S-1/A 1 d168346ds1a.htm AMENDMENT NO. 4 TO FORM S-1 Amendment No. 4 to Form S-1
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As filed with the Securities and Exchange Commission on May 2, 2016

Registration No. 333-206444

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 4

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

SiteOne Landscape Supply, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   5040   46-4056061

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Mansell Overlook, 300 Colonial Center Parkway, Suite 600

Roswell, Georgia 30076

(770) 255-2100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Doug Black

Chief Executive Officer

SiteOne Landscape Supply, Inc.

Mansell Overlook, 300 Colonial Center Parkway, Suite 600

Roswell, Georgia 30076

(770) 255-2100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

with copies to:

 

Peter J. Loughran, Esq.

Debevoise & Plimpton LLP

919 Third Avenue

New York, New York 10022

(212) 909-6000

 

John C. Ericson, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities

to be Registered

   Proposed Maximum
Aggregate Offering
Price(1)
  Amount of
Registration Fee(2)

Common stock, par value $0.01 per share

   $245,000,000   $26,222

 

 

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933.
(2) The registrant previously paid $11,620 of this amount.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MAY 2, 2016

10,000,000 Shares

LOGO

SiteOne Landscape Supply, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of SiteOne Landscape Supply, Inc. All of the 10,000,000 shares of common stock are being offered by the selling stockholders identified in this prospectus. We will not receive any of the proceeds from the sale of the shares being sold in this offering.

Prior to this offering, there has been no public market for our common stock. We have been approved to list our common stock on the New York Stock Exchange, or the NYSE, under the symbol “SITE”.

After the completion of this offering, we expect to be a “controlled company” within the meaning of the corporate governance standards of the NYSE.

We anticipate that the initial public offering price will be between $20.00 and $22.00 per share.

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 19 of this prospectus.

 

     Per
Share
     Total  

Initial public offering price

   $                   $               

Underwriting discounts and commissions (1)

   $        $    

Proceeds, before expenses, to the selling stockholders

   $        $    

 

(1) We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See “Underwriting.”

The underwriters also may purchase up to 1,500,000 additional shares from the selling stockholders at the initial offering price less the underwriting discounts and commissions within 30 days from the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on or about                     , 2016.

 

 

 

Deutsche Bank Securities   Goldman, Sachs & Co.   UBS Investment Bank

 

Barclays  

Baird

  RBC Capital Markets   William Blair
SunTrust Robinson Humphrey   ING   HSBC   Natixis   SMBC Nikko   Academy Securities

Prospectus dated                     , 2016


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LOGO


Table of Contents

TABLE OF CONTENTS

 

Prospectus Summary

     1   

Risk Factors

     19   

Forward-Looking Statements

     40   

Use of Proceeds

     42   

Dividend Policy

     43   

Capitalization

     44   

Dilution

     45   

Selected Financial Data

     46   

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

     48   

Business

     69   

Management

     88   

Executive Compensation

     94   

Principal and Selling Stockholders

     110   

Certain Relationships and Related Party Transactions

     113   

Description of Certain Indebtedness

     117   

Description of Capital Stock

     123   

Shares Available for Future Sale

     129   

Material U.S. Federal Tax Considerations for Non-U.S. Holders

     131   

Underwriting

     135   

Validity of Common Stock

     143   

Experts

     143   

Where You Can Find More Information

     143   

Index to Consolidated and Combined Financial Statements

     F-1   

You should rely only on the information contained in this prospectus and any free writing prospectus we may authorize to be delivered to you. We have not, and the selling stockholders and the underwriters have not, authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus and any related free writing prospectus. We, the selling stockholders and the underwriters take no responsibility for, and can provide no assurances as to the reliability of, any information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is only accurate as of the date of this prospectus, regardless of the time of delivery of this prospectus and any sale of shares of our common stock.

Until and including                     , 2016 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


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PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “we,” “our,” “us,” “SiteOne” and the “Company,” as used in this prospectus, refer to SiteOne Landscape Supply, Inc. and its consolidated subsidiