BEACON ROOFING SUPPLY INC - Quarter Report: 2020 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2020

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

For the Transition Period from to

Commission File Number 000-50924

BEACON ROOFING SUPPLY, INC.

(Exact name of registrant as specified in its charter)

Delaware

36-4173371

(State or other jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

505 Huntmar Park Drive, Suite 300, Herndon, VA 20170

(Address of Principal Executive Offices) (Zip Code)

(571) 323-3939

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol	Name of each exchange on which registered

Common Stock, $0.01 par value	BECN	NASDAQ Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2020, 68,877,565 shares of common stock, par value $0.01 per share, of the registrant were outstanding.

BEACON ROOFING SUPPLY, INC.

FORM 10-Q

For the Quarter Ended June 30, 2020

TABLE OF CONTENTS

PART I.	Financial Information (unaudited)
	Item 1.	Condensed Consolidated Financial Statements
		Consolidated Balance Sheets	3
		Consolidated Statements of Operations	4
		Consolidated Statements of Comprehensive Income	5
		Consolidated Statements of Stockholders’ Equity	6
		Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
	Item 4.	Controls and Procedures	35
PART II.	Other Information
	Item 1A.	Risk Factors	36
	Item 6.	Exhibits	36
Signatures			37

PART I.Financial Information (Unaudited)

Item 1.

Condensed Consolidated Financial Statements

BEACON ROOFING SUPPLY, INC.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	June 30,			September 30,			June 30,
	2020			2019			2019
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,018,376		$	72,287		$	27,729
Accounts receivable, less allowance of $20,944, $13,095 and $24,732 as of June 30, 2020, September 30, 2019 and June 30, 2019, respectively		993,757			1,108,134			1,079,091
Inventories, net		951,538			1,018,183			1,124,063
Prepaid expenses and other current assets		301,964			315,643			361,831
Total current assets		3,265,635			2,514,247			2,592,714
Property and equipment, net		236,928			260,376			269,041
Goodwill		2,489,760			2,490,590			2,490,940
Intangibles, net		845,217			1,125,540			1,177,694
Operating lease assets		442,287			-			-
Other assets, net		25			2,059			1,243
Total assets	$	7,279,852		$	6,392,812		$	6,531,632

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	780,179		$	822,931		$	643,411
Accrued expenses		559,123			599,155			590,756
Current operating lease liabilities		99,165			-			-
Current portions of long-term debt/obligations		12,858			18,689			19,366
Total current liabilities		1,451,325			1,440,775			1,253,533
Borrowings under revolving lines of credit, net		848,736			80,961			424,011
Long-term debt, net		2,494,474			2,494,623			2,494,648
Deferred income taxes, net		58,099			103,913			110,180
Non-current operating lease liabilities		339,540			-			-
Long-term obligations under equipment financing, net		400			4,609			6,332
Other long-term liabilities		1,351			6,383			5,352
Total liabilities		5,193,925			4,131,264			4,294,056

Commitments and contingencies (Note 9)

Convertible Preferred Stock; $0.01 par value; aggregate liquidation preference $400,000; 400,000 shares authorized, issued and outstanding as of June 30, 2020, September 30, 2019 and June 30, 2019¹		399,195			399,195			399,195

Stockholders' equity:
Common stock (voting); $0.01 par value; 100,000,000 shares authorized; 68,870,918, 68,574,176 and 68,480,751 shares issued and outstanding as of June 30, 2020, September 30, 2019 and June 30, 2019, respectively		688			685			684
Undesignated preferred stock; 5,000,000 shares authorized, none issued or outstanding		-			-			-
Additional paid-in capital		1,095,149			1,083,042			1,077,953
Retained earnings		628,447			799,222			777,842
Accumulated other comprehensive income (loss)		(37,552	)		(20,596	)		(18,098	)
Total stockholders' equity		1,686,732			1,862,353			1,838,381
Total liabilities and stockholders' equity	$	7,279,852		$	6,392,812		$	6,531,632

________________________________________

In connection with the acquisition of Allied Building Products Corp. (“Allied”) on January 2, 2018 (the “Allied Acquisition”), the Company completed the sale of 400,000 shares of Series A Cumulative Convertible Participating Preferred Stock, par value $0.01 per share (the “Preferred Stock”), with an aggregate liquidation preference of $400.0 million, at a purchase price of $1,000 per share, to CD&R Boulder Holdings, L.P. The Preferred Stock is convertible perpetual participating preferred stock of the Company, and conversion of the Preferred Stock into $0.01 par value shares of the Company’s common stock will be at a conversion price of $41.26 per share (or 9,694,619 shares of common stock). The Preferred Stock accumulates dividends at a rate of 6.0% per annum (payable in cash or in-kind, subject to certain conditions). The Preferred Stock is not mandatorily redeemable; therefore, it is classified as mezzanine equity on the Company’s consolidated balance sheets.

See accompanying Notes to Condensed Consolidated Financial Statements

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Operations

(Unaudited; In thousands, except share and per share amounts)

	Three Months Ended June 30,					Nine Months Ended June 30,
	2020			2019		2020			2019
Net sales	$	1,792,505		$	1,924,534	$	4,926,103		$	5,075,247
Cost of products sold		1,360,373			1,451,998		3,740,873			3,832,154
Gross profit		432,132			472,536		1,185,230			1,243,093
Operating expense:
Selling, general and administrative		295,426			328,827		940,855			976,928
Depreciation		16,986			17,731		53,553			52,779
Amortization¹		44,825			51,724		276,959			155,508
Total operating expense		357,237			398,282		1,271,367			1,185,215
Income (loss) from operations		74,895			74,254		(86,137	)		57,878
Interest expense, financing costs, and other²		35,059			38,089		96,806			116,902
Loss on debt extinguishment		-			-		14,678			-
Income (loss) before provision for income taxes		39,836			36,165		(197,621	)		(59,024	)
Provision for (benefit from) income taxes³		46,561			5,178		(44,846	)		(21,032	)
Net income (loss)	$	(6,725	)	$	30,987	$	(152,775	)	$	(37,992	)
Dividends on Preferred Stock⁴		6,000			6,000		18,000			18,000
Net income (loss) attributable to common shareholders	$	(12,725	)	$	24,987	$	(170,775	)	$	(55,992	)

Weighted-average common stock outstanding:
Basic		68,840,849			68,477,946		68,775,920			68,391,882
Diluted⁵		68,840,849			69,265,384		68,775,920			68,391,882

Net income (loss) per share⁶:
Basic	$	(0.18	)	$	0.32	$	(2.48	)	$	(0.82	)
Diluted	$	(0.18	)	$	0.32	$	(2.48	)	$	(0.82	)

________________________________________

¹	Nine months ended June 30, 2020 amount includes non-cash accelerated intangible asset amortization of $142.6 million in connection with the Rebranding (see Notes 1 and 6 for further discussion.

²	Nine months ended June 30, 2020 amount includes a $5.6 million settlement received in connection with a class action lawsuit and a $5.3 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.

Three and nine months ended June 30, 2020 amounts include a tax provision (benefit) of $32.8 million and $(0.5) million, respectively, stemming from the revaluation of deferred tax assets and liabilities made in conjunction with the Company’s application of the CARES Act. Nine months ended June 30, 2020 amount also includes an income tax provision (benefit) of $(36.5) million stemming from a decrease of deferred tax liabilities in connection with the Rebranding (see Note 14 for further discussion).

⁴

Three months ended June 30, 2020 and 2019 amounts are composed of $5.0 million in accrued cumulative Preferred Stock dividends and an additional $1.0 million of Preferred Stock dividends that had been declared and paid as of period end. Nine months ended June 30, 2020 and 2019 amounts are composed of $5.0 million in accrued cumulative Preferred Stock dividends and an additional $13.0 million of Preferred Stock dividends that had been declared and paid as of period end.

⁵	Amounts do not include 9,694,619 shares issuable upon conversion of the Company’s participating Preferred Stock because such conversion would be anti-dilutive (see Note 4 for further discussion).

⁶	See Note 4 for detailed calculations and further discussion.

