UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2019

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 000-50924

BEACON ROOFING SUPPLY, INC.

(Exact name of registrant as specified in its charter)

Delaware	36-4173371
(State or other jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

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

(Address of Principal Executive Offices) (Zip Code)

(571) 323-3939

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	BECN	NASDAQ Global Select Market

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

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

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

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

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

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

As of July 31, 2019, 68,504,717 shares of common stock, par value $0.01 per share, of the registrant were outstanding.

BEACON ROOFING SUPPLY, INC.

FORM 10-Q

For the Quarter Ended June 30, 2019

TABLE OF CONTENTS

PART I.	Financial Information (unaudited)
	Item 1.	Condensed Consolidated Financial Statements
		Consolidated Balance Sheets	3
		Consolidated Statements of Operations	4
		Consolidated Statements of Comprehensive Income	5
		Consolidated Statements of Stockholders’ Equity	6
		Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
	Item 4.	Controls and Procedures	43
PART II.	Other Information
	Item 6.	Exhibits	44
Signatures			45

2

PART I.Financial Information (Unaudited)

Item 1. Condensed Consolidated Financial Statements

BEACON ROOFING SUPPLY, INC.

Consolidated Balance Sheets

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

	June 30,			September 30,			June 30,
	2019			2018			2018
Assets
Current assets:
Cash and cash equivalents	$	27,729		$	129,927		$	27,551
Accounts receivable, less allowance of $24,732, $17,584 and $13,963 as of June 30, 2019, September 30, 2018 and June 30, 2018, respectively		1,079,091			1,090,533			1,077,888
Inventories, net		1,124,063			936,047			1,165,389
Prepaid expenses and other current assets		361,831			244,360			337,589
Total current assets		2,592,714			2,400,867			2,608,417
Property and equipment, net		269,041			280,407			288,708
Goodwill		2,490,940			2,491,779			2,321,180
Intangibles, net		1,177,694			1,334,366			1,371,005
Other assets, net		1,243			1,243			1,511
Total assets	$	6,531,632		$	6,508,662		$	6,590,821
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	643,411		$	880,872		$	719,686
Accrued expenses		590,756			611,539			520,952
Current portions of long-term debt/obligations		19,366			19,661			19,714
Total current liabilities		1,253,533			1,512,072			1,260,352
Borrowings under revolving lines of credit, net		424,011			92,442			482,489
Long-term debt, net		2,494,648			2,494,725			2,494,308
Deferred income taxes, net		110,180			106,994			93,928
Long-term obligations under equipment financing and other, net		6,332			13,639			15,979
Other long-term liabilities		5,352			5,290			6,319
Total liabilities		4,294,056			4,225,162			4,353,375
Commitments and contingencies (Note 9)
Convertible preferred stock; $0.01 par value; aggregate liquidation preference $400,000; 400,000 shares authorized, issued and outstanding as of June 30, 2019, September 30, 2018 and June 30, 2018		399,195			399,195			399,195
Stockholders' equity:
Common stock (voting); $0.01 par value; 100,000,000 shares authorized; 68,480,751, 68,135,790 and 68,105,113 shares issued and outstanding as of June 30, 2019, September 30, 2018 and June 30, 2018, respectively		684			681			681
Undesignated preferred stock; 5,000,000 shares authorized, none issued or outstanding		-			-			-
Additional paid-in capital		1,077,953			1,067,040			1,063,137
Retained earnings		777,842			833,834			792,502
Accumulated other comprehensive income (loss)		(18,098	)		(17,250	)		(18,069	)
Total stockholders' equity		1,838,381			1,884,305			1,838,251
Total liabilities and stockholders' equity	$	6,531,632		$	6,508,662		$	6,590,821

See accompanying Notes to Condensed Consolidated Financial Statements

3

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Operations

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

	Three Months Ended June 30,				Nine Months Ended June 30,
	2019		2018		2019			2018
Net sales	$	1,924,534	$	1,934,951	$	5,075,247		$	4,482,555
Cost of products sold		1,451,998		1,441,057		3,832,154			3,380,531
Gross profit		472,536		493,894		1,243,093			1,102,024
Operating expense:
Selling, general and administrative		328,827		323,194		976,928			858,534
Depreciation		17,731		15,811		52,779			41,640
Amortization		51,724		50,076		155,508			105,339
Total operating expense		398,282		389,081		1,185,215			1,005,513
Income (loss) from operations		74,254		104,813		57,878			96,511
Interest expense, financing costs, and other		38,089		37,348		116,902			99,486
Income (loss) before provision for income taxes		36,165		67,465		(59,024	)		(2,975	)
Provision for (benefit from) income taxes1		5,178		18,090		(21,032	)		(53,291	)
Net income (loss)	$	30,987	$	49,375	$	(37,992	)	$	50,316
Dividends on preferred shares2		6,000		6,000		18,000			12,000
Net income (loss) attributable to common shareholders	$	24,987	$	43,375	$	(55,992	)	$	38,316
Weighted-average common stock outstanding:
Basic		68,477,946		68,086,387		68,391,882			67,976,980
Diluted		69,265,384		69,148,143		68,391,882			69,240,040
Net income (loss) per share3:
Basic	$	0.32	$	0.56	$	(0.82	)	$	0.52
Diluted	$	0.32	$	0.55	$	(0.82	)	$	0.51

________________________________________

¹ Three and nine months ended June 30, 2018 amounts include a net tax benefit of $1.2 million and $49.2 million, respectively, resulting from recording the provisional impact of the enactment of the 2017 Tax Cuts and Jobs Act (“TCJA”).

² Three months ended June 30, 2019 amount is composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $1.0 million of Preferred Stock dividends that had been declared and paid as of period end. Three months ended June 30, 2018 amount is composed of $6.0 million in undeclared cumulative Preferred Stock dividends. Nine months ended June 30, 2019 amount is composed of $5.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $13.0 million of Preferred Stock dividends that had been declared and paid as of period end. Nine months ended June 30, 2018 amount is composed of $6.0 million in undeclared cumulative Preferred Stock dividends, as well as an additional $6.0 million of Preferred Stock dividends that had been declared and paid as of period end. See Note 3 for further discussion.

³ See Note 5 for detailed calculations and further discussion.

See accompanying Notes to Condensed Consolidated Financial Statements

 6.0

4

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Comprehensive Income

(Unaudited; In thousands)

	Three Months Ended June 30,					Nine Months Ended June 30,
	2019		2018			2019			2018
Net income (loss)	$	30,987	$	49,375		$	(37,992	)	$	50,316
Other comprehensive income (loss):
Foreign currency translation adjustment		1,542		(1,535	)		(848	)		(3,506	)
Total other comprehensive income (loss)		1,542		(1,535	)		(848	)		(3,506	)
Comprehensive income (loss)	$	32,529	$	47,840		$	(38,840	)	$	46,810

See accompanying Notes to Condensed Consolidated Financial Statements

5

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited; In thousands, except share amounts)

											Accumulated
					Additional						Other			Total
	Common Stock				Paid-in			Retained			Comprehensive			Stockholders'
	Shares		Amount		Capital			Earnings			Income (Loss)			Equity
Three Months Ended June 30, 2018
Balance as of March 31, 2018		68,043,284	$	680	$	1,056,248		$	743,127		$	(16,534	)	$	1,783,521
Issuance of common stock, net of shares withheld for taxes		61,829		1		1,591			-			-			1,592
Issuance costs related to secondary offering of common stock		-		-		-			-			-			-
Stock-based compensation		-		-		5,298			-			-			5,298
Other comprehensive income (loss)		-		-		-			-			(1,535	)		(1,535	)
Net income (loss)		-		-		-			49,375			-			49,375
Dividends on preferred shares1		-		-		-			-			-			-
Balance as of June 30, 2018		68,105,113	$	681	$	1,063,137		$	792,502		$	(18,069	)	$	1,838,251
Three Months Ended June 30, 2019
Balance as of March 31, 2019		68,475,871	$	684	$	1,073,243		$	752,855		$	(19,640	)	$	1,807,142
Issuance of common stock, net of shares withheld for taxes		4,880		-		73			-			-			73
Stock-based compensation		-		-		4,637			-			-			4,637
Other comprehensive income (loss)		-		-		-			-			1,542			1,542
Net income (loss)		-		-		-			30,987			-			30,987
Dividends on preferred shares1		-		-		-			(6,000	)		-			(6,000	)
Balance as of June 30, 2019		68,480,751	$	684	$	1,077,953		$	777,842		$	(18,098	)	$	1,838,381
Nine Months Ended June 30, 2018
Balance as of September 30, 2017		67,700,858	$	677	$	1,047,506		$	748,186		$	(14,563	)	$	1,781,806
Issuance of common stock, net of shares withheld for taxes		404,255		4		2,972			-			-			2,976
Issuance costs related to secondary offering of common stock		-		-		(474	)		-			-			(474	)
Stock-based compensation		-		-		13,133			-			-			13,133
Other comprehensive income (loss)		-		-		-			-			(3,506	)		(3,506	)
Net income (loss)		-		-		-			50,316			-			50,316
Dividends on preferred shares1		-		-		-			(6,000	)		-			(6,000	)
Balance as of June 30, 2018		68,105,113	$	681	$	1,063,137		$	792,502		$	(18,069	)	$	1,838,251
Nine Months Ended June 30, 2019
Balance as of September 30, 2018		68,135,790	$	681	$	1,067,040		$	833,834		$	(17,250	)	$	1,884,305
Issuance of common stock, net of shares withheld for taxes		344,961		3		(1,988	)		-			-			(1,985	)
Stock-based compensation		-		-		12,901			-			-			12,901
Other comprehensive income (loss)		-		-		-			-			(848	)		(848	)
Net income (loss)		-		-		-			(37,992	)		-			(37,992	)
Dividends on preferred shares1		-		-		-			(18,000	)		-			(18,000	)
Balance as of June 30, 2019		68,480,751	$	684	$	1,077,953		$	777,842		$	(18,098	)	$	1,838,381

¹ Amount represents dividends that have been declared and paid during the respective periods presented.

See accompanying Notes to Condensed Consolidated Financial Statements

6

BEACON ROOFING SUPPLY, INC.

Consolidated Statements of Cash Flows

(Unaudited; In thousands)

	Nine Months Ended June 30,
	2019			2018
Operating Activities
Net income (loss)	$	(37,992	)	$	50,316
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		208,287			146,979
Stock-based compensation		12,901			13,133
Certain interest expense and other financing costs		9,077			11,549
Beneficial lease amortization		1,714			-
Loss on debt extinguishment		-			1,726
Gain on sale of fixed assets		(3,470	)		(1,131	)
Deferred income taxes		3,195			(48,855	)
Changes in operating assets and liabilities, net of the effects of businesses acquired in the period:
Accounts receivable		10,970			(52,024	)
Inventories		(188,213	)		(299,881	)
Prepaid expenses and other assets		(117,520	)		(19,511	)
Accounts payable and accrued expenses		(93,908	)		195,948
Other liabilities		62			732
Net cash provided by (used in) operating activities		(194,897	)		(1,019	)
Investing Activities
Purchases of property and equipment		(44,337	)		(34,978	)
Acquisition of businesses, net		(163,973	)		(2,715,429	)
Proceeds from the sale of assets		6,200			750
Net cash provided by (used in) investing activities		(202,110	)		(2,749,657	)
Financing Activities
Borrowings under revolving lines of credit		1,734,476			2,122,949
Repayments under revolving lines of credit		(1,404,836	)		(1,631,978	)
Borrowings under term loan		-			970,000
Repayments under term loan		(7,275	)		(443,425	)
Borrowings under senior notes		-			1,300,000
Payment of debt issuance costs		-			(65,788	)
Repayments under equipment financing facilities and other		(7,602	)		(8,604	)
Proceeds from issuance of convertible preferred stock		-			400,000
Payment of stock issuance costs		-			(1,279	)
Payment of dividends on preferred stock		(18,000	)		(6,000	)
Proceeds from issuance of common stock related to equity awards		1,654			6,950
Taxes paid related to net share settlement of equity awards		(3,639	)		(3,975	)
Net cash provided by (used in) financing activities		294,778			2,638,850
Effect of exchange rate changes on cash and cash equivalents		31			1,127
Net increase (decrease) in cash and cash equivalents		(102,198	)		(110,699	)
Cash and cash equivalents, beginning of period		129,927			138,250
Cash and cash equivalents, end of period	$	27,729		$	27,551
Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	138,686		$	91,662
Income taxes paid (received), net of refunds		(8,784	)		33,751

See accompanying Notes to Condensed Consolidated Financial Statements

7

BEACON ROOFING SUPPLY, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Company Overview

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

On January 2, 2018, the Company completed the acquisition of all the outstanding capital stock of Allied Building Products Corp. (“Allied”), a New Jersey corporation, for $2.625 billion, subject to certain working capital and other adjustments. Allied engages in the distribution of roofing materials, drywall, ceiling tile, and related accessories in the United States and was a wholly-owned subsidiary of Oldcastle Distribution, Inc. (see Note 3 for further discussion).

