BEACON ROOFING SUPPLY INC - Quarter Report: 2009 December (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D. C.
20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
FOR
THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
FOR
THE TRANSITION PERIOD
FROM TO
COMMISSION
FILE NO.: 000-50924
BEACON
ROOFING SUPPLY, INC.
(Exact
name of Registrant as specified in its charter)
|
DELAWARE
|
36-4173371
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
One
Lakeland Park Drive,
|
|
|
Peabody,
Massachusetts
|
01960
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
978-535-7668
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES x NO ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). ¨ YES ¨ NO
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
(Check one):
|
Large
accelerated filer ¨
|
Accelerated
filer x
|
|
Non-accelerated
filer ¨
(Do not check if a smaller reporting company)
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES ¨ NO x
As of
February 1, 2010, there were 45,365,224 outstanding shares of the
registrant's common stock, $.01 par value per share.
BEACON
ROOFING SUPPLY, INC.
Form 10-Q
For
the Quarterly Period Ended December 31, 2009
INDEX
|
2
|
||
|
2
|
||
|
2
|
||
|
3
|
||
|
4
|
||
|
5
|
||
|
10
|
||
|
10
|
||
|
11
|
||
|
13
|
||
|
13
|
||
|
16
|
||
|
16
|
||
|
16
|
||
|
17
|
||
|
17
|
||
|
17
|
||
|
17
|
||
|
18
|
||
|
19
|
||
Page
1
Consolidated
Balance Sheets
|
(Unaudited)
|
(Unaudited)
|
(Note)
|
||||||||||
|
December 31,
|
December 31,
|
September 30,
|
||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
(Dollars in thousands)
|
||||||||||||
|
Assets
|
||||||||||||
|
Current
assets:
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 110,231 | $ | 22,059 | $ | 82,742 | ||||||
|
Accounts
receivable, less allowance of $13,494 at December 31,
2009,
|
||||||||||||
|
$13,756
at December 31, 2008, and $13,442 at September 30, 2009
|
158,868 | 196,773 | 227,379 | |||||||||
|
Inventories
|
173,236 | 188,462 | 195,011 | |||||||||
|
Prepaid
expenses and other assets
|
50,623 | 46,812 | 52,714 | |||||||||
|
Deferred
income taxes
|
16,671 | 22,824 | 19,323 | |||||||||
|
Total
current assets
|
509,629 | 476,930 | 577,169 | |||||||||
|
Property
and equipment, net
|
49,425 | 53,681 | 52,965 | |||||||||
|
Goodwill
|
354,426 | 352,693 | 354,193 | |||||||||
|
Other
assets, net
|
53,750 | 70,368 | 56,459 | |||||||||
|
Total
assets
|
$ | 967,230 | $ | 953,672 | $ | 1,040,786 | ||||||
|
Liabilities
and stockholders' equity
|
||||||||||||
|
Current
liabilities:
|
||||||||||||
|
Accounts
payable
|
$ | 86,404 | $ | 100,084 | $ | 151,683 | ||||||
|
Accrued
expenses
|
55,581 | 67,685 | 75,536 | |||||||||
|
Current
portion of long-term obligations
|
15,183 | 15,028 | 15,092 | |||||||||
|
Total
current liabilities
|
157,168 | 182,797 | 242,311 | |||||||||
|
Senior
notes payable, net of current portion
|
321,233 | 331,625 | 322,090 | |||||||||
|
Deferred
income taxes
|
36,235 | 35,093 | 36,555 | |||||||||
|
Long-term
obligations under equipment financing and other, net of current
portion
|
15,083 | 24,032 | 16,257 | |||||||||
|
Commitments
and contingencies
|
||||||||||||
|
Stockholders'
equity:
|
||||||||||||
|
Common
stock (voting); $.01 par value; 100,000,000 shares
authorized;
|
||||||||||||
|
45,334,037
issued and outstanding at December 31, 2009, 44,834,397 at
|
||||||||||||
|
December
31, 2008, and 45,244,837 at September 30, 2009
|
453 | 448 | 452 | |||||||||
|
Undesignated
preferred stock; 5,000,000 shares authorized, none issued or
outstanding
|
- | - | - | |||||||||
|
Additional
paid-in capital
|
228,968 | 221,008 | 226,793 | |||||||||
|
Retained
earnings
|
207,191 | 165,588 | 199,364 | |||||||||
|
Accumulated
other comprehensive income (loss)
|
899 | (6,919 | ) | (3,036 | ) | |||||||
|
Total
stockholders' equity
|
437,511 | 380,125 | 423,573 | |||||||||
|
Total
liabilities and stockholders' equity
|
$ | 967,230 | $ | 953,672 | $ | 1,040,786 | ||||||
Note: The
balance sheet at September 30, 2009
has been
derived from the audited financial statements at that date.
The
accompanying Notes are an integral part of the Consolidated Financial
Statements.
Page
2
Consolidated
Statements of Operations
|
Three Months Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Unaudited
|
||||||||
|
(Dollars
in thousands, except per share data)
|
||||||||
|
Net
sales
|
$ | 367,721 | $ | 463,329 | ||||
|
Cost
of products sold
|
279,380 | 347,331 | ||||||
|
Gross
profit
|
88,341 | 115,998 | ||||||
|
Operating
expenses
|
69,829 | 78,323 | ||||||
|
Income
from operations
|
18,512 | 37,675 | ||||||
|
Interest
expense
|
5,587 | 6,149 | ||||||
|
Income
before income taxes
|
12,925 | 31,526 | ||||||
|
Income
tax expense
|
5,098 | 12,884 | ||||||
|
Net
income
|
$ | 7,827 | $ | 18,642 | ||||
|
Net
income per share:
|
||||||||
|
Basic
|
$ | 0.17 | $ | 0.42 | ||||
|
Diluted
|
$ | 0.17 | $ | 0.41 | ||||
|
Weighted
average shares used in computing net income per share:
|
||||||||
|
Basic
|
45,281,263 | 44,822,561 | ||||||
|
Diluted
|
45,713,213 | 45,316,255 | ||||||
The
accompanying Notes are an integral part of the Consolidated Financial
Statements.