See accompanying Notes to Condensed Consolidated Financial Statements

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Comprehensive Income

(Unaudited; In thousands)

	Three Months Ended June 30,					Nine Months Ended June 30,
	2020			2019		2020			2019
Net income (loss)	$	(6,725	)	$	30,987	$	(152,775	)	$	(37,992	)
Other comprehensive income (loss):
Foreign currency translation adjustment		2,851			1,542		(2,317	)		(848	)
Unrealized gain (loss) due to change in fair value of derivatives, net of tax		(1,282	)		-		(14,639	)		-
Total other comprehensive income (loss)		1,569			1,542		(16,956	)		(848	)
Comprehensive income (loss)	$	(5,156	)	$	32,529	$	(169,731	)	$	(38,840	)

See accompanying Notes to Condensed Consolidated Financial Statements

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited; In thousands, except share amounts)

											Accumulated
					Additional						Other			Total
	Common Stock				Paid-in			Retained			Comprehensive			Stockholders'
	Shares		Amount		Capital			Earnings			Income (Loss)			Equity
Three Months Ended June 30, 2019
Balance as of March 31, 2019		68,475,871	$	684	$	1,073,243		$	752,855		$	(19,640	)	$	1,807,142
Issuance of common stock, net of shares withheld for taxes		4,880		-		73			-			-			73
Stock-based compensation		-		-		4,637			-			-			4,637
Other comprehensive income (loss)		-		-		-			-			1,542			1,542
Net income (loss)		-		-		-			30,987			-			30,987
Dividends on Preferred Stock		-		-		-			(6,000	)		-			(6,000	)
Balance as of June 30, 2019		68,480,751	$	684	$	1,077,953		$	777,842		$	(18,098	)	$	1,838,381

Three Months Ended June 30, 2020
Balance as of March 31, 2020		68,836,258	$	688	$	1,091,469		$	641,172		$	(39,121	)	$	1,694,208
Issuance of common stock, net of shares withheld for taxes		34,660		-		148			-			-			148
Stock-based compensation		-		-		3,532			-			-			3,532
Other comprehensive income (loss)		-		-		-			-			1,569			1,569
Net income (loss)		-		-		-			(6,725	)		-			(6,725	)
Dividends on Preferred Stock		-		-		-			(6,000	)		-			(6,000	)
Balance as of June 30, 2020		68,870,918	$	688	$	1,095,149		$	628,447		$	(37,552	)	$	1,686,732


Nine Months Ended June 30, 2019
Balance as of September 30, 2018		68,135,790	$	681	$	1,067,040		$	833,834		$	(17,250	)	$	1,884,305
Issuance of common stock, net of shares withheld for taxes		344,961		3		(1,988	)		-			-			(1,985	)
Stock-based compensation		-		-		12,901			-			-			12,901
Other comprehensive income (loss)		-		-		-			-			(848	)		(848	)
Net income (loss)		-		-		-			(37,992	)		-			(37,992	)
Dividends on Preferred Stock		-		-		-			(18,000	)		-			(18,000	)
Balance as of June 30, 2019		68,480,751	$	684	$	1,077,953		$	777,842		$	(18,098	)	$	1,838,381

Nine Months Ended June 30, 2020
Balance as of September 30, 2019		68,574,176	$	685	$	1,083,042		$	799,222		$	(20,596	)	$	1,862,353
Issuance of common stock, net of shares withheld for taxes		296,742		3		(1,242	)		-			-			(1,239	)
Stock-based compensation		-		-		13,349			-			-			13,349
Other comprehensive income (loss)		-		-		-			-			(16,956	)		(16,956	)
Net income (loss)		-		-		-			(152,775	)		-			(152,775	)
Dividends on Preferred Stock		-		-		-			(18,000	)		-			(18,000	)
Balance as of June 30, 2020		68,870,918	$	688	$	1,095,149		$	628,447		$	(37,552	)	$	1,686,732

See accompanying Notes to Condensed Consolidated Financial Statements

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Cash Flows

(Unaudited; In thousands)

	Nine Months Ended June 30,
	2020			2019
Operating Activities
Net income (loss)	$	(152,775	)	$	(37,992	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		330,513			208,287
Stock-based compensation		13,349			12,901
Certain interest expense and other financing costs		8,608			9,077
Beneficial lease amortization		-			1,714
Loss on debt extinguishment		14,678			-
Gain on sale of fixed assets		(2,008	)		(3,470	)
Deferred income taxes		(41,163	)		3,195
338(h)(10) election refund¹		(5,282	)		-
Changes in operating assets and liabilities:
Accounts receivable		113,277			10,970
Inventories		65,817			(188,213	)
Prepaid expenses and other current assets		4,790			(117,520	)
Accounts payable and accrued expenses		(102,565	)		(93,908	)
Other assets and liabilities		3,210			62
Net cash provided by (used in) operating activities		250,449			(194,897	)

Investing Activities
Purchases of property and equipment		(31,397	)		(44,337	)
Acquisition of businesses, net¹		5,282			(163,973	)
Proceeds from the sale of assets		2,399			6,200
Net cash provided by (used in) investing activities		(23,716	)		(202,110	)

Financing Activities
Borrowings under revolving lines of credit		2,037,212			1,734,476
Payments under revolving lines of credit		(1,271,233	)		(1,404,836	)
Payments under term loan		(7,275	)		(7,275	)
Borrowings under senior notes		300,000			-
Payment under senior notes		(309,564	)		-
Payment of debt issuance costs		(3,900	)		-
Payments under equipment financing facilities and finance leases		(6,446	)		(7,602	)
Payment of dividends on Preferred Stock		(18,000	)		(18,000	)
Proceeds from issuance of common stock related to equity awards		1,627			1,654
Payment of taxes related to net share settlement of equity awards		(2,866	)		(3,639	)
Net cash provided by (used in) financing activities		719,555			294,778

Effect of exchange rate changes on cash and cash equivalents		(199	)		31

Net increase (decrease) in cash and cash equivalents		946,089			(102,198	)
Cash and cash equivalents, beginning of period		72,287			129,927
Cash and cash equivalents, end of period	$	1,018,376		$	27,729

Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	116,153		$	138,686
Income taxes paid (received), net of refunds		(379	)		(8,784	)

__________________________________________________

¹	Related to a gain recognized for a partial refund of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the Allied Acquisition.

See accompanying Notes to Condensed Consolidated Financial Statements

BEACON ROOFING SUPPLY, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Company Overview

Beacon Roofing Supply, Inc. (“Beacon” or the “Company”) was incorporated in the state of Delaware on August 22, 1997 and is the largest publicly traded distributor of roofing materials and complementary building products in the United States and Canada.

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

As of June 30, 2020, the Company operated 524 branches throughout all 50 states in the U.S. and 6 provinces in Canada. The Company’s material subsidiaries are Beacon Sales Acquisition, Inc. and Beacon Roofing Supply Canada Company.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company prepared the condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the requirements of the Securities and Exchange Commission (“SEC”). As permitted under those rules, certain footnotes or other financial information have been condensed or omitted. Certain prior period amounts have been reclassified to conform to current period presentation. The balance sheet as of June 30, 2019 has been presented for a better understanding of the impact of seasonal fluctuations on the Company’s financial condition.

In management’s opinion, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results. The results for the three and nine months ended June 30, 2020 are not necessarily indicative of the results to be expected for the twelve months ending September 30, 2020 (“fiscal year 2020” or “2020”).

The three-month periods ended June 30, 2020 and 2019 each had 64 business days. The nine-month periods ended June 30, 2020 and 2019 had 190 and 189 business days, respectively.

These interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in the Company’s fiscal year 2019 (“2019”) Annual Report on Form 10-K for the year ended September 30, 2019.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Significant items subject to such estimates include accounts receivable, inventories, purchase price allocations, goodwill and intangibles, and income taxes. Assumptions made in the development of these estimates contemplate the impact of the novel coronavirus (“COVID‑19”) on the economy and our anticipated results; however, actual amounts could differ materially from these estimates.

Recent Accounting Pronouncements—Adopted

In February 2016, the FASB issued ASU 2016-02, “Leases.” This guidance replaces most existing accounting for leases and requires enhanced disclosures. The guidance requires the Company to record a right-of-use asset and a lease liability for most of the Company’s leases, including those previously treated as operating leases. The Company adopted the standard using the modified retrospective transition method as of October 1, 2019 and will not apply the standard to comparative prior periods presented. The Company used the package of transition practical expedients outlined in the transition guidance. The most significant effects of the new standard were the recognition of $483.5 million of operating lease assets and $476.0 million of operating lease liabilities on October 1, 2019. As part of the adoption, the Company carried forward the assessment from the previous lease standard of whether Beacon’s contracts contain (or are) leases, the classification of leases, and remaining lease terms. The accounting for finance leases remains unchanged. The adoption of the new standard did not have a material impact on the Company’s consolidated results of operations or cash flows (see Note 8 for further discussion).

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income.” This guidance is intended to address the accounting treatment for the tax effects on items within accumulated other comprehensive income as a result

of the adoption of the Tax Cuts and Jobs Act of 2017. This new standard became effective for the Company on October 1, 2019. The adoption of this new guidance did not have a material impact on the Company’s financial statements and related disclosures.

Recent Accounting Pronouncements—Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments.” This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This new standard 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 Company is currently evaluating the impact that this guidance may have on its financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Accounting for Goodwill Impairment.” This guidance is intended to introduce a simplified approach to measurement of goodwill impairment, eliminating the need for a hypothetical purchase price allocation and instead measuring impairment by the amount a reporting unit’s carrying value exceeds its fair value. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2019, and early adoption is permitted. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements and related disclosures.

