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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 EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

OR

 

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

For the transition period from                 to                

Commission File Number 0-51357

 

BUILDERS FIRSTSOURCE, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

52-2084569

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2001 Bryan Street, Suite 1600

 

 

Dallas, Texas

 

75201

(Address of principal executive offices)

 

(Zip Code)

(214880-3500

(Registrant’s telephone number, including area code)

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

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common stock, par value $0.01 per share

BLDR

NASDAQ Stock Market LLC

 

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 (Section 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, 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

 

☐  

  

Small 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 by Rule 12b-2 of the Exchange Act).    Yes      No  

 

The number of shares of the issuer’s common stock, par value $0.01, outstanding as of July 29, 2020 was 116,701,510.

 

 

 

 

 

 

 


 

BUILDERS FIRSTSOURCE, INC.

Index to Form 10-Q

 

 

 

 

 

Page

 

 

PART I — FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements

 

3

 

 

Condensed Consolidated Statement of Operations and Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019

 

3

 

 

Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 2020 and December 31, 2019

 

4

 

 

Condensed Consolidated Statement of Cash Flows (Unaudited) for the Six Months Ended June 30, 2020 and 2019

 

5

 

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019

 

6

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7

Item 2.

 

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

 

17

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

Item 4.

 

Controls and Procedures

 

25

 

 

PART II — OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

27

Item 1A.

 

Risk Factors

 

27

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

28

Item 3.

 

Defaults Upon Senior Securities

 

29

Item 4.

 

Mine Safety Disclosures

 

29

Item 5.

 

Other Information

 

29

Item 6.

 

Exhibits

 

30

 

 

 

2


 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited)

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

(Unaudited)

 

 

 

 

(In thousands, except per share amounts)

 

 

Net sales

 

$

1,945,643

 

 

$

1,904,523

 

 

$

3,732,664

 

 

$

3,535,823

 

 

Cost of sales

 

 

1,428,311

 

 

 

1,387,367

 

 

 

2,749,919

 

 

 

2,576,692

 

 

Gross margin

 

 

517,332

 

 

 

517,156

 

 

 

982,745

 

 

 

959,131

 

 

Selling, general and administrative expenses

 

 

388,077

 

 

 

401,511

 

 

 

792,543

 

 

 

771,595

 

 

Income from operations

 

 

129,255

 

 

 

115,645

 

 

 

190,202

 

 

 

187,536

 

 

Interest expense, net

 

 

26,812

 

 

 

29,382

 

 

 

78,743

 

 

 

54,283

 

 

Income before income taxes

 

 

102,443

 

 

 

86,263

 

 

 

111,459

 

 

 

133,253

 

 

Income tax expense

 

 

23,519

 

 

 

19,659

 

 

 

23,768

 

 

 

30,941

 

 

Net income

 

$

78,924

 

 

$

66,604

 

 

$

87,691

 

 

$

102,312

 

 

Comprehensive income

 

$

78,924

 

 

$

66,604

 

 

$

87,691

 

 

$

102,312

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.68

 

 

$

0.58

 

 

$

0.75

 

 

$

0.89

 

 

Diluted

 

$

0.67

 

 

$

0.57

 

 

$

0.75

 

 

$

0.88

 

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

116,634

 

 

 

115,757

 

 

 

116,446

 

 

 

115,592

 

 

Diluted

 

 

117,547

 

 

 

116,919

 

 

 

117,520

 

 

 

116,726

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


 

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

(In thousands, except per share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

385,461

 

 

$

14,096

 

Accounts receivable, less allowances of $16,834 and $13,492 at June 30, 2020 and December 31, 2019, respectively

 

 

719,684

 

 

 

614,946

 

Other receivables

 

 

45,164

 

 

 

77,447

 

Inventories, net

 

 

615,142

 

 

 

561,255

 

Other current assets

 

 

36,136

 

 

 

39,123

 

              Total current assets

 

 

1,801,587

 

 

 

1,306,867

 

Property, plant and equipment, net

 

 

743,542

 

 

 

721,887

 

Operating lease right-of-use assets, net

 

 

286,354

 

 

 

292,684

 

Goodwill

 

 

777,283

 

 

 

769,022

 

Intangible assets, net

 

 

