Property and Equipment
Property and equipment acquired outside of business combinations are stated at cost less accumulated depreciation. Major additions and improvements are capitalized and depreciated; maintenance and repairs are charged to expense when incurred. Assets held for sale are not depreciated. Upon disposition, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in selling, general, and administrative expenses. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives:
|
|
|
Buildings
|
5 to 25 years
|
Vehicles and equipment
|
2 to 10 years
|
Software and computers
|
3 to 5 years
|
Furniture and fixtures
|
6 months to 10 years
|
Machinery and equipment
|
3 to 10 years
|
Leasehold improvements
|
Lesser of useful life or lease term
|
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Impairment of Long-Lived Assets
The Company reviews property and equipment for impairment when events or circumstances indicate these assets may not be recoverable. Factors considered include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business and significant negative industry or economic trends. In performing the review for recoverability, future cash flows expected to result from the use of the asset and its eventual disposition are estimated. If the sum of expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recorded under the discounted cash flow method. As of December 31, 2018 and 2017, there were no impairments.
The Company assesses impairment of long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
Goodwill and Intangible Assets
Intangible assets consist of tradenames, customer relationships, non-compete agreements and favorable and unfavorable leases, and are amortized using the straight-line method, which reflects the pattern in which the economic benefits of the assets are expected to be consumed. Intangible assets with definite lives are amortized over their respective estimated useful lives.
The following table summarizes the life of the intangible assets acquired:
|
|
|
Tradenames
|
1 to 5 years
|
Customer relationships
|
5 to 9 years
|
Other intangible assets
|
1 to 13 years
|
The Company reviews intangible assets with finite lives for impairment when events or circumstances indicate these assets may not be recoverable. In performing the review for recoverability, future cash flows expected to result from the use of the asset are estimated. If the sum of expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recorded for the amount by which the carrying amount exceeds the estimated fair value.
Goodwill represents the excess of purchase price over the fair value of assets acquired and liabilities assumed in a business combination.
The Company performs a two-step impairment test of goodwill on an annual basis or more frequently if impairment indicators arise. This process involves comparing the fair value to the carrying value of the reporting unit. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill. The Company determines the fair value of its reporting units using combinations of both the income and market valuation approaches. The Company performed its goodwill impairment test as of October 1, 2018 and 2017. The Company will perform an additional evaluation of quantitative and qualitative factors concerning the reporting unit’s fair value if indicators of impairment arise during the fourth quarter. The fair value of each reporting unit substantially exceeded its carrying value, as such, there was no impairment related to goodwill.
Derivatives and Hedge Accounting
The Company has entered into derivative instruments to manage its exposure to certain financial risks. Certain derivative instruments are designated for hedge accounting under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 815-20,
Derivatives—Hedging
. Instruments that meet hedge criteria are formally designated as hedges at the inception of the instrument. The Company measures hedge effectiveness on a quarterly basis. The Company’s derivative instruments include a net investment hedge and embedded derivatives.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
The Company classifies the cash flows at settlement from derivatives in the same category as the cash flows from the related hedged items. For designated net investment hedges, the cash settlement is classified within the "Net cash used in investing activities" component of the accompanying consolidated statements of cash flows. For undesignated hedges, the cash settlement is primarily classified within the "Net cash provided by operating activities" component of the accompanying consolidated statements of cash flows. For the years ended December 31, 2018 and 2017 there were no cash flow settlements from any derivatives.
The Company’s derivative assets and liabilities are measured at fair value. The fair value related to the cash flows occurring within one year is classified as current and the fair value related to the cash flows occurring beyond one year is classified as non-current in the accompanying consolidated balance sheets. For those instruments designated as hedges, the Company recognizes the changes in fair value in other comprehensive income, and recognizes any ineffectiveness immediately in earnings.
Valuation of derivative assets and liabilities reflect the value of the instrument including counterparty credit risk. These values also take into account the Company’s own credit standing.
Foreign Currency Translation
Assets and liabilities of the Company’s foreign subsidiaries are translated at the exchange rate prevailing at the balance sheet date, while income and expenses are translated at average rates for the period. Translation gains and losses are reported as a component of other comprehensive income (loss).
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except those transactions that have been designated as hedges of identifiable foreign currency commitments, are included in the results of operations as incurred.
Capital Leases
Leased property and equipment meeting capital lease criteria are capitalized at the lower of the present value of the related lease payments or the fair value of the leased asset at the inception of the lease. The corresponding liability is included in the consolidated balance sheet as other liabilities current and non-current. Leasehold improvements and assets under capital leases are amortized using the straight-line method over the shorter of their estimated useful lives or the initial term of the related lease.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration expected to be received in exchange for those products. The performance obligation for product sales is met at a point in time, when the product is delivered and control is transferred to the customer. At inception of a contract with a customer, the price and quantity of goods are fixed. The applicable shipping and handling costs invoiced to the customer are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. All revenue recognized is net of sales taxes collected, which are subsequently remitted to the appropriate governmental authorities.
Cost of Goods Sold
Cost of goods sold includes the cost of merchandise, inbound freight, inventory provisions, vendor discounts and vendor rebates.
Operating Expenses
Operating expenses include selling, general and administrative expenses and depreciation and amortization. Selling, general and administrative expenses include expenses related to the Company's selling efforts and includes delivery and warehousing of the products, as well as employee compensation and benefits expenses for employees in the Company's branches and yard support center, other administrative expenses, such as legal, accounting, and information technology costs, and acquisition expenses which include legal, valuation, accounting and advisory costs. Shipping and handling costs for the years ended December 31, 2018 and 2017, were
$254.6 million
and
$222.5 million
, respectively.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Depreciation and amortization expenses include depreciation expense on the Company's property and equipment as well as amortization expense on the Company's finite-lived intangible assets. All depreciation and amortization is related to selling, general and administrative activities and is not included in inventory costs.
Advertising
Advertising related costs are expensed as incurred. Advertising expense was
$2.7 million
and
$2.3 million
for the years ended December 31, 2018 and 2017, respectively.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740,
Accounting for Income Taxes.
Under ASC
740, income taxes are accounted for based upon the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax expense (benefit) results from the net change in deferred tax assets and liabilities during the year. A valuation allowance is recognized to reduce the carrying value of deferred income tax assets if it is believed to be more likely than not that a component of the deferred income tax assets will not be realized.
ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Based on this guidance, the Company analyzes its filing positions, as well as all open tax years in relevant jurisdictions. Tax benefits from uncertain tax positions are recognized if it is more likely than not that the position is sustainable based solely on its technical merits. The Company had no material uncertain tax positions at December 31, 2018 and December 31, 2017.
On December 22, 2017, the United States government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Tax Act”). For further information, see Note 6, Income Taxes.
The Company recognizes interest expense and penalties related to income tax matters as other expense, except for interest and penalties related to uncertain tax positions, which are recorded as income tax expense. The Company did not have any amounts accrued or expensed for interest and penalties with respect to uncertain tax positions for the years ended December 31, 2018 and 2017.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Authoritative guidance for fair value measurements establishes a hierarchy that prioritizes the inputs to valuation models based upon the degree to which they are observable. The three levels of the fair value measurement hierarchy are as follows:
Level 1
: Inputs represent quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2
: Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date for the duration of the instrument’s anticipated life.
Level 3
: Inputs are unobservable and therefore reflect management’s best estimate of the assumptions that market participants would use in pricing the asset or liability.
The Company estimates the fair value of its assets and liabilities, which qualify as financial instruments, and includes this additional information in the notes to the accompanying consolidated financial statements when the fair value is different from the carrying value of these instruments.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Recently Adopted Accounting Standards
On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2018-02,
Income Statement-Reporting Comprehensive Income
(Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. As a result of income tax effects of the Tax Act, which reduced the corporate federal tax rate from 35.0% to 21.0%, the Company reclassified
$0.2 million
from accumulated other comprehensive income to retained earnings related to its net investment hedge.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations
(Topic 805):
Clarifying the Definition of a Business
, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this guidance on January 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows
(Topic 230):
Classification of Certain Cash Receipts and Cash Payments
. ASU No. 2016-15 amended the existing accounting standards for the statement of cash flows. The amendments provide guidance on eight classification issues related to the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this guidance on January 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments – Overall
(Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities
. The updated guidance enhances the reporting model for financial instruments by modifying how entities measure and recognize equity investments and present changes in the fair value of financial liabilities, and by simplifying the disclosure guidance for financial instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2017. The amendments in this update should be applied prospectively. The Company adopted this guidance on January 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842). ASU No. 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either "finance" or "operating," with classification affecting the pattern of expense recognition in the income statement. This update requires a modified retrospective transition as of the beginning of the earliest comparative period presented in the financial statements. This update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of finalizing the implementation of this guidance. Upon completion, the Company expects to record in its consolidated financial statements a right-of-use asset and related lease liability between
$118.0 million
and
$128.0 million
as of January 1, 2019; however, as the Company finalizes the implementation of this guidance, this estimate is subject to change.