The Company operates its business under regional and local trade names and, as of June 30, 2019, the Company serviced customers in all 50 states within the United States and 6 provinces in Canada. The Company’s material subsidiaries are Beacon Sales Acquisition, Inc. and Beacon Roofing Supply Canada Company.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company prepared the condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the requirements of the Securities and Exchange Commission (“SEC”). As permitted under those rules, certain footnotes or other financial information have been condensed or omitted. Certain prior period amounts have been reclassified to conform to current period presentation. The balance sheet as of June 30, 2018 has been presented for a better understanding of the impact of seasonal fluctuations on the Company’s financial condition.

In management’s opinion, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s financial position and operating results. The results for the three and nine months ended June 30, 2019 are not necessarily indicative of the results to be expected for the twelve months ending September 30, 2019 (“fiscal year 2019” or “2019”).

The three-month periods ended June 30, 2019 and 2018 each had 64 business days, and the nine-month periods ended June 30, 2019 and 2018 each had 189 business days.

These interim Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in the Company’s fiscal year 2018 (“2018”) Annual Report on Form 10-K for the year ended September 30, 2018.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Significant items subject to such estimates include accounts receivable, inventories, purchase price allocations, goodwill and intangibles, and income taxes. Actual amounts could differ from those estimates.

Recent Accounting Pronouncements—Adopted

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and replaces most previously issued revenue recognition guidance. The new standard is effective for public business entities for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2017. The standard permits the use of either the full retrospective or modified retrospective adoption methods. The Company elected the modified retrospective method and adopted the standard as of October 1, 2018 utilizing the portfolio practical expedient. The adoption of this guidance did not impact the Company’s retained earnings and did not have a material impact on the Company’s net sales recognition practices, income from operations, or net income per share amounts. The adoption of this guidance did result in certain balance sheet reclassifications to record estimated customer returns, specifically the recognition of a current liability for the gross amount of estimated returns and a current asset for the value of the related products. These reclassifications did not have a material impact on the Company’s consolidated balance sheet as of June 30, 2019. In addition, the adoption of this guidance resulted in additional quantitative disclosures

8

to disaggregate net sales balances by product line and geography. See Note 4 to the Consolidated Financial Statements for further discussion.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business.” This guidance is intended to assist entities when evaluating when a set of transferred assets and activities constitutes a business. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2017. The Company adopted the standard as of October 1, 2018 and the standard did not have a material impact on the Company’s financial statement and related disclosures.

In May 2017, the FASB issued ASU 2017-09, “Scope of Modification Accounting.” This guidance is intended to provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Compensation – Stock Compensation, to a change to the terms or conditions of a share-based payment award. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2017. The Company adopted the standard as of October 1, 2018 and the standard did not have a material impact on the Company’s financial statement and related disclosures.

Recent Accounting Pronouncements—Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, “Leases.” This guidance will replace most existing accounting for lease guidance when it becomes effective. This new standard is effective using the modified retrospective approach for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2018, and early adoption is permitted. In July 2018, the FASB amended the new lease standard which, among other changes, allows a company to elect to adopt ASU 2016-02 using a transition option whereby a cumulative effect adjustment is recorded to the opening balance of its retained earnings on the adoption date. The guidance will require the Company to record a right of use asset and a lease liability for most of the Company’s leases, including those currently treated as operating leases. The Company will adopt the standard as of October 1, 2019 and will use the practical expedients outlined in the transition guidance. The scope of the overall impact on the Company’s financial statements and related disclosures is still being quantified.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.” This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its financial statements and related disclosures.

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

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income.” This guidance is intended to address the accounting treatment for the tax effects on items within accumulated other comprehensive income as a result of the adoption of the Tax Cuts and Jobs Act of 2017. This new standard is effective for annual reporting periods, and interim reporting periods contained therein, beginning after December 15, 2018, and early adoption is permitted. The Company does not expect the adoption of this new guidance to have a material impact on its financial statements and related disclosures.

3. Acquisitions

Allied Building Products Corp.

On January 2, 2018 (the “Closing Date”), the Company completed its acquisition of all the outstanding capital stock of Allied (the “Allied Acquisition”), pursuant to a certain stock purchase agreement dated August 24, 2017 (the “Stock Purchase Agreement”), among the Company, Oldcastle, Inc., as parent, and Oldcastle Distribution, Inc., as seller, for approximately $2.625 billion in cash, subject to a working capital and certain other adjustments as set forth in the Stock Purchase Agreement (the “Purchase Price”). As of June 30, 2019, the adjusted Purchase Price for Allied was $2.88 billion, including increases of (i) $164.0 million related to the impact of the Section 338(h)(10) election under the current U.S. tax code and (ii) $88.1 million from a recorded net working capital adjustment.

9

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

In connection with the Allied Acquisition, on the Closing Date, the Company completed the sale of 400,000 shares of Series A Cumulative Convertible Participating Preferred Stock, par value $0.01 per share (the “Preferred Stock”), with an aggregate liquidation preference of $400.0 million, at a purchase price of $1,000 per share, to CD&R Boulder Holdings, L.P., pursuant to a certain investment agreement, dated as of August 24, 2017, with CD&R Boulder Holdings, L.P. and Clayton, Dubilier & Rice Fund IX, L.P. (solely for the purpose of limited provisions therein) (the “Convertible Preferred Stock Purchase”). The $400.0 million in proceeds from the Convertible Preferred Stock Purchase were used to finance, in part, the Purchase Price. The Preferred Stock is convertible perpetual participating preferred stock of the Company, and conversion of the Preferred Stock into $0.01 par value shares of the Company’s common stock will be at a conversion price of $41.26 per share. The Preferred Stock accumulates dividends at a rate of 6.0% per annum (payable in cash or in-kind, subject to certain conditions). The Preferred Stock is not mandatorily redeemable; therefore, it is classified as mezzanine equity on the Company’s consolidated balance sheets and has a balance of $399.2 million (the $400.0 million proceeds received on the Closing Date, net of $0.8 million of unamortized issuance costs) as of June 30, 2019.

Allied’s results of operations have been included with Company’s consolidated results beginning January 2, 2018. Allied distributed products in 208 locations across 31 states as of the date of the close.

The Allied Acquisition has been accounted for as a business combination in accordance with the requirements of ASC 805, “Business Combinations.” The acquisition price has been allocated among assets acquired and liabilities assumed at fair value based on information currently available, with the excess recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies from the Allied assembled workforce operating the branches as part of a larger network and the value stemming from the addition of both new customers and an established new line of business (interiors). As of March 31, 2019, the Company had finalized the purchase accounting entries for the Allied Acquisition, detailed as follows (in thousands):

	January 2, 2018						January 2, 2018
	(as reported at March 31, 2018)			Adjustments			(as adjusted at March 31, 2019)
Cash	$	19,322		$	(19,153	)	$	169
Accounts receivable		315,485			22,064			337,549
Inventory		322,705			(7,920	)		314,785
Prepaid and other current assets		59,279			16,161			75,440
Property, plant, and equipment		139,528			(168	)		139,360
Goodwill		1,130,635			102,145			1,232,780
Intangible assets		1,037,000			-			1,037,000
Current liabilities		(271,252	)		11,963			(259,289	)
Non-current liabilities		(6,820	)		6,097			(723	)
Total purchase price	$	2,745,882		$	131,189		$	2,877,071

The purchase accounting entries above include the impact of the Section 338(h)(10) election under the current U.S. tax code. The Company made this election on October 15, 2018 and has reflected the $164.0 million impact of this election in the purchase price and its fiscal year 2018 tax provision accordingly. The Company determined that $1.12 billion of goodwill related to the acquisition of Allied is deductible for tax purposes as of June 30, 2019.

The Company’s goodwill and indefinite-lived trade name are tested for impairment annually, and all acquired goodwill and intangible assets are subject to review for impairment should future indicators of impairment develop. There were no material contingencies assumed as part of the Allied Acquisition.

Additional Acquisitions – Fiscal Year 2018

During fiscal year 2018, the Company acquired 7 branches from the following acquisitions:

• On May 1, 2018, the Company acquired Tri-State Builder’s Supply, a wholesale supplier of roofing, siding, windows, doors and related building products with 1 branch located in Duluth, Minnesota and annual sales of approximately $6 million. The Company has finalized the acquisition accounting entries for this transaction.

• On July 16, 2018, the Company acquired Atlas Supply, Inc., the Pacific Northwest’s leading distributor of sealants, coatings, adhesives and related waterproofing products, with 6 branches operating in Seattle, Tacoma, Spokane, and

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Mountlake Terrace in Washington, as well as locations in Portland, Oregon and Boise, Idaho, and annual sales of approximately $37 million.

The Company recorded the acquired assets and liabilities related to these transactions at their estimated fair values as of the respective acquisition dates, which resulted in goodwill of $7.6 million ($7.1 million of which is deductible for tax purposes as of June 30, 2019) and $11.4 million in intangible assets.

For those acquisitions where the acquisition accounting entries have yet to be finalized, the Company’s allocation of the purchase price is subject to change on receipt of additional information, including, but not limited to, the finalization of asset valuations (intangible and fixed) and income tax accounting, as well as the Company’s continued review of the assumed liabilities that may result in the recognition of changes to the carrying amounts on the opening balance sheet and a related adjustment to goodwill.

4. Net Sales

The Company records net sales when performance obligations with our customer are satisfied. A performance obligation is a promise to transfer a distinct good to the customer and is the unit of account. The transaction price is allocated to each distinct performance obligation and recognized as net sales when, or as, the performance obligation is satisfied. All contracts have a single performance obligation as the promise to transfer the individual good is not separately identifiable from other promises and is, therefore, not distinct. Performance obligations are satisfied at a point in time and net sales are recognized when the customer accepts the delivery of a product or takes possession of a product with rights and rewards of ownership.

The Company enters into agreements with customers to offer rebates, generally based on achievement of specified sales levels and various marketing allowances that are common industry practice. Reductions to net sales for customer programs and incentive offerings, including promotions and other volume-based incentives, are estimated using the most likely amount method and recorded in the period in which the sale occurs. Provisions for early payment discounts are accrued in the same period in which the sale occurs. The Company does not have any material payment terms as payment is received shortly after the transfer of control of the products to the customer. Commissions to internal sales teams are paid to obtain contracts. As these contracts are less than one year, these costs are expensed as incurred.

The Company includes shipping and handling costs billed to customers in net sales. Related costs are accounted for as fulfillment activities and are recognized as cost of products sold when control of the products transfers to the customer.

The following table presents the Company’s net sales by product line and geography for the three and nine months ended June 30, 2019 (in thousands):

	Three Months Ended June 30, 2019						Nine Months Ended June 30, 2019
	U.S.		Canada		Total		U.S.		Canada		Total
Residential roofing products	$	829,643	$	18,616	$	848,259	$	2,134,328	$	34,427	$	2,168,755
Non-residential roofing products		439,516		32,589		472,105		1,120,885		79,661		1,200,546
Complementary building products		601,764		2,406		604,170		1,701,007		4,939		1,705,946
Total net sales	$	1,870,923	$	53,611	$	1,924,534	$	4,956,220	$	119,027	$	5,075,247

5. Net Income (Loss) Per Share

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

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

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

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

	Three Months Ended June 30,						Nine Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	30,987		$	49,375		$	(37,992	)	$	50,316
Dividends on preferred shares		6,000			6,000			18,000			12,000
Net income (loss) attributable to common shareholders	$	24,987		$	43,375		$	(55,992	)	$	38,316
Undistributed income allocated to participating securities		(3,099	)		(5,406	)		-			(3,293	)
Net income (loss) attributable to common shareholders - basic and diluted	$	21,888		$	37,969		$	(55,992	)	$	35,023
Weighted-average common shares outstanding - basic		68,477,946			68,086,387			68,391,882			67,976,980
Effect of common share equivalents		787,438			1,061,756			-			1,263,060
Weighted-average common shares outstanding - diluted		69,265,384			69,148,143			68,391,882			69,240,040
Net income (loss) per share - basic	$	0.32		$	0.56		$	(0.82	)	$	0.52
Net income (loss) per share - diluted	$	0.32		$	0.55		$	(0.82	)	$	0.51

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

	Three Months Ended June 30,				Nine Months Ended June 30,
	2019		2018		2019		2018
Stock options		735,324		484,358		1,274,921		349,281
Restricted stock units		48,927		355,891		147,585		148,638
Preferred Stock		9,694,619		9,694,619		9,694,619		6,392,056

6. Stock-based Compensation

On February 9, 2016, the shareholders of the Company approved the Amended and Restated Beacon Roofing Supply, Inc. 2014 Stock Plan (the “2014 Plan”). The 2014 Plan provides for discretionary awards of stock options, stock awards, restricted stock units, and stock appreciation rights for up to 5,000,000 shares of common stock to selected employees and non-employee directors. The 2014 Plan mandates that all forfeited, expired, and withheld shares, including those from the predecessor plans, be returned to the 2014 Plan and made available for issuance. As of June 30, 2019, there were 1,796,676 shares of common stock available for issuance.