126,519

 

 

 

128,388

 

Deferred income taxes

 

 

7,693

 

 

 

8,417

 

Other assets, net

 

 

21,700

 

 

 

22,225

 

      Total assets

 

$

3,764,678

 

 

$

3,249,490

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

554,394

 

 

$

436,823

 

Accrued liabilities

 

 

292,851

 

 

 

308,950

 

Current portion of operating lease liabilities

 

 

61,887

 

 

 

61,653

 

Current maturities of long-term debt

 

 

23,974

 

 

 

13,875

 

              Total current liabilities

 

 

933,106

 

 

 

821,301

 

Noncurrent portion of operating lease liabilities

 

 

230,634

 

 

 

236,948

 

Long-term debt, net of current maturities, debt discount, and debt issuance costs

 

 

1,577,884

 

 

 

1,277,398

 

Deferred income taxes

 

 

38,169

 

 

 

36,645

 

Other long-term liabilities

 

 

68,951

 

 

 

52,245

 

      Total liabilities

 

 

2,848,744

 

 

 

2,424,537

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock, $0.01 par value, 200,000 shares authorized; 116,701 and 116,052 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

1,167

 

 

 

1,161

 

Additional paid-in capital

 

 

578,239

 

 

 

574,955

 

Retained earnings

 

 

336,528

 

 

 

248,837

 

      Total stockholders' equity

 

 

915,934

 

 

 

824,953

 

      Total liabilities and stockholders' equity

 

$

3,764,678

 

 

$

3,249,490

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

4


 

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

87,691

 

 

$

102,312

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

57,875

 

 

 

47,390

 

Amortization of debt issuance costs and debt discount

 

 

1,587

 

 

 

2,132

 

Loss on extinguishment of debt, net

 

 

5,349

 

 

 

1,498

 

Deferred income taxes

 

 

2,248

 

 

 

21,390

 

Stock compensation expense

 

 

6,720

 

 

 

6,038

 

Net gain on sale of assets and asset impairments

 

 

(188

)

 

 

(1,023

)

  Changes in assets and liabilities, net of assets acquired and liabilities assumed:

 

 

 

 

 

 

 

 

Receivables

 

 

(69,991

)

 

 

(47,113

)

Inventories

 

 

(53,685

)

 

 

(20,631

)

Other current assets

 

 

2,987

 

 

 

7,271

 

Other assets and liabilities

 

 

39,452

 

 

 

1,057

 

Accounts payable

 

 

108,152

 

 

 

90,050

 

Accrued liabilities

 

 

(18,311

)

 

 

(31,586

)

             Net cash provided by operating activities

 

 

169,886

 

 

 

178,785

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(54,809

)

 

 

(45,392

)

Proceeds from sale of property, plant and equipment

 

 

1,451

 

 

 

4,620

 

Cash used for acquisitions

 

 

(15,893

)

 

 

 

             Net cash used in investing activities

 

 

(69,251

)

 

 

(40,772

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

791,000

 

 

 

594,000

 

Repayments under revolving credit facility

 

 

(818,000

)

 

 

(700,000

)

Proceeds from issuance of notes

 

 

895,625

 

 

 

400,000

 

Repayments of long-term debt and other loans

 

 

(557,964

)

 

 

(423,743

)

Payments of debt extinguishment costs

 

 

(22,686

)

 

 

 

Payments of loan costs

 

 

(13,800

)

 

 

(7,278)

 

Exercise of stock options

 

 

708

 

 

 

1,883

 

Repurchase of common stock

 

 

(4,153

)

 

 

(2,450

)

             Net cash provided by (used in) financing activities

 

 

270,730

 

 

 

(137,588

)

Net change in cash and cash equivalents

 

 

371,365

 

 

 

425

 

Cash and cash equivalents at beginning of the period

 

 

14,096

 

 

 

10,127

 

Cash and cash equivalents at end of the period

 

$

385,461

 

 

$

10,552

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

55,356

 

 

$

50,046

 

Cash paid for income taxes

 

 

335

 

 

 

2,797

 

Supplemental disclosures of non-cash activities:

 

 

 

 

 

 

 

 

Accrued purchases of property, plant and equipment

 

$

1,900

 

 

$

4,030

 