In January 2017, the FASB issued ASU 2017-04,
Intangibles and Other
(Topic 350):
Simplifying the Test for Goodwill Impairment
, which eliminates the requirement to calculate the implied fair value of goodwill but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial statements.
3. Discontinued Operations
On November 1, 2018, the Company completed the sale of its mechanical insulation business (the "Disposed Business") to SPI LLC, an unrelated third party controlled by Dunes Point Capital, for total cash consideration of approximately
$122.5 million
and recorded a gain on the sale of
$13.7 million
, net of taxes.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 2018, the Disposed Business met the criteria to be classified as held for sale and to be presented as a discontinued operation. Accordingly, the Company reclassified the results of operations, financial position and cash flows of the Disposed Business to discontinued operations in its accompanying consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows for all periods presented.
The summarized financial information related to the Disposed Business that has been excluded from continuing operations and reported as a discontinued operation in the accompanying consolidated statements of operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2018
|
|
Year Ended
December 31, 2017
|
Net sales
|
|
$
|
269,751
|
|
|
$
|
270,788
|
|
Cost of goods sold
|
|
195,767
|
|
|
195,116
|
|
Gross profit
|
|
73,984
|
|
|
75,672
|
|
Operating expenses:
|
|
|
|
|
Selling, general and administrative expenses
|
|
55,383
|
|
|
61,700
|
|
Depreciation and amortization
|
|
4,759
|
|
|
5,989
|
|
Total operating expenses
|
|
60,142
|
|
|
67,689
|
|
Income from operations
|
|
13,842
|
|
|
7,983
|
|
Interest expense
|
|
(38
|
)
|
|
(60
|
)
|
Other (expense) income, net
|
|
(6
|
)
|
|
14
|
|
Income from discontinued operations before income taxes
|
|
13,798
|
|
|
7,937
|
|
Income tax expense
|
|
3,275
|
|
|
3,363
|
|
Net income from discontinued operations, net of tax
|
|
$
|
10,523
|
|
|
$
|
4,574
|
|
The operating results reflected above do not fully represent the Disposed Business' historical operating results, as the results reported within net income from discontinued operations only include expenses that are directly attributable to the Disposed Business.
4. Acquisitions
The Company accounts for its acquisitions under the acquisition method, and accordingly the results of operations of the acquired entities are included in the Company’s accompanying consolidated financial statements from the acquisition dates. The purchase prices are allocated to the assets acquired 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. Purchase accounting adjustments associated with the intangible asset valuations have been recorded as of December 31, 2018 and December 31, 2017. The fair value of acquired intangible assets, primarily related to tradenames and 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 were developed based on the Company’s historical experience, future projections and comparable market data including future cash flows, long-term growth rates, implied royalty rates, attrition rates and discount rates.
2018 Acquisitions
Agan Drywall, Inc., Agan Drywall Supply Rapid City, and Agan Tri-State Drywall Supply, Inc.
On October 1, 2018, the Company acquired the operations and substantially all of the assets of Agan Drywall Supply, Inc., Agan Drywall Supply Rapid City, Inc., and Agan Tri-State Drywall Supply, Inc. (collectively, "Agan"). Agan was a distributor of wallboard, metal framing, insulation and complementary products and operated
three
branches in South Dakota and Iowa.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Ciesco, Inc. and Commercial Specialty Supply LLC
On August 1, 2018, the Company acquired the operations and substantially all of the assets of Ciesco, Inc. and Commercial Specialty Supply LLC (collectively, "Ciesco"). Ciesco was a leading independent distributor of wallboard, metal framing, suspended ceiling systems, insulation and complementary products and operated
six
branches in Pennsylvania and Virginia.
ArmCom Distributing Company
On February 1, 2018, the Company acquired the operations and substantially all of the assets of ArmCom Distributing Company ("ArmCom"), a division of St. Paul Linoleum and Carpet Company. ArmCom was an independent distributor of suspended ceiling systems and operated
five
branches in Minnesota, North Dakota, South Dakota and Nebraska.
RM Supply
On February 1, 2018, the Company acquired all of the stock of RM Supply, Inc. and certain assets of JMB Transportation, L.L.C. (collectively, “RM Supply”). RM Supply was an independent distributor of wallboard, metal framing, insulation, and wallboard accessories. RM Supply operated
two
branches in Missouri.
For the year ended
December 31, 2018
, the Company completed
four
acquisitions ("the 2018 acquisitions") for an aggregate purchase price of
$94.1 million
.
The 2018 acquisitions contributed net sales of
$62.9 million
and income from operations of
$2.6 million
in the year ended December 31, 2018.
The purchase price of the 2018 acquisitions ranged from
$6.2 million
to
$49.3 million
some of which were or are subject to normal working capital adjustments. The 2018 acquisitions are not considered material, individually or in aggregate. The following table summarizes, on an aggregate basis, the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date for the 2018 acquisitions summarized above (in thousands):
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
Assets acquired:
|
|
|
Cash
|
|
$
|
672
|
|
Accounts receivable
|
|
19,450
|
|
Other receivables
|
|
1,470
|
|
Inventories
|
|
11,558
|
|
Prepaid and other current assets
|
|
73
|
|
Property and equipment
|
|
9,843
|
|
Goodwill
|
|
34,314
|
|
Intangible assets
|
|
25,812
|
|
Other assets
|
|
74
|
|
Total assets acquired
|
|
103,266
|
|
Liabilities assumed:
|
|
|
Accounts payable
|
|
(7,162
|
)
|
Deferred tax liability
|
|
(1,019
|
)
|
Accrued expenses and other current liabilities
|
|
(936
|
)
|
Total liabilities assumed
|
|
(9,117
|
)
|
Total net assets acquired
|
|
$
|
94,149
|
|
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the 2018 acquisitions. Goodwill attributable to the acquisitions has been recorded as a non-current asset and is not amortized, but is subject to review at least on an annual basis for impairment. Goodwill recognized was primarily attributable to expected operating efficiencies and expansion opportunities in the businesses acquired. Goodwill and intangible assets recognized from asset acquisitions are expected to be tax deductible. The Ciesco, ArmCom and Agan acquisitions were treated as asset purchases, and the RM Supply acquisition was treated as a stock purchase for tax purposes. Generally, the most significant intangible asset acquired is customer relationships. The Company's acquisitions are generally subject to working capital adjustments; however, the Company does not expect any such adjustments to have a material impact on its consolidated financial statements. Any adjustments to the purchase price allocation of these acquisitions will be made as soon as practicable but no later than one year from the acquisition date. The pro forma impact of the 2018 acquisitions is not presented as the 2018 acquisitions are not considered material to the Company's consolidated financial statements.
2017 Acquisitions
Dominion Interior Supply
On January 3, 2017, the Company acquired the operations and certain assets of Dominion Interior Supply Corporation and Dominion Interior Supply of Roanoke LLC (collectively, "Dominion Interior Supply"). Dominion Interior Supply was a supplier of suspended ceiling systems to commercial and residential developers in Virginia and North Carolina. Dominion Interior Supply operated
four
branches.
Irwin Builders Supply Corporation
On April 3, 2017, the Company acquired the operations and certain assets of the specialty building products division of Irwin Builders Supply Corporation ("Irwin") located in Irwin, Pennsylvania. Irwin was a provider of a broad range of building products including wallboard, metal framing, suspended ceiling systems, insulation and other complementary products to the Pennsylvania market. Irwin operated
one
branch in Pennsylvania.
Wallboard, Inc.
On May 1, 2017, the Company acquired all of the stock of Wallboard, Inc. ("Wallboard") with
two
branch locations in the Minneapolis-St. Paul metropolitan area. Wallboard was an independent distributor of specialty building products, including wallboard, metal framing, insulation and finishing products primarily servicing the commercial market as well as the multi-family residential market.
Gypsum Wallboard Supply, Inc
.
On May 1, 2017, the Company acquired the operations and certain assets of Gypsum Wallboard Supply, Inc. ("GWSI") in Tacoma, Washington. GWSI was an independent distributor of specialty building products including wallboard, metal framing, suspended ceiling systems and other complementary products. GWSI primarily serviced the commercial market as well as the multi-family residential market in the Seattle metropolitan area. GWSI operated
one
branch in Washington.
Ceiling and Wall Supply, Inc.
On July 1, 2017, the Company acquired the operations and certain assets of Ceiling and Wall Supply, Inc. ("CWS"). CWS was an independent distributor of specialty building products including Armstrong suspended ceiling systems, wallboard, metal framing, insulation, and Dryvit products. CWS primarily serviced the commercial market and operated
five
branches in Illinois, Kentucky and Missouri.
Virginia Builders' Supply, Inc.
