customers, and our goal is to help our customers save
time, be more efficient and enhance their business. We employ a knowledgeable sales force that possesses an
in-depth understanding of the various roofing and building products we provide. Our sales force is capable of
providing guidance to our customers throughout the lifecycles of their various projects. Specifically, we support
our customers with the following value-added services:
•
advice and assistance on product identification, specification and technical support, and training
services;
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•
•
a large, service ready fleet with a broad footprint supporting timely job site delivery, rooftop loading
and logistical services;
tapered insulation engineered with enhanced computer-aided design and related layout services;
• metal fabrication and related metal roofing design and layout services;
•
•
•
•
access to Beacon PRO+, our e-commerce platform, which provides customers with 24/7 online access
to delivery tracking, order history, promotional tracking and more;
access to Beacon 3D+, our residential estimating tool that helps our customers attract and retain more
business;
exclusive relationships with vendors that help promote delivery tracking and lead generation;
trade credit and online bill pay; and
• marketing support, including project leads for contractors.
Our Customers
We serve over 110,000 customers, comprised of contractors, home builders, building owners, and other
resellers across the United States and Canada. Our customer base varies by size, ranging from relatively small
contractors to large-sized contractors and builders that operate on a national scale. A significant number of our
customers have relied on us as their vendor of choice for decades. We believe that we have strong customer
relationships that our competitors cannot easily displace or replicate. For the fiscal year ended September 30,
2019, no single customer accounted for more than 1% of our net sales.
Our Culture and Employees
We believe that our values-based culture is a key differentiator, which is critical to our success. We pride
ourselves on attracting and retaining highly dedicated and customer-focused employees at all levels of the
organization. We maintain a safety-first environment and strong relations with our employees.
As of September 30, 2019, we had 8,147 employees consisting of 2,371 in sales and marketing, 979 branch
managers and assistant branch managers, 4,012 drivers, delivery helpers and warehouse workers, 715 general and
administrative employees and 70 executives. We have 440 employees that are represented by labor unions and
there are no material outstanding labor disputes.
Sales and Marketing
Sales Strategy
Our sales strategy is to provide a comprehensive array of high-quality products and superior customer
service, both accurately and on time. We believe that our proficiency in order fulfillment and inventory
management and our robust catalog of value-added services, particularly the Beacon PRO+ e-commerce
platform, enable us to attract and retain customers and differentiate ourselves from the competition.
Sales Organization
Our experienced sales force includes individuals responsible for generating sales at the local branch level as
well individuals who focus on our larger, national account customers. We also retain sales personnel with
specialized knowledge in relevant areas like solar and insulation. The breadth and expertise of our salespeople
help us facilitate sales growth from both existing and prospective customers alike.
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Each of our branches is led by a branch manager, who also functions as the branch’s sales manager. There is
also a sales director at each location that is responsible for overseeing and coaching the sales team. The typical
branch sales team is composed of one to four outside salespeople and one to five inside salespeople. Branches
that focus primarily on the residential market generally staff a larger number of outside salespeople.
The primary objectives of our outside salespeople are to increase sales to existing customers and prospect
for new customers. These activities are supported by utilizing our CRM (Customer Relationship Management)
system throughout our selling organization. All outside sales representatives have a strategic group of existing
customers that they actively manage to ensure that Beacon is meeting and exceeding their respective needs. They
also spend time seeking new customers in order to grow and expand their portfolios.
To complement our outside sales force, we have built an experienced and technically proficient inside sales
staff with vital product expertise to address inquiries from our customers. Our inside sales force is on the front
line of customer engagement and also is responsible for fielding incoming orders and providing price quotes.
In addition to our outside and inside sales forces, we employ representatives who act as liaisons for certain
roofing materials manufacturers to assist with the promotion of specific products to professional contractors,
architects and building owners.
Marketing
Our marketing efforts are designed to ensure that our current and prospective customers understand the
benefits they receive both from their local Beacon branches and from being part of a broader network of
locations. As a supplement to the efforts of our sales force, each of our branches communicates with customers in
its local market through email, newsletters, direct mail, social media, public relations and the key industry
websites. In order to build and strengthen relationships with customers and vendors, we offer exclusive
promotions and help sponsor key national and regional trade shows. We also develop general business and
roofing seminars for our customers and organize product demonstrations by our vendors. We are an active
member of the National Roofing Contractors Association, National Women in Roofing, and certain regional
contractors’ associations.
In fiscal year 2017, we introduced Beacon PRO+, our innovative e-commerce portal that enables customers
to order online from our catalog of approximately 140,000 products and have 24/7 access to view real time
pricing, process and review the status of orders, track deliveries, monitor local storm activity and vendor
promotions, request and approve quotes, and pay their bills online. The unique digital platform helps our
customers save time, be more efficient, and enhance their business.
In fiscal year 2018, we introduced Beacon 3D+, a leading-edge service offering to our residential customers
that transforms smartphone photos of any home to a fully measured, customizable 3D model. It is based on an
exclusive relationship that enables us to be the only roofing supplier with this technology. Beacon 3D+ saves our
customers time with measuring and pricing estimates and helps homeowners easily visualize what the finished
project will look like.
Purchasing and Suppliers
Our status as a leader in our core geographic markets, as well as our reputation in the industry, has allowed
us to forge strong relationships with numerous manufacturers of roofing materials and complementary building
products, including Armstrong World Industries, Atlas Roofing, Berger Building Products, Building Products of
Canada, Carlisle Syntec, CertainTeed Roofing, CertainTeed Siding, ClarkDietrich, Firestone Building Products,
GAF, IKO Manufacturing, James Hardie Building Products, Johns Manville Roofing, Malarkey, National
Gypsum, Owens Corning Roofing, Ply Gem, Soprema, and TAMKO Building Products.
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We are positioned as a key distributor with our suppliers due to our industry expertise, market share, track
record of growth and financial strength, and the substantial volume of products that we distribute.
We manage the procurement of products through our national headquarters and regional offices, allowing us
to take advantage of both scale and local market conditions to purchase products more economically than most of
our competitors. We place purchase orders electronically with some of our major vendors. When invoices are
received, our system matches them to the related purchase orders and then schedules the associated payment.
Product is shipped directly by the manufacturers to our branches or customers.
Operations and Infrastructure
Operations
Our branch-based model provides each location with a significant amount of autonomy to operate within the
parameters of our overall business model. Operations at each branch are tailored to meet local customer needs.
Branch managers are responsible for sales, pricing and staffing activities, and have full operational control of
customer service and deliveries. We provide our branch managers with significant incentives that allow them to
share in the profitability of both their respective branches and the Company as a whole. Employees at our
regional and corporate locations assist the branches with, among other things, procurement, credit and safety
services, fleet management, information systems support, contract management, accounting, treasury and legal
services, human resources, benefits administration and sales and use tax services.
Our distribution fulfillment process is initiated upon receiving a request for a contract job order or direct
product order from a customer. Under a contract job order, the customer typically requests roofing or other
construction materials and technical support services. The customer discusses the project’s requirements with a
salesperson and the salesperson provides a price quote for the package of products and services. Subsequently,
the salesperson processes the order and we deliver the products to the customer’s job site.
Our digital platform serves as an extension of our brick and mortar operations and provides customers with
24/7 access to order and track delivery of our products. These advanced capabilities provide us with additional
opportunities to engage with our customers and support the entire project lifecycle, enhancing their overall
customer experience while contributing to the profitability of our Company.
In fiscal year 2019, we were able to support our customers by fulfilling approximately 99.1% of warehouse
orders through our in-stock inventory as a result of the breadth and depth of the inventory maintained at our
branches.
Facilities
As of September 30, 2019, we operated a network of 529 branches that serve key metropolitan areas in all
50 states throughout the U.S. and 6 Canadian provinces. This network has enabled us to effectively and
efficiently serve a broad customer base and to achieve a leading market position in each of our geographic
markets.
Fleet
During the year ended September 30, 2019, our distribution infrastructure supported more than 1.6 million
deliveries. To service our customer base, we maintained a dedicated owned fleet of 1,860 straight trucks, 603
tractors and 1,238 trailers as of September 30, 2019. Nearly all of our delivery vehicles are equipped with
specialized equipment, including 2,421 truck-mounted forklifts, cranes, hydraulic booms and conveyors, which
are necessary to deliver products to rooftop job sites in an efficient and safe manner and in accordance with our
customers’ requirements.
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Our branches typically focus on providing materials to customers who are located within a two-hour radius
of their respective facilities. Our branches generally make deliveries each business day.
Management Information Systems
We have fully integrated management information systems across our locations. Acquired businesses are
moved to our IT platform as soon as feasible following acquisition. Our systems support every major internal
operational function, providing complete integration of purchasing, receiving, order processing, shipping,
inventory management, sales analysis and accounting. The same databases are shared within the systems,
allowing our branches to easily acquire products from other branches or schedule deliveries by other branches,
greatly enhancing our customer service. Our systems also include a pricing matrix which allows us to refine
pricing by region, branch, customer and customer type, or even a specific customer project. In addition, our
systems allow us to centrally monitor all branch and regional performance as often as daily. We have centralized
many functions to leverage our growing size, including accounts payable, insurance, payroll, employee benefits,
vendor relations, and banking.
We deploy an array of cybersecurity capabilities to protect our various business systems and data. Our
branches are connected to a common computer network via secure Internet connections or private data lines. We
maintain redundant systems with transactional data getting replicated throughout each business day. We have the
capability of electronically switching our operations to the disaster recovery system. We retain many financial,
credit and other documents for purposes of internal approvals, online viewing and auditing.
Government Regulations
We are subject to regulation by various federal, state, provincial and local agencies. These agencies include
the Environmental Protection Agency, Department of Transportation, Occupational Safety and Health
Administration and Department of Labor and Equal Employment Opportunity Commission. We believe we
comply, in all material respects, with existing applicable statutes and regulations affecting environmental issues
and our employment, workplace health and workplace safety practices.
In 2012, the United States Supreme Court upheld the majority of the provisions in the Patient Protection and
Affordable Care Act (the “Act”). The Act places requirements on employers to provide a minimum level of
benefits to employees and assesses penalties on employers if the benefits do not meet the required minimum
level or if the cost of coverage to employees exceeds affordability thresholds specified in the Act. The minimum
benefits and affordability requirements took effect in 2014. The Act also imposes an excise tax beginning in 2018
on plans whose average cost exceeds specified amounts. We have analyzed the effects on us from the provisions
of the Act and we do not currently anticipate a significant financial impact.
Competition
Although we are one of the two largest roofing materials and complementary building product distributors
in the United States and Canada, the industry remains highly competitive. The vast majority of our competition
comes from local and regional roofing supply distributors, and, to a lesser extent, other building supply
distributors and big box retailers. Among distributors, we compete against a small number of large distributors
and many small and local privately-owned distributors. The principal competitive factors in our business include,
but are not limited to, the availability of materials and supplies; technical product knowledge and expertise;
advisory or other service capabilities; pricing of products; and the availability of credit and capital. We generally
compete on the basis of the quality of our products and services, and to a lesser extent, price.
Order Backlog
Order backlog is not a material aspect of our business and no material portion of our business is subject to
government contracts.
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Seasonality
In general, sales and net income are highest during our first, third and fourth fiscal quarters, which represent
the peak months of construction and re-roofing, especially in our branches in the northern and midwestern
regions of the United States and in Canada. Our sales are substantially lower during the second quarter, when we
usually incur net losses.
We generally experience our peak working capital needs during the third quarter after we build our
inventories following the winter season but before we begin collecting on most of our spring receivables. Our
principal sources of liquidity are cash and borrowings under our revolving credit facility, so our borrowings tend
to be highest in the third quarter of our fiscal year.
History and Additional Information
Our predecessor, Beacon Sales Company, Inc., was founded in Charlestown, Massachusetts (part of Boston)
in 1928. Beacon Roofing Supply, Inc. was incorporated in Delaware in 1997. Our principal executive offices are
located at 505 Huntmar Park Drive, Suite 300, Herndon, Virginia 20170 and our telephone number is
(571) 323-3939. Our Internet website address is www.becn.com.
We are subject to the information and periodic reporting requirements of the Securities Exchange Act of
1934, as amended (“Exchange Act”), and, in accordance with such requirements, furnish or file periodic reports,
proxy statements, and other information with the Securities and Exchange Commission (“SEC”). These periodic
reports, proxy statements, and other information are available at the SEC website, www.sec.gov. We also
maintain an investor relations page on our website where our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and other required SEC filings may be accessed free of charge as soon
as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
ITEM 1A. RISK FACTORS
You should carefully consider the risks and uncertainties described below and other information included in
this Form 10-K in evaluating us and our business. If any of the events described below occur, our business and
financial results could be adversely affected in a material way. This could cause the trading price of our common
stock to decline, perhaps significantly.
We may not be able to effectively integrate newly acquired businesses into our operations or achieve expected
cost savings or profitability from our acquisitions.
Our growth strategy includes acquiring other distributors of roofing materials and complementary products.
Acquisitions involve numerous risks, including:
•
•
•
•
•
•
unforeseen difficulties in integrating operations, technologies, services, accounting and employees,
including difficulties in operating and integrating Allied’s interior products business line, a business
line which we have operated for only a limited period of time;
diversion of financial and management resources from existing operations;
unforeseen difficulties related to entering geographic regions where we do not have prior experience;
potential loss of key employees;
unforeseen liabilities associated with businesses acquired; and
inability to generate sufficient revenue or realize sufficient cost savings to offset acquisition or
investment costs.
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As a result, if we fail to evaluate and execute acquisitions properly, we might not achieve the anticipated
benefits of such acquisitions and we may incur costs in excess of what we anticipate. These risks would likely be
greater in the case of larger acquisitions, including the Allied Acquisition.
We may not be able to successfully complete acquisitions on acceptable terms, which would slow our growth
rate.
The acquisition of other distributors of roofing materials and complementary products is an important part
of our growth strategy. We continually seek additional acquisition candidates in selected markets and from time
to time engage in exploratory discussions with potential candidates. We are unable to predict whether or when
we will be able to identify any suitable additional acquisition candidates, or the likelihood that any potential
acquisition will be completed. If we cannot complete acquisitions that we identify on acceptable terms, it is
unlikely that we will sustain the historical growth rates of our business.
An inability to obtain the products that we distribute could result in lost revenues and reduced margins and
damage relationships with customers.
We distribute roofing and other specialty exterior and interior building materials that are manufactured by a
number of major suppliers. Disruptions in our sources of supply may occur as a result of unanticipated demand
or production or delivery difficulties. When shortages occur, roofing material suppliers often allocate products
among distributors. Although we believe that our relationships with our suppliers are strong and that we would
have access to similar products from competing suppliers should products be unavailable from current sources,
any supply shortage, particularly of the most commonly sold items, could result in a loss of revenues and reduced
margins and damage relationships with customers.
Loss of key talent or our inability to attract and retain new qualified talent could hurt our ability to operate
and grow successfully.
Our success will continue to depend to a significant extent on our executive officers and key management
personnel, including our divisional executive vice presidents and regional vice presidents. We do not have key
man life insurance covering any of our executive officers. We may not be able to retain our executive officers
and key personnel or attract additional qualified management. The loss of any of our executive officers or other
key management employees, or our inability to recruit and retain qualified employees, could hurt our ability to
operate and make it difficult to execute our acquisition and internal growth strategies.
A change in vendor pricing and demand could adversely affect our income and gross margins.
Many of the products that we distribute are subject to price changes based upon manufacturers’ raw material
costs and other manufacturer pricing decisions. For example, as a distributor of residential roofing supplies, our
business is sensitive to asphalt prices, which are highly volatile and often linked to oil prices, as oil is a
significant input in asphalt production. Shingle prices have been volatile in recent years, partly due to volatility in
asphalt prices. Historically, we have generally been able to pass increases in the prices of shingles on to our
customers. Although we often are able to pass on manufacturers’ price increases, our ability to pass on increases
in costs and our ability to do so in a timely fashion depends on market conditions. The inability to pass along cost
increases or a delay in doing so could result in lower operating margins. In addition, higher prices could impact
demand for these products, resulting in lower sales volumes.
A change in vendor rebates could adversely affect our income and gross margins.
The terms on which we purchase products from many of our vendors entitle us to receive a rebate based on
the volume of our purchases. These rebates effectively reduce our costs for products. If market conditions
change, vendors may adversely change the terms of some or all of these programs. Although these changes
would not affect the net recorded costs of product already purchased, it may lower our gross margins on products
we sell and therefore the income we realize on such sales in future periods.
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Cyclicality in our business and general economic conditions could result in lower revenues and reduced
profitability.
A portion of the products we sell are for residential and non-residential construction. The strength of these
markets depends on new housing starts and business investment, which are a function of many factors beyond
our control, including credit and capital availability, interest rates, foreclosure rates, housing inventory levels and
occupancy, changes in the tax laws, employment levels, consumer confidence and the health of the United States
economy and mortgage markets. Economic downturns in the regions and markets we serve could result in lower
revenues and, since many of our expenses are fixed, lower profitability. In addition, demand for certain interior
products, such as drywall, is highly correlated with new housing starts, which are subject to the factors detailed
above. The challenging economic conditions in recent years, including tighter credit markets, have adversely
affected demand for new residential and non-residential projects and, to a lesser extent, re-roofing projects, and
may continue to negatively affect expenditures for roofing in the near term. Unfavorable changes in
demographics, credit markets, consumer confidence, housing affordability, or housing inventory levels and
occupancy, or a weakening of the United States economy or of any regional or local economy in which we
operate could adversely affect consumer spending, result in decreased demand for our products, and adversely
affect our business. In addition, instability in the economy and financial markets, including as a result of
terrorism or civil or political unrest, may result in a decrease in housing starts, which would adversely affect our
business.
Seasonality and weather-related conditions may have a significant impact on our financial results from period
to period
The demand for our outdoor building materials is heavily correlated to both seasonal changes and
unpredictable weather patterns. Seasonal demand fluctuations are expected, such as in our second fiscal quarter,
when winter construction cycles and cold weather patterns have an adverse impact on new construction and
re-roofing activity. The timing of weather patterns (unseasonable temperatures) and severe weather events
(hurricanes, storms and protracted rain) may impact our financial results within a given period either positively
or negatively, making it difficult to accurately forecast our results of operations. We expect that these seasonal
and weather-related variations will continue in the near future.
If we encounter difficulties with our management information systems, we could experience problems with
inventory, collections, customer service, cost control and business plan execution.
We believe our management information systems are a competitive advantage in maintaining our leadership
position in the roofing distribution industry. However,
if we experience problems with our management
information systems, we could experience, among other things, product shortages and/or an increase in accounts
receivable aging. Any failure by us to properly maintain and protect our management information systems could
adversely impact our ability to attract and serve customers and could cause us to incur higher operating costs and
experience delays in the execution of our business plan.
Since we rely heavily on information technology both in serving our customers and in our enterprise
infrastructure in order to achieve our objectives, we may be vulnerable to damage or intrusion from a variety of
deliberate cyber-attacks carried out by insiders or third parties, including computer viruses, worms or other
malicious software programs that may access our systems. Despite the precautions we take to mitigate the risks
of such events, an attack on our enterprise information technology system could result in business disruption and/
or theft of our proprietary and confidential information. Such events could harm our reputation and have an
adverse impact on our financial results, including the impact of related legal, regulatory, and remediation costs.
An impairment of goodwill and/or other intangible assets could reduce net income.
Acquisitions frequently result in the recording of goodwill and other intangible assets. At September 30,
2019, goodwill represented approximately 39.0% of our total assets. Goodwill is not amortized for financial
15
reporting purposes and is subject to impairment testing at least annually using a fair-value based approach. The
identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting
units. Our accounting for impairment contains uncertainty because management must use judgment
in
determining appropriate assumptions to be used in the measurement of fair value. We determine the fair values of
our reporting units by using a qualitative approach.
We evaluate the recoverability of goodwill for impairment in between our annual tests when events or
changes in circumstances, including a sustained decline in our market capitalization, indicate that the carrying
amount of goodwill may not be recoverable. We also perform an annual qualitative assessment to evaluate
whether evidence exists that would indicate our indefinite-lived intangibles are impaired. In addition, we review
for triggering events that could indicate a need for an impairment test for finite-lived intangible assets. Any
impairment of goodwill or indefinite- or finite-lived intangibles will reduce net income in the period in which the
impairment is recognized.
We might need to raise additional capital, which may not be available, thus limiting our growth prospects.
In the future we may require equity or additional debt financing in order to consummate an acquisition, for
additional working capital for expansion, or if we suffer more than seasonally expected losses. In the event such
additional financing is unavailable to us on commercially attractive terms or at all, we may be unable to expand
or make acquisitions or pursue other growth opportunities.
Major disruptions in the capital and credit markets may impact both the availability of credit and business
conditions.
If the financial institutions that have extended credit commitments to us are adversely affected by major
disruptions in the capital and credit markets, they may become unable to fund borrowings under those credit
commitments. This could have an adverse impact on our financial condition since we need to borrow funds at
times for working capital, acquisitions, capital expenditures and other corporate purposes.
Major disruptions in the capital and credit markets could also lead to broader economic downturns, which
could result in lower demand for our products and increased incidence of customers’ inability to pay their
accounts. The majority of our net sales volume is facilitated through the extension of trade credit to our
customers. Additional customer bankruptcies or similar events caused by such broader downturns may result in a
higher level of bad debt expense than we have historically experienced. Also, our suppliers may be impacted,
causing potential disruptions or delays of product availability. These events would adversely impact our results
of operations, cash flows and financial position.
Our level and terms of indebtedness could adversely affect our ability to raise additional capital to fund our
operations, take advantage of new business opportunities, and prevent us from meeting our obligations under
our debt instruments.
As of September 30, 2019, we had $1.28 billion in aggregate principal amount of our 4.875% senior notes
due in 2025 outstanding, $294.9 million in aggregate principal amount of our 6.375% senior notes due in 2023
outstanding, $926.5 million outstanding under our senior secured term loan due in 2025, $81.0 million drawn
under our asset-based revolving line of credit with a 2023 maturity date, and $13.6 million of total other
indebtedness. Our substantial debt could have important consequences to us, including:
•
•
increasing our vulnerability to general economic and industry conditions;
requiring a substantial portion of our cash flow used in operations to be dedicated to the payment of
principal and interest on our indebtedness, therefore reducing our liquidity and our ability to use our
cash flow to fund our operations, capital expenditures and future business opportunities;
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•
•
exposing us to the risk of increased interest rates, and corresponding increased interest expense,
because borrowings under our asset-based revolving line of credit and term loan are at variable rates of
interest;
reducing funds available for working capital, capital expenditures, acquisitions and other general
corporate purposes, due to the costs and expenses associated with such debt;
• making it more difficult to satisfy our obligations under the terms of our indebtedness;
•
•
limiting our ability to obtain additional financing for working capital, capital expenditures, debt service
requirements, acquisitions, and general corporate or other purposes; and
limiting our ability to adjust to changing marketplace conditions and placing us at a competitive
disadvantage compared to our competitors who may have less debt.
In addition, the debt agreements that currently govern our asset-based revolving line of credit and term loan
and the indentures governing our outstanding senior notes impose significant operating and financial restrictions
on us, including limitations on our ability to, among other things, pay dividends and make other distributions on,
or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with
affiliates; merge or consolidate; enter into agreements that restrict the ability of our subsidiaries to make
dividends or other payments to Beacon Roofing Supply, Inc.; and transfer or sell assets. In addition, the terms of
our preferred stock contain restrictions on our ability to pay dividends on our common stock, and the holders of
such shares would participate in any declared common stock dividends, reducing the cash available to holders of
common stock. As a result of these restrictions, we will be limited as to how we conduct our business and we
may be unable to raise additional debt or equity financing to compete effectively or to capitalize on available
business opportunities.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be
forced to reduce or delay capital expenditures, sell assets, seek additional capital, or restructure or refinance our
indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled
debt service obligations, which could cause us to default on our debt obligations and impair our liquidity. In the
event of a default under any of our indebtedness, the holders of the defaulted debt could elect to declare all the
funds borrowed to be due and payable, together with accrued and unpaid interest, which in turn could result in
cross-defaults under our other indebtedness. The lenders under our asset-based revolving line of credit could also
elect to terminate their commitments thereunder and cease making further loans, and the lenders under the asset-
based revolving line of credit and term loan could institute foreclosure proceedings against their collateral, which
could potentially force us into bankruptcy or liquidation.
Despite our current level of indebtedness, we may be able to incur substantially more debt and enter into other
transactions which could further exacerbate the risks to our financial condition described above.
We may be able to incur significant additional indebtedness in the future. Although the debt agreements that
currently govern our asset-based revolving line of credit, term loan, outstanding senior notes and other debt
instruments contain restrictions on the incurrence of additional indebtedness and entering into certain types of
other transactions,
these restrictions are subject to a number of qualifications and exceptions. Additional
indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also do not
prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined
under our debt instruments. To the extent we incur additional indebtedness or other obligations, the risks
described in the immediately preceding risk factor and others described herein may increase.
17
The holders of Preferred Stock issued in connection with the Allied Acquisition have rights, preferences and
privileges that are not held by, and are preferential to, the rights of, our common shareholders. We may be
required, under certain circumstances, to repurchase the preferred stock for cash, and such obligations could
adversely affect our liquidity and financial condition.