Prior to the 2014 Plan, the Company maintained the amended and restated Beacon Roofing Supply, Inc. 2004 Stock Plan (the “2004 Plan”). Upon shareholder approval of the 2014 Plan, the Company ceased issuing equity awards from the 2004 Plan and mandated that all future equity awards will be issued from the 2014 Plan.

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

Stock Options

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

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The fair value of the stock options granted during the nine months ended June 30, 2019 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Risk-free interest rate	3.00	%
Expected volatility	29.35	%
Expected life (in years)	5.18
Dividend yield	-

The following table summarizes all stock option activity for the nine months ended June 30, 2019 (in thousands, except share, per share, and time period amounts):

	Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value1
Balance as of September 30, 2018		1,969,037		$	33.08		5.7	$	14,088
Granted		611,031			27.31
Exercised		(91,481	)		18.08
Canceled/Forfeited		(68,179	)		37.10
Expired		(3,108	)		26.74
Balance as of June 30, 2019		2,417,300		$	32.09		6.1	$	18,435
Vested and expected to vest after June 30, 2019		2,378,442		$	32.09		6.1	$	18,133
Exercisable as of June 30, 2019		1,584,299		$	30.82		4.6	$	12,767

________________________________________________________________

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

During the three months ended June 30, 2019 and 2018, the Company recorded stock-based compensation expense related to stock options of $1.0 million and $1.0 million, respectively. During the nine months ended June 30, 2019 and 2018, the Company recorded stock-based compensation expense related to stock options of $3.1 million and $2.9 million, respectively. As of June 30, 2019, there was $6.0 million of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.9 years.

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

	Nine Months Ended June 30,
	2019		2018
Weighted-average fair value of stock options granted	$	8.77	$	15.86
Total grant date fair value of stock options vested		3,825		4,172
Total intrinsic value of stock options exercised		1,409		8,995

Restricted Stock Units

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

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

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The following table summarizes all restricted stock unit activity for the nine months ended June 30, 2019:

	RSUs Outstanding			Weighted-Average Grant Date Fair Value
Balance as of September 30, 2018		934,023		$	47.00
Granted		669,579			27.77
Released		(372,681	)		40.62
Canceled/Forfeited		(106,676	)		45.49
Balance as of June 30, 2019		1,124,245		$	37.80
Vested and expected to vest after June 30, 2019		989,233		$	38.86

During the three months ended June 30, 2019 and 2018, the Company recorded stock-based compensation expense related to restricted stock units of $3.6 million and $4.3 million, respectively. During the nine months ended June 30, 2019 and 2018, the Company recorded stock-based compensation expense related to restricted stock units of $9.8 million and $10.2 million, respectively. As of June 30, 2019, there was $19.3 million of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 1.8 years.

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

	Nine Months Ended June 30,
	2019		2018
Weighted-average fair value of RSUs granted	$	27.77	$	57.40
Total grant date fair value of RSUs vested		15,978		6,656
Total intrinsic value of RSUs released		11,375		11,041

7. Goodwill and Intangible Assets

Goodwill

The following table sets forth the change in the carrying amount of goodwill during the nine months ended June 30, 2019 and 2018, respectively (in thousands):

Balance as of September 30, 2017	$	1,251,986
Acquisitions		1,070,823
Translation and other adjustments		(1,629	)
Balance as of June 30, 2018	$	2,321,180
Balance as of September 30, 2018	$	2,491,779
Acquisitions1		(513	)
Translation and other adjustments		(326	)
Balance as of June 30, 2019	$	2,490,940

_____________________________

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

The changes in the carrying amount of goodwill for the nine months ended June 30, 2019 and 2018 were driven primarily by purchase accounting and foreign currency translation adjustments.

Intangible Assets

In connection with transactions finalized during fiscal year 2018, the Company recorded intangible assets of $1.05 billion ($920.8 million of customer relationships, $120.0 million of indefinite-lived trademarks, and $7.0 million of beneficial lease arrangements).

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

	June 30, 2019			September 30, 2018			June 30, 2018			Weighted-Average Remaining Life1 (Years)
Amortizable intangible assets:
Non-compete agreements	$	2,824		$	2,824		$	2,824			2.37
Customer relationships		1,531,061			1,530,565			1,530,434			17.89
Trademarks		10,500			10,500			10,500			7.08
Beneficial lease arrangements		8,060			8,060			7,644			3.80
Total amortizable intangible assets		1,552,445			1,551,949			1,551,402
Accumulated amortization		(567,801	)		(410,633	)		(373,447	)
Total amortizable intangible assets, net	$	984,644		$	1,141,316		$	1,177,955
Indefinite lived trademarks		193,050			193,050			193,050
Total intangibles, net	$	1,177,694		$	1,334,366		$	1,371,005

_________________________________________________________

¹  As of June 30, 2019.

For the three months ended June 30, 2019 and 2018, the Company recorded $51.7 million and $50.1 million of amortization expense relating to the above-listed intangible assets, respectively. For the nine months ended June 30, 2019 and 2018, the Company recorded $155.5 million and $105.3 million of amortization expense relating to the above-listed intangible assets, respectively. The intangible asset lives range from 5 to 20 years and have a weighted-average remaining life of 17.8 years as of June 30, 2019.

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

Year Ending September 30,
2019 (July - Sept)	$	53,055
2020		179,549
2021		149,980
2022		121,431
2023		97,522
Thereafter		383,107
Total future amortization expense	$	984,644

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8. Financing Arrangements

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

	June 30, 2019			September 30, 2018			June 30, 2018
Revolving Lines of Credit
2023 ABL:
U.S. Revolver, expires January 20231	$	412,549		$	89,352		$	471,857
Canada Revolver, expires January 20232		11,462			3,090			10,632
Current portion		-			-			-
Borrowings under revolving lines of credit, net	$	424,011		$	92,442		$	482,489
Long-term Debt, net
Term Loans:
Term Loan, matures January 20253	$	927,582		$	930,726		$	931,332
Current portion		(9,700	)		(9,700	)		(9,700	)
Long-term borrowings under term loans		917,882			921,026			921,632
Senior Notes:
Senior Notes, mature October 20234		294,566			293,607			293,287
Senior Notes, mature November 20255		1,282,200			1,280,092			1,279,389
Current portion		-			-			-
Long-term borrowings under senior notes		1,576,766			1,573,699			1,572,676
Long-term debt, net	$	2,494,648		$	2,494,725		$	2,494,308
Equipment Financing Facilities and Other
Equipment financing facilities, various maturities through September 20216	$	7,981		$	11,222		$	12,288
Capital lease obligations, various maturities through November 20217		8,017			12,378			13,705
Current portion		(9,666	)		(9,961	)		(10,014	)
Long-term obligations under equipment financing and other, net	$	6,332		$	13,639		$	15,979

____________________________________________________________ 

¹ Effective rate on borrowings of 3.98%, 3.36% and 3.78% as of June 30, 2019, September 30, 2018 and June 30, 2018, respectively.

² Effective rate on borrowings of 4.45%, 3.95% and 3.95% as of June 30, 2019, September 30, 2018 and June 30, 2018, respectively.

³ Interest rate of 4.75%, 4.53% and 4.35% as of June 30, 2019, September 30, 2018 and June 30, 2018, respectively.

⁴ Interest rate of 6.38% for all periods presented.

⁵ Interest rate of 4.88% for all periods presented.

⁶ Fixed interest rates ranging from 2.33% to 2.89% for all periods presented.

⁷ Fixed interest rates ranging from 2.72% to 10.39% for all periods presented.

Financing - Allied Acquisition

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

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

Since the financing arrangements entered into in connection with the Allied Acquisition had certain lenders who also participated in previous financing arrangements entered into by the Company, portions of the transactions were accounted for as either a debt modification or a debt extinguishment. In accordance with the accounting for debt modification, the Company expensed $2.0 million of debt issuance costs related to the Allied financing arrangements and recognized a loss on debt extinguishment of $1.7 million. The remainder of the debt issuance costs will be amortized over the term of the Allied financing arrangements.

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2023 ABL

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

There is one financial covenant under the 2023 ABL, which is a Consolidated Fixed Charge Ratio. The Consolidated Fixed Charge Ratio is calculated by dividing consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) by Consolidated Fixed Charges (both as defined in the agreement). Per the covenant, the Company’s Consolidated Fixed Charge Ratio must be a minimum of 1.00 at the end of each fiscal quarter, calculated on a trailing four quarter basis. The Company was in compliance with this covenant as of June 30, 2019.

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

As of June 30, 2019, the total balance outstanding on the 2023 ABL, net of $8.8 million of unamortized debt issuance costs, was $424.0 million. The Company also has outstanding standby letters of credit related to the 2023 U.S. Revolver in the amount of $13.3 million as of June 30, 2019.

2025 Term Loan

On January 2, 2018, the Company entered into a $970.0 million Term Loan with Citibank N.A., and a syndicate of other lenders. The 2025 Term Loan requires quarterly principal payments in the amount of $2.4 million, with the remaining outstanding principal to be paid on its January 2, 2025 maturity date. The interest rate is based on a LIBOR rate (with a floor) plus a fixed spread. The Company has the option of selecting a LIBOR period that determines the rate at which interest can accrue on the Term Loan as well as the period in which interest payments are made.

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

As of June 30, 2019, the outstanding balance on the 2025 Term Loan, net of $30.3 million of unamortized debt issuance costs, was $927.6 million.

2025 Senior Notes

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

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

As of June 30, 2019, the outstanding balance on the 2025 Senior Notes, net of $17.8 million of unamortized debt issuance costs, was $1.28 billion.

Financing - RSG Acquisition

In connection with the Roofing Supply Group (“RSG”) acquisition in fiscal year 2016, the Company entered into various financing arrangements totaling $1.45 billion, including an asset-based revolving line of credit (“2020 ABL”) of $700.0 million ($350.0 million of which was drawn at closing) and a $450.0 million term loan (“2022 Term Loan”). The Company also raised an additional $300.0 million through the issuance of senior notes (the “2023 Senior Notes”).

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The proceeds from these financing arrangements were used to provide working capital and funds for other general corporate purposes, to refinance or otherwise extinguish all third-party indebtedness, to finance the acquisition, and to pay fees and expenses associated with the RSG acquisition. The Company incurred debt issuance costs totaling approximately $31.3 million related to the 2020 ABL, 2022 Term Loan and 2023 Senior Notes.

2020 ABL

On October 1, 2015, the Company entered into a $700.0 million asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2020 ABL had an original maturity date of October 1, 2020 and consisted of revolving loans in both the United States, in the amount of $670.0 million, and Canada, in the amount of $30.0 million. The 2020 ABL had various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The full balance of the 2020 ABL was paid on January 2, 2018 in conjunction with the Allied Acquisition.

2022 Term Loan

On October 1, 2015, the Company entered into a $450.0 million Term Loan with Citibank N.A., and a syndicate of other lenders. The 2022 Term Loan required quarterly principal payments in the amount of $1.1 million, with the remaining outstanding principal to be paid on its original maturity date of October 1, 2022. The interest rate was based on a LIBOR rate (with a floor) plus a fixed spread. The Company had the option of selecting a LIBOR period that determined the rate at which interest would accrue, as well as the period in which interest payments are made. The full balance of the 2022 Term Loan was paid on January 2, 2018 in conjunction with the Allied Acquisition, including the write-off of $0.7 million in debt issuance costs.

2023 Senior Notes

On October 1, 2015, the Company raised $300.0 million by issuing senior notes due 2023. The 2023 Senior Notes have a coupon rate of 6.38% per annum and are payable semi-annually in arrears, beginning April 1, 2016. There are early payment provisions in the indenture in which the Company would be subject to “make whole” provisions. The Company anticipates repaying the notes at the maturity date of October 1, 2023.

The 2023 Senior Notes are guaranteed jointly, severally, fully and unconditionally by the Company’s active United States subsidiaries.

As of June 30, 2019, the outstanding balance on the 2023 Senior Notes, net of $5.4 million of unamortized debt issuance costs, was $294.6 million.

Equipment Financing Facilities and Other

As of June 30, 2019, the Company had $8.0 million outstanding under equipment financing facilities, with fixed interest rates ranging from 2.33% to 2.89% and payments due through September 2021.