On July 1, 2017, the Company acquired the operations and certain assets of Virginia Builders' Supply, Inc. ("VBS"). VBS was an independent distributor of specialty building products including wallboard, metal framing, insulation, fasteners, tools and other accessory products used by interior contractors in the commercial and residential markets in Virginia. VBS operated
one
branch in Virginia.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
American Wal-Board
On August 1, 2017, the Company acquired the operations and substantially all of the assets of American Wal-Board, LLC, American Materials, LLC, American Drywall & Roofing, LLC and JLS Equipment Leasing, LLC (collectively, "AWB"). AWB was an independent distributor of specialty building products including wallboard, metal framing, insulation, roofing and fireplace products to the commercial and residential markets in Tennessee and Mississippi. AWB operated
two
branches.
MCS Door & Hardware
On October 1, 2017, the Company acquired the operations and substantially all of the assets of MCS Door & Hardware (“MCS"). MCS was an independent distributor of specialty building products including doors, frames, hardware and toilet partitions in connection with new construction and repair and remodel projects in the commercial market. MCS operated
one
branch in Texas.
Del-Pro Building Supplies, Inc.
On November 1, 2017, the Company acquired all of the shares of Del-Pro Building Supplies, Inc. ("DPSI"). DPSI was an independent distributor of specialty building products including wallboard, metal framing, insulation, basement blanket and spray foam products in the commercial and residential markets. DPSI operated
one
branch in Ontario, Canada.
For the year ended December 31, 2017, the Company completed
nine
acquisitions (the "2017 acquisitions") for an aggregate purchase price of
$74.6
million.
The 2017 acquisitions contributed net sales of
$68.8 million
and income from operations of
$3.8 million
in the year ended December 31, 2017.
The purchase price of the 2017 acquisitions ranged from
$0.7
million to
$20.6
million some of which were subject to normal working capital adjustments. The 2017 acquisitions are not considered material, individually or in aggregate. The following table summarizes, on an aggregate basis, the estimated fair values of the assets acquired and liabilities assumed as of the 2017 acquisition date for the acquisitions summarized above (in thousands):
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
Assets acquired:
|
|
|
Cash
|
|
$
|
1,593
|
|
Accounts receivable
|
|
18,118
|
|
Other receivables
|
|
1,457
|
|
Inventories
|
|
9,207
|
|
Prepaid and other current assets
|
|
300
|
|
Property and equipment
|
|
8,799
|
|
Goodwill
|
|
26,096
|
|
Intangible assets
|
|
18,773
|
|
Other assets
|
|
66
|
|
Total assets acquired
|
|
84,409
|
|
Liabilities assumed:
|
|
|
Accounts payable
|
|
(8,474
|
)
|
Accrued expenses and other current liabilities
|
|
(1,304
|
)
|
Long-term liabilities
|
|
—
|
|
Total liabilities assumed
|
|
(9,778
|
)
|
Total net assets acquired
|
|
$
|
74,631
|
|
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisitions. Goodwill attributable to the 2017 acquisitions has been recorded as a non-current asset and is not amortized, but is subject to review at least on an annual basis for impairment. Goodwill recognized was primarily attributable to expected operating efficiencies and expansion opportunities in the businesses acquired. Goodwill and intangible assets recognized from asset acquisitions are expected to be tax deductible, and with the exception of the DPSI acquisition, each of the 2017 acquisitions was treated as an asset purchase for tax purposes. Generally, the most significant intangible asset acquired is customer relationships. The Company's acquisitions are generally subject to working capital adjustments, however, the Company does not expect any such adjustments to have a material impact on its consolidated financial statements. The pro forma impact of the 2017 acquisitions is not presented, as the 2017 acquisitions are not considered material to the Company's consolidated financial statements.
5. Goodwill and Intangible Assets
Identifiable intangible assets that are separable and have determinable useful lives are valued separately and amortized over their benefit period. The following is the gross carrying value and accumulated amortization of the Company’s identifiable intangible assets as of December 31, 2018 and December 31, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Tradenames
|
$
|
15,980
|
|
|
$
|
(10,423
|
)
|
|
$
|
5,557
|
|
|
$
|
15,980
|
|
|
$
|
(7,283
|
)
|
|
$
|
8,697
|
|
Customer relationships
|
250,498
|
|
|
(112,757
|
)
|
|
137,741
|
|
|
225,488
|
|
|
(72,349
|
)
|
|
153,139
|
|
Other intangible assets
|
3,489
|
|
|
(911
|
)
|
|
2,578
|
|
|
3,462
|
|
|
(762
|
)
|
|
2,700
|
|
|
$
|
269,967
|
|
|
$
|
(124,091
|
)
|
|
$
|
145,876
|
|
|
$
|
244,930
|
|
|
$
|
(80,394
|
)
|
|
$
|
164,536
|
|
The weighted average amortization period of these intangible assets in the aggregate is
3.9
years. Total amortization expense of intangible assets above was
$44.0 million
and
$41.5 million
for the years ended December 31, 2018 and 2017, respectively.
Future amortization for the next five years and thereafter is as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
2019
|
$
|
45,871
|
|
2020
|
44,709
|
|
2021
|
27,074
|
|
2022
|
11,930
|
|
2023
|
5,547
|
|
Thereafter
|
10,745
|
|
|
$
|
145,876
|
|
Changes in goodwill between December 31, 2017 and December 31, 2018, consisted of the following (in thousands):
|
|
|
|
|
|
Carrying Value
|
Balance at December 31, 2017
|
$
|
452,728
|
|
Goodwill acquired
|
34,314
|
|
Purchase price allocation adjustments from prior periods
|
64
|
|
Impact of foreign currency exchange rates
|
(2,165
|
)
|
Balance at December 31, 2018
|
$
|
484,941
|
|
Changes to initial purchase price allocations related to acquisitions may arise from changes in estimates from conditions that existed at the applicable acquisition date and as a result of net working capital adjustments. The Company performed its goodwill impairment test as of October 1, 2018, and the fair value substantially exceeded the carrying value, as such, there was no impairment related to goodwill.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
6. Income Taxes
The components of (loss) income before income taxes for the years ended December 31, 2018 and 2017 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
United States
|
$
|
(47,873
|
)
|
|
$
|
62,753
|
|
Foreign
|
5,826
|
|
|
9,188
|
|
(Loss) income before taxes
|
$
|
(42,047
|
)
|
|
$
|
71,941
|
|
The following table shows the (benefit) expense for income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
Current:
|
|
|
|
Federal
|
$
|
(374
|
)
|
|
$
|
(1,614
|
)
|
State
|
494
|
|
|
795
|
|
Foreign
|
1,787
|
|
|
2,041
|
|
|
1,907
|
|
|
1,222
|
|
|
|
|
|
Deferred:
|
|
|
|
Federal
|
(5,189
|
)
|
|
(8,624
|
)
|
State
|
(2,328
|
)
|
|
1,028
|
|
Foreign
|
(18
|
)
|
|
409
|
|
|
(7,535
|
)
|
|
(7,187
|
)
|
Income tax benefit
|
$
|
(5,628
|
)
|
|
$
|
(5,965
|
)
|
The differences between income taxes expected at the U.S. federal statutory rate of
21.0%
and the reported income tax benefit are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
Tax computed at federal statutory rate
|
$
|
(8,830
|
)
|
|
$
|
25,168
|
|
State income tax, net of federal benefit
|
(451
|
)
|
|
1,940
|
|
Permanent items
|
510
|
|
|
624
|
|
Transaction costs
|
21
|
|
|
517
|
|
Global intangible low taxed income
|
538
|
|
|
—
|
|
Foreign rate differential
|
350
|
|
|
(773
|
)
|
Gain on tax receivable agreement
|
(250
|
)
|
|
(23,812
|
)
|
Rate change
|
47
|
|
|
(9,100
|
)
|
Valuation allowance
|
(471
|
)
|
|
864
|
|
Other
|
2,908
|
|
|
(1,393
|
)
|
Income tax benefit
|
$
|
(5,628
|
)
|
|
$
|
(5,965
|
)
|
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table shows significant components of the Company’s deferred tax assets and liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
Deferred tax assets (liabilities):
|
|
|
|
Definite-lived intangible assets
|
$
|
851
|
|
|
$
|
(16,806
|
)
|
Indefinite-lived intangible assets
|
(15,900
|
)
|
|
(11,074
|
)
|
Property, plant and equipment
|
(21,490
|
)
|
|
(13,862
|
)
|
Inventories and related reserves
|
3,891
|
|
|
4,625
|
|
Accrued compensation
|
259
|
|
|
547
|
|
Allowance for doubtful accounts
|
935
|
|
|
1,458
|
|
Capital lease obligations
|
2,354
|
|
|
2,964
|
|
Derivative on foreign currency
|
—
|
|
|
(1,585
|
)
|
Net operating loss carryforwards
|
1,579
|
|
|
14,801
|
|
Interest expense carryforward
|
6,315
|
|
|
—
|
|
Other, net
|
920
|
|
|
1,884
|
|
Total deferred tax liabilities
|
(20,286
|
)
|
|
(17,048
|
)
|
Valuation allowance
|
(392
|
)
|
|
(864
|
)
|
Total deferred tax liabilities, net
|
$
|
(20,678
|
)
|
|
$
|
(17,912
|
)
|
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative federal tax loss incurred over the three-year period ended December 31, 2018 of
$66.6 million
. Such objective evidence limits the ability to consider other subjective evidence, such as the Company's projections for future growth.