Page
3
Consolidated
Statements of Cash Flows
|
Three Months Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Unaudited (in thousands)
|
||||||||
|
Operating
activities:
|
||||||||
|
Net
income
|
$ | 7,827 | $ | 18,642 | ||||
|
Adjustments
to reconcile net income to net cash
|
||||||||
|
provided
by operating activities:
|
||||||||
|
Depreciation
and amortization
|
7,129 | 7,722 | ||||||
|
Stock-based
compensation
|
1,427 | 1,195 | ||||||
|
Deferred
income taxes
|
(538 | ) | (480 | ) | ||||
|
Changes
in assets and liabilities:
|
||||||||
|
Accounts
receivable
|
68,905 | 84,166 | ||||||
|
Inventories
|
22,270 | 19,222 | ||||||
|
Prepaid
expenses and other assets
|
2,151 | (3,356 | ) | |||||
|
Accounts
payable and accrued expenses
|
(79,588 | ) | (122,090 | ) | ||||
|
Net
cash provided by operating activities
|
29,583 | 5,021 | ||||||
|
Investing
activities:
|
||||||||
|
Purchases
of property and equipment, net of sales proceeds
|
(625 | ) | (2,033 | ) | ||||
|
Acquisition
of business
|
(385 | ) | - | |||||
|
Net
cash used in investing activities
|
(1,010 | ) | (2,033 | ) | ||||
|
Financing
activities:
|
||||||||
|
Advances
(repayments) under revolving lines of credit, net
|
18 | (4,662 | ) | |||||
|
Repayments
under senior notes payable and other, net
|
(1,981 | ) | (2,287 | ) | ||||
|
Proceeds
from exercise of options
|
664 | 138 | ||||||
|
Income
tax benefit from stock-based compensation deductions in excess of
the
|
||||||||
|
associated
compensation costs
|
85 | 6 | ||||||
|
Net
cash used by financing activities
|
(1,214 | ) | (6,805 | ) | ||||
|
Effect
of exchange rate changes on cash
|
130 | (162 | ) | |||||
|
Net
increase (decrease) in cash and cash equivalents
|
27,489 | (3,979 | ) | |||||
|
Cash
and cash equivalents at beginning of year
|
82,742 | 26,038 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 110,231 | $ | 22,059 | ||||
|
Cash
paid during the year for:
|
||||||||
|
Interest
|
$ | 6,440 | $ | 5,644 | ||||
|
Income
taxes, net of refunds
|
1,428 | 23,395 | ||||||
The
accompanying Notes are an integral part of the Consolidated Financial
Statements
Page
4
Notes
to Condensed Consolidated Financial Statements (Unaudited)
1.
Basis of Presentation
Beacon
Roofing Supply, Inc. (the "Company") prepared the consolidated financial
statements following accounting principles generally accepted in the United
States (GAAP) for interim financial information and the requirements of the
Securities and Exchange Commission (SEC). As permitted under those rules,
certain footnotes or other financial information required by GAAP for complete
financial statements have been condensed or omitted. The balance sheet as of
December 31, 2008 has been presented for a better understanding of the impact of
seasonal fluctuations on the Company's financial condition.
On
October 1, 2009, the Company merged all of its U.S. subsidiaries into Beacon
Sales Acquisition, Inc. After this merger, the Company’s remaining subsidiaries
are Beacon Sales Acquisition, Inc., Beacon Canada, Inc. and Beacon Roofing
Supply Canada Company. The Company continues to operate its regional businesses
under trade names associated with the former subsidiary corporate
names.
In
management's opinion, the financial statements include all normal and recurring
adjustments that are considered necessary for the fair presentation of the
Company's financial position and operating results. The results for the
three-month period (first quarter) ended December 31, 2009 are not necessarily
indicative of the results to be expected for the twelve months ending
September 30, 2010 (“2010”).
The
Company's fiscal year ends on the last day in September of each year and each
quarter ends on the last day of the respective third calendar month. The
three-month periods ended December 31, 2009 and December 31, 2008 both had 62
business days. Certain reclassifications have been made to the prior year
information to conform to the current year presentation.
You
should also read the financial statements and notes included in the Company's
fiscal year 2009 Annual Report on Form 10-K. The accounting policies used
in preparing these financial statements are the same as those described in that
Annual Report.
Adoption
of Recent Accounting Pronouncements
In
December 2007, the FASB issued guidance that significantly changes the
accounting for and reporting of business combination transactions and
noncontrolling (minority) interests in consolidated financial statements. This
guidance is effective for the Company in 2010. The adoption of this guidance did
not have a significant impact on the Company’s financial statements in the first
quarter but could have a material impact on the accounting for its future
acquisitions, depending on the circumstances and the terms of the
acquisitions.
In April
2009, the FASB issued disclosure guidance about fair value of financial
instruments in interim financial statements. This was effective for the
Company beginning in the third quarter of 2009 but had no impact on the
financial statements.
In May
2009, the FASB issued guidance on subsequent events that establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date and requires the disclosure of the date through which an
entity has evaluated subsequent events and whether that represents the date the
financial statements were issued or were available to be issued. Based on this
guidance, and consistent with its prior practice, the Company evaluated all
subsequent events that occurred through the time this Form 10-Q was filed with
the SEC on February 3, 2010.
In
June 2009, the FASB issued guidance related to the FASB Accounting
Standards Codification (“ASC”). Effective for interim and annual financial
periods ended after September 15, 2009, the ASC has become the source of
authoritative generally accepted accounting principles in the United States and
supersedes all existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the ASC has
become non-authoritative. This new guidance affected the way in which the
Company references and reports accounting and reporting standards beginning with
its 2009 Annual Report.
2.
Earnings Per Share
The
Company calculates basic income per share by dividing net income (loss) by the
weighted-average number of common shares outstanding. Diluted net income per
share includes the dilutive effects of outstanding stock
awards.
Page
5
BEACON
ROOFING SUPPLY, INC.
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(Continued)
The
following table reflects the calculation of weighted-average shares outstanding
for each period presented:
|
Three Months Ended December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Weighted-average
common shares outstanding
|
||||||||
|
for
basic
|
45,281,263 | 44,822,561 | ||||||
|
Dilutive
effect of stock options
|
431,950 | 493,694 | ||||||
|
Weighted-average
shares assuming dilution
|
45,713,213 | 45,316,255 | ||||||
3.
