Beacon Roofing Supply

2020  
ANNUAL 
REPORT

EMPOWERING  
OUR CUSTOMERS  
TO

1

OUR MISSION

Empowering our customers to build more — for their customers, 
business, community, and family — through world-class service 
and innovative solutions.

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, providing high-quality exterior 
and interior products to the building industry. Our 
customers rely on us for local access to the building 
products and services they need to operate their 
businesses and serve their clients.

We offer one of the most extensive assortments 
of high-quality branded products in the industry, 
with approximately 160,000 SKUs available across 
our 500+ branch network. We serve over 100,000 
customers by promptly providing the products they 
require, allowing our customers to deliver on the 
project specifications and timelines that are critical 
to their success. Our business has been resilient in 
times of economic downturn because of the largely 
non-discretionary nature of the demand for our 
products as well as the diversity of both our product 
offerings and our customer base. 

We differentiate ourselves by providing our 
customers with value-added services and expertise. 
Our e-commerce platforms lead the industry and 
support the entire business lifecycle, enhancing our 
customers’ ability to meet and exceed the needs 
of their clientele. Our ability to save our customers 
time and money helps to drive customer loyalty 
while also enabling 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, 
driven mainly by our experienced employees who offer 
extensive industry knowledge and ensure the timely, 
accurate, and safe delivery of our products. We utilize 
a branch-based operating model to maintain local 
customer relationships, while benefiting from networking 
branches that are in large markets through our On-Time 
and Complete Network (Beacon OTC®) that allows us to 
serve our customers more efficiently and effectively.

Our renewed growth strategy  
is rooted in our execution of  
the following key initiatives: 

 1 

Leverage our scale and scope to 
enhance and differentiate our  
service offering,

2  Drive organic growth by investing  

in sales models that benefit our  
customers, and

3 

Improve branch  
operating performance.

While we will continue to pursue strategic acquisitions 
to grow our business, our primary focus is on improving 
our operations and continuing to identify additional 
opportunities for organic growth. 

160,000+  
SKUS

500+  
BRANCHES

>100,000+ 
CUSTOMERS

AN NUAL REPORT 2020

OUR PRODUCTS

2

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 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

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
•  Acoustic Ceilings
•  Stone Veneer
•  Windows
•  Doors

•  Skylights
•  Waterproofing
•  Gutter and Downspouts
•  Decking and Railing
•  Air Barrier
•  Concrete Restoration  

Systems

•  Steel Stud Framing

WW W. BE CN.CO M

3

OUR STRENGTHS

Why pros choose Beacon:  
Customer engagement that drives customer retention  
and innovation.

Save Time & Build Your Business
From lead to final invoice, Beacon is there — 
helping our customers find projects, land the job, 
do the work, close it out, and find the next one.

•  Certification Programs

•  Custom Marketing Programs

•  HomeAdvisor Partnership

LEAD 
GENERATION

ESTABLISHED 
CREDIBILITY

SELL AND  
MANAGE 
THE JOB

•  HomeAdvisor 
Partnership

•  Digital Lead 
Generation

•  Storm Tracking

•  Professional 

Estimating Tools 
with 3D+ and 
Eagleview

•  Homeowner 
Financing

•  Project 

Management

•  Online Bill Pay & 
Order History

•  Promotion Tracking

CLOSE OUT 
THE JOB

PURCHASE
MATERIALS

•  Beacon PRO+

•  3D+ Measure- 

to-Order

•  TRI-BUILT®

DELIVERY

•  SAFETY
•  Product Availability
•  Triple Check / Accuracy
•  Regional Service Area
•  Delivery Tracking

AN NUAL REPORT 2020

 
 
 
 
  
OUR RESULTS

4

2020 was defined by successfully managing through a 
challenging environment impacted by COVID-19 and the 
seamless transition to a new leadership team and new 
strategic direction. 

Consolidated net sales decreased 2.3% compared to 2019, a decline primarily reflecting a six-week March-April 
period when the COVID-19 pandemic was most disruptive. Residential roofing daily sales increased 0.3%, tied to 
strong fourth quarter growth from attractive housing market fundamentals. Gross margin improved from 24.4% to 
24.5%, influenced mainly by a favorable product mix shift. Adjusted Operating Expense declined compared to 2019, 
reflecting aggressive second half cost actions. Amid the difficult external environment, Adjusted EBITDA declined 
only modestly, from $476.0 million in 2019 to $471.6 million. Our 2020 results illustrated our continued focus on 
operating cash flow generation and debt reduction efforts.     

In 2020, we designated four strategic initiatives as focus areas for long-term company growth and operational 
execution: organic growth, digital platform, Beacon OTC® Network, and branch operating performance. Organic 
growth will be supported by higher selling activity and customer contacts from our sales organization, and further 
expansion of the most complete digital offering within building products distribution. The Beacon OTC® Network 
grew to 58 markets and is raising customer service, while our focus on branch operations produced improved  
full-year operating performance at the company’s lowest quintile performing branches.  

Net Debt 1
REDUCED BY 

15%

$2,599.2

$2,193.8

Operating Cash Flow
125%

YoY GROWTH

2019
$212.7

Million

2020
$479.3

Million

2019

2020

$ Millions

1. Defined as gross debt less cash. For FY19, gross debt and cash as of 9/30/19 
were $2.7 billion and $72.3 million, respectively. For FY20,  gross debt and cash 
as of 9/30/20 were $2.8 billion and $624.6 million, respectively. 

WW W.B ECN. COM

5

DEAR SHAREHOLDERS 
& FRIENDS

Fiscal year 2020 represented an extraordinary 
period in our company’s history. A renewed focus 
on organic growth and other strategic initiatives 
coupled with new executive leadership and a 

major brand consolidation would have been 

considered a full plate… 

Then entered COVID-19 and our role as an essential 
business, maintaining customer access to building 
materials while assuring the health and safety of our 
employees, customers and communities. Despite 
these challenges, we could not be prouder of 
the Beacon employees who allowed us to make 
substantial strides in a challenging environment.

Pandemic-induced construction shutdowns 
significantly impacted March and April, and non-
residential demand was negatively impacted 
throughout the second half. We implemented a swift 
yet targeted response, consisting of temporary and 
permanent cost reductions, aggressive inventory 
management and proactive borrowings to enhance 
liquidity and increase financial flexibility. As the 
COVID-19 construction restrictions eased, overall 
market demand stabilized. In our end markets, we 
began to see strength in residential categories, 
however that was largely offset by the lingering 
impact of non-residential challenges.   

Beacon Building Products 
President and CEO 
Julian G. Francis

6

2020 HIGHLIGHTS

$7 Billion

6.8%

Sales

Adjusted EBITDA Margin

$479 Million

Operating Cash Flow

Our 2020 financial results benefited from the combination of our swift pandemic response and key 

strategic initiatives. We delivered approximately $7 billion in sales and Adjusted EBITDA margins improved 

from 6.7% in fiscal 2019 to 6.8%, an impressive performance given the environment. These operating 

results combined with strong working capital management to generate $479 million of operating cash flow. 
We also reduced our net debt, which continues to be an important focus as we move forward. 

Our strategic initiatives made important contributions 
and were particularly valuable during the pandemic. Our 
industry leading digital platform reached 10% of total sales 
by year-end, as contactless sales became an attractive 
option for customers amid COVID-19. Contractors are 
recognizing the value produced by utilizing the full range 
of our digital solutions, which includes online ordering 
and estimating tools. Private label product sales grew 
50% during fiscal year 2020 and represent an important 
complement to our digital solutions. Our emphasis on 
organic growth led to more than 1.3 million customer 
contacts in 2020, as we increased selling activity, training 
and support for our sales organization. 

The Beacon OTC® Network expanded to approximately 
250 branches and 58 markets across the U.S. and 
Canada, and we opened our first new hub in the 
important Denver market. Beacon OTC® is helping us 
raise customer service levels in these markets through 
improved delivery timetables and product access. Our 
company will share in these benefits, as we generate 
more efficient utilization of personnel, fleet, warehouse 
capacity and inventory. 

Lastly, in 2020 we targeted our lowest quintile branches 
for operating improvement, the results of which produced 
more than $20 million of year-to-year operating income 
improvement at these locations. We will expand this 
program in future years through identification of new 
target branches and incorporating learned efficiencies 
across the remainder of our network.    

During 2020, our Board appointed Phil Knisely 
as its Chairman, and we named Frank Lonegro 
as our new Chief Financial Officer. Our entire 
leadership team is focused on growing sales, 
expanding margins, generating substantial 
operating cash and reducing our debt position. 
We are also committed to expanding our role as 
an employer that champions diversity, inclusion 
and equality of opportunity. We are striving to 
ensure that all of our employees can reach their 
full potential, which in turn will further establish 
Beacon as an employer of choice and contribute 
to our long-term success.  

We are proud that we ended 2020 in a stronger 
financial, strategic and operational position, 
despite an unprecedented external backdrop. 
More importantly, we are just getting started. 

As always, we sincerely appreciate support from 
the investment community as well as our valued 
customers, suppliers and employees.

Julian G. Francis 
President and CEO

Philip W. Knisely 
Chairman

WW W.B ECN. COM

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

FORM 10-K

(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2020

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

Securities registered pursuant to section 12(b) of the Act:

Title of each class
Common Stock, $0.01 par value

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.

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 (cid:3) No ☐

Yes ☐ No (cid:3)

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 (cid:3) 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 (cid:3) 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
Non-accelerated filer

Accelerated filer
Smaller reporting company

Emerging growth company ☐

(cid:3)
☐

☐
☐

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over

financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

(cid:3)

Yes ☐ No (cid:3)

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, 2020, was $906.3 million.

The number of shares of common stock outstanding as of October 31, 2020 was 68,990,505.

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 for its 2021 Annual
Meeting of Shareholders, 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, 2020

PART I

Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures

Properties
Legal Proceedings

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities

Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of

Selected Financial Data

Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial

Financial Statements and Supplementary Data

Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information

PART III

PART IV

Item 15. Exhibits and Financial Statement Schedules
Item 16. 10-K Summary

Page
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21

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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.

3

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, providing
high-quality exterior and interior products to the building industry. Our customers rely on us for local access to the
building products and services they need to operate their businesses and serve their clients.

On January 15, 2020, we announced the rebranding of our exterior product branches with the trade name “Beacon
Building Products” (the “Rebranding”). The new name, and a related logo, were adopted at over 450 Beacon one-
step exterior products branches. Our interior, insulation, weatherproofing and two-step branches continue to operate
under legacy brand names.

As of September 30, 2020, we operated 524 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
160,000 SKUs available across our branch network.

We serve over 100,000 customers by promptly providing the products they require, allowing our customers to
deliver on the project specifications and timelines that are critical to their success. Our customer base is composed
mainly of a diverse population of 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
non-residential properties. We also distribute products to home builders, building owners, and retailers.

For the fiscal year ended September 30, 2020 (“fiscal year 2020” or “2020”), residential roofing products comprised
44.7% of our sales, non-residential roofing products accounted for 23.7% of our sales, and complementary products
provided the remaining 31.6% of our sales. Approximately 97.4% of our net sales were to customers located in the
United States.

We differentiate ourselves by providing our customers with value-added services and expertise. Our digital e-
commerce platforms lead the industry and support the entire business lifecycle, enhancing our customers’ ability to
meet and exceed the needs of their clientele. Our ability to save our customers time and money helps to drive
customer loyalty while also enabling 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, driven
mainly by our experienced employees who offer extensive industry knowledge and ensure the timely, accurate, and
safe delivery of our products.

We utilize a branch-based operating model
to maintain local customer relationships, while benefiting from
networking branches that are in large markets through our On-Time and Complete network (Beacon OTC®) that
allows us to serve our customers more effectively.

Since our initial public offering (“IPO”) in 2004, we have achieved growth through completing strategic
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 $6.94 billion in fiscal year 2020, representing a
compound annual growth rate of 15.9%.

Our recent history has been strongly influenced by significant acquisition-driven growth, highlighted by the
acquisitions of Allied Building Products Corp. (“Allied”) for $2.88 billion in 2018 (the “Allied Acquisition”) and
Roofing Supply Group, LLC (“RSG”) for $1.17 billion in 2016 (the “RSG Acquisition”). These strategic
acquisitions expanded our geographic footprint, enhanced our market presence, diversified our product offerings,
and positioned us to provide new growth opportunities that will increase our long-term profitability. The scale we

4

have achieved from our expansion efforts will serve as a competitive advantage, also allowing us to use our assets
more efficiently and control our expenses to drive operating leverage.

While we will continue to pursue strategic acquisitions to grow our business, our primary focus is now on improving
our operations and continuing to identify additional opportunities for organic growth. We have demonstrated a track
record for success in this pursuit, having opened 96 new branch locations since 2004. In 2020, we opened seven new
branch locations across Connecticut, Georgia, Louisiana, New Hampshire, Ohio, Oregon and Virginia. In 2019, 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 more than $25 billion in annual sales with roughly 60% of the market in residential roofing and 40% in
non-residential. We also participate in other exterior and interior building products categories, including siding,
wallboard, acoustical ceilings, weatherproofing, 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 non-residential sectors.
These products possess greater exposure to new construction as compared to roofing products, 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, 2020. We expect
overall demand for operations in Canada to grow at a rate similar to our United States operations. For further
geographic information, see Notes 4 and 15 in the Notes to the Consolidated Financial Statements.

Distribution Channels

Wholesale distribution is the primary distribution channel for both residential and non-residential 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
roofing 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 is primarily
composed of local, regional and national specialty roofing distributors.

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, represent approximately half

5

of 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 our sales and earnings growth opportunities are driven by our competitive strengths, which include the
following:

•

•

Customer Service. We put the customer at the center of our business, with a mission to empower our
customers to build more. 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 them. Our focus on customer service allows us to provide valuable guidance to our
customers throughout the project lifecycle.

Product Portfolio. Our product offerings provide customers with a variety of SKUs to supply their
projects from foundation to rooftop. We believe we have one of the most extensive portfolios of high-
quality branded products in the industry, allowing us to address the market-specific needs of the
various geographic regions that we serve. We believe there are opportunities to expand our current
product offerings, which will create additional opportunities to cross-sell more products throughout our
existing branch network.

• Market Position and Scale. 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, enhanced by Beacon OTC® networked branches
in large markets, that allows our customers to benefit from the resources and scale efficiencies of a
national distributor.

• Diversified and stable business model. Our business has been resilient 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, 2020, 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+, our roofing estimating tool for our
residential customers. These platforms help our customers save time, work more efficiently and grow
their businesses.

Strong cash flow generation. We have increased net sales in thirteen of the sixteen fiscal years since
our IPO. 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.