Acquisition of assets under operating lease obligations

 

 

25,960

 

 

 

35,847

 

Acquisition of assets under finance lease obligations

 

 

10,132

 

 

 

7,036

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Additional Paid

 

 

 

 

 

 

 

 

 

Common Stock

 

 

in

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Total

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Balance at December 31, 2018

 

 

115,078

 

 

$

1,151

 

 

$

560,221

 

 

$

34,966

 

 

$

596,338

 

Vesting of restricted stock units

 

 

662

 

 

 

7

 

 

 

(7

)

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

2,659

 

 

 

 

 

 

2,659

 

Exercise of stock options

 

 

59

 

 

 

 

 

 

216

 

 

 

 

 

 

216

 

Shares withheld for restricted stock units vested

 

 

(196

)

 

 

(2

)

 

 

(2,448

)

 

 

 

 

 

(2,450

)

Net income

 

 

 

 

 

 

 

 

 

 

 

35,708

 

 

 

35,708

 

Balance at March 31, 2019

 

 

115,603

 

 

 

1,156

 

 

 

560,641

 

 

 

70,674

 

 

 

632,471

 

Vesting of restricted stock units

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

3,379

 

 

 

 

 

 

3,379

 

Exercise of stock options

 

 

266

 

 

 

3

 

 

 

1,674

 

 

 

 

 

 

1,677

 

Net income

 

 

 

 

 

 

 

 

 

 

 

66,604

 

 

 

66,604

 

Balance at June 30, 2019

 

 

115,880

 

 

$

1,159

 

 

$

565,694

 

 

$

137,278

 

 

$

704,131

 

Balance at December 31, 2019

 

 

116,052

 

 

$

1,161

 

 

$

574,955

 

 

$

248,837

 

 

$

824,953

 

Vesting of restricted stock units

 

 

579

 

 

 

6

 

 

 

(6

)

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

3,254

 

 

 

 

 

 

3,254

 

Exercise of stock options

 

 

82

 

 

 

 

 

 

398

 

 

 

 

 

 

398

 

Shares withheld for restricted stock units vested

 

 

(168

)

 

 

(2

)

 

 

(3,832

)

 

 

 

 

 

(3,834

)

Net income

 

 

 

 

 

 

 

 

 

 

 

8,767

 

 

 

8,767

 

Balance at March 31, 2020

 

 

116,545

 

 

$

1,165

 

 

$

574,769

 

 

$

257,604

 

 

$

833,538

 

Vesting of restricted stock units

 

 

130

 

 

 

2

 

 

 

(2)

 

 

 

 

 

 

 

Stock compensation expense

 

 

 

 

 

 

 

 

3,466

 

 

 

 

 

 

3,466

 

Exercise of stock options

 

 

48

 

 

 

 

 

 

325

 

 

 

 

 

 

325

 

Shares withheld for restricted stock units vested

 

 

(22

)

 

 

 

 

 

(319

)

 

 

 

 

 

(319)

 

Net income

 

 

 

 

 

 

 

 

 

 

 

78,924

 

 

 

78,924

 

Balance at June 30, 2020

 

 

116,701

 

 

$

1,167

 

 

$

578,239

 

 

$

336,528

 

 

$

915,934

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

6


 

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Basis of Presentation

Builders FirstSource, Inc., a Delaware corporation formed in 1998, is a leading supplier and manufacturer of building materials, manufactured components and construction services to professional homebuilders, sub-contractors, remodelers and consumers.  The Company operates approximately 400 locations in 40 states across the United States. In this quarterly report, references to the “Company,” “we,” “our,” “ours” or “us” refer to Builders FirstSource, Inc. and its consolidated subsidiaries unless otherwise stated or the context otherwise requires.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all recurring adjustments and normal accruals necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the dates and periods presented. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. Intercompany transactions are eliminated in consolidation.

The condensed consolidated balance sheet as of December 31, 2019 is derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. This condensed consolidated balance sheet as of December 31, 2019 and the unaudited condensed consolidated financial statements included herein should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2019 included in our most recent annual report on Form 10-K. Accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the Notes to Consolidated Financial Statements included in our Form 10-K.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued an update to existing guidance under the Income Taxes topic of the FASB Accounting Standards Codification (“Codification”). This updated guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in the Income Taxes topic. This guidance is effective for public companies annual and interim periods beginning after December 15, 2020 with early adoption permitted. We are currently evaluating the impact of this update on our consolidated financial statements.