As of June 30, 2019, the Company had $8.0 million of capital lease obligations outstanding. These leases have interest rates ranging from 2.72% to 10.39% with payments due through November 2021.

9. Commitments and Contingencies

Operating Leases

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

At June 30, 2019, the minimum rental commitments under all non-cancelable operating leases with initial or remaining terms of more than one year were as follows (in thousands):

Year Ending September 30,
2019 (July - Sept)	$	28,015
2020		109,780
2021		100,696
2022		83,157
2023		66,437
Thereafter		156,176
Total minimum lease payments	$	544,261

18

For the three months ended June 30, 2019 and 2018, rent expense was $27.4 million and $27.7 million, respectively. For the nine months ended June 30, 2019 and 2018, rent expense was $82.8 million and $71.4 million, respectively. Sublet income was immaterial for each of these periods.

Contingencies

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

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

10. Geographic Data

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

	June 30, 2019		September 30, 2018		June 30, 2018
Long-lived assets:
U.S.	$	1,242,767	$	1,409,742	$	1,455,771
Canada		12,161		13,224		12,403
Total long-lived assets	$	1,254,928	$	1,422,966	$	1,468,174

11. Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) is composed of certain gains and losses that are excluded from net income under GAAP and instead recorded as a separate element of stockholders’ equity. For the three and nine months ended June 30, 2019, the change in accumulated other comprehensive income (loss) was $1.5 million and $(0.8) million, respectively, and composed solely of foreign currency translation effects. There were no reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended June 30, 2019.

12. Fair Value Measurement

As of June 30, 2019, the carrying amount of cash and cash equivalents, accounts receivable, prepaid and other current assets, accounts payable and accrued expenses approximated fair value because of the short-term nature of these instruments. The Company measures its cash equivalents at amortized cost, which approximates fair value based upon quoted market prices (Level 1).

As of June 30, 2019, based upon recent trading prices (Level 2), the fair value of the Company’s $300.0 million Senior Notes due in 2023 was $312.4 million and the fair value of the $1.30 billion Senior Notes due 2025 was $1.29 billion.

As of June 30, 2019, the fair value of the Company’s term loan and revolving asset-based line of credit approximated the amount outstanding. The Company estimates the fair value of its Senior Secured Credit Facility by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles (Level 3).

13. Supplemental Guarantor Information

The 2023 Senior Notes and 2025 Senior Notes are guaranteed jointly and severally by all the United States subsidiaries of the Company (collectively, the “Guarantors”), and not by the Canadian subsidiaries of the Company. Such guarantees are full and unconditional. Supplemental condensed consolidating financial information of the Company, including such information for the Guarantors, is presented below. The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the non-guarantor subsidiaries operated as independent entities. Investments in subsidiaries are presented using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Separate financial statements of the Guarantors are not provided as the consolidating financial information contained herein provides a more meaningful disclosure to allow investors to determine the nature of the assets held by, and the operations of, the combined groups.

19

BEACON ROOFING SUPPLY, INC.

Condensed Consolidating Balance Sheets

(Unaudited; In thousands)

	June 30, 2019
	Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations and Other			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	-	$	26,414	$	1,315	$	-		$	27,729
Accounts receivable, net		-		1,042,678		37,553		(1,140	)		1,079,091
Inventories, net		-		1,088,619		35,444		-			1,124,063
Prepaid expenses and other current assets		47,774		306,015		8,042		-			361,831
Total current assets		47,774		2,463,726		82,354		(1,140	)		2,592,714
Intercompany receivable, net		-		1,589,058		-		(1,589,058	)		-
Investments in consolidated subsidiaries		6,282,509		-		-		(6,282,509	)		-
Deferred income taxes, net		20,417		-		-		(20,417	)		-
Property and equipment, net		25,608		233,175		10,258		-			269,041
Goodwill		-		2,461,212		29,728		-			2,490,940
Intangibles, net		-	$	1,175,790		1,904		-			1,177,694
Other assets, net		1,243		-		-		-			1,243
Total assets	$	6,377,551	$	7,922,961	$	124,244	$	(7,893,124	)	$	6,531,632
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	31,028	$	606,981	$	6,542	$	(1,140	)	$	643,411
Accrued expenses		56,112		516,895		17,749		-			590,756
Current portions of long-term debt/obligations		9,700		9,666		-		-			19,366
Total current liabilities		96,840		1,133,542		24,291		(1,140	)		1,253,533
Intercompany payable, net		1,548,487		-		40,571		(1,589,058	)		-
Borrowings under revolving lines of credit, net		-		412,549		11,462		-			424,011
Long-term debt, net		2,494,648		-		-		-			2,494,648
Deferred income taxes, net		-		130,083		514		(20,417	)		110,180
Long-term obligations under equipment financing and other, net		-		6,332		-		-			6,332
Other long-term liabilities		-		5,269		83		-			5,352
Total liabilities		4,139,975		1,687,775		76,921		(1,610,615	)		4,294,056
Convertible preferred stock		399,195		-		-		-			399,195
Total stockholders' equity		1,838,381		6,235,186		47,323		(6,282,509	)		1,838,381
Total liabilities and stockholders' equity	$	6,377,551	$	7,922,961	$	124,244	$	(7,893,124	)	$	6,531,632

20

BEACON ROOFING SUPPLY, INC.

Condensed Consolidating Balance Sheets

(Unaudited; In thousands)

	September 30, 2018
	Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations and Other			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	-	$	136,499	$	1,959	$	(8,531	)	$	129,927
Accounts receivable, net		-		1,051,410		40,262		(1,139	)		1,090,533
Inventories, net		-		907,605		28,442		-			936,047
Prepaid expenses and other current assets		23,711		214,011		6,638		-			244,360
Total current assets		23,711		2,309,525		77,301		(9,670	)		2,400,867
Intercompany receivable, net		-		1,361,615		-		(1,361,615	)		-
Investments in consolidated subsidiaries		6,109,325		-		-		(6,109,325	)		-
Deferred income taxes, net		22,475		-		-		(22,475	)		-
Property and equipment, net		18,929		250,517		10,961		-			280,407
Goodwill		-		2,461,725		30,054		-			2,491,779
Intangibles, net		-		1,332,104		2,262		-			1,334,366
Other assets, net		1,243		-		-		-			1,243
Total assets	$	6,175,683	$	7,715,486	$	120,578	$	(7,503,085	)	$	6,508,662
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	24,154	$	843,907	$	22,482	$	(9,671	)	$	880,872
Accrued expenses		41,448		564,331		5,760		-			611,539
Current portions of long-term debt/obligations		9,700		9,961		-		-			19,661
Total current liabilities		75,302		1,418,199		28,242		(9,671	)		1,512,072
Intercompany payable, net		1,322,156		-		39,459		(1,361,615	)		-
Borrowings under revolving lines of credit, net		-		89,352		3,090		-			92,442
Long-term debt, net		2,494,725		-		-		-			2,494,725
Deferred income taxes, net		-		128,846		622		(22,474	)		106,994
Long-term obligations under equipment financing and other, net		-		13,639		-		-			13,639
Other long-term liabilities		-		5,207		83		-			5,290
Total liabilities		3,892,183		1,655,243		71,496		(1,393,760	)		4,225,162
Convertible preferred stock		399,195		-		-		-			399,195
Total stockholders' equity		1,884,305		6,060,243		49,082		(6,109,325	)		1,884,305
Total liabilities and stockholders' equity	$	6,175,683	$	7,715,486	$	120,578	$	(7,503,085	)	$	6,508,662

21

BEACON ROOFING SUPPLY, INC.

Condensed Consolidating Balance Sheets

(Unaudited; In thousands)

	June 30, 2018
	Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations and Other			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	-	$	50,563	$	3,698	$	(26,710	)	$	27,551
Accounts receivable, net		-		1,046,751		32,277		(1,140	)		1,077,888
Inventories, net		-		1,132,228		33,161		-			1,165,389
Prepaid expenses and other current assets		44,662		286,478		6,449		-			337,589
Total current assets		44,662		2,516,020		75,585		(27,850	)		2,608,417
Intercompany receivable, net		-		1,290,785		-		(1,290,785	)		-
Investments in consolidated subsidiaries		5,981,419		-		-		(5,981,419	)		-
Deferred income taxes, net		19,702		-		-		(19,702	)		-
Property and equipment, net		14,046		264,610		10,052		-			288,708
Goodwill		-		2,291,635		29,545		-			2,321,180
Intangibles, net		-		1,368,653		2,352		-			1,371,005
Other assets, net		1,242		269		-		-			1,511
Total assets	$	6,061,071	$	7,731,972	$	117,534	$	(7,319,756	)	$	6,590,821
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	42,884	$	688,336	$	16,316	$	(27,850	)	$	719,686
Accrued expenses		24,416		490,987		5,549		-			520,952
Current portions of long-term debt/obligations		9,700		10,014		-		-			19,714
Total current liabilities		77,000		1,189,337		21,865		(27,850	)		1,260,352
Intercompany payable, net		1,251,503		-		39,282		(1,290,785	)		-
Borrowings under revolving lines of credit		-		471,857		10,632		-			482,489
Long-term debt, net		2,494,308		-		-		-			2,494,308
Deferred income taxes, net		-		113,454		176		(19,702	)		93,928
Long-term obligations under equipment financing and other, net		-		15,979		-		-			15,979
Other long-term liabilities		814		5,428		77		-			6,319
Total liabilities		3,823,625		1,796,055		72,032		(1,338,337	)		4,353,375
Convertible preferred stock		399,195		-		-		-			399,195
Total stockholders' equity		1,838,251		5,935,917		45,502		(5,981,419	)		1,838,251
Total liabilities and stockholders' equity	$	6,061,071	$	7,731,972	$	117,534	$	(7,319,756	)	$	6,590,821

22

BEACON ROOFING SUPPLY, INC.

Condensed Consolidating Statements of Operations

(Unaudited; In thousands)

	Three Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations and Other			Consolidated
Net sales	$	-		$	1,870,923		$	53,611		$	-		$	1,924,534
Cost of products sold		-			1,409,632			42,366			-			1,451,998
Gross profit		-			461,291			11,245			-			472,536
Operating expense:
Selling, general and administrative		1,377			319,666			7,784			-			328,827
Depreciation		1,243			16,034			454			-			17,731
Amortization		-			51,616			108			-			51,724
Total operating expense		2,620			387,316			8,346			-			398,282
Intercompany charges (income)		(3,566	)		3,566			-			-			-
Income (loss) from operations		946			70,409			2,899			-			74,254
Interest expense, financing costs, and other		41,332			(2,457	)		(786	)		-			38,089
Intercompany interest expense (income)		(17,558	)		17,181			377			-			-
Income (loss) before provision for income taxes		(22,828	)		55,685			3,308			-			36,165
Provision for (benefit from) income taxes		(13,241	)		17,490			929			-			5,178
Income (loss) before equity in net income of subsidiaries		(9,587	)		38,195			2,379			-			30,987
Equity in net income of subsidiaries		40,574			-			-			(40,574	)		-
Net income (loss)	$	30,987		$	38,195		$	2,379		$	(40,574	)	$	30,987

	Three Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations and Other			Consolidated
Net sales	$	-		$	1,883,249	$	51,702	$	-		$	1,934,951
Cost of products sold		-			1,401,045		40,012		-			1,441,057
Gross profit		-			482,204		11,690		-			493,894
Operating expense:
Selling, general and administrative		1,776			313,034		8,384		-			323,194
Depreciation		411			14,967		433		-			15,811
Amortization		-			49,947		129		-			50,076
Total operating expense		2,187			377,948		8,946		-			389,081
Intercompany charges (income)		(7,521	)		7,521		-		-			-
Income (loss) from operations		5,334			96,735		2,744		-			104,813
Interest expense, financing costs, and other		33,416			3,594		338		-			37,348
Intercompany interest expense (income)		(6,809	)		6,427		382		-			-
Income (loss) before provision for income taxes		(21,273	)		86,714		2,024		-			67,465
Provision for (benefit from) income taxes		(6,848	)		24,356		582		-			18,090
Income (loss) before equity in net income of subsidiaries		(14,425	)		62,358		1,442		-			49,375
Equity in net income of subsidiaries		63,800			-		-		(63,800	)		-
Net income (loss)	$	49,375		$	62,358	$	1,442	$	(63,800	)	$	49,375

23

BEACON ROOFING SUPPLY, INC.