Our Growth Strategy

Our objective is to be the preferred supplier of building products 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:

•

Leverage our scale and scope to enhance and differentiate our service offering. We intend to
capitalize on the scale we have achieved via expansion through organic growth and strategic
acquisitions. We seek to drive volume that will enable us to use our assets more efficiently and control
our expenses via operating leverage. Our ability to serve customers with seamless execution will
differentiate us in the market. Our operating model is one that puts customers and markets at the center
of our business by networking branches together in major markets, allowing us to be more responsive.
Each Beacon OTC® network shares inventory, fleet, equipment and employees in a manner that
materially enhances customer service and drives loyalty to the Beacon brand.

• Drive organic growth by investing in sales models that benefit our customers. We will strive to be
our customers’ preferred supplier by providing hands-on partnership and practical innovation that
uniquely serves their needs. By expanding and promoting our digital solutions, we will meet our
customers’ changing needs and capitalize on their e-commerce reliance. We will also build strong

6

partnerships with suppliers who rely on us to position their products advantageously in the market,
supporting innovation in products and services to benefit our customers.

•

Improve branch operating performance. We will continue to identify operational improvement
opportunities at each of our branches. In addition, we will maintain our intensified focus on those
branches falling in the bottom quintile in operating performance in order to determine what actions
should be taken to improve the profitability of these locations.

Our Products and Services

Products

The ability to provide a broad range of products is essential to success in building products 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.

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
Weatherproofing

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
insulation, wallboard, acoustical ceilings,
leading manufacturers of high-quality roofing materials, siding,
weatherproofing, 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. In the non-residential
market, single-ply membranes, insulation, and accessories comprise the largest share of our product offering. In the
area of complementary building products, siding, wallboard, residential insulation, weatherproofing and acoustical
ceilings comprise the largest share of the products we sell out of our portfolio.

Services

We emphasize superior value-added services to our customers. 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;

7

•

•

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 access to
online ordering, delivery tracking, order history, promotional tracking and more;

•

•

•

access to Beacon 3D+, our roofing estimating tool that helps our residential customers attract and
retain more business and directly integrates into our Beacon PRO+ platform;

exclusive, innovative relationships with strategic partners that help promote home financing, CRM
modeling, storm tracking, delivery tracking, and lead generation;

trade credit and online bill pay; and

• marketing support, including industry leading information and project leads for contractors.

Our Customers

We serve over 100,000 customers, comprised of contractors, home builders, building owners, and retailers 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, 2020, no single customer accounted for
more than 1% of our net sales.

Human Capital Resources

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 emphasize the adoption of our Company’s core values by all our employees,
establishing standards for work ethic, collaboration, and a commitment to deliver. We believe that the achievement
of our ongoing objectives will enable us to deliver exceptional results to our customers and shareholders.

We conduct a comprehensive annual organization and talent review process culminating with a report to the Board
of Directors covering key elements such as: executive succession and development, organization structure, diversity,
talent pipelines and workforce planning requirements. We maintain a broad suite of e-learning courses to deliver
new hire and annual training to ensure compliance with safety, DOT and all other Federal and State requirements.

The focus on retention has become increasingly important as companies across all industries are vying for top talent.
Our Total Rewards program encompasses compensation, benefits, employee development and the work
environment. These are the key elements employees consider when making career decisions and we are focused on
them continuously to ensure we are optimizing our talent investments. We track voluntary and involuntary turnover
monthly and annually, and conduct exit interviews at all levels to gain relevant information and adapt our
engagement and retention strategy as appropriate.

We are taking steps to expand our role as an employer that champions diversity, inclusion and equality of
opportunity. We implemented a Diversity and Inclusion framework in 2020 and instituted a companywide council
composed of fifteen diverse team members. Julian Francis, our Chief Executive Officer, signed the CEO Action for
Diversity & Inclusion pledge, we conducted unconscious bias and diversity training for our executive leadership
team and rolled out an internally developed Conversations of Understanding process. We measure gender and
diversity demographic levels by business and function and are placing a more targeted focus on our incoming
college graduate pipeline and branch operations roles to improve overall representation.

We promote a culture of charitable giving, highlighted by our annual Beacon of Hope contest that was created to
give back to distinguished military veterans by providing roofing replacements or repairs. We are also a founding

8

sponsor of National Women in Roofing, a volunteer-based organization that supports and advances the careers of
women roofing professionals.

Our commitment to a culture of safety is unwavering, including a focus on the overall health and wellness of our
employees. We maintain a comprehensive safety tracking and companywide scorecard program and have
demonstrated strong improvements as a company over the past several years. We track and closely manage overall
workers’ compensation and auto claims, OSHA recordable incidents, lost time rates, DOT compliance, and other
internally established safety prevention elements on a weekly, monthly, and annual basis. We offer competitive
health and wellness programs to eligible employees and periodically conduct in-depth analyses of plan utilization to
further tailor our employee benefits to meet their ongoing needs. In 2020, we implemented COVID-19 protocols
across all locations in response to the pandemic to ensure both the safety of our employees and compliance with all
federal and local ordinances.

As of September 30, 2020, we had 7,582 active employees consisting of 2,253 in sales and marketing, 940 branch
managers and assistant branch managers, 3,618 drivers, delivery helpers and warehouse workers, 704 general and
administrative employees and 67 executives. We have 407 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, weatherproofing and insulation. The breadth and expertise of our salespeople
help us facilitate sales growth from both existing and prospective customers alike.

Each of our branches is led by a branch 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 are aware of Beacon’s
ability help them save time, be more efficient and enhance their business. Beacon’s central marketing function
supplements our sales force through targeted multi-channel outreach.

9

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 serve as Trustee of The Roofing Alliance, a
foundation established by the National Roofing Contractors Association, and are also active participants in other key
regional contractors’ associations.

Since 2017, customers have been using Beacon PRO+, our innovative e-commerce portal, to help manage their
businesses. This digital platform enables customers to order online from our catalog of approximately 160,000
products, 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. Beacon
PRO+ provides us with additional opportunities to engage with our customers and helps them save time, be more
efficient, and enhance their businesses.

We leverage several other unique products and services, including Beacon 3D+, a roofing estimating tool for our
residential customers that transforms smartphone photos of any home to a fully measured, customizable 3D model.
Beacon 3D+ enables us to have an end-to-end portal that tracks projects online from measurements to ordering.

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.

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 is designed to meet local customer needs. In certain large markets we have taken steps to
assure customer satisfaction by coordinating branches via our On-Time and Complete network (Beacon OTC®). The
Beacon OTC® network allows for additional efficiencies in staffing, fleet and inventory while promoting a synergy
across branches and a drive to perform that benefits both the customer and Beacon. Branch and market managers are
provided a significant amount of autonomy, with responsibility for sales, pricing and staffing activities, and have full
operational control of customer service and deliveries. We provide these managers with significant incentives that
allow them to share in the profitability of both their respective branches/markets and the Company as a whole.
Employees at our regional and corporate locations assist with functions such as 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

10

our products. These advanced capabilities provide us with additional opportunities to engage with our customers and
support the entire project lifecycle.

In fiscal year 2020, we were able to support our customers by fulfilling approximately 99% 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, 2020, we operated a network of 524 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, 2020, our distribution infrastructure supported more than 1.7 million
deliveries. To service our customer base, we maintained a dedicated owned fleet of 1,837 straight trucks, 579
tractors and 1,232 trailers as of September 30, 2020. Nearly all of our delivery vehicles are equipped with
specialized equipment, including 2,424 truck-mounted forklifts, cranes, hydraulic booms and conveyors, which are
necessary to deliver products to job sites in an efficient and safe manner and in accordance with our customers’
requirements. Our branches typically focus on providing materials to customers who are located within a two-hour
radius of their respective facilities, and generally make deliveries each business day.

We believe that protection of the environment is important to the long-term success of our business. We recognize
that our greatest impact on the environment is fleet emissions, and we have committed to using the Beacon OTC®
strategy to minimize our average mileage per delivery and reduce our carbon footprint.

Management Information Systems

We operate 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,
inventory
management, sales analysis and accounting. These common systems allow our branches to easily acquire products
or schedule deliveries from nearby 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 monitor all branch and regional performance to support the
adoption of strategic initiatives and drive results. We retain financial, credit and other documents for purposes of
internal approvals, online viewing and auditing.

receiving, order processing, shipping,

We deploy an array of cybersecurity capabilities to protect our various business systems and data. Where necessary,
these capabilities have allowed us to transition seamlessly to operating effectively and safely in a virtual
environment. 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. In certain
instances, we rely on the IT systems of third parties to assist with conducting our business. If our systems or those of
third parties on which we rely are damaged, breached, or cease to function properly, we may have to repair or
replace them and may experience temporary interruptions in our business operations as a result.

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, and compliance with such statutes and regulations has no material
effect on our capital expenditures, earnings or competitive position.

11

Competition

Although we are one of the 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 advisory expertise; delivery and 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.

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 regions
of the U.S. and Canada. We continue to attempt to collect those receivables, which require payment under our
standard terms, and typically do not provide material concessions to our customers.

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

The impact of the COVID-19 pandemic may cause fluctuations in our financial results and working capital that are
not aligned with the seasonality we generally experience.

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, amendments to those reports 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.

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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.

Risks Related to the COVID-19 Pandemic

The impact of the COVID-19 pandemic, or similar health concerns, could have a significant effect on supply
and/or demand for our products and have a negative impact on our business operations and financial results.

A significant outbreak of epidemic, pandemic, or contagious diseases in the human population, including the
COVID-19 pandemic, could cause a widespread health crisis that could result in an economic downturn, affecting
the supply and/or demand for our products. Any quarantines, labor shortages or other disruptions to us, our
suppliers, or our customers would likely adversely impact our sales and operating results. A prolonged economic
downturn may result in reduced cash flows or a reduction to our market capitalization, triggering the potential need
to recognize significant non-cash asset impairment charges in our results of operations. It could also result in an
adverse impact on the creditworthiness of our customers and the collectability of trade receivables, thereby affecting
our liquidity. In addition, order lead times could be extended or delayed, and pricing could increase. Some products
or services may become unavailable if the regional spread became significant enough to prevent alternative
sourcing. The increase in remote working arrangements for our personnel may result in greater information
technology security risks. We are unable to predict the potential future impact that the COVID-19 pandemic, or
another such virus or health concern, could have on us if the spread is unable to be contained.

Risks Related to Product Supply and Vendor Relations

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.

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.

13

Risks Related to Human Capital

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.
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.

Risks Related to Acquisitions

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;

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.

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.

We may not be able to successfully complete acquisitions on acceptable terms, which would slow our growth rate.

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.

Risks Related to Cyclicality and Seasonality

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 net sales 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. 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.

14

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.

Risks Related to Information Technology

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.

In certain instances, we rely on the IT systems of third parties to assist with conducting our business. If our systems
or those of third parties on which we rely are damaged, breached, or cease to function properly, we may have to
repair or replace them and may experience temporary interruptions in our business operations as a result.

Risks Related to Capitalization and Capital Structure

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, 2020,
goodwill represented approximately 36% of our total assets. Goodwill is not amortized for financial 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

15

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, 2020, we had $1.29 billion in aggregate principal amount of our 4.875% senior notes due in
2025 outstanding, $295.9 million in aggregate principal amount of our 4.5% senior notes due in 2026 outstanding,
$922.3 million outstanding under our senior secured term loan due in 2025, $251.1 million drawn under our asset-
based revolving line of credit with a 2023 maturity date, and $2.6 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;

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.

16

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.

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.

17

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 preferred 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 prior to shareholder
approval). 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 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, 2020, the CD&R Stockholder beneficially owns shares of our common stock and Preferred
Stock, which, taken together on an as-converted basis, represent 29.8% 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

18

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 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.

19

ITEM 2. PROPERTIES

As of September 30, 2020, we leased 505 branch facilities and 14 non-branch facilities throughout the United States
and Canada. These leased facilities range in size from approximately 500 to 240,000 square feet. In addition, as of
September 30, 2020, we owned 19 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.

The following table summarizes the locations of our branches and facilities as of September 30, 2020:

Location
U.S. State
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

Branches

Non-Branch
Facilities

7
1
5
4
47
18
7
3
39
15
9
2
14
8
3
4
5
9
4
21
13
11
5
2
10
1
6
4
3
21
1
18
24
2
11
2
8
32
2
8
1
8

20

2

1
2

1

1
1

1

1

1

Location
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming

Total — United States

Canadian Province

Alberta
British Columbia
Nova Scotia
Ontario
Quebec
Saskatchewan

Total — Canada

Total — All

Branches

Non-Branch
Facilities

37
6
1
16
17
4
4
2
505

3
3
1
6
5
1
19

524

1

1

13

1

1

14

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.

21

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 9, 2020, there were 74 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, 2020, was $31.07.

Comparison of Cumulative Five Year Total Return

$300

$250

$200

$150

$100

$50

$0
9/30/15

9/30/16

9/30/17

9/30/18

9/30/19

9/30/20

Beacon Roofing Supply, Inc.
Nasdaq Index
S&P 1500 Trading Companies & Distributors Index

Company / Index
Beacon Roofing Supply, Inc.
Nasdaq Index
S&P 1500 Trading Companies & Distributors Index

Base
Period
9/30/2015
100
100
100

2016
129.49
116.42
117.63

22

INDEXED RETURNS
Years Ended September 30,
2017
157.74
144.00
133.72

2018
111.39
180.24
184.24

2019
103.20
181.19
169.07

2020
95.63
255.40
209.03

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, 2020, 2019, and 
2018, and the balance sheet data as of September 30, 2020 and 2019, 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, 2017 and 
2016, and the balance sheet data as of September 30, 2018, 2017, and 2016, from our audited financial statements 
not included in this Form 10-K.

Consolidated Statement of Operations Data

The following table presents selected statement of operations data for the periods presented (in millions, except per 
share data):

Net sales

Cost of products sold

Gross profit

Operating expense

Income (loss) from operations

Interest expense, financing costs, and other
Loss on debt extinguishment

Income (loss) before provision for income taxes
Provision for (benefit from) income taxes

Net income (loss)

Dividends on preferred shares

Net income (loss) attributable to common 

2020
$ 6,943.9   
5,244.7   
1,699.2   
1,664.1   
35.1   
128.1   
14.7   
(107.7)  
(26.8)  
(80.9)  
24.0   

Year Ended September 30,
2018
$ 6,418.3   
4,825.0   
1,593.3   
1,388.7   
204.6   
136.5   
—   
68.1   
(30.5)  
98.6   
18.0   

2019
$ 7,105.2   
5,368.6   
1,736.6   
1,588.8   
147.8   
158.6   
—   
(10.8)  
(0.2)  
(10.6)  
24.0   

2017
$ 4,376.6   
3,300.7   
1,075.9   
859.8   
216.1   
52.8   
—   
163.3   
62.4   
100.9   
—   

2016
$ 4,127.1 
3,114.0 
1,013.1 
808.1 
205.0 
58.5 
— 
146.5 
56.6 
89.9 
— 

shareholders

$

(104.9)  

$

(34.6)  

$

80.6   

$

100.9   

$

89.9 

Weighted-average common stock outstanding:

Basic
Diluted

Net income (loss) per share:

Basic
Diluted

Balance Sheet Data

68.8   
68.8   

68.4   
68.4   

68.0   
69.2   

60.3   
61.3   

59.4 
60.4 

$
$

(1.52)  
(1.52)  

$
$

(0.51)  
(0.51)  

$
$

1.07   
1.05   

$
$

1.67   
1.64   

$
$

1.51 
1.49  

The following table presents selected balance sheet data for the periods presented (in millions):

Cash and cash equivalents
Total assets
Total long-term indebtedness1
Total stockholders’ equity
______________________________
1 Net of debt issuance costs

2020   
$ 624.6   $
  6,957.5  
  2,751.8  
  1,760.9  

September 30,

2019   

2018   

2017   

72.3   $ 129.9   $ 138.3   $

  6,392.8  
  2,586.6  
  1,862.3  

  6,508.7  
  2,606.1  
  1,884.3  

  3,449.6  
750.2  
  1,781.8  

2016  
31.4 
  3,113.9 
  1,117.7 
  1,323.8  

23

 
 
 
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
   
   
   
   
   
 
   
   
   
   
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
   
   
   
   
   
   
   
   
   
 
   
   
   
   
   
   
   
   
   
 
 
 
 
 
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 Operating Expense. We define Adjusted Operating Expense as operating expense excluding
the impact of the adjusting items (as described below).