The Company has sufficient taxable temporary differences, excluding those associated with indefinite lived assets and goodwill, to enable the use of the tax benefits of most operating loss carryforwards and deductible temporary differences, irrespective of future taxable income. More specifically, the Company is in a net deferred tax liability position (after excluding those associated with indefinite-lived assets and goodwill) in the United States and Canada because of substantial deferred tax liabilities for depreciable property and equipment that will offset the reversal of the deferred tax assets in the future before the expiration of most deferred tax assets. Consolidated deferred tax liabilities associated with indefinite lived assets and goodwill were
$15.9 million
and
$11.1 million
at December 31, 2018 and 2017, respectively.
As of December 31, 2018, the Company had state income tax net operating loss carryforwards of
$27.9 million
. These carryforwards will expire on various dates in the next
20 years
as follows (in millions):
|
|
|
|
|
|
|
|
State
|
2020-2025
|
|
$
|
2.8
|
|
2026-2031
|
|
6.7
|
|
2032-2037
|
|
18.4
|
|
|
|
$
|
27.9
|
|
At December 31, 2018, the Company had federal tax credit carryforwards of
$0.2 million
. These carryforwards become refundable and will be refunded by 2022.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Based on the positive and negative evidence reviewed, the Company believes that it is more likely than not that the benefit from certain state net operating loss ("NOL") carryforwards related to single filing states of a liquidated subsidiary will not be realized. In recognition of this risk, the Company has provided a valuation allowance of
$0.4 million
on the deferred tax assets related to these state NOL carryforwards. If or when recognized, the tax benefits related to any reversal of the valuation allowance on deferred tax assets as of December 31, 2018, will be accounted for as a reduction of income tax expense.
The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. The Company had no material uncertain tax positions for which it recognized a benefit at December 31, 2018 and December 31, 2017.
The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense in the accompanying consolidated statements of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2018 and December 31, 2017. The Company does not anticipate a significant change in its unrecognized tax benefits over the next 12 months.
On December 22, 2017, the United States government enacted the Tax Act resulting in significant modifications to existing law. The Company follows the guidance in Staff Accounting Bulletin 118, which provides additional clarification regarding the application of ASC Topic 740 in situations where the Company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act for the reporting period in which the Tax Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Tax Act’s enactment date and ending when the Company has obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstances should the measurement period extend beyond one year from the enactment date.
The Company had completed the accounting for the effects of the Tax Act during the year ended December 31, 2017, except for the repricing of ending deferred taxes due to the reduction in the corporate tax rate and the impact of the one-time deemed repatriation transition tax on unrepatriated foreign earnings. As a result, the Company's financial statements for the year ended December 31, 2017 reflect these effects of the Tax Act as provisional based on a reasonable estimate of the income tax effects. The Company included a provisional reduction in deferred tax liability and corresponding provisional reduction in tax provision expense of
$9.1 million
in relation to the repricing of its ending deferred tax balance. The Company concluded its analysis in the fourth quarter of 2018 and no adjustment to the provisional amount is required.
The Company had also included a provisional income tax payable in the amount of
$0.5 million
related to the one-time deemed repatriation transition tax on unrepatriated foreign earnings. The provisional amount was based on information available at the time, including estimated tax earnings and profits and tax pools from foreign investments. During the first quarter of 2018, the Company recorded a provisional adjustment in the amount of
$0.3 million
. The Company completed its computation of the transition tax during the fourth quarter of 2018, which resulted in no further adjustments to income tax payable.
The Tax Act also subjects United States stockholders to current tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries. The FASB staff Q&A, Topic 740 No. 5,
Accounting for GILTI
, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. We have elected to recognize the tax on GILTI as a period expense in the period the tax is incurred.
The Company considers the earnings of non-U.S. subsidiaries to be indefinitely invested outside the United States based on estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and the Company's specific plans for reinvestment of those subsidiary earnings. As required by the Tax Act, the Company has recorded a tax liability related to the U.S. federal income taxes on approximately
$12.1 million
of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. However, the Company has not recorded a deferred tax liability for state and foreign withholding taxes associated with the repatriation of those foreign earnings. If the Company decides to repatriate the foreign earnings, it would need to adjust its income tax provision in the period it determined that the earnings will no longer be indefinitely invested outside the United States.
We are subject to taxation in the United States and Canada. The tax years 2015 and thereafter remain open to examination for the Company and predecessor entities by the United States federal and Canadian tax authorities. With few exceptions, predecessor entities are also subject to examination for the 2014 taxable year by United States state and local tax authorities.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
7. Property and Equipment
Property and equipment as of December 31, 2018 and December 31, 2017, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Vehicles and equipment
|
$
|
137,033
|
|
|
$
|
108,130
|
|
Buildings and leasehold improvements
|
28,067
|
|
|
21,825
|
|
Machinery and equipment
|
26,163
|
|
|
20,849
|
|
Software and computers
|
24,068
|
|
|
23,526
|
|
Land
|
8,133
|
|
|
14,041
|
|
Assets to be placed into service
|
2,419
|
|
|
—
|
|
Furniture and fixtures
|
1,750
|
|
|
1,464
|
|
|
227,633
|
|
|
189,835
|
|
Less: accumulated depreciation
|
(75,992
|
)
|
|
(45,311
|
)
|
|
$
|
151,641
|
|
|
$
|
144,524
|
|
Depreciation expense for property and equipment was
$33.4 million
and
$29.4 million
for the years ended December 31, 2018 and 2017, respectively.
8. Long-Term Debt
Notes payable consisted of the following at December 31, 2018 and December 31, 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
2018 Term Loan Facility
|
$
|
450,000
|
|
|
$
|
—
|
|
Unamortized deferred financing and issuance costs - term loan
|
(7,500
|
)
|
|
—
|
|
Revolving credit facilities
|
146,000
|
|
|
47,486
|
|
Unamortized deferred financing costs - revolving credit facilities
|
(4,673
|
)
|
|
(3,164
|
)
|
Senior secured notes
|
—
|
|
|
575,000
|
|
Unamortized debt issuance costs - senior secured notes
|
—
|
|
|
(40,621
|
)
|
|
$
|
583,827
|
|
|
$
|
578,701
|
|
2018 Term Loan Facility
On August 13, 2018, the Company entered into a credit agreement by and among Alpha, Holdco, Royal Bank of Canada, as administrative agent and collateral agent, and the lenders party thereto (the “2018 Term Loan Facility”). The 2018 Term Loan Facility provides senior secured debt financing in an aggregate principal amount of
$450.0 million
and the right, at the Company’s option, to request additional tranches of term loans. Availability of such additional tranches of term loans will be subject to the absence of any default, and, among other things, the receipt of commitments by existing or additional financial institutions. Borrowings under the 2018 Term Loan Facility will bear interest at Holdco’s option at either (a) a LIBOR rate determined by reference to the costs of funds for United States dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, which shall be no less than
0.00%
, plus an applicable margin of
3.25%
(or
3.00%
if the first lien net leverage ratio (as defined in the 2018 Term Loan Facility) is no greater than
4.00
to 1.00) or (b) a base rate determined by reference to the highest of (i) the prime commercial lending rate published by Royal Bank of Canada as its “prime rate,” (ii) the federal funds effective rate plus
0.50%
and (iii) a one-month LIBOR rate plus
1.0%
, plus an applicable margin of
2.25%
(or
2.00%
if the first lien net leverage ratio (as defined in the 2018 Term Loan Facility) is no greater than
4.00
to 1.00). The Company will be required to make scheduled quarterly payments in an aggregate annual amount equal to
0.25%
of the aggregate principal amount of the initial term loans made on August 13, 2018, with the balance due on August 13, 2025,
seven
years after the closing date for the initial term loans (as defined in the 2018 Term Loan Facility).
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Obligations under the 2018 Term Loan Facility are secured by a first priority lien on all Term Priority Collateral (as defined in the 2018 Term Loan Facility) and a second priority lien on all ABL Priority Collateral (as defined in the 2018 Term Loan Facility).
The 2018 Term Loan Facility contains a number of covenants that, among other things and subject to certain exceptions, restrict Alpha’s ability and the ability of its subsidiaries to incur additional indebtedness, pay dividends on its equity securities or redeem, repurchase or retire its equity securities or other indebtedness, make investments, loans and acquisitions, create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries, engage in transactions with its affiliates, sell assets, including equity securities of its subsidiaries, alter the business it conducts, consolidate or merge and incur liens.