On January 2, 2018 we issued 400,000 shares of Series A Cumulative Convertible Participating Preferred
Stock, par value $0.01 per share (the “Preferred Stock”) to CD&R Boulder Holdings, L.P. (the “CD&R
Stockholder”), an entity affiliated with the investment firm Clayton, Dubilier & Rice LLC, pursuant to an
Investment Agreement dated August 24, 2017 (the “Investment Agreement”). The proceeds of the issuance were
used to partially finance the Allied Acquisition. The Preferred Stock is convertible perpetual participating
preferred stock of Beacon, with an initial conversion price of $41.26 per share, and accrues dividends at a rate of
6.0% per annum (payable in cash or in-kind, subject to specified limitations). The Preferred Stock may be
converted at any time at the option of the holder into 9,694,619 shares of our common stock. In addition, under
the terms of the Preferred Stock, we may, at our option, force the conversion of all (but not less than all) of the
outstanding shares of Preferred Stock to common stock if at any time the market price of our common stock
exceeds 200% of the then-effective conversion price per share for at least 75 days out of any trailing 90-trading
day period. Any conversion of the Preferred Stock may significantly dilute our common shareholders and
adversely affect both our net income per share and the market price of our common stock.
If we issue additional shares of Preferred Stock as “in-kind” dividend payments that, together with the
400,000 shares of Preferred Stock issued to the CD&R Stockholder, represent in excess of 12,071,937 shares of
our common stock on an as-converted basis, and in certain other circumstances as provided in the Preferred
Stock certificate of designations, a “Triggering Event” would occur. Upon the occurrence of a “Triggering
Event,” the dividend rate will increase to 9.0% per annum for so long as the Triggering Event remains in effect,
which will further dilute our common shareholders if we issue additional shares of Preferred Stock to satisfy our
dividend payment obligations. Moreover, if we declare or pay a cash dividend on our common stock, we will be
required to declare and pay a dividend on the outstanding Preferred Stock on a pro rata basis with the common
shares determined on an as-converted basis at the time the dividend is declared. The maximum number of shares
of common stock into which the Preferred Stock may be converted (taking into account any shares of Preferred
Stock issued as in-kind dividend payments) will be limited to 12,071,937 shares of our common stock, which
represents 19.99% of the total number of shares of common stock issued and outstanding immediately prior to
the execution of the Investment Agreement, unless and until we were to obtain shareholder approval of such
issuance under the Nasdaq listing rules. The terms of the Investment Agreement and Preferred Stock do not
require us to obtain shareholder approval in these circumstances.
Holders of the Preferred Stock generally are entitled to vote with the holders of the shares of common stock
on an as converted basis on all matters submitted for a vote of holders of shares of common stock, voting
together with the holders of shares of common stock as one class (subject to the limitation that any one Preferred
Stock holder, together with its affiliates, cannot vote any shares in excess of 19.99% of the aggregate voting
power of the common stock outstanding immediately prior to the execution of the Investment Agreement). The
prior written consent of the holders of a majority of the Preferred Stock is required to, among other things,
(i) amend or modify our charter, by-laws or the certificate of designations governing the Preferred Stock that
would adversely affect the Preferred Stock or (ii) amend our debt agreements to, among other things, adversely
affect our ability to pay dividends on the Preferred Stock, subject to certain exceptions.
The conversion price of the Preferred Stock is subject to customary anti-dilution adjustments, including in
the event of any stock split, stock dividend, recapitalization or similar event. Adjustments to the conversion price
could dilute the ownership interest of our common shareholders. In addition, holders of Preferred Stock have the
right to receive a liquidation preference entitling them to be paid out of our assets available for distribution to
shareholders, before any payment may be made to holders of shares of common stock, an amount equal to the
greater of (a) 100% of the liquidation preference thereof plus all accrued and unpaid dividends or (b) the amount
that such holder would have been entitled to receive upon our liquidation, dissolution and winding up if all
18
outstanding shares of Preferred Stock had been converted into common stock immediately prior to such
liquidation, dissolution or winding up, without regard to any of the limitations on conversion or convertibility.
Furthermore, the holders of the Preferred Stock will have certain redemption rights, including upon certain
change of control events involving us, which, if exercised, could require us to repurchase all of the outstanding
Preferred Stock for cash at the original purchase price of the Preferred Stock plus all accrued and unpaid
dividends thereon. Our obligations to pay regular dividends to the holders of the Preferred Stock or any required
repurchase of the outstanding Preferred Stock could impact our liquidity and reduce the amount of cash available
for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate
purposes. Our obligations to the holders of Preferred Stock could also limit our ability to obtain additional
financing or increase our borrowing costs, which could have an adverse effect on our financial condition. The
preferential rights could also result in divergent interests between the holders of the Preferred Stock and our
common shareholders.
The CD&R Stockholder may sell shares of our common stock in the public market, which may cause the
market price of our common stock to decrease, and therefore make it more difficult to raise equity financing
or issue equity as consideration in an acquisition.
Our registration rights agreement with the CD&R Stockholder requires us to register all shares held by the
CD&R Stockholder and its permitted transferees (including shares of our common stock issued upon conversion
of Preferred Stock) under the Securities Act upon request of the CD&R Stockholder. The registration rights for
the CD&R Stockholder will allow it to sell its shares without compliance with the volume and manner of sale
limitations under Rule 144 promulgated under the Securities Act and will facilitate the resale of such securities
into the public market. The market value of our common stock could decline as a result of sales by the CD&R
Stockholder from time to time. In particular, the sale of a substantial number of our shares by the CD&R
Stockholder within a short period of time, or the perception that such sale might occur, could cause our stock
price to decrease, make it more difficult for us to raise funds through future offerings of Beacon common stock
or acquire other businesses using Beacon common stock as consideration.
The CD&R Stockholder holds a significant equity interest in our business and may exercise significant
influence over us, including through its ability to designate up to two directors to our board of directors, and
its interests as a preferred equity holder may diverge from, or even conflict with, the interests of our other
common shareholders.
As of September 30, 2019, the CD&R Stockholder beneficially owns shares of our common stock and
Preferred Stock, which, taken together on an as-converted basis, represent approximately 30.0% of our total
voting power. As a result, the CD&R Stockholder may have the indirect ability to significantly influence our
policies and operations. In addition, under the Investment Agreement, the CD&R Stockholder is entitled to
appoint up to two directors to our board of directors. Both Nathan K. Sleeper and Philip W. Knisely, partners at
CD&R, currently serve as directors. Notwithstanding that all directors will be subject to fiduciary duties to us
and to applicable law, the interests of the directors designated by the CD&R Stockholder may differ from the
interests of our other directors or common shareholders as a whole. With such representation on our board of
directors, the CD&R Stockholder has influence over the appointment of management and any action requiring
the vote of our board of directors,
including significant corporate action such as mergers and sales of
substantially all of our assets. The directors controlled by the CD&R Stockholder will also be able to influence
decisions affecting our capital structure, including decisions to issue additional capital stock and incur additional
debt. Additionally, for so long as the CD&R Stockholder owns Preferred Stock, certain matters will require the
approval of the CD&R Stockholder, including: (1) amendments or modifications to our charter, by-laws or the
certificate of designations governing the Preferred Stock that would adversely affect the Preferred Stock,
(2) authorization, creation, increase in the authorized amount of, or issuance of any class or series of senior or
parity equity securities or any security convertible into, shares of senior or parity equity securities (but not junior
securities), (3) any increase or decrease in the authorized number of preferred shares or the issuance of additional
19
shares of Preferred Stock, (4) amendments to our debt agreements that would, among other things, adversely
affect our ability to pay dividends on the Preferred Stock, subject to certain exceptions, and (5) the liquidation,
dissolution or filing of a voluntary petition for bankruptcy or receivership. The CD&R Stockholder and its
affiliates are in the business of making or advising on investments in companies, including businesses that may
directly or indirectly compete with certain portions of our business. In addition, the CD&R Stockholder may
have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment,
could enhance their overall equity investment and have a negative impact to our common shareholders as a
whole. Furthermore, the CD&R Stockholder may, in the future, own businesses that directly or indirectly
compete with us. The CD&R Stockholder may also pursue acquisition opportunities that may be complementary
to our business, and as a result, those acquisition opportunities may not be available to us.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
As of October 31, 2019, we leased 511 branch facilities and 12 non-branch facilities throughout the United
States and Canada. These leased facilities range in size from approximately 2,000 to 348,000 square feet. In
addition, as of October 31, 2019, we owned 18 branch facilities. These owned facilities range in size from
approximately 11,500 square feet to 68,000 square feet. These facilities are pledged as collateral under our senior
secured term loan and our asset based revolving line of credit. We believe that our properties are in good
operating condition and adequately serve our current business operations.
20
The following table summarizes the locations of our branches and facilities as of October 31, 2019:
Location
U.S. State
Branches
Non-Branch
Facilities
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Connecticut
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Montana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vermont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
7
1
5
4
48
18
7
3
39
14
9
2
16
8
2
4
5
8
4
21
13
11
6
2
9
1
6
4
2
21
1
19
24
3
10
2
7
35
2
8
2
8
39
6
1
15
18
1
1
1
2
1
1
2
1
1
1
West Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
4
2
Total—United States . . . . . . . . . . . . . . . . . . . . .
510
12
Canadian Province
Alberta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
British Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nova Scotia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ontario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quebec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Saskatchewan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total—Canada . . . . . . . . . . . . . . . . . . . . . . . . .
Total—All . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
1
6
5
1
19
529
—
12
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in lawsuits that are brought against us in the normal course of business.
We are not currently a party to any legal proceedings that would be expected, either individually or in the
aggregate, to have a material adverse effect on our business or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
22
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the Nasdaq Global Select Market (the “Nasdaq”) under the symbol “BECN”.
As of November 6, 2019, there were 79 registered holders of record of our common stock.
We have not paid cash dividends on our common stock and do not anticipate paying dividends in the
foreseeable future. Our board of directors currently intends to retain any future earnings for reinvestment in our
growing business. Any future determination to pay dividends will also be at the discretion of our board of
directors and will be dependent upon our results of operations and cash flows, our financial position and capital
requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment
of dividends, and any other factors our board of directors deems relevant.
Stock Performance Graph
This stock performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise
subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any
filing of Beacon Roofing Supply, Inc. under the Securities Act of 1933, as amended, or the Exchange Act. The
performance of Beacon Roofing Supply, Inc.’s common stock depicted in the stock performance graph represents
historical results only and is not necessarily indicative of future performance.
The following graph compares the cumulative total shareholder return on Beacon Roofing Supply, Inc.’s
common stock (based on market prices) for the last five fiscal years with the cumulative total return on (i) the
Nasdaq Index and (ii) the S&P 1500 Trading Companies & Distributors Index, assuming a hypothetical $100
investment in each on September 30, 2014 and the re-investment of all dividends. The closing price of our
common stock on September 30, 2019, was $33.53.
Comparison of Cumulative Five Year Total Return
$250
$200
$150
$100
$50
$0
9/30/14
9/30/15
9/30/16
9/30/17
9/30/18
9/30/19
Beacon Roofing Supply, Inc.
Nasdaq Index
S&P 1500 Trading Companies & Distributors Index
23
Company / Index
Base
Period
9/30/2014
INDEXED RETURNS
Years Ended September 30,
2015
2016
2017
2018
2019
Beacon Roofing Supply, Inc.
. . . . . . . . . . . . . . . . . . . . .
Nasdaq Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 1500 Trading Companies & Distributors Index . . .
100
100
100
127.51
104.00
77.74
165.11
121.08
91.45
201.14
149.75
103.96
142.03
187.44
143.24
131.59
188.43
131.44
24
595,365
478,284
117,081
ITEM 6. SELECTED FINANCIAL DATA
You should read the following selected financial information together with our financial statements and
related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
also included in this Form 10-K. We have derived the statement of operations data for the years ended
September 30, 2019, 2018, and 2017, and the balance sheet data as of September 30, 2019 and 2018, from our
audited financial statements included in this Form 10-K. We have derived the statements of operations data for
the years ended September 30, 2016 and 2015, and the balance sheet data as of September 30, 2017, 2016, and
2015, from our audited financial statements not included in this Form 10-K.
Consolidated Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . .
$ 7,105,160
5,368,605
$ 6,418,311
4,824,990
$ 4,376,670
3,300,731
$ 4,127,109
3,114,040
$ 2,515,169
1,919,804
2019
2018
2017
2016
2015
Year Ended September 30,
Gross profit . . . . . . . . . . . . . . . . . . . . .
Operating expense . . . . . . . . . . . .
1,736,555
1,588,803
1,593,321
1,388,695
1,075,939
859,843
1,013,069
808,085
Income (loss) from operations . . . . . .
Interest expense, financing costs,
and other . . . . . . . . . . . . . . . . .
Income (loss) before provision for
147,752
204,626
216,096
204,984
158,534
136,544
52,751
58,452
11,037
income taxes . . . . . . . . . . . . . . . . . .
(10,782)
68,082
163,345
146,532
106,044
Provision for (benefit from)
income taxes . . . . . . . . . . . . . .
(170)
(30,544)
62,481
56,615
Net income (loss)
. . . . . . . . . . . . . . . .
$
(10,612) $
98,626
$
100,864
$
89,917
$
Dividends on preferred shares . . .
24,000
18,000
—
—
43,767
62,277
—
Net income (loss) attributable to
common shareholders . . . . . . . . . . .
$
(34,612) $
80,626
$
100,864
$
89,917
$
62,277
Weighted-average common stock
outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . .
68,424,288
68,424,288
68,012,879
69,191,039
60,315,648
61,344,263
59,424,372
60,418,067
49,578,130
50,173,478
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . .
$
$
(0.51) $
(0.51) $
1.07
1.05
$
$
1.67
1.64
$
$
1.51
1.49
$
$
1.26
1.24
Balance Sheet Data:
2019
2018
2017
2016
2015
September 30,
Cash and cash equivalents . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term indebtedness1 . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . .
$
72,287
6,392,812
2,586,576
1,862,353
$ 129,927
6,508,662
2,606,096
1,884,305
$ 138,250
3,449,557
750,233
1,781,806
$
31,386
3,113,859
1,117,711
1,323,827
$
45,661
1,539,428
192,567
883,116
1
Net of debt issuance costs
25
Non-GAAP Financial Measures
To provide investors with additional information regarding our financial results, we prepare certain financial
measures that are not calculated in accordance with generally accepted accounting principles in the United States
(“GAAP”), specifically:
• Adjusted Net Income (Loss)/Adjusted EPS
• Adjusted EBITDA
We define Adjusted Net Income (Loss) as net income that excludes acquisition costs, business restructuring
costs, and the effects of tax reform. Adjusted Net Income (Loss) per share or “Adjusted EPS” is calculated by
dividing the Adjusted Net Income (Loss) for the period by the weighted-average diluted shares outstanding for
the period after assuming the full conversion of the participating Preferred Stock.
We define Adjusted EBITDA as net income plus interest expense (net of interest income), income taxes,
depreciation and amortization, stock-based compensation, acquisition costs, and business restructuring costs.
EBITDA is a measure commonly used in the distribution industry, and we present Adjusted EBITDA to enhance
your understanding of our operating performance.
We use these supplemental non-GAAP measures to evaluate financial performance, analyze the underlying
trends in our business and establish operational goals and forecasts that are used when allocating resources.
We believe these non-GAAP measures are useful measures because they allow investors to better
understand changes in underlying operating performance over comparative periods by providing investors with
financial results that are unaffected by cyclical variances that can be driven by items such as investment activity
or purchase accounting adjustments.
While we believe that these non-GAAP measures are useful to investors when evaluating our business, they
are not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in
nature. You should not consider these non-GAAP measures in isolation or as a substitute for other financial
performance measures presented in accordance with GAAP. These non-GAAP financial measures may have
material limitations including, but not limited to, the exclusion of certain costs without a corresponding reduction
of net income for the income generated by the assets to which the excluded costs are related. In addition, these
non-GAAP financial measures may differ from similarly titled measures presented by other companies.
26
Adjusted Net Income (Loss)/Adjusted EPS
The following table presents a reconciliation of net income, the most directly comparable financial measure
as measured in accordance with GAAP, to Adjusted Net Income (Loss)/Adjusted EPS for each of the periods
indicated (in thousands, except per share amounts):
Year Ended September 30,
2019
2018
2017
Amount
Per
Share1
Amount
Per
Share2
Amount
Per
Share3
Net income (loss)
Adjustments:
. . . . . . . . . . . . . . . . . . . . . . . . . .
$ (10,612) $(0.14) $ 98,626
$ 1.29
$100,864
$ 1.64
Acquisition costs4 . . . . . . . . . . . . . . . . . . . . . .
Business restructuring costs5 . . . . . . . . . . . . . .
Effects of tax reform6 . . . . . . . . . . . . . . . . . . .
Total adjustments . . . . . . . . . . . . . . . . . .
Tax impact of total adjustments7 . . . . . . . . . . .
244,262
7,354
(462)
251,154
(64,326)
3.13
0.09
(0.01)
3.21
(0.81)
220,466
—
(48,805)
171,661
(63,607)
2.89
—
(0.64)
2.25
(0.84)
103,634
—
—
1.69
—
—
103,634
(40,007)
1.69
(0.65)
Total adjustments, net of tax . . . . . . . . . .
186,828
2.40
108,054
1.41
63,627
1.04
Adjusted Net Income (Loss) . . . . . . . . . . . . . . . . . .
$176,216
$ 2.26
$206,680
$ 2.70
$164,491
$ 2.68
1
2
3
4
5
6
7
The weighted-average share count utilized in the calculation of Adjusted EPS for the year ended September 30, 2019 is
78,118,907, which is equal to the 68,424,288 diluted weighted-average shares outstanding plus the assumed conversion
of 9,694,619 weighted-average shares of participating Preferred Stock. The shares of participating Preferred Stock were
excluded from the GAAP net income (loss) per share calculations for the period due to their anti-dilutive nature.
The weighted-average share count utilized in the calculation of Adjusted EPS for the year ended September 30, 2018 is
76,415,522, which is equal to the 69,191,039 diluted weighted-average shares outstanding plus the assumed conversion
of 7,224,483 weighted-average shares of participating Preferred Stock. The shares of participating Preferred Stock were
excluded from the GAAP net income (loss) per share calculations for the period due to their anti-dilutive nature.
The weighted-average share count utilized in the calculation of Adjusted EPS for the year ended September 30, 2017 is
61,344,263, which is equal to the diluted weighted-average shares outstanding.
The following table presents a breakout of the components of acquisition costs for each of the periods indicated:
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . .
Costs classified as selling, general, and administrativea . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . .
$207,065
25,095
12,102
$141,185
54,442
24,839
$ 82,465
15,745
5,424
Total acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$244,262
$220,466
$103,634
Year Ended September 30,
2019
2018
2017
a.
Selling, general, and administrative costs related to acquisitions are mainly composed of professional fees,
branch integration expenses, travel expenses, employee severance and retention costs, and other personnel
expenses.
Business restructuring costs are composed of costs stemming from headcount rationalization efforts and accrued
estimated costs related to employee benefit restructuring.
Impact of the Tax Cuts and Jobs Act of 2017.
The effective tax rate applied to these adjustments is calculated by using adjusted pre-tax income while factoring in
discrete tax adjustments for the fiscal year. The tax impact of adjustments for the year ended September 30, 2019, 2018
and 2017 were calculated using an effective tax rate of 25.8%, 28.9% and 38.6%, respectively.
27
Adjusted EBITDA
The following table presents a reconciliation of net income, the most directly comparable financial measure
as measured in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated (in thousands):
Year Ended September 30,
2018
2017
2019
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . .
Acquisition costs1 . . . . . . . . . . . . . . . . . . . . . . . . .
Business restructuring costs2 . . . . . . . . . . . . . . . .
$ (10,612)
160,246
(170)
277,760
16,360
25,095
7,354
$ 98,626
143,074
(30,544)
201,503
16,473
54,441
—
$100,864
53,802
62,481
116,467
15,074
15,745
—
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$476,033
$483,573
$364,433
Adjusted EBITDA as a % of net sales . . . . . . . . . . . . .
6.7%
7.5%
8.3%
1
2
Represents selling, general, and administrative costs related to acquisitions (excluding the impact of tax).
Other items the Company classifies as acquisition costs are embedded in other balances of the table.
Business restructuring costs are composed of costs stemming from headcount rationalization efforts and
accrued estimated costs related to employee benefit restructuring.
28
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements
and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. All
references to “2019,” “2018” and “2017”are referring to the twelve-month period ended September 30 for each
of those respective fiscal years. The following discussion may contain forward-looking statements that reflect our
plans and expectation. Our actual results could differ materially from those anticipated by these forward-looking
statements due to the factors discussed elsewhere in this Annual Report on Form 10-K, particularly in the “Risk
Factors” section. We do not undertake, and specifically disclaim, any obligation to update any forward-looking
statements to reflect the occurrence of events or circumstances after the date of such statements except as
required by law.
Overview
We are the largest publicly traded distributor of roofing materials and complementary building products in
the United States and Canada. We are among the oldest and most established distributors in the industry. The
complementary building products we distribute include siding, windows, insulation, waterproofing systems,
wallboard, acoustical ceilings, and other specialty exterior and interior building products. We purchase products
from a large number of manufacturers and then distribute these goods to a customer base consisting of
contractors, and to a lesser extent, home builders, retailers, and other building materials suppliers.
As of September 30, 2019, we operated 529 branches throughout all 50 states in the U.S. and 6 provinces in
Canada. We offer one of the most extensive assortments of high-quality branded products in the industry with
approximately 140,000 SKUs available across our branch network, enabling us to deliver products to serve over
110,000 customers on a timely basis.
Effective execution of both our sales and operating plans enables us to grow beyond the relative strength of
the markets we serve. Our business model is a bottom-up approach, where each of our branches uses its regional
knowledge and experience to assist with the development of a marketing plan and product mix that is best suited
for its respective market. Local alignment with overall strategic goals provides the foundation for significant
ownership of results at the branch level. Our distinctive operating model and branch level autonomy differentiate
us from the competition.
We provide our customers with industry-leading digital solutions, including Beacon PRO+, our innovative
e-commerce portal, and Beacon 3D+, an in-home visualizer and dynamic modeling tool for our residential
customers. These platforms help our customers save time, work more efficiently and grow their business.
Additional value-added services we offer include, but are not limited to, job site delivery, custom designed
tapered roofing systems, metal fabrication and trade credit. We consider customer relations and our employees’
knowledge of roofing and building materials to be vital to our ability to increase customer loyalty and maintain
customer satisfaction. Our customers’ business success can be enhanced when they are supported by our efficient
and effective distribution network. We invest significant resources in professional development, management
skills, product knowledge, and operational proficiency. We pride ourselves on providing these capabilities
developed on a foundation of continuous improvement
that drives service excellence, productivity and
efficiency.
We seek opportunities to expand our business operations through both acquisitions and organic growth
(opening branches, growing sales with existing customers, adding new customers and introducing new products).
Our main acquisition strategy is to target market leaders that do business in geographic areas that we currently do
not service or that complement our existing regional operations. We pursue organic growth opportunities that
29
allow us to penetrate deeper into target markets and establish a greater presence. The most recent successful
execution of our growth strategy is summarized by the following:
• On January 2, 2018, we completed the acquisition of Allied Building Products Corp. (“Allied”), one of
the country’s largest exterior and interior building products distributors, for $2.88 billion (the “Allied
Acquisition”). This significant acquisition expanded our geographic footprint, enhanced our scale and
market presence, diversified our product offerings, and positioned us to provide new growth
opportunities that will increase our long-term profitability.
• We completed two additional acquisitions in 2018, as well as five more in 2017.
•
In 2019, we opened a total of nine new branch locations across Alabama, California, Florida, Nevada,
North Carolina, Pennsylvania and Texas. We opened three new branch locations in 2018 as well as four
more in 2017.
General
We sell all materials necessary to install, replace and repair residential and non-residential roofs, including:
•
•
Shingles, standard and specialty;
Single-ply roofing;
• Metal roofing and accessories;
• Modified bitumen;
• Built-up roofing;
•
•
•
Insulation;
Slate and tile roofing;
Fasteners, coatings and cements; and
• Other roofing accessories.
We also sell complementary building products such as:
• Vinyl, wood and fiber cement siding;
• Doors, windows and millwork;
• Decking and railing;
• Building insulation;
• Waterproofing systems;
• Wallboard; and
• Acoustical ceilings.
We serve over 110,000 customers, none of which individually represents more than 1% of our total net
sales. Many of our customers are small to mid-size contractors with relatively limited capital resources. We
maintain strict credit review and approval policies, which has helped to keep losses from uncollectible customer
receivables within our expectations. Our expenses consist primarily of the cost of products purchased for resale,
labor, fleet, occupancy, and selling and administrative expenses.
30
Results of Operations
The following tables set forth consolidated statement of operations data and such data as a percentage of
total net sales for the periods presented (in thousands):
Year Ended September 30,
2019
2018
2017
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,105,160
5,368,605
$6,418,311
4,824,990
$4,376,670
3,300,731
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,736,555
1,593,321
1,075,939
Operating expense:
Selling, general and administrative . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,311,043
70,695
207,065
1,187,192
60,318
141,185
Total operating expense . . . . . . . . . . . . . . .