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

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

3. Net Sales

The following table presents the Company’s net sales by product line and geography for each period presented (in thousands):

	U.S.		Canada		Total
Three Months Ended June 30, 2019
Residential roofing products	$	829,643	$	18,616	$	848,259
Non-residential roofing products		439,516		32,589		472,105
Complementary building products		601,764		2,406		604,170
Total net sales	$	1,870,923	$	53,611	$	1,924,534

Three Months Ended June 30, 2020
Residential roofing products	$	819,684	$	17,355	$	837,039
Non-residential roofing products		401,954		25,007		426,961
Complementary building products		525,877		2,628		528,505
Total net sales	$	1,747,515	$	44,990	$	1,792,505


Nine Months Ended June 30, 2019
Residential roofing products	$	2,134,328	$	34,427	$	2,168,755
Non-residential roofing products		1,120,885		79,661		1,200,546
Complementary building products		1,701,007		4,939		1,705,946
Total net sales	$	4,956,220	$	119,027	$	5,075,247

Nine Months Ended June 30, 2020
Residential roofing products	$	2,097,817	$	33,008	$	2,130,825
Non-residential roofing products		1,125,463		75,202		1,200,665
Complementary building products		1,588,686		5,927		1,594,613
Total net sales	$	4,811,966	$	114,137	$	4,926,103

4. Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period, without consideration for common share equivalents or the conversion of Preferred Stock. Common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock unit awards. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the fully diluted weighted-average number of common shares outstanding during the period.

Holders of Preferred Stock participate in dividends on an as-converted basis when declared on common shares. As a result, Preferred Stock is classified as a participating security and thereby requires the allocation of income that would have otherwise been available to common shareholders when calculating net income (loss) per share.

Diluted net income (loss) per share is calculated by utilizing the most dilutive result of the if-converted and two-class methods. In both methods, net income (loss) attributable to common shareholders and the weighted-average common shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules.

The following table presents the components and calculations of basic and diluted net income (loss) per share for each period presented (in thousands, except share and per share amounts):

	Three Months Ended June 30,						Nine Months Ended June 30,
	2020			2019			2020			2019
Net income (loss)	$	(6,725	)	$	30,987		$	(152,775	)	$	(37,992	)
Dividends on Preferred Stock		6,000			6,000			18,000			18,000
Net income (loss) attributable to common shareholders	$	(12,725	)	$	24,987		$	(170,775	)	$	(55,992	)
Undistributed income allocated to participating securities		-			(3,099	)		-			-
Net income (loss) attributable to common shareholders - basic and diluted	$	(12,725	)	$	21,888		$	(170,775	)	$	(55,992	)

Weighted-average common shares outstanding - basic		68,840,849			68,477,946			68,775,920			68,391,882
Effect of common share equivalents		-			787,438			-			-
Weighted-average common shares outstanding - diluted		68,840,849			69,265,384			68,775,920			68,391,882

Net income (loss) per share - basic	$	(0.18	)	$	0.32		$	(2.48	)	$	(0.82	)
Net income (loss) per share - diluted	$	(0.18	)	$	0.32		$	(2.48	)	$	(0.82	)

The following table includes the number of shares that may be dilutive common shares in the future. These shares were not included in the computation of diluted net income (loss) per share because the effect was either anti-dilutive or the requisite performance conditions were not met:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Stock options		2,312,587		735,324		2,104,303		1,274,921
Restricted stock units		376,135		48,927		402,810		147,585
Preferred Stock		9,694,619		9,694,619		9,694,619		9,694,619

5. Stock-based Compensation

On December 23, 2019, the Board of Directors of the Company approved the Beacon Roofing Supply, Inc. Second Amended and Restated 2014 Stock Plan (the “2014 Plan”). On February 11, 2020, the shareholders of the Company approved an additional 4,850,000 shares under the 2014 Plan. The 2014 Plan, which was originally approved by the shareholders on February 12, 2014, provides for discretionary awards of stock options, stock awards, restricted stock units, and stock appreciation rights to selected employees and non-employee directors. The 2014 Plan mandates that all forfeited, expired, and withheld shares, including those from the predecessor plan, be returned to the 2014 Plan and made available for issuance. As of June 30, 2020, there were 5,504,269 shares of common stock available for issuance under the 2014 Plan. The 2014 Plan is the only plan maintained by the Company pursuant to which equity awards are granted.

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

Stock Options

Non-qualified stock options granted to employees generally expire 10 years after the grant date and are subject to continued employment and vest evenly in three annual installments over the three-year period following the grant date.

The fair value of the stock options granted during the nine months ended June 30, 2020 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Risk-free interest rate	1.61	%
Expected volatility	34.26	%
Expected life (in years)	5.26
Dividend yield	-

The following table summarizes all stock option activity for the nine months ended June 30, 2020 (in thousands, except share, per share, and time period amounts):

	Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value¹
Balance as of September 30, 2019		2,339,489		$	32.61		6.1	$	12,034
Granted		450,532			31.95
Exercised		(85,637	)		19.00
Canceled/Forfeited		(60,330	)		33.30
Expired		(11,745	)		31.68
Balance as of June 30, 2020		2,632,309		$	32.93		6.1	$	3,495
Vested and expected to vest after June 30, 2020		2,583,242		$	32.97		6.0	$	3,461
Exercisable as of June 30, 2020		1,727,570		$	33.41		4.7	$	3,115

______________________________________________________

¹	Aggregate intrinsic value represents the difference between the closing fair value of the underlying common stock and the exercise price of outstanding options that are in-the-money on the date of measurement.

During the three months ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense related to stock options of $1.1 million and $1.0 million, respectively. During the nine months ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense related to stock options of $3.3 million and $3.1 million, respectively. As of June 30, 2020, there was $6.1 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.9 years.

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

	Nine Months Ended June 30,
	2020		2019
Weighted-average fair value of stock options granted	$	10.35	$	8.77
Total grant date fair value of stock options vested		4,057		3,825
Total intrinsic value of stock options exercised		1,167		1,409

Restricted Stock Units

Restricted stock unit (“RSU”) awards granted to employees are subject to continued employment and generally vest on the third anniversary of the grant date. The Company also grants certain RSU awards to management that contain one or more additional vesting conditions tied directly to a defined performance metric for the Company. The actual number of RSUs that will vest can range from 0% to 200% of the original grant amount, depending upon the terms of the award and actual Company performance above or below the established performance metric targets. The Company estimates performance in relation to the defined targets when determining the projected number of RSUs that are expected to vest and calculating the related stock-based compensation expense.

RSUs granted to non-employee directors are subject to continued service and vest on the first anniversary of the grant date (except under certain conditions). Generally, the common shares underlying the RSUs are not eligible for distribution until the non-employee director’s service on the Board has terminated, and for non-employee director RSU grants made prior to fiscal year 2014, the share distribution date is six months after the director’s termination of service on the board. Beginning in fiscal year 2016, the Company enacted a policy that allows any non-employee directors who have Beacon equity holdings (defined as common stock and outstanding vested equity awards) with a total fair value that is greater than or equal to five times the annual Board cash retainer to elect to have their RSU grant settle simultaneously with vesting. Eligibility is determined annually based on the value of the non‑employee directors’ Beacon equity holdings as of December 1. Elections must be made by December 31 and apply only to the RSU grant following the election.

The following table summarizes all restricted stock unit activity for the nine months ended June 30, 2020:

	RSUs Outstanding			Weighted-Average Grant Date Fair Value
Balance as of September 30, 2019		1,123,358		$	37.48
Granted		467,069			31.82
Released		(297,095	)		44.89
Canceled/Forfeited		(48,464	)		31.47
Balance as of June 30, 2020		1,244,868		$	33.65
Vested and expected to vest after June 30, 2020		964,026		$	34.92

During the three months ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense related to restricted stock units of $2.4 million and $3.6 million, respectively. During the nine months ended June 30, 2020 and 2019, the Company recorded stock-based compensation expense related to restricted stock units of $10.0 million and $9.8 million, respectively. As of June 30, 2020, there was $15.4 million of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 1.8 years.

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

	Nine Months Ended June 30,
	2020		2019
Weighted-average fair value of RSUs granted	$	31.82	$	27.77
Total grant date fair value of RSUs vested		14,333		15,978
Total intrinsic value of RSUs released		9,779		11,375

6. Goodwill and Intangible Assets

Given the adverse impact of the COVID-19 pandemic on global markets, the Company performed impairment analyses over its intangible assets and goodwill and concluded there was no impairment as of June 30, 2020.

Goodwill

The following table sets forth the change in the carrying amount of goodwill during the nine months ended June 30, 2020 and 2019, respectively (in thousands):

Balance as of September 30, 2018	$	2,491,779
Acquisitions¹		(513	)
Translation and other adjustments		(326	)
Balance as of June 30, 2019	$	2,490,940


Balance as of September 30, 2019	$	2,490,590
Translation and other adjustments		(830	)
Balance as of June 30, 2020	$	2,489,760

_____________________________

Reflects purchase accounting adjustments related to fiscal year 2018 acquisition of Atlas Supply, Inc.