Stock-Based Compensation
The
Company accounts for employee and non-employee director stock-based compensation
using the fair value method of accounting. Compensation cost arising from stock
options granted to employees and non-employee directors is recognized as an
expense using the straight-line method over the vesting period, which represents
the requisite service period. The Company estimates forfeitures in calculating
the expense related to stock-based compensation.
As of
December 31, 2009, there was $9.0 million of total unrecognized compensation
cost related to unvested stock options. That cost is expected to be recognized
over a weighted-average period of 2.5 years. The Company recorded stock-based
compensation expense of $1.4 million ($0.8 million net of tax) and $1.2
million ($0.7 million, net of tax) for the three months ended December 31, 2009
and 2008, respectively.
The fair
values of the options were estimated on the dates of grants using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
|
Three Months Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Risk-free
interest rate
|
2.46 | % | 2.56 | % | ||||
|
Expected
life in years
|
7 | 7 | ||||||
|
Expected
volatility
|
48.00 | % | 48.00 | % | ||||
|
Dividend
yield
|
0.00 | % | 0.00 | % | ||||
Expected
lives of the options granted are based primarily on history, while expected
volatilities are based on historical volatilities of the Company’s stock and
stocks of comparable public companies. Estimated forfeiture rates vary by grant
and ranged from 0%-14% as of December 31, 2009.
Page
6
BEACON
ROOFING SUPPLY, INC.
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(Continued)
The
following table summarizes stock options outstanding as of December 31, 2009, as
well as activity during the three months then ended:
|
Weighted-
|
||||||||||||||||
|
Weighted-
|
Average
|
|||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||
|
Number of
|
Exercise
|
Contractual
|
Intrinsic
|
|||||||||||||
|
Shares
|
Price
|
Life
|
Value
|
|||||||||||||
|
(in
Years)
|
(in
Millions)
|
|||||||||||||||
|
Outstanding
at September 30, 2009
|
3,417,754 | $ | 13.70 | |||||||||||||
|
Granted
|
797,400 | 14.45 | ||||||||||||||
|
Exercised
|
(89,200 | ) | 7.45 | |||||||||||||
|
Canceled
|
(6,732 | ) | $ | 13.97 | ||||||||||||
|
Outstanding
at December 31, 2009
|
4,119,222 | $ | 13.98 | 7.4 | $ | 14.1 | ||||||||||
|
Vested
or Expected to Vest at December 31, 2009
|
4,006,906 | $ | 14.01 | 7.3 | $ | 13.7 | ||||||||||
|
Exercisable
at December 31, 2009
|
2,514,708 | $ | 14.64 | 6.2 | $ | 9.2 | ||||||||||
The
aggregate intrinsic values above include only in-the-money options. As of
December 31, 2009, there were remaining options to purchase 944,095 shares of
common stock available for grants under the Company's 2004 Stock Plan. The
weighted-average grant date fair values of stock options granted during the
three months ended December 31, 2009 and December 31, 2008 were $7.51 and $6.39,
respectively. The intrinsic value of stock options exercised during the three
months ended December 31, 2009 and December 31, 2008 was $0.7 and $0.1 million,
respectively. At December 31, 2009, the Company had $14.3 million of excess
tax benefits available for potential deferred tax write-offs related to option
accounting.
4.
Comprehensive Income
Comprehensive
income consists of net income and other gains and losses affecting stockholders'
equity that, under GAAP, are excluded from net income. For the Company, these
consisted of the following items:
|
Unaudited
|
Three Months Ended December
31,
|
|||||||
|
(Dollars
in thousands, except per share data)
|
2009
|
2008
|
||||||
|
Net
income
|
$ | 7,827 | $ | 18,642 | ||||
|
Foreign
currency translation adjustment
|
860 | (5,103 | ) | |||||
|
Tax
effect
|
(301 | ) | 1,965 | |||||
|
Foreign
currency translation adjustment, net
|
559 | (3,138 | ) | |||||
|
Unrealized
gain (loss) on financial derivatives
|
5,729 | (5,721 | ) | |||||
|
Tax
effect
|
(2,353 | ) | 2,302 | |||||
|
Unrealized
gain (loss) on financial derivatives, net
|
3,376 | (3,419 | ) | |||||
|
Comprehensive
income
|
$ | 11,762 | $ | 12,085 | ||||
5.
Acquisitions
In
December 2009, the Company purchased certain assets of Lookout Supply Company, a
distributor of roofing systems and related accessories with one branch in
Chattanooga, Tennessee. As of December 31, 2009, the purchase price allocation
was preliminary and there were no identified intangible assets.
Page
7
BEACON
ROOFING SUPPLY, INC.
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(Continued)
6.
Debt
The
Company currently has the following credit facilities:
· a
senior secured credit facility in the U.S.;
· a Canadian senior secured credit
facility; and
· an
equipment financing facility.
Senior
Secured Credit Facilities
On
November 2, 2006, the Company entered into an amended and restated
seven-year $500 million U.S. senior secured credit facility and a
C$15 million senior secured Canadian credit facility with GE Antares
Capital ("GE Antares") and a syndicate of other lenders (combined, the "Credit
Facility"). The Credit Facility consists of a U.S. revolving credit facility of
$150 million, which includes a sub-facility of $20 million for letters
of credit, and an initial $350 million term loan (the "Term Loan"). The
Credit Facility also includes a C$15 million senior secured revolving
credit facility provided by GE Canada Finance Holding Company.
As of
December 31, 2009, there were less than $0.1 million of outstanding revolver
borrowings and $331.7 million of outstanding Term Loan. The Company is in
compliance with the covenants under the Credit Facility. The current portion of
long-term obligations for each period presented includes a $7 million
accelerated payment due under the Term Loan. The current year payment is due in
May 2010. Substantially all of the Company's assets, including the
capital stock and assets of wholly-owned subsidiaries secure obligations under
the Credit Facility.