1,588,803
1,388,695
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . .
Interest expense, financing costs, and other . . . . . . . .
Income (loss) before provision for income taxes . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . .
147,752
158,534
(10,782)
(170)
204,626
136,544
68,082
(30,544)
743,376
34,002
82,465
859,843
216,096
52,751
163,345
62,481
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (10,612)
Dividends on preferred shares . . . . . . . . . . . . . . . . . . .
24,000
Net income (loss) attributable to common shareholders . . .
$ (34,612)
$
$
98,626
$ 100,864
18,000
—
80,626
$ 100,864
Year Ended September 30,
2019
2018
2017
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0% 100.0% 100.0%
75.6% 75.2% 75.4%
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.4% 24.8% 24.6%
Operating expense:
Selling, general and administrative . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18.4% 18.5% 16.9%
0.8%
0.9%
1.0%
1.9%
2.2%
2.9%
Total operating expense . . . . . . . . . . . . . . . . . . . . .
22.3% 21.6% 19.6%
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, financing costs, and other . . . . . . . . . . . . . .
2.1%
2.2%
3.2%
2.1%
Income (loss) before provision for income taxes . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . . .
(0.1%)
1.1%
0.0% (0.4%)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.1%)
Dividends on preferred shares . . . . . . . . . . . . . . . . . . . . . . . .
0.4%
Net income (loss) attributable to common shareholders . . . . . . . .
(0.5%)
1.5%
0.2%
1.3%
5.0%
1.2%
3.8%
1.5%
2.3%
0.0%
2.3%
In managing our business, we consider all growth, including the opening of new branches, to be organic
growth unless it results from an acquisition. When we refer to growth in existing markets or organic growth, we
include growth from existing and newly opened branches but exclude growth from acquired branches until they
have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period. We
believe the existing market information is useful to investors because it helps explain organic growth or decline.
When we refer to regions, we are referring to our geographic regions. When we refer to our net product costs, we
31
are referring to our invoice cost less the impact of short-term buying programs (also referred to as “special buys”
given the manner in which they are offered).
As of September 30, 2019, we had a total of 529 branches in operation. Our existing market calculations
include the operating results of the 312 branches that meet our definition (217 branches were excluded because
they were acquired after the start of fiscal year 2018).
Comparison of the Years Ended September 30, 2019 and 2018
The following table summarizes our results of operations by market type (existing and acquired) for the
periods presented (in thousands):
Existing Markets
Acquired Markets
Consolidated
Year Ended September 30,
2019
2018
2019
2018
2019
2018
$4,151,179
$ 957,288
$4,020,188
$ 969,364
$2,953,981
$ 779,267
$2,398,123
$ 623,957
$7,105,160
$1,736,555
$6,418,311
$1,593,321
23.1%
24.1%
26.4%
26.0%
24.4%
24.8%
Net sales . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . .
Operating expense:
Selling, general, and
administrative . . . . . . .
Depreciation . . . . . . . . . .
Amortization . . . . . . . . . .
$ 746,880
34,804
50,016
$ 733,213
31,451
60,893
$ 564,163
35,891
157,049
$ 453,979
28,867
80,292
$1,311,043
70,695
207,065
$1,187,192
60,318
141,185
Operating expense1 . . . . . . . . .
Operating expense as a % of
net sales . . . . . . . . . . . . . . . .
Operating income (loss)
. . . . .
Operating margin . . . . . . . . . . .
$ 831,700
$ 825,557
$ 757,103
$ 563,138
$1,588,803
$1,388,695
20.0%
20.5%
25.6%
23.5%
22.3%
21.6%
$ 125,588
$ 143,806
$
22,164
$
60,820
$ 147,752
$ 204,626
3.0%
3.6%
0.8%
2.5%
2.1%
3.2%
1
Total operating expense for 2019 and 2018 includes $29.2 million (none from acquired markets) and $54.4 million
($0.9 million from acquired markets), respectively, of acquisition costs and business restructuring costs. Acquired market
operating expense for 2019 reflects full year of impact from the Allied Acquisition, compared to three quarters in 2018.
Net Sales
Consolidated net sales increased 10.7% to $7.11 billion in 2019, from $6.42 billion in 2018. Existing market
net sales increased 3.3% to $4.15 billion in 2019, from $4.02 billion in 2018. The year-over-year increase in
existing market net sales was mainly influenced by the following factors:
•
•
•
double-digit net sales growth in the Northeast and Mid-Atlantic markets;
stronger demand due to the impact of Hurricanes Florence and Michael; and
higher pricing across all major product lines;
partially offset by:
•
•
decreased storm-related demand in the Midwest and West markets; and
heavier rainfall levels in 2019 across most regions.
Existing market net sales by geographical region increased (decreased) from 2018 to 2019 as follows:
Northeast 12.6%; Mid-Atlantic 10.8%; Southeast 3.3%; Southwest 3.1%; Midwest (4.0%); West (6.3%); and
Canada 4.3%.
32
We estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our
average selling prices and gross margins (discussed below).
Product line net sales for our existing markets were as follows (in thousands):
Year Ended September 30,
2019
2018
Net Sales
%
Net Sales
%
Change
$
%
Residential roofing products . . . . . . . . . . . . . . . .
Non-residential roofing products . . . . . . . . . . . . .
Complementary building products . . . . . . . . . . . .
Total existing market sales . . . . . . . . . . . . .
$2,207,851
1,183,422
759,906
$4,151,179
53.2% $2,063,800
28.5% 1,200,934
18.3%
755,454
100.0% $4,020,188
51.3% $144,051
29.9% (17,512)
18.8%
4,452
100.0% $130,991
7.0%
(1.5%)
0.6%
3.3%
Acquired market net sales were $2.95 billion in 2019. We recognized acquired market product line net sales
of $871.8 million in residential roofing products, $521.8 million in non-residential roofing products and
$1.56 billion in complementary building products.
Gross Profit
Gross profit and gross margin for our consolidated and existing markets were as follows (in thousands):
Year Ended September 30,
Change1
2019
2018
$
%
Gross profit—consolidated . . . . . . . . . . . . . . . . . . . .
Gross profit—existing markets . . . . . . . . . . . . . . . . .
Gross margin—consolidated . . . . . . . . . . . . . . . . . . .
Gross margin—existing markets . . . . . . . . . . . . . . . .
$1,736,555
957,288
$1,593,321
969,364
24.4%
23.1%
24.8%
24.1%
$143,234
(12,076)
N/A
N/A
9.0%
(1.2%)
(0.4%)
(1.0%)
1
Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period.
Percentage changes for percentages represent the net period-to-period change in basis points.
Consolidated gross profit increased 9.0% to $1.74 billion in 2019, from $1.59 billion in 2018. Existing
market gross profit decreased 1.2% to $957.3 million in 2019, from $969.4 million in 2018.
Consolidated gross margin was 24.4% in 2019, down 0.4% from 24.8% in 2018. Existing market gross
margin was 23.1% in 2019, down 1.0% from 24.1% in 2018. The year-over-year decrease in existing market
gross margin was influenced by a product cost increase of approximately 4-5%, partially offset by a price
increase of approximately 3-4% across all product lines.
Consolidated gross margin was higher than existing market gross margin due to the positive impact of
recent acquisitions. Consolidated direct sales (products shipped by our vendors directly to our customers), which
typically have substantially lower gross margins (and operating expense) compared to our warehouse sales,
represented 12.4% and 12.8% of our net sales in 2019 and 2018, respectively.
Operating Expense
Operating expense for consolidated and existing markets was as follows (in thousands):
Year Ended September 30,
Change1
2019
2018
$
%
Operating expense—consolidated . . . . . . . . . . . . . . .
Operating expense—existing markets . . . . . . . . . . . .
% of net sales—consolidated . . . . . . . . . . . . . . . . . .
% of net sales—existing markets . . . . . . . . . . . . . . .
$1,588,803
831,700
$1,388,695
825,557
22.3%
20.0%
21.6%
20.5%
$200,108
6,143
N/A
N/A
14.4%
0.7%
0.7%
(0.5%)
1
Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period.
Percentage changes for percentages represent the net period-to-period change in basis points.
33
Consolidated operating expense increased 14.4% to $1.59 billion in 2019, from $1.39 billion in 2018.
Existing market operating expense increased 0.7% to $831.7 million in 2019, from $825.6 million in 2018. The
year-over-year increase in existing market operating expense was mainly influenced by the following factors:
•
•
•
an increase in payroll and employee benefit costs of $21.1 million, mainly due to annual merit
increases, payroll taxes, and insurance costs;
an increase in real property and facility-related costs of $6.1 million, composed mainly of increases in
warehouse and building maintenance expenses; and
an increase in selling expense of $2.5 million, mainly due to higher sales volume and related costs;
partially offset by:
•
•
a net decrease in general and administrative expense of $13.8 million, mainly due to higher incursion
of acquisition-related costs in the prior period; and
a decrease in amortization expense of $10.9 million, mainly due to the scheduled declining run-rate of
intangible amortization related to acquisitions.
Interest Expense, Financing Costs and Other
Interest expense, financing costs and other expense was $158.5 million in 2019, compared to $136.5 million
in 2018. The increase was mainly driven by incremental interest costs from the financing of the Allied
Acquisition due to the additional quarter in 2019 over which the related debt was outstanding.
Income Taxes
There was an income tax benefit of $0.2 million in 2019, compared to $30.5 million in 2018. The decrease
in income tax benefit was mainly driven by the impact of the Tax Cuts and Jobs Act of 2017. In 2018, the
Company remeasured its deferred tax assets and liabilities based on the revised corporate tax rate, which was the
primary driver of a $48.8 million net tax benefit for the period. The effective tax rate, excluding any discrete
items, was 36.5% in 2019, compared to 30.7% in 2018.
Net Income (Loss)/Net Income (Loss) Per Share
Net
income (loss) was $(10.6) million in 2019, compared to $98.6 million in 2018. There were
$24.0 million of dividends on preferred shares in 2019, compared to $18.0 million in 2018, making net income
(loss) attributable to common shareholders of $(34.6) million in 2019, compared to $80.6 million in 2018. We
calculate net income (loss) per share by dividing net income (loss), less dividends on preferred shares and
adjustments for participating securities, by the weighted-average number of common shares outstanding during
the period. Diluted net income (loss) per share is calculated by utilizing the most dilutive result after applying
and comparing the two-class method and if-converted method (see Note 5 in the Notes to Condensed
Consolidated Financial Statements for further discussion).
34
The following table presents all the components utilized to calculate basic and diluted net income (loss) per
share (in thousands, except share and per share amounts):
Year Ended September 30,
2019
2018
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(10,612) $
24,000
Net income (loss) attributable to common shareholders . . . . . . . . . . . . . . . . . . . . . . .
Undistributed income allocated to participating securities . . . . . . . . . . . . . . . . .
(34,612)
—
98,626
18,000
80,626
(7,742)
Net income (loss) attributable to common shareholders—basic and diluted
(if-converted method) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(34,612) $
72,884
Undistributed income allocated to participating securities . . . . . . . . . . . . . . . . .
Re-allocation of undistributed income to preferred shares . . . . . . . . . . . . . . . . .
—
—
7,742
(7,623)
Net income (loss) attributable to common shareholders—diluted (two-class
method) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(34,612) $
73,003
Weighted-average common shares outstanding, basic . . . . . . . . . . . . . . . . . . . . . . . .
Effect of common share equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68,424,288
—
68,012,879
1,178,160
Weighted-average common shares outstanding—diluted (if-converted and
two-class method) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68,424,288
69,191,039
Net income (loss) per share—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share—diluted (two-class method) . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share—diluted (if-converted method) . . . . . . . . . . . . . . . . . . .
$
(0.51) $
(0.51)
(0.51)
1.07
1.06
1.05
Comparison of the Years Ended September 30, 2018 and 2017
The discussion of our results of operations for 2018 compared to 2017 can be found in Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s
Annual Report on Form 10-K for the year ended September 30, 2018.
Seasonality
In general, sales and net income are highest during our first, third and fourth fiscal quarters, which represent
the peak months of construction and re-roofing, especially in our branches in the northern and mid-western U.S.
and in Canada. We have historically incurred low net income levels or net losses during the second quarter when
our sales are substantially lower.
We generally experience an increase in inventory, accounts receivable and accounts payable during the third
and fourth quarters of the year as a result of the seasonality of our business. Our peak cash usage generally occurs
during the third quarter, primarily because accounts payable terms offered by our suppliers typically have due
dates in April, May and June, while our peak accounts receivable collections typically occur from June through
November.
We generally experience a slowing of our accounts receivable collections during our second quarter, mainly
due to the inability of some of our customers to conduct their businesses effectively in inclement weather in
certain divisions. We continue to attempt to collect those receivables, which require payment under our standard
terms. We do not provide material concessions to our customers during this quarter of the year.
We generally experience our peak working capital needs during the third quarter after we build our
inventories following the winter season but before we begin collecting on most of our spring receivables.
35
Quarterly Financial Data
The following table sets forth certain unaudited quarterly data for 2019 and 2018 which, in the opinion of
management, reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair
presentation of this data. Results of any one or more quarters are not necessarily indicative of results for an entire
fiscal year or of continuing trends (in thousands, except per share amounts):
2019
2018
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Qtr 11
$2,029,913
$1,924,534
$1,429,037
$1,721,676
$1,935,756
$1,934,951
$1,425,625
$1,121,979
28.6%
27.1%
20.1%
24.2%
30.2%
30.1%
22.2%
17.5%
493,462
472,536
334,988
435,569
491,297
493,894
338,377
269,753
28.4%
27.2%
19.3%
25.1%
30.8%
31.0%
21.2%
16.9%
Net sales . . . . . . . . . . . . . . .
% of fiscal year’s net
sales . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . .
% of fiscal year’s gross
profit . . . . . . . . . . . . . . . .
Income (loss) from
operations . . . . . . . . . . . .
89,874
74,254
(54,630)
38,254
108,115
104,813
(57,398)
49,096
% of fiscal year’s income
(loss) from operations . . . .
Net income (loss) . . . . . . . .
Dividends on preferred
shares . . . . . . . . . . . . . . . .
Net income (loss)
attributable to common
shareholders . . . . . . . . . .
Net income (loss) per
share—basic . . . . . . . . . .
Net income (loss) per
share—diluted . . . . . . . . .
60.8%
50.3%
(37.0%)
$
27,380
$
30,987
$ (68,086)
$
25.9%
(893) $
52.8%
51.2%
(28.1%)
24.0%
48,310
$
49,375
$ (66,655)
$
67,596
6,000
6,000
6,000
6,000
6,000
6,000
6,000
—
$
$
$
21,380
0.27
0.27
$
$
$
24,987
$ (74,086)
0.32
0.32
$
$
(1.08)
(1.08)
$
$
$
(6,893) $
42,310
$
43,375
$ (72,655)
(0.10) $
(0.10) $
0.54
0.54
$
$
0.56
0.55
$
$
(1.07)
(1.07)
$
$
$
67,596
1.00
0.98
1
Results from the first quarter of fiscal year 2018 do not include the impact of the Allied Acquisition (see Note 3 in the
Notes to Condensed Consolidated Financial Statements for further discussion).
Impact of Inflation
We believe that our results of operations are not materially impacted by moderate changes in the economic
inflation rate. In general, we have historically been successful in passing on price increases from our vendors to
our customers in a timely manner. Following modest levels of price deflation in recent years, 2018 and 2019 saw
increased product inflation from our suppliers. During periods of inflation, Beacon has a successful history of
offsetting higher products costs with increased selling prices.
Liquidity
Liquidity is defined as the current amount of readily available cash and the ability to generate adequate
amounts of cash to meet the current needs for cash. We assess our liquidity in terms of our cash and cash
equivalents on hand and the ability to generate cash to fund our operating activities, taking into consideration the
seasonal nature of our business.
Our principal sources of liquidity as of September 30, 2019 were our cash and cash equivalents of
$72.3 million and our available borrowings of $1.14 billion under our asset-based lending revolving credit
facility.
Significant factors which could affect future liquidity include the following:
•
•
•
the adequacy of available bank lines of credit;
the ability to attract long-term capital with satisfactory terms;
cash flows generated from operating activities;
36
•
•
acquisitions; and
capital expenditures.
Our primary capital needs are for working capital obligations and other general corporate purposes,
including acquisitions and capital expenditures. Our primary sources of working capital are cash from operations
and cash equivalents supplemented by bank borrowings. In the past, we have financed larger acquisitions initially
through increased bank borrowings and the issuance of common or preferred stock. We then repay any such
borrowings with cash flows from operations. We have funded most of our capital expenditures with cash on hand
or through increased bank borrowings, including equipment financing, and then have reduced those obligations
with cash flows from operations.
We believe we have adequate current liquidity and availability of capital to fund our present operations,
meet our commitments on our existing debt and fund anticipated growth, including expansion in existing and
targeted market areas. We seek potential acquisitions from time to time and hold discussions with certain
acquisition candidates. If suitable acquisition opportunities or working capital needs arise that require additional
financing, we believe that our financial position and earnings history provide a sufficient base for obtaining
additional financing resources at reasonable rates and terms. We may also choose to issue additional shares of
common stock or preferred stock in order to raise funds.
The following table summarizes our cash flows for the periods indicated (in thousands):
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . .
$ 212,653
(211,735)
(58,769)
211
$
539,381
(2,784,341)
2,236,051
586
$ 315,200
(166,985)
(40,600)
(751)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . .
$ (57,640) $
(8,323) $ 106,864
Year Ended September 30,
2019
2018
2017
Operating Activities
Net cash provided by operating activities was $212.7 million in 2019, compared to $539.4 million in 2018.
Cash from operations decreased $326.7 million due to an incremental cash outflow of $314.5 million stemming
from changes to our net working capital, mainly driven by comparatively larger cash outflows related to accounts
payable, accrued expenses and prepaid expenses, as well as a decrease in net income after adjustments for
non-cash items of $12.3 million.
Investing Activities
Net cash used in investing activities was $211.7 million in 2019, compared to $2.78 billion in 2018. The
$2.57 billion decrease in investing cash spend was primarily due to the impact of the Allied Acquisition in 2018,
partially offset by the $164.0 million payment resulting from the 338(h)(10) election made in October 2018 (see
Note 3 in the Notes to the Condensed Consolidated Financial Statements).
Financing Activities
Net cash used in financing activities was $58.8 million in 2019, compared to $2.24 billion provided by
financing activities in 2018. The financing cash flow decrease of $2.29 billion was primarily due to a net
$1.95 billion decline in cash inflow related to financing arrangements that we entered into in connection with the
Allied Acquisition in 2018 (see Note 9 in the Notes to the Consolidated Financial Statements), as well as the
$400.0 million in gross proceeds we received from the issuance of Preferred Stock in 2018 (see Note 3 in the
Notes to the Consolidated Financial Statements).
37
Monitoring and Assessing Collectability of Accounts Receivable
We perform periodic credit evaluations of our customers and typically do not require collateral, although we
typically obtain payment and performance bonds for any type of public work and can lien projects under certain
circumstances. Consistent with industry practices, we require payment from most customers within 30 days,
except for sales to our non-residential roofing contractors, which we typically require to pay in 60 days.
As our business is seasonal in certain geographic regions, our customers’ businesses are also seasonal. Sales
are lowest in the winter months and our past due accounts receivable balance as a percentage of total receivables
generally increases during this time. Throughout the year, we closely monitor our receivables and record
estimated reserves based upon our judgment of specific customer situations, aging of accounts and our historical
write-offs of uncollectible accounts.
Our divisional credit offices are staffed to manage and monitor our receivable aging balances and our
systems allow us to enforce pre-determined credit approval levels and properly leverage new business. The credit
pre-approval process denotes the maximum credit that each level of management can approve, with the highest
credit amount requiring approval by our CEO and CFO. There are daily communications with branch and field
staff. Our divisional offices conduct periodic reviews with their branch managers, various regional management
staff and the Chief Credit Officer. Depending on the state of the respective division’s receivables, these reviews
can be weekly, bi-weekly or monthly. Additionally, the divisions are required to submit a monthly receivable
forecast to the Chief Credit Officer. On a monthly basis, the Chief Credit Officer reviews and discusses these
forecasts, as well as a prior month recap, with the Company’s executive management team.
Periodically, we perform a specific analysis of all accounts past due and write off account balances when we
have exhausted reasonable collection efforts and determined that the likelihood of collection is remote based
upon the following factors:
•
•
•
•
•
aging statistics and trends;
customer payment history;
review of the customer’s financial statements when available;
independent credit reports; and
discussions with customers.
We still pursue collection of amounts written off in certain circumstances and credit the allowance for any
subsequent recoveries. Over the past three fiscal years, bad debt expense has been, on average, 0.08% of net
sales. The continued limitation of bad debt expense is primarily attributed to the continued strengthening of our
collections process and overall credit environment.
38
Commitments
As of September 30, 2019, our contractual obligations were as follows (in thousands):
Payments Due by Period
Total
< 1 year
1-3 Years
3-5 Years
> 5 Years
2023 ABL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment financing and other
. . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
89,104
955,450
1,600,000
13,598
527,409
720,972
$ — $ — $ 89,104
19,400
19,400
300,000
—
29
4,580
125,024
191,271
234,750
251,658
9,700
—
8,989
110,858
129,173
$
—
906,950
1,300,000
—
100,256
105,391
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,906,533
$258,720
$466,909
$768,307
$2,412,597
1
2
Represent principal amounts for 2023 Senior Notes and 2025 Senior Notes. In October 2019, the 2023 Senior Notes were
fully redeemed and replaced in connection with re-financing efforts (see Note 20 in the Notes to the Consolidated
Financial Statements).
Interest payments reflect all currently scheduled and projected amounts as calculated using future LIBOR projections.
Capital Resources
As of September 30, 2019 we had access to the following financing arrangements:
•
•
•
•
an asset-based revolving line of credit in the United States;
an asset-based revolving line of credit in Canada;
a term loan; and
two separate senior notes instruments.
Financing—Allied Acquisition
In connection with the Allied Acquisition, we entered into various financing arrangements totaling
$3.57 billion, including an asset-based revolving line of credit of $1.30 billion (“2023 ABL”), $525.0 million of
which was drawn at closing, and a $970.0 million term loan (“2025 Term Loan”). We also raised an additional
$1.30 billion through the issuance of senior notes (the “2025 Senior Notes”).
The proceeds from these financing arrangements were used to finance the Allied Acquisition, to refinance or
otherwise extinguish all third-party indebtedness, to pay fees and expenses associated with the acquisition, and to
provide working capital and funds for other general corporate purposes. We capitalized new debt issuance costs
totaling approximately $65.3 million related to the 2023 ABL, the 2025 Term Loan and the 2025 Senior Notes.
Since the financing arrangements entered into in connection with the Allied Acquisition had certain lenders
who also participated in our previous financing arrangements, portions of the transactions were accounted for as
either a debt modification or a debt extinguishment. In accordance with the accounting for debt modification, we
expensed $2.0 million of debt issuance costs related to the Allied financing arrangements and recognized a loss
on debt extinguishment of $1.2 million. The remainder of the debt issuance costs will be amortized over the term
of the Allied financing arrangements.
2023 ABL
On January 2, 2018, we entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo
Bank, N.A. and a syndicate of other lenders. The 2023 ABL consists of revolving loans in both the United States
39
(“2023 U.S. Revolver”) in the amount of $1.20 billion and Canada (“2023 Canada Revolver”) in the amount of
$100.0 million. The 2023 ABL has a maturity date of January 2, 2023. The 2023 ABL has various borrowing
tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The current unused
commitment fees on the 2023 ABL are 0.25% per annum.
There is one financial covenant under the 2023 ABL, which is a Consolidated Fixed Charge Ratio. The
Consolidated Fixed Charge Ratio is calculated by dividing consolidated earnings before interest,
taxes,
depreciation and amortization (EBITDA) by Consolidated Fixed Charges (both as defined in the agreement). Per
the covenant, our Consolidated Fixed Charge Ratio must be a minimum of 1.00 at the end of each fiscal quarter,
calculated on a trailing four quarter basis. The Company was in compliance with this covenant as of
September 30, 2019.
The 2023 ABL is secured by a first priority lien over substantially all of our and each guarantor’s accounts,
chattel paper, deposit accounts, books, records and inventory (as well as intangibles related thereto), subject to
certain customary exceptions (the “ABL Priority Collateral”), and a second priority lien over substantially all of
our and each guarantor’s other assets, including all of the equity interests of any subsidiary held by us or any
guarantor, subject to certain customary exceptions (the “Term Priority Collateral”). The 2023 ABL is guaranteed
jointly, severally, fully and unconditionally by our active United States subsidiaries.
As of September 30, 2019, the total balance outstanding on the 2023 ABL, net of $8.1 million of
unamortized debt issuance costs, was $81.0 million. We also have outstanding standby letters of credit related to
the 2023 U.S. Revolver in the amount of $13.3 million as of September 30, 2019.
2025 Term Loan
On January 2, 2018, we entered into a $970.0 million Term Loan with Citibank N.A., and a syndicate of
other lenders. The 2025 Term Loan requires quarterly principal payments in the amount of $2.4 million, with the
remaining outstanding principal to be paid on its January 2, 2025 maturity date. The interest rate is based on a
LIBOR rate (with a floor) plus a fixed spread. We have the option of selecting a LIBOR period that determines
the rate at which interest can accrue on the Term Loan as well as the period in which interest payments are made.