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

Intangible Assets

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

	June 30, 2020			September 30, 2019			June 30, 2019			Weighted-Average Remaining Life¹ (Years)
Amortizable intangible assets:
Non-compete agreements	$	200		$	2,824		$	2,824			1.9
Customer relationships		1,483,333			1,530,970			1,531,061			16.7
Trademarks		7,200			10,500			10,500			6.3
Beneficial lease arrangements		-			8,060			8,060			-
Total amortizable intangible assets		1,490,733			1,552,354			1,552,445
Accumulated amortization		(696,849	)		(619,864	)		(567,801	)
Total amortizable intangible assets, net	$	793,884		$	932,490		$	984,644
Indefinite-lived trademarks		51,333			193,050			193,050
Total intangibles, net	$	845,217		$	1,125,540		$	1,177,694

_________________________________________

¹	As of June 30, 2020.

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.

During the three months ended June 30, 2020 and 2019, the Company recorded $44.8 million and $51.7 million of amortization expense relating to the above-listed intangible assets, respectively. During the nine months ended June 30, 2020 and 2019, the Company recorded $277.0 million and $155.5 million of amortization expense relating to the above-listed intangible assets, respectively. The intangible asset lives range from 5 to 20 years and have a weighted-average remaining life of 16.6 years as of June 30, 2020.

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

Year Ending September 30,
2020 (Jul - Sept)	$	44,064
2021		147,870
2022		120,438
2023		97,326
2024		78,693
Thereafter		305,493
Total future amortization expense	$	793,884

7. Financing Arrangements

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

	June 30, 2020			September 30, 2019			June 30, 2019
Revolving Lines of Credit
2023 ABL:
U.S. Revolver¹	$	848,736		$	80,961		$	412,549
Canada Revolver²		-			-			11,462
Current portion		-			-			-
Borrowings under revolving lines of credit, net	$	848,736		$	80,961		$	424,011

Long-term Debt, net
Term Loans:
2025 Term Loan³	$	923,390		$	926,535		$	927,582
Current portion		(9,700	)		(9,700	)		(9,700	)
Long-term borrowings under term loan		913,690			916,835			917,882
Senior Notes:
2023 Senior Notes⁴		-			294,886			294,566
2025 Senior Notes⁵		1,285,010			1,282,902			1,282,200
2026 Senior Notes⁶		295,774			-			-
Current portion		-			-			-
Long-term borrowings under senior notes		1,580,784			1,577,788			1,576,766
Long-term debt, net	$	2,494,474		$	2,494,623		$	2,494,648

Equipment Financing Facilities, net
Equipment financing facilities⁷	$	3,558		$	6,885		$	7,981
Capital lease obligations⁸		-			6,713			8,017
Current portion		(3,158	)		(8,989	)		(9,666	)
Long-term obligations under equipment financing, net	$	400		$	4,609		$	6,332

____________________________________________________________

¹	Effective rate on borrowings of 2.08%, 5.41% and 3.98% as of June 30, 2020, September 30, 2019 and June 30, 2019, respectively.

²	Effective rate on borrowings of 4.45% as of June 30, 2019.

³	Interest rate of 2.42%, 4.36% and 4.75% as of June 30, 2020, September 30, 2019 and June 30, 2019, respectively.

⁴	Interest rate of 6.38% as of September 30, 2019 and June 30, 2019.

⁵	Interest rate of 4.88% for all periods presented.

⁶	Interest rate of 4.50% as of June 30, 2020.

⁷	Fixed interest rates ranging from 2.33% to 2.89% for all periods presented.

⁸

As of October 1, 2019, in connection with the adoption of ASU 2016-02, capital lease obligations that were formerly included in equipment financing facilities are included either in accrued expenses or other long-term liabilities on the consolidated balance sheets (see Notes 2 and 8 for further 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 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 $4.7 million related to the 2026 Senior Notes, which are being amortized over the term of the financing arrangements.

As of June 30, 2020, the outstanding balance on the 2026 Senior Notes, net of $4.2 million of unamortized debt issuance costs, was $295.8 million.

Financing - Allied Acquisition

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

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

2023 ABL

On January 2, 2018, the Company entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2023 ABL consists of revolving loans in both the United States (“2023 U.S. Revolver”) in the amount of $1.20 billion and Canada (“2023 Canada Revolver”) in the amount of $100.0 million. The 2023 ABL has a maturity date of January 2, 2023. The 2023 ABL has various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The current unused commitment fees on the 2023 ABL are 0.25% per annum.

There is one financial covenant under the 2023 ABL, which is the Fixed Charge Coverage Ratio (the “FCCR”). The FCCR is calculated by dividing Consolidated EBITDA, less Capital Expenditures, by Consolidated Fixed Charges (all terms as defined in the agreement). Per the covenant, the Company’s FCCR must be a minimum of 1.00 at the end of each fiscal quarter, calculated on a trailing four quarter basis (or under certain circumstances, at the end of each fiscal month, calculated on a trailing twelve-month basis.) Compliance is only required at such times as borrowing availability (subject to certain adjustments) is less than the greater of (i) 10% of the lesser of the borrowing base or the aggregate commitments or (ii) $90.0 million, and for a period of thirty days thereafter. The Company was in compliance with this covenant as of June 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 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 three months ended June 30, 2020, we used a portion of our operating cash flows to repay approximately $153.5 million of the balance of our revolving lines of credit. As of June 30, 2020, the total balance outstanding on the 2023 ABL, net of $6.3 million of unamortized debt issuance costs, was $848.7 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 June 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 on a LIBOR rate (with a floor) plus a fixed spread.

The Company has the option of selecting a LIBOR period that determines the rate at which interest can accrue on the Term Loan as well as the period in which interest payments are made.

The 2025 Term Loan is secured by a first priority lien on the Term Priority Collateral and a second priority lien on the ABL Priority Collateral. Certain excluded assets will not be included in the Term Priority Collateral and the ABL Priority Collateral. The Term Loan is guaranteed jointly, severally, fully and unconditionally by the Company’s active United States subsidiaries.

As of June 30, 2020, the outstanding balance on the 2025 Term Loan, net of $24.8 million of unamortized debt issuance costs, was $923.4 million.

2025 Senior Notes

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

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

As of June 30, 2020, the outstanding balance on the 2025 Senior Notes, net of $15.0 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, the Company raised $300.0 million by issuing 6.38% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes had a coupon rate of 6.38% per annum and were payable semi-annually in arrears, beginning April 1, 2016. There were early payment provisions in the indenture under which the Company would be subject to redemption premiums. On October 28, 2019, the Company redeemed all $300.0 million aggregate principal amount outstanding of the 2023 Senior Notes at a redemption price of 103.188% plus accrued interest and, as a result, wrote off $5.1 million of unamortized debt issuance costs.

Equipment Financing Facilities

As of June 30, 2020, the Company had $3.6 million outstanding under equipment financing facilities, with fixed interest rates ranging from 2.33% to 2.89% and payments due through September 2021.

8. Leases

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

In addition, the Company leases equipment such as trucks and forklifts. Equipment leases are primarily accounted for as operating leases; however, the Company also accounts for some equipment leases as finance leases. The equipment leases expire between 2020 and 2026.

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

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

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

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

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

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

	Three Months Ended June 30, 2020		Nine Months Ended June 30, 2020
Operating lease costs	$	31,191	$	93,619
Variable lease costs		2,355		7,966
Total operating lease costs	$	33,546	$	101,585

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

		Nine Months Ended June 30, 2020
Operating cash flows for operating lease liabilities		$	89,149

As of June 30, 2020, the Company’s operating leases had a weighted-average remaining lease term of 5.7 years and a weighted-average discount rate of 3.98%. Future lease payments under operating leases as of June 30, 2020 were as follows (in thousands):

Year Ending September 30,
2020 (Jul - Sept)	$	29,146
2021		111,098
2022		95,451
2023		78,567
2024		61,651
Thereafter		111,696
Total future lease payments		487,609
Imputed interest		(48,904	)
Total operating lease liabilities	$	438,705

9. Commitments and Contingencies

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

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

The Company participates in multi-employer defined benefit plans for which it is not the sponsor. 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. As of June 30, 2020, the Company had

withdrawn from the Central States Pension Fund and Local 408 Pension Fund, which were reported to have underfunded liabilities, and as a result, the Company has recorded contingent liabilities for the estimated pension plan exit costs. In July 2020, the Company reached a settlement with the Local 408 Pension Fund for an amount that was in line with the contingent liability that had been recorded as of June 30, 2020. The Company does not believe that the lump-sum contribution to exit the Central States Pension Fund will have a material impact on its results of operations.

10. Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) is composed of certain gains and losses that are excluded from net income under GAAP and instead recorded as a separate element of stockholders’ equity.