2018 Revolving Credit Facility
On August 13, 2018, Alpha, Holdco, as the lead borrower, the additional U.S. borrowers party thereto from time to time, the Canadian borrowers party thereto from time to time (collectively, the “ABL Borrowers”), the lenders party thereto from time to time, Bank of America, N.A., as administrative agent and collateral agent (the “ABL Agent”), and the other agents party thereto, entered into the ABL Credit Agreement (the “2018 ABL Credit Agreement”), including the exhibits and schedules thereto (collectively, the “2018 Revolving Credit Facility”)
The 2018 Revolving Credit Facility provides for senior secured revolving credit financing, including a United States revolving credit facility of initially up to
$375.0 million
(the “United States Revolving Credit Facility”), a Canadian revolving credit subfacility of initially up to
$75.0 million
(the “Canadian Revolving Credit Subfacility”) and a “first-in-last-out” (“FILO”) subfacility in an amount of up to
$25.0 million
in amortizing loans (the “FILO Subfacility”), subject, in each case, to availability under the respective borrowing bases for each facility. The aggregate amount of the 2018 Revolving Credit Facility is
$375.0 million
. The 2018 Revolving Credit Facility includes a letter of credit subfacility, which permits up to
$10.0 million
of letters of credit under the United States Revolving Credit Facility (which may be denominated in United States dollars) and up to the dollar equivalent of
$5.0 million
of letters of credit under the Canadian Revolving Credit Subfacility (which may be denominated in Canadian dollars or United States dollars). In addition, pursuant to the 2018 Revolving Credit Facility, up to
$50.0 million
in the case of the United States Revolving Credit Facility, and
$10.0 million
in the case of the Canadian Revolving Credit Subfacility, may be short-term borrowings upon same-day notice. The 2018 Revolving Credit Facility is scheduled to mature on August 13, 2023.
The amount of available credit for each of the United States Revolving Credit Facility and the Canadian Revolving Credit Subfacility changes every month, depending on the amount of eligible trade accounts, eligible credit card receivables, eligible inventory, eligible qualifying equipment and eligible cash the United States and Canadian loan parties have available to serve as collateral. Generally, each of the United States Revolving Credit Facility and the Canadian Revolving Credit Subfacility is limited to the sum of (a)
85%
of eligible trade accounts (as defined in the 2018 Revolving Credit Facility), plus (b)
90%
of eligible credit card accounts (as defined in the 2018 Revolving Credit Facility), plus (c) the lesser of (i)
75%
of the value of the eligible inventory (as defined in the 2018 Revolving Credit Facility) and (ii)
85%
of the net orderly liquidation value of the eligible inventory, plus (d) the lesser of (i)
85%
of the net orderly liquidation value of eligible qualifying equipment and (ii) the amount obtained by multiplying (A) the amount obtained by dividing (x) the amount set forth in clause (c)(i) above by (y) the net book value of all eligible qualifying equipment as of the most recent annual appraisal, by (B) the net book value of eligible qualifying equipment (subject to amounts contributed to the borrowing base pursuant to this clause (d) being capped at the lesser of
$50.0 million
and
15%
of the loan limit (as defined in the 2018 Revolving Credit Facility)), plus (e) eligible cash (as defined in the 2018 Revolving Credit Facility), minus (f) any eligible reserves on the borrowing base (as defined in the 2018 Revolving Credit Facility). The FILO Subfacility is limited to the sum of (a)
5%
of the book value of eligible trade accounts (as defined in the 2018 Revolving Credit Facility) of each United States loan party (subject to such percentage being automatically reduced by
0.278%
on each FILO amortization date (as defined in the 2018 Revolving Credit Facility)), plus (b)
10%
of the value of eligible inventory (as defined in the 2018 Revolving Credit Facility) of each United States loan party (subject to such percentage being automatically reduced by
0.556%
on each FILO amortization date (as defined in the 2018 Revolving Credit Facility)), minus (c) eligible reserves on the United States borrowing base. Available credit for each tranche is calculated separately, and the borrowing base components are subject to customary reserves and eligibility criteria.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Borrowings under the 2018 Revolving Credit Facility bear interest, at the Company’s option, at either an alternate base rate or Canadian prime rate, as applicable, plus an applicable margin (ranging from
0.25%
to
0.75%
pursuant to a grid based on average excess availability) or the London Interbank Offered Rate (“LIBOR”) or Canadian CDOR rate (as defined therein), as applicable, plus an applicable margin (ranging from
1.25%
to
1.75%
pursuant to a grid based on average excess availability). Loans under the FILO Subfacility within the 2018 Revolving Credit Facility bear interest at the same rate as the United States and Canadian tranches plus
50
basis points. In addition to paying interest on outstanding principal under the 2018 Revolving Credit Facility, the ABL Borrowers are required to pay a commitment fee in respect of the unutilized commitments under the 2018 Revolving Credit Facility ranging from
0.250%
to
0.375%
per annum and determined based on average utilization of the 2018 Revolving Credit Facility (increasing when utilization is low and decreasing when utilization is high).
As long as commitments are outstanding under the 2018 Revolving Credit Facility, the Company is subject to certain restrictions under the facility if the Company’s pro forma adjusted EBITDA to debt ratio (the “Total Net Leverage Ratio”) exceeds a certain total. The Total Net Leverage Ratio is defined as the ratio of Consolidated Total Debt to the aggregate amount of Consolidated EBITDA for the Relevant Reference Period (as such terms are defined in the 2018 Revolving Credit Facility). Consolidated Total Debt is defined in the 2018 Revolving Credit Facility and is generally calculated as an amount equal to the aggregate outstanding principal amount of all third-party debt for borrowed money, unreimbursed drawings under letters of credit, capital lease obligations and third-party debt obligations evidenced by notes or similar instruments on a consolidated basis and determined in accordance with GAAP, subject to certain exclusions. Consolidated EBITDA is defined in the 2018 Revolving Credit Facility and is calculated in a similar manner to the Company’s calculation of Adjusted EBITDA, except that the 2018 Revolving Credit Facility permits pro forma adjustments in order to give effect to, among other things, the pro forma results of the Company’s acquisitions as if the Company had owned such acquired companies for the entirety of the Relevant Reference Period. These pro forma adjustments give effect to all acquisitions consummated in the four quarters ended December 31, 2018 as though they had been consummated on the first day of the first quarter of 2018. The 2018 Revolving Credit Facility requires the Company to maintain a Total Net Leverage Ratio no greater than
6.00
:1.00 to incur additional junior lien and unsecured indebtedness.
As of December 31, 2018, the Company had
$146.0 million
of outstanding borrowings and
$229.0 million
of available aggregate undrawn borrowing capacity under the 2018 Revolving Credit Facility. The weighted average interest rate for borrowings under the 2018 Revolving Credit Facility from August 13, 2018 to December 31, 2018 was
3.8%
.
On November 9, 2018, the Company terminated the
$25.0 million
FILO Subfacility.
In January 2019, the Company executed an interest rate swap with a notional amount of
$310.0 million
with an interest rate of
2.52%
to hedge the interest rate risk related to the LIBOR rate under the 2018 Term Loan Facility and 2018 Revolving Credit Facility through January 2022. The interest rate swap qualifies for hedge accounting. As such, the changes in the fair value of this hedging instrument will be included in the statement of comprehensive income in accumulated other comprehensive income at each period end. There is no significant counterparty credit risk associated with this interest rate swap.
2016 ABL Credit Facility
On August 13, 2018, Alpha terminated its revolving commitments under its
$300.0 million
2016 ABL Credit Facility. The weighted average interest rate for borrowings under the 2016 ABL Credit Facility up to August 13, 2018 was
3.4%
. Upon termination of the 2016 ABL Credit Facility, the Company expensed
$0.7 million
in deferred financing costs and carried over
$2.6 million
of deferred financing costs to the 2018 Revolving Credit Facility.
Senior Secured Notes
On August 15, 2018, the Company redeemed all of the
$575.0 million
principal amount of its outstanding Senior Secured Notes (the "Notes") at a redemption price equal to
104.125%
of the principal amount of Notes being redeemed plus accrued and unpaid interest. The Notes were issued in a private placement on August 9, 2016, at an issue price of
100%
of the principal with a stated interest rate of
8.25%
.
Upon redemption of the Notes, the Company expensed
$57.8 million
of deferred financing costs, original issuance discounts and prepayment premiums, which are included in the statement of operations in loss on extinguishment of debt.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Debt Issuance Costs
Unamortized deferred financing and issuance costs as of December 31, 2018 were
$12.2 million
, of which
$7.5 million
were included in long-term portion of term loan, net in the accompanying consolidated balance sheet and
$4.7 million
for the 2018 Revolving Credit Facility was included in other long-term assets in the accompanying consolidated balance sheet. Unamortized debt issuance costs as of December 31, 2017 were
$43.8 million
, of which
$40.6 million
was included in long-term portion of notes payable, net in the accompanying consolidated balance sheet and
$3.2 million
for the 2016 ABL Credit Facility was included in other long-term assets in the accompanying consolidated balance sheet.