The 2025 Term Loan is secured by a first priority lien on the Term Priority Collateral and a second priority
lien on the ABL Priority Collateral. Certain excluded assets will not be included in the Term Priority Collateral
and the ABL Priority Collateral. The Term Loan is guaranteed jointly, severally, fully and unconditionally by our
active United States subsidiaries.
As of September 30, 2019, the outstanding balance on the 2025 Term Loan, net of $28.9 million of
unamortized debt issuance costs, was $926.5 million.
2025 Senior Notes
On October 25, 2017, Beacon Escrow Corporation, our wholly-owned subsidiary (the “Escrow Issuer”),
completed a private offering of $1.30 billion aggregate principal amount of 4.875% Senior Notes due 2025 at an
issue price of 100%. The 2025 Senior Notes bear interest at a rate of 4.875% per annum, payable semi-annually
in arrears, beginning May 1, 2018. We anticipate repaying the 2025 Senior Notes at the maturity date of
November 1, 2025. Per the terms of the Escrow Agreement, the net proceeds from the 2025 Senior Notes
remained in escrow until they were used to fund a portion of the purchase price of the Allied Acquisition payable
at closing on January 2, 2018.
Upon closing of the Allied Acquisition on January 2, 2018, (i) the Escrow Issuer merged with and into us,
and we assumed all obligations under the 2025 Senior Notes; and (ii) all our existing domestic subsidiaries
(including the entities acquired in the Allied Acquisition) became guarantors of the 2025 Senior Notes.
40
As of September 30, 2019, the outstanding balance on the 2025 Senior Notes, net of $17.1 million of debt
issuance costs, was $1.28 billion.
Financing—RSG Acquisition
In connection with the Roofing Supply Group (“RSG”) acquisition in fiscal year 2016, we entered into
various financing arrangements totaling $1.45 billion, including an asset-based revolving line of credit (“2020
ABL”) of $700.0 million ($350.0 million of which was drawn at closing) and a $450.0 million term loan (“2022
Term Loan”). We also raised an additional $300.0 million through the issuance of senior notes (the “2023 Senior
Notes”).
The proceeds from these financing arrangements were used to provide working capital and funds for other
general corporate purposes, to refinance or otherwise extinguish all third-party indebtedness, to finance the
acquisition, and to pay fees and expenses associated with the RSG acquisition. We incurred debt issuance costs
totaling approximately $31.3 million related to the 2020 ABL, 2022 Term Loan, and 2023 Senior Notes.
2020 ABL
On October 1, 2015, we entered into a $700.0 million asset-based revolving line of credit with Wells Fargo
Bank, N.A. and a syndicate of other lenders. The 2020 ABL had an original maturity date of October 1, 2020 and
consisted of revolving loans in both the United States, in the amount of $670.0 million, and Canada, in the
amount of $30.0 million. The 2020 ABL had various borrowing tranches with an interest rate based on a LIBOR
rate (with a floor) plus a fixed spread. The full balance of the 2020 ABL was paid on January 2, 2018 in
conjunction with the Allied Acquisition.
2022 Term Loan
On October 1, 2015, we entered into a $450.0 million Term Loan with Citibank N.A., and a syndicate of
other lenders. The 2022 Term Loan required quarterly principal payments in the amount of $1.1 million, with the
remaining outstanding principal to be paid on its original maturity date of October 1, 2022. The interest rate was
based on a LIBOR rate (with a floor) plus a fixed spread. We had the option of selecting a LIBOR period that
determined the rate at which interest would accrue, as well as the period in which interest payments are made.
The full balance of the 2022 Term Loan was paid on January 2, 2018 in conjunction with the Allied Acquisition,
including the write-off of $0.7 million in debt issuance costs.
2023 Senior Notes
On October 1, 2015, we raised $300.0 million by issuing senior notes due 2023. The 2023 Senior Notes
have a coupon rate of 6.38% per annum and are payable semi-annually in arrears, beginning April 1, 2016. There
are early payment provisions in the indenture in which we would be subject to “make whole” provisions.
The 2023 Senior Notes are guaranteed jointly, severally, fully and unconditionally by our active United
States subsidiaries.
As of September 30, 2019, the outstanding balance on the 2023 Senior Notes, net of $5.1 million of
unamortized debt issuance costs, was $294.9 million. On October 28, 2019, we redeemed all $300.0 million
aggregate principal amount outstanding of the 2023 Senior Notes at a redemption price of 103.188% (see
Note 20 in the Notes to the Consolidated Financial Statements).
Equipment Financing Facilities and Other
As of September 30, 2019, we had $6.9 million outstanding under equipment financing facilities, with fixed
interest rates ranging from 2.33% to 2.89% and payments due through September 2021.
41
As of September 30, 2019, we had $6.7 million of capital lease obligations outstanding. These leases have
interest rates ranging from 2.72% to 10.39% with payments due through November 2021.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with GAAP. Accounting policies, methods
and estimates are an integral part of the preparation of consolidated financial statements in accordance with U.S.
GAAP and, in part, are based upon management’s current judgments. Those judgments are normally based on
knowledge and experience with regard to past and current events and assumptions about future events. Certain
accounting policies, methods and estimates are particularly sensitive because of their significance to the
consolidated financial statements and because of the possibility that future events affecting them may differ
markedly from management’s current judgments. While there are a number of accounting policies, methods and
estimates affecting our consolidated financial statements, areas that are particularly significant include:
•
Inventories
• Business Combinations
• Goodwill and Intangible Assets
Inventories
Inventories, consisting substantially of finished goods, are valued at the lower of cost or market (net
realizable value). Cost is determined using the moving weighted-average cost method.
Our arrangements with vendors typically provide for rebates after we make a special purchase and/or
monthly, quarterly and/or annual rebates of a specified amount of consideration payable when a number of
measures have been achieved. Annual rebates are generally related to a specified cumulative level of purchases
on a calendar-year basis. We account for such rebates as a reduction of the inventory value until the product is
sold, at which time such rebates reduce cost of sales in the consolidated statements of operations. Throughout the
year, we estimate the amount of the periodic rebates based upon the expected level of purchases. We continually
revise these estimates to reflect actual rebates earned based on actual purchase levels. Amounts due from vendors
under these arrangements are included in “Prepaid expenses and other current assets” in the accompanying
consolidated balance sheets.
Business Combinations
We record acquisitions resulting in the consolidation of a business using the acquisition method of
accounting. Under this method, we record the assets acquired, including intangible assets that can be identified
and named, and liabilities assumed based on their estimated fair values at the date of acquisition. We use an
income approach to determine the fair value of acquired intangible assets, specifically the multi-period excess
earnings method for customer relationships and the relief from royalty method for trade names. Various Level 3
fair value assumptions are used in the determination of these estimated fair values, including items such as sales
growth rates, cost synergies, customer attrition rates, discount rates, and other prospective financial information.
The purchase price in excess of the fair value of the assets acquired and liabilities assumed is recorded as
goodwill. We believe these estimates are based on reasonable assumptions, however they are inherently uncertain
and unpredictable, therefore actual results may differ. Estimates associated with the accounting for acquisitions
may change as additional information becomes available regarding the assets acquired and liabilities assumed.
Transaction costs associated with acquisitions are expensed as incurred.
42
Goodwill and Indefinite-Lived Intangibles
On an annual basis and at interim periods when circumstances require, we test the recoverability of our
goodwill and indefinite-lived intangible assets. Examples of such indicators include a significant change in the
business climate, unexpected competition, loss of key personnel or a decline in our market capitalization below
net book value.
We perform impairment assessments at the reporting unit level, which is defined as an operating segment or
one level below an operating segment, also known as a component. We currently have five components which
we evaluate for aggregation by examining the distribution methods, sales mix, and operating results of each
component to determine if these characteristics will be sustained over a long-term basis. For purposes of this
evaluation, we expect components to exhibit similar economic characteristics 3-5 years after events such as an
acquisition within our core roofing business or management/business restructuring. Components that exhibit
similar economic characteristics are subsequently aggregated into a single reporting unit. Based on our most
recent impairment assessment performed as of August 31, 2019, it was determined that all components exhibited
similar economic characteristics, and therefore should be aggregated into a single reporting unit (collectively the
“Reporting Unit”).
To test for the recoverability of goodwill and indefinite-lived intangible assets, we first perform a qualitative
assessment based on economic, industry and company-specific factors for all or selected reporting units to
determine whether the existence of events and circumstances indicates that it is more likely than not that the
goodwill or indefinite-lived intangible asset is impaired. Based on the results of the qualitative assessment, two
additional steps in the impairment assessment may be required. The first step would require a comparison of each
reporting unit’s fair value to the respective carrying value. If the carrying value exceeds the fair value, a second
step is performed to measure the amount of impairment loss on a relative fair value basis, if any.
Based on our most recent impairment assessment performed as of August 31, 2019, we concluded that it
was more likely than not that the fair value of the goodwill and indefinite-lived intangible assets exceeded their
net carrying amount, therefore the quantitative two-step impairment test was not required. Our total market
capitalization exceeded carrying value by approximately 38.3% as of August 31, 2019. Other than the results of
the market capitalization test, we did not identify any macroeconomic, industry conditions or cost-related factors
that would indicate it is more likely than not that the fair value of the reporting unit was less than its carrying
value.
We amortize certain identifiable intangible assets that have finite lives, currently consisting of non-compete
agreements, customer relationships and trade names. Non-compete agreements are amortized on a straight-line
basis over the terms of the associated contractual agreements; customer relationship assets are amortized on an
accelerated basis based on the expected cash flows generated by the existing customers; and trade names are
amortized on an accelerated basis over a five- or ten-year period. Amortizable intangible assets are tested for
impairment, when deemed necessary, based on undiscounted cash flows and, if impaired, are written down to fair
value based on either discounted cash flows or appraised values. In connection with certain financing
arrangements, we have debt issuance costs that are amortized over the lives of the associated financings.
43
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks as part of our on-going business operations. Our primary exposure
includes changes in interest rates and foreign exchange rates.
Interest Rate Risk
Our interest rate risk relates primarily to the variable-rate borrowings we have outstanding. The following
discussion of our interest rate is based on a 10% change in interest rates. These changes are hypothetical
scenarios used to calibrate potential risk and do not represent our view of future market changes. As the
hypothetical figures discussed below indicate, changes in fair value based on the assumed change in rates
generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value
may not be linear. The effect of a variation in a particular assumption is calculated without changing any other
assumption. In reality, changes in one factor may result in changes in another, which may magnify or counteract
the sensitivities.
We use interest rate derivative instruments to manage the risk related to fluctuating cash flows from interest
rate changes by converting a portion of our variable-rate borrowings into fixed-rate borrowings. Use of derivative
financial instruments in hedging programs subjects us to certain risks, such as market and credit risks. Market
risk represents the possibility that the value of the derivative instrument will change. In a hedging relationship,
the change in the value of the derivative is offset to a great extent by the change in the value of the underlying
hedged item. Credit risk related to derivatives represents the possibility that the counterparty will not fulfill the
terms of the contract. The notional, or contractual, amount of our derivative financial instruments is used to
measure interest to be paid or received and does not represent our exposure due to credit risk. Our current
derivative instruments are with a large financial counterparty that is rated highly by nationally recognized credit
rating agencies.
As of September 30, 2019, net of debt issuance fees, we had outstanding borrowings of $81.0 million under
our asset-based revolving line of credit, $926.5 million under our term loan, $1.58 billion under our respective
senior notes and $13.6 million under our equipment financing facilities. Borrowings under our asset-based
revolving line of credit and term loan incur interest on a floating rate basis while borrowings under our senior
notes and equipment lease facilities incur interest on a fixed rate basis.
As of September 30, 2019, our weighted-average effective interest rate on debt instruments with variable
rates was 4.4%. Based on our analysis, the financial impact of a hypothetical 10% interest rate fluctuation in
effect as of September 30, 2019 would be immaterial.
In the fourth quarter of 2019, we took advantage of the recent interest rate cuts and executed two interest
rate swaps to hedge against our interest rate risk related to the floating rate of our term loan. The swaps are for
three- and five-year terms, and each hedge against $250 million of our term loan for a total of $500 million. The
swaps are “pay-fixed/receive-floating” instruments with fixed rates of 1.499% and 1.489% for the three- and
five-year swaps, respectively. The swaps are designed to hedge against the interest rate risk that the floating rate
on our term loan, up-to the hedged amounts of $250 million each, will exceed 1.499% and 1.489% within three-
and five-years, respectively. The interest rate swaps are designated as cash flow hedges and as such, changes in
the fair value of the swap instruments are recorded as a component of accumulated other comprehensive income
and reclassified into earnings in the same period or periods during which the hedged forecasted transaction
affects earnings. As of September 30, 2019, the fair value, net of tax, of the three- and five-year swaps were
$0.5 million and $1.1 million, respectively, both in favor of the counterparty.
44
Foreign Currency Exchange Rate Risk
We have exposure to foreign currency exchange rate fluctuations for net sales generated by our operations
outside the United States, which can adversely impact our net income and cash flows. Approximately 3% of our
net sales in 2019 were derived from sales to customers in Canada. This business is primarily conducted in the
local currency. This exposes us to risks associated with changes in foreign currency that can adversely affect net
sales, net income and cash flows. A 10% fluctuation of foreign currency exchange rates would not have a
material impact on our results of operations or cash flows; therefore, we currently do not enter into financial
instruments to manage this minimal foreign currency exchange risk.
45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BEACON ROOFING SUPPLY, INC.
Index to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of September 30, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended September 30, 2019, 2018, and 2017 . . . . . . . .
Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2019, 2018, and
Page
F-1
F-3
F-4
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-5
Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2019, 2018, and
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended September 30, 2019, 2018, and 2017 . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
F-7
F-8
46
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Beacon Roofing Supply, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Beacon Roofing Supply, Inc. (the Company)
as of September 30, 2019 and 2018, the related consolidated statements of operations, comprehensive income,
stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2019, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present
the Company at
September 30, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the
period ended September 30, 2019, in conformity with U.S. generally accepted accounting principles.
the financial position of
in all material
respects,
fairly,
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2019,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated November 26, 2019
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company‘s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing separate opinions on the critical audit matter or in the account or disclosures to
which it relates.
F-1
Description of the Matter
How We Addressed the Matter
in Our Audit
Valuation of Vendor Rebates
As disclosed in Footnote 2, the Company’s arrangements with vendors
typically provide for rebates as inventory purchases are made. A vendor rebate
receivable and a corresponding reduction to inventory are recorded at the
point in which inventory is purchased, and a reduction in cost of goods sold is
recognized when the related inventory is sold. The Company had $263 million
of vendor rebate receivables as of September 30, 2019, of which a portion
related to rebates earned under cumulative annual calendar-year vendor rebate
agreements. The annual calendar-year vendor rebate agreements provide for
rebates only after the Company makes annual purchases of a specified
amount. The Company updates its estimates of annual calendar-year
purchases each reporting period in order to estimate the cumulative rebates
earned under annual calendar-year vendor agreements.
Auditing rebates earned under annual calendar-year vendor agreements is
to
especially challenging due to the judgment required by management
estimate the vendor rebates earned during the year, as the projected full
calendar year rebate rate is applied to inventory purchased and sold during the
fiscal year. This estimate has a significant effect on the amount of cost of
goods sold recognized during the year.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the vendor rebates process. For example, we
tested the controls relating to management’s review of the estimated level of
calendar-year purchases that are used to determine the estimated vendor
rebates earned.
To test the valuation of vendor rebates, we performed audit procedures that
included, among others, evaluating management’s precision in forecasting
calendar-year
to
comparing
management’s estimates of annual purchases in prior years, as well as
assessing purchasing activity subsequent to the balance sheet date compared
to management’s estimates.
purchases
historical
results
actual
by
We have served as the Company’s auditor since 1997.
Tysons, Virginia
November 26, 2019
/s/ Ernst & Young LLP
F-2
BEACON ROOFING SUPPLY, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
September 30,
2019
2018
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance of $13,095 and $17,584 as of September 30,
2019 and 2018, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
72,287
$ 129,927
1,108,134
1,018,183
315,643
2,514,247
260,376
2,490,590
1,125,540
2,059
1,090,533
936,047
244,360
2,400,867
280,407
2,491,779
1,334,366
1,243
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,392,812
$6,508,662
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portions of long-term debt/obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 822,931
599,155
18,689
$ 880,872
611,539
19,661
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under revolving lines of credit, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net
Long-term obligations under equipment financing and other, net
. . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,440,775
80,961
2,494,623
103,913
4,609
6,383
1,512,072
92,442
2,494,725
106,994
13,639
5,290
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,131,264
4,225,162
Commitments and contingencies (Note 9)
Convertible preferred stock; $0.01 par value; aggregate liquidation preference
$400,000; 400,000 shares authorized, issued and outstanding as of September 30,
2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
399,195
399,195
Stockholders’ equity:
Common stock (voting); $0.01 par value; 100,000,000 shares authorized;
68,574,176 and 68,135,790 shares issued and outstanding as of September 30,
2019 and 2018, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
685
Undesignated preferred stock; 5,000,000 shares authorized, none issued or
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss)
—
1,083,042
799,222
(20,596)
681
—
1,067,040
833,834
(17,250)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,862,353
1,884,305
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,392,812
$6,508,662
See accompanying Notes to Consolidated Financial Statements
F-3
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
Year Ended September 30,
2018
2017
2019
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,105,160
5,368,605
$ 6,418,311
4,824,990
$ 4,376,670
3,300,731
Gross profit
Operating expense:
1,736,555
1,593,321
1,075,939
Selling, general and administrative . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,311,043
70,695
207,065
1,187,192
60,318
141,185
Total operating expense . . . . . . . . . . . . . . . . . . . . . . .
1,588,803
1,388,695
Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, financing costs, and other . . . . . . . . . . . . . . . .
Income (loss) before provision for income taxes . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes1 . . . . . . . . . . . . . . . . .
147,752
158,534
(10,782)
(170)
204,626
136,544
68,082
(30,544)
743,376
34,002
82,465
859,843
216,096
52,751
163,345
62,481
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(10,612) $
98,626
$
100,864
Dividends on preferred shares2 . . . . . . . . . . . . . . . . . . . . . . . . . .
24,000
18,000
—
Net income (loss) attributable to common shareholders . . . . . . . . . . .
$
(34,612) $
80,626
$
100,864
Weighted-average common stock outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68,424,288
68,424,288
68,012,879
69,191,039
60,315,648
61,344,263
Net income (loss) per share3:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(0.51) $
(0.51) $
1.07
1.05
$
$
1.67
1.64
1
2
3
Year ended September 30, 2018 amounts include a net tax benefit $49.2 million resulting from recording the provisional
impact of the enactment of the 2017 Tax Cuts and Jobs Act (“TCJA”).
Year ended September 30, 2019 amount is composed of $5.0 million in undeclared cumulative Preferred Stock
dividends, as well as an additional $19.0 million of Preferred Stock dividends that had been declared and paid as of
period end. Year ended September 30, 2018 amount is composed of $5.0 million in undeclared cumulative Preferred
Stock dividends, as well as an additional $13.0 million of Preferred Stock dividends that had been declared and paid as of
period end. See Note 3 for further discussion.
See Note 5 for detailed calculations and further discussion.
See accompanying Notes to Consolidated Financial Statements
F-4
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Comprehensive Income
(In thousands)
Year Ended September 30,
2018
2017
2019
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) due to change in fair value of derivatives, net of
$(10,612) $98,626
$100,864
(1,734)
(2,687)
3,706
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,612)
—
—
Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . .
(3,346)
(2,687)
3,706
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(13,958) $95,939
$104,570
See accompanying Notes to Consolidated Financial Statements
F-5
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
Balance as of September 30, 2016 . . . . . 59,890,885
$598
$ 694,564 $647,322
$(18,657)
$1,323,827
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Issuance of common stock, net of
shares withheld for taxes . . . . . .
536,223
6
8,621
Issuance of common stock from
secondary offering, net of
issuance costs . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . .
Other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . .
7,273,750
—
—
—
73
—
—
—
—
—
—
—
—
—
329,250
15,071
—
—
— 100,864
4,094
—
Balance as of September 30, 2017 . . . . . 67,700,858
$677
$1,047,506 $748,186
$(14,563)
$1,781,806
Issuance of common stock, net of
shares withheld for taxes . . . . . .
Issuance costs related to secondary
offering of common stock . . . . .
Stock-based compensation . . . . . . .
Other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . .
Dividends on preferred shares1 . . . .
434,932
4
3,535
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(474)
16,473
—
—
—
98,626
— (12,978)
(2,687)
—
—
8,627
329,323
15,071
4,094
100,864
3,539
(474)
16,473
(2,687)
98,626
(12,978)
Balance as of September 30, 2018 . . . . . 68,135,790
$681
$1,067,040 $833,834
$(17,250)
$1,884,305
Issuance of common stock, net of
shares withheld for taxes . . . . . .
Stock-based compensation . . . . . . .
Other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . .
Dividends on preferred shares1 . . . .
438,386
—
—
—
—
4
—
—
—
—
(358)
16,360
—
—
—
—
—
—
— (10,612)
— (24,000)
(3,346)
—
—
(354)
16,360
(3,346)
(10,612)
(24,000)
Balance as of September 30, 2019 . . . . . 68,574,176
$685
$1,083,042 $799,222
$(20,596)
$1,862,353
1
Amount represents dividends that have been declared and paid during the respective periods presented.
See accompanying Notes to Consolidated Financial Statements
F-6
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Cash Flows
(In thousands)
Operating Activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain interest expense and other financing costs . . . . . . . . . . . . . .
Beneficial lease amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of the effects of
businesses acquired in the period:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . .
Investing Activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses, net
Proceeds from the sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . .
Financing Activities
Borrowings under revolving lines of credit . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under revolving lines of credit
. . . . . . . . . . . . . . . . . . . . . . .
Borrowings under term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under equipment financing facilities and other . . . . . . . . . . .
Proceeds from issuance of convertible preferred stock . . . . . . . . . . . . . . .
Proceeds from secondary offering of common stock . . . . . . . . . . . . . . . .
Payment of stock issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock related to equity awards . . . . .
Taxes paid related to net share settlement of equity awards . . . . . . . . . . .
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . $
Supplemental Cash Flow Information
Cash paid during the period for:
Year Ended September 30,
2018
2017
2019
(10,612) $
98,626 $
100,864
277,761
16,360
12,102
2,290
—
(3,830)
(2,555)
(18,501)
(82,774)
(70,815)
92,133
1,094
212,653
201,503
16,473
17,338
—
1,248
(1,294)
(30,118)
(45,093)
(65,069)
57,554
287,428
785
539,381
116,467
15,071
10,497
—
—
(839)
393
(60,185)
(51,768)
(44,208)
228,908
—
315,200
(57,031)
(163,973)
9,269
(211,735)
(46,010)
(2,740,480)
2,149
(2,784,341)
(39,828)
(129,390)
2,233
(166,985)
2,100,085
(2,113,982)
—
(9,700)
2,807,741
(2,707,741)
970,000
(445,850)
— 1,300,000
(65,788)
(817)
(11,593)
(10,001)
400,000
—
—
—
(1,279)
—
(12,978)
(24,000)
7,514
3,314
(3,975)
(3,668)
—
—
2,236,051
(58,769)
586
211
(8,323)
(57,640)
138,250
129,927
129,927 $
72,287 $
2,464,128
(2,833,230)
—
(4,500)
—
(1,669)
(10,034)
—
345,503
(14,684)
—
11,341
(392)
2,937
(40,600)
(751)
106,864
31,386
138,250
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes paid (received), net of refunds . . . . . . . . . . . . . . . . . . .
146,425 $
(8,525)
111,283 $
35,105
49,067
56,158
See accompanying Notes to Consolidated Financial Statements
F-7
BEACON ROOFING SUPPLY, INC.
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts or otherwise indicated)
1. Company Overview
Beacon Roofing Supply, Inc. (the “Company”) was incorporated in the state of Delaware on August 22,
1997 and is the largest publicly traded distributor of residential and non-residential roofing materials and
complementary building products in the United States and Canada.
The Company operates its business under regional and local trade names and services customers in all 50
states throughout the U.S. and 6 provinces in Canada. The Company’s material subsidiaries are Beacon Sales
Acquisition, Inc., Allied Building Products LLC and Beacon Roofing Supply Canada Company.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All inter-company transactions have been eliminated. Certain prior period amounts have been
reclassified to conform to current period presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally accepted
accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the
amounts reported in these consolidated financial statements and accompanying notes. Significant items subject to
such estimates include inventories, purchase price allocations, recoverability of goodwill and intangibles, and
income taxes. Actual amounts could differ from those estimates.
Fiscal Year
The fiscal years presented are the years ended September 30, 2019 (“2019”), September 30, 2018 (“2018”),
and September 30, 2017 (“2017”). Each of the Company’s first three quarters ends on the last day of the calendar
month.