The following table summarizes the components of and changes in accumulated other comprehensive loss (in thousands):

	Foreign			Derivative			Accumulated Other
	Currency Translation			Financial Instruments			Comprehensive Loss
Balance as of September 30, 2019	$	(18,984	)	$	(1,612	)	$	(20,596	)
Other comprehensive income before reclassifications		(2,317	)		(14,639	)		(16,956	)
Reclassifications out of other comprehensive loss		-			-			-
Balance as of June 30, 2020	$	(21,301	)	$	(16,251	)	$	(37,552	)

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

11. Geographic Data

The following table summarizes certain geographic information for the periods presented (in thousands):

	June 30, 2020		September 30, 2019		June 30, 2019
Long-lived assets:
U.S.	$	1,020,458	$	1,182,552	$	1,242,767
Canada		10,379		12,373		12,161
Total long-lived assets	$	1,030,837	$	1,194,925	$	1,254,928

12. Fair Value Measurement

As of June 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 June 30, 2020, based upon recent trading prices (Level 2), the fair value of the Company’s $300.0 million Senior Notes due in 2026 was $295.5 million and the fair value of the $1.30 billion Senior Notes due 2025 was $1.16 billion.

As of June 30, 2020, the fair value of the Company’s term loan and revolving lines of credit approximated the amount outstanding. The Company estimates the fair value of its term loan and revolving lines of credit by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles (Level 3).

13. Financial Derivatives

The Company uses interest rate derivative instruments to manage the risk related to fluctuating cash flows from interest rate changes by converting a portion of its variable-rate borrowings into fixed-rate borrowings.

On September 11, 2019, the Company entered into two interest rate swap agreements to manage the interest rate risk associated with the variable rate on the 2025 Term Loan (see Note 7 for further discussion). 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 June 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 June 30, 2020, the fair value of the 3‑year and 5‑year swaps, net of tax, were $5.7 million and $10.5 million, respectively, both in favor of the counterparty. These amounts are included in accrued expenses in the accompanying consolidated balance sheets.

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

		Assets/(Liabilities) as of:
Instrument	Fair Value Hierarchy	June 30, 2020			September 30, 2019			June 30, 2019
Designated interest rate swaps¹	Level 2	$	(16,251	)	$	(1,612	)	$	-

_______________________

Assets are included on the consolidated balance sheets in prepaid expenses and other current assets, while liabilities are included in accrued expenses.

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

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

	Three Months Ended June 30,					Nine Months Ended June 30,
Instrument	2020			2019		2020			2019
Designated interest rate swaps	$	(1,282	)	$	-	$	(14,639	)	$	-

14. Income Taxes

The Company recorded a provision for (benefit from) income taxes of $46.6 million and $5.2 million for the three months ended June 30, 2020 and 2019, respectively. The Company recorded a provision for (benefit from) income taxes of $(44.8) million and $(21.0) million for the nine months ended June 30, 2020 and 2019, respectively. Significant events impacting the provision for (benefit from) income taxes for three- and nine-month periods ended June 30, 2020 were as follows:

•

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. The impact of this provision is driven by forecasts for taxable income (loss) and projected temporary tax adjustments, which have been updated since initial measurement as part of the Company’s ongoing analysis on the impact of the COVID-19 pandemic on operating results. The result was the recognition of an income tax provision (benefit) of $32.8 million and $(0.5) million for the three and nine months ended June 30, 2020, respectively.

•

In the second quarter of fiscal year 2020, in connection with the Rebranding, the Company recognized an income tax provision (benefit) of $(36.5) million stemming from a decrease of its deferred tax liabilities, which is reflected in its consolidated statement of operations for the nine months ended June 30, 2020. The Company determined that the Rebranding was an unusual or infrequent occurring item; therefore, the tax effect is recognized in the interim period in which the transaction arose.

Other provisions in the CARES Act that will impact the Company in future periods 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.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto and Management’s Discussion and Analysis included in our 2019 Annual Report on Form 10-K and our Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this document. Unless otherwise indicated, references to “2020” refer to the three or nine months ended June 30, 2020 being discussed and references to “2019” refer to the three or nine months ended June 30, 2019 being discussed. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

Overview

We are the largest publicly traded distributor of roofing materials and complementary building products in the United States and Canada. We are among the oldest and most established distributors in the industry. The complementary building products we distribute include siding, windows, insulation, waterproofing systems, wallboard, acoustical ceilings, and other specialty exterior and interior building products. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors and, to a lesser extent, home builders, retailers, and other building materials suppliers.

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

As of June 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 and private label products in the industry with approximately 140,000 SKUs available across our branch network, enabling us to deliver products to serve over 110,000 customers on a timely basis.

Effective execution of both our sales and operating plans enables us to grow beyond the relative strength of the markets we serve. Our business model is a bottom-up approach, where each of our branches uses its 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+, an in-home visualizer and dynamic modeling tool for our residential customers. These platforms help our customers save time, work more efficiently and grow their business. Additional value-added services we offer include, but are not limited to, job site delivery, custom designed tapered roofing systems, metal fabrication and trade credit. We consider customer relations and our employees’ knowledge of roofing and building materials to be vital to our ability to increase customer loyalty and maintain customer satisfaction. Our customers’ business success can be enhanced when they are supported by our efficient and effective distribution network. We invest significant resources in professional development, management skills, product knowledge, and operational proficiency. We pride ourselves on providing these capabilities developed on a foundation of continuous improvement that drives service excellence, productivity and efficiency.

We seek opportunities to expand our business operations through both acquisitions and organic growth (opening branches, growing sales with existing customers, adding new customers and introducing new products). Our main acquisition strategy is to target market leaders that do business in geographic areas that we currently do not service or that complement our existing regional operations. We pursue organic growth opportunities that allow us to penetrate deeper into target markets and establish a greater presence. The most recent successful execution of our growth strategy is summarized by the following:

•

On January 2, 2018, we completed the acquisition of Allied Building Products Corp. (“Allied”), one of the country’s largest exterior and interior building products distributors, for $2.88 billion (the “Allied Acquisition”). This significant acquisition expanded our geographic footprint, enhanced our scale and market presence, diversified our product offerings, and positioned us to provide new growth opportunities that will increase our long-term profitability.

•

We opened five new branches in fiscal year 2020 to date, including locations in Georgia, Louisiana, Ohio, Oregon, and Virginia. In fiscal year 2019, we opened a total of nine new branch locations across Alabama, California, Florida, Nevada, North Carolina, Pennsylvania and Texas.

Recent Developments

COVID-19 Pandemic

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

In this unprecedented time, we continue to emphasize the health and safety of our employees, customers and the communities in which we operate. Amid the current COVID-19 backdrop, we have implemented a number of measures 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 commercial construction markets. We continue to serve customers in every way possible, and our online platform has stood out as an increasingly valuable tool in this current remote operating environment.

Our average daily sales levels for the three and nine months ended June 30, 2020 decreased 6.9% and 3.4%, respectively, compared to the prior year. Our average daily sales for the month of July 2020 were down approximately 1.4% compared to the prior year period.

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 have taken meaningful actions to improve our financial flexibility and ensure the strength of our balance sheet, and we are prepared to take additional steps to appropriately manage the business through this uncertain period. We are also monitoring input costs to ensure we are well-positioned to take advantage of any opportunities that present themselves over the next several quarters.

Comparison of the Three Months Ended June 30, 2020 and 2019

The following tables set forth consolidated statement of operations data and such data as a percentage of total net sales for the periods presented (in thousands):

	Three Months Ended June 30,
	2020			2019
Net sales	$	1,792,505		$	1,924,534
Cost of products sold		1,360,373			1,451,998
Gross profit		432,132			472,536
Operating expense:
Selling, general and administrative		295,426			328,827
Depreciation		16,986			17,731
Amortization		44,825			51,724
Total operating expense		357,237			398,282
Income (loss) from operations		74,895			74,254
Interest expense, financing costs, and other		35,059			38,089
Loss on debt extinguishment		-			-
Income (loss) before provision for income taxes		39,836			36,165
Provision for (benefit from) income taxes		46,561			5,178
Net income (loss)	$	(6,725	)	$	30,987
Dividends on Preferred Stock		6,000			6,000
Net income (loss) attributable to common shareholders	$	(12,725	)	$	24,987

	Three Months Ended June 30,
	2020			2019
Net sales		100.0	%		100.0	%
Cost of products sold		75.9	%		75.4	%
Gross profit		24.1	%		24.6	%
Operating expense:
Selling, general and administrative		16.5	%		17.1	%
Depreciation		0.9	%		0.9	%
Amortization		2.5	%		2.7	%
Total operating expense		19.9	%		20.7	%
Income (loss) from operations		4.2	%		3.9	%
Interest expense, financing costs, and other		2.0	%		2.0	%
Loss on debt extinguishment		0.0	%		0.0	%
Income (loss) before provision for income taxes		2.2	%		1.9	%
Provision for (benefit from) income taxes		2.6	%		0.3	%
Net income (loss)		(0.4	%)		1.6	%
Dividends on Preferred Stock		0.3	%		0.3	%
Net income (loss) attributable to common shareholders		(0.7	%)		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 June 30, 2020, we had a total of 524 branches in operation. All 524 branches were acquired prior to the start of the third quarter of fiscal year 2019 and therefore meet our existing market definition. As a result, operating results for existing markets are equal to consolidated operating results for all periods presented.