Adjusted Net Income (Loss). We define Adjusted Net Income (Loss) as net income (loss) excluding the
impact of the adjusting items (as described below).

Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) excluding the impact of interest
expense (net of
income taxes, depreciation and amortization, stock-based
compensation, and the adjusting items (as described below).

income),

interest

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

We believe these non-GAAP measures are useful measures because they permit investors to better understand
changes over comparative periods by providing financial results that are unaffected by certain items that are not
indicative of ongoing operating performance.

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

Adjusting Items to Non-GAAP Financial Measures

The impact of the following expense (income) items are excluded from each of our non-GAAP measures (the
“adjusting items”):

•

•

•

•

Acquisition costs. Represents certain costs related to historical acquisitions, including: amortization of
intangible assets; professional fees, branch integration expenses, travel expenses, employee severance
and retention costs, and other personnel expenses classified as selling, general and administrative; and
amortization of debt issuance costs.

Restructuring costs. Represents costs stemming from headcount rationalization efforts and certain
costs of the Rebranding; accrued estimated costs related to employee benefit plan withdrawals; and
amortization of debt issuance costs and loss on debt extinguishment.

COVID-19 impact. Represents costs directly related to our response to the COVID-19 pandemic; and
income tax provision (benefit) stemming from the revaluation of deferred tax assets and liabilities
made in conjunction with the Company’s application of the CARES Act.

Effects of tax reform. Represents income tax provision (benefit) related to the Tax Cuts and Jobs Act of
2017.

24

The following table presents the impact and respective location of the adjusting items on our consolidated
statements of operations for each of the periods indicated (in millions):

Operating Expense

Selling,
General and

Administrative Amortization

Non-Operating
Expense

Interest
Expense

Other
(Income)
Expense

Year Ended September 30, 2020
Acquisition costs2
Restructuring costs3
COVID-19 impact

Total adjusting items

Year Ended September 30, 2019
Acquisition costs
Restructuring costs
Effects of tax reform

Total adjusting items

Year Ended September 30, 2018
Acquisition costs
Restructuring costs
Effects of tax reform

$

$

$

$

$

$

$

$

$

$

9.6
2.3
4.2
16.1

25.1
4.1
—
29.2

54.4
—
—

178.4
142.6
—
321.0

207.1
—
—
207.1

141.3
—
—

$

$

$

$

$

$

$

$

$

$

8.1
3.5
—
11.6

12.1
—
—
12.1

24.8
—
—

(5.1)
21.5
—
16.4

—
3.3
—
3.3

—
—
—

Income
Taxes1

$

$

$

$

$

—
—
(0.7)
(0.7)

—
—
(0.5)
(0.5)

—
—
(48.8)

$

$

$

$

$

Total

191.0
169.9
3.5
364.4

244.3
7.4
(0.5)
251.2

220.5
—
(48.8)

Total adjusting items

$
______________________________
1 For tax impact of adjusting items, see Adjusted Net Income (Loss) table below.
2 Other (Income) Expense includes a net $5.1 million refund received as the final true-up of the $164.0 million payment
resulting from the 338(h)(10) election made in connection with the acquisition of Allied Building Products Corp. on January 2,
2018 (the “Allied Acquisition”).

(48.8)

171.7

141.3

24.8

54.4

—

$

$

$

$

$

3 Amortization includes the impact of non-cash accelerated intangible asset amortization of $142.6 million related to the write-
off of certain trade names in connection with the Rebranding. Other (Income) Expense includes a loss on debt extinguishment
of $14.7 million in connection with the October 2019 debt refinancing.

Adjusted Operating Expense

The following table presents a reconciliation of operating expense, the most directly comparable financial measure
as measured in accordance with GAAP, to Adjusted Operating Expense for each of the periods indicated (in
millions):

Operating expense

Acquisition costs
Restructuring costs
COVID-19 impact

Adjusted Operating Expense

Year Ended September 30,
2019
$ 1,588.8
(232.2)
(4.1)
—
$ 1,352.5

2020
$ 1,664.1
(188.0)
(144.9)
(4.2)
$ 1,327.0

2018
$ 1,388.7
(195.7)
—
—
$ 1,193.0

Net sales

$ 6,943.9

$ 7,105.2

$ 6,418.3

Operating expense as % of sales
Adjusted Operating Expense as % of sales

24.0%
19.1%

22.4%
19.0%

21.6%
18.6%

25

Adjusted Net Income (Loss)

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

Net income (loss)
Adjusting items:

Acquisition costs
Restructuring costs
COVID-19 impact
Effects of tax reform

Total adjusting items

Less: tax impact of adjusting items1
Total adjustments, net of tax

Year Ended September 30,
2019

2018

2020

$

(80.9) 

$

(10.6) 

$

98.6 

191.0   
169.9   
3.5   
—   
364.4   
(93.4) 
271.0   
190.1   

244.3   
7.4   
—   
(0.5) 
251.2   
(64.4) 
186.8   
176.2   

220.5 
— 
— 
(48.8)
171.7 
(63.6)
108.1 
206.7  

$

Adjusted Net Income (Loss)
______________________________
1 Amounts represent tax impact on adjustments that are not included in our income tax provision (benefit) for 
the  periods  presented.  The  effective  tax  rate  applied  to  these  adjustments  is  calculated  by  using  forecasted 
adjusted  pre-tax  income  while  factoring  in  estimated  discrete  tax  adjustments  for  the  fiscal  year.  The  tax 
impact of adjustments for the years ended September 30, 2020, 2019 and 2018 were calculated using a blended 
effective tax rate of 25.6%, 25.6% and 37.0%, respectively.

$

$

Adjusted EBITDA

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

Year Ended September 30,
2019

2018

2020

Net income (loss)

Interest expense, net
Income taxes
Depreciation and amortization
Stock-based compensation
Acquisition costs1
Restructuring costs1
COVID-19 impact1

Adjusted EBITDA

Net sales

Net income (loss) as % of sales
Adjusted EBITDA as % of sales

$

$

(80.9)
138.5 
(26.8)
391.1 
17.2 
4.5 
23.8 
4.2 
471.6 

  $

  $

(10.6)
160.2 
(0.2)
277.8 
16.3 
25.1 
7.4 
— 
476.0 

  $

  $

98.6 
143.1 
(30.5)
201.5 
16.5 
54.4 
— 
— 
483.6 

$ 6,943.9 

 $ 7,105.2 

 $ 6,418.3 

(1.2%)
6.8%   

(0.1%)
6.7%   

1.5%
7.5%

______________________________
1 Amounts  represent  adjusting  items  included  in  selling,  general,  and  administrative  expense  and  other  income 

(expense); remaining adjusting items balances are embedded within the other balances reported in this table.

26

 
 
 
 
 
 
 
 
   
   
   
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
   
 
 
   
 
 
  
  
 
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 “2020,” “2019” and “2018”are referring to the twelve-month period ended September 30 for each of
those respective fiscal years. This section of this Annual Report on Form 10-K generally discusses 2020 and 2019
items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year
comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report
on Form 10-K for the year ended September 30, 2019. 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

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, providing
high-quality exterior and interior products to the building industry. Our customers rely on us for local access to the
building products and services they need to operate their businesses and serve their clients.

On January 15, 2020, we announced the rebranding of our exterior product branches with the trade name “Beacon
Building Products” (the “Rebranding”). The new name, and a related logo, were adopted at over 450 Beacon one-
step exterior products branches. Our interior, insulation, weatherproofing and two-step branches continue to operate
under legacy brand names.

As of September 30, 2020, we operated 524 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
160,000 SKUs available across our branch network.

We serve over 100,000 customers by promptly providing the products they require, allowing our customers to
deliver on the project specifications and timelines that are critical to their success. Our customer base is composed
mainly of a diverse population of 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
non-residential properties. We also distribute products to home builders, building owners, and retailers.

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 local and
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+, a roofing estimating tool for our residential customers. These platforms help our
customers save time, work more efficiently and grow their businesses. We believe customer relations and our
employees’ extensive industry knowledge are vital to promote customer loyalty and maintain customer satisfaction.
We invest significant
resources in professional development, management skills, product knowledge, and
operational proficiency. These capabilities were developed on a foundation of continuous improvement, thereby
driving our service excellence, productivity and efficiency.

Our recent history has been strongly influenced by significant acquisition-driven growth, highlighted by the
acquisitions of Allied Building Products Corp. (“Allied”) for $2.88 billion in 2018 (the “Allied Acquisition”) and
Roofing Supply Group, LLC (“RSG”) for $1.17 billion in 2016 (the “RSG Acquisition”). These strategic

27

acquisitions expanded our geographic footprint, enhanced our market presence, diversified our product offerings,
and positioned us to provide new growth opportunities that will increase our long-term profitability. The scale we
have achieved from our expansion efforts will serve as a competitive advantage, also allowing us to use our assets
more efficiently and control our expenses to drive operating leverage.

While we will continue to pursue strategic acquisitions to grow our business, our primary focus is now on improving
our operations and continuing to identify additional opportunities for organic growth. We have demonstrated a track
record for success in this pursuit, having opened 96 new branch locations since 2004. In 2020, we opened seven new
branch locations across Connecticut, Georgia, Louisiana, New Hampshire, Ohio, Oregon and Virginia. In 2019, we
opened nine new branch locations across Alabama, California, Florida, Nevada, North Carolina, Pennsylvania and
Texas.

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;
• Weatherproofing systems;
• Wallboard;
•

Steel stud framing; and

• Acoustical ceilings.

We serve over 100,000 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.

Recent Developments

COVID-19 Pandemic

The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption, and it
is likely to adversely affect our business. As of the date of this filing, significant uncertainty exists concerning the
magnitude of the impact and duration of the COVID-19 pandemic.

28

In this unprecedented time, we continue to emphasize the health and safety of our employees, customers and the
communities in which we operate. Amid the current COVID-19 backdrop, we implemented a number of protocols to
facilitate a safer environment at each of our locations, including more rigorous cleaning and sanitizing routines;
limits on customer traffic in stores to maintain physical and social distancing protocols; other physical and social
distancing efforts such as markings on floors, signage and plexiglass shields; and instituting curbside pickup. We
have been designated an essential business in all the local markets that we serve, and we have yet to experience a
significant amount of forced temporary branch closures due to COVID-19 business disruptions. We continue to
deliver building products to both the residential and non-residential construction markets. We continue to serve
customers in every way possible, and our online platform has stood out as an increasingly valuable tool in this
current remote operating environment.

Our average daily sales levels for the three months and year ended September 30, 2020 decreased 0.6% and 2.7%,
respectively, compared to the prior year.

In response to the potential business disruptions, we have implemented a series of operational and financial actions
to combat the effects of the COVID-19 induced slowdown. We immediately responded to changes in localized
demand through aggressive cost-cutting actions, including a reduction in seasonal and temporary hiring, cuts in
overtime hours and reduced hourly schedules. We also implemented furloughs in both operating and non-operating
functions, temporarily reduced salaries, improved working capital metrics by reducing inventory, and heightened
our organizational focus on managing all expenses. Additionally, we significantly restricted capital expenditures,
primarily by deferring expenditures related to our fleet vehicles. We took meaningful actions to improve our
financial flexibility and ensure the strength of our balance sheet, and we are prepared to take additional steps to
appropriately manage the business through this uncertain period. We are also monitoring input costs to ensure we
are well-positioned to take advantage of any opportunities that present themselves over the next several quarters.

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 millions):

$

Net sales

Cost of products sold

Gross profit

Operating expense:

Selling, general and administrative
Depreciation
Amortization

Total operating expense

Income (loss) from operations

Interest expense, financing costs, and other
Loss on debt extinguishment

Income (loss) before provision for income taxes
Provision for (benefit from) income taxes

Net income (loss)

Dividends on Preferred Stock

Net income (loss) attributable to common shareholders $

Year Ended September 30,
2019

2018

2020

6,943.9
5,244.7
1,699.2

1,273.0
70.1
321.0
1,664.1
35.1
128.1
14.7
(107.7)
(26.8)
(80.9)
24.0
(104.9)

$

$

$

7,105.2
5,368.6
1,736.6

1,311.0
70.7
207.1
1,588.8
147.8
158.6
—
(10.8)
(0.2)
(10.6)
24.0
(34.6) $

6,418.3
4,825.0
1,593.3

1,187.2
60.3
141.2
1,388.7
204.6
136.5
—
68.1
(30.5)
98.6
18.0
80.6

29

Year Ended September 30,
2019

2018

2020

Net sales

Cost of products sold

Gross profit

Operating expense:

Selling, general and administrative
Depreciation
Amortization

Total operating expense

Income (loss) from operations

Interest expense, financing costs, and other
Loss on debt extinguishment

Income (loss) before provision for income taxes
Provision for (benefit from) income taxes

Net income (loss)

Dividends on Preferred Stock

Net income (loss) attributable to common shareholders

100.0%
75.5%
24.5%

18.3%
1.0%
4.7%
24.0%
0.5%
1.9%
0.2%
(1.6%)
(0.4%)
(1.2%)
0.3%
(1.5%)

100.0%
75.6%
24.4%

18.4%
1.0%
2.9%
22.3%
2.1%
2.2%
0.0%
(0.1%)
0.0%
(0.1%)
0.4%
(0.5%)

100.0%
75.2%
24.8%

18.5%
0.9%
2.2%
21.6%
3.2%
2.1%
0.0%
1.1%
(0.4%)
1.5%
0.2%
1.3%

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 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, 2020, we had a total of 524 branches in operation. All 524 branches were acquired prior to the
start of fiscal year 2019 and therefore meet our existing market definition. As a result, operating results for existing
markets are equal to consolidated operating results for all periods presented.