Segment Information
Operating segments are defined as components of a business that can earn revenue and incur expenses for
which discrete financial information is evaluated on a regular basis by the chief operating decision maker
(“CODM”) in order to decide how to allocate resources and assess performance. The Company’s CODM, the
Chief Executive Officer, reviews consolidated results of operations to make decisions, therefore the Company
views its operations and manages its business as one operating segment.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when
purchased to be cash equivalents. Cash and cash equivalents also include unsettled credit card transactions. Cash
equivalents are comprised of money market funds which invest primarily in commercial paper or bonds with a
rating of A-1 or better, and bank certificates of deposit.
Accounts Receivable
Accounts receivable are derived from unpaid invoiced amounts and are recorded at their net realizable
value. The allowance for doubtful accounts is calculated based on actual historical write-offs and current
F-8
economic factors and represents the Company’s best estimate of its credit exposure. Each month the Company
reviews its receivables on a customer-by-customer basis and any balances that are deemed uncollectible are
written off against the allowance after all means of collection have been exhausted and the potential for recovery
is considered remote. The Company’s accounts receivable are primarily from customers in the building industry
located in the United States and Canada, and no single customer represented at least 10% of the Company’s
revenue during the year ended September 30, 2019 or accounts receivable as of September 30, 2019.
Concentrations of Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist
primarily of cash, cash equivalents and accounts receivable. The Company maintains the majority of its cash and
cash equivalents with one financial institution, which management believes to be financially sound and with
minimal credit risk. The Company’s deposits typically exceed amounts guaranteed by the Federal Deposit
Insurance Corporation.
Inventories
Inventories, consisting substantially of finished goods, are valued at the lower of cost or market (net
realizable value). Cost is determined using the moving weighted-average cost method.
The Company’s arrangements with vendors typically provide for rebates after it makes a special purchase
and/or monthly, quarterly and/or annual rebates of a specified amount of consideration payable when a number of
measures have been achieved. Annual rebates are generally related to a specified cumulative level of purchases
on a calendar-year basis. The Company accounts for such rebates as a reduction of the inventory value until the
product is sold, at which time such rebates reduce cost of sales in the consolidated statements of operations.
Throughout the year, the Company estimates the amount of the periodic rebates based upon the expected level of
purchases. The Company continually revises these estimates to reflect actual rebates earned based on actual
purchase levels. Amounts due from vendors under these arrangements are included in “prepaid expenses and
other current assets” in the accompanying consolidated balance sheets.
Property and Equipment
Property and equipment acquired in connection with acquisitions are recorded at fair value as of the date of
the acquisition and depreciated utilizing the straight-line method over the estimated remaining lives. All other
additions are recorded at cost, and depreciation is computed using the straight-line method. The Company
reviews the estimated useful lives of its fixed assets on an ongoing basis and the following table summarizes the
estimates currently used:
Asset Class
Buildings and improvements
Equipment
Furniture and fixtures
Leasehold improvements
Estimated Useful Life
40 years
3 to 7 years
7 years
Shorter of the estimated useful life or the term of the lease,
considering renewal options expected to be exercised.
Business Combinations
The Company records acquisitions resulting in the consolidation of a business using the acquisition method
of accounting. Under this method, the acquiring Company records the assets acquired, including intangible assets
that can be identified and named, and liabilities assumed based on their estimated fair values at the date of
acquisition. The Company uses an income approach to determine the fair value of acquired intangible assets,
specifically the multi-period excess earnings method for customer relationships and the relief from royalty
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method for trade names. Various Level 3 fair value assumptions are used in the determination of these estimated
fair values, including items such sales growth rates, cost synergies, customer attrition rates, discount rates, and
other prospective financial information. The purchase price in excess of the fair value of the assets acquired and
liabilities assumed is recorded as goodwill. Estimates associated with the accounting for acquisitions may change
as additional information becomes available regarding the assets acquired and liabilities assumed. Transaction
costs associated with acquisitions are expensed as incurred.
Goodwill and Intangibles
On an annual basis and at interim periods when circumstances require, the Company tests the recoverability
of its goodwill and indefinite-lived intangible assets. Examples of such indicators include a significant change in
the business climate, unexpected competition, loss of key personnel or a decline in the Company’s market
capitalization below the Company’s net book value.
The Company performs impairment assessments at the reporting unit level, which is defined as an operating
segment or one level below an operating segment, also known as a component. The Company currently has five
components which it evaluates for aggregation by examining the distribution methods, sales mix, and operating
results of each component to determine if these characteristics will be sustained over a long-term basis. For
purposes of this evaluation, the Company expects its components to exhibit similar economic characteristics 3-5
years after events such as an acquisition within the Company’s core roofing business or management/business
restructuring. Components that exhibit similar economic characteristics are subsequently aggregated into a single
reporting unit. Based on the Company’s most recent impairment assessment performed as of August 31, 2019, it
was determined that all of the Company’s components exhibited similar economic characteristics, and therefore
should be aggregated into a single reporting unit (collectively, the “Reporting Unit”).
To test for the recoverability of goodwill and indefinite-lived intangible assets, the Company first performs
a qualitative assessment based on economic, industry and company-specific factors for all or selected reporting
units to determine whether the existence of events and circumstances indicates that it is more likely than not that
the goodwill or indefinite-lived intangible asset is impaired. Based on the results of the qualitative assessment,
two additional steps in the impairment assessment may be required. The first step would require a comparison of
each reporting unit’s fair value to the respective carrying value. If the carrying value exceeds the fair value, a
second step is performed to measure the amount of impairment loss on a relative fair value basis, if any.
Based on the Company’s most recent qualitative impairment assessment performed as of August 31, 2019,
the Company concluded that there were no indicators of impairment, and that therefore it was more likely than
not that the fair value of the goodwill and indefinite-lived intangible assets exceeded their net carrying amount,
and therefore the quantitative two-step impairment test was not required.
The Company amortizes certain identifiable intangible assets that have finite lives, currently consisting of
non-compete agreements, customer relationships and trade names. Non-compete agreements are amortized on a
straight-line basis over the terms of the associated contractual agreements; customer relationship assets are
amortized on an accelerated basis based on the expected cash flows generated by the existing customers; and
trade names are amortized on an accelerated basis over a five or ten year period. Amortizable intangible assets
are tested for impairment, when deemed necessary, based on undiscounted cash flows and, if impaired, are
written down to fair value based on either discounted cash flows or appraised values. In connection with certain
financing arrangements, the Company has debt issuance costs that are amortized over the lives of the associated
financings.
Evaluation of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability is measured
F-10
by comparing the carrying amount of the asset to the future undiscounted cash flows the asset is expected to
generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference
between the carrying value and the fair value of the impaired asset.
Fair Value Measurement
The Company applies fair value accounting for all financial assets and liabilities that are reported at fair
value in the financial statements on a recurring basis. Fair value is defined as the price that would be received
from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The accounting guidance establishes a defined three-tier hierarchy to classify and disclose the
fair value of assets and liabilities on both the date of their initial measurement as well as all subsequent periods.
The hierarchy prioritizes the inputs used to measure fair value by the lowest level of input that is available and
significant to the fair value measurement. The three levels are described as follows:
•
•
•
Level 1: Observable inputs. Quoted prices in active markets for identical assets and liabilities;
Level 2: Observable inputs other than the quoted price. Includes quoted prices for similar instruments,
quoted prices for identical or similar instruments in inactive markets and amounts derived from
valuation models where all significant inputs are observable in active markets; and
Level 3: Unobservable inputs. Includes amounts derived from valuation models where one or more
significant inputs are unobservable and require the Company to develop relevant assumptions.
The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring
basis to determine the appropriate level of classification as of each reporting period.
Financial Derivatives
The Company has entered into interest rate swaps to minimize the risks and costs associated with financing
activities, as well as to maintain an appropriate mix of fixed-rate and floating-rate debt. The swap agreements are
contracts to exchange variable-rate for fixed-interest rate payments over the life of the agreements. The
Company’s derivative instruments are designated as cash flow hedges, for which the Company records the
effective portions of changes in their fair value, net of tax, in other comprehensive income. The Company
recognizes any ineffective portion of the hedges in the consolidated statement of operations through interest
expense, financing costs and other.
Net Sales
The Company records net sales when performance obligations with our customer are satisfied. A
performance obligation is a promise to transfer a distinct good to the customer and is the unit of account. The
transaction price is allocated to each distinct performance obligation and recognized as net sales when, or as, the
performance obligation is satisfied. All contracts have a single performance obligation as the promise to transfer
the individual good is not separately identifiable from other promises and is, therefore, not distinct. Performance
obligations are satisfied at a point in time and net sales are recognized when the customer accepts the delivery of
a product or takes possession of a product with rights and rewards of ownership. For goods shipped by third party
carriers, the Company recognizes revenue upon shipment since the terms are generally FOB shipping point at
which time control passes to the customer. The Company also arranges for certain products to be shipped directly
from the manufacturer to the customer. The Company recognizes the gross revenue for these sales upon shipment
as the terms are FOB shipping point at which time control passes to the customer.
The Company enters into agreements with customers to offer rebates, generally based on achievement of
specified sales levels and various marketing allowances that are common industry practice. Reductions to net
sales for customer programs and incentive offerings, including promotions and other volume-based incentives,
F-11
are estimated using the most likely amount method and recorded in the period in which the sale occurs.
Provisions for early payment discounts are accrued in the same period in which the sale occurs. The Company
does not have any material payment terms as payment is received shortly after the transfer of control of the
products to the customer. Commissions to internal sales teams are paid to obtain contracts. As these contracts are
less than one year, these costs are expensed as incurred.
The Company includes shipping and handling costs billed to customers in net sales. Related costs are
accounted for as fulfillment activities and are recognized as cost of products sold when control of the products
transfers to the customer.
Leases
The Company leases the majority of its facilities and enters into various other operating lease agreements in
conducting its business. At the inception of each lease, the Company evaluates the lease agreement to determine
whether the lease is an operating or capital lease. Operating lease expenses are recognized in the statements of
operations on a straight-line basis over the term of the related lease. Some of the Company’s lease agreements
may contain renewal options, tenant improvement allowances, rent holidays or rent escalation clauses. When
such items are included in a lease agreement, the Company records a deferred rent asset or liability on the
consolidated balance sheets equal to the difference between the rent expense and cash rent payments.
The cost of property and equipment acquired under capital lease arrangements represents the lesser of the
present value of the minimum lease payments or the fair value of the leased asset as of the inception of the lease.
Stock-Based Compensation
The Company applies the fair value method to recognize compensation expense for stock-based awards.
Using this method, the estimated grant-date fair value of the award is recognized on a straight-line basis over the
requisite service period based on the portion of the award that is expected to vest. The Company estimates
forfeitures at the time of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. For awards with a performance-based vesting condition, the Company accrues stock-
based compensation expense if it is probable that the performance condition will be achieved.
Stock-based compensation expense for restricted stock units is measured based on the fair value of the
Company’s common stock on the grant date. The Company utilizes the Black-Scholes option pricing model to
estimate the grant-date fair value of option awards. The exercise price of option awards is set to equal the
estimated fair value of the common stock at the date of the grant. The following weighted-average assumptions
are also used to calculate the estimated fair value of option awards:
• Expected volatility: The expected volatility of the Company’s shares is estimated using the historical
stock price volatility over the most recent period commensurate with the estimated expected term of
the awards.
• Expected term: For employee stock option awards, the Company determines the weighted average
expected term equal to the weighted period between the vesting period and the contract life of all
outstanding options.
• Dividend yield: The Company has not paid dividends and does not anticipate paying a cash dividend in
the foreseeable future and, accordingly, uses an expected dividend yield of zero.
• Risk-free interest rate: The Company bases the risk-free interest rate on the implied yield available on a
U.S. Treasury note with a term equal to the estimated expected term of the awards.
Foreign Currency Translation
The Company’s operations located outside of the United States where the local currency is the functional
currency are translated into U.S. dollars using the current rate method. Results of operations are translated at the
F-12
average rate of exchange for the period. Assets and liabilities are translated at the closing rates on the period end
date. Gains and losses on translation of these accounts are accumulated and reported as a separate component of
equity and other comprehensive income (loss). Gains and losses on foreign currency transactions are recognized
in the consolidated statements of operations as a component of interest expense, financing costs, and other.
Income Taxes
The Company accounts for income taxes using the liability method, which requires it to recognize a current
tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated
future tax effects of temporary differences between the financial statement and tax reporting bases of assets and
liabilities to the extent that they are realizable. Deferred tax expense (benefit) results from the net change in
deferred tax assets and liabilities during the year.
FASB ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Based on
this guidance, the Company analyzes its filing positions in all of the federal and state jurisdictions where it is
required to file income tax returns, as well as all open tax years in these jurisdictions. Tax benefits from uncertain
tax positions are recognized if it is more likely than not that the position is sustainable based solely on its
technical merits.
Net Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common
shareholders by the weighted-average number of common shares outstanding during the period, without
consideration for common share equivalents or the conversion of Preferred Stock. Common share equivalents
consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted
stock unit awards. Diluted net income (loss) per common share is calculated by dividing net income (loss)
attributable to common shareholders by the fully diluted weighted-average number of common shares
outstanding during the period.
Holders of Preferred Stock participate in dividends on an as-converted basis when declared on common
shares. As a result, Preferred Stock is classified as a participating security and thereby requires the allocation of
income that would have otherwise been available to common shareholders when calculating net income (loss) per
share.
Diluted net income (loss) per share is calculated by utilizing the most dilutive result of the if-converted and
two-class methods. In both methods, net income (loss) attributable to common shareholders and the weighted-
average common shares outstanding are adjusted to account for the impact of the assumed issuance of potential
common shares that are dilutive, subject to dilution sequencing rules.
Recent Accounting Pronouncements—Adopted
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This guidance
requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of
promised goods or services to customers and replaces most previously issued revenue recognition guidance. The
new standard is effective for public business entities for annual reporting periods, and interim reporting periods
contained therein, beginning after December 15, 2017. The standard permits the use of either the full
retrospective or modified retrospective adoption methods. The Company elected the modified retrospective
method and adopted the standard as of October 1, 2018 utilizing the portfolio practical expedient. The adoption
of this guidance did not impact the Company’s retained earnings and did not have a material impact on the
Company’s net sales recognition practices, income from operations, or net income per share amounts. The
adoption of this guidance did result in certain balance sheet reclassifications to record estimated customer
F-13
returns, specifically the recognition of a current liability for the gross amount of estimated returns and a current
asset for the value of the related products. These reclassifications did not have a material impact on the
Company’s consolidated balance sheet as of September 30, 2019. In addition, the adoption of this guidance
resulted in additional quantitative disclosures to disaggregate net sales balances by product line and geography.
See Note 4 to the Consolidated Financial Statements for further discussion.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a
Business.” This guidance is intended to assist entities when evaluating when a set of transferred assets and
activities constitutes a business. This new standard is effective for annual reporting periods, and interim reporting
periods contained therein, beginning after December 15, 2017. The Company adopted the standard as of
October 1, 2018 and the standard did not have a material impact on the Company’s financial statements and
related disclosures.
In March 2017,
the FASB issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715),
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This
guidance requires that the service cost component of net periodic pension costs be presented in the same income
statement line item as other employee compensation costs. The remaining components of net periodic pension
costs are now required to be presented outside of operating income. The Company adopted the standard as of
October 1, 2018 under the retrospective approach. The adoption of the standard did not have a material impact on
the Company’s financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09, “Scope of Modification Accounting.” This guidance is
intended to provide clarity and reduce both diversity in practice and cost and complexity when applying the
guidance in Compensation – Stock Compensation, to a change to the terms or conditions of a share-based
payment award. This new standard is effective for annual reporting periods, and interim reporting periods
contained therein, beginning after December 15, 2017. The Company adopted the standard as of October 1, 2018
and the standard did not have a material impact on the Company’s financial statements and related disclosures.
In August 2017,
the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities.” This guidance amends certain rules for hedging
relationships, expands the types of strategies that are eligible for hedge accounting treatment to more closely
align the results of hedge accounting with risk management activities and amends disclosure requirements related
to fair value and net investment hedges. The Company early adopted this guidance effective October 1, 2018
under a modified retrospective approach for hedge accounting treatment, and under a prospective approach for
the amended disclosure requirements. Adoption of the guidance did not have a material impact on the Company’s
financial statements and related disclosures.
In June 2018,
the FASB issued ASU 2018-07, “Compensation—Stock Compensation (Topic 718),
Improvements to Nonemployee Share-Based Payment Accounting.” This guidance expands the scope of Topic
718 to include share-based payment transactions for acquiring goods and services from nonemployees. The
Company early adopted this guidance effective October 1, 2018 under a prospective approach. Adoption of the
guidance did not have a material impact on the Company’s financial statements and related disclosures.
Recent Accounting Pronouncements—Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, “Leases.” This guidance will replace most existing
accounting for lease guidance when it becomes effective. This new standard is effective for annual reporting
periods, and interim reporting periods contained therein, beginning on October 1, 2019. The guidance will
require the Company to record a right of use asset and a lease liability for most of the Company’s leases,
including those currently treated as operating leases. The Company will adopt the standard using the modified
retrospective transition method as of October 1, 2019 and will not apply the standard to the comparative periods
presented in the year of adoption. The Company will use the package of transition practical expedients outlined
F-14
in the transition guidance. In July 2018, the FASB amended the new lease standard which, among other changes,
allows a company to elect to adopt ASU 2016-02 using a transition option whereby a cumulative effect
adjustment is recorded to the opening balance of its retained earnings on the adoption date. The Company has
elected to use this transition option to record a cumulative effect adjustment to retained earnings as of October 1,
2019. The Company is still assessing the potential impact that ASU 2016-02 will have on its financial statements
and disclosures but expects to recognize right of use lease assets for operating leases of approximately
$480 million to $500 million and related lease liabilities of approximately $470 million to $490 million. The
Company’s estimate represents the net present value of lease payments from operating leases that commenced on
or before September 30, 2019. The Company expects the accounting for finance leases to remain substantially
unchanged. The Company does not expect the standard to have a material impact on the Company’s consolidated
results of operations or cash flows.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses: Measurement of
Credit Losses on Financial Instruments.” This guidance is intended to introduce a revised approach to the
recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather
than incurred losses. This new standard is effective for annual reporting periods, and interim reporting periods
contained therein, beginning after December 15, 2019, and early adoption is permitted. The Company is currently
evaluating the impact that this guidance may have on its financial statements and related disclosures.
In January 2017,
the FASB issued ASU 2017-04, “Simplifying the Accounting for Goodwill
Impairment.” This guidance is intended to introduce a simplified approach to measurement of goodwill
impairment, eliminating the need for a hypothetical purchase price allocation and instead measuring impairment
by the amount a reporting unit’s carrying value exceeds its fair value. This new standard is effective for annual
reporting periods, and interim reporting periods contained therein, beginning after December 15, 2019, and early
adoption is permitted. The Company does not expect the adoption of this new guidance to have a material impact
on its financial statements and related disclosures.
In February 2018,
the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive
Income.” This guidance is intended to address the accounting treatment for the tax effects on items within
accumulated other comprehensive income as a result of the adoption of the Tax Cuts and Jobs Act of 2017. This
new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning
after December 15, 2018. The Company does not expect the adoption of this new guidance to have a material
impact on its financial statements and related disclosures.
3. Acquisitions
Allied Building Products Corp.
On January 2, 2018 (the “Closing Date”), the Company completed its acquisition of all the outstanding
capital stock of Allied (the “Allied Acquisition”), pursuant
to a certain stock purchase agreement dated
August 24, 2017 (the “Stock Purchase Agreement”), among the Company, Oldcastle, Inc., as parent, and
Oldcastle Distribution, Inc., as seller, for approximately $2.625 billion in cash, subject to a working capital and
certain other adjustments as set forth in the Stock Purchase Agreement (the “Purchase Price”). As of
September 30, 2019, the adjusted Purchase Price for Allied was $2.88 billion, including increases of (i)
$164.0 million related to the impact of the Section 338(h)(10) election under the current U.S. tax code and (ii)
$88.1 million from a recorded net working capital adjustment.
In connection with the Allied Acquisition, on the Closing Date the Company entered into (i) a new term
loan agreement with Citibank, N.A., providing for a term loan B facility with an initial commitment of
$970.0 million and (ii) an amended and restated credit agreement with Wells Fargo Bank, N.A., providing for a
senior secured asset-based revolving credit facility with an initial commitment of $1.30 billion. Base borrowing
rates on these facilities are at LIBOR plus 1.25% and LIBOR plus 2.25%, respectively.
F-15
In connection with the Allied Acquisition, on the Closing Date, the Company completed the sale of 400,000
shares of Series A Cumulative Convertible Participating Preferred Stock, par value $0.01 per share (the
“Preferred Stock”), with an aggregate liquidation preference of $400.0 million, at a purchase price of $1,000 per
share, to CD&R Boulder Holdings, L.P., pursuant to an investment agreement, dated as of August 24, 2017, with
CD&R Boulder Holdings, L.P. and Clayton, Dubilier & Rice Fund IX, L.P. (solely for the purpose of limited
provisions therein) (the “Convertible Preferred Stock Purchase”). The $400.0 million in proceeds from the
Convertible Preferred Stock Purchase were used to finance, in part, the Purchase Price. The Preferred Stock is
convertible perpetual participating preferred stock of the Company, and conversion of the Preferred Stock into
$0.01 par value shares of the Company’s common stock will be at a conversion price of $41.26 per share. The
Preferred Stock accumulates dividends at a rate of 6.0% per annum (payable in cash or in-kind, subject to certain
conditions). The Preferred Stock is not mandatorily redeemable; therefore, it is classified as mezzanine equity on
the Company’s consolidated balance sheets and has a balance of $399.2 million (the $400.0 million proceeds
received on the Closing Date, net of $0.8 million of unamortized issuance costs) as of September 30, 2019.
Allied’s results of operations have been included with Company’s consolidated results beginning January 2,
2018. Allied distributed products in 208 locations across 31 states as of the date of the close.
The Allied Acquisition has been accounted for as a business combination in accordance with the
requirements of ASC 805, “Business Combinations.” The acquisition price has been allocated among assets
acquired and liabilities assumed at fair value based on information currently available, with the excess recorded
as goodwill. The goodwill recognized is attributable primarily to expected synergies from the Allied assembled
workforce operating the branches as part of a larger network and the value stemming from the addition of both
new customers and an established new line of business (interiors). As of March 31, 2019, the Company had
finalized the purchase accounting entries for the Allied Acquisition, detailed as follows (in thousands):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . .
Property, plant, and equipment
. . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . .
January 2, 2018
(as reported at
March 31,
2018)
$
19,322
315,485
322,705
59,279
139,528
1,130,635
1,037,000
(271,252)
(6,820)
January 2, 2018
(as adjusted at
March 31,
2019)
$
169
337,549
314,785
75,440
139,360
1,232,780
1,037,000
(259,289)
(723)
Adjustments
$ (19,153)
22,064
(7,920)
16,161
(168)
102,145
—
11,963
6,097
Total purchase price . . . . . . . . . . . . . . .
$2,745,882
$131,189
$2,877,071
The purchase accounting entries above include the impact of the Section 338(h)(10) election under the
current U.S. tax code. The Company made this election on October 15, 2018 and has reflected the $164.0 million
impact of this election in the purchase price and its fiscal year 2018 tax provision accordingly. The Company
determined that $1.10 billion of goodwill related to the acquisition of Allied remains deductible for tax purposes
as of September 30, 2019.
All of the Company’s goodwill and indefinite-lived trade name are tested for impairment annually, and all
acquired goodwill and intangible assets are subject to review for impairment should future indicators of
impairment develop. There were no material contingencies assumed as part of the Allied Acquisition.
F-16
Additional Acquisitions—Fiscal Year 2018
During fiscal year 2018, the Company acquired 7 branches from the following two acquisitions:
• On May 1, 2018, the Company acquired Tri-State Builder’s Supply, a wholesale supplier of roofing,
siding, windows, doors and related building products with 1 branch located in Duluth, Minnesota and
annual sales of approximately $6 million. The Company has finalized the acquisition accounting
entries for this transaction.
• On July 16, 2018, the Company acquired Atlas Supply, Inc., the Pacific Northwest’s leading distributor
of sealants, coatings, adhesives and related waterproofing products, with 6 branches operating in
Seattle, Tacoma, Spokane, and Mountlake Terrace in Washington, as well as locations in Portland,
Oregon and Boise, Idaho, and annual sales of approximately $37 million. The Company has finalized
the acquisition accounting entries for this transaction.
The Company has recorded purchase accounting entries for these transactions that recognized the acquired
assets and liabilities at their estimated fair values as of the respective acquisition dates. These transactions
resulted in goodwill of $7.6 million ($7.0 million of which remains deductible for tax purposes as of
September 30, 2019) and $11.4 million in intangible assets.
Additional Acquisitions—Fiscal Year 2017
During fiscal year 2017, the Company acquired 23 branches from the following five acquisitions:
• On December 16, 2016, the Company purchased certain assets of BJ Supply Company, a distributor of
roofing and related building products with 1 branch serving Pennsylvania and New Jersey and annual
sales of approximately $4 million. The Company has finalized the acquisition accounting entries for
this transaction.
• On January 3, 2017, the Company acquired American Building & Roofing, Inc., a distributor of mainly
residential roofing and related building products with 7 branches around Washington State and annual
sales of approximately $36 million. The Company has finalized the acquisition accounting entries for
this transaction.