Net Sales

Net sales decreased 6.9% to $1.79 billion in 2020, from $1.92 billion in 2019. The comparative decrease in net sales was influenced by softer demand early in the quarter resulting from government restrictions in reaction to the COVID-19 pandemic, partially offset by stable sales in states/provinces with fewer restrictions.

Net sales by geographic region increased (decreased) from 2019 to 2020 as follows: Northeast (17.5%); Mid-Atlantic (2.3%); Southeast 6.4%; Southwest (10.6%); Midwest (0.9%); West (12.7%); and Canada (16.1%).

We estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins (discussed below).

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

	Three Months Ended June 30,
	2020					2019					Change
	Net Sales		%			Net Sales		%			$			%
Residential roofing products	$	837,039		46.7	%	$	848,259		44.1	%	$	(11,220	)		(1.3	%)
Non-residential roofing products		426,961		23.8	%		472,105		24.5	%		(45,144	)		(9.6	%)
Complementary building products		528,505		29.5	%		604,170		31.4	%		(75,665	)		(12.5	%)
Total net sales	$	1,792,505		100.0	%	$	1,924,534		100.0	%	$	(132,029	)		(6.9	%)

Gross Profit

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

	Three Months Ended June 30,						Change¹
	2020			2019			$			%
Gross profit	$	432,132		$	472,536		$	(40,404	)		(8.6	%)
Gross margin		24.1	%		24.6	%	N/A				(0.5	%)

___________________________________________________________

Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.

Gross margin was 24.1% in 2020, down 0.5% from 24.6% in 2019. The comparative decrease in gross margin resulted from an unfavorable move in combined product price/cost of less than 1%, partially offset by a favorable product mix shift.

Operating Expense

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

	Three Months Ended June 30,						Change¹
	2020			2019			$			%
Operating expense	$	357,237		$	398,282		$	(41,045	)		(10.3	%)
% of net sales		19.9	%		20.7	%	N/A				(0.8	%)

_________________________________________________________________

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 decreased 10.3% to $357.2 million in 2020, from $398.3 million in 2019. The comparative decrease in operating expense was significantly influenced 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 effects:

•

a $24.8 million decrease in payroll and employee benefit costs, mainly due to reductions in both hours worked and headcount;

•

a $7.5 million decrease in selling expense, mainly due to a decrease in fleet costs;

•

a $7.4 million decrease in general and administrative expense, mainly due to a decrease in travel; and

•

a $6.9 million decrease in amortization expense;

partially offset by:

•

an $8.3 million increase in bad debt expense, mainly due to a customer bankruptcy that increased bad debt expense by approximately $5.0 million.

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.

Interest Expense, Financing Costs and Other

Interest expense, financing costs and other expense was $35.1 million in 2020, compared to $38.1 million in 2019. The comparative decrease is primarily due to a lower weighted-average interest rate on our outstanding debt.

Income Taxes

There was an income tax provision of $46.6 million in 2020, compared to $5.2 million in 2019. The comparative increase in income tax expense was primarily due to a net $32.8 million tax provision stemming from the adjustment of a prior quarter deferred tax benefit related to the Company’s application of the CARES Act (see Note 14 in the Notes to Condensed Consolidated Financial Statements for further discussion).

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

Net income (loss) was $(6.7) million in 2020, compared to $31.0 million in 2019. There were $6.0 million of dividends on preferred shares in both 2020 and 2019, making net income (loss) attributable to common shareholders of $(12.7) million and $25.0 million,

respectively. We calculate net income (loss) per share by dividing net income (loss), less dividends on preferred shares and adjustments for participating securities, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by utilizing the most dilutive result after applying and comparing the two-class method and if-converted method (see Note 4 in the Notes to Condensed Consolidated Financial Statements for further discussion).

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

	Three Months Ended June 30,
	2020			2019
Net income (loss)	$	(6,725	)	$	30,987
Dividends on Preferred Stock		6,000			6,000
Net income (loss) attributable to common shareholders		(12,725	)		24,987
Undistributed income allocated to participating securities		-			(3,099	)
Net income (loss) attributable to common shareholders - basic and diluted (if-converted method)	$	(12,725	)	$	21,888
Undistributed income allocated to participating securities		-			3,099
Re-allocation of undistributed income to Preferred Stock		-			(3,068	)
Net income (loss) attributable to common shareholders - diluted (two-class method)	$	(12,725	)	$	21,919

Weighted-average common shares outstanding - basic		68,840,849			68,477,946
Effect of common share equivalents		-			787,438
Weighted-average common shares outstanding - diluted (if-converted and two-class method)		68,840,849			69,265,384

Net income (loss) per share - basic	$	(0.18	)	$	0.32
Net income (loss) per share - diluted (two-class method)		(0.18	)		0.32
Net income (loss) per share - diluted (if-converted method)		(0.18	)		0.32

Comparison of the Nine Months Ended June 30, 2020 and 2019

The following tables set forth consolidated statement of operations data and such data as a percentage of total net sales for the periods presented (in thousands):

	Nine Months Ended June 30,
	2020			2019
Net sales	$	4,926,103		$	5,075,247
Cost of products sold		3,740,873			3,832,154
Gross profit		1,185,230			1,243,093
Operating expense:
Selling, general and administrative		940,855			976,928
Depreciation		53,553			52,779
Amortization		276,959			155,508
Total operating expense		1,271,367			1,185,215
Income (loss) from operations		(86,137	)		57,878
Interest expense, financing costs, and other		96,806			116,902
Loss on debt extinguishment		14,678			-
Income (loss) before provision for income taxes		(197,621	)		(59,024	)
Provision for (benefit from) income taxes		(44,846	)		(21,032	)
Net income (loss)	$	(152,775	)	$	(37,992	)
Dividends on Preferred Stock		18,000			18,000
Net income (loss) attributable to common shareholders	$	(170,775	)	$	(55,992	)

	Nine Months Ended June 30,
	2020			2019
Net sales		100.0	%		100.0	%
Cost of products sold		75.9	%		75.5	%
Gross profit		24.1	%		24.5	%
Operating expense:
Selling, general and administrative		19.1	%		19.3	%
Depreciation		1.1	%		1.0	%
Amortization		5.6	%		3.1	%
Total operating expense		25.8	%		23.4	%
Income (loss) from operations		(1.7	%)		1.1	%
Interest expense, financing costs, and other		2.0	%		2.3	%
Loss on debt extinguishment		0.3	%		0.0	%
Income (loss) before provision for income taxes		(4.0	%)		(1.2	%)
Provision for (benefit from) income taxes		(0.9	%)		(0.5	%)
Net income (loss)		(3.1	%)		(0.7	%)
Dividends on Preferred Stock		0.4	%		0.4	%
Net income (loss) attributable to common shareholders		(3.5	%)		(1.1	%)

As of June 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.

Net Sales

Net sales decreased 2.9% to $4.93 billion in 2020, from $5.08 billion in 2019. The comparative decrease in net sales was primarily influenced by softer demand resulting from government restrictions in reaction to the COVID-19 pandemic and decreased hurricane-related demand in the Mid-Atlantic and Southeast, partially offset by the continued positive impact of our industry-leading digital platform.

Net sales by geographic region increased (decreased) from 2019 to 2020 as follows: Northeast (8.0%); Mid-Atlantic (6.7%); Southeast 0.7%; Southwest (4.3%); Midwest 0.8%; West (1.1%); and Canada (4.1%).

We estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins (discussed below).

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

	Nine Months Ended June 30,
	2020					2019					Change
	Net Sales		%			Net Sales		%			$			%
Residential roofing products	$	2,130,825		43.2	%	$	2,168,755		42.7	%	$	(37,930	)		(1.7	%)
Non-residential roofing products		1,200,665		24.4	%		1,200,546		23.7	%		119			0.0	%
Complementary building products		1,594,613		32.4	%		1,705,946		33.6	%		(111,333	)		(6.5	%)
Total net sales	$	4,926,103		100.0	%	$	5,075,247		100.0	%	$	(149,144	)		(2.9	%)

Gross Profit

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

	Nine Months Ended June 30,						Change¹
	2020			2019			$			%
Gross profit	$	1,185,230		$	1,243,093		$	(57,863	)		(4.7	%)
Gross margin		24.1	%		24.5	%	N/A				(0.4	%)

________________________________

Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.

Gross margin was 24.1% in 2020, down 0.4% from 24.5% in 2019. The comparative decrease in gross margin was influenced by a price decrease of less than 1% and a product mix shift, partially offset by a net product cost decrease of less than 1%.

Operating Expense

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

	Nine Months Ended June 30,						Change¹
	2020			2019			$		%
Operating expense	$	1,271,367		$	1,185,215		$	86,152		7.3	%
% of net sales		25.8	%		23.4	%	N/A			2.4	%

________________________________

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 7.3% to $1.27 billion in 2020, from $1.19 billion in 2019. The comparative increase in operating expense was mainly influenced by:

•

a $121.5 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 effects:

•

an $18.5 million decrease in payroll and employee benefit costs, mainly due to reductions in both hours worked and headcount; and

•

a $14.5 million decrease in selling expense, mainly due to a decrease in fleet costs.