Condensed Consolidating Statements of Operations

(Unaudited; In thousands)

	Nine Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations and Other			Consolidated
Net sales	$	-		$	4,956,220	$	119,027		$	-		$	5,075,247
Cost of products sold		-			3,737,845		94,309			-			3,832,154
Gross profit		-			1,218,375		24,718			-			1,243,093
Operating expense:
Selling, general and administrative		15,572			938,044		23,312			-			976,928
Depreciation		2,743			48,648		1,388			-			52,779
Amortization		-			155,180		328			-			155,508
Total operating expense		18,315			1,141,872		25,028			-			1,185,215
Intercompany charges (income)		(17,110	)		17,110		-			-			-
Income (loss) from operations		(1,205	)		59,393		(310	)		-			57,878
Interest expense, financing costs, and other		103,574			13,503		(175	)		-			116,902
Intercompany interest expense (income)		(28,447	)		27,306		1,141			-			-
Income (loss) before provision for income taxes		(76,332	)		18,584		(1,276	)		-			(59,024	)
Provision for (benefit from) income taxes		(28,280	)		7,614		(366	)		-			(21,032	)
Income (loss) before equity in net income of subsidiaries		(48,052	)		10,970		(910	)		-			(37,992	)
Equity in net income of subsidiaries		10,060			-		-			(10,060	)		-
Net income (loss)	$	(37,992	)	$	10,970	$	(910	)	$	(10,060	)	$	(37,992	)

	Nine Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations and Other			Consolidated
Net sales	$	-		$	4,364,128		$	118,427		$	-		$	4,482,555
Cost of products sold		-			3,288,086			92,445			-			3,380,531
Gross profit		-			1,076,042			25,982			-			1,102,024
Operating expense:
Selling, general and administrative		4,315			828,987			25,232			-			858,534
Depreciation		1,310			39,015			1,315			-			41,640
Amortization		-			104,946			393			-			105,339
Total operating expense		5,625			972,948			26,940			-			1,005,513
Intercompany charges (income)		(8,105	)		8,105			-			-			-
Income (loss) from operations		2,480			94,989			(958	)		-			96,511
Interest expense, financing costs, and other		90,712			8,226			548			-			99,486
Intercompany interest expense (income)		(17,698	)		16,552			1,146			-			-
Income (loss) before provision for income taxes		(70,534	)		70,211			(2,652	)		-			(2,975	)
Provision for (benefit from) income taxes		(11,796	)		(40,891	)		(604	)		-			(53,291	)
Income (loss) before equity in net income of subsidiaries		(58,738	)		111,102			(2,048	)		-			50,316
Equity in net income of subsidiaries		109,054			-			-			(109,054	)		-
Net income (loss)	$	50,316		$	111,102		$	(2,048	)	$	(109,054	)	$	50,316

24

BEACON ROOFING SUPPLY, INC.

Condensed Consolidating Statements of Comprehensive Income

(Unaudited; In thousands)

	Three Months Ended June 30, 2019
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations and Other			Consolidated
Net income (loss)	$	30,987	$	38,195	$	2,379	$	(40,574	)	$	30,987
Other comprehensive income (loss):
Foreign currency translation adjustment		1,542		-		1,542		(1,542	)		1,542
Total other comprehensive income (loss)		1,542		-		1,542		(1,542	)		1,542
Comprehensive income (loss)	$	32,529	$	38,195	$	3,921	$	(42,116	)	$	32,529

	Three Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations and Other			Consolidated
Net income (loss)	$	49,375		$	62,358	$	1,442		$	(63,800	)	$	49,375
Other comprehensive income (loss):
Foreign currency translation adjustment		(1,535	)		-		(1,535	)		1,535			(1,535	)
Total other comprehensive income (loss)		(1,535	)		-		(1,535	)		1,535			(1,535	)
Comprehensive income (loss)	$	47,840		$	62,358	$	(93	)	$	(62,265	)	$	47,840

	Nine Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations and Other			Consolidated
Net income (loss)	$	(37,992	)	$	10,970	$	(910	)	$	(10,060	)	$	(37,992	)
Other comprehensive income (loss):
Foreign currency translation adjustment		(848	)		-		(848	)		848			(848	)
Total other comprehensive income (loss)		(848	)		-		(848	)		848			(848	)
Comprehensive income (loss)	$	(38,840	)	$	10,970	$	(1,758	)	$	(9,212	)	$	(38,840	)

	Nine Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations and Other			Consolidated
Net income (loss)	$	50,316		$	111,102	$	(2,048	)	$	(109,054	)	$	50,316
Other comprehensive income (loss):
Foreign currency translation adjustment		(3,506	)		-		(3,506	)		3,506			(3,506	)
Total other comprehensive income (loss)		(3,506	)		-		(3,506	)		3,506			(3,506	)
Comprehensive income (loss)	$	46,810		$	111,102	$	(5,554	)	$	(105,548	)	$	46,810

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BEACON ROOFING SUPPLY, INC.

Condensed Consolidating Statements of Cash Flows

(Unaudited; In thousands)

	Nine Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations and Other			Consolidated
Net cash provided by (used in) operating activities	$	(26,715	)	$	(166,414	)	$	(9,450	)	$	7,682		$	(194,897	)
Investing Activities
Purchases of property and equipment		(11,612	)		(32,055	)		(670	)		-			(44,337	)
Acquisition of businesses, net		-			(163,973	)		-			-			(163,973	)
Proceeds from the sale of assets		4,077			2,110			13			-			6,200
Intercompany activity		61,510			-			-			(61,510	)		-
Net cash provided by (used in) investing activities		53,975			(193,918	)		(657	)		(61,510	)		(202,110	)
Financing Activities
Borrowings under revolving lines of credit		-			1,701,300			33,176			-			1,734,476
Repayments under revolving lines of credit		-			(1,379,981	)		(24,855	)		-			(1,404,836	)
Repayments under term loan		(7,275	)		-			-			-			(7,275	)
Repayments under equipment financing facilities and other		-			(7,602	)		-			-			(7,602	)
Payment of dividends on preferred stock		(18,000	)		-			-			-			(18,000	)
Proceeds from issuance of common stock related to equity awards		1,654			-			-			-			1,654
Taxes paid related to net share settlement of equity awards		(3,639	)		-			-			-			(3,639	)
Intercompany activity		-			(63,470	)		1,055			62,415			-
Net cash provided by (used in) financing activities		(27,260	)		250,247			9,376			62,415			294,778
Effect of exchange rate changes on cash and cash equivalents		-			-			87			(56	)		31
Net increase (decrease) in cash and cash equivalents		-			(110,085	)		(644	)		8,531			(102,198	)
Cash and cash equivalents, beginning of period		-			136,499			1,959			(8,531	)		129,927
Cash and cash equivalents, end of period	$	-		$	26,414		$	1,315		$	-		$	27,729

26

BEACON ROOFING SUPPLY, INC.

Condensed Consolidating Statements of Cash Flows

(Unaudited; In thousands)

	Nine Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations and Other			Consolidated
Net cash provided by (used in) operating activities	$	(68,803	)	$	93,178		$	(8,308	)	$	(17,086	)	$	(1,019	)
Investing Activities
Purchases of property and equipment		(8,721	)		(24,901	)		(1,356	)		-			(34,978	)
Acquisition of businesses, net		(2,715,429	)		-			-			-			(2,715,429	)
Proceeds from the sale of assets		-			724			26			-			750
Intercompany activity		628,948			-			-			(628,948	)		-
Net cash provided by (used in) investing activities		(2,095,202	)		(24,177	)		(1,330	)		(628,948	)		(2,749,657	)
Financing Activities
Borrowings under revolving lines of credit		-			2,082,972			39,977			-			2,122,949
Repayments under revolving lines of credit		-			(1,599,839	)		(32,139	)		-			(1,631,978	)
Borrowings under term loan		970,000			-			-			-			970,000
Repayments under term loan		(443,425	)		-			-			-			(443,425	)
Borrowings under senior notes		1,300,000			-			-			-			1,300,000
Payment of debt issuance costs		(58,266	)		(7,522	)		-			-			(65,788	)
Repayments under equipment financing facilities and other		-			(8,604	)		-			-			(8,604	)
Proceeds from issuance of convertible preferred stock		400,000			-			-			-			400,000
Payment of stock issuance costs		(1,279	)		-			-			-			(1,279	)
Payment of dividends on preferred stock		(6,000	)		-			-			-			(6,000	)
Proceeds from issuance of common stock related to equity awards		6,950			-			-			-			6,950
Taxes paid related to net share settlement of equity awards		(3,975	)		-			-			-			(3,975	)
Intercompany activity		-			(635,244	)		2,789			632,455			-
Net cash provided by (used in) financing activities		2,164,005			(168,237	)		10,627			632,455			2,638,850
Effect of exchange rate changes on cash and cash equivalents		-			-			1,127			-			1,127
Net increase (decrease) in cash and cash equivalents		-			(99,236	)		2,116			(13,579	)		(110,699	)
Cash and cash equivalents, beginning of period		-			149,799			1,582			(13,131	)		138,250
Cash and cash equivalents, end of period	$	-		$	50,563		$	3,698		$	(26,710	)	$	27,551

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis included in our 2018 Annual Report on Form 10-K and our Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this document. Unless otherwise indicated, references to “2019” refer to the three and nine months ended June 30, 2019 being discussed and references to “2018” refer to the three and nine months ended June 30, 2018 being discussed. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

Overview

We are the largest publicly traded distributor of residential and non-residential roofing materials in the United States and Canada. We also distribute complementary building products, including siding, windows, specialty exterior building products, insulation, waterproofing systems, wallboard and acoustical ceiling tiles. We are among the oldest and most established distributors in the industry. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors and, to a lesser extent, general contractors, retailers, and building materials suppliers.

As of June 30, 2019, we operated 537 branches in 50 states throughout the United States and 6 provinces in Canada. We stock one of the most extensive assortments of high-quality branded products in the industry with approximately 90,000 SKUs available across our branch network, enabling us to deliver products to serve over 100,000 customers on a timely basis.

On January 2, 2018, we completed the acquisition of all the outstanding capital stock of Allied Building Products Corp. (“Allied”), a New Jersey Corporation (the “Allied Acquisition”), for approximately $2.625 billion, subject to working capital and other adjustments (the “Purchase Price”). As of June 30, 2019, the adjusted Purchase Price for Allied was $2.88 billion and purchase accounting entries were finalized. Headquartered in East Rutherford, New Jersey, Allied was one of the country’s largest exterior and interior building products distributors, distributing products across 208 locations in 31 states in the U.S. with a strong presence in New York, New Jersey, Florida, California, Hawaii and the upper Midwest at the time of the acquisition. We believe the acquisition of Allied was a strategically and financially compelling transaction that expanded our geographic footprint, enhanced our scale and market presence, diversified our product offerings, and positioned us to provide new growth opportunities that will increase our long-term profitability.

Effective execution of both our sales and operating plans enables us to grow beyond the relative strength of the markets we serve. Our business model is a bottom-up approach, where each of our branches uses its regional knowledge and experience to assist with the development of a marketing plan and product mix that is best suited for its respective market. Local alignment with overall strategic goals provides the foundation for significant ownership of results at the branch level. Our distinctive operational model and significant branch level autonomy differentiate us from the competition.

We provide our customers with industry-leading digital solutions, including Beacon Pro+, our innovative e-commerce portal, and Beacon 3D+, a dynamic modeling tool for our residential customers. These platforms help our customers save time, work more efficiently and grow their business. Additional value-added services we offer include, but are not limited to, job site delivery, custom designed tapered roofing systems, metal fabrication and trade credit. We consider customer relations and our employees’ knowledge of roofing and building materials to be vital to our ability to increase customer loyalty and maintain customer satisfaction. Our customers’ business success can be enhanced when they are supported by our efficient and effective distribution network. We invest significant resources in professional development, management skills, product knowledge and operational proficiency. We pride ourselves on providing these capabilities developed on a foundation of continuous improvement driving service excellence, productivity and efficiencies.

We seek opportunities to expand our business operations through both acquisitions and organic growth (opening branches, growing sales with existing customers, adding new customers and introducing new products). Our main acquisition strategy is to target market leaders that do business in geographic areas that we currently do not service or that complement our existing regional operations. In addition to our acquisition of Allied, our recent success in delivering on our growth strategy is highlighted by the following:

• On May 1, 2018, we acquired Tri-State Builder’s Supply, a wholesale supplier of roofing, siding, windows, doors and related building products with 1 branch located in Duluth, Minnesota and annual sales of approximately $6 million.

• On July 16, 2018, we acquired Atlas Supply, Inc., the Pacific Northwest’s leading distributor of sealants, coatings, adhesives and related waterproofing products, with 6 branches operating in Seattle, Tacoma, Spokane, and Mountlake Terrace in Washington, as well as locations in Portland, Oregon and Boise, Idaho, and annual sales of approximately $37 million.

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In addition, we have opened seven new branches in fiscal year 2019, including locations in Huntsville, Alabama; Fresno, California; Ocala, Odessa, and Panama City, Florida; Reno, Nevada; and Plano, Texas. New branch locations allow us to penetrate deeper into our existing markets and establish a greater presence.