Comparison of the Years Ended September 30, 2020 and 2019

Net Sales

Net sales decreased 2.3% to $6.94 billion in 2020, from $7.11 billion in 2019. The comparative decrease in net sales
was primarily influenced by softer demand from the impact of the COVID-19 pandemic, partially offset by
increased volume in the Southeast and the continued positive impact of our industry-leading digital platform.

Net sales by geographic region increased (decreased) from 2019 to 2020 as follows: Northeast (7.5%); Mid-Atlantic
(4.4%); Southeast 4.7%; Southwest (2.2%); Midwest (0.2%); West (3.5%); and Canada (4.9%).

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).

30

The following table summarizes net sales by product line for the periods presented (in millions): 

Year Ended September 30,
2020
Net Sales     %  
$

2019
  Net Sales     %  

3,099.6     
1,646.6     
2,197.7     
6,943.9     

44.6%  $
23.7%   
31.7%   
100.0%  $

43.3%  $
3,079.6     
24.0%   
1,705.2     
2,320.4     
32.7%   
7,105.2      100.0%  $

Residential roofing products
Non-residential roofing products
Complementary building products

Total net sales

$

Gross Profit

Change

$

    %  

20.0     
(58.6)   
(122.7)   
(161.3)   

0.6%
(3.4%)
(5.3%)
(2.3%)

The following table summarizes gross profit and gross margin for the periods presented (in millions): 

Year Ended September 30,  

Change1

2020

2019

$

    %  

Gross profit
Gross margin
__________________________________
1 Percentage  changes  for  dollar  amounts  represent  the  ratable  increase  or  decrease  from  period-to-period. 

  $
24.5%   

  $
24.4%  

(37.4)  
N/A    

(2.2%)
0.1%

1,736.6 

1,699.2 

$

Percentage changes for percentages represent the net period-to-period change in basis points.

Gross  margin  was  24.5%  in  2020,  up  0.1%  from  24.4%  in  2019.  The  comparative  increase  in  gross  margin  was 
primarily influenced by a slight product mix shift. Prices and product costs were flat over the comparative periods.

Operating Expense 

The following table summarizes operating expense for the periods presented (in millions): 

Selling, general, and administrative
Depreciation
Amortization
Total operating expense

% of net sales

Year Ended 
September 30,

2020

1,273.0 
70.1 
321.0 
1,664.1 

$

$

2019
 $ 1,311.0 
70.7 
207.1 
 $ 1,588.8 

24.0%   

 $
22.3%  

 $

Change1

$

    %  

(38.0)  
(0.6)  
113.9    
75.3    
N/A    

(2.9%)
(0.8%)
55.0%
4.7%
1.7%

__________________________________
1 Percentage  changes  for  dollar  amounts  represent  the  ratable  increase  or  decrease  from  period-to-period. 

Percentage changes for percentages represent the net period-to-period change in basis points.

Operating expense increased 4.7% to $1.66 billion in 2020, from $1.59 billion in 2019. The comparative increase in 
operating expense was mainly influenced by:

•

a net $113.9 million increase in amortization expense, which includes the gross impact of accelerated 
amortization  of  $142.6 million  related  to  the  write-off  of  certain  trade  names  in  connection  with  the 
Rebranding.

The increase was partially offset by our aggressive cost-cutting actions in response to the COVID-19 pandemic, as 
well as our renewed focus on improving our cost structure and identifying opportunities for efficiencies across our 
business. These initiatives combined to produce the following primary effects:

•

•

a $24.5 million decrease in selling expense, mainly due to a decrease in fleet costs; and

a $15.8 million decrease in payroll and employee benefit costs, mainly due to reductions in both hours 
worked and headcount.

While certain of our cost actions were temporary in nature, we remain focused on improving our expense structure 
to produce permanent efficiency gains and increase our operating leverage as demand improves.

31

 
 
  
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
  
  
 
Interest Expense, Financing Costs and Other

Interest expense, financing costs and other expense was $128.1 million in 2020, compared to $158.6 million in
2019. The decrease is primarily due to:

•

•

•

a lower weighted-average interest rate on our outstanding debt;

a $5.6 million settlement received in connection with a class action lawsuit; and

a net $5.1 million refund received as the final true-up of the $164.0 million payment resulting from the
338(h)(10) election made in connection with the Allied Acquisition.

Income Taxes

There was an income tax benefit of $26.8 million in 2020, compared to $0.2 million in 2019. The comparative
increase in income tax benefit was primarily due to the pretax loss in 2020 driven by the accelerated amortization of
$142.6 million related to the write-off of certain trade names in connection with the Rebranding. The effective tax
rate was 24.9% in 2020, compared to 1.6% in 2019.

Net Income (Loss)/Net Income (Loss) Per Share

Net income (loss) was $(80.9) million in 2020, compared to $(10.6) million in 2019. There were $24.0 million of
dividends on preferred shares in both 2020 and 2019, making net income (loss) attributable to common shareholders
$(104.9) million and $(34.6) million, respectively. We calculate net income (loss) per share by dividing net income
(loss), less dividends on preferred shares and adjustments for participating securities, by the weighted-average
number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by
utilizing the most dilutive result after applying and comparing the two-class method and if-converted method (see
Note 5 in the Notes to Condensed Consolidated Financial Statements for further discussion).

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

Year Ended September 30,

2020

2019

Net income (loss)

Dividends on Preferred Stock

Net income (loss) attributable to common shareholders

Undistributed income allocated to participating securities

Net income (loss) attributable to common shareholders - basic and diluted (if-

converted method)
Undistributed income allocated to participating securities
Re-allocation of undistributed income to Preferred Stock

$

$

$

Net income (loss) attributable to common shareholders - diluted (two-class method) $

Weighted-average common shares outstanding, basic

Effect of common share equivalents

Weighted-average common shares outstanding - diluted (if-converted and two-class

method)

Net income (loss) per share - basic
Net income (loss) per share - diluted (two-class method)
Net income (loss) per share - diluted (if-converted method)

$
$
$

(80.9)
24.0
(104.9)
—

(104.9)
—
—
(104.9)

68.8
—

68.8

(1.52)
(1.52)
(1.52)

$

$

$

$

$
$
$

(10.6)
24.0
(34.6)
—

(34.6)
—
—
(34.6)

68.4
—

68.4

(0.51)
(0.51)
(0.51)

32

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 regions
of the U.S. and Canada. We continue to attempt to collect those receivables, which require payment under our
standard terms, and typically do not provide material concessions to our customers.

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

The impact of the COVID-19 pandemic may cause fluctuations in our financial results and working capital that are
not aligned with the seasonality we generally experience.

Quarterly Financial Data

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

Net sales
% of fiscal year’s net sales

Qtr 4
$2,017.8

Qtr 3
$1,792.5

Qtr 2
$1,458.5

Qtr 1
$1,675.1

Qtr 4
$2,029.9

Qtr 3
$1,924.6

Qtr 2
$1,429.0

Qtr 1
$1,721.7

29.1%

25.8%

21.0%

24.1%

28.6%

27.1%

20.1%

24.2%

2020

2019

Gross profit
% of fiscal year’s gross profit

514.0
30.2%

432.1
25.4%

342.4
20.2%

410.7
24.2%

493.5
28.4%

472.5
27.2%

335.0
19.3%

435.6
25.1%

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

121.2

75.0

(181.0)

19.9

89.9

74.2

(54.6)

38.3

from operations

345.3% 213.7% (515.7%)

56.7%

60.8%

50.3%

(37.0%)

25.9%

Net income (loss)
Dividends on Preferred Stock
Net income (loss) attributable to

common shareholders

Net income (loss) per share –

basic

Net income (loss) per share -

diluted

$

$

$

$

Impact of Inflation

$

71.9
6.0

(6.8) $ (122.6)
6.0
6.0

$

(23.4) $
6.0

27.4
6.0

$

31.0
6.0

$

(68.1)
6.0

$

(0.9)
6.0

65.9

$

(12.8) $ (128.6)

$

(29.4) $

21.4

$

25.0

$

(74.1)

$

(6.9)

0.84

0.83

$

$

(0.18) $

(1.87)

(0.18) $

(1.87)

$

$

(0.43) $

0.27

(0.43) $

0.27

$

$

0.32

0.32

$

$

(1.08)

(1.08)

$

$

(0.10)

(0.10)

We believe that our results of operations are not materially impacted by modest changes in inflation. In general, we
have historically been successful in passing on price increases from our vendors to our customers in a timely
manner. There was no significant inflationary pressure in 2020. There was increased product inflation from our
suppliers in 2019 and 2018, and we were able to mostly offset higher products costs with increased selling prices.

33

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, 2020 were our cash and cash equivalents of $624.6 million
and our available borrowings of $955.0 million under our asset-based revolving lines of credit. During the three
months ended March 31, 2020, we elected to borrow an additional $725.0 million under our revolving lines of credit
as a proactive measure to increase our cash position and preserve financial flexibility in response to the current
uncertainty in global markets resulting from the COVID-19 pandemic. During the second half of fiscal 2020, we
used a portion of our operating cash flows to fully repay these additional borrowings.

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;

• working capital management;
•

acquisitions; and

•

capital expenditures.

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

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

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

Year Ended September 30,
2019

2018

2020

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
Net increase (decrease) in cash and cash equivalents

$

$

479.3 $
(39.0)
112.2
(0.2)
552.3 $

212.7 $
(211.7)
(58.8)
0.2
(57.6) $

539.4
(2,784.4)
2,236.0
0.6
(8.4)

Operating Activities

Net cash provided by operating activities was $479.3 million in 2020, compared to $212.7 million in 2019. Cash
from operations increased $266.6 million due to an incremental cash inflow of $238.8 million stemming from
changes to our net working capital, mainly driven by decreases in accounts receivable and inventory as well as an

34

increase in accounts payable. In addition, there was an increase in net income after adjustments for non-cash items
of $27.8 million.

Investing Activities

Net cash used in investing activities was $39.0 million in 2020, compared to $211.7 million in 2019. The $172.7
million decrease in investing cash spend was primarily due to the $164.0 million payment resulting from the
338(h)(10) election made in 2019 in connection with the Allied Acquisition.

Financing Activities

Net cash provided by financing activities was $112.2 million in 2020, compared to net cash used in financing
activities of $58.8 million in 2019. The financing cash flow increase of $171.0 million was primarily due to a $181.9
million increase in net borrowings under our revolving lines of credit over the comparative periods, partially offset
by a $13.1 million net cash outflow in the current period related to the refinancing of our outstanding senior notes.

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 our 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, 0.15% 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.

35

Commitments

The following table summarizes our contractual obligations as of September 30, 2020 (in millions):

Total

  < 1 year  

Payments Due by Period
  1-3 Years  

  3-5 Years  

$

$

2023 ABL
2025 Term Loan
Senior Notes1
Equipment financing and other  
Operating leases
Interest2
Total

257.0  
945.7  
1,600.0  
2.6  
490.8  
512.8  
3,808.9 

—   $
9.7  
—  
2.6  
115.1  
102.0  
229.4   $

$
______________________________
1 Represent principal amounts for 2025 Senior Notes and 2026 Senior Notes.
2

 $

257.0   $
19.4  
—  
—  
185.7  
196.4  
658.5   $

—   $

  > 5 Years  
— 
— 
1,600.0 
— 
81.8 
22.7 
1,216.5   $ 1,704.5  

916.6  
—  
—  
108.2  
191.7  

Interest payments reflect all currently scheduled and projected amounts as calculated using future LIBOR projections.

Capital Resources

As of September 30, 2020 we had access to the following financing arrangements:

•

•

•

•

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

an asset-based revolving line of credit in Canada;

a term loan; and

two separate senior notes instruments.

Debt Refinancing

2026 Senior Notes 

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

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

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

The intent of the transaction was to take advantage of lower market interest rates by refinancing the existing 2023 
Senior  Notes  with  the  2026  Senior  Notes.  We  accounted  for  the  refinance  as  a  debt  extinguishment  of  the  2023 
Senior Notes and an issuance of the 2026 Senior Notes. As a result, we recorded a loss on debt extinguishment of 
$14.7 million in the three months ended December 31, 2019. We have capitalized debt issuance costs of $4.7 million 
related to the 2026 Senior Notes, which are being amortized over the term of the financing arrangements.

As of September 30, 2020, the outstanding balance on the 2026 Senior Notes, net of $4.1 million of unamortized 
debt issuance costs, was $295.9 million.

36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financing - Allied Acquisition

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

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

2023 ABL

On January 2, 2018, we entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo Bank, N.A.
and a syndicate of other lenders. The 2023 ABL, as amended to date, provides for revolving loans in both the United
States (“2023 U.S. Revolver”) in an amount up to $1.25 billion and Canada (“2023 Canada Revolver”) in an amount
up to $50.0 million, in each case subject to a borrowing base. The 2023 ABL has a maturity date of January 2, 2023.
The 2023 ABL has various borrowing tranches with an interest rate based, at our option, on a base rate, plus an
applicable margin, or a reserve adjusted LIBOR rate, plus an applicable margin. The applicable margin ranges from
0.25% to 0.75% per annum with respect to base rate borrowings and from 1.25% to 1.75% per annum with respect
to LIBOR borrowings. The current unused commitment fees on the 2023 ABL are 0.25% per annum. On July 28,
2020, we amended the 2023 ABL to provide for, among other things, a mechanism for replacing LIBOR with the
secured overnight financing rate published by the Federal Reserve Bank of New York or other alternate benchmark
rate selected by the administrative agent and us.

There is one financial covenant under the 2023 ABL, which is the Fixed Charge Coverage Ratio (the “FCCR”). The
FCCR is calculated by dividing Consolidated EBITDA, less Capital Expenditures, by Consolidated Fixed Charges
(all terms as defined in the agreement). Per the covenant, our FCCR must be a minimum of 1.00 at the end of each
fiscal quarter, calculated on a trailing four quarter basis (or under certain circumstances, at the end of each fiscal
month, calculated on a trailing twelve-month basis). Compliance is only required at such times as borrowing
availability (subject to certain adjustments) is less than the greater of (i) 10% of the lesser of the borrowing base or
the aggregate commitments or (ii) $90.0 million, and for a period of thirty days thereafter. We were in compliance
with this covenant as of September 30, 2020.

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

As of September 30, 2020, the total balance outstanding on the 2023 ABL, net of $5.9 million of unamortized debt
issuance costs, was $251.1 million. We also have outstanding standby letters of credit related to the 2023 U.S.
Revolver in the amount of $13.0 million as of September 30, 2020.