Interest Expense, Financing Costs and Other

Interest expense, financing costs and other expense was $96.8 million in 2020, compared to $116.9 million in 2019. The decrease is primarily due to:

•

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

•

a $5.3 million refund received as the final true-up of the $164.0 million payment resulting from the 338(h)(10) election made in connection with the Allied Acquisition; and

•

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

Income Taxes

There was an income tax benefit of $44.8 million in 2020, compared to $21.0 million in 2019. The comparative increase in income tax benefit was primarily due to tax benefits from deferred tax adjustments of $36.5 million related to the Rebranding.

The effective tax rate, excluding any discrete items, was (18.3%) in 2020, compared to 36.5% in 2019. We expect our fiscal year 2020 effective tax rate, excluding any discrete items, will range from approximately (18.0%) to (20.0%).

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

Net income (loss) was $(152.8) million in 2020, compared to $(38.0) million in 2019. There were $18.0 million of dividends on preferred shares in both 2020 and 2019, making net income (loss) attributable to common shareholders $(170.8) million and $(56.0) million, respectively. We calculate net income (loss) per share by dividing net income (loss), less dividends on preferred shares and adjustments for participating securities, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by utilizing the most dilutive result after applying and comparing the two-class method and if-converted method (see Note 4 in the Notes to Condensed Consolidated Financial Statements for further discussion).

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

	Nine Months Ended June 30,
	2020			2019
Net income (loss)	$	(152,775	)	$	(37,992	)
Dividends on Preferred Stock		18,000			18,000
Net income (loss) attributable to common shareholders		(170,775	)		(55,992	)
Undistributed income allocated to participating securities		-			-
Net income (loss) attributable to common shareholders - basic and diluted (if-converted method)	$	(170,775	)	$	(55,992	)
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)	$	(170,775	)	$	(55,992	)

Weighted-average common shares outstanding, basic		68,775,920			68,391,882
Effect of common share equivalents		-			-
Weighted-average common shares outstanding - diluted (if-converted and two-class method)		68,775,920			68,391,882

Net income (loss) per share - basic	$	(2.48	)	$	(0.82	)
Net income (loss) per share - diluted (two-class method)		(2.48	)		(0.82	)
Net income (loss) per share - diluted (if-converted method)		(2.48	)		(0.82	)

Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, we prepare certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), specifically:

•

Adjusted Net Income (Loss)

•

Adjusted EBITDA

We define Adjusted Net Income (Loss) as net income excluding the impact of acquisition costs, business restructuring costs, the effects of tax reform, and the direct financial impact of the COVID-19 pandemic. We define Adjusted EBITDA as net income excluding the impact of interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, acquisition costs, business restructuring costs, and the direct financial impact of the COVID-19 pandemic.

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

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

While we believe that these non-GAAP measures are useful to investors when evaluating our business, they are not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature. These non-GAAP measures should not be considered in isolation or as a substitute for other financial performance measures presented in accordance with GAAP.

These non-GAAP financial measures may have material limitations including, but not limited to, the exclusion of certain costs without a corresponding reduction of net income for the income generated by the assets to which the excluded costs are related. In addition, these non-GAAP financial measures may differ from similarly titled measures presented by other companies.

Adjusted Net Income (Loss)

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

	Three Months Ended June 30,						Nine Months Ended June 30,
	2020			2019			2020			2019
Net income (loss)	$	(6,725	)	$	30,987		$	(152,775	)	$	(37,992	)
Adjustments:
Acquisition costs¹		48,416			60,482			142,925			185,922
Business restructuring costs²		2,846			1,664			167,836			1,664
COVID-19 impact³		36,216			-			2,894			-
Effects of tax reform		-			-			-			(462	)
Total adjustments		87,478			62,146			313,655			187,124
Tax impact of total adjustments⁴		(11,271	)		(20,563	)		(75,550	)		(54,946	)
Total adjustments, net of tax		76,207			41,583			238,105			132,178
Adjusted Net Income (Loss)	$	69,482		$	72,570		$	85,330		$	94,186

_______________________________

¹	The following table presents a breakout of the components of acquisition costs for each of the periods indicated:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Amortization of intangible assets	$	44,825	$	51,724	$	134,310	$	155,508
Costs classified as selling, general, and administrative^a		1,588		5,733		7,887		21,337
Non-operating (income) expenses^b		2,003		3,025		728		9,077
Total acquisition costs	$	48,416	$	60,482	$	142,925	$	185,922

__________________________________

^a.

Mainly composed of professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses.

^b.

Amounts include the amortization of debt issuance costs. For the nine months ended June 30, 2020, amounts are offset by a $5.3 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.

²	The following table presents a breakout of the components of business restructuring costs for each of the periods indicated:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2020		2019		2020		2019
Amortization in connection with the Rebranding	$	-	$	-	$	142,649	$	-
Costs classified as selling, general, and administrative^a		1,069		1,664		1,890		1,664
Non-operating (income) expenses^b		1,777		-		23,297		-
Total business restructuring costs	$	2,846	$	1,664	$	167,836	$	1,664

__________________________________

^a.

Mainly composed of costs stemming from headcount rationalization efforts and certain Rebranding costs.

^b.

Amounts include accrued estimated costs related to employee benefit plan withdrawals and amortization of debt issuance costs. Nine months ended June 30, 2020 amount also includes a loss on debt extinguishment of $14.7 million in connection with the October 2019 debt refinancing.

Three and nine months ended June 30, 2020 amounts include a tax provision (benefit) of $32.8 million and $(0.5) million, respectively, stemming from the revaluation of deferred tax assets and liabilities made in conjunction with the Company’s application of the CARES Act (see Note 14 in the Notes to Condensed Consolidated Financial Statements for further discussion). Three and nine months ended June 30, 2020 amounts also include $3.4 million of severance and other costs directly related to the Company’s response to the COVID-19 pandemic, which are classified as selling, general and administrative.

⁴

Represents tax impact on adjustments that are not included in the Company’s income tax provision (benefit) for the period 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 three months ended June 30, 2020 and 2019 were calculated using a blended effective tax rate of 12.9% and 33.1%, respectively. The tax impact of adjustments for the nine months ended June 30, 2020 and 2019 were calculated using an effective tax rate of 24.1% and 29.4%, respectively.

Adjusted EBITDA

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

	Three Months Ended June 30,						Nine Months Ended June 30,
	2020			2019			2020			2019
Net income (loss)	$	(6,725	)	$	30,987		$	(152,775	)	$	(37,992	)
Interest expense, net		35,360			40,169			105,781			121,800
Income taxes¹		46,561			5,178			(44,846	)		(21,032	)
Depreciation and amortization²		61,811			69,455			330,512			208,287
Stock-based compensation		3,532			4,637			13,349			12,901
Acquisition costs³		1,588			5,733			2,605			21,337
Business restructuring costs⁴		1,962			1,664			22,589			1,664
COVID-19 impact⁵		3,426			-			3,449			-
Adjusted EBITDA	$	147,515		$	157,823		$	280,664		$	306,965

Net sales	$	1,792,505		$	1,924,534		$	4,926,103		$	5,075,247
Net margin⁶		(0.4	%)		1.6	%		(3.1	%)		(0.7	%)
Adjusted EBITDA margin⁶		8.2	%		8.2	%		5.7	%		6.0	%

____________________________________________________________

²	Nine months ended June 30, 2020 amount 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.

Includes selling, general, and administrative costs related to acquisitions such as professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses. For the nine months ended June 30, 2020, amounts are offset by a $5.3 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. Other items the Company classifies as acquisition costs are embedded within the other balances reported in the table.

⁴

Amounts include accrued estimated costs related to employee benefit plan withdrawals, costs stemming from headcount rationalization efforts, and certain Rebranding costs. Nine months ended June 30, 2020 amount also includes a loss on debt extinguishment of $14.7 million in connection with October 2019 debt refinancing. Other items the Company classifies as business restructuring costs are embedded within the other balances reported in the table.

⁵	Mainly composed of severance and other costs directly related to the Company’s response to the COVID-19 pandemic. Other items the Company classifies as part of the COVID-19 impact are embedded within the other balances reported in the table.

⁶	We define net margin as net income (loss) divided by net sales and Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.

Seasonality and Quarterly Fluctuations

In general, sales and net income are highest during our first, third and fourth fiscal quarters, which represent the peak months of construction and re-roofing, especially in our branches in the northern and mid-western U.S. and in Canada. We have historically incurred low net income levels or net losses during the second quarter when our sales are substantially lower.

We generally experience an increase in inventory, accounts receivable and accounts payable during the third and fourth quarters of the year as a result of the seasonality of our business. Our peak cash usage generally occurs during the third quarter, primarily because accounts payable terms offered by our suppliers typically have due dates in April, May and June, while our peak accounts receivable collections typically occur from June through November.