Equipment
Financing Facility
There
were $18.7 million of equipment financing loans outstanding under prior
equipment financing facilities at December 31, 2009, with fixed interest rates
ranging from 5.5% to 7.4% and payments due through September 2014. The Company
currently has an equipment financing facility that allows for the financing of
up to $5.5 million of purchased transportation and material handling equipment
through February 15, 2010 at an interest rate approximately 3% above the 5- or
6-year term swap rate at the time of the advances. There were no amounts
outstanding under this facility at December 31, 2009.
7.
Foreign Net Revenue
Foreign
(Canadian) net revenue totaled $28.2 and $23.9 million in the three months
ended December 31, 2009 and 2008, respectively.
8.
Financial Instruments
Financial
Derivatives
The
Company uses derivative financial instruments for hedging and non-trading
purposes to manage its exposure related to fluctuating cash flows from changes
in interest rates. Use of derivative financial instruments in hedging programs
subjects the Company 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 the Company's derivative financial instruments is used to
measure interest to be paid or received and does not represent the Company's
exposure due to credit risk. The Company's current derivative instruments are
with large financial counterparties rated highly by nationally recognized credit
rating agencies.
The
Company is using 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. As of December 31,
2009, the following interest rate derivative instruments were outstanding:
a) interest rate swaps totaling $200 million, expiring in April 2010,
with a fixed rate of 4.97%; b) a $50 million interest rate collar
expiring in April 2010 with a floor rate of 3.99% and a cap rate of 5.75%;
c) a $50 million interest rate collar expiring in April 2010 with a
floor rate of 3.75% and a cap rate of 6.00%; d) a $100 million
future-starting interest rate swap, with interest cash flows commencing in April
2010 and expiring in April 2013 and with a fixed rate of 2.72%; e) a
$50 million future-starting interest rate swap, with interest
cash flows commencing in April 2010 and expiring in April 2013 and with a fixed
rate of 3.12%; and f) a $50 million future-starting interest rate swap,
with interest cash flows commencing in April 2010 and expiring in April 2013 and
with a fixed rate of 3.11%. At no time during the terms of the forward-stating
derivatives do the associated cash flows overlap with those associated with the
derivatives expiring in April 2010.
Page
8
BEACON
ROOFING SUPPLY, INC.
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(Continued)
These
derivative instruments are designated as cash flow hedges, for which the Company
records the effective portions of changes in their fair value, net of taxes, in
other comprehensive income (Note 4). The effectiveness of the hedges is
periodically assessed by the Company during the lives of the hedges by 1)
comparing the current terms of the hedges with the related hedged debt to assure
they continue to coincide and 2) through an evaluation of the counterparties to
the hedges to honor their obligations under the hedges. Any ineffective portion
of the hedges is recognized in earnings, of which there has been none to date
and none is anticipated.
The
Company records any differences paid or received on its interest rate hedges as
adjustments to interest expense. Since inception, the Company has not
recognized any gains or losses on these hedges and there has been no effect on
income from hedge ineffectiveness. The table below presents the combined
fair value of the interest rate swap and collar instruments:
|
Unrealized Losses
|
|||||||||||||
|
December 31,
|
December 31,
|
September 30,
|
|||||||||||
|
Location on Balance Sheet
|
2009
|
2008
|
2009
|
Fair Value Hierarchy
|
|||||||||
|
(Dollars in thousands)
|
|||||||||||||
|
Accrued
expenses
|
$ | 6,620 | $ | 13,117 | $ | 12,348 |
Level
2
|
||||||
The fair
values of the interest rate swaps and collars were determined through the use of
pricing models, which utilize 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 swap and collar
agreements.
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. As of December 31, 2009, the cash
equivalents were 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. The carrying values of the cash equivalents for the periods
presented equaled the fair values, which were determined under Level 1 of the
Fair Value Hierarchy.
8.
Recent Accounting Pronouncements
In June
2009, the FASB issued guidance that changes the way entities account for
securitizations and special purpose entities. This new guidance is effective for
annual reporting periods beginning after November 15, 2009. The Company believes
this change will not have a material impact on its financial
statements.
Page
9
You
should read the following discussion in conjunction with Management’s Discussion
and Analysis included in our 2009 Annual Report on Form 10-K. Unless otherwise
specifically indicated, all references to “2009” refer to the three months
(first quarter) ended December 31, 2009, of our fiscal year ending
September 30, 2010, and all references to “2008” refer to the three months
(first quarter) ended December 31, 2008, of our fiscal year ended
September 30, 2009. Certain tabular information may not foot due to
rounding.
We are
one of the largest distributors of residential and non-residential roofing
materials in the United States and Canada. We are also a distributor of other
complementary building products, including siding, windows, specialty lumber
products and waterproofing systems for residential and non-residential building
exteriors. We purchase products from a large number of manufacturers and then
distribute these goods to a customer base consisting of contractors and, to a
lesser extent, general contractors, retailers and building materials
suppliers.
We
distribute up to 10,000 SKUs through 173 branches in the United States and
Canada. We had 2,146 employees as of December 31, 2009, including our sales and
marketing team of 920 employees.
In fiscal
year 2009, approximately 94% of our net sales were in the United States. We
stock one of the most extensive assortments of high-quality branded products in
the industry, enabling us to deliver products to our customers on a timely
basis.
Execution
of the operating plan at each of our branches drives our financial results.
Revenues are impacted by the relative strength of the residential and
non-residential roofing markets we serve. We allow each of our branches to
develop its own marketing plan and mix of products based upon its local market.
We differentiate ourselves from the competition by providing customer services,
including job site delivery, tapered insulation layouts and design and metal
fabrication, and by providing credit. We consider customer relations and our
employees' knowledge of roofing and exterior building materials to be very
important to our ability to increase customer loyalty and maintain customer
satisfaction. We invest significant resources in training our employees in sales
techniques, management skills and product knowledge. Although we consider these
attributes important drivers of our business, we continually pay close attention
to controlling operating costs.