2025 Term Loan

On January 2, 2018, we entered into a $970.0 million Term Loan with Citibank N.A., and a syndicate of other
lenders. The 2025 Term Loan requires quarterly principal payments in the amount of $2.4 million, with the
remaining outstanding principal to be paid on its January 2, 2025 maturity date. The interest rate is based, at our
option, on a base rate, plus an applicable margin, or a reserve adjusted LIBOR rate, plus an applicable margin. The
applicable margin is 1.25% per annum with respect to base rate borrowings and 2.25% per annum with respect to
LIBOR borrowings. 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.

37

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, 2020, the outstanding balance on the 2025 Term Loan, net of $23.4 million of unamortized
debt issuance costs, was $922.3 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.

As of September 30, 2020, the outstanding balance on the 2025 Senior Notes, net of $14.3 million of unamortized
debt issuance costs, was $1.29 billion.

Financing - RSG Acquisition

2023 Senior Notes

On October 1, 2015, in connection with the acquisition of Roofing Supply Group, we raised $300.0 million by
issuing 6.38% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes had a coupon rate of
6.38% per annum and were payable semi-annually in arrears, beginning April 1, 2016. There were early payment
provisions in the indenture under which we would be subject to redemption premiums. 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% plus accrued interest and, as a result, wrote off $5.1 million of unamortized debt issuance costs.

Equipment Financing Facilities

As of September 30, 2020, we had $2.6 million outstanding under equipment financing facilities, with fixed interest
rates ranging from 2.33% to 2.89% and payments due through September 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

38

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.

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 four 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, 2020, 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, 2020, 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 50.5% as of August 31, 2020. We did not identify any macroeconomic,

39

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.

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, 2020, net of unamortized debt issuance costs, we had outstanding borrowings of $251.1
million under our asset-based revolving lines of credit, $922.3 million under our term loan, $1.58 billion under our
respective senior notes and $2.6 million under our equipment financing facilities. Borrowings under our asset-based
revolving lines 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, 2020, our weighted-average effective interest rate on debt instruments with variable rates was
2.3%. Based on our analysis, the financial impact of a hypothetical 10% interest rate fluctuation in effect as of
September 30, 2020 would be immaterial.

In fiscal year 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

40

September 30, 2020, the fair value of the 3-year and 5-year swaps, net of tax, were $5.0 million and $10.0 million,
respectively, both in favor of the counterparty.

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 2.6% of our net sales
in 2020 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.

41

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BEACON ROOFING SUPPLY, INC.
Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of September 30, 2020 and 2019
Consolidated Statements of Operations for the Years Ended September 30, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2020, 2019,

and 2018

Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2020, 2019,

and 2018

Consolidated Statements of Cash Flows for the Years Ended September 30, 2020, 2019, and 2018

Notes to Consolidated Financial Statements

1. Company Overview
2. Summary of Significant Accounting Policies
3. Acquisitions
4. Net Sales
5. Net Income (Loss) Per Share
6. Stock-based Compensation
7. Prepaid Expenses and Other Current Assets
8. Property and Equipment
9. Goodwill and Intangible Assets
10. Financing Arrangements
11. Leases
12. Commitments and Contingencies
13. Accumulated Other Comprehensive Income (Loss)
14. Income Taxes
15. Geographic Data
16. Allowance for Doubtful Accounts
17. Fair Value Measurement
18. Employee Benefit Plans
19. Financial Derivatives

Page
F-1

F-3
F-4

F-5

F-6
F-7

F-8
F-8
F-8
F-14
F-16
F-17
F-17
F-19
F-20
F-20
F-22
F-25
F-26
F-26
F-27
F-29
F-29
F-29
F-30
F-30

42

Report of 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, 2020 and 2019, 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, 2020, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at September 30,
2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended
September 30, 2020, in conformity with U.S. generally accepted accounting principles.

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, 2020, 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 20, 2020 expressed
an unqualified opinion thereon.

Adoption of New Accounting Standards

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting
for leases in fiscal year 2020 due to the adoption of the new leasing standard. The Company adopted the new leasing
standard using the modified retrospective approach.

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 Note 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 at the point the related inventory is sold.
The Company had
$326.4 million of vendor rebate receivables as of September 30, 2020, of
which a portion related to rebates earned under cumulative annual calendar-
The annual calendar-year vendor rebate
year vendor rebate agreements.
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 cumulative annual calendar-year vendor
agreements is especially challenging due to the judgment
required by
management to estimate the vendor rebates earned during the year, as the
projected full year rebate rate is applied to inventory purchased and sold
during the 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 20, 2020

/s/ Ernst & Young LLP

F-2

BEACON ROOFING SUPPLY, INC.
Consolidated Balance Sheets
(In millions, except per share amounts)

Assets
Current assets:

Cash and cash equivalents
Accounts receivable, less allowance of $19.2 and $13.1 as of September 30, 

2020 and 2019, respectively

Inventories, net
Prepaid expenses and other current assets

Total current assets

Property and equipment, net
Goodwill
Intangibles, net
Operating lease assets
Other assets, net
Total assets

Liabilities and Stockholders' Equity
Current liabilities:

Accounts payable
Accrued expenses
Current operating lease liabilities
Current portions of long-term debt/obligations

Total current liabilities

Borrowings under revolving lines of credit, net
Long-term debt, net
Deferred income taxes, net
Non-current operating lease liabilities
Long-term obligations under equipment financing, net
Other long-term liabilities

Total liabilities

Commitments and contingencies (Note 12)

September 30,

2020

2019

$

624.6    $

72.3 

1,029.3   
944.6   
378.3   
2,976.8   
243.7   
2,490.4   
801.2   
443.3   
2.1   

  1,108.1 
  1,018.2 
315.6 
  2,514.2 
260.4 
  2,490.6 
  1,125.5 
— 
2.1 
$ 6,957.5    $ 6,392.8 

$

954.6    $
563.8   
100.5   
12.3   
1,631.2   
251.1   
2,494.2   
74.0   
340.4   
—   
6.5   
4,797.4   

822.9 
599.2 
— 
18.7 
  1,440.8 
81.0 
  2,494.6 
103.9 
— 
4.6 
6.4 
  4,131.3 

Convertible Preferred Stock; $0.01 par value; aggregate liquidation preference 

$400.0; 0.4 shares authorized, issued and outstanding as of September 30, 2020 
and 20191

399.2   

399.2 

Stockholders' equity:

Common stock (voting); $0.01 par value; 100.0 shares authorized; 69.0 and 
68.6 shares issued and outstanding as of September 30, 2020 and 2019, 
respectively

Undesignated preferred stock; 5.0 shares authorized, none issued or 

outstanding

Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)

Total stockholders' equity
Total liabilities and stockholders' equity
______________________________
1 See Note 3 for additional information.

0.7   

0.7 

—   
1,100.6   
694.3   
(34.7)  
1,760.9   

— 
  1,083.0 
799.2 
(20.6)
  1,862.3 
$ 6,957.5    $ 6,392.8  

See accompanying Notes to Consolidated Financial Statements

F-3

 
 
 
 
    
 
  
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
  
 
    
 
  
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
  
 
    
 
  
 
 
    
 
  
 
 
 
 
    
 
  
 
    
 
  
 
 
 
 
 
 
 
 
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Operations
(In millions, except per share amounts)

2020

Year Ended September 30,
2019

2018

$

6,943.9    $
5,244.7 
1,699.2 

  $

7,105.2 
5,368.6   
1,736.6   

Net sales

Cost of products sold

Gross profit

Operating expense:

Selling, general and administrative
Depreciation
Amortization

Total operating expense

Income (loss) from operations

Interest expense, financing costs, and other
Loss on debt extinguishment

Income (loss) before provision for income taxes
Provision for (benefit from) income taxes

Net income (loss)

Dividends on Preferred Stock

Net income (loss) attributable to common shareholders $

Weighted-average common stock outstanding:1

Basic
Diluted

Net income (loss) per share:1

Basic
Diluted

1,273.0 
70.1 
321.0 
1,664.1 
35.1 
128.1 
14.7 
(107.7)
(26.8)
(80.9)
24.0 
(104.9)

 $

1,311.0   
70.7   
207.1   
1,588.8   
147.8 
158.6   
—   
(10.8) 
(0.2) 
(10.6) 
24.0   
(34.6) 

$

68.8   
68.8   

68.4 
68.4 

$
$

(1.52)  $
(1.52)  $

(0.51)
(0.51)

  $
  $

6,418.3 
4,825.0 
1,593.3 

1,187.2 
60.3 
141.2 
1,388.7 
204.6 
136.5 
— 
68.1 
(30.5)
98.6 
18.0 
80.6 

68.0 
69.2 

1.07 
1.05  

______________________________
1 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 millions)

Net income (loss)
Other comprehensive income (loss):

Year Ended September 30,
2019

2018

2020

$

(80.9)

$

(10.6) $

98.6

Foreign currency translation adjustment
Unrealized gain (loss) due to change in fair value of derivatives,

net of tax
Total other comprehensive income (loss)

Comprehensive income (loss)

$

(0.7)

(13.4)
(14.1)
(95.0)

$

(1.7)

(1.6)
(3.3)
(13.9) $

(2.7)

—
(2.7)
95.9

See accompanying Notes to Consolidated Financial Statements

F-5

BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Stockholders’ Equity
(In millions)

Balance as of September 30, 2017

67.7     $

Issuance of common stock, net of shares withheld 

Common Stock  
  Amount  

Shares  

  Retained  
  Earnings 

  APIC1  
0.7    $1,047.5    $

  AOCI2  

  Total

748.2    $ (14.6)   $ 1,781.8 

for taxes

0.4  

— 

3.5 

— 

— 

3.5 

Issuance costs related to secondary offering of 

common stock

Stock-based compensation
Other comprehensive income (loss)
Net income (loss)
Dividends on Preferred Stock
Balance as of September 30, 2018

Issuance of common stock, net of shares withheld 

for taxes

Stock-based compensation
Other comprehensive income (loss)
Net income (loss)
Dividends on Preferred Stock
Balance as of September 30, 2019

Issuance of common stock, net of shares withheld 

for taxes

Stock-based compensation
Other comprehensive income (loss)
Net income (loss)
Dividends on Preferred Stock
Balance as of September 30, 2020
______________________________
1 Additional Paid-in Capital (“APIC”).
2 Accumulated Other Comprehensive Income (Loss) ("AOCI").

—  
—    
—    
—    
—    
68.1     $

0.4  
—    
—    
—    
—    
68.6     $

0.4  
—    
—    
—    
—    
69.0     $

— 
—   
—   
—   
—   
0.7    $1,067.0    $

(0.5)
16.5   
—   
—   
—   

(0.5)
— 
16.5 
—   
(2.7)
—   
98.6 
98.6   
(13.0)  
(13.0)
833.8    $ (17.3)   $ 1,884.2 

— 
—   
(2.7)  
—   
—   

— 
—   
—   
—   
—   
0.7    $1,083.0    $

(0.4)
16.4   
—   
—   
—   

(0.4)
— 
16.4 
—   
(3.3)
—   
(10.6)
(10.6)  
(24.0)  
(24.0)
799.2    $ (20.6)   $ 1,862.3 

— 
—   
(3.3)  
—   
—   

—   
—   
—   
—   
—   
0.7    $1,100.6    $

0.4   
17.2   
—   
—   
—   

0.4 
—   
17.2 
—   
(14.1)
—   
(80.9)
(80.9)  
(24.0)  
(24.0)
694.3    $ (34.7)   $ 1,760.9  

— 
—   
(14.1)  
—   
—   

See accompanying Notes to Consolidated Financial Statements

F-6

 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Cash Flows
(In millions)

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 and other
Deferred income taxes
338(h)(10) election refund

Changes in operating assets and liabilities:

Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Other assets and 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
Payments under revolving lines of credit
Borrowings under term loan
Payments under term loan
Borrowings under senior notes
Payment under senior notes
Payment of debt issuance costs
Payments under equipment financing facilities and finance leases
Proceeds from issuance of convertible preferred stock
Payment of stock issuance costs
Payment of dividends on Preferred Stock
Proceeds from issuance of common stock related to equity awards
Payment of taxes related to net share settlement of equity awards
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:

Interest
Income taxes paid (received), net of refunds

Year Ended September 30,
2019

2018

2020

$

(80.9)

$

(10.6)

$

98.6

391.1
17.2
11.5
—
14.7
(3.5)
(25.6)
(5.1)

78.4
73.4
(73.6)
72.2
9.5
479.3

(48.5)
5.1
4.4
(39.0)

2,038.0
(1,870.0)
—
(9.7)
300.0
(309.6)
(4.3)
(8.6)
—
—
(24.0)
3.3
(2.9)
112.2

(0.2)

552.3
72.3
624.6

130.3
(5.4)

$

$

277.8
16.4
12.1
2.3
—
(3.8)
(2.6)
—

(18.5)
(82.8)
(70.8)
92.1
1.1
212.7

(57.0)
(164.0)
9.3
(211.7)

2,100.1
(2,114.0)
—
(9.7)
—
—
(0.8)
(10.0)
—
—
(24.0)
3.3
(3.7)
(58.8)

0.2

(57.6)
129.9
72.3

146.4
(8.5)

$

$

201.5
16.5
17.3
—
1.2
(1.3)
(30.1)
—

(45.0)
(65.1)
57.6
287.4
0.8
539.4

(46.0)
(2,740.5)
2.1
(2,784.4)

2,807.7
(2,707.7)
970.0
(445.8)
1,300.0
—
(65.8)
(11.6)
400.0
(1.3)
(13.0)
7.5
(4.0)
2,236.0

0.6

(8.4)
138.3
129.9

111.3
35.1

$

$

See accompanying Notes to Consolidated Financial Statements

F-7

BEACON ROOFING SUPPLY, INC.
Notes to Consolidated Financial Statements
(In millions, except 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.

On January 15, 2020, the Company announced the rebranding of its exterior product branches with the trade name
“Beacon Building Products” (the “Rebranding”). The new name, and a related logo, were adopted at over 450
Beacon one-step exterior products branches. The Company’s interior, insulation, weatherproofing and two-step
branches continue to operate under legacy brand names.

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. 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. Assumptions
made in the development of these estimates contemplate the impact of the novel coronavirus (“COVID-19”) on the
economy and the Company’s anticipated results; however, actual amounts could differ materially from these
estimates.

Fiscal Year

The fiscal years presented are the years ended September 30, 2020 (“2020”), September 30, 2019 (“2019”), and
September 30, 2018 (“2018”). 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.

F-8

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 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, 2020 or accounts receivable as of September 30, 2020.

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 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

F-9

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 four
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, 2020, 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, 2020, 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 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

F-10

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

F-11

In addition, the Company leases equipment such as trucks and forklifts. Equipment leases are primarily accounted
for as operating leases; however, the Company also accounts for some equipment leases as finance leases. The
equipment leases expire between 2020 and 2027.

The Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are included
on the consolidated balance sheets. Finance lease assets are included in property and equipment, net. The current
portion of the finance lease liabilities is included in accrued expenses, and the noncurrent portion is included in other
long-term liabilities.

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

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

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

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

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.