In June 2016, the FASB issued an update to existing guidance under the Investments topic of the Codification. This update introduced a new impairment model for financial assets, known as the current expected credit losses (“CECL”) model that is based on expected losses rather than incurred losses. The CECL model requires an entity to estimate credit losses on financial assets, including trade accounts receivable, based on historical information, current information and reasonable and supportable forecasts. Under this guidance companies record an allowance through earnings for expected credit losses upon initial recognition of the financial asset. We adopted the aspects of this guidance applicable to us on a modified retrospective basis as of January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

2. Revenue

The following table disaggregates our sales by product category (in thousands):

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Lumber & lumber sheet goods

$

622,158

 

 

$

601,487

 

 

$

1,174,639

 

 

$

1,119,176

 

Manufactured products

 

365,782

 

 

 

374,299

 

 

 

720,240

 

 

 

691,651

 

Windows, doors & millwork

 

404,054

 

 

 

391,049

 

 

 

795,370

 

 

 

744,439

 

Gypsum, roofing & insulation

 

125,789

 

 

 

138,388

 

 

 

236,641

 

 

 

259,307

 

Siding, metal & concrete products

 

200,575

 

 

 

191,289

 

 

 

369,460

 

 

 

341,207

 

Other building products & services

 

227,285

 

 

 

208,011

 

 

 

436,314

 

 

 

380,043

 

Net sales

$

1,945,643

 

 

$

1,904,523

 

 

$

3,732,664

 

 

$

3,535,823

 

 

7


 

Information regarding disaggregation of sales by segment is discussed in Note 11 to the condensed consolidated financial statements. Sales related to contracts with service elements represents less than 10% of the Company’s net sales for each period presented.

The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, contract assets and contract liabilities. Contract asset balances were not significant as of June 30, 2020 or December 31, 2019. Contract liabilities consist of deferred revenue and customer advances and deposits. Contract liability balances are included in accrued liabilities on our consolidated balance sheet and were $49.7 million and $38.6 million as of June 30, 2020 and December 31, 2019, respectively.

3. Net Income per Common Share

Net income per common share (“EPS”) is calculated in accordance with the Earnings per Share topic of the Codification, which requires the presentation of basic and diluted EPS. Basic EPS is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common shares.

The table below presents the calculation of basic and diluted EPS (in thousands, except per share amounts):  

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Net income

$

78,924

 

 

$

66,604

 

 

$

87,691

 

 

$

102,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Weighted average shares outstanding, basic

 

116,634

 

 

 

115,757

 

 

 

116,446

 

 

 

115,592

 

      Dilutive effect of options and RSUs

 

913

 

 

 

1,162

 

 

 

1,074

 

 

 

1,134

 

     Weighted average shares outstanding, diluted

 

117,547

 

 

 

116,919

 

 

 

117,520

 

 

 

116,726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic

$

0.68

 

 

$

0.58

 

 

$

0.75

 

 

$

0.89

 

     Diluted

$

0.67

 

 

$

0.57

 

 

$

0.75

 

 

$

0.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antidilutive and contingent options and RSUs excluded from diluted EPS

 

651

 

 

 

325

 

 

 

434

 

 

 

659

 

 

 

8


 

4. Debt

Long-term debt consisted of the following (in thousands):

 

 

June 30,

2020

 

 

December 31,

2019

 

2023 facility (1)

$

 

 

$

27,000

 

2024 notes

 

 

 

 

503,923

 

2024 term loan (2)

 

52,000

 

 

 

52,000

 

2027 notes

 

777,500

 

 

 

475,000

 

2030 notes

 

550,000

 

 

 

 

Other finance obligations

 

219,264

 

 

 

221,726

 

Finance lease obligations

 

23,766

 

 

 

20,333

 

 

 

1,622,530

 

 

 

1,299,982

 

Unamortized debt discount and debt issuance costs

 

(20,672

)

 

 

(8,709

)

 

 

1,601,858

 

 

 

1,291,273

 

Less: current maturities of long-term debt

 

23,974

 

 

 

13,875

 

Long-term debt, net of current maturities

$

1,577,884

 

 

$

1,277,398

 

 

(1)

The weighted average interest rate was 3.8% and 4.4% as of June 30, 2020 and December 31, 2019, respectively.