As of December 31, 2018, the Company was in compliance with all debt covenants under the 2018 Revolving Credit Facility and the 2018 Term Loan Facility.
9. Derivatives and Hedging Activities
The Company uses derivatives to manage selected foreign currency exchange rate risk for its investments in foreign subsidiaries. In general, the types of risks hedged are those relating to the variability of future earnings and cash flows caused by foreign currency exchange rate fluctuations and interest rates. The Company documents its risk management strategy and hedge effectiveness at the inception of and during the term of each hedge.
Net Investment Hedge
As of December 31, 2018, the amount of notional foreign currency exchange rate contracts outstanding was approximately
$88.0 million
. There is no significant credit risk associated with the potential failure of any counterparty to perform under the terms of any derivative financial instrument.
The net investment hedge is measured at fair value within the accompanying consolidated balance sheet either as an asset or a liability. As of December 31, 2018, the fair value of the derivative instrument was
$4.3 million
and was recorded in non-current other assets. As of December 31, 2017, the fair value of the derivative instrument was
$2.4 million
and was recorded in other long-term liabilities.
For the year ended December 31, 2018, the Company recognized a gain of
$4.4 million
, net of tax of
$2.0 million
, recorded in comprehensive income (loss). The Company recognized a loss of
$3.0 million
, net of taxes of
$1.8 million
, for the year ended December 31, 2017, recorded in comprehensive income (loss) related to the net investment hedge.
The Company also recorded a gain of
$0.3
million for the year ended December 31, 2018, in other income (expense), net related to the ineffective portion of the net investment hedge. The Company recorded a loss of
$0.2
million for the year ended December 31, 2017, in other income (expense), net related to the ineffective portion of the net investment hedge.
Embedded Derivative
On August 15, 2018, the Company redeemed its Notes at a price equal to
104.125%
of the principal amount, plus accrued and unpaid interest.
The Company had the option to prepay its Notes at any time prior to August 15, 2018, at a price equal to
100%
of the principal amount, plus an applicable premium and any accrued and unpaid interest.
Included in the Notes was an optional prepayment period through August 15, 2018, which allowed using proceeds from an equity offering, which constituted an embedded derivative and was bifurcated from the debt host and accounted for separately. The embedded derivative was recorded at fair value at inception until August 15, 2018, with any changes in fair value from inception recorded in earnings. The fair value of the embedded derivative as of December 31, 2017, was
$0
, due to a minimal probability of an equity offering occurring where the proceeds were used to pay down the Notes prior to the expiration of the optional prepayment time period.
The change in fair value for the years ended December 31, 2018 and December 31, 2017 was
$0
and
$13.2 million
, respectively, and was included in the statements of operations in other income, net.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
10. Accumulated Other Comprehensive (Loss) Income
Accumulated other comprehensive income (loss) consists of cumulative unrealized foreign currency translation adjustments and unrealized changes in fair value on certain derivative instruments. For the year ended December 31, 2018,
$0.2 million
was reclassified to retained earnings as a result of income tax effects of the Tax Act, which reduced the corporate federal tax rate from 35.0% to 21.0%. For the year ended December 31, 2017, there were no reclassifications out of accumulated other comprehensive income.
The components of accumulated other comprehensive loss for the year ended December 31, 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative unrealized foreign currency translation gains and (losses)
|
|
Unrealized (loss) gain on derivative, net of tax
|
|
Total
|
Balance at December 31, 2017
|
$
|
3,863
|
|
|
$
|
(1,509
|
)
|
|
$
|
2,354
|
|
Other comprehensive (loss) income
|
(6,948
|
)
|
|
4,413
|
|
|
(2,535
|
)
|
Balance at December 31, 2018
|
$
|
(3,085
|
)
|
|
$
|
2,904
|
|
|
$
|
(181
|
)
|
11. Related Parties
During the years ended December 31, 2018 and 2017, the Company paid management fees and certain expenses to an affiliate of Lone Star Fund IX (U.S.) L.P., together with certain of its affiliates and associates (excluding us and other companies it owns as a result of its investment activities) ("Lone Star"), of
$0 million
and
$0.4 million
, respectively.
12. Lease Commitments
The Company leases certain facilities and equipment under various operating lease agreements with expiration dates through 2027 and typically contain renewal options of
5
to
10
years. These agreements generally require the Company to pay rental amounts and operating expenses, and contain tenant improvement allowances, rent holidays, rent escalation clauses and/or contingent rent provisions.
Leasehold improvement assets, which generally represent non-structural improvements for which the Company receives reimbursement from the landlord, are depreciated over the lesser of
10
years or the initial life of the lease, prior to any lease extensions. For tenant allowances, the Company records a corresponding deferred rent liability in other liabilities on the balance sheet and amortizes the deferred rent over the initial term of the lease as a reduction to rent expense.
The Company’s leases may contain rent holidays and/or escalating rent payments; however, the Company accounts for the rent expense on a straight-line basis over the lease term. The straight-line rent expense is calculated at the inception of the lease, which entails recording a monthly liability for the difference between rent paid to the landlord and straight-line rent expense as calculated at the beginning of the lease.
Rent expense was
$33.4 million
and
$28.5 million
for the years ended December 31, 2018 and 2017, respectively.
Minimum annual lease commitments under non-cancelable operating leases are summarized as follows (in thousands):
|
|
|
|
|
Years Ending December 31,
|
Total
|
2019
|
$
|
29,289
|
|
2020
|
26,202
|
|
2021
|
23,796
|
|
2022
|
18,120
|
|
2023
|
12,647
|
|
Thereafter
|
19,856
|
|
|
$
|
129,910
|
|
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Following is a summary of non-cancelable capital lease commitments (in thousands):
|
|
|
|
|
Years Ending December 31,
|
Total
|
2019
|
$
|
2,675
|
|
2020
|
2,573
|
|
2021
|
2,216
|
|
2022
|
1,380
|
|
2023
|
987
|
|
Thereafter
|
—
|
|
|
$
|
9,831
|
|
13. Stock-Based Compensation
The Company has a 2017 Stock Incentive Plan ("the 2017 SIP") that provides for granting of stock options, restricted stock units and other equity awards. The 2017 SIP authorizes
3,636,000
shares of common stock for issuance. The 2017 SIP is designed to motivate and retain individuals who are responsible for the attainment of the Company's primary long-term performance goals.
The Company utilizes the Black-Scholes option-pricing model to estimate the grant-date fair value of all stock options granted during the years ended December 31, 2018 and 2017. The Black-Scholes option-pricing model requires the use of weighted average assumptions for estimated expected volatility, estimated expected term of stock options, risk-free rate, estimated expected dividend yield, and the fair value of the underlying common stock at the date of grant. Due to the recent date of the IPO, the Company does not have sufficient history to estimate the expected volatility of its common stock price. Thus, expected volatility has been based on the average volatility of peer public entities that are similar in size and industry. The Company estimates the expected term of all stock options based on the simplified method. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected dividend yield is
0.0%
as the Company has not declared any common stock dividends to date and does not expect to declare common stock dividends in the near future. The fair value of the underlying common stock at the date of grant was determined based on the value of the common stock at the date of grant. Forfeitures are recorded when incurred. The weighted average assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2018 and 2017, are set forth below:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Year Ended December 31, 2017
|
Expected term (in years)
|
6.25
|
|
|
6.25
|
|
Expected volatility
|
44.8
|
%
|
|
49.8
|
%
|
Risk-free interest rate
|
2.8
|
%
|
|
2.1
|
%
|
Expected dividend
|
—
|
|
|
—
|
|
Weighted average fair value at grant date
|
$
|
7.30
|
|
|
$
|
7.02
|
|
During the years ended December 31, 2018 and 2017, the Company granted
340,558
and
225,745
stock options, respectively, to employees that vest based on service only. All of these awards vest over a
four
-year period. The Company did not issue any stock options prior to its IPO in February 2017.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Information related to the stock options granted during the years ended December 31, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
2017 Stock Incentive Plan
|
|
Options
|
Weighted Average Exercise Price
|
Outstanding at December 31, 2016
|
—
|
|
$
|
—
|
|
Options granted
|
225,745
|
|
14.01
|
|
Options exercised
|
—
|
|
—
|
|
Options canceled/forfeited
|
(1,390
|
)
|
14
|
|
Outstanding at December 31, 2017
|
224,355
|
|
$
|
14.01
|
|
Options exercisable at December 31, 2017
|
—
|
|
$
|
—
|
|
Options granted
|
340,558
|
|
$
|
15.39
|
|
Options exercised
|
(1,641
|
)
|
11.27
|
|
Options canceled/forfeited
|
(29,689
|
)
|
14.77
|
|
Outstanding at December 31, 2018
|
533,583
|
|
$
|
14.86
|
|
Options exercisable at December 31, 2018
|
53,497
|
|
$
|
14.09
|
|
The intrinsic value of all stock options outstanding at December 31, 2018 and December 31, 2017 was
$0
and
$0.2 million
, respectively.