F-12

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 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 February 2016, the FASB issued ASU 2016-02, “Leases.” This guidance replaces most existing accounting for
leases and requires enhanced disclosures. The guidance requires the Company to record a right-of-use asset and a
lease liability for most of the Company’s leases, including those previously treated as operating leases. The
Company adopted the standard using the modified retrospective transition method as of October 1, 2019 and did not
apply the standard to comparative prior periods presented. The Company used the package of transition practical
expedients outlined in the transition guidance. The most significant effects of the new standard were the recognition
of $483.5 million of operating lease assets and $476.0 million of operating lease liabilities on October 1, 2019. As
part of the adoption, the Company carried forward the assessment from the previous lease standard of whether
Beacon’s contracts contain (or are) leases, the classification of leases, and remaining lease terms. The accounting for
finance leases remains unchanged. The adoption of the new standard did not have a material impact on the
Company’s consolidated results of operations or cash flows (see Note 11 for further discussion).

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income.” This
guidance is intended to address the accounting treatment for the tax effects on items within accumulated other
comprehensive income as a result of the adoption of the Tax Cuts and Jobs Act of 2017. This new standard became

F-13

effective for the Company on October 1, 2019. The adoption of this new guidance did not have a material impact on
the Company’s financial statements and related disclosures.

Recent Accounting Pronouncements—Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses: Measurement of Credit
Losses on Financial Instruments.” This guidance is intended to introduce a revised approach to the recognition and
measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses.
This new standard will become effective for the Company on October 1, 2020. The adoption of the new standard
will be done using the modified-retrospective approach, through a cumulative-effect adjustment to retained earnings
as of October 1, 2020. The most significant effect of the standard is expected to be an increase to the Company’s
accounts receivable reserve and a corresponding retained earnings adjustment of approximately $4.3 million on
October 1, 2020.

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 will become effective for the Company on October 1, 2020.
The Company does not expect the adoption of this new guidance to have a material impact on its financial
statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes – Simplifying the Accounting for Income
Taxes.” This guidance is intended to simplify the accounting for income taxes by removing certain exceptions,
clarifying existing guidance and improving consistent application of the guidance. This new standard is effective for
annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2020, and
early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its
financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of
Reference Rate Reform on Financial Reporting.” The guidance provides optional practical expedients to ease the
potential burden in accounting for contract modifications and hedge accounting related to reference rate reform. The
standard is effective as of March 12, 2020 through December 31, 2022. However, the standard is not applicable to
contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The
Company expects to elect optional expedients and exceptions provided by the guidance, as needed, related to the
2023 ABL and 2025 Term Loan debt instruments, both of which include interest rates based on a LIBOR rate (with
a floor) plus a fixed spread. The Company will evaluate and disclose the impact of this guidance in the period of
election, as well as the nature and reason for doing so.

In October 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-
20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity.” The guidance is intended to simplify the accounting for
convertible instruments, including reducing the number of accounting models that require separate accounting for
embedded conversion features and requiring the use of the if-converted method for all convertible instruments in the
diluted EPS calculation. The new standard is effective for annual reporting periods, and interim reporting periods
contained therein, beginning after December 15, 2021. Early adoption is permitted for annual reporting periods, and
interim reporting periods contained therein, beginning after December 15, 2020. 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, 2020, the adjusted Purchase
Price for Allied was $2.88 billion, including increases of (i) $164.0 million related to the impact of the Section

F-14

338(h)(10) election under the current U.S. tax code and (ii) $88.1 million from a recorded net working capital
adjustment.

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

In connection with the Allied Acquisition, on the Closing Date, the Company completed the sale of 400,000 shares of
Series A Cumulative Convertible Participating Preferred Stock, par value $0.01 per share (the “Preferred Stock”), with
an aggregate liquidation preference of $400.0 million, at a purchase price of $1,000 per share, to CD&R Boulder
Holdings, L.P., pursuant to 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, 2020.

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 millions):

Cash
Accounts receivable
Inventory
Prepaid and other current assets
Property, plant, and equipment
Goodwill
Intangible assets
Current liabilities
Non-current liabilities

Total purchase price

January 2, 2018
(as reported at
March 31, 2018)
19.3
$
315.5
322.7
59.3
139.5
1,130.6
1,037.0
(271.3)
(6.8)
2,745.8

$

$

Adjustments
$

January 2, 2018
(as adjusted at
March 31, 2019)
0.2
$
337.5
314.8
75.4
139.4
1,232.8
1,037.0
(259.3)
(0.7)
2,877.1

$

(19.2)
22.1
(7.9)
16.2
(0.2)
102.1
—
12.0
6.1
131.2

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. In the year ended September 30, 2020, the
Company received a net $5.1 million refund as the final true-up of the $164.0 million payment, which was recorded in
interest expense, financing costs, and other in the consolidated statements of operations. The Company determined that
$1.01 billion of goodwill related to the acquisition of Allied remains deductible for tax purposes as of September 30,
2020.

F-15

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.

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 weatherproofing 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 ($6.5 million of which remains deductible for tax purposes as of September 30, 2020) and
$11.4 million in intangible assets.

4. Net Sales

The following table presents the Company’s net sales by product
September 30, 2020 and 2019 (in millions):

line and geography for the years ended

Year Ended September 30, 2020
Residential roofing products
Non-residential roofing products
Complementary building products

Total net sales

Year Ended September 30, 2019
Residential roofing products
Non-residential roofing products
Complementary building products

Total net sales

U.S.

Canada

Total

$

$

$

$

3,043.2
1,534.5
2,188.7
6,766.4

3,023.2
1,582.8
2,312.5
6,918.5

$

$

$

$

56.4
112.1
9.0
177.5

56.4
122.4
7.9
186.7

$

$

$

$

3,099.6
1,646.6
2,197.7
6,943.9

3,079.6
1,705.2
2,320.4
7,105.2

F-16

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 millions, except per share amounts):

Year Ended September 30,
2019

2018

2020

Net income (loss)

Dividends on Preferred Stock

$

Net income (loss) attributable to common shareholders $

Undistributed income allocated to participating

securities

(80.9)
24.0
(104.9)

$

$

(10.6)
24.0
(34.6)

$

$

—

—

Net income (loss) attributable to common shareholders -

basic and diluted

$

(104.9)

$

(34.6)

$

Weighted-average common shares outstanding - basic

Effect of common share equivalents

Weighted-average common shares outstanding - diluted

68.8
—
68.8

68.4
—
68.4

Net income (loss) per share - basic
Net income (loss) per share - diluted

$
$

(1.52)
(1.52)

$
$

(0.51)
(0.51)

$
$

98.6
18.0
80.6

(7.7)

72.9

68.0
1.2
69.2

1.07
1.05

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 (in millions):

Stock options
Restricted stock units
Preferred Stock

Year Ended September 30,
2018
2019
2020

2.0
0.3
9.7

1.3
0.1
9.7

0.4
0.2
7.2

6. Stock-based Compensation

On December 23, 2019, the Board of Directors of the Company approved the Beacon Roofing Supply, Inc. Second
Amended and Restated 2014 Stock Plan (the “2014 Plan”). On February 11, 2020, the shareholders of the Company
approved an additional 4,850,000 shares under the 2014 Plan. The 2014 Plan, which was originally approved by the
shareholders on February 12, 2014, provides for discretionary awards of stock options, stock awards, restricted stock
units, and stock appreciation rights to selected employees and non-employee directors. The 2014 Plan mandates that
all forfeited, expired, and withheld shares, including those from the predecessor plan, be returned to the 2014 Plan
and made available for issuance. As of September 30, 2020, there were 5.7 million shares of common stock
available for issuance. The 2014 Plan is the only plan maintained by the Company pursuant to which equity awards
are granted.

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

F-17

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, 2020 were estimated on the dates of grants 
using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Year Ended September 30,
2019

2018

2020

Risk-free interest rate
Expected volatility
Expected life (in years)
Dividend yield

1.61%   
34.26%   
5.26 
— 

2.86%   
29.68%   
5.22 
— 

2.10%
26.43%
5.46 
—  

The following table summarizes all stock option activity for the periods presented (in millions, except per share and 
time period amounts):

Balance as of September 30, 2019

Granted
Exercised
Canceled/Forfeited
Expired

Weighted-
Average
Exercise
Price

  $

Weighted-
Average
Remaining
Contractual
Term (Years) 
6.1

Aggregate
Intrinsic
Value1

    $

12.0 

Options
Outstanding 
2.3 
0.5 
(0.2)
(0.1)
— 
2.5 

32.61   
31.95   
19.51   
37.30   
31.68   
33.09   

Balance as of September 30, 2020
Vested and expected to vest after 
   September 30, 2020
Exercisable as of September 30, 2020
______________________________
1 Aggregate intrinsic value as represents the difference between the closing fair value of the underlying common stock and the 

33.13   
33.69   

    $
    $

2.4 
1.6 

6.8 
5.1  

5.9
4.5

  $
  $

    $

6.9 

5.9

  $

exercise price of outstanding, in-the-money options on the date of measurement.

During  the  years  ended  September 30,  2020,  2019,  and  2018,  the  Company  recorded  stock-based  compensation 
expense related to stock options of $4.4 million, $4.1 million, and $3.9 million, respectively. As of September 30, 
2020,  there  was  $4.9  million  of  total  unrecognized  compensation  cost  related  to  unvested  stock  options,  which  is 
expected to be recognized over a weighted-average period of 1.8 years.

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

Year Ended September 30,
2019

2018

2020

Weighted-average fair value of stock options granted $
$
Total grant date fair value of stock options vested
$
Total intrinsic value of stock options exercised

10.35  
4.3  
2.1  

$
$
$

8.91  
3.9  
2.8  

$
$
$

15.86 
4.2 
9.6  

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 

F-18

 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
   
 
 
   
 
  
 
   
 
 
   
 
  
 
   
 
 
   
 
  
 
   
 
 
   
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.

The following table summarizes all restricted stock unit activity for the periods presented (in millions, except per
share amounts):

Balance as of September 30, 2019

Granted
Released
Canceled/Forfeited

Balance as of September 30, 2020
Vested and expected to vest after September 30, 2020

RSUs
Outstanding
1.1
0.5
(0.3)
(0.1)
1.2
1.0

Weighted-Average
Grant Date Fair
Value

$

$
$

37.48
31.81
44.87
33.69
33.55
34.68

During the years ended September 30, 2020, 2019, and 2018, the Company recorded stock-based compensation
expense related to RSUs of $12.8 million, $12.3 million, and $12.6 million, respectively. As of September 30, 2020,
there was $12.9 million of total unrecognized compensation cost related to unvested restricted stock units, which is
expected to be recognized over a weighted-average period of 1.7 years.

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

Weighted-average fair value of RSUs granted $
$
Total grant date fair value of RSUs vested
$
Total intrinsic value of RSUs released

31.81
14.4
9.8

$
$
$

28.02
16.1
11.5

$
$
$

57.40
6.7
11.0

Year Ended September 30,
2019

2018

2020

7. Prepaid Expenses and Other Current Assets

The following table summarizes the significant components of prepaid expenses and other current assets (in
millions):

Vendor rebates
Other

Total prepaid expenses and other current assets

September 30,

2020

2019

$

$

326.4
51.9
378.3

$

$

262.8
52.8
315.6

F-19

8. Property and Equipment

The following table provides a detailed breakout of property and equipment, by type (in millions):

Land and buildings
Equipment
Furniture and fixtures
Finance lease assets

$

Total property and equipment

Accumulated depreciation

Total property and equipment, net

$

September 30,

2020

2019

87.3   
453.1   
42.5   
11.6   
594.5   
(350.8) 
243.7   

$

$

83.4 
448.1 
40.0 
— 
571.5 
(311.1)
260.4  

Depreciation expense for the years ended September 30, 2020, 2019, and 2018 was $70.1 million, $70.7 million, and 
$60.3 million, respectively.

9. Goodwill and Intangible Assets

The  Company  considered  the  adverse  impact  of  the  COVID-19  pandemic  on  its  operations  as  part  of  its  annual 
impairment  analyses  of  intangible  assets  and  goodwill  and  concluded  there  was  no  impairment  to  record  in  fiscal 
year 2020.

Goodwill

The following table sets forth the change in the carrying amount of goodwill during the years ended September 30, 
2020 and 2019, respectively (in millions): 

Balance as of September 30, 2018

Acquisitions1
Translation and other adjustments

Balance as of September 30, 2019

Balance as of September 30, 2019

Translation and other adjustments

$

$

$

2,491.8 
(0.5)
(0.7)
2,490.6 

2,490.6 
(0.2)
2,490.4  

Balance as of September 30, 2020
______________________________
1   Reflects purchase accounting adjustments related to fiscal year 
2018 acquisition of Atlas Supply, Inc. (see Note 3 for further 
discussion).

$

The  changes  in  the  carrying  amount  of  goodwill  for  the  years  ended  September 30,  2020  and  2019  were  driven 
primarily by purchase accounting and foreign currency translation adjustments.

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-20

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

Weighted-
Average
Remaining
Life1
(Years)

1.7 
16.4 
6.1 
— 

Amortizable intangible assets:
Non-compete agreements
Customer relationships
Trademarks
Beneficial lease arrangements
Total amortizable intangible assets
Accumulated amortization

$

Total amortizable intangible assets, net $
Indefinite-lived trademarks
Total intangibles, net
______________________________
1 As of September 30, 2020.

$

September 30,

2020

2019

0.2 
1,481.1 
7.2 
— 
1,488.5 
(738.6)
749.9 
51.3 
801.2 

 $

 $

 $

2.8 
1,530.9 
10.5 
8.1 
1,552.3 
(619.9)
932.4 
193.1 
1,125.5 

In  the  second  quarter  of  fiscal  year  2020,  in  connection  with  the  Rebranding,  the  Company  incurred  non-cash 
accelerated intangible asset amortization of $142.6 million related to the write-off of certain trade names, primarily 
Allied  (exterior  products  only),  Roofing  Supply  Group  and  JGA.  The  Company  used  an  income  approach, 
specifically  the  relief  from  royalty  method,  to  determine  the  fair  value  of  remaining  indefinite-lived  trademarks. 
Various Level 3 fair value assumptions were used in the determination of the estimated fair value, including items 
such as sales growth rates, royalty rates, discount rates, and other prospective financial information.

For  the  years  ended  September 30,  2020,  2019,  and  2018,  the  Company  recorded  $321.0  million,  $207.1  million, 
and  $141.2  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  16.4  years  as  of 
September 30, 2020.