Our
growth strategy includes both internal growth (opening branches, growing sales
with existing customers, adding new customers and introducing new products) and
acquisition growth. Our main acquisition strategy is to target market leaders in
geographic areas that we do not service. Our April 2007 acquisition of North
Coast Commercial Roofing Systems, Inc. ("North Coast") is one example of
this approach. North Coast is a distributor of commercial roofing systems and
related accessories that operated 16 branches in eight states in the Midwest and
Northeast. North Coast had minimal branch overlap with our existing operations
at the time of the acquisition. In addition, we also acquire smaller companies
to supplement branch openings within existing markets. Our December 2009
acquisition of Lookout Supply Company (“Lookout”), which operated one branch and
was integrated into our Mid-Atlantic region, is one example of such an
acquisition.
Page
10
The
following table presents, for the periods indicated, information derived from
our consolidated statements of operations expressed as a percentage of net sales
for the periods presented. Percentages may not foot due to
rounding.
|
Three
Months Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Net
sales
|
100.0 | % | 100.0 | % | ||||
|
Cost
of products sold
|
76.0 | 75.0 | ||||||
|
Gross
profit
|
24.0 | 25.0 | ||||||
|
Operating
expenses
|
19.0 | 16.9 | ||||||
|
Income
from operations
|
5.0 | 8.1 | ||||||
|
Interest
expense
|
(1.5 | ) | (1.3 | ) | ||||
|
Income
before income taxes
|
3.5 | 6.8 | ||||||
|
Income
tax expense
|
(1.4 | ) | (2.8 | ) | ||||
|
Net
income
|
2.1 | % | 4.0 | % | ||||
In
managing our business, we consider all growth, including the opening of new
branches, to be internal (organic) growth unless it results from an acquisition.
When we have referred to growth in existing markets or internal growth in our
prior filings, we included growth from existing and newly opened branches but
excluded 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. At December 31, 2009, we had a total of 173 branches in operation, all
of which are considered existing-market branches. We deemed the acquisition of
Lookout, our new Chattanooga branch, immaterial for reporting
purposes.
Three Months Ended December 31, 2009
("2009") Compared to the Three Months Ended December 31, 2008
("2008")
Net
Sales
Consolidated
net sales decreased $95.6 million, or 20.6%, to $367.7 million in 2009
from $463.3 million in 2008. We attribute the sales decrease primarily to
the following factors:
|
|
·
|
decrease
in re-roofing activity in the areas affected by Hurricane Ike in
2008;
|
|
|
·
|
significant
decline in non-residential roofing
activity;
|
|
|
·
|
continued
weakness in residential roofing activity in most markets;
and
|
|
|
·
|
continued
weak complementary product sales in most
markets.
|
Most of
these factors resulted from tougher economic conditions. We did not open or
close any branches, but acquired one branch in this year’s first quarter, while
we closed four branches in last year’s first quarter. We estimate
inflation had no material impact on results in this quarter compared to last
year’s first quarter. We had 62 business days in both 2009 and
2008. Net sales by geographical region grew or (declined) as follows:
Northeast (9.0%); Mid-Atlantic (4.8%); Southeast 1.4%; Southwest (50.5%);
Midwest (21.3%); West (15.8%); and Canada 18.1%. These variations were primarily
caused by short-term factors such as local economic conditions, winter weather
conditions, and previous year’s storm activity. Our product group sales were as
follows:
For the Three Months
Ended
|
December 31, 2009
|
December 31, 2008
|
|||||||||||||||||||||||
|
Sales
|
Mix
|
Sales
|
Mix
|
Change
|
||||||||||||||||||||
|
(dollars
in thousands)
|
||||||||||||||||||||||||
|
Residential
roofing products
|
$ | 173,247 | 47.1 | % | $ | 234,717 | 50.7 | % | $ | (61,470 | ) | -26.2 | % | |||||||||||
|
Non-residential
roofing products
|
139,237 | 37.9 | % | 164,781 | 35.6 | % | (25,544 | ) | -15.5 | |||||||||||||||
|
Complementary
building products
|
55,237 | 15.0 | % | 63,831 | 13.8 | % | (8,594 | ) | -13.5 | |||||||||||||||
| $ | 367,721 | 100.0 | % | $ | 463,329 | 100.0 | % | $ | (95,608 | ) | -20.6 | % | ||||||||||||
Page
11
For
the Three Months Ended
|
|
December 31,
|
December 31,
|
|||||||||||||||
|
2009
|
2008
|
Change
|
|||||||||||||||
|
(dollars
in millions)
|
|||||||||||||||||
|
Gross
profit
|
$ | 88.3 | $ | 116.0 | $ | (27.7 | ) | -23.8 | % | ||||||||
|
|
|||||||||||||||||
|
Gross
margin
|
24.0 | % | 25.0 | % |
-1.0%
|
||||||||||||
Our gross
profit decreased $27.7 million or 23.8% in 2009, while our gross margin
also decreased to 24.0% in 2009 from 25.0% in 2008. The margin rate
decrease was largely the result of the loss of the 2008 benefit of lower
weighted-average costs of residential roofing products in comparison to the
prices of those products in the marketplace during that quarter, partially
offset by higher 2009 vendor incentive income from calendar year adjustments and
short-term buying programs.
Direct
sales (products shipped by our vendors directly to our customers), which
typically have substantially lower gross margins than our warehouse sales,
represented 18.8% and 17.4% of our net sales for 2009 and 2008, respectively.
The increase in the percentage of direct sales was attributable to the higher
mix of non-residential roofing product sales. There were no material regional
impacts from changes in the direct sales mix of our geographical
regions.