Results of Operations

Comparison of the Three Months Ended June 30, 2019 and 2018

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

	Three Months Ended June 30,
	2019		2018
Net sales	$	1,924,534	$	1,934,951
Cost of products sold		1,451,998		1,441,057
Gross profit		472,536		493,894
Operating expense:
Selling, general and administrative		328,827		323,194
Depreciation		17,731		15,811
Amortization		51,724		50,076
Total operating expense		398,282		389,081
Income (loss) from operations		74,254		104,813
Interest expense, financing costs, and other		38,089		37,348
Income (loss) before provision for income taxes		36,165		67,465
Provision for (benefit from) income taxes		5,178		18,090
Net income (loss)	$	30,987	$	49,375
Dividends on preferred shares		6,000		6,000
Net income (loss) attributable to common shareholders	$	24,987	$	43,375

	Three Months Ended June 30,
	2019			2018
Net sales		100.0	%		100.0	%
Cost of products sold		75.4	%		74.5	%
Gross profit		24.6	%		25.5	%
Operating expense:
Selling, general and administrative		17.1	%		16.7	%
Depreciation		0.9	%		0.8	%
Amortization		2.7	%		2.6	%
Total operating expense		20.7	%		20.1	%
Income (loss) from operations		3.9	%		5.4	%
Interest expense, financing costs, and other		2.0	%		1.9	%
Income (loss) before provision for income taxes		1.9	%		3.5	%
Provision for (benefit from) income taxes		0.3	%		0.9	%
Net income (loss)		1.6	%		2.6	%
Dividends on preferred shares		0.3	%		0.4	%
Net income (loss) attributable to common shareholders		1.3	%		2.2	%

In managing our business, we consider all growth, including the opening of new branches, to be organic growth unless it results from an acquisition. When we refer to growth in existing markets or organic growth, we include growth from existing and newly opened branches but exclude growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period. We believe the existing market information is useful to investors because it helps explain organic growth or decline. When combined, our existing market information and acquired market information equal our consolidated company totals. When we refer to regions, we are referring to our geographic regions. When we refer to our net product costs, we are referring to our invoice cost less the impact of short-term buying programs (also referred to as “special buys”).

As of June 30, 2019, we had a total of 537 branches in operation. Our existing market calculations include the operating results of the 530 branches that meet our definition (7 branches were excluded because they were acquired after the start of the third quarter of fiscal year 2018).

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The following table summarizes our results of operations by market type (existing and acquired) for the periods presented (in thousands):

	Existing Markets						Acquired Markets						Consolidated
	Three Months Ended June 30,
	2019			2018			2019			2018			2019			2018
Net sales	$	1,910,625		$	1,932,463		$	13,909		$	2,488		$	1,924,534		$	1,934,951
Gross profit	$	468,602		$	493,246		$	3,934		$	648		$	472,536		$	493,894
Gross margin		24.5	%		25.5	%		28.3	%		26.0	%		24.6	%		25.5	%
Operating expense:
Selling, general, and administrative	$	326,020		$	322,788		$	2,807		$	406		$	328,827		$	323,194
Depreciation		17,664			15,764			67			47			17,731			15,811
Amortization		51,213			50,026			511			50			51,724			50,076
Operating expense1	$	394,897		$	388,578		$	3,385		$	503		$	398,282		$	389,081
Operating expense as a % of net sales		20.7	%		20.1	%		24.3	%		20.2	%		20.7	%		20.1	%
Operating income (loss)	$	73,705		$	104,668		$	549		$	145		$	74,254		$	104,813
Operating margin		3.9	%		5.4	%		3.9	%		5.8	%		3.9	%		5.4	%

___________________________________________

¹ Existing market operating expense for 2019 and 2018 includes $7.4 million ($4.9 million, net of taxes) and $10.0 million ($7.1 million, net of taxes), respectively, of acquisition costs and business restructuring costs.

Net Sales

Consolidated net sales decreased 0.5% to $1.92 billion in 2019, from $1.93 billion in 2018. Existing market net sales decreased 1.1% to $1.91 billion in 2019, from $1.93 billion in 2018. The year-over-year decrease in existing market net sales was mainly influenced by the following factors:

• heavier rainfall levels in May and June across most regions;

partially offset by:

• higher pricing across all major product lines; and

• positive sales growth in the Southwest market.

Existing market net sales by geographical region increased (decreased) from 2018 to 2019 as follows: Northeast 1.4%; Mid-Atlantic (5.4%); Southeast (0.6%); Southwest 3.8%; Midwest (2.2%); West (3.2%); and Canada 3.7%.

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

Product line net sales for our existing markets were as follows (in thousands):

	Three Months Ended June 30,
	2019					2018					Change
	Net Sales		%			Net Sales		%			$			%
Residential roofing products	$	846,944		44.3	%	$	821,827		42.5	%	$	25,117			3.1	%
Non-residential roofing products		471,661		24.7	%		483,335		25.0	%		(11,674	)		(2.4	%)
Complementary building products		592,020		31.0	%		627,301		32.5	%		(35,281	)		(5.6	%)
Total existing market sales	$	1,910,625		100.0	%	$	1,932,463		100.0	%	$	(21,838	)		(1.1	%)

Acquired market net sales were $13.9 million in 2019. We recognized acquired market product line net sales of $1.3 million in residential roofing products, $12.2 million in complementary building products and immaterial sales in non-residential roofing products.

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Gross Profit

Gross profit and gross margin for our consolidated and existing markets were as follows (in thousands):

	Three Months Ended June 30,						Change1
	2019			2018			$			%
Gross profit - consolidated	$	472,536		$	493,894		$	(21,358	)		(4.3	%)
Gross profit - existing markets		468,602			493,246			(24,644	)		(5.0	%)
Gross margin - consolidated		24.6	%		25.5	%	N/A				(0.9	%)
Gross margin - existing markets		24.5	%		25.5	%	N/A				(1.0	%)

___________________________________________________________

¹  Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.

Consolidated gross profit decreased 4.3% to $472.5 million in 2019, from $493.9 million in 2018. Existing market gross profit decreased 5.0% to $468.6 million in 2019, from $493.2 million in 2018.

Consolidated gross margin was 24.6% in 2019, down 0.9% from 25.5% in 2018. Existing market gross margin was 24.5% in 2019, down 1.0% from 25.5% in 2018. The year-over-year decrease in existing market gross margin was influenced by a product cost increase of approximately 3.5% and an unfavorable mix shift, partially offset by a price increase of approximately 3% across all product lines.

Consolidated gross margin and existing market gross margin were similar due to most branches being classified as existing market branches for the period. Consolidated direct sales (products shipped by our vendors directly to our customers), which typically have substantially lower gross margins (and operating expense) compared to our warehouse sales, represented 12.5% and 13.9% of our net sales in 2019 and 2018, respectively.

Operating Expense

Operating expense for consolidated and existing markets was as follows (in thousands):

	Three Months Ended June 30,						Change1
	2019			2018			$		%
Operating expense - consolidated	$	398,282		$	389,081		$	9,201		2.4	%
Operating expense - existing markets		394,897			388,578			6,319		1.6	%
% of net sales - consolidated		20.7	%		20.1	%	N/A			0.6	%
% of net sales - existing markets		20.7	%		20.1	%	N/A			0.6	%

 _________________________________________________________________

¹  Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.

Consolidated operating expense increased 2.4% to $398.3 million in 2019, from $389.1 million in 2018. Existing market operating expense increased 1.6% to $394.9 million in 2019, from $388.6 million in 2018. The year-over-year increase in existing market operating expense was mainly influenced by the following factors:

• a net increase in payroll and employee benefit costs of $4.4 million, mainly due to annual merit increases;

• an increase in depreciation expense of $1.9 million, mainly due to an accelerated run rate of depreciation expense related to assets acquired in the Allied Acquisition; and

• an increase in general and administrative expenses of $1.8 million, mainly due to higher business insurance costs;

partially offset by:

• an increase in gain on the sale of assets of $2.0 million.

Interest Expense, Financing Costs and Other

Interest expense, financing costs and other expense was $38.1 million in 2019, remaining relatively flat compared to $37.3 million in 2018.

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Income Taxes

There was an income tax provision of $5.2 million in 2019, compared to $18.1 million in 2018. The decrease in income tax provision was mainly driven by a reduction in pre-tax book income of $31.3 million compared to 2018. The effective tax rate, excluding any discrete items, was 13.8% in 2019, compared to 29.5% in 2018. We expect our fiscal year 2019 effective tax rate, excluding any discrete items, will range from approximately 35.0% to 37.0%.

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

Net income (loss) was $31.0 million in 2019, compared to $49.4 million in 2018. There were $6.0 million of dividends on preferred shares in 2019 and 2018, making net income (loss) attributable to common shareholders of $25.0 million in 2019, compared to $43.4 million in 2018. We calculate net income (loss) per share by dividing net income (loss), less dividends on preferred shares and adjustments for participating securities, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by utilizing the most dilutive result after applying and comparing the two-class method and if-converted method (see Note 5 in the Notes to Condensed Consolidated Financial Statements for further discussion).

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

	Three Months Ended June 30,
	2019			2018
Net income (loss)	$	30,987		$	49,375
Dividends on preferred shares		6,000			6,000
Net income (loss) attributable to common shareholders		24,987			43,375
Undistributed income allocated to participating securities		(3,099	)		(5,406	)
Net income (loss) attributable to common shareholders - basic and diluted (if-converted method)	$	21,888		$	37,969
Undistributed income allocated to participating securities		3,099			5,406
Re-allocation of undistributed income to preferred shares		(3,068	)		(5,334	)
Net income (loss) attributable to common shareholders - diluted (two-class method)	$	21,919		$	38,041
Weighted-average common shares outstanding - basic		68,477,946			68,086,387
Effect of common share equivalents		787,438			1,061,756
Weighted-average common shares outstanding - diluted (if-converted and two-class method)		69,265,384			69,148,143
Net income (loss) per share - basic	$	0.32		$	0.56
Net income (loss) per share - diluted (two-class method)		0.32			0.55
Net income (loss) per share - diluted (if-converted method)		0.32			0.55

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Comparison of the Nine Months Ended June 30, 2019 and 2018

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

	Nine Months Ended June 30,
	2019			2018
Net sales	$	5,075,247		$	4,482,555
Cost of products sold		3,832,154			3,380,531
Gross profit		1,243,093			1,102,024
Operating expense:
Selling, general and administrative		976,928			858,534
Depreciation		52,779			41,640
Amortization		155,508			105,339
Total operating expense		1,185,215			1,005,513
Income (loss) from operations		57,878			96,511
Interest expense, financing costs, and other		116,902			99,486
Income (loss) before provision for income taxes		(59,024	)		(2,975	)
Provision for (benefit from) income taxes		(21,032	)		(53,291	)
Net income (loss)	$	(37,992	)	$	50,316
Dividends on preferred shares		18,000			12,000
Net income (loss) attributable to common shareholders	$	(55,992	)	$	38,316

	Nine Months Ended June 30,
	2019			2018
Net sales		100.0	%		100.0	%
Cost of products sold		75.5	%		75.4	%
Gross profit		24.5	%		24.6	%
Operating expense:
Selling, general and administrative		19.3	%		19.2	%
Depreciation		1.0	%		0.9	%
Amortization		3.1	%		2.3	%
Total operating expense		23.4	%		22.4	%
Income (loss) from operations		1.1	%		2.2	%
Interest expense, financing costs, and other		2.3	%		2.2	%
Income (loss) before provision for income taxes		(1.2	%)		0.0	%
Provision for (benefit from) income taxes		(0.5	%)		(1.1	%)
Net income (loss)		(0.7	%)		1.1	%
Dividends on preferred shares		0.4	%		0.2	%
Net income (loss) attributable to common shareholders		(1.1	%)		0.9	%

In managing our business, we consider all growth, including the opening of new branches, to be organic growth unless it results from an acquisition. When we refer to growth in existing markets or organic growth, we include growth from existing and newly opened branches but exclude growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period. We believe the existing market information is useful to investors because it helps explain organic growth or decline. When combined, our existing market information and acquired market information equal our consolidated company totals. When we refer to regions, we are referring to our geographic regions. When we refer to our net product costs, we are referring to our invoice cost less the impact of short-term buying programs (also referred to as “special buys”).

As of June 30, 2019, we had a total of 537 branches in operation. Our existing market calculations include the operating results of the 325 branches that meet our definition (212 branches were excluded because they were acquired after the start of fiscal year 2018).