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

Year Ending September 30,
2021
2022
2023
2024
2025
Thereafter

Total future amortization expense

$

$

147.9 
120.4 
97.3 
78.7 
63.6 
242.0 
749.9  

F-21

 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
  
  
 
  
  
 
  
  
 
  
  
  
 
  
  
  
  
  
 
  
  
  
  
  
 
 
 
 
 
 
 
 
 
10. Financing Arrangements 

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

Revolving Lines of Credit
2023 ABL:
U.S. Revolver1

Current portion

Borrowings under revolving lines of credit, net

Long-term Debt, net
Term Loans:
2025 Term Loan2

Current portion

Long-term borrowings under term loan

Senior Notes:
2023 Senior Notes3
2025 Senior Notes4
2026 Senior Notes5
Current portion

Long-term borrowings under senior notes

Long-term debt, net

Equipment Financing Facilities, net
Equipment financing facilities6
Capital lease obligations7

Current portion

Long-term obligations under equipment financing, net
______________________________

September 30,

2020

2019

251.1    $
—   
251.1    $

81.0 
— 
81.0 

922.3    $
(9.7) 
912.6   

—   
1,285.7   
295.9   
—   
1,581.6   
2,494.2    $

2.6    $
—   
(2.6) 

—    $

926.5 
(9.7)
916.8 

294.9 
1,282.9 
— 
— 
1,577.8 
2,494.6 

6.9 
6.7 
(9.0)
4.6  

$

$

$

$

$

$

1 Effective rate on borrowings of 1.89% and 5.41% as of September 30, 2020 and 2019, respectively.
2

Interest rate of 2.41% and 4.36% as of September 30, 2020 and 2019, respectively.
Interest rate of 6.38% as of September 30, 2019.  
Interest rate of 4.88% for all periods presented.
Interest rate of 4.50% as of September 30, 2020.  
Fixed interest rates ranging from 2.33% to 2.89% for all periods presented. 

3

4

5

6

7 As of October 1, 2019, in connection with the adoption of ASU 2016-02, capital lease obligations that were formerly included 
in equipment financing facilities are included either in accrued expenses or other long-term liabilities on the consolidated 
balance sheets (see Notes 2 and 11 for further discussion). 

Debt Refinancing

2026 Senior Notes 

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

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

F-22

 
 
 
   
 
 
    
 
  
 
    
 
  
 
 
 
 
    
 
  
 
    
 
  
 
    
 
  
 
 
 
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
    
 
  
 
    
 
  
 
 
 
 
other jurisdiction, and may not be offered or sold in the United States absent registration or an applicable exemption
from the registration requirements of the Securities Act and other applicable securities laws.

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

The intent of the transaction was to take advantage of lower market interest rates by refinancing the existing 2023
Senior Notes with the 2026 Senior Notes. The Company accounted for the refinance as a debt extinguishment of the
2023 Senior Notes and an issuance of the 2026 Senior Notes. As a result, the Company recorded a loss on debt
extinguishment of $14.7 million in the three months ended December 31, 2019. The Company has capitalized debt
issuance costs of $4.8 million related to the 2026 Senior Notes, which are being amortized over the term of the
financing arrangements.

As of September 30, 2020, the outstanding balance on the 2026 Senior Notes, net of $4.1 million of unamortized
debt issuance costs, was $295.9 million.

Financing - Allied Acquisition

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

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

2023 ABL

On January 2, 2018, the Company entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo
Bank, N.A. and a syndicate of other lenders. The 2023 ABL, as amended to date, provides for revolving loans in
both the United States (“2023 U.S. Revolver”) in an amount up to $1.25 billion and Canada (“2023 Canada
Revolver”) in an amount up to $50.0 million, in each case subject to a borrowing base. The 2023 ABL has a
maturity date of January 2, 2023. The 2023 ABL has various borrowing tranches with an interest rate based, at the
Company’s option, on a base rate, plus an applicable margin, or a reserve adjusted LIBOR rate, plus an applicable
margin. The applicable margin ranges from 0.25% to 0.75% per annum with respect to base rate borrowings
and from 1.25% to 1.75% per annum with respect to LIBOR borrowings. The current unused commitment fees on
the 2023 ABL are 0.25% per annum. On July 28, 2020, the Company amended the 2023 ABL to provide for, among
other things, a mechanism for replacing LIBOR with the secured overnight financing rate published by the Federal
Reserve Bank of New York or other alternate benchmark rate selected by the administrative agent and the Company.

There is one financial covenant under the 2023 ABL, which is the Fixed Charge Coverage Ratio (the “FCCR”). The
FCCR is calculated by dividing Consolidated EBITDA, less Capital Expenditures, by Consolidated Fixed Charges
(all terms as defined in the agreement). Per the covenant, the Company’s FCCR must be a minimum of 1.00 at the
end of each fiscal quarter, calculated on a trailing four quarter basis (or under certain circumstances, at the end of
each fiscal month, calculated on a trailing twelve-month basis). Compliance is only required at such times as
borrowing availability (subject to certain adjustments) is less than the greater of (i) 10% of the lesser of the
borrowing base or the aggregate commitments or (ii) $90.0 million, and for a period of thirty days thereafter. The
Company was in compliance with this covenant as of September 30, 2020.

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

F-23

the Company or any guarantor, subject to certain customary exceptions (the “Term Priority Collateral”). The 2023
ABL is guaranteed jointly, severally, fully and unconditionally by the Company’s active United States subsidiaries.

In March 2020, the Company elected to draw down approximately $725 million from its revolving lines of credit.
This was a proactive measure to increase the Company's cash position and preserve financial flexibility in light of
current uncertainty in global markets resulting from the COVID-19 pandemic. During the second half of fiscal 2020,
the Company used a portion of its operating cash flows to fully repay these additional borrowings. As of
September 30, 2020, the total balance outstanding on the 2023 ABL, net of $5.9 million of unamortized debt
issuance costs, was $251.1 million. The Company also has outstanding standby letters of credit related to the 2023
U.S. Revolver in the amount of $13.0 million as of September 30, 2020.

2025 Term Loan

On January 2, 2018, the Company entered into a $970.0 million Term Loan with Citibank N.A., and a syndicate of
other lenders. The 2025 Term Loan requires quarterly principal payments in the amount of $2.4 million, with the
remaining outstanding principal to be paid on its January 2, 2025 maturity date. The interest rate is based, at the
Company’s option, on a base rate, plus an applicable margin, or a reserve adjusted LIBOR rate, plus an applicable
margin. The applicable margin is 1.25% per annum with respect to base rate borrowings and 2.25% per annum with
respect to LIBOR borrowings. 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, 2020, the outstanding balance on the 2025 Term Loan, net of $23.4 million of unamortized
debt issuance costs, was $922.3 million.

2025 Senior Notes

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

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

As of September 30, 2020, the outstanding balance on the 2025 Senior Notes, net of $14.3 million of unamortized
debt issuance costs, was $1.29 billion.

Financing - RSG Acquisition

2023 Senior Notes

On October 1, 2015,
the Company raised
in connection with the acquisition of Roofing Supply Group,
$300.0 million by issuing 6.38% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes had a
coupon rate of 6.38% per annum and were payable semi-annually in arrears, beginning April 1, 2016. There were
early payment provisions in the indenture under which the Company would be subject to redemption premiums. On
October 28, 2019, the Company redeemed all $300.0 million aggregate principal amount outstanding of the 2023
Senior Notes at a redemption price of 103.188% plus accrued interest and, as a result, wrote off $5.1 million of
unamortized debt issuance costs.

F-24

Other Information

The following table presents annual principal payments for all outstanding financing arrangements for each of the 
next five years and thereafter (in millions):

2023 ABL    

2025
Term
Loan

  $

Year Ending September 30,
2021
2022
2023
2024
2025
Thereafter

Total debt

Unamortized debt issuance costs  

Total long-term debt

  $

—    $
—   
257.0   
—   
—   
—   
257.0   
(5.9) 
251.1    $

9.7   
9.7   
9.7   
9.7   
906.9   
—   
945.7   
(23.4) 
922.3   

$

$

Senior
Notes1

—   
—   
—   
—   
—   
1,600.0   
1,600.0   
(18.4) 
1,581.6   

$

Equipment
Financing
Facilities    
2.6   
—   
—   
—   
—   
—   
2.6   
—   
2.6   

$

Total

12.3 
9.7 
266.7 
9.7 
906.9 
1,600.0 
2,805.3 
(47.7)
2,757.6  

$

$

______________________________
1 Represent principal amounts for 2025 Senior Notes and 2026 Senior Notes. 

Under  the  terms  of  the  2023  ABL,  the  2025  Term  Loan,  the  2025  Senior  Notes  and  the  2026  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.

11. Leases

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

Operating lease costs
Variable lease costs

Total operating lease costs

  $

Year Ended 
September 30, 2020  
124.5 
10.4 
134.9  

 $

The following table presents supplemental cash flow information related to operating leases (in millions):

Operating cash flows for operating lease liabilities

Year Ended 
September 30, 2020  
118.7  
 $

F-25

 
   
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2020, the Company’s operating leases had a weighted-average remaining lease term of
5.6 years and a weighted-average discount rate of 3.87%. The following table summarizes future lease payments
under operating leases as of September 30, 2020 (in millions):

Year Ending September 30,
2021
2022
2023
2024
2025
Thereafter

Total future lease payments

Imputed interest
Total operating lease liabilities

$

$

115.1
101.4
84.3
67.4
40.8
81.8
490.8
(49.9)
440.9

12. Commitments and Contingencies

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

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

13. 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
millions):

Foreign
Currency
Translation

Derivative
Financial
Instruments

AOCI

Balance as of September 30, 2017

Other comprehensive loss 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

Balance as of September 30, 2019

Other comprehensive income before reclassifications
Reclassifications out of other comprehensive loss

Balance as of September 30, 2020

$

$

$

$

(14.6) $
(2.7)
—
(17.3) $
(1.7)
—
(19.0) $
(0.7)
—
(19.7) $

— $
—
—
— $

(1.6)
—

(1.6) $
(13.4)
—
(15.0) $

(14.6)
(2.7)
—
(17.3)
(3.3)
—
(20.6)
(14.1)
—
(34.7)

Gains (losses) on derivative instruments are recognized in the consolidated statements of operations in interest
expense, financing costs, and other.

F-26

14. Income Taxes

The Company recorded a provision for (benefit from) income taxes of $(26.8) million, $(0.2) million and $(30.5) 
million for the years ended September 30, 2020, 2019 and 2018, respectively.

On  March  27,  2020,  the  U.S.  federal  government  officially  signed  into  law  the  Coronavirus  Aid,  Relief,  and 
Economic  Security  Act  (the  “CARES  Act”).  ASC 740,  “Accounting  for  Income  Taxes,”  requires  companies  to 
recognize the effect of tax law changes in the period of enactment. The CARES Act allows companies a five-year 
carryback  at  the  enacted  federal  tax  rate  of  35%  for  net  operating  losses  (“NOLs”)  arising  in  tax  years  beginning 
after December 31, 2017 and before January 1, 2021. However, due to strong results from operations through year 
end, the Company realized taxable income for the year ended September 30, 2020 and did not generate any benefit 
associated with the carryback of losses permitted under the CARES Act.

Other  provisions  in  the  CARES  Act  impacting  the  Company  include  the  ability  to  carry  back  losses  due  to  the 
technical  correction  for  fiscal  year  filers  with  an  NOL  in  the  2017-2018  straddle  year,  the  technical  correction 
regarding  qualified  improvement  property,  the  increase  in  Section  163(j)  interest  limitation  percentage,  and  the 
allowance of remaining AMT credits to be fully refundable in 2019.      The Company carried back losses from 2018 
to  2016  during  the  year  to  generate  an  immaterial  tax  benefit.  The  increase  in  Section  163(j)  interest  limitation 
percentage allowed the Company to deduct all interest expense from 2020 and utilize the Section 163(j) deferred tax 
asset carryover generated in 2019. The remaining provisions did not have a material impact on the Company’s tax 
provision (benefit).

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 millions):

Current:

Federal1
Foreign
State

Total current taxes

Deferred:

Federal
Foreign
State

Total deferred taxes

Year Ended September 30,
2019

2018

2020

$

(1.1)  $
1.4     
0.6     
0.9     

(21.3)   
0.2     
(6.6)   
(27.7)   

—    $
0.6     
1.6     
2.2     

(1.5)   
—     
(0.9)   
(2.4)   

(4.4)
0.5 
3.5 
(0.4)

(35.2)
(0.2)
5.3 
(30.1)

Provision for (benefit from) income taxes
______________________________
1 2018 tax benefit due to changes in the treatment of acquired fixed assets stemming from the Tax Cut and Jobs Act of 

(26.8)  $

(0.2)  $

(30.5)

$

2017

F-27

 
 
 
   
   
 
 
      
      
  
 
 
 
 
 
      
      
  
 
      
      
  
 
 
 
 
 
 
      
      
  
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

Effective tax rate

Year Ended September 30,
2019

2018

2020

21.0%   
4.1%   
(0.6%)   

0.6%   
0.0%   
(0.9%)   
0.7%   
24.9%   

21.0%   
(3.3%)   
(4.7%)   

0.0%   
4.3%   
(13.9%)   
(1.8%)   
1.6%   

24.5%
5.2%
(3.9%)

(73.5%)
1.8%
2.2%
(1.2%)
(44.9%)

______________________________
1 2020 includes the impact of carryback of NOLs to 2016 tax year and realization of 35% statutory rate. 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. The following table presents temporary differences that give 
rise to deferred tax assets and liabilities for the periods presented (in millions):

September 30,

2020

2019

Deferred tax assets:

Deferred compensation
Allowance for doubtful accounts
Accrued vacation and other
Inventory valuation
Tax loss carryforwards1
Unrealized loss on financial derivatives
Lease liability

Total deferred tax assets

Deferred tax liabilities:

$

$

10.8   
5.7   
10.4   
13.7   
11.5   
4.8   
111.6   
168.5   

Excess tax over book depreciation and amortization  
Lease right-of-use asset
Total deferred tax liabilities

(128.7) 
(113.8) 
(242.5) 

Net deferred income tax liabilities
______________________________
1 Comprised of net operating loss, foreign tax, and alternative minimum tax carryforwards

(74.0) 

$

$

11.1 
4.2 
5.2 
14.3 
18.3 
0.5 
1.6 
55.2 

(159.1)
— 
(159.1)

(103.9)

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, 2020, the Company utilized $4.3 million 
of federal NOLs. As of September 30, 2020, the Company had a total federal NOL carryforward balance of $27.8 
million, portions of which are 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, 2020.

F-28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
    
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
  
 
    
 
  
 
 
 
 
 
 
 
    
 
  
As of September 30, 2020, the Company’s goodwill balance on its consolidated balance sheet was $2.49 billion, of
which there remains an amortizable tax basis of $1.25 billion for income tax purposes.

As of September 30, 2020, 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, 2016. 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, 2016. In Canada,
the Company is no longer subject to tax examinations for any fiscal years ended on or before September 30, 2016.
For the Canadian provinces, the Company is no longer subject to tax examinations for any fiscal years ended on or
before September 30, 2016.