(2)

The weighted average interest rate was 4.5% and 5.6% as of June 30, 2020 and December 31, 2019, respectively.

2020 Debt Transactions

During the six months ended June 30, 2020, the Company executed several debt transactions which are described in more detail below.  These transactions include: (i) private offering of $550.0 million in aggregate principal amount of 5.0% unsecured senior notes due 2030 (“2030 notes”), (ii) redemption of the remaining $503.9 million in outstanding aggregate principal amount of 5.625% senior secured notes due 2024 (“2024 notes”) and $47.5 million in aggregate principal amount of 6.75% senior secured notes due 2027 (“2027 notes”), (iii) private offering of $350.0 million in aggregate principal amount of 6.75% senior secured notes due 2027.  These transactions collectively have extended our debt maturity profile and strengthened our liquidity position.  

First Quarter 2020 Refinancing Transactions

In February 2020, the Company completed a private offering of $550.0 million in aggregate principal amount of 2030 notes at an issue price equal to 100% of par value. The net proceeds from the issuance of the 2030 notes were used together with a borrowing on our $900.0 million revolving credit facility (“2023 facility”) to redeem the remaining $503.9 million in outstanding aggregate principal amount of 2024 notes and $47.5 million in aggregate principal amount of 2027 notes and to pay related transaction fees and expenses.

In connection with the issuance of the 2030 notes, we incurred $8.3 million of various third-party fees and expenses. These costs have been recorded as a reduction to long-term debt and are being amortized over the contractual life of the 2030 notes using the effective interest method.

As the Company concluded that the redemption of the 2024 notes and 2027 notes were debt extinguishments, the Company recorded a loss on extinguishment of $28.0 million in interest expense in the first quarter of 2020. Of this loss, approximately $22.7 million was attributable to the payment of redemption premiums on the extinguished notes and $5.3 million was attributable to the write-off of unamortized debt issuance costs and debt premium.

Second Quarter 2020 Debt Transaction

In April 2020, the Company completed a private offering of an additional $350.0 million in aggregate principal amount of 2027 notes at an issue price of 98.75% of par value.  The net proceeds from the issuance of the 2027 notes were used to repay the funds drawn under the 2023 facility and to pay related transaction fees and expenses, with the remaining net proceeds used for general corporate purposes.

9


 

The Company recognized the $4.4 million in proceeds received below par value as a debt discount, which is recorded as a reduction to long-term debt.  In connection with the issuance of the 2027 notes, we incurred $5.5 million of various third-party fees and expenses, which have been recorded as a reduction to long-term debt.  These third-party costs and the debt discount will be amortized over the contractual life of the 2027 notes using the effective interest method.

Senior Unsecured Notes due 2030

As of June 30, 2020, we have $550.0 million outstanding in aggregate principal amount of the 2030 notes, which mature on March 1, 2030. Interest accrues on the 2030 notes at a rate of 5.00% per annum and is payable semi-annually on March 1 and September 1 of each year, commencing on September 1, 2020.

The terms of the 2030 notes are governed by the indenture, dated as of the February 11, 2020 (the “Indenture”), among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee. The 2030 notes, subject to certain exceptions, are guaranteed, jointly and severally, on a senior unsecured basis, by each of the Company’s direct and indirect wholly owned subsidiaries (the “Guarantors”) that guarantee its obligations under the Company’s 2023 Facility and existing senior secured term loan facility (the “2024 term loan,” and, together with the 2023 facility, the “Senior Secured Credit Facilities”) and the 2027 Secured Notes. Subject to certain exceptions, future subsidiaries that guarantee the Senior Secured Credit Facilities, the 2027 notes or certain other indebtedness will also guarantee the 2030 notes.