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The following table summarizes our results of operations by market type (existing and acquired) for the periods presented (in thousands):

	Existing Markets						Acquired Markets						Consolidated
	Nine Months Ended June 30,
	2019			2018			2019			2018			2019			2018
Net sales	$	2,961,392		$	2,933,600		$	2,113,855		$	1,548,955		$	5,075,247		$	4,482,555
Gross profit	$	681,415		$	703,431		$	561,678		$	398,593		$	1,243,093		$	1,102,024
Gross margin		23.0	%		24.0	%		26.6	%		25.7	%		24.5	%		24.6	%
Operating expense:
Selling, general, and administrative	$	556,330		$	555,112		$	420,598		$	303,422		$	976,928		$	858,534
Depreciation		27,182			23,178			25,597			18,462			52,779			41,640
Amortization		37,674			45,886			117,834			59,453			155,508			105,339
Operating expense1	$	621,186		$	624,176		$	564,029		$	381,337		$	1,185,215		$	1,005,513
Operating expense as a % of net sales		21.0	%		21.3	%		26.7	%		24.6	%		23.4	%		22.4	%
Operating income (loss)	$	60,230		$	79,255		$	(2,352	)	$	17,256		$	57,878		$	96,511
Operating margin		2.0	%		2.7	%		(0.1	%)		1.1	%		1.1	%		2.2	%

___________________________________________

¹  Existing market operating expense for 2019 and 2018 includes $23.0 million ($16.3 million, net of taxes) and $43.8 million ($31.0 million, net of taxes), respectively, of acquisition costs and business restructuring costs.

Net Sales

Consolidated net sales increased 13.2% to $5.08 billion in 2019, from $4.48 billion in 2018. Existing market net sales increased 0.9% to $2.96 billion in 2019, from $2.93 billion in 2018. The year-over-year increase in existing market net sales was mainly influenced by the following factors:

• double-digit net sales growth in the Northeast and Mid-Atlantic markets;

• stronger demand due to the impact of Hurricanes Florence and Michael; and

• higher pricing across all major product lines;

partially offset by:

• decreased storm-related demand in the Southwest, Midwest and West markets; and

• heavier rainfall levels in 2019 across most regions.

Existing market net sales by geographical region increased (decreased) from 2018 to 2019 as follows: Northeast 10.6%; Mid-Atlantic 13.0%; Southeast 1.7%; Southwest (3.2%); Midwest (5.8%); West (13.2%); and Canada 0.5%.

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

Product line net sales for our existing markets were as follows (in thousands):

	Nine Months Ended June 30,
	2019					2018					Change
	Net Sales		%			Net Sales		%			$			%
Residential roofing products	$	1,571,512		53.0	%	$	1,513,880		51.6	%	$	57,632			3.8	%
Non-residential roofing products		843,062		28.5	%		868,354		29.6	%		(25,292	)		(2.9	%)
Complementary building products		546,818		18.5	%		551,366		18.8	%		(4,548	)		(0.8	%)
Total existing market sales	$	2,961,392		100.0	%	$	2,933,600		100.0	%	$	27,792			0.9	%

Acquired market net sales were $2.11 billion in 2019. We recognized acquired market product line net sales of $597.2 million in residential roofing products, $357.5 million in non-residential roofing products and $1,159.1 million in complementary building products.

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Gross Profit

Gross profit and gross margin for our consolidated and existing markets were as follows (in thousands):

	Nine Months Ended June 30,						Change1
	2019			2018			$			%
Gross profit - consolidated	$	1,243,093		$	1,102,024		$	141,069			12.8	%
Gross profit - existing markets		681,415			703,431			(22,016	)		(3.1	%)
Gross margin - consolidated		24.5	%		24.6	%	N/A				(0.1	%)
Gross margin - existing markets		23.0	%		24.0	%	N/A				(1.0	%)

 ___________________________________________________________

¹  Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.

Consolidated gross profit increased 12.8% to $1.24 billion in 2019, from $1.10 billion in 2018. Existing market gross profit decreased 3.1% to $681.4 million in 2019, from $703.4 million in 2018.

Consolidated gross margin was 24.5% in 2019, down 0.1% from 24.6% in 2018. Existing market gross margin was 23.0% in 2019, down 1.0% from 24.0% in 2018. The year-over-year decrease in existing market gross margin was influenced by a product cost increase of approximately 5-6%, partially offset by a price increase of approximately 5% across all product lines.

Consolidated gross margin was higher than existing market gross margin due to the positive impact of recent acquisitions. Consolidated direct sales (products shipped by our vendors directly to our customers), which typically have substantially lower gross margins (and operating expense) compared to our warehouse sales, represented 12.6% and 13.7% of our net sales in 2019 and 2018, respectively.

Operating Expense

Operating expense for consolidated and existing markets was as follows (in thousands):

	Nine Months Ended June 30,						Change1
	2019			2018			$			%
Operating expense - consolidated	$	1,185,215		$	1,005,513		$	179,702			17.9	%
Operating expense - existing markets		621,186			624,176			(2,990	)		(0.5	%)
% of net sales - consolidated		23.4	%		22.4	%	N/A				1.0	%
% of net sales - existing markets		21.0	%		21.3	%	N/A				(0.3	%)

 _________________________________________________________________

¹  Percentage changes for dollar amounts represent the ratable increase or decrease from period-to-period. Percentage changes for percentages represent the net period-to-period change in basis points.

Consolidated operating expense increased 17.9% to $1.19 billion in 2019, from $1.01 billion in 2018. Existing market operating expense decreased 0.5% to $621.2 million in 2019, from $624.2 million in 2018. The year-over-year decrease in existing market operating expense was mainly influenced by the following factors:

• a net decrease in general and administrative expense of $12.3 million, mainly due to higher incursion of acquisition-related costs in the prior period;

partially offset by:

• an increase in payroll and employee benefit costs of $10.1 million, mainly due to annual merit increases.

Interest Expense, Financing Costs and Other

Interest expense, financing costs and other expense was $116.9 million in 2019, compared to $99.5 million in 2018. The increase was mainly driven by the additional interest costs related to a higher average outstanding debt balance over the comparative periods as a direct result of the Allied Acquisition.

Income Taxes

There was an income tax benefit of $21.0 million in 2019, compared to $53.3 million in 2018. The decrease in income tax benefit was mainly driven by the impact of the Tax Cuts and Jobs Act of 2017. In 2018, the Company remeasured its deferred tax assets and

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liabilities based on the revised corporate tax rate, which was the primary driver of a $49.2 million net tax benefit for the period. The effective tax rate, excluding any discrete items, was 36.5% in 2019, compared to 29.5% in 2018. We expect our fiscal year 2019 effective tax rate, excluding any discrete items, will range from approximately 35.0% to 37.0%.

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

Net income (loss) was $(38.0) million in 2019, compared to $50.3 million in 2018. There were $18.0 million of dividends on preferred shares in 2019, compared to $12.0 million in 2018, making net income (loss) attributable to common shareholders of $(56.0) million in 2019, compared to $38.3 million in 2018. We calculate net income (loss) per share by dividing net income (loss), less dividends on preferred shares and adjustments for participating securities, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by utilizing the most dilutive result after applying and comparing the two-class method and if-converted method (see Note 5 in the Notes to Condensed Consolidated Financial Statements for further discussion).

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

	Nine Months Ended June 30,
	2019			2018
Net income (loss)	$	(37,992	)	$	50,316
Dividends on preferred shares		18,000			12,000
Net income (loss) attributable to common shareholders		(55,992	)		38,316
Undistributed income allocated to participating securities		-			(3,293	)
Net income (loss) attributable to common shareholders - basic and diluted (if-converted method)	$	(55,992	)	$	35,023
Undistributed income allocated to participating securities		-			3,293
Re-allocation of undistributed income to preferred shares		-			(3,238	)
Net income (loss) attributable to common shareholders - diluted (two-class method)	$	(55,992	)	$	35,078
Weighted-average common shares outstanding, basic		68,391,882			67,976,980
Effect of common share equivalents		-			1,263,060
Weighted-average common shares outstanding - diluted (if-converted and two-class method)		68,391,882			69,240,040
Net income (loss) per share - basic	$	(0.82	)	$	0.52
Net income (loss) per share - diluted (two-class method)		(0.82	)		0.51
Net income (loss) per share - diluted (if-converted method)		(0.82	)		0.51

Non-GAAP Financial Measures

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

• Adjusted Net Income (Loss)/Adjusted EPS

• Adjusted EBITDA

We define Adjusted Net Income (Loss) as net income that excludes acquisition costs, business restructuring costs, and the effects of tax reform. Adjusted Net Income (Loss) per share or "Adjusted EPS" is calculated by dividing the Adjusted Net Income (Loss) for the period by the weighted-average diluted shares outstanding for the period after assuming the full conversion of the participating Preferred Stock.

We define Adjusted EBITDA as net income plus interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, acquisition costs, and business restructuring costs. EBITDA is a measure commonly used in the distribution industry, and we present Adjusted EBITDA to enhance your understanding of our operating performance.

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

We believe these non-GAAP measures are useful measures because they allow investors to better understand changes in underlying operating performance over comparative periods by providing investors with financial results that are unaffected by cyclical variances that can be driven by items such as investment activity or purchase accounting adjustments.

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

Adjusted Net Income (Loss)/Adjusted EPS

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

	Three Months Ended June 30,												Nine Months Ended June 30,
	2019						2018						2019						2018
	Amount			Per Share1			Amount			Per Share1			Amount			Per Share2			Amount			Per Share2
Net income (loss)	$	30,987		$	0.39		$	49,375		$	0.63		$	(37,992	)	$	(0.49	)	$	50,316		$	0.67
Adjustments:
Acquisition costs3		60,482			0.77			63,561			0.80			185,922			2.38			171,289			2.26
Business restructuring costs4		1,664			0.02			-			-			1,664			0.02			-			-
Effects of tax reform5		-			-			(1,166	)		(0.02	)		(462	)		(0.01	)		(49,149	)		(0.65	)
Total adjustments		62,146			0.79			62,395			0.78			187,124			2.39			122,140			1.61
Tax impact of total adjustments6		(20,563	)		(0.26	)		(18,370	)		(0.23	)		(54,946	)		(0.69	)		(49,860	)		(0.66	)
Total adjustments, net of tax		41,583			0.53			44,025			0.55			132,178			1.70			72,280			0.95
Adjusted Net Income (Loss)	$	72,570		$	0.92		$	93,400		$	1.18		$	94,186		$	1.21		$	122,596		$	1.62

___________________________________________________

¹ The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended June 30, 2019 is 78,960,003, which is equal to the 69,265,384 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock. The weighted-average share count utilized in the calculation of Adjusted EPS for the three months ended June 30, 2018 is 78,842,762, which is equal to the 69,148,143 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock. The shares of participating Preferred Stock were excluded from the GAAP net income (loss) per share calculations for both periods due to their anti-dilutive nature.

² The weighted-average share count utilized in the calculation of Adjusted EPS for the nine months ended June 30, 2019 is 78,086,501, which is equal to the 68,391,882 diluted weighted-average shares outstanding plus the assumed conversion of 9,694,619 weighted-average shares of participating Preferred Stock. The weighted-average share count utilized in the calculation of Adjusted EPS for the nine months ended June 30, 2018 is 75,632,096, which is equal to the 69,240,040 diluted weighted-average shares outstanding plus the assumed conversion of 6,392,056 weighted-average shares of participating Preferred Stock. The shares of participating Preferred Stock were excluded from the GAAP net income (loss) per share calculations for both periods due to their anti-dilutive nature.

³ The following table presents a breakout of the components of acquisition costs for each of the periods indicated:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2019		2018		2019		2018
Amortization of intangible assets	$	51,723	$	50,075	$	155,508	$	105,339
Costs classified as selling, general, and administrativea		5,733		9,957		21,337		43,827
Amortization of debt issuance costs		3,026		3,529		9,077		22,123
Total acquisition costs		60,482		63,561		185,922		171,289

__________________________________________________

^a. Selling, general, and administrative costs related to acquisitions are mainly composed of professional fees, branch integration expenses, travel expenses, employee severance and retention costs, and other personnel expenses.

⁴ Business restructuring costs are mainly composed of costs stemming from headcount rationalization efforts.

⁵ Impact of the Tax Cuts and Jobs Act of 2017.

⁶ The effective tax rate applied to these adjustments is calculated by using forecasted adjusted pre-tax income while factoring in estimated discrete tax adjustments for the fiscal year. The tax impact of adjustments for the three months ended June 30, 2019 and 2018 were calculated using an effective tax rate of 33.1% and 28.9%, respectively. The tax impact of adjustments for the nine months ended June 30, 2019 and 2018 were calculated using an effective tax rate of 29.3% and 29.1%, respectively.

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Adjusted EBITDA

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

	Three Months Ended June 30,						Nine Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	30,987		$	49,375		$	(37,992	)	$	50,316
Interest expense, net		40,169			39,055			121,800			104,334
Income taxes		5,178			18,090			(21,032	)		(53,291	)
Depreciation and amortization		69,455			65,887			208,287			146,979
Stock-based compensation		4,637			5,298			12,901			13,133
Acquisition costs1		5,733			9,957			21,337			43,827
Business restructuring costs2		1,664			-			1,664			-
Adjusted EBITDA	$	157,823		$	187,662		$	306,965		$	305,298
Adjusted EBITDA as a % of net sales		8.2	%		9.7	%		6.0	%		6.8	%

 ____________________________________________________________

¹ Represents selling, general, and administrative costs related to acquisitions (excluding the impact of tax). Other items the Company classifies as acquisition costs are embedded in other balances of the table.