15. Geographic Data

The following tables summarize certain geographic information for the periods presented (in millions):

Long-lived assets:

U.S.
Canada

Total long-lived assets

September 30,

2020

2019

$

$

985.8
9.9
995.7

$

$

1,182.5
12.4
1,194.9

16. Allowance for Doubtful Accounts

The following table summarizes changes in the valuation of the allowance for doubtful accounts (in millions):

Year Ended
September 30,

Beginning
Balance

Charged to
Operations

Write-offs

Ending
Balance

2020
2019
2018

$

13.1 $
17.6
11.8

19.2 $
9.5
11.0

(13.1) $
(14.0)
(5.2)

19.2
13.1
17.6

The increase in valuation as of September 30, 2020 is primarily due to the recording of additional allowance in
response to certain customer bankruptcies.

17. Fair Value Measurement

As of September 30, 2020, the carrying amount of cash and cash equivalents, accounts receivable, prepaid and other
current assets, accounts payable and accrued expenses approximated fair value because of the short-term nature of
these instruments. The Company measures its cash equivalents at amortized cost, which approximates fair value
based upon quoted market prices (Level 1).

As of September 30, 2020, based upon recent trading prices (Level 2 — market approach), the fair value of the
Company’s $300.0 million Senior Notes due in 2026 was $309.0 million and the fair value of the $1.30 billion
Senior Notes due in 2025 was $1.28 billion.

As of September 30, 2020, the fair value of the Company’s term loan and revolving asset-based line of credit
approximated the amount outstanding. The Company estimates the fair value of 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).

F-29

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 $12.1 million, $11.7 million, and $11.8 million for the years ended September 30, 2020,
2019, and 2018, 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 $1.7 million, $1.0 million, and $0.2 million for the years ended
September 30, 2020, 2019, and 2018, respectively.

The Company also participates in multi-employer defined benefit plans for which it is not the sponsor. The
aggregated expense for these plans was $2.5 million, $2.6 million, and $1.8 million for the years ended
September 30, 2020, 2019, and 2018, respectively. Withdrawal from participation in one of these plans requires the
Company to make a lump-sum contribution to the plan, and the Company’s withdrawal liability depends on the
extent of the plan’s funding of vested benefits, among other factors. During the year ended September 30, 2020, the
Company withdrew from the Central States Pension Fund and Local 408 Pension Fund, both of which were reported
to have underfunded liabilities. The Company reached a settlement agreement with each fund, and the lump-sum
contributions made to exit the funds did not have a material impact on its results of operations.

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 comprehensive income each period, then reclassified
into the consolidated statements of operations as a component of interest expense, financing costs, and other in the
period in which the hedged transaction affects earnings. Any ineffective portions of the hedges are immediately
recognized in earnings as a component of interest expense, financing costs and other.

The effectiveness of the swaps will be assessed qualitatively by the Company during the lives of the hedges by a)
comparing the current terms of the hedges with the related hedged debt to assure they continue to coincide and b)
through an evaluation of the ability of the counterparty to the hedges to honor their obligations under the hedges.
The Company performed a qualitative analysis as of September 30, 2020 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,
2020, the fair value of the 3-year and 5-year swaps, net of tax, were $5.0 million and $10.0 million, respectively,
both in favor of the counterparty. These amounts are included in accrued expenses in the accompanying
consolidated balance sheets.

F-30

The Company records any differences paid or received on its interest rate hedges to interest expense, financing costs 
and  other.  The  following  table  summarizes  the  combined  fair  values,  net  of  tax,  of  the  interest  rate  derivative 
instruments (in millions):

Assets/(Liabilities) as of
September 30,

Instrument
Designated interest rate swaps1
______________________________
1 Assets  are  included  on  the  consolidated  balance  sheets  in  prepaid  expenses  and  other  current  assets,  while  liabilities  are  included  in 

Fair Value Hierarchy
Level 2

(15.0)

(1.6)

2019

2020

  $

 $

accrued expenses.

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

The following table summarizes the amounts of gain (loss) on the interest rate derivative instruments recognized in 
other comprehensive income (in millions):

  Instrument
  Designated interest rate swaps

Year Ended September 30,
2019

2018

2020

$

(13.4)  

$

(1.6)  

$

—  

F-31

 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
   
   
 
 
 
[THIS PAGE INTENTIONALLY LEFT BLANK]

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, 2020. Based on this evaluation, our chief executive officer
and chief financial officer concluded that, as of September 30, 2020, our disclosure controls and procedures
were (1) designed to ensure that material
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,
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.

they provide reasonable assurance of achieving their objectives,

information relating to Beacon Roofing Supply, Inc.,

in that

2.

(a)

Internal Control over Financial Reporting

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.

43

Our management assessed the effectiveness of our internal controls over financial reporting as of September 30,
2020, using the criteria set forth in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on our assessment, we
believe that, as of September 30, 2020, 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

44

Report of 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, 2020,
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, 2020, 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, 2020 and
2019, 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, 2020, and the related notes and our report dated
November 20, 2020 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.

Because of its inherent limitations, 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.

/s/ Ernst & Young LLP

Tysons, Virginia
November 20, 2020

45

(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, 2020 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

46

This part of our Form 10-K, which includes Items 10 through 14, is omitted because we will file our definitive proxy
statement for our 2021 Annual Meeting of Shareholders pursuant to Regulation 14A with the SEC not later than
120 days after the close of our fiscal year-end, which proxy statement will include the information required by Items
10 through 14 and is incorporated herein by reference.

PART III

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 Independent Registered Public Accounting Firm

Consolidated Balance Sheets as September 30, 2020 and 2019

Consolidated Statements of Operations for the years ended September 30, 2020, 2019, and 2018

Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019, and
2018

Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2020, 2019, and
2018

Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019, and 2018

• 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.

47

(3)

Exhibits

Exhibit
Number Description

INDEX TO EXHIBITS

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.

10-K

3.2

Amended and Restated By-Laws of Beacon Roofing Supply, Inc.

8-K

3.3

Certificate of Designations, Preferences and Rights of Series A
Cumulative Convertible Participating Preferred Stock of Beacon
Roofing Supply, Inc.

4.1

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.

Incorporated by Reference

Form Exhibit

Filing Date

8-K

2.1

August 24, 2017

3.1

3.1

December 23, 20
04

September 24,
2014

8-K

3.1

January 5, 2018

10-K

4.1

November 26,
2019

8-K

4.1

October 1, 2015

8-K

4.2

October 1, 2015

8-K

4.3

January 5, 2018

Form of 6.375% Senior Notes due 2023 (included as Exhibit A to the
Indenture incorporated by reference as Exhibit 4.2).

8-K

4.3

October 1, 2015

Indenture, dated as of October 25, 2017, between Beacon Escrow
Corporation and U.S. Bank National Association, as trustee.

8-K

4.1

October 26, 2017

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.

8-K

4.2

January 5, 2018

Form of 4.875% Senior Notes due 2025 (included as Exhibit A to the
Indenture incorporated by reference as Exhibit 4.6).

8-K

4.2

October 26, 2017

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

8-K

4.1

October 9, 2019

Form of 4.500% Senior Secured Notes due 2026 (included as Exhibit A
to the Indenture incorporated by reference as Exhibit 4.9).

8-K

4.2

October 9, 2019

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.

8-K

10.1

January 5, 2018

48

2.1

3.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

10.1

10.2

10.3*

10.4

10.5

10.6

10.7

10.8

10.9

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.

Amendment No. 2 to Amended and Restated Credit Agreement, dated as
of July 28, 2020, by and among Beacon Roofing Supply, Inc., Wells
Fargo Bank, National Association, as administrative agent, and the US
borrowers, Canadian borrower, and lenders 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)

8-K

10.2

January 5, 2018

8-K

10.1

August 24, 2017

8-K

10.1

November 21,
2018

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)

10-Q

10.1

May 8, 2019

Registration Rights Agreement, dated as of January 2, 2018, by and
between Beacon Roofing Supply, Inc. and CD&R Boulder Holdings,
L.P.

8-K

10.4

January 5, 2018

Amendment and Restatement of Section 2(a) of the Registration Rights
Agreement, dated June 11, 2019

10-Q

10.1

August 7, 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.

S-1

10.5

May 28, 2004

10.10+

Description of Executive Annual Incentive Plan

10.11+

Beacon Roofing Supply, Inc. Amended and Restated 2004 Stock Plan

10-Q

DEF
14A

10.2

February 4, 2020

Appendix
A

January 7, 2011

First Amendment dated as of October 31, 2011 to the Beacon Roofing
Supply, Inc. 2004 Stock Plan

10-K

10.10

10.12+

10.13+

10.14+

10.15+

10.16+

10.17+

Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock
Plan

Form of Beacon Roofing Supply, Inc. Second Amended and Restated
2014 Stock Plan Restricted Stock Unit Award Agreement for Non-
Employee Directors (Settle at Retirement)

Form of Beacon Roofing Supply, Inc. Second Amended and Restated
2014 Stock Plan Restricted Stock Unit Award Agreement for Non-
Employee Directors (Settle at Vest)

Form of Beacon Roofing Supply, Inc. Second Amended and Restated
2014 Stock Plan Performance-Based Restricted Stock Unit Award
Agreement for Employees

Form of Beacon Roofing Supply, Inc. Second Amended and Restated
2014 Stock Plan Time-Based Restricted Stock Unit Award Agreement
for Employees

49

November 29,
2011

January 9, 2020

Appendix
A

DEF
14A

10-Q

10.2

May 8, 2020

10-Q

10.3

May 8, 2020

10-Q

10.4

May 8, 2020

10-Q

10.5

May 8, 2020

10.18+

Form of Beacon Roofing Supply, Inc. Second Amended and Restated 
2014 Stock Plan Stock Option Agreement

10-Q

10.6

May 8, 2020

10.19*+

10.20*+

Executive Severance and Restrictive Covenant Agreement, dated as of 
September 10, 2020, between Beacon Roofing Supply, Inc., Beacon 
Sales Acquisition, Inc. and Julian G. Francis.

Form of Executive Severance and Restrictive Covenant Agreement 
between Beacon Roofing Supply, Inc., Beacon Sales Acquisition, Inc. 
and executive officers and certain senior management.

10.21+

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

10-Q

10.1

February 4, 2020

21*

Subsidiaries of Beacon Roofing Supply, Inc.

23.1*

Consent of Independent Registered Public Accounting Firm

31.1*

31.2*

32.1*

32.2*

101*

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

ITEM 16.    10-K SUMMARY

None.

50

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/ FRANK A. LONEGRO

Frank A. Lonegro
Executive Vice President and Chief Financial Officer

Date: November 20, 2020

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/ PHILIP W. KNISELY
Philip W. Knisely

/s/ JULIAN G. FRANCIS
Julian G. Francis

/s/ FRANK A. LONEGRO
Frank A. Lonegro

/s/ SAMUEL M. GUZMAN
Samuel M. Guzman

/s/ CARL T. BERQUIST
Carl T. Berquist

/s/ ROBERT R. BUCK
Robert R. Buck

/s/ BARBARA G. FAST
Barbara G. Fast

/s/ RICHARD W. FROST
Richard W. Frost

/s/ ALAN GERSHENHORN
Alan Gershenhorn

/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 20, 2020

President and Chief Executive Officer

November 20, 2020

Executive Vice President and Chief Financial
Officer

November 20, 2020

Vice President and Chief Accounting Officer

November 20, 2020

November 20, 2020

November 20, 2020

November 20, 2020

November 20, 2020

November 20, 2020

November 20, 2020

November 20, 2020

November 20, 2020

November 20, 2020

November 20, 2020

Director

Director

Director

Director

Director

Director

Director

Director

Director

Director

51

EXECUTIVE MANAGEMENT

BOARD OF DIRECTORS

Julian G. Francis 
President & Chief Executive 
Officer

Frank A. Lonegro 
Executive Vice President & 
Chief Financial Officer

Philip W. Knisely 
Chairman; Partner at 
Clayton, Dublier & Rice, LLC

Julian G. Francis 
President & Chief  
Executive Officer

C. Eric Swank 
Chief Operating Officer

Ross D. Cooper 
Executive Vice President, 
General Counsel & Secretary

Brendon P. Daly 
Executive Vice President, 
Chief Logistics Officer

C. Munroe Best III 
President, South Division

Ronald J. Pilla 
President, Interior Products 
Division

Samuel M. Guzman Jr. 
Vice President & Chief 
Accounting Officer

James A. Wilson 
Vice President, Finance & 
Treasurer 

Christopher A. Harrison 
Executive Vice President 
& Chief Human Resources 
Officer

Christopher C. Nelson 
Executive Vice President & 
Chief Information Officer

James J. Gosa 
President, North Division

Jason L. Taylor 
President, West Division

David J. Wrabel 
Vice President &  
Chief Credit Officer

Stephen O. Balogun 
Vice President   
Internal Audit

Carl T. Berquist 
Former Executive Vice 
President & Chief Financial 
Officer of Marriott 
International, Inc.

Barbara G. Fast 
Retired Major General of  
US Army; Former Senior 
Vice President of CGI 
Federal and former Vice 
President of The Boeing 
Company

Robert R. Buck 
Executive Director;  
former Chairman

Richard W. Frost 
Former Chief Executive 
Officer of Louisana-Pacific 
Corporation

Robert M. McLaughlin 
Former Senior Vice 
President & Chief Financial 
Officer of Airgas, Inc.

Alan Gershenhorn 
Former Executive 
Vice President & Chief 
Commercial Officer of United 
Parcel Service, Inc. (UPS)

Stuart A. Randle 
Former Chief Executive 
Officer of Ivenix, Lead 
Independent Director

Neil S. Novich 
Former Chairman, President 
& Chief Executive Officer of 
Ryerson Inc.

Douglas L. Young 
Executive Vice  
President of Lennox 
International Inc.

Nathan K. Sleeper 
Chief Executive Officer of 
Clayton, Dubilier & Rice, LLC

CORPORATE  
HEADQUARTERS
Beacon Building Products 
505 Huntmar Park Drive  
Suite 300 
Herndon, VA 20170 
Phone: 571.323.3939

ANNUAL MEETING
February 19, 2021 (8:00 a.m. ET)
505 Huntmar Park Drive 
Suite 300 
Herndon, VA 20170

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 set forth to the left, attention Chief Accounting Officer. 

BEACON SHARES
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.

NON-GAAP FINANCIAL MEASURES
This annual report makes reference to Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted 
Operating Expense, which are non-GAAP financial measures. For a reconciliation of these measures 
to the most directly comparable GAAP measures, please see the “Non-GAAP Financial Measures” 
section contained in the Company’s most recent Form 10-K that is included within this annual report.

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.

WW W.B ECN. COM

OVER 90 YEARS  
OF EXCELLENCE

Beacon has earned the trust of 
professional contractors through 
integrity and a commitment to 
delivering real value.

BEACON  BUILDING  PRODUCTS 
505 Huntmar Park Drive, Suite 300,  |  Herndon, VA 20170  
Phone: 571.323.3939  |  www.BECN.com