Operating
Expenses
For
the Three Months Ended
|
December 31,
|
December 31,
|
||||||||||||||||
|
2009
|
2008
|
Change
|
|||||||||||||||
|
(dollars
in millions)
|
|||||||||||||||||
|
Operating
expenses
|
$ | 69.8 | $ | 78.3 | $ | (8.5 | ) | -10.8 | % | ||||||||
|
Operating
expenses as a % of sales
|
19.0 | % | 16.9 | % |
2.1%
|
||||||||||||
Our
operating expenses decreased by $8.5 million or 10.8% to $69.8 million
in 2009 from $78.3 million in 2008. The following factors were the leading
causes of our lower operating expenses:
|
|
·
|
savings of $4.3 million in
payroll and related costs, due to a lower employee headcount, a reduction
in overtime, lower incentive-based pay and lower related
benefits;
|
|
|
·
|
savings
of $1.5 million in selling expenses, from lower transportation costs and
lower credit card fees due to the lower sales volume and other cost saving
actions;
|
|
|
·
|
savings
of $1.8 million in other general & administrative expenses, from a
reduction in the provision for bad debts of $0.8 million, reduced claim
costs in our self-insurance programs and from other cost saving
actions;
|
|
|
·
|
reduced
depreciation and amortization expense of $0.6 million due to lower
amortization of intangible assets;
and
|
|
|
·
|
savings
in warehouse expenses resulting mainly from no branch closing costs in
2009.
|
In 2009, we expensed a total of
$2.5 million for the amortization of intangible assets recorded under
purchase accounting compared to $3.2 million in 2008. Our operating expenses as a percentage
of net sales increased to 19.0% in 2009 from 16.9% in 2008 as we were unable to
reduce costs to the extent of the large drop in sales.
Interest
Expense
Interest
expense decreased $0.5 million to $5.6 million in 2009 from
$6.1 million in 2008. This decrease was primarily due to a paydown of debt,
partially offset by slightly higher average interest rates in 2009 that affected
the unhedged portion of our variable-rate debt. Interest expense
would have been $3.2 and $0.5 million less in 2009 and 2008, respectively,
without the impact of our derivatives.
Page
12
Income
Taxes
An income
tax expense of $5.1 million was recorded in 2009, an effective tax rate of
39.4%, compared to $12.9 million in 2008, an effective tax rate of 40.9%.
The decrease in the effective rate reflects changes in allocations of taxable
income and losses among the states in which we are located. We currently expect
our full fiscal year 2010 effective income tax rate to be approximately 39.4%,
excluding any future discrete items.
In
general, sales and net income are highest during our first, third and fourth
fiscal quarters, which represent the peak months of construction and reroofing,
especially in our branches in the northeastern U.S. and in Canada. Our sales are
substantially lower during the second quarter, when we historically have
incurred low net income levels or net losses.
We
generally experience a slowing of collections of our accounts receivable during
our second quarter, mainly due to the inability of some of our customers to
conduct their businesses effectively in inclement weather in certain of our
regions. We continue to attempt to collect those receivables, which require
payment under our standard terms. We do not provide any concessions to our
customers during this quarter of the year, although we may take advantage of
seasonal incentives from our vendors. Also during the second quarter, we
generally experience our lowest availability under our senior secured credit
facilities, which are asset-based lending facilities.
Certain
Quarterly Financial Data
The
following table sets forth certain unaudited quarterly data for fiscal year 2010
(ending September 30, 2010) and fiscal year 2009 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. Totals may not total due to rounding.
|
Fiscal year 2010
|
Fiscal
year 2009
|
|||||||||||||||||||
|
Qtr 1
|
Qtr 1
|
Qtr 2
|
Qtr 3
|
Qtr 4
|
||||||||||||||||
|
(dollars
in millions, except per share data)
|
||||||||||||||||||||
|
(unaudited)
|
||||||||||||||||||||
|
Net
sales
|
$ | 367.7 | $ | 463.3 | $ | 319.3 | $ | 463.6 | $ | 487.7 | ||||||||||
|
Gross
profit
|
88.3 | 116.0 | 74.3 | 107.8 | 113.0 | |||||||||||||||
|
Income
from operations
|
18.5 | 37.7 | 1.5 | 33.6 | 36.5 | |||||||||||||||
|
Net
income (loss)
|
$ | 7.8 | $ | 18.6 | $ | (2.4 | ) | $ | 17.2 | $ | 19.0 | |||||||||
|
Earnings
(loss) per share - basic
|
$ | 0.17 | $ | 0.42 | $ | (0.05 | ) | $ | 0.38 | $ | 0.42 | |||||||||
|
Earnings
(loss) per share - fully diluted
|
$ | 0.17 | $ | 0.41 | $ | (0.05 | ) | $ | 0.38 | $ | 0.42 | |||||||||
|
Quarterly
sales as % of year's sales
|
26.7 | % | 18.4 | % | 26.7 | % | 28.1 | % | ||||||||||||
|
Quarterly
gross profit as % of year's gross profit
|
28.2 | % | 18.1 | % | 26.2 | % | 27.5 | % | ||||||||||||
|
Quarterly
income from operations as % of
|
||||||||||||||||||||
|
year's
income from operations
|
34.5 | % | 1.4 | % | 30.7 | % | 33.4 | % | ||||||||||||
The
calculation of the fully diluted net loss per share for the second quarter of
fiscal year 2009 does not include the dilutive effects of outstanding stock
options since the impact would have been anti-dilutive.
We
had cash and cash equivalents of $110.2 million at December 31, 2009
compared to $22.1 million at December 31, 2008 and $82.7 million at
September 30, 2009. Our net working capital was $352.5 million at
December 31, 2009 compared to $294.1 million at December 31, 2008 and
$334.9 million at September 30, 2009.
2009
Compared to 2008
Our
net cash provided by operating activities was $29.6 million in 2009
compared to $5.0 million in 2008. The drop of $18.6 million in our income
from operations was more than offset by certain favorable changes in working
capital. Accounts receivable and inventories decreased by $68.9 and
$22.3 million in 2009, respectively, primarily due to normal seasonal declines
and lower first quarter sales and purchases. The favorable impact from those
changes was partially offset by a decrease of $79.6 million in accounts payable
and accrued expenses, which was due to the lower first quarter purchasing level
and normal seasonal declines. Income tax payments were much lower in 2009 than
in 2008. The number of days outstanding for accounts receivable, based upon
first quarter sales, were approximately the same in 2009 compared to 2008, while
inventory turns were down slightly due mostly to the lower
sales.
Page
13
Net
cash used in investing activities was $1.0 million in 2009 compared to
$2.0 million in 2008, mainly due to decreased capital spending for
transportation and material handling equipment, offset partially by the Lookout
acquisition cost. We continue to closely manage our capital
expenditures during these challenging economic times and we expect full fiscal
year 2010 capital expenditures to total between 0.7% to 1.0% of net sales,
dependant upon our sales volume and exclusive of the impact of branch
openings.