The 2030 notes constitute senior unsecured obligations of the Company and the Guarantors, pari passu in right of payment with all of the existing and future senior indebtedness of the Company, including indebtedness under the Senior Secured Credit Facilities and the 2027 notes. The 2030 notes are also (i) effectively subordinated to all existing and future secured indebtedness of the Company and the Guarantors (including under the Senior Secured Credit Facilities and the 2027 notes) to the extent of the value of the assets securing such indebtedness, (ii) senior to all of the future subordinated indebtedness of the Company and the Guarantors, and (iii) structurally subordinated to any existing and future indebtedness and other liabilities, including preferred stock, of the Company’s subsidiaries that do not guarantee the 2030 notes.

The Indenture contains restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional debt or issue preferred stock, create liens, create restrictions on the Company’s subsidiaries’ ability to make payments to the Company, pay dividends and make other distributions in respect of the Company’s and its subsidiaries’ capital stock, make certain investments or certain other restricted payments, guarantee indebtedness, designate unrestricted subsidiaries, sell certain kinds of assets, enter into certain types of transactions with affiliates, and effect mergers and consolidations.

At any time prior to March 1, 2025, the Company may redeem the 2030 notes in whole or in part at a redemption price equal to 100% of the principal amount of the 2030 notes plus the “applicable premium” set forth in the Indenture. In addition, at any time prior to March 1, 2023, the Company may redeem up to 40% of the aggregate principal amount of the 2030 notes with the net cash proceeds of one or more equity offerings, as described in the Indenture, at a price equal to 105.0% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date.  At any time on or after March 1, 2025, the Company may redeem the 2030 notes at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to the redemption date. If the Company experiences certain change of control events, holders of the 2030 notes may require it to repurchase all or part of their 2030 notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.

We were not in violation of any covenants or restrictions imposed by any of our debt agreements at June 30, 2020.

Fair Value

As of June 30, 2020 and December 31, 2019, the Company does not have any financial instruments which are measured at fair value on a recurring basis. We have elected to report the value of our 2027 notes, 2030 notes, 2024 term loan and 2023 facility at amortized cost. The fair values of the 2027 notes, 2030 notes and the 2024 term loan at June 30, 2020 were approximately $797.5 million, $519.8 million and $50.2 million, respectively, and were determined using Level 2 inputs based on market prices.

 

5. Business Combination

On January 9, 2020, we acquired certain assets and operations of Bianchi & Company, Inc. (“Bianchi”) for $15.9 million in cash. Located in Charlotte, North Carolina, Bianchi is a supplier and installer of interior and exterior millwork. This acquisition was funded with a combination of cash on hand and borrowings under our 2023 facility.

10


 

This transaction was accounted for by the acquisition method, and accordingly the results of operations have been included in the Company’s consolidated financial statements from the acquisition date. The purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. The fair value of acquired intangible assets of $9.4 million, primarily related to customer relationships, was estimated by applying an income approach. That measure is based on significant Level 3 inputs not observable in the market. Key assumptions developed based on the Company’s historical experience, future projections and comparable market data include future cash flows, long-term growth rates, attrition rates and discount rates. Pro forma results of operations as well as net sales and income attributable to Bianchi are not presented as this acquisition did not have a material impact on our results of operations. We did not incur any significant acquisition related costs attributable to this transaction.

 

The following table summarizes the aggregate fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):

 

Accounts receivable

$

2,353

 

Inventory

 

202

 

Property, plant and equipment

 

74

 

Other assets

 

94

 

Goodwill (Note 6)

 

8,261

 

Intangible assets (Note 7)

 

9,440

 

Total assets acquired

 

20,424

 

Accounts payable and accrued liabilities

 

(4,531

)

Total liabilities assumed

 

(4,531

)

Total net assets acquired

$

15,893

 

 

 

6. Goodwill

The following table sets forth the changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2020 (in thousands):

 

 

 

 

Northeast

 

 

Southeast

 

 

South

 

 

West

 

 

Total

 

Balance as of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

97,102

 

$

60,691

 

$

343,919

 

$

311,946

 

$

813,658

 

Accumulated impairment losses

 

 

(494

)

 

(615

)

 

(43,527

)

 

 

 

(44,636

)

 

 

 

96,608

 

 

60,076

 

 

300,392

 

 

311,946

 

 

769,022

 

Acquisitions

 

 

 

 

8,261

 

 

 

 

 

 

8,261

 

Balance as of June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$