• On January 9, 2017, the Company acquired Eco Insulation Supply, a distributor of insulation and
related accessories with 1 branch serving Connecticut, Southern New England and the New York City
metropolitan area and annual sales of approximately $8 million. The Company has finalized the
acquisition accounting entries for this transaction.
• On March 1, 2017, the Company acquired Acme Building Materials, Inc., a distributor of residential
roofing and related building products with 3 branches in Eastern Michigan and annual sales of
approximately $13 million. The Company has finalized the acquisition accounting entries for this
transaction.
• On May 1, 2017, the Company purchased certain assets of Lowry’s Inc., a distributor of waterproofing
and concrete restoration materials with 11 branches operating in California, Arizona, Utah and Hawaii
and annual sales of approximately $76 million. The Company has finalized the acquisition accounting
entries for this transaction.
The Company has recorded purchase accounting entries for these transactions that recognized the acquired
assets and liabilities at their estimated fair values as of the respective acquisition dates. These transactions
resulted goodwill of $53.0 million (all of which is deductible for tax purposes) and $47.4 million in intangible
assets.
F-17
4. Net Sales
The following table presents the Company’s net sales by product line and geography for the year ended
September 30, 2019 (in thousands):
Year Ended September 30, 2019
U.S.
Canada
Total
Residential roofing products . . . . . . . . . . . . . . . . .
Non-residential roofing products . . . . . . . . . . . . . .
Complementary building products . . . . . . . . . . . . .
$3,023,266
1,582,757
2,312,496
$ 56,362
122,421
7,858
$3,079,628
1,705,178
2,320,354
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . .
$6,918,519
$186,641
$7,105,160
5. Net Income (Loss) Per Share
The following table presents the components and calculations of basic and diluted net income (loss) per
share for each period presented (in thousands, except share and per share amounts):
Year Ended September 30,
2019
2018
2017
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to common shareholders . . . . . . . . . . .
Undistributed income allocated to participating securities . . . . .
$
$
(10,612) $
24,000
(34,612) $
—
98,626
18,000
80,626
(7,742)
$
$
100,864
—
100,864
—
Net income (loss) attributable to common shareholders—basic and
diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(34,612) $
72,884
$
100,864
Weighted-average common shares outstanding—basic . . . . . . . . . . .
Effect of common share equivalents . . . . . . . . . . . . . . . . . . . . . .
68,424,288
—
68,012,879
1,178,160
60,315,648
1,028,615
Weighted-average common shares outstanding—diluted . . . . . . . . . .
68,424,288
69,191,039
61,344,263
Net income (loss) per share—basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share—diluted . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(0.51) $
(0.51) $
1.07
1.05
$
$
1.67
1.64
The following table includes the number of shares that may be dilutive common shares in the future. These
shares were not included in the computation of diluted net income (loss) per share because the effect was either
anti-dilutive or the requisite performance conditions were not met:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,336,259
122,278
9,694,619
388,731
192,151
7,224,483
331,681
61,890
—
Year Ended September 30,
2019
2018
2017
6. Prepaid Expenses and Other Current Assets
The following table summarizes the significant components of prepaid expenses and other current assets (in
thousands):
Vendor rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$262,876
52,767
$199,725
44,635
Total prepaid expenses and other current assets
$315,643
$244,360
September 30,
2019
2018
F-18
7. Property and Equipment
The following table provides a detailed breakout of property and equipment, by type (in thousands):
September 30,
2019
2018
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 83,373
448,072
39,986
$ 82,991
419,385
34,901
Total property and equipment
. . . . . . . . . . . . . . . .
571,431
537,277
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . .
(311,055)
(256,870)
Total property and equipment, net . . . . . . . . . . . . .
$ 260,376
$ 280,407
Depreciation expense for the years ended September 30, 2019, 2018, and 2017 was $70.7 million,
$60.3 million, and $34.0 million, respectively.
8. Goodwill and Intangible Assets
Goodwill
The following table sets forth the change in the carrying amount of goodwill during the years ended
September 30, 2019 and 2018, respectively (in thousands):
Balance as of September 30, 2017 . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation and other adjustments . . . . . . . . . . . . . . .
$1,251,986
1,240,913
(1,120)
Balance as of September 30, 2018 . . . . . . . . . . . . . . . . . . .
$2,491,779
Balance as of September 30, 2018 . . . . . . . . . . . . . . . . . . .
Acquisitions1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation and other adjustments . . . . . . . . . . . . . . .
$2,491,779
(513)
(676)
Balance as of September 30, 2019 . . . . . . . . . . . . . . . . . . .
$2,490,590
1
Reflects purchase accounting adjustments related to fiscal year 2018
acquisition of Atlas Supply, Inc. (see Note 3 for further discussion).
The change in the carrying amount of goodwill for the year ended September 30, 2019 was driven primarily
by purchase accounting and foreign currency translation adjustments. The change in the carrying amount of
goodwill for the year ended September 30, 2018 was driven primarily by acquisitions finalized during the period
(see Note 3 for further discussion). The Company has recognized no goodwill impairments for any of the periods
presented.
Intangible Assets
In connection with transactions finalized for the year ended September 30, 2018, the Company recorded
intangible assets of $1.05 billion ($920.8 million of customer relationships, $7.0 million of beneficial lease
arrangements, and $120.0 million of indefinite-lived trademarks).
F-19
The following table summarizes intangible assets by category (in thousands, except time period amounts):
September 30,
2019
2018
Weighted-
Average
Remaining
Life1
(Years)
Amortizable intangible assets:
Non-compete agreements . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficial lease arrangements . . . . . . . . . . . .
$
2,824
1,530,970
10,500
8,060
$
2,824
1,530,565
10,500
8,060
2.49
17.65
6.92
3.59
Total amortizable intangible assets . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . .
1,552,354
(619,864)
1,551,949
(410,633)
Total amortizable intangible assets, net . . . . . . . . .
$ 932,490
$1,141,316
Indefinite lived trademarks . . . . . . . . . . . . . . . . . . .
193,050
193,050
Total intangibles, net
. . . . . . . . . . . . . . . . . . . . . . .
$1,125,540
$1,334,366
1
As of September 30, 2019
For the years ended September 30, 2019, 2018, and 2017,
the Company recorded $207.1 million,
$141.2 million, and $82.5 million, respectively, of amortization expense relating to the above-listed intangible
assets. The intangible asset lives range from 5 to 20 years and the weighted-average remaining life was 17.5
years as of September 30, 2019.
The following table summarizes the estimated future amortization expense for intangible assets (in
thousands):
Year Ending September 30,
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$179,549
149,980
121,431
97,522
78,873
305,135
Total future amortization expense . . . . . . . . . . . . . . . . .
$932,490
F-20
9. Financing Arrangements
The following table summarizes all financing arrangements from the respective periods presented (in
thousands):
September 30,
2019
September 30,
2018
Revolving Lines of Credit
2023 ABL:
U.S. Revolver, expires January 20231 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada Revolver, expires January 20232 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
80,961
—
—
$
89,352
3,090
—
Borrowings under revolving lines of credit, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
80,961
$
92,442
Long-term Debt, net
Term Loans:
Term Loan, matures January 20253 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 926,535
(9,700)
$ 930,726
(9,700)
Long-term borrowings under term loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
916,835
921,026
Senior Notes:
Senior Notes, mature October 20234 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Notes, mature November 20255 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
294,886
1,282,902
—
293,607
1,280,092
—
Long-term borrowings under senior notes . . . . . . . . . . . . . . . . . . . . . . . . . .
1,577,788
1,573,699
Long-term debt, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,494,623
$2,494,725
Equipment Financing Facilities and Other
Equipment financing facilities, various maturities through September 20216 . . . . . . .
Capital lease obligations, various maturities through November 20217 . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
6,885
6,713
(8,989)
11,222
12,378
(9,961)
Long-term obligations under equipment financing and other, net . . . . . . . . . . . . . . . .
$
4,609
$
13,639
1
2
3
4
5
6
7
Effective rate on borrowings of 5.41% and 3.36% as of September 30, 2019 and 2018, respectively.
Effective rate on borrowings of 3.95% as of September 30, 2018.
Interest rate of 4.36% and 4.53% as of September 30, 2019 and 2018, respectively.
Interest rate of 6.38% for all periods presented.
Interest rate of 4.88% for all periods presented.
Fixed interest rates ranging from 2.33% to 2.89% for all periods presented.
Fixed interest rates ranging from 2.72% to 10.39% for all periods presented.
Financing—Allied Acquisition
In connection with the Allied Acquisition, the Company entered into various financing arrangements
totaling $3.57 billion,
including an asset-based revolving line of credit of $1.30 billion (“2023 ABL”),
$525.0 million of which was drawn at closing, and a $970.0 million term loan (“2025 Term Loan”). The
Company also raised an additional $1.30 billion through the issuance of senior notes (the “2025 Senior Notes”).
The proceeds from these financing arrangements were used to finance the Allied Acquisition, to refinance or
otherwise extinguish all third-party indebtedness, to pay fees and expenses associated with the acquisition, and to
provide working capital and funds for other general corporate purposes. The Company capitalized new debt
issuance costs totaling approximately $65.3 million related to the 2023 ABL, the 2025 Term Loan and the 2025
Senior Notes.
F-21
Since the financing arrangements entered into in connection with the Allied Acquisition had certain lenders
who also participated in previous financing arrangements entered into by the Company, portions of the
transactions were accounted for as either a debt modification or a debt extinguishment. In accordance with the
accounting for debt modification, the Company expensed $2.0 million of debt issuance costs related to the Allied
financing arrangements and recognized a loss on debt extinguishment of $1.2 million. The remainder of the debt
issuance costs will be amortized over the term of the Allied financing arrangements.
2023 ABL
On January 2, 2018, the Company entered into a $1.30 billion asset-based revolving line of credit with
Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2023 ABL consists of revolving loans in both the
United States (“2023 U.S. Revolver”) in the amount of $1.20 billion and Canada (“2023 Canada Revolver”) in
the amount of $100.0 million. The 2023 ABL has a maturity date of January 2, 2023. The 2023 ABL has various
borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The current
unused commitment fees on the 2023 ABL are 0.25% per annum.
There is one financial covenant under the 2023 ABL, which is a Consolidated Fixed Charge Ratio. The
Consolidated Fixed Charge Ratio is calculated by dividing consolidated earnings before interest,
taxes,
depreciation and amortization (EBITDA) by Consolidated Fixed Charges (both as defined in the agreement). Per
the covenant, the Company’s Consolidated Fixed Charge Ratio must be a minimum of 1.00 at the end of each
fiscal quarter, calculated on a trailing four quarter basis. The Company was in compliance with this covenant as
of September 30, 2019.
The 2023 ABL is secured by a first priority lien over substantially all of the Company’s and each
guarantor’s accounts, chattel paper, deposit accounts, books, records and inventory (as well as intangibles related
thereto), subject to certain customary exceptions (the “ABL Priority Collateral”), and a second priority lien over
substantially all of the Company’s and each guarantor’s other assets, including all of the equity interests of any
subsidiary held by the Company or any guarantor, subject to certain customary exceptions (the “Term Priority
Collateral”). The 2023 ABL is guaranteed jointly, severally, fully and unconditionally by the Company’s active
United States subsidiaries.
As of September 30, 2019, the total balance outstanding on the 2023 ABL, net of $8.1 million of
unamortized debt issuance costs, was $81.0 million. The Company also has outstanding standby letters of credit
related to the 2023 U.S. Revolver in the amount of $13.3 million as of September 30, 2019.
2025 Term Loan
On January 2, 2018, the Company entered into a $970.0 million Term Loan with Citibank N.A., and a
syndicate of other lenders. The 2025 Term Loan requires quarterly principal payments in the amount of
$2.4 million, with the remaining outstanding principal to be paid on its January 2, 2025 maturity date. The
interest rate is based on a LIBOR rate (with a floor) plus a fixed spread. The Company has the option of selecting
a LIBOR period that determines the rate at which interest can accrue on the Term Loan as well as the period in
which interest payments are made.
The 2025 Term Loan is secured by a first priority lien on the Term Priority Collateral and a second priority
lien on the ABL Priority Collateral. Certain excluded assets will not be included in the Term Priority Collateral
and the ABL Priority Collateral. The Term Loan is guaranteed jointly, severally, fully and unconditionally by the
Company’s active United States subsidiaries.
As of September 30, 2019, the outstanding balance on the 2025 Term Loan, net of $28.9 million of
unamortized debt issuance costs, was $926.5 million.
F-22
2025 Senior Notes
On October 25, 2017, Beacon Escrow Corporation, a wholly owned subsidiary of the Company (the
“Escrow Issuer”), completed a private offering of $1.30 billion aggregate principal amount of 4.875% Senior
Notes due 2025 at an issue price of 100%. The 2025 Senior Notes bear interest at a rate of 4.875% per annum,
payable semi-annually in arrears, beginning May 1, 2018. The Company anticipates repaying the 2025 Senior
Notes at the maturity date of November 1, 2025. Per the terms of the Escrow Agreement, the net proceeds from
the 2025 Senior Notes remained in escrow until they were used to fund a portion of the purchase price of the
Allied Acquisition payable at closing on January 2, 2018.
Upon closing of the Allied Acquisition on January 2, 2018, (i) the Escrow Issuer merged with and into the
Company, and the Company assumed all obligations under the 2025 Senior Notes; and (ii) all existing domestic
subsidiaries of the Company (including the entities acquired in the Allied Acquisition) became guarantors of the
2025 Senior Notes.
As of September 30, 2019, the outstanding balance on the 2025 Senior Notes, net of $17.1 million of
unamortized debt issuance costs, was $1.28 billion.
Financing—RSG Acquisition
In connection with the Roofing Supply Group (“RSG”) acquisition in fiscal year 2016, the Company entered
into various financing arrangements totaling $1.45 billion, including an asset-based revolving line of credit
(“2020 ABL”) of $700.0 million ($350.0 million of which was drawn at closing) and a $450.0 million term loan
(“2022 Term Loan”). The Company also raised an additional $300.0 million through the issuance of senior notes
(the “2023 Senior Notes”).
The proceeds from these financing arrangements were used to provide working capital and funds for other
general corporate purposes, to refinance or otherwise extinguish all third-party indebtedness, to finance the
acquisition, and to pay fees and expenses associated with the RSG acquisition. The Company incurred debt
issuance costs totaling approximately $31.3 million related to the 2020 ABL, 2022 Term Loan and 2023 Senior
Notes.
2020 ABL
On October 1, 2015, the Company entered into a $700.0 million asset-based revolving line of credit with
Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2020 ABL had an original maturity date of
October 1, 2020 and consisted of revolving loans in both the United States, in the amount of $670.0 million, and
Canada, in the amount of $30.0 million. The 2020 ABL had various borrowing tranches with an interest rate
based on a LIBOR rate (with a floor) plus a fixed spread. The full balance of the 2020 ABL was paid on
January 2, 2018 in conjunction with the Allied Acquisition.
2022 Term Loan
On October 1, 2015, the Company entered into a $450.0 million Term Loan with Citibank N.A., and a
syndicate of other lenders. The 2022 Term Loan required quarterly principal payments in the amount of
$1.1 million, with the remaining outstanding principal to be paid on its original maturity date of October 1, 2022.
The interest rate was based on a LIBOR rate (with a floor) plus a fixed spread. The Company had the option of
selecting a LIBOR period that determined the rate at which interest would accrue, as well as the period in which
interest payments are made. The full balance of the 2022 Term Loan was paid on January 2, 2018 in conjunction
with the Allied Acquisition, including the write-off of $0.7 million in debt issuance costs.
2023 Senior Notes
On October 1, 2015, the Company raised $300.0 million by issuing senior notes due 2023. The 2023 Senior
Notes have a coupon rate of 6.38% per annum and are payable semi-annually in arrears, beginning April 1, 2016.
F-23
There are early payment provisions in the indenture in which the Company would be subject to “make whole”
provisions.
The 2023 Senior Notes are guaranteed jointly, severally, fully and unconditionally by the Company’s active
United States subsidiaries.
As of September 30, 2019, the outstanding balance on the 2023 Senior Notes, net of $5.1 million of
unamortized debt issuance costs, was $294.9 million. In October 2019, the 2023 Senior Notes were fully
redeemed and replaced in connection with re-financing efforts (see Note 20 for additional information).
Other Information
Annual principal payments for all outstanding financing arrangements for each of the next five years and
thereafter are as follows (in thousands):
Year Ending September 30,
2023
ABL
2025
Term
Loan
Senior
Notes1
Equipment
Financing
and Other
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $
—
—
89,104
—
—
9,700
9,700
9,700
9,700
9,700
906,950
$
— $ 8,989
4,367
—
213
—
29
300,000
—
—
—
1,300,000
Total
$
18,689
14,067
9,913
398,833
9,700
2,206,950
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance costs . . . . . . . . . . . . . . .
89,104
(8,143)
955,450
(28,915)
1,600,000
(22,212)
13,598
—
2,658,152
(59,270)
Total long-term debt
. . . . . . . . . . . . . . . . . . . .
$80,961
$926,535
$1,577,788
$13,598
$2,598,882
1
Represent principal amounts for 2023 Senior Notes and 2025 Senior Notes. In October 2019, the 2023 Senior Notes were
fully redeemed and replaced in connection with re-financing efforts (see Note 20 for additional information).
Under the terms of the 2023 ABL, the 2025 Term Loan, the 2025 Senior Notes and the 2023 Senior Notes,
the Company is limited in making certain restricted payments, including dividends on its common stock. Based
on the provisions in the respective debt agreements and given the Company’s intention to not pay common stock
dividends in the foreseeable future, the Company does not believe that the restrictions are significant.
10. Commitments and Contingencies
Operating Leases
The Company mostly operates in leased facilities, which are accounted for as operating leases. The leases
typically provide for a base rent plus real estate taxes. Certain of the leases provide for escalating rents over the
lives of the leases and rent expense is recognized over the terms of those leases on a straight-line basis.
F-24
At September 30, 2019, the minimum rental commitments under all non-cancelable operating leases with
initial or remaining terms of more than one year were as follows (in thousands):
Year Ending September 30,
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$110,858
103,185
88,086
70,839
54,185
100,256
Total minimum lease payments . . . . . . . . . . . . . . . . . . .
$527,409
Rent expense was $110.6 million, $99.1 million, and $60.1 million for the years ended September 30, 2019,
2018, and 2017, respectively. Sublet income was immaterial for each of these periods.
Contingencies
The Company is subject to loss contingencies pursuant to various federal, state and local environmental
laws and regulations; however, the Company is not aware of any reasonably possible losses that would have a
material impact on its results of operations, financial position, or liquidity. Potential loss contingencies include
possible obligations to remove or mitigate the effects on the environment of the placement, storage, disposal or
release of certain chemical or other substances by the Company or by other parties. In connection with its
acquisitions, the Company’s practice is to request indemnification for any and all known material liabilities of
significance as of the respective dates of acquisition. Historically, environmental liabilities have not had a
material impact on the Company’s results of operations, financial position or liquidity.
The Company is subject to litigation from time to time in the ordinary course of business; however the
Company does not expect the results, if any, to have a material adverse impact on its results of operations,
financial position or liquidity.
11. Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) is comprised of certain gains and losses that are excluded from net
income under GAAP and instead recorded as a separate element of stockholders’ equity.
The following table summarizes the components of and changes in accumulated other comprehensive loss
(in thousands):
Foreign
Currency
Translation
Derivative
Financial
Instruments
Accumulated
Other
Comprehensive
Loss
Balance as of September 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassifications . . . . . . . . . . . . . .
Reclassifications out of other comprehensive loss . . . . . . . . . . . . . .
Balance as of September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before reclassifications . . . . . . . . . . .
Reclassifications out of other comprehensive loss . . . . . . . . . . . . . .
Balance as of September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before reclassifications . . . . . . . . . . .
Reclassifications out of other comprehensive loss . . . . . . . . . . . . . .
$(18,269)
3,706
—
$(14,563)
(2,687)
—
$(17,250)
(1,734)
—
$ (388)
—
388
$ —
—
—
$ —
(1,612)
—
$(18,657)
3,706
388
$(14,563)
(2,687)
—
$(17,250)
(3,346)
—
Balance as of September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(18,984)
$(1,612)
$(20,596)
F-25
Gains (losses) on derivative instruments are recognized in the consolidated statements of operations in
interest expense, financing costs, and other.
12. Stock-based Compensation
The Company is authorized to issue 100 million shares of common stock. There were 68,574,176 and
68,135,790 shares of common stock issued and outstanding as of September 30, 2019 and 2018, respectively.
On February 9, 2016, the shareholders of the Company approved the Amended and Restated Beacon
Roofing Supply, Inc. 2014 Stock Plan (the “2014 Plan”). The 2014 Plan provides for discretionary awards of
stock options, stock awards, restricted stock units, and stock appreciation rights (“SARs”) for up to 5,000,000
shares of common stock to selected employees and non-employee directors. The 2014 Plan mandates that all
forfeited, expired, and withheld shares, including those from the predecessor plans, be returned to the 2014 Plan
and made available for issuance. As of September 30, 2019, there were 1,781,109 shares of common stock
available for issuance.
Prior to the 2014 Plan, the Company maintained the amended and restated Beacon Roofing Supply, Inc.
2004 Stock Plan (the “2004 Plan”). Upon shareholder approval of the 2014 Plan, the Company ceased issuing
equity awards from the 2004 Plan and mandated that all future equity awards will be issued from the 2014 Plan.
For all equity awards granted prior to October 1, 2014, in the event of a change in control of the Company,
all awards are immediately vested. Beginning in fiscal 2015, equity awards contained a “double trigger” change
in control mechanism. Unless an award is continued or assumed by a public company in an equitable manner, an
award shall become fully vested immediately prior to a change in control (at 100% of the grant target in the case
of a performance-based restricted stock unit award). If an award is so continued or assumed, vesting will
continue in accordance with the terms of the award, unless there is a qualifying termination within one-year
following the change in control, in which event the award shall immediately become fully vested (at 100% of the
grant target in the case of a performance-based restricted stock unit award).
Stock Options
Non-qualified stock options generally expire 10 years after the grant date and, except under certain
conditions, the options are subject to continued employment and vest in three annual installments over the three-
year period following the grant dates.
The fair values of the options granted for the year ended September 30, 2019 were estimated on the dates of
grants using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life (in years)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.86% 2.10% 1.97%
29.68% 26.43% 28.83%
5.46
5.22
—
—
5.30
—
Year Ended September 30,
2019
2018
2017
F-26
The following table summarizes all stock option activity for the periods presented (in thousands, except
share, per share, and time period amounts):
Balance as of September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled/Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-
Average
Remaining
Contractual
Term (Years)
5.7
Aggregate
Intrinsic
Value1
$14,088
Options
Outstanding
1,969,037
674,015
(183,347)
(117,108)
(3,108)
Weighted-
Average
Exercise
Price
$33.08
27.67
18.08
35.18
26.74
Balance as of September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . .
2,339,489
$32.61
Vested and expected to vest after September 30, 2019 . . . . . . . .
Exercisable as of September 30, 2019 . . . . . . . . . . . . . . . . . . . . .
2,305,869
1,484,158
$32.62
$31.54
6.1
6.1
4.5
$12,034
$11,870
$ 8,343
1
Aggregate intrinsic value as represents the difference between the closing fair value of the underlying common stock and
the exercise price of outstanding, in-the-money options on the date of measurement.
During the years ended September 30, 2019, 2018, and 2017,
the Company recorded stock-based
compensation expense related to stock options of $4.1 million, $3.9 million, and $4.8 million, respectively. As of
September 30, 2019, there was $5.4 million of total unrecognized compensation cost related to unvested stock
options, which is expected to be recognized over a weighted-average period of 1.9 years.
The following table summarizes additional information on stock options for the periods presented (in
thousands, except per share amounts):
Weighted-average fair value of stock options granted . . . . . .
Total grant date fair value of stock options vested . . . . . . . .
Total intrinsic value of stock options exercised . . . . . . . . . . .
$ 8.91
3,850
2,849
$15.86
4,208
9,645
$ 14.21
5,541
10,941
Year Ended September 30,
2019
2018
2017
Restricted Stock Units
Restricted stock unit (“RSU”) awards granted to employees are subject to continued employment and
generally vest on the third anniversary of the grant date. The Company also grants certain RSU awards to
management that contain one or more additional vesting conditions tied directly to a defined performance metric
for the Company. The actual number of RSUs that will vest can range from 0% to 200% of the original grant
amount, depending upon actual Company performance below or above the established performance metric
targets. The Company estimates performance in relation to the defined targets when determining the projected
number of RSUs that are expected to vest and calculating the related stock-based compensation expense.
RSUs granted to non-employee directors are subject to continued service and vest on the first anniversary of
the grant date (except under certain conditions). Generally, the common shares underlying the RSUs are not
eligible for distribution until
the non-employee director’s service on the Board has terminated, and for
non-employee director RSU grants made prior to fiscal year 2014, the share distribution date is six months after
the director’s termination of service on the board. Beginning in fiscal year 2016, the Company enacted a policy
that allows any non-employee directors who have Beacon equity holdings (defined as common stock and
outstanding vested equity awards) with a total fair value that is greater than or equal to five times the annual
Board cash retainer to elect to have any future RSU grants settle simultaneously with vesting.