We generally experience a slowing of our accounts receivable collections during our second quarter, mainly due to the inability of some of our customers to conduct their businesses effectively in inclement weather in certain regions of the U.S. and Canada. We continue to attempt to collect those receivables, which require payment under our standard terms. We do not provide material concessions to our customers during this quarter of the year.

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

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

Certain Quarterly Financial Data

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

				2020						2019
	Qtr 3			Qtr 2			Qtr 1			Qtr 4			Qtr 3			Qtr 2			Qtr 1
Net sales	$	1,792,505		$	1,458,486		$	1,675,112		$	2,029,913		$	1,924,534		$	1,429,037		$	1,721,676
% of fiscal year’s net sales	n/m			n/m			n/m				28.6	%		27.1	%		20.1	%		24.2	%

Gross profit		432,132			342,400			410,698			493,462			472,536			334,988			435,569
% of fiscal year’s gross profit	n/m			n/m			n/m				28.4	%		27.2	%		19.3	%		25.1	%

Income (loss) from operations		74,895			(180,961	)		19,929			89,874			74,254			(54,630	)		38,254
% of fiscal year’s income (loss) from operations	n/m			n/m			n/m				60.8	%		50.3	%		(37.0	%)		25.9	%

Net income (loss)	$	(6,725	)	$	(122,640	)	$	(23,410	)	$	27,380		$	30,987		$	(68,086	)	$	(893	)
Dividends on Preferred Stock		6,000			6,000			6,000			6,000			6,000			6,000			6,000
Net income (loss) attributable to common shareholders	$	(12,725	)	$	(128,640	)	$	(29,410	)	$	21,380		$	24,987		$	(74,086	)	$	(6,893	)

Net income (loss) per share - basic	$	(0.18	)	$	(1.87	)	$	(0.43	)	$	0.27		$	0.32		$	(1.08	)	$	(0.10	)
Net income (loss) per share - diluted	$	(0.18	)	$	(1.87	)	$	(0.43	)	$	0.27		$	0.32		$	(1.08	)	$	(0.10	)

__________________________________________________

n/m = not meaningful.

Liquidity

Liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash. We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities, taking into consideration available borrowings and the seasonal nature of our business.

Our principal sources of liquidity as of June 30, 2020 were our cash and cash equivalents of $1.02 billion and our available borrowings of approximately $329.0 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 three months ended June 30, 2020, we used a portion of our operating cash flows to repay approximately $153.5 million of the balance of our revolving lines of credit.

Significant factors which could affect future liquidity include the following:

•

the adequacy of available bank lines of credit;

•

the ability to attract long-term capital with satisfactory terms;

•

cash flows generated from operating activities;

•

acquisitions; and

•

capital expenditures.

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

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

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

	Nine Months Ended June 30,
	2020			2019
Net cash provided by (used in) operating activities	$	250,449		$	(194,897	)
Net cash provided by (used in) investing activities		(23,716	)		(202,110	)
Net cash provided by (used in) financing activities		719,555			294,778
Effect of exchange rate changes on cash and cash equivalents		(199	)		31
Net increase (decrease) in cash and cash equivalents	$	946,089		$	(102,198	)

Operating Activities

Net cash provided by operating activities was $250.4 million in 2020, compared to cash used in operating activities of $194.9 million in 2019. Cash from operations increased $445.3 million due to an incremental cash inflow of $473.1 million stemming from changes to our net working capital, mainly driven by decreases in accounts receivable, inventory, and prepaid expenses and other current assets. The increase in cash from operations was partially offset by a decrease in net income after adjustments for non-cash items of $27.8 million.

Investing Activities

Net cash used in investing activities was $23.7 million in 2020, compared to $202.1 million in 2019. The $178.4 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 $719.6 million in 2020, compared to $294.8 million in 2019. The financing cash flow increase of $424.8 million was primarily due to a $436.3 million increase in net borrowings under our revolving lines of credit over the comparative periods, partially offset by a $13.5 million net cash outflow in the current period related to the refinancing of our outstanding senior notes.

Capital Resources

As of June 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.

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 June 30, 2020, the outstanding balance on the 2026 Senior Notes, net of $4.2 million of unamortized debt issuance costs, was $295.8 million.

Financing - Allied Acquisition

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

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

2023 ABL

On January 2, 2018, we entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2023 ABL consists of revolving loans in both the United States (“2023 U.S. Revolver”) in the amount of $1.20 billion and Canada (“2023 Canada Revolver”) in the amount of $100.0 million. The 2023 ABL has a maturity date of January 2, 2023. The 2023 ABL has various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The current unused commitment fees on the 2023 ABL are 0.25% per annum.

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 June 30, 2020, the total balance outstanding on the 2023 ABL, net of $6.3 million of unamortized debt issuance costs, was $848.7 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 June 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 on a LIBOR rate (with a floor) plus a fixed spread. We have the option of selecting a LIBOR period that determines the rate at which interest can accrue on the Term Loan as well as the period in which interest payments are made.

As of June 30, 2020, the outstanding balance on the 2025 Term Loan, net of $24.8 million of unamortized debt issuance costs, was $923.4 million.

2025 Senior Notes

On October 25, 2017, Beacon Escrow Corporation, our wholly owned subsidiary (the “Escrow Issuer”), completed a private offering of $1.30 billion aggregate principal amount of 4.875% Senior Notes due 2025 at an issue price of 100%. The 2025 Senior 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 June 30, 2020, the outstanding balance on the 2025 Senior Notes, net of $15.0 million of unamortized debt issuance costs, was $1.29 billion.

Financing - RSG Acquisition

2023 Senior Notes

Equipment Financing Facilities

As of June 30, 2020, we had $3.6 million outstanding under equipment financing facilities, with fixed interest rates ranging from 2.33% to 2.89% and payments due through September 2021.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

Our disclosure and analysis in this report contains forward-looking information that involves risks and uncertainties. Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, statements of management’s plans and objectives, future contracts, and forecasts of trends and other matters. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate,” “estimate,” “expect,” “believe,” “will likely result,” “outlook,” “project” and other words and expressions of similar meaning. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.

Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include those set forth under the heading “Risk Factors” contained herein, as well as those in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our 2019 Annual Report on Form 10-K have not changed materially during the three-month period ended June 30, 2020.

Item 4.

Controls and Procedures

As of June 30, 2020, management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”)). Based on that evaluation, management, including the CEO and CFO, concluded that as of June 30, 2020, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

There has been no change to our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.OTHER INFORMATION

Item 1A.

Risk Factors

Other than as set forth below, our risk factors disclosures set forth in Part I, Item 1A, “Risk Factors” of our 2019 Annual Report on Form 10-K have not changed materially during the nine months ended June 30, 2020.

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

A significant outbreak of epidemic, pandemic, or contagious diseases in the human population, including the COVID‑19 pandemic, could result in a widespread health crisis that could adversely affect global markets, resulting in an economic downturn that could affect the supply and/or demand for our products. Any quarantines, labor shortages or other disruptions to us, our suppliers, or our customers would likely adversely impact our sales and operating results. A prolonged economic downturn may result in reduced cash flows or a reduction to our market capitalization, triggering the potential need to recognize significant non-cash intangible asset impairment charges in our results of operations. It could also result in an adverse impact on the creditworthiness of our customers and the collectability of trade receivables, thereby affecting our liquidity. In addition, order lead times could be extended or delayed, and pricing could increase. Some products or services may become unavailable if the regional spread became significant enough to prevent alternative sourcing. 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 the Company if the spread is unable to be contained.

Item 6.

Exhibits

Incorporated by Reference

Exhibit Number

Description

Form

Exhibit

Filing Date

31.1*

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)

31.2*

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)

32.1*

Certification pursuant to 18 U.S.C. Section 1350

101*

101.INS Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH Inline XBRL Taxonomy Extension Schema

101.CAL Inline XBRL Taxonomy Extension Calculation

101.PRE Inline XBRL Taxonomy Extension Presentation

101.LAB Inline XBRL Taxonomy Extension Labels

101.DEF Inline XBRL Taxonomy Extension Definition

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

________________________________________________

*	Filed herewith

Pursuant to Rule 405 of Regulation S-T, the following interactive data files formatted in Inline Extensible Business Reporting Language (iXBRL) are attached as Exhibit 101 to this Quarterly Report on Form 10-Q: (i) the Consolidated Balance Sheets as of June 30, 2020; September 30, 2019; and June 30, 2019, (ii) the Consolidated Statements of Operations for the three and nine months ended June 30, 2020 and 2019, (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2020 and 2019, (iv) the Consolidated Statements of Stockholders’ Equity for the three and nine months ended June 30, 2020 and 2019, (v) the Consolidated Statements of Cash Flows for the nine months ended June 30, 2020 and 2019, and (vi) the Notes to Condensed Consolidated Financial Statements.

SIGNATURE

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

	BEACON ROOFING SUPPLY, INC.

Date: August 7, 2020	BY:	/s/ FRANK A. LONEGRO
		Frank A. Lonegro
		Executive Vice President & Chief Financial Officer