A summary of the Company’s non‑vested stock options for the years ended December 31, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
Non-vested Options
|
Options
|
Weighted Average Grant Date Fair Value
|
December 31, 2016
|
—
|
|
$
|
—
|
|
Granted
|
225,745
|
|
7.02
|
|
Canceled/forfeited
|
(1,390
|
)
|
7.04
|
|
December 31, 2017
|
224,355
|
|
$
|
7.02
|
|
Granted
|
340,558
|
|
$
|
7.30
|
|
Vested
|
(55,919
|
)
|
7.02
|
|
Canceled/forfeited
|
(28,908
|
)
|
7.20
|
|
December 31, 2018
|
480,086
|
|
$
|
7.21
|
|
During the years ended December 31, 2018 and 2017, the Company recorded stock-based compensation expense related to stock options of
$0.8 million
and
$0.3 million
, respectively.
As of December 31, 2018, there was approximately
$2.7 million
of total unrecognized compensation cost related to non‑vested stock options granted under the 2017 SIP. That cost is expected to be recognized over a weighted average period of approximately
2.9
years.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
The following tabulation summarizes certain information about outstanding and exercisable stock options at December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Prices
|
December 31, 2018
|
Weighted Average remaining Contractual Life in Years
|
Weighted Average Exercise Price
|
|
December 31, 2018
|
Weighted Average Exercise Price
|
$11.00 - $12.99
|
4,926
|
|
8.6
|
$
|
11.27
|
|
|
—
|
|
$
|
—
|
|
$13.00 - $14.99
|
201,717
|
|
8.1
|
14.02
|
|
|
51,523
|
|
14.00
|
|
$15.00 - $16.99
|
326,940
|
|
9.2
|
15.43
|
|
|
1,974
|
|
16.47
|
|
|
533,583
|
|
8.8
|
$
|
14.86
|
|
|
53,497
|
|
$
|
14.09
|
|
The following table summarizes all unvested restricted stock unit activity for the year ended December 31, 2018:
|
|
|
|
|
|
|
|
Restricted Stock Units Outstanding
|
Weighted-Average Grant Date Fair Value
|
Unvested balance at December 31, 2017
|
128,815
|
|
$
|
14.18
|
|
Granted
|
286,808
|
|
15.16
|
|
Vested
|
(50,355
|
)
|
14.55
|
|
Canceled/forfeited
|
(15,754
|
)
|
14.82
|
|
Unvested balance at December 31, 2018
|
349,514
|
|
$
|
14.90
|
|
The intrinsic value of all outstanding restricted stock units at December 31, 2018 and December 31, 2017 was
$5.2 million
and
$1.9 million
, respectively.
During the years ended December 31, 2018 and 2017, the Company recorded stock-based compensation expense related to restricted stock units of
$1.5 million
and
$0.4 million
, respectively.
As of December 31, 2018, there was
$4.0 million
of total unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of
2.9
years.
During the years ended December 31, 2018 and 2017, the Company recorded stock-based compensation expense related to a fully vested stock award of
$0 million
and
$1.5 million
, respectively. The total number of stock units issued related to this award for the year ended December 31, 2017 was
91,168
.
14. Long-Term Incentive Plan
Following the Lone Star Acquisition, Lone Star implemented the LSF9 Cypress Parent LLC
Long-Term Incentive Plan (the "LTIP"). Under the LTIP, participants were granted pool units entitling them, subject to the terms of the LTIP, to a potential cash payout upon a monetization event. The LTIP was effective October 9, 2015. The LTIP was assigned from Parent to the Company in connection with the IPO.
The LTIP was established with the purpose of attracting certain key employees and other service providers of the Company and its subsidiaries and to provide motivation to put forth maximum efforts toward the continued growth, profitability and success of the Company by providing incentives.
The Board of the Company administers the LTIP and awards pool units. Pool units vest
10%
each year for the first
three
years. Pool units, whether vested or unvested, that are outstanding on the 5th anniversary of the date the award was granted will be forfeited on that date or, upon the date the participant ceases employment. Pool units will remain outstanding for a period of six months from the date of such termination if the termination is without cause, a resignation for good reason, due to death or due to disability. Total pool units available for grant under the LTIP is
1,000,000
. At December 31, 2018 and December 31, 2017, there were
867,000
and
925,000
pool units outstanding, respectively.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
The Company maintains an incentive pool account and upon a monetization event and obtaining a cumulative internal rate of return of at least
15%
, the Company will credit to the incentive pool account amounts as defined in the LTIP and determined by the cumulative internal rate of return achieved at the time of the monetization event. A monetization event, as defined by the LTIP, is one of the following transactions: (a) the Company is sold, transferred or otherwise disposed of to an unrelated third party for cash; (b) a firm commitment underwritten public offering of the equity interests of the Company; or (c) the payment by the Company of any cash distributions to investors. Following a monetization event, the value of any incentive amount to be paid to a participant will be determined by the percentage of a participant’s pool units awarded to the total pool units awarded under the LTIP times the amount in the incentive pool account. Participants will be paid within
60
days following the monetization event.
At December 31, 2018, there had not been a monetization event and, therefore, no amounts were accrued in the accompanying consolidated balance sheets and no expense has been recognized for the LTIP. On February 15, 2017, the Company completed the IPO; however, the IPO was not a monetization event and no payout was triggered under the LTIP.
15. Retirement Plan
The Company's subsidiaries have multiple retirement savings plans for all eligible full-time employees under Section 401(k) of the Internal Revenue Code. The plans allow participants to contribute a portion of their earnings to the plans. The plans allow the Company, at its discretion, to match a certain percentage of the employees’ contributions, limited to a certain percentage of eligible compensation. There were contributions to the plans of
$4.7 million
and
$4.2 million
for the years ended December 31, 2018 and 2017, respectively.
16. Contingencies
The Company is involved in certain legal actions arising in the ordinary course of business. Management believes that such litigation and claims will be resolved without material effect on the Company’s consolidated financial position, results of operations or cash flows.
The Company regularly assesses such matters to determine the degree of probability that the Company will incur a material loss as a result of such matters, as well as the range of possible loss. An estimated loss contingency is accrued in the Company’s financial statements if it is probable the Company will incur a loss and the amount of the loss can be reasonably estimated. The Company reviews all claims, proceedings and investigations at least quarterly and establishes or adjusts any accruals for such matters to reflect the impact of negotiations, settlements, advice of legal counsel and other information and events pertaining to a particular matter. All legal costs associated with such matters are expensed as incurred.
Historically, the claims, proceedings and investigations brought against the Company, individually and in the aggregate, have not had a material adverse effect on the consolidated results of operations, cash flows or financial position of the Company. As of December 31, 2018, there were no proceedings or litigation involving the Company that management believes would have a material adverse impact on its business, financial position, results of operations, or cash flows.
17. Fair Value Measurement
The Company’s financial instruments consist primarily of cash and cash equivalents, trade and other receivables, derivative instruments, accounts payable, long-term debt and accrued liabilities. The carrying value of the Company’s trade receivables, trade payables, the 2018 Revolving Credit Facility and accrued liabilities approximates fair value due to their short-term maturity. The Company may adjust the carrying amount of certain nonfinancial assets to fair value on a non-recurring basis when they are impaired.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
The estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured and recorded at fair value on a recurring basis at December 31, 2018, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Total Fair Value
|
Recurring:
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
Derivative assets (Note 9)
|
$
|
—
|
|
|
$
|
4,344
|
|
|
$
|
—
|
|
|
$
|
4,344
|
|
The estimated carrying amount and fair value of the Company’s financial instruments and other assets and liabilities measured and recorded at fair value on a recurring basis at December 31, 2017 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2017
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Total Fair Value
|
Recurring:
|
|
|
|
|
|
|
|
Non-current liability
|
|
|
|
|
|
|
|
Derivative liability (Note 9)
|
$
|
—
|
|
|
$
|
(2,364
|
)
|
|
$
|
—
|
|
|
$
|
(2,364
|
)
|
The fair values of derivative assets and liabilities are determined using quantitative models that utilize multiple market inputs including interest rates and exchange rates to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other instrument-specific factors, where appropriate. In addition, the Company incorporates within its fair value measurements a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by counterparties, and fair value for net long exposures is adjusted for counterparty credit risk while the fair value for net short exposures is adjusted for the Company’s own credit risk.