F-27
The following table summarizes all restricted stock unit activity for the periods presented:
Balance as of September 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled/Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of September 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs
Outstanding
934,023
722,531
(375,084)
(158,112)
1,123,358
Vested and expected to vest after September 30, 2019 . . . . . . . . .
908,892
Weighted-
Average
Grant Date
Fair Value
$47.00
28.02
40.65
42.92
$37.48
$39.41
During the years ended September 30, 2019, 2018, and 2017,
the Company recorded stock-based
compensation expense related to RSUs of $12.3 million, $12.6 million, and $10.3 million, respectively. As of
September 30, 2019, there was $14.3 million of total unrecognized compensation cost related to unvested
restricted stock units, which is expected to be recognized over a weighted-average period of 1.6 years.
The following table summarizes additional information on RSUs for the period presented (in thousands,
except share and per share amounts):
Weighted-average fair value of RSUs granted . . . . . . . . . . .
Total grant date fair value of RSUs vested . . . . . . . . . . . . .
Total intrinsic value of RSUs released . . . . . . . . . . . . . . . . .
$ 28.02
16,087
11,460
$ 57.40
6,656
11,041
$47.31
4,562
6,079
Year Ended September 30,
2019
2018
2017
13. Income Taxes
On December 22, 2017, the U.S. federal government officially signed into law the Tax Cut and Jobs Act of
2017 (“TCJA”). ASC 740, Accounting for Income Taxes, required companies to recognize the effect of tax law
changes in the period of enactment even though the effective date for most provisions was for tax years
beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018. The Company has
fully implemented the federal TCJA provisions into its ASC 740 analysis. State conformity to the TCJA law
changes have been communicated by the state and local jurisdictions; therefore, the Company has made
adjustments related to the potential impact in its financial statements.
The following table summarizes the components of the income tax provision (benefit) (in thousands):
Year Ended September 30,
2019
2018
2017
Current:
Federal1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
579
1,647
$ (4,435)
492
3,516
$52,718
1,366
8,975
Total current taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,226
$
(427)
$63,059
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,452)
—
(944)
$(35,249)
(173)
5,305
$ (656)
—
78
Total deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(2,396)
$(30,117)
$ (578)
Provision for (benefit from) income taxes . . . . . . . . . . . . .
$ (170)
$(30,544)
$62,481
1
2018 tax benefit due to changes in the treatment of acquired fixed assets stemming from the Tax Cut and Jobs
Act of 2017
F-28
The following table is a reconciliation of the statutory federal income tax rate to the Company’s effective
income tax rate for the periods presented:
U.S. federal income taxes at statutory rate . . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit . . . . . . . . . . . . . . . . . . .
Share-based payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset/liability remeasurement1 . . . . . . . . . . . . . . . . .
Repatriation transition tax1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible meals and entertainment . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended September 30,
2019
2018
2017
21.0% 24.5% 35.0%
5.2% 3.9%
(3.3%)
0.0%
(4.7%)
(3.9%)
0.0%
0.0% (73.5%)
1.8% 0.0%
4.3%
2.2% 0.6%
(13.9%)
(1.2%)
(1.2%)
(1.8%)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.6% (44.9%) 38.3%
1
2018 includes Impact of Tax Cut and Jobs Act of 2017
Deferred income taxes reflect the tax consequences of temporary differences between the amounts of assets
and liabilities for financial reporting purposes and such amounts as measured by tax law. These temporary
differences are determined according to ASC 740 Income Taxes. Temporary differences that give rise to deferred
tax assets and liabilities are as follows (in thousands):
September 30,
2019
2018
Deferred tax assets:
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . .
Accrued vacation and other . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax loss carryforwards1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on financial derivatives . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,099
4,218
5,148
14,307
18,272
510
1,611
$ 11,346
663
5,079
12,900
17,271
—
1,517
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 55,165
$ 48,776
Deferred tax liabilities:
Excess tax over book depreciation and amortization . . . . . . .
$(159,078)
$(155,770)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(159,078)
(155,770)
Net deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
$(103,913)
$(106,994)
1
Comprised of net operating loss, foreign tax, and alternative minimum tax carryforwards
The Company acquired $135.3 million of federal and state net operating loss (“NOL”) carryforwards as part
of its acquisition of RSG in fiscal year 2016. For the year ended September 30, 2019, the Company utilized
$26.3 million of federal NOLs. As of September 30, 2019, the Company had a total federal NOL carryforward
balance of $31.5 million, portions of which is set to expire at various dates through 2035.
The Company’s non-domestic subsidiary, BRSCC, is treated as a controlled foreign corporation. BRSCC’s
taxable income, which reflects all of the Company’s Canadian operations, is being taxed only in Canada and
would generally be taxed in the United States only upon an actual or deemed distribution. The Company expects
that BRSCC’s earnings will be indefinitely reinvested for the foreseeable future; therefore, no United States
deferred tax asset or liability for the differences between the book basis and the tax basis of BRSCC has been
recorded as of September 30, 2019.
F-29
As of September 30, 2019, the Company’s goodwill balance on its consolidated balance sheet was
$2.49 billion, of which there remains an amortizable tax basis of $1.10 billion for income tax purposes.
As of September 30, 2019, there were no uncertain tax positions which, if recognized, would affect the
Company’s effective tax rate. The Company’s accounting policy is to recognize any interest and penalties related
to income tax matters in income tax expense in the consolidated statements of operations.
The Company has operations in 50 U.S. states and 6 provinces in Canada. The Company is currently under
audit in certain state and local jurisdictions for various years. These audits may involve complex issues, which
may require an extended period of time to resolve. Additional taxes are reasonably possible; however, the
amounts cannot be estimated at this time or would not be significant. The Company is no longer subject to U.S.
federal income tax examinations for any fiscal years ended on or before September 30, 2015. For the majority of
states, the Company is also no longer subject to tax examinations for any fiscal years ended on or before
September 30, 2015. In Canada, the Company is no longer subject to tax examinations for any fiscal years ended
on or before September 30, 2015. For the Canadian provinces, the Company is no longer subject to tax
examinations for any fiscal years ended on or before September 30, 2015.
14. Geographic and Product Data
The following tables summarize certain geographic information for the periods presented (in thousands):
Long-lived assets:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,182,552
12,373
$1,409,742
13,224
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,194,925
$1,422,966
September 30,
2019
2018
15. Supplemental Guarantor Information
The 2023 Senior Notes and 2025 Senior Notes are guaranteed jointly and severally by all of the United
States subsidiaries of the Company (collectively, the “Guarantor”), and not by the Canadian subsidiaries of the
Company. Such guarantees are full and unconditional. Supplemental condensed consolidating financial
information of the Company, including such information for the Guarantor, is presented below. The information
is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial
information may not necessarily be indicative of results of operations, cash flows or financial position had the
non-guarantor subsidiaries operated as independent entities. Investments in subsidiaries are presented using the
equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions. Separate financial statements of the Guarantor are not provided as the
consolidating financial information contained herein provides a more meaningful disclosure to allow investors to
determine the nature of the assets held by, and the operations of, the combined groups.
F-30
BEACON ROOFING SUPPLY, INC.
Condensed Consolidating Balance Sheets
(Unaudited; In thousands)
Assets
Current assets:
Cash and cash equivalents . . . . . . . .
Accounts receivable, net . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . .
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . . . . . .
$
Total current assets . . . . . . . . . .
Intercompany receivable, net . . . . . . . . . .
Investments in consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . .
Parent
Guarantor
Subsidiaries
September 30, 2019
Non-Guarantor
Subsidiaries
Eliminations
and Other
Consolidated
— $
—
—
65,213
1,067,109
988,925
$
7,074
42,165
29,258
$
— $
(1,140)
—
72,287
1,108,134
1,018,183
15,788
15,788
—
6,365,732
17,123
20,507
—
—
2,059
291,736
2,412,983
1,561,217
—
—
229,267
2,461,212
1,123,768
—
8,119
86,616
—
—
—
10,602
29,378
1,772
—
—
315,643
(1,140)
(1,561,217)
2,514,247
—
(6,365,732)
(17,123)
—
—
—
—
—
—
260,376
2,490,590
1,125,540
2,059
Total assets . . . . . . . . . . . . . . . . . . . . . . .
$6,421,209
$7,788,447
$128,368
$(7,945,212) $6,392,812
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . .
Current portions of long-term debt/
$
51,142
80,556
$ 745,820
504,150
$ 27,109
14,449
$
(1,140) $ 822,931
599,155
—
obligations . . . . . . . . . . . . . . . . . .
9,700
8,989
Total current liabilities . . . . . . .
Intercompany payable, net . . . . . . . . . . . .
Borrowings under revolving lines of
credit, net
. . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net
. . . . . . . . . . . . . . . . .
Deferred income taxes, net . . . . . . . . . . . .
Long-term obligations under equipment
financing and other, net
. . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . .
141,398
1,523,640
1,258,959
—
—
2,494,623
—
—
—
80,961
—
120,643
4,609
6,301
—
41,558
37,577
—
18,689
(1,140)
(1,561,217)
1,440,775
—
—
—
393
—
82
—
—
(17,123)
80,961
2,494,623
103,913
—
—
4,609
6,383
Total liabilities . . . . . . . . . . . . .
4,159,661
1,471,473
79,610
(1,579,480)
4,131,264
Convertible preferred stock . . .
399,195
—
—
—
399,195
Total stockholders’ equity . . . .
1,862,353
6,316,974
48,758
(6,365,732)
1,862,353
Total liabilities and stockholders’
equity . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,421,209
$7,788,447
$128,368
$(7,945,212) $6,392,812
F-31
BEACON ROOFING SUPPLY, INC.
Condensed Consolidating Balance Sheets
(Unaudited; In thousands)
Assets
Current assets:
Cash and cash equivalents . . . . . . . .
Accounts receivable, net . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . .
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . . . . . . . . .
$
Total current assets . . . . . . . . . .
Intercompany receivable, net . . . . . . . . . .
Investments in consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . .
Parent
Guarantor
Subsidiaries
September 30, 2018
Non-Guarantor
Subsidiaries
Eliminations
and Other
Consolidated
— $ 136,499
1,051,410
—
907,605
—
$
1,959
40,262
28,442
$
(8,531) $ 129,927
1,090,533
(1,139)
936,047
—
23,711
23,711
—
6,109,325
22,475
18,929
—
—
1,243
214,011
2,309,525
1,361,615
—
—
250,517
2,461,725
1,332,104
—
6,638
77,301
—
—
—
10,961
30,054
2,262
—
—
244,360
(9,670)
(1,361,615)
2,400,867
—
(6,109,325)
(22,475)
—
—
—
—
—
—
280,407
2,491,779
1,334,366
1,243
Total assets . . . . . . . . . . . . . . . . . . . . . . .
$6,175,683
$7,715,486
$120,578
$(7,503,085) $6,508,662
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . .
Current portions of long-term debt/
$
24,154
41,448
$ 843,907
564,331
$ 22,482
5,760
$
(9,671) $ 880,872
611,539
—
obligations . . . . . . . . . . . . . . . . . .
9,700
9,961
Total current liabilities . . . . . . .
Intercompany payable, net . . . . . . . . . . . .
Borrowings under revolving lines of
credit, net
. . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net
. . . . . . . . . . . . . . . . .
Deferred income taxes, net . . . . . . . . . . . .
Long-term obligations under equipment
financing and other, net
. . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . .
75,302
1,322,156
1,418,199
—
—
2,494,725
—
—
—
89,352
—
128,846
13,639
5,207
—
28,242
39,459
3,090
—
622
—
83
—
19,661
(9,671)
(1,361,615)
1,512,072
—
—
—
(22,474)
92,442
2,494,725
106,994
—
—
13,639
5,290
Total liabilities . . . . . . . . . . . . .
3,892,183
1,655,243
71,496
(1,393,760)
4,225,162
Convertible preferred stock . . .
399,195
—
—
—
399,195
Total stockholders’ equity . . . .
1,884,305
6,060,243
49,082
(6,109,325)
1,884,305
Total liabilities and stockholders’
equity . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,175,683
$7,715,486
$120,578
$(7,503,085) $6,508,662
F-32
BEACON ROOFING SUPPLY, INC.
Condensed Consolidating Statements of Operations
(Unaudited; In thousands, except share and per share amounts)
Year Ended September 30, 2019
Non-Guarantor
Subsidiaries
Eliminations
and Other
Guarantor
Subsidiaries
Parent
Consolidated
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . .
$
— $6,918,518
5,220,994
—
$186,642
147,611
$ — $7,105,160
5,368,605
—
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . .
—
1,697,524
39,031
—
1,736,555
Operating expense
Selling, general and
administrative . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . .
Total operating expense . . . .
Intercompany charges (income) . . . . . .
17,627
4,027
—
21,654
(17,576)
1,261,370
64,801
206,627
1,532,798
17,132
Income (loss) from operations . . . . . . . . . . .
(4,078)
147,594
Interest expense, financing costs, and
32,046
1,867
438
34,351
444
4,236
other . . . . . . . . . . . . . . . . . . . . . . . . .
140,489
17,327
718
Intercompany interest expense
(income) . . . . . . . . . . . . . . . . . . . . . .
(39,670)
38,142
1,528
Income (loss) before provision for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income
(104,897)
92,125
1,990
taxes . . . . . . . . . . . . . . . . . . . . . . . . .
(116)
(632)
578
—
—
—
—
—
—
—
—
—
—
1,311,043
70,695
207,065
1,588,803
—
147,752
158,534
—
(10,782)
(170)
Income (loss) before equity in net income
of subsidiaries . . . . . . . . . . . . . . . . . . . . .
Equity in net income of subsidiaries . .
(104,781)
94,169
92,757
—
1,412
—
—
(94,169)
(10,612)
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . .
$ (10,612) $
92,757
$
1,412
$(94,169)
$ (10,612)
F-33
BEACON ROOFING SUPPLY, INC.
Condensed Consolidating Statements of Operations
(Unaudited; In thousands, except share and per share amounts)
Year Ended September 30, 2018
Non-Guarantor
Subsidiaries
Eliminations
and Other
Guarantor
Subsidiaries
Parent
Consolidated
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . .
$
— $6,239,332
4,685,616
—
$178,979
139,374
$
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . .
—
1,553,716
39,605
— $6,418,311
4,824,990
—
—
1,593,321
Operating expense
Selling, general and
administrative . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . .
Total operating expense . . . .
Intercompany charges (income) . . . . . .
Income (loss) from operations . . . . . . . . . . .
Interest expense, financing costs, and
5,909
1,989
—
7,898
(6,734)
(1,164)
1,147,390
56,598
140,664
1,344,652
6,565
202,499
33,893
1,731
521
36,145
169
3,291
other . . . . . . . . . . . . . . . . . . . . . . . . .
124,169
11,648
727
Intercompany interest expense
(income) . . . . . . . . . . . . . . . . . . . . . .
(24,270)
22,738
1,532
Income (loss) before provision for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income
(101,063)
168,113
1,032
taxes . . . . . . . . . . . . . . . . . . . . . . . . .
11,398
(42,261)
Income (loss) before equity in net income
of subsidiaries . . . . . . . . . . . . . . . . . . . . .
Equity in net income of subsidiaries . .
(112,461)
211,087
210,374
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . .
$ 98,626
$ 210,374
$
319
713
—
713
—
—
—
—
—
—
—
—
—
—
—
(211,087)
1,187,192
60,318
141,185
1,388,695
—
204,626
136,544
—
68,082
(30,544)
98,626
—
$(211,087) $
98,626
F-34
BEACON ROOFING SUPPLY, INC.
Condensed Consolidating Statements of Operations
(Unaudited; In thousands, except share and per share amounts)
Year Ended September 30, 2017
Non-Guarantor
Subsidiaries
Eliminations
and Other
Guarantor
Subsidiaries
Parent
Consolidated
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . . .
$ — $4,198,935
3,162,896
—
$177,735
137,835
$
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,036,039
39,900
— $4,376,670
3,300,731
—
—
1,075,939
Operating expense
Selling, general and
administrative . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . .
Total operating expense . . . . .
Intercompany charges (income) . . . . . .
Income (loss) from operations . . . . . . . . . . . .
Interest expense, financing costs, and
26,962
1,534
—
28,496
(4,664)
685,690
30,758
81,880
798,328
4,342
(23,832)
233,369
30,724
1,710
585
33,019
322
6,559
other . . . . . . . . . . . . . . . . . . . . . . . . . .
38,660
14,033
58
Intercompany interest expense
(income) . . . . . . . . . . . . . . . . . . . . . . .
(24,458)
22,927
1,531
Income (loss) before provision for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income
(38,034)
196,409
taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,284)
64,399
Income (loss) before equity in net income of
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net income of subsidiaries . . .
(34,750)
135,614
132,010
—
4,970
1,366
3,604
—
—
—
—
—
—
—
—
—
—
—
—
(135,614)
743,376
34,002
82,465
859,843
—
216,096
52,751
—
163,345
62,481
100,864
—
Net income (loss) . . . . . . . . . . . . . . . . . . . . . .
$100,864
$ 132,010
$
3,604
$(135,614) $ 100,864
F-35
BEACON ROOFING SUPPLY, INC.
Condensed Consolidating Statements of Comprehensive Income
(Unaudited; In thousands)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation
Year Ended September 30, 2019
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
and Other
Consolidated
$(10,612)
$92,757
$ 1,412
$(94,169)
$(10,612)
adjustment . . . . . . . . . . . . . . . . . . . . . .
(1,734)
Unrealized gain (loss) due to change in
fair value of derivatives, net of tax . . .
(1,612)
Total other comprehensive income
(loss)
. . . . . . . . . . . . . . . . . . . . . .
(3,346)
—
—
—
(1,734)
1,734
(1,734)
(1,612)
1,612
(1,612)
(3,346)
3,346
(3,346)
Comprehensive income (loss) . . . . . . . . . . . . . $(13,958)
$92,757
$(1,934)
$(90,823)
$(13,958)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation
Year Ended September 30, 2018
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
and Other
Consolidated
$98,626
$210,374
$
713
$(211,087)
$98,626
adjustment . . . . . . . . . . . . . . . . . . . . . . .
(2,687)
Total other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . . .
(2,687)
—
—
(2,687)
2,687
(2,687)
(2,687)
2,687
(2,687)
Comprehensive income (loss) . . . . . . . . . . . . . .
$95,939
$210,374
$(1,974)
$(208,400)
$95,939
Net income (loss) . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation
Year Ended September 30, 2017
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
and Other
Consolidated
$100,864
$132,010
$3,604
$(135,614)
$100,864
adjustment . . . . . . . . . . . . . . . . . . . . . .
3,706
Total other comprehensive income
(loss) . . . . . . . . . . . . . . . . . . . . . .
3,706
—
—
Comprehensive income (loss) . . . . . . . . . . . . .
$104,570
$132,010
3,706
(3,706)
3,706
3,706
$7,310
(3,706)
3,706
$(139,320)
$104,570
F-36
BEACON ROOFING SUPPLY, INC.
Condensed Consolidating Statements of Cash Flows
(Unaudited; In thousands)
Year Ended September 30, 2019
Non-Guarantor
Subsidiaries
Eliminations
and Other
Guarantor
Subsidiaries
Parent
Consolidated
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . .
Investing Activities
Purchases of property and equipment . . . . .
Acquisition of businesses, net . . . . . . . . . . .
Proceeds from the sale of assets . . . . . . . . .
Intercompany activity . . . . . . . . . . . . . . . . .
Net cash provided by (used in)
$ 6,250
$
188,268
$ 11,339
$ 6,796
$
212,653
(7,156)
—
—
35,777
(48,311)
(163,973)
9,256
—
(1,564)
—
13
—
—
—
—
(35,777)
(57,031)
(163,973)
9,269
—
investing activities . . . . . . . . . . . . .
28,621
(203,028)
(1,551)
(35,777)
(211,735)
Financing Activities
Borrowings under revolving lines of
credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,049,500
50,585
Repayments under revolving lines of
credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under term loan . . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . .
Repayments under equipment financing
facilities and other . . . . . . . . . . . . . . . . . .
Payment of dividends on preferred stock . .
Proceeds from issuance of common stock
—
(9,700)
(817)
(2,060,396)
—
—
(53,586)
—
—
—
(24,000)
(10,001)
—
—
—
—
related to equity awards . . . . . . . . . . . . . .
3,314
—
Taxes paid related to net share settlement
of equity awards . . . . . . . . . . . . . . . . . . .
Intercompany activity . . . . . . . . . . . . . . . . .
(3,668)
—
—
(35,629)
—
(1,826)
—
37,455
—
—
—
—
—
—
—
2,100,085
(2,113,982)
(9,700)
(817)
(10,001)
(24,000)
3,314
(3,668)
—
Net cash provided by (used in)
financing activities . . . . . . . . . . . . .
(34,871)
(56,526)
(4,827)
37,455
(58,769)
Effect of exchange rate changes on cash
and cash equivalents . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of
—
—
—
—
154
57
211
(71,286)
5,115
8,531
(57,640)
136,499
1,959
(8,531)
129,927
period . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $
65,213
$ 7,074
$ — $
72,287
F-37
BEACON ROOFING SUPPLY, INC.
Condensed Consolidating Statements of Cash Flows
(Unaudited; In thousands)
Net cash provided by (used in)
Parent
Year Ended September 30, 2018
Non-Guarantor
Subsidiaries
Guarantor
Subsidiaries
Eliminations
and Other
Consolidated
operating activities . . . . . . . . . . . . . .
$ (100,302) $
638,451
$
(680)
$
1,912
$
539,381
Investing Activities
. .
Purchases of property and equipment
. . . . . . . .
Acquisition of businesses, net
Proceeds from the sale of assets . . . . . . .
Intercompany activity . . . . . . . . . . . . . . .
Net cash provided by (used in)
(14,354)
(2,740,480)
—
699,970
(29,132)
—
2,121
—
(2,524)
—
28
—
—
—
—
(699,970)
(46,010)
(2,740,480)
2,149
—
investing activities . . . . . . . . . .
(2,054,864)
(27,011)
(2,496)
(699,970)
(2,784,341)
Financing Activities
Borrowings under revolving lines of
credit . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,766,447
41,294
Repayments under revolving lines of
credit . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under term loan . . . . . . . . . .
Repayments under term loan . . . . . . . . .
Borrowings under senior notes . . . . . . . .
Payment of debt issuance costs . . . . . . .
Repayments under equipment financing
facilities and other . . . . . . . . . . . . . . .
Proceeds from issuance of convertible
preferred stock . . . . . . . . . . . . . . . . . .
Payment of stock issuance costs . . . . . . .
Payment of dividends on preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . . .
(12,978)
Proceeds from issuance of common
stock related to equity awards . . . . . .
7,514
Taxes paid related to net share
settlement of equity awards . . . . . . . .
Intercompany activity . . . . . . . . . . . . . . .
(3,975)
—
Net cash provided by (used in)
—
970,000
(445,850)
1,300,000
(58,266)
(2,666,447)
—
—
—
(7,522)
(41,294)
—
—
—
—
—
(11,593)
400,000
(1,279)
—
—
—
—
—
(705,625)
—
—
—
—
—
—
2,967
—
—
—
—
—
—
—
—
—
—
—
—
702,658
2,807,741
(2,707,741)
970,000
(445,850)
1,300,000
(65,788)
(11,593)
400,000
(1,279)
(12,978)
7,514
(3,975)
—
financing activities . . . . . . . . . .
2,155,166
(624,740)
2,967
702,658
2,236,051
Effect of exchange rate changes on cash
and cash equivalents . . . . . . . . . . . . . .
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of
—
—
—
—
(13,300)
586
377
—
586
4,600
(8,323)
149,799
1,582
(13,131)
138,250
period . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
136,499
$ 1,959
$
(8,531) $
129,927
F-38
BEACON ROOFING SUPPLY, INC.
Condensed Consolidating Statements of Cash Flows
(Unaudited; In thousands)
Net cash provided by (used in)
Parent
Year Ended September 30, 2017
Non-Guarantor
Subsidiaries
Eliminations
and Other
Guarantor
Subsidiaries
Consolidated
operating activities . . . . . . . . . . . . . . .
$
(2,466) $
313,396
$ 4,888
$
(618) $
315,200
Investing Activities
Purchases of property and equipment . . . .
Acquisition of businesses, net . . . . . . . . . .
Proceeds from the sale of assets . . . . . . . .
Intercompany activity . . . . . . . . . . . . . . . .
Net cash provided by (used in)
(3,517)
(129,390)
—
(203,163)
(34,584)
—
2,150
—
(1,727)
—
83
—
—
—
—
203,163
(39,828)
(129,390)
2,233
—
investing activities . . . . . . . . . . . .
(336,070)
(32,434)
(1,644)
203,163
(166,985)
Financing Activities
Borrowings under revolving lines of
credit
. . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,445,084
19,044
Repayments under revolving lines of
credit
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments under term loan . . . . . . . . . . .
Payment of debt issuance costs . . . . . . . . .
Repayments under equipment financing
—
(4,500)
(1,669)
(2,812,663)
—
—
(20,567)
—
—
facilities and other . . . . . . . . . . . . . . . . .