Net
cash used by financing activities was $1.2 million in 2009 compared to
$6.8 million in 2008. These amounts primarily reflected repayments under
our credit facilities.
Capital
Resources
Our
principal source of liquidity at December 31, 2009 was our cash and cash
equivalents of $110.2 million and our available borrowings of $119.6 million
under revolving lines of credit, subject to compliance with the maximum
consolidated leverage ratio below. Our borrowing base availability is determined
primarily by trade accounts receivable, less outstanding borrowings and letters
of credit. Borrowings outstanding under the revolving lines of credit in the
accompanying balance sheets have been classified as short-term debt since there
were no current expectations of a minimum level of outstanding revolver
borrowings in the following twelve months.
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.
Significant
factors which could affect future liquidity include the following:
|
|
·
|
the adequacy of available bank
lines of credit;
|
|
|
·
|
the ability to attract long-term
capital with satisfactory
terms;
|
|
|
·
|
cash flows generated from
operating activities;
|
|
|
·
|
acquisitions;
and
|
|
|
·
|
capital
expenditures.
|
Our
primary capital needs are for working capital obligations and other general
corporate purposes, including acquisitions and capital expenditures. Our primary
sources of working capital are cash from operations and cash equivalents
supplemented by bank borrowings. In the past, we have financed acquisitions
initially through increased bank borrowings, the issuance of common stock and
other borrowings. We then repay any such borrowings with cash flows from
operations. We have funded most of our past capital expenditures with cash on
hand or through increased bank borrowings, including equipment financing, and
then have reduced those obligations with cash flows from operations.
Indebtedness
We
currently have the following credit facilities:
|
|
•
|
a senior secured credit facility
in the U.S.;
|
|
|
•
|
a Canadian senior secured credit
facility; and
|
|
|
•
|
an
equipment financing facility.
|
Page
14
Senior
Secured Credit Facilities
On November 2, 2006, we entered into an
amended and restated seven-year $500 million U.S. senior secured credit
facility and a C$15 million senior secured Canadian credit facility with GE
Antares Capital ("GE Antares") and a syndicate of other lenders (combined, the
"Credit Facility"). The Credit Facility refinanced the prior $370 million
credit facilities that also were provided through GE Antares. The Credit
Facility provides us with lower interest rates and available funds for future
acquisitions and ongoing working capital requirements. In addition, the Credit
Facility increased the allowable total equipment financing and/or capital lease
financing to $35 million. The Credit Facility provides for a cash receipts
lock-box arrangement that gives us sole control over the funds in lock-box
accounts, unless excess availability is less than $10 million or an event
of default occurs, in which case the senior secured lenders would have the right
to take control over such funds and to apply such funds to repayment of the
senior debt.
The Credit Facility consists of a U.S.
revolving credit facility of $150 million (the "US Revolver"), which
includes a sub-facility of $20 million for letters of credit, and provided
an initial $350 million term loan (the "Term Loan"). The Credit Facility
also includes a C$15 million senior secured revolving credit facility
provided by GE Canada Finance Holding Company (the "Canada Revolver"). There was
a combined $119.6 million available for revolver borrowings at December 31,
2009, subject to compliance with the maximum consolidated leverage ratio below,
with less than $0.1 million outstanding under the US Revolver at an
interest rate of 3.25%. Borrowings outstanding under the revolving
lines of credit in the accompanying balance sheets were classified as short-term
debt since there were no current expectations of a minimum level of outstanding
revolver borrowings in the following twelve months. There were $4.8, $4.3 and
$5.1 million of outstanding standby letters of credit at December 31, 2009,
December 31, 2008 and September 30, 2009, respectively. The Term Loan
requires amortization of 1% per year, payable in quarterly installments of
approximately $0.9 million, and the remainder is due in 2013. The Credit
Facility may also be expanded by up to an additional $200 million under
certain conditions. There are mandatory prepayments under the Credit Facility
under certain conditions, including the following cash flow
condition:
By
May 15 of each fiscal year, we must pay an amount equal to 50% of the
Excess Cash Flow (as defined in the Credit Facility) for the prior fiscal year,
not to exceed $7.0 million with respect to any fiscal year. Based on our
results for fiscal year 2009, a payment of $7.0 million is due in May 2010. A
payment of $7.0 million was made in April 2009 for fiscal year 2008. The amounts
payable under this provision are classified as short-term debt.
Interest
Interest on borrowings under the U.S. credit
facility is payable at our election at either of the following
rates:
|
|
·
|
the base rate (that is the higher
of (a) the base rate for corporate loans quoted in The Wall Street Journal
or (b) the Federal Reserve overnight rate plus 1/2 of 1%) plus a margin of
0.75% for the Term Loan.
|
|
|
·
|
the current LIBOR Rate plus a
margin of 1.00% (for U.S. Revolver loans) or 2.00% (for Term
Loan).
|
Interest under the Canadian credit facility
is payable at our election at either of the following rates:
|
|
·
|
an index rate (that is the higher
of (1) the Canadian prime rate as quoted in The Globe and Mail and
(2) the 30-day BA Rate plus 0.75%),
or
|
|
|
·
|
the BA rate as described in the
Canadian facility plus
1.00%.
|
The US Revolver currently carries
interest rates of the base rate plus 0.75% (3.25% at December 31, 2009), while
the Canada revolver carries an interest rate of the Canadian prime rate plus
0.75%, and the Term Loan carries an interest rate of LIBOR plus 2% (2.29% and
2.23% for two LIBOR arrangements under the Term Loan at December 31, 2009).
Unused fees on the revolving credit facilities are 0.25% per annum. Availability
under the revolving credit facilities is limited to 85% of eligible accounts
receivable, increasing to 90% from January through April of each
year.
Financial covenants, which apply only
to the Term Loan, are limited to a leverage ratio and a yearly capital
expenditure limitation as follows:
Maximum
Consolidated Leverage Ratio
On the last day of each fiscal quarter, our Consolidated Leverage
Ratio, as defined, must not be greater than 4.00:1.0. At December 31, 2009, this
ratio was 1.96:1.
Page
15
Capital
Expenditures
We
cannot incur aggregate Capital Expenditures, as defined, in excess of three
percent (3.00%) of consolidated gross revenue for any fiscal year.