² Business restructuring costs are mainly composed of costs stemming from headcount rationalization efforts.

Seasonality and Quarterly Fluctuations

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

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

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

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

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Certain Quarterly Financial Data

The following table sets forth certain unaudited quarterly data for the first three quarters of 2019 and fiscal year 2018, which, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of this data. Results of any one or more quarters are not necessarily indicative of results for an entire fiscal year or of continuing trends (in thousands, except per share amounts):

	2019									2018
	Qtr 3			Qtr 2			Qtr 1			Qtr 4			Qtr 3			Qtr 2			Qtr 11
Net sales	$	1,924,534		$	1,429,037		$	1,721,676		$	1,935,756		$	1,934,951		$	1,425,625		$	1,121,979
% of fiscal year’s net sales		37.9	%		28.2	%		33.9	%		30.2	%		30.1	%		22.2	%		17.5	%
Gross profit		472,536			334,988			435,569			491,297			493,894			338,377			269,753
% of fiscal year’s gross profit		38.0	%		26.9	%		35.0	%		30.8	%		31.0	%		21.2	%		16.9	%
Income (loss) from operations		74,254			(54,630	)		38,254			108,115			104,813			(57,398	)		49,096
% of fiscal year’s income (loss) from operations		128.3	%		(94.4	%)		66.1	%		52.8	%		51.2	%		(28.1	%)		24.0	%
Net income (loss)	$	30,987		$	(68,086	)	$	(893	)	$	48,310		$	49,375		$	(66,655	)	$	67,596
Dividends on preferred shares		6,000			6,000			6,000			6,000			6,000			6,000			-
Net income (loss) attributable to common shareholders	$	24,987		$	(74,086	)	$	(6,893	)	$	42,310		$	43,375		$	(72,655	)	$	67,596
Net income (loss) per share - basic	$	0.32		$	(1.08	)	$	(0.10	)	$	0.54		$	0.56		$	(1.07	)	$	1.00
Net income (loss) per share - diluted	$	0.32		$	(1.08	)	$	(0.10	)	$	0.54		$	0.55		$	(1.07	)	$	0.98

 _____________________________________________________________________

¹ Results from the first quarter of fiscal year 2018 do not include the impact of the Allied Acquisition (see Note 3 in the Notes to Condensed Consolidated Financial Statements for further discussion).

Liquidity

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

Our principal sources of liquidity as of June 30, 2019 were our cash and cash equivalents of $27.7 million and our available borrowings of $789.2 million under our asset-based lending revolving credit facility.

Significant factors which could affect future liquidity include the following:

• the adequacy of available bank lines of credit;

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

• cash flows generated from operating activities;

• acquisitions; and

• capital expenditures.

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

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

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

	Nine Months Ended June 30,
	2019			2018
Net cash provided by (used in) operating activities	$	(194,897	)	$	(1,019	)
Net cash provided by (used in) investing activities		(202,110	)		(2,749,657	)
Net cash provided by (used in) financing activities		294,778			2,638,850
Effect of exchange rate changes on cash and cash equivalents		31			1,127
Net increase (decrease) in cash and cash equivalents	$	(102,198	)	$	(110,699	)

Operating Activities

Net cash used in operating activities was $194.9 million in 2019, compared to $1.0 million in 2018. Cash from operations decreased $193.9 million due to an incremental cash outflow of $213.9 million stemming from changes to our net working capital, mainly driven by decreases in accounts payable and accrued expenses. This decrease was partially offset by an increase in net income after adjustments for non-cash items of $20.0 million.

Investing Activities

Net cash used in investing activities was $202.1 million in 2019, compared to $2.75 billion in 2018. The $2.55 billion of additional investing cash spend was primarily due to the impact of the Allied Acquisition in 2018, partially offset by the $164.0 million payment resulting from the 338(h)(10) election made in October 2018 (see Note 3 in the Notes to Condensed Consolidated Financial Statements).

Financing Activities

Net cash provided by financing activities was $294.8 million in 2019, compared to $2.64 billion in 2018. The financing cash flow decrease of $2.34 billion was primarily due to the combined $2.27 billion impact of the 2025 Senior Notes and 2025 Term Loan that we entered into in 2018 in connection with the Allied Acquisition (see Note 8 in the Notes to Condensed Consolidated Financial Statements for further discussion).

Capital Resources

As of June 30, 2019, we had access to the following financing arrangements:

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

• an asset-based revolving line of credit in Canada;

• a term loan; and

• two separate senior notes instruments

Financing - Allied Acquisition

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

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

Since the financing arrangements entered into in connection with the Allied Acquisition had certain lenders who also participated in our previous financing arrangements, portions of the transactions were accounted for as either a debt modification or a debt extinguishment. In accordance with the accounting for debt modification, we expensed $2.0 million of debt issuance costs related to the Allied financing arrangements and recognized a loss on debt extinguishment of $1.7 million. The remainder of the debt issuance costs will be amortized over the term of the Allied financing arrangements.

2023 ABL

On January 2, 2018, we entered into a $1.30 billion asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2023 ABL consists of revolving loans in both the United States (“2023 U.S. Revolver”) in the amount

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of $1.20 billion and Canada (“2023 Canada Revolver”) in the amount of $100.0 million. The 2023 ABL has a maturity date of January 2, 2023. The 2023 ABL has various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The current unused commitment fees on the 2023 ABL are 0.25% per annum.

There is one financial covenant under the 2023 ABL, which is a Consolidated Fixed Charge Ratio. The Consolidated Fixed Charge Ratio is calculated by dividing consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) by Consolidated Fixed Charges (both as defined in the agreement). Per the covenant, our Consolidated Fixed Charge Ratio must be a minimum of 1.00 at the end of each fiscal quarter, calculated on a trailing four quarter basis. The Company was in compliance with this covenant as of June 30, 2019.

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

As of June 30, 2019, the total balance outstanding on the 2023 ABL, net of $8.8 million of unamortized debt issuance costs, was $424.0 million. We also have outstanding standby letters of credit related to the 2023 U.S. Revolver in the amount of $13.3 million as of June 30, 2019.

2025 Term Loan

On January 2, 2018, we entered into a $970.0 million Term Loan with Citibank N.A., and a syndicate of other lenders. The 2025 Term Loan requires quarterly principal payments in the amount of $2.4 million, with the remaining outstanding principal to be paid on its January 2, 2025 maturity date. The interest rate is based on a LIBOR rate (with a floor) plus a fixed spread. We have the option of selecting a LIBOR period that determines the rate at which interest can accrue on the Term Loan as well as the period in which interest payments are made.

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

As of June 30, 2019, the outstanding balance on the 2025 Term Loan, net of $30.3 million of unamortized debt issuance costs, was $927.6 million.

2025 Senior Notes

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

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

As of June 30, 2019, the outstanding balance on the 2025 Senior Notes, net of $17.8 million of debt issuance costs, was $1.28 billion.

Financing - RSG Acquisition

In connection with the Roofing Supply Group (“RSG”) acquisition in fiscal year 2016, we entered into various financing arrangements totaling $1.45 billion, including an asset-based revolving line of credit (“2020 ABL”) of $700.0 million ($350.0 million of which was drawn at closing) and a $450.0 million term loan (“2022 Term Loan”). We also raised an additional $300.0 million through the issuance of senior notes (the “2023 Senior Notes”).

The proceeds from these financing arrangements were used to provide working capital and funds for other general corporate purposes, to refinance or otherwise extinguish all third-party indebtedness, to finance the acquisition, and to pay fees and expenses associated with the RSG acquisition. We incurred debt issuance costs totaling approximately $31.3 million related to the 2020 ABL, 2022 Term Loan, and 2023 Senior Notes.

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2020 ABL

On October 1, 2015, we entered into a $700.0 million asset-based revolving line of credit with Wells Fargo Bank, N.A. and a syndicate of other lenders. The 2020 ABL had an original maturity date of October 1, 2020 and consisted of revolving loans in both the United States, in the amount of $670.0 million, and Canada, in the amount of $30.0 million. The 2020 ABL had various borrowing tranches with an interest rate based on a LIBOR rate (with a floor) plus a fixed spread. The full balance of the 2020 ABL was paid on January 2, 2018 in conjunction with the Allied Acquisition.

2022 Term Loan

On October 1, 2015, we entered into a $450.0 million Term Loan with Citibank N.A., and a syndicate of other lenders. The 2022 Term Loan required quarterly principal payments in the amount of $1.1 million, with the remaining outstanding principal to be paid on its original maturity date of October 1, 2022. The interest rate was based on a LIBOR rate (with a floor) plus a fixed spread. We had the option of selecting a LIBOR period that determined the rate at which interest would accrue, as well as the period in which interest payments are made. The full balance of the 2022 Term Loan was paid on January 2, 2018 in conjunction with the Allied Acquisition, including the write-off of $0.7 million in debt issuance costs.

2023 Senior Notes

On October 1, 2015, we raised $300.0 million by issuing senior notes due 2023. The 2023 Senior Notes have a coupon rate of 6.38% per annum and are payable semi-annually in arrears, beginning April 1, 2016. There are early payment provisions in the indenture in which we would be subject to “make whole” provisions. We anticipate repaying the notes at the maturity date of October 1, 2023.

The 2023 Senior Notes are guaranteed jointly, severally, fully and unconditionally by our active United States subsidiaries.

As of June 30, 2019, the outstanding balance on the 2023 Senior Notes, net of $5.4 million of unamortized debt issuance costs, was $294.6 million.

Equipment Financing Facilities and Other

As of June 30, 2019, we had $8.0 million outstanding under equipment financing facilities, with fixed interest rates ranging from 2.33% to 2.89% and payments due through September 2021.

As of June 30, 2019, we had $8.0 million of capital lease obligations outstanding. These leases have interest rates ranging from 2.72% to 10.39% with payments due through November 2021.

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

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

Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of its 2018 Annual Report on Form 10-K have not changed materially during the three-month period ended June 30, 2019.

Item 4. Controls and Procedures

As of June 30, 2019, management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”)). Based on that evaluation, management, including the CEO and CFO, concluded that as of June 30, 2019, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

On January 2, 2018, we completed our acquisition of Allied Building Products Corp. ("Allied"). As permitted under existing SEC staff guidance, management elected to exclude Allied from our internal controls assessment for fiscal year 2018. However, for fiscal year 2019, the acquired Allied business is within the scope of management’s assessment of internal controls. Management has fully integrated all of the acquired Allied branches, and internal controls at the Allied branches were part of management’s assessment of internal controls for effectiveness as of June 30, 2019. The full integration of the Allied branches did not lead to material changes to our internal controls over financial reporting.

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

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PART II.OTHER INFORMATION

Item 6. Exhibits

			Incorporated by Reference
Exhibit Number		Description		Form	File No.	Exhibit	Filing Date
10.1*	Amendment and Restatement of Section 2(a) of the Registration Rights Agreement, dated June 11, 2019
31.1*	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
31.2*	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
32.1*	Certification pursuant to 18 U.S.C. Section 1350
101*		101.INS Inline XBRL Instance – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
		101.SCH Inline XBRL Taxonomy Extension Schema
		101.CAL Inline XBRL Taxonomy Extension Calculation
		101.PRE Inline XBRL Taxonomy Extension Presentation
		101.LAB Inline XBRL Taxonomy Extension Labels
		101.DEF Inline XBRL Taxonomy Extension Definition

________________________________________________

+ Management contract or compensatory plan/arrangement

* Filed herewith

Pursuant to Rule 405 of Regulation S-T, the following interactive data files formatted in Inline Extensible Business Reporting Language (iXBRL) are attached as Exhibit 101 to this Quarterly Report on Form 10-Q: (i) the Consolidated Balance Sheets as of June 30, 2019; September 30, 2018; and June 30, 2018, (ii) the Consolidated Statements of Operations for the three and nine months ended June 30, 2019 and 2018, (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2019 and 2018, (iv) the Consolidated Statements of Stockholders’ Equity for the three and nine months ended June 30, 2019 and 2018, (v) the Consolidated Statements of Cash Flows for the nine months ended June 30, 2019 and 2018, and (vi) the Notes to Condensed Consolidated Financial Statements.

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SIGNATURE

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

	BEACON ROOFING SUPPLY, INC.
Date: August 7, 2019	BY:	/s/ JOSEPH M. NOWICKI
		Joseph M. Nowicki
		Executive Vice President & Chief Financial Officer

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