—
(10,049)
15
Proceeds from secondary offering of
common stock . . . . . . . . . . . . . . . . . . . .
Payment of stock issuance costs . . . . . . . .
Proceeds from issuance of common stock
related to equity awards . . . . . . . . . . . . .
Taxes paid related to net share settlement
345,503
(14,684)
11,341
of equity awards . . . . . . . . . . . . . . . . . .
(392)
—
—
—
—
—
—
—
—
Excess tax benefit from stock-based
compensation . . . . . . . . . . . . . . . . . . . . .
Intercompany activity . . . . . . . . . . . . . . . .
Net cash provided by (used in)
2,937
—
—
209,018
—
(2,279)
—
—
—
—
—
—
—
—
—
—
(206,739)
2,464,128
(2,833,230)
(4,500)
(1,669)
(10,034)
345,503
(14,684)
11,341
(392)
2,937
—
financing activities . . . . . . . . . . . .
338,536
(168,610)
(3,787)
(206,739)
(40,600)
Effect of exchange rate changes on cash
and cash equivalents . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of
—
—
—
—
(751)
—
(751)
112,352
(1,294)
(4,194)
106,864
37,447
2,876
(8,937)
31,386
period . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
149,799
$ 1,582
$ (13,131) $
138,250
F-39
16. Allowance for Doubtful Accounts
The following table summarizes changes in the valuation of the allowance for doubtful accounts (in
thousands):
Year Ended September 30,
Beginning
Balance
Charged to
Operations Write-offs
Ending
Balance
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,584
11,829
14,812
$ 9,478
10,948
2,914
$(13,967)
(5,193)
(5,897)
$13,095
17,584
11,829
The decrease in valuation as of September 30, 2019 is primarily due to an acceleration in write-offs of aged
balances that were previously reserved.
17. Fair Value Measurement
As of September 30, 2019, the carrying amount of cash and cash equivalents, accounts receivable, prepaid
and other current assets, accounts payable and accrued expenses approximated fair value because of the short-
term nature of these instruments. The Company measures its cash equivalents at amortized cost, which
approximates fair value based upon quoted market prices (Level 1).
As of September 30, 2019, based upon recent trading prices (Level 2 — market approach), the fair value of
the Company’s $300.0 million Senior Notes due in 2023 was $310.5 million and the fair value of the
$1.30 billion Senior Notes due in 2025 was $1.28 billion.
As of September 30, 2019, the fair value of the Company’s term loan and revolving asset-based line of
credit approximated the amount outstanding. The Company estimates the fair value of these financing
arrangements by discounting the future cash flows of each instrument using estimated market rates of debt
instruments with similar maturities and credit profiles (Level 3).
18. Employee Benefit Plans
The Company maintains defined contribution plans covering all full-time employees of the Company who
have 90 days of service and are at least 21 years old. An eligible employee may elect to make a before-tax
contribution of between 1% and 100% of his or her compensation through payroll deductions, not to exceed the
annual limit set by law. The Company currently matches the first 50% of participant contributions limited to 6%
of a participant’s gross compensation (maximum Company match is 3%). The combined total expense for this
plan and a similar plan for Canadian employees was $11.7 million, $11.8 million, and $8.2 million for the years
ended September 30, 2019, 2018, and 2017, respectively.
The Company sponsors an external pension fund for certain of its foreign employees who belong to a local
union. Pension contributions are made to government-sponsored social security pension plans in accordance with
local legal requirements. Annual contributions were $1.0 million, $0.2 million, and $0.1 million for the years
ended September 30, 2019, 2018, and 2017, respectively.
The Company also participates in multi-employer defined benefit plans for which it is not the sponsor. The
aggregated expense for these plans for the fiscal year ended September 30, 2019 was $2.6 million. As of
September 30, 2019, the Company’s multi-employer defined benefit plans are reported to have underfunded
liabilities. If the Company withdraws from participation in one of these plans, applicable law would require the
Company to make a lump-sum contribution to the plan. The Company’s withdrawal liability depends on the
extent of the plan’s funding of vested benefits, among other factors. In 2019, the Company’s collective
bargaining agreements covering 42 employees in its Chicago, Cincinnati and Toledo branches expired. As a
result of good faith collective bargaining, the Company has withdrawn from the Central States Pension Fund.
The Company does not believe the final lump-sum contribution will have a material impact on operations.
F-40
19. Financial Derivatives
The Company uses interest rate derivative instruments to manage the risk related to fluctuating cash flows
from interest rate changes by converting a portion of its variable-rate borrowings into fixed-rate borrowings.
On September 11, 2019, the Company entered into two interest rate swap agreements to manage the interest
rate risk associated with the variable-rate on the 2025 Term Loan. Each swap agreement has a notional amount of
$250 million. One agreement (the “5-year swap”) will expire on August 30, 2024 and swaps the thirty-day
LIBOR with a fixed-rate of 1.49%. The second agreement (the “3-year swap”) will expire on August 30, 2022
and swaps the thirty-day LIBOR with a fixed-rate of 1.50%. At the inception of the swap agreements, the
Company determined that both swaps qualified for cash flow hedge accounting under ASC 815. Therefore,
changes in the fair value of the effective portions of the swaps, net of taxes, will be recognized in other
then reclassified into the consolidated statements of operations as a
comprehensive income each period,
component of interest expense, financing costs, and other in the period in which the hedged transaction affects
earnings. Any ineffective portions of the hedges are immediately recognized in earnings as a component of
interest expense, financing costs and other.
The effectiveness of the swaps will be assessed qualitatively by the Company during the lives of the hedges
by a) comparing the current terms of the hedges with the related hedged debt to assure they continue to coincide
and b) through an evaluation of the ability of the counterparty to the hedges to honor their obligations under the
hedges. The Company performed a qualitative analysis as of September 30, 2019 and concluded that the swap
agreements continue to meet the requirements under ASC 815 to qualify for cash flow hedge accounting. As of
September 30, 2019, the fair value of the 3-year and 5-year swaps, net of tax, were $0.5 million and $1.1 million,
respectively, both in favor of the counterparty. These amounts are included in accrued expenses in the
accompanying consolidated balance sheets.
The Company records any differences paid or received on its interest rate hedges to interest expense,
financing costs and other. The table below presents the combined fair values, net of tax, of the interest rate
derivative instruments:
Instrument
Location on
Balance Sheet
Fair Value
Hierarchy
2019
Liabilities as of September 30,
Designated interest rate swaps . . . . . . . . . . . . . . . . . . Accrued expenses
Level 2
$(1,612)
2018
$—
The fair value of the interest rate swaps is determined through the use of a pricing model, which utilizes
verifiable inputs such as market interest rates that are observable at commonly quoted intervals (generally
referred to as the “LIBOR Curve”) for the full terms of the hedge agreements. These values reflect a Level 2
measurement under the applicable fair value hierarchy.
The table below presents the amounts of gain (loss) on the interest rate derivative instruments recognized in
other comprehensive income (OCI):
Instrument
2019
Designated interest rate swaps . . . . . . . . . . . . . . . . . . . . . .
$(1,612)
2018
$—
2017
$—
Year Ended September 30,
The table below presents the amounts of gain (loss) on the interest rate derivative instruments recognized in
interest expense, financing costs and other:
Instrument
Designated interest rate swaps . . . . . . . . . . . . . . . . . . . . . .
Non-designated interest rate swaps (reclassified from
2019
$—
accumulated other comprehensive income) . . . . . . . . . .
$—
2018
$—
$—
2017
$ —
$(388)
Year Ended September 30,
F-41
On March 28, 2013, the Company entered into an interest rate swap agreement with a notional amount of
$213.8 million which expired on March 31, 2017. This agreement swapped the thirty-day LIBOR to a fixed-rate
of 1.38% and had scheduled reductions of the notional amount equal to $2.8 million per quarter, effectively
matching the repayment schedule under the Term Loan outstanding at that time. The Company determined this
swap agreement qualified for cash flow hedge accounting under ASC 815, and therefore changes in the fair value
of the effective portions of the swap, net of taxes, were recognized through other comprehensive income each
period. On October 1, 2015, the Company terminated the swap agreement and settled the $2.4 million unrealized
loss with the counterparty. This $2.4 million unrealized loss was recognized on a straight-line basis as interest
expense from the termination date through March 31, 2017, the original expiration date of the swap agreement.
20. Subsequent Events
On October 9, 2019, the Company, and certain subsidiaries of the Company as guarantors, executed a
private offering of $300.0 million aggregate principal at a rate of 4.500% per annum (the “2026 Senior Notes”) at
an issue price of 100%. The 2026 Senior Notes mature on November 15, 2026. Interest is payable on May 15 and
November 15 of each year, commencing on May 15, 2020.
The 2026 Senior Notes and related subsidiary guarantees were offered and sold in a private transaction
exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), to
qualified institutional buyers in accordance with Rule 144A under the Securities Act and to non-U.S. persons
outside of the United States pursuant to Regulation S under the Securities Act. The 2026 Senior Notes and related
subsidiary guarantees have not been, and will not be, registered under the Securities Act or the securities laws of
any state or other jurisdiction, and may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements of the Securities Act and other applicable securities
laws.
On October 28, 2019, the Company used the net proceeds from the offering, together with cash on hand and
available borrowings under its existing senior secured asset based revolving credit facility (the “2023 ABL”), to
redeem all $300.0 million aggregate principal amount outstanding of its 6.375% senior secured notes due 2023
(the “2023 Senior Notes”) at a redemption price of 103.188% and to pay all related accrued interest, fees and
expenses.
The intent of the transaction was to take advantage of lower market interest rates by refinancing the existing
2023 Senior Notes with the 2026 Senior Notes. The Company has accounted for the re-finance as a debt
extinguishment of the 2023 Senior Notes and an issuance of the 2026 Senior Notes. As a result, the Company
will record an estimated loss on extinguishment of $14.7 million in the first fiscal quarter of fiscal year 2020.
F-42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
1. Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934) as of September 30, 2019. Based on this evaluation, our chief executive
officer and chief financial officer concluded that, as of September 30, 2019, our disclosure controls and
procedures were (1) designed to ensure that material information relating to Beacon Roofing Supply, Inc.,
including its consolidated subsidiaries, is made known to our chief executive officer and chief financial officer
by others within those entities, particularly during the period in which this report was being prepared and
(2) designed to be effective, and were effective, in that they provide reasonable assurance of achieving their
objectives, including that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and (b) accumulated and communicated to management, including our chief executive
officer and chief financial officer, to allow timely decisions regarding required disclosures.
2.
Internal Control over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under
the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, and effected by the company’s board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of the company’s assets that could have a material effect on the financial statements.
Our internal control system was designed to provide reasonable assurance to our management and Board of
Directors regarding the preparation and fair presentation of published financial statements. All internal control
systems, no matter how well designed, have inherent limitations which may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal controls over financial reporting as of
September 30, 2019, using the criteria set forth in Internal Control—Integrated Framework issued by the
47
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on our
assessment, we believe that, as of September 30, 2019, our internal control over financial reporting is effective at
the reasonable assurance level based on those criteria.
Our Independent Registered Public Accounting Firm has issued a report on our internal control over
financial reporting. This report appears below.
(b) Attestation Report of the Independent Registered Public Accounting Firm
48
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
The Shareholders and Board of Directors of
Beacon Roofing Supply, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Beacon Roofing Supply, Inc.’s internal control over financial reporting as of September 30,
2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion,
Beacon Roofing Supply, Inc. (the Company) maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of Beacon Roofing Supply, Inc. as of September 30,
2019 and 2018, and the related consolidated statements of operations, comprehensive income, stockholders’
equity and cash flows for each of the three years in the period ended September 30, 2019, and the related notes
and our report dated November 26, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
49
Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
limitations,
/s/ Ernst & Young LLP
Tysons, Virginia
November 26, 2019
50
(c) Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934) occurred during the fiscal quarter ended September 30, 2019 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
51
PART III
This part of our Form 10-K, which includes Items 10 through 14, is omitted because we will file definitive
proxy material pursuant to Regulation 14A not more than 120 days after the close of our year-end, which proxy
material will include the information required by Items 10 through 14 and is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
(1) Financial Statements
PART IV
The following financial statements of our Company and Report of the Independent Registered Public
Accounting Firm are included in Part II, Item 8 of this Report:
• Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
• Consolidated Balance Sheets as September 30, 2019 and 2018
• Consolidated Statements of Operations for the years ended September 30, 2019, 2018, and 2017
• Consolidated Statements of Comprehensive Income for the years ended September 30, 2019, 2018, and
2017
• Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2019, 2018, and
2017
• Consolidated Statements of Cash Flows for the years ended September 30, 2019, 2018, and 2017
• Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are either not applicable or the required
information has been disclosed in the financial statements or notes thereto.
(3) Exhibits
52
Exhibit
Number
2.1
3.1
3.2
3.3
4.1*
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
INDEX TO EXHIBITS
Incorporated by Reference
Description
Form
Exhibit
Filing Date
Stock Purchase Agreement, dated as of August 24,
2017, by and among Beacon Roofing Supply, Inc.,
as Buyer, Oldcastle, Inc., as Parent, and Oldcastle
Distribution, Inc., as Seller.
Second Amended and Restated Certificate of
Incorporation of Beacon Roofing Supply, Inc.
Amended and Restated By-Laws of Beacon
Roofing Supply, Inc.
Certificate of Designations, Preferences and Rights
of Series A Cumulative Convertible Participating
Preferred Stock of Beacon Roofing Supply, Inc.
Description of Common Stock
Indenture, dated as of October 1, 2015, by and
among Beacon Roofing Supply, Inc., the subsidiary
guarantors party thereto, and U.S. Bank National
Association, as trustee.
Supplemental Indenture, dated as of October 1,
2015, by and among Beacon Roofing Supply, Inc.
(“Beacon”), certain direct and indirect subsidiaries
of Beacon, as additional subsidiary guarantors, and
U.S. Bank National Association, as trustee.
Second Supplemental Indenture, dated as of
January 2, 2018, to the Indenture dated as of
October 1, 2015, by and among Beacon Roofing
Supply, Inc., certain direct and indirect subsidiaries
of Beacon, as additional subsidiary guarantors, and
U.S. Bank National Association, as trustee.
Form of 6.375% Senior Notes due 2023 (included
as Exhibit A to the Indenture incorporated by
reference as Exhibit 4.2).
Indenture, dated as of October 25, 2017, between
Beacon Escrow Corporation and U.S. Bank
National Association, as trustee.
Supplemental Indenture, dated as of January 2,
2018, to the Indenture dated as of October 25, 2017,
by and among Beacon Roofing Supply, Inc., certain
direct and indirect subsidiaries of Beacon, as
subsidiary guarantors, and U.S. Bank National
Association, as trustee.
Form of 4.875% Senior Notes due 2025 (included
as Exhibit A to the Indenture incorporated by
reference as Exhibit 4.6).
Term Loan Credit Agreement, dated as of
January 2, 2018, by and among Beacon Roofing
Supply, Inc., Citibank N.A., as administrative
agent, and the lenders and financial institutions
party thereto.
53
8-K
2.1
August 24, 2017
10-K
3.1 December 23, 2004
8-K
8-K
3.1 September 24, 2014
3.1
January 5, 2018
8-K
4.1
October 1, 2015
8-K
4.2
October 1, 2015
8-K
4.3
January 5, 2018
8-K
8-K
8-K
4.3
October 1, 2015
4.1
October 26, 2017
4.2
January 5, 2018
8-K
4.2
October 26, 2017
8-K
10.1
January 5, 2018
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
Amended and Restated Credit Agreement, dated as
of January 2, 2018, by and among Beacon Roofing
Supply, Inc., Wells Fargo Bank, National
Association, as administrative agent, and the US
borrowers, Canadian borrower, lenders and
financial institutions party thereto.
Investment Agreement, dated as of August 24,
2017, by and among Beacon Roofing Supply, Inc.,
CD&R Boulder Holdings, L.P. and Clayton,
Dubilier & Rice Fund IX, L.P. (solely for purposes
of Sections 4.13 and 4.14 thereof), including the
form of Certificate of Designations and Registration
Rights Agreement attached as Exhibits A and B
thereto, respectively.
Letter Agreement, dated as of November 20, 2018,
by and among Beacon Roofing Supply, Inc., CD&R
Boulder Holdings, L.P. and Clayton, Dubilier &
Rice Fund IX, L.P. (solely for the purposes
described therein)
Letter Agreement, dated February 13, 2019, by and
among Beacon Roofing Supply, Inc., CD&R
Boulder Holdings, L.P. and Clayton, Dubilier &
Rice Fund IX, L.P. (solely for the purposes
described therein)
Registration Rights Agreement, dated as of
January 2, 2018, by and between Beacon Roofing
Supply, Inc. and CD&R Boulder Holdings, L.P.
Amendment and Restatement of Section 2(a) of the
Registration Rights Agreement, dated June 11,
2019
Executive Securities Agreement dated as of
October 20, 2003 by and between Beacon Roofing
Supply, Inc., Robert Buck and Code, Hennessy &
Simmons III, L.P.
Description of Executive Annual Incentive Plan
Beacon Roofing Supply, Inc. Amended and
Restated 2004 Stock Plan
First Amendment dated as of October 31, 2011 to
the Beacon Roofing Supply, Inc. 2004 Stock Plan
Beacon Roofing Supply, Inc. Amended and
Restated 2014 Stock Plan
Form of Beacon Roofing Supply, Inc. Amended
and Restated 2014 Stock Plan Restricted Stock Unit
Award Agreement for Non-Employee Directors
(Settle at Retirement)
Form of Beacon Roofing Supply, Inc. Amended
and Restated 2014 Stock Plan Restricted Stock Unit
Award Agreement for Non-Employee Directors
(Settle at Vest)
Form of Beacon Roofing Supply, Inc. Amended
and Restated 2014 Stock Plan Performance-Based
Restricted Stock Unit Award Agreement for
Employees
54
8-K
10.2
January 5, 2018
8-K
10.1
August 24, 2017
8-K
10.1 November 21, 2018
10-Q
10.1
May 8, 2019
8-K
10.4
January 5, 2018
10-Q
10.1
August 7, 2019
S-1
10.5
May 28, 2004
10-Q
10.1
DEF 14A Appendix A
February 8, 2019
January 7, 2011
10-K
10.10 November 29, 2011
DEF 14A Appendix A
January 6, 2016
10-Q
10.1
May 5, 2017
10-Q
10.2
May 5, 2017
10-Q
10.3
May 5, 2017
10-Q
10.4
May 5, 2017
10-Q
10.5
May 5, 2017
10-Q
10.6
February 6, 2016
10-Q
10.2
May 8, 2019
10.16+
10.17+
10.18+
10.19+
21*
23.1*
31.1*
31.2*
32.1*
32.2*
101*
Form of Beacon Roofing Supply, Inc. Amended
and Restated 2014 Stock Plan Time-Based
Restricted Stock Unit Award Agreement for
Employees
Form of Beacon Roofing Supply, Inc. Amended
and Restated 2014 Stock Plan Stock Option
Agreement
Form of Restrictive Covenant Agreement between
Beacon Roofing Supply, Inc. and its executive
officers
Employment and Post-Employment Exclusive
Consulting Agreement, dated as of February 25,
2019, between Beacon Roofing Supply, Inc. and
Paul Isabella
Subsidiaries of Beacon Roofing Supply, Inc.
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm
CEO certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
CFO certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
CEO certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
CFO certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101.INS XBRL Instance–the instance document
does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline
XBRL document.
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation
101.PRE XBRL Taxonomy Extension Presentation
101.LAB XBRL Taxonomy Extension Labels
101.DEF XBRL Taxonomy Extension Definition
104*
Cover Page Interactive Data File (formatted as
Inline XBRL and contained in Exhibit 101)
+ Management contract or compensatory plan/arrangement
* Filed herewith
We will furnish any of our shareowners a copy of any of the above Exhibits not included herein upon the written
request of such shareowner and the payment to Beacon Roofing Supply, Inc. of the reasonable expenses incurred
in furnishing such copy or copies.
ITEM 16.
10-K SUMMARY
Not applicable.
55
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
BEACON ROOFING SUPPLY, INC. (REGISTRANT)
By: /s/ JOSEPH M. NOWICKI
Joseph M. Nowicki
Executive Vice President and Chief Financial Officer
Date: November 26, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/s/ ROBERT R. BUCK
Robert R. Buck
JULIAN G. FRANCIS
/s/
Julian G. Francis
JOSEPH M. NOWICKI
/s/
Joseph M. Nowicki
/s/ THOMAS D. SCHMITZ
Thomas D. Schmitz
/s/ CARL T. BERQUIST
Carl T. Berquist
/s/ BARBARA G. FAST
Barbara G. Fast
/s/ RICHARD W. FROST
Richard W. Frost
/s/ ALAN GERSHENHORN
Alan Gershenhorn
/s/ PHILIP W. KNISELY
Philip W. Knisely
/s/ ROBERT M. MCLAUGHLIN
Robert M. McLaughlin
/s/ NEIL S. NOVICH
Neil S. Novich
/s/ STUART A. RANDLE
Stuart A. Randle
/s/ NATHAN K. SLEEPER
Nathan K. Sleeper
/s/ DOUGLAS L. YOUNG
Douglas L. Young
Chairman
November 26, 2019
President and Chief
Executive Officer
Executive Vice President and
Chief Financial Officer
Vice President and
Chief Accounting Officer
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
56
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
November 26, 2019
EXECUTIVE MANAGEMENT
Robert R. Buck
Chairman
C. Eric Swank
Chief Operating Officer
Ross D. Cooper
Executive Vice President,
General Counsel & Secretary
Brendan P. Daly
Executive Vice President,
Chief Logistics Officer
C. Munroe Best III
President, South Division
James J. Gosa
President, North Division
Thomas D. Schmitz
Vice President & Chief
Accounting Officer
Julian G. Francis
President & Chief
Executive Officer
Joseph M. Nowicki
Executive Vice President
& Chief Financial Officer
Christopher A. Harrison
Executive Vice President
& Chief Human Resources
Officer
Christopher C. Nelson
Executive Vice President &
Chief Information Officer
Kent C. Gardner
President,
West Division
Ronald J. Pilla
President, Interior
Products Division
David J. Wrabel
Vice President &
Chief Credit Officer
BOARD OF DIRECTORS
Robert R. Buck
Chairman
Carl T. Berquist
Former Executive Vice
President and Chief
Financial Officer of Marriott
International, Inc.
Richard W. Frost
Former Chief Executive
Officer of Louisiana-Pacific
Corporation
Philip W. Knisely
Operating Partner at Clayton,
Dubilier, & Rice, LLC
Neil S. Novich
Former Chairman, President
and Chief Executive Officer of
Ryerson Inc.
Nathan K. Sleeper
Chief Executive
Officer of Clayton,
Dubilier & Rice, LLC
Julian G. Francis
President & Chief
Executive Officer
Barbara G. Fast
Retired Major General of
US Army, Chairperson of
American Public Education,
Inc. (APEI) and Chairperson of
Hondros College of Nursing
Alan Gershenhorn
Former Executive Vice
President and Chief
Commercial Officer of United
Parcel Service, Inc. (UPS)
Robert M. McLaughlin
Former Senior Vice President
and Chief Financial Officer of
Airgas, Inc.
Stuart A. Randle
Former Chief Executive
Officer of Ivenix, Lead
Independent Director
Douglas L. Young
Executive Vice President of
Lennox International Inc.
CORPORATE HEADQUARTERS
Beacon Roofing Supply, Inc.
505 Huntmar Park Drive, Suite 300
Herndon, VA 20170
Phone: 571.323.3939
ANNUAL MEETING
February 11, 2020 (8:00 a.m. ET)
The St. Regis Atlanta
88 West Paces Ferry Road
Atlanta, GA 30305
TRANSFER AGENT AND REGISTRAR
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
1775 Tysons Blvd.
Tysons, VA 22102
FORM 10-K
Additional copies of the company’s Annual Report on
Form 10-K are available from the company at no charge.
Requests should be directed to the company’s corporate
headquarters at the address or telephone number above,
attention Chief Accounting Officer. The shares of Beacon
Roofing Supply, Inc. are traded on the Nasdaq Global
Select Market under the symbol BECN.
ON THE INTERNET
Interested investors may visit the company’s web site at
www.BECN.com for updated information, including press
releases, share trading data and SEC filings.
FORWARD-LOOKING STATEMENTS
This annual report contains information about management’s
view of our company’s future expectations, plans and
prospects that constitute forward-looking statements for
purposes of the safe harbor provisions under the Private
Securities Litigation Reform Act of 1995. Actual results may
differ materially from those indicated by such forward-
looking statements as a result of various important factors,
including, but not limited to, those set forth in the “Risk
Factors“ section of our latest Form 10-K included with this
annual report. In addition, the forward-looking statements
included in this annual report represent our views as of the
date of this annual report and these views could change.
However, while we may elect to update these forward-
looking statements at some point, we specifically disclaim
any obligation to do so other than as required by federal
securities laws. These forward-looking statements should
not be relied upon as representing our views as of any date
subsequent to the date of this annual report.
2019 ANNUAL REPORT
Beacon Roofing Supply, Inc.
505 Huntmar Park Drive, Suite 300
Herndon, VA 20170
Phone: 571.323.3939
www.BECN.com