As
of December 31, 2009, we were in compliance with these covenants.
Substantially
all of our assets, including the capital stock and assets of wholly-owned
subsidiaries secure obligations under the Credit Facility.
We
have an equipment financing facility which allows for the financing of up to
$5.5 million of purchased transportation and material handling equipment through
February 15, 2010 at an interest rate approximately 3% above the 5- or 6-year
term swap rate at the time of the advances. There were no amounts
outstanding under this facility at December 31, 2009; however, there were $18.7
million of equipment financing loans outstanding under prior equipment financing
facilities at December 31, 2009, with fixed interest rates ranging from 5.5% to
7.4%.
Our
disclosure and analysis in this report contains forward-looking information that
involves risks and uncertainties. Our forward-looking statements express our
current expectations or forecasts of possible future results or events,
including projections of future performance, statements of management's plans
and objectives, future contracts, and forecasts of trends and other matters. You
can identify these statements by the fact that they do not relate strictly to
historic or current facts and often use words such as "anticipate," "estimate,"
"expect," "believe," "will likely result," "outlook," "project" and other words
and expressions of similar meaning. No assurance can be given that the results
in any forward-looking statements will be achieved and actual results could be
affected by one or more factors, which could cause them to differ materially.
For these statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act.
Certain
factors that may affect our business and could cause actual results to differ
materially from those expressed in any forward-looking statements include those
set forth under the heading "Risk Factors" in our Form 10-K for the fiscal
year ended September 30, 2009.
Our
interest rate risk relates primarily to the variable-rate borrowings under our
Credit Facility. The following discussion of our interest rate swaps and collars
(see "Financial Derivatives" below) 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. The interest rate collars have
had no impact yet on our interest expense. 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.
At
December 31, 2009, we had $331.7 million of term loans outstanding under
our Credit Facility, less than $0.1 million of borrowings under revolving
lines of credit, and $18.7 million of equipment financing outstanding. Our
weighted-average effective interest rate on that debt, after considering the
effect of the interest rate swaps, was 6.19% at December 31, 2009 (6.16% at
December 31, 2008). A hypothetical 10% increase in interest rates in effect at
December 31, 2009, would have increased annual interest expense on the
borrowings outstanding at that date by only $0.1 million, since most of the
interest cost on our current bank debt is fixed by the financial
derivatives.
We
enter into interest rate swaps and collars to minimize the risks and costs
associated with financing activities, as well as to maintain an appropriate mix
of fixed-and floating-rate debt. The swap agreements discussed below are
contracts to exchange variable-rate for fixed-interest rate payments over the
life of the agreements. The collar agreements, also discussed below, provide for
fixed-rate caps and floors. The aggregate fair value of these swaps and collars
represented an unrealized loss of $6.6 million at December 31, 2009. A
hypothetical increase (or decrease) of 10% in interest rates from the level in
effect at December 31, 2009, would result in an aggregate unrealized gain or
(loss) in value of the swaps and collars of approximately $0.1 million or
($0.1) million, respectively.
Page
16
As
discussed above, we use interest rate derivative instruments to manage our
exposure related to fluctuating cash flows from changes in interest rates by
converting a portion of our variable-rate borrowings into fixed-rate borrowings.
As of December 31, 2009, we had the following interest rate derivative
instruments outstanding: a) interest rate swaps totaling $200 million,
expiring in April 2010, with a fixed rate of 4.97%; b) a $50 million
interest rate collar expiring in April 2010 with a floor rate of 3.99% and a cap
rate of 5.75%; c) a $50 million interest rate collar expiring in April
2010 with a floor rate of 3.75% and a cap rate of 6.00%; d) a
$100 million future-starting interest rate swap executed in May 2009, with
interest cash flows commencing in April 2010 and expiring in April 2013 and with
a fixed rate of 2.72%; e) a $50 million future-starting interest rate swap
executed in June 2009, with interest cash flows commencing in April 2010 and
expiring in April 2013 and with a fixed rate of 3.12%; and f) a $50 million
future-starting interest rate swap executed in June 2009, with interest cash
flows commencing in April 2010 and expiring in April 2013 and with a fixed rate
of 3.11%. At no time during the terms of the forward-stating derivatives do the
associated cash flows overlap with those associated with the derivatives
expiring in April 2010.
There
have been no material changes from what we reported in our Form 10-K for
the year ended September 30, 2009.
The
term "disclosure controls and procedures" is defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934 (the "Act"). The rules refer to
the controls and other procedures designed to ensure that information required
to be disclosed in reports that we file or submit under the Act is recorded,
processed, summarized and reported within the time periods specified. As of
December 31, 2009, management, including the CEO and CFO, performed an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, management, including the CEO
and CFO, concluded that as of December 31, 2009, our disclosure controls and
procedures were effective at ensuring that material information related to us or
our consolidated subsidiaries is made known to them and is disclosed on a timely
basis in our reports filed under the Act. We maintain a system of internal
control over financial reporting that is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States. Based on the most recent
evaluation, we have concluded that no significant change in our internal control
over financial reporting occurred during the last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Part II.
Other Information
Items 1-
5 are not applicable and have been omitted.
(a) Exhibits required by
Item 601 of Regulation S-K
|
Exhibit
Number
|
Document Description
|
|
|
10
|
Description
of Management Cash Bonus Plan.
|
|
|
31.1
|
Certification
by Robert R. Buck pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31.2
|
Certification
by David R. Grace pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.1
|
Certification
by Robert R. Buck and David R. Grace pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on February 3, 2010.
|
BEACON
ROOFING SUPPLY, INC.
|
||
|
BY:
|
/s/ DAVID R. GRACE
|
|
|
David R. Grace,
Senior Vice President & Chief Financial Officer, and duly
authorized signatory on behalf of the Registrant
|
||
Page
18
|
Exhibit
Number
|
Document Description
|
|
|
10
|
Description
of Management Cash Bonus Plan.
|
|
|
31.1
|
Certification
by Robert R. Buck pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31.2
|
Certification
by David R. Grace pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.1
|
Certification
by Robert R. Buck and David R. Grace pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002.
|