18. Segments
Segment information is presented in accordance with ASC 280,
Segment Reporting,
which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about customers, products and geographic areas. Operating segments are defined as components of an enterprise that engage in business activities that earn revenues, incur expenses and prepare separate financial information that is evaluated regularly by the Company’s Chief Operating Decision Maker ("CODM") in order to allocate resources and assess performance. Resources are allocated and performance is assessed by the CODM.
Based on the provisions of ASC 280, the Company has defined its operating segments by considering management structure and product offerings. This evaluation resulted in
one
reportable segment.
As discussed in Note 3, Discontinued Operations, the Company closed the sale of the Disposed Business on November 1, 2018, which was previously reported as the Mechanical Insulation segment. The previously reported amounts for the Mechanical Insulation segment have been reclassified to discontinued operations for all periods presented. The Company’s continuing operations now consist of what was previously reported as the Specialty Building Products segment for all periods presented.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
Revenues are attributed to each country based on the location in which sales originate and in which assets are located. The following table provides information about the Company by geographic areas (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
United States
|
$
|
1,820,589
|
|
|
$
|
1,575,500
|
|
Canada
|
223,723
|
|
|
214,614
|
|
Total
|
$
|
2,044,312
|
|
|
$
|
1,790,114
|
|
For the years ended December 31, 2018 and 2017, no customer comprised more than 10% of net sales.
The following table sets forth property, plant and equipment, goodwill and intangibles by geographic area (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
Property, plant and equipment, net
|
|
|
|
United States
|
$
|
137,252
|
|
|
$
|
128,895
|
|
Canada
|
14,389
|
|
|
15,629
|
|
Total property, plant and equipment, net
|
$
|
151,641
|
|
|
$
|
144,524
|
|
Goodwill
|
|
|
|
|
United States
|
$
|
460,384
|
|
|
$
|
425,931
|
|
Canada
|
24,557
|
|
|
26,797
|
|
Total goodwill
|
$
|
484,941
|
|
|
$
|
452,728
|
|
Intangibles, net
|
|
|
|
|
United States
|
$
|
141,186
|
|
|
$
|
157,442
|
|
Canada
|
4,690
|
|
|
7,094
|
|
Total intangibles, net
|
$
|
145,876
|
|
|
$
|
164,536
|
|
The Company’s net sales by major product line are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Change
|
|
2018
|
|
2017
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
|
Wallboard
|
$
|
781,257
|
|
38.2
|
%
|
|
$
|
701,467
|
|
39.2
|
%
|
|
$
|
79,790
|
|
|
11.4
|
%
|
Suspended ceiling systems
|
379,809
|
|
18.6
|
%
|
|
328,815
|
|
18.4
|
%
|
|
50,994
|
|
|
15.5
|
%
|
Metal framing
|
361,493
|
|
17.7
|
%
|
|
280,410
|
|
15.7
|
%
|
|
81,083
|
|
|
28.9
|
%
|
Complementary and other products
|
521,753
|
|
25.5
|
%
|
|
479,422
|
|
26.8
|
%
|
|
42,331
|
|
|
8.8
|
%
|
Total net sales
|
$
|
2,044,312
|
|
100.0
|
%
|
|
$
|
1,790,114
|
|
100.0
|
%
|
|
$
|
254,198
|
|
|
14.2
|
%
|
Total gross profit
|
$
|
590,359
|
|
|
|
$
|
522,189
|
|
|
|
$
|
68,170
|
|
|
|
Total gross margin
|
28.9
|
%
|
|
|
29.2
|
%
|
|
|
(0.3
|
)%
|
|
|
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
19. Other Current Liabilities
The balance of other current liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
Accrued expenses
|
$
|
5,080
|
|
|
$
|
6,919
|
|
Accrued interest
|
1,315
|
|
|
18,093
|
|
Accrued other
|
13,584
|
|
|
12,258
|
|
Total other current liabilities
|
$
|
19,979
|
|
|
$
|
37,270
|
|
20. Tax Receivable Agreement
In connection with the IPO, the Company entered into a tax receivable agreement ("TRA") with Parent 2 that provides for the payment by the Company to Parent 2 of
90%
of the amount of cash savings, if any, in U.S. federal, state, local and non-U.S. income tax that the Company realizes (or in some circumstances is deemed to realize) as a result of the utilization of the Company and the Company’s subsidiaries’ (a) depreciation and amortization deductions, and any offset to taxable income and gain or increase to taxable loss, resulting from the tax basis the Company has in its assets at the consummation of the IPO, (b) net operating losses, (c) tax credits and (d) certain other tax attributes. During the three months ended March 31, 2017, the Company recorded a liability of
$203.8 million
, with a corresponding offset to additional paid-in capital for the TRA. At the end of each reporting period, any changes in the Company's estimate of the liability will be recorded in the consolidated statement of operations as a component of other income (expense). The timing and amount of future tax benefits associated with the TRA are subject to change, and future payments may be required which could be materially different from the current estimated liability. The TRA will remain in effect until all tax benefits have been used or expired, unless the agreement is terminated early.
During the three months ended December 31, 2017, the Company recorded a gain in other income of
$68.0 million
due to the federal income tax rate being reduced from 35.0% to 21.0% as part of the Tax Act. As of December 31, 2018, and December 31, 2017, the TRA liability balance was
$134.6 million
and
$135.8 million
, respectively. The first payment related to the TRA was made in January 2019 for
$16.7 million
and was reflected as a current liability as of December 31, 2018.
21. Earnings (Loss) Per Share
Basic earnings (loss) per share represents net income (loss) for the period, divided by the weighted average number of shares of common stock outstanding for the period.
The following are the number of shares of common stock used to compute the basic and diluted earnings (loss) per share for each period:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
Weighted average shares used in basic computations
|
|
42,892,879
|
|
|
41,486,496
|
|
Dilutive effect of stock options and restricted stock units
|
|
22,149
|
|
|
4,157
|
|
Weighted average shares used in diluted computations
|
|
42,915,028
|
|
|
41,490,653
|
|
For the years ended December 31, 2018 and 2017, there were
68,820
and
104,324
shares, respectively, not included in the computation of diluted weighted average shares because their effect would have been antidilutive.
Foundation Building Materials, Inc.
Notes to Consolidated Financial Statements
22. Quarterly Results of Operations (Unaudited)
The following tables present selected unaudited consolidated financial data for each of the four quarters in the years ended December 31, 2018 and 2017. In the Company’s opinion, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the financial information for the period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2018
|
|
June 30, 2018
|
|
September 30, 2018
|
|
December 31, 2018
|
|
(in thousands, except per share data)
|
Net sales
|
$
|
463,661
|
|
|
$
|
522,219
|
|
|
$
|
542,273
|
|
|
$
|
516,159
|
|
Gross profit
|
$
|
134,437
|
|
|
$
|
146,267
|
|
|
$
|
154,037
|
|
|
$
|
155,618
|
|
Net (loss) income from continuing operations
|
$
|
(2,264
|
)
|
|
$
|
1,473
|
|
|
$
|
(37,553
|
)
|
|
$
|
1,925
|
|
Net (loss) income per share - basic
(1)
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.88
|
)
|
|
$
|
0.04
|
|
Net (loss) income per share - diluted
(1)
|
$
|
(0.05
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.88
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
(1)
Earnings per share is computed independently for each of the quarters presented. The sum of the quarterly earnings per share does not equal the total earnings per share computed for the year due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2017
|
|
June 30, 2017
|
|
September 30, 2017
|
|
December 31, 2017
|
|
(in thousands, except per share data)
|
Net sales
|
$
|
418,463
|
|
|
$
|
460,086
|
|
|
$
|
467,891
|
|
|
$
|
443,674
|
|
Gross profit
|
$
|
122,426
|
|
|
$
|
130,729
|
|
|
$
|
135,883
|
|
|
$
|
133,151
|
|
Net income (loss) from continuing operations
|
$
|
3,171
|
|
|
$
|
(146
|
)
|
|
$
|
122
|
|
|
$
|
74,759
|
|
Net income per share - basic
(1)
|
$
|
0.09
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.74
|
|
Net income per share - diluted
(1)
|
$
|
0.09
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
|
(1)
Earnings per share is computed independently for each of the quarters presented. The sum of the quarterly earnings per share does not equal the total earnings per share computed for the year due to rounding.
|
23. Subsequent Events
On February 1, 2019, the Company acquired certain assets of Builders’ Supplies Limited II and all of the shares of 2168828 Alberta Inc. and 2168829 Alberta Inc. (collectively, "BSL"). BSL was an independent distributor of specialty building products including wallboard, metal framing, suspended ceiling systems and insulation in the commercial market. BSL operated three branches in the Greater Toronto Area in Ontario, Canada.
Any adjustments to the purchase price allocation of this acquisition will be made as soon as practicable but no later than one year from the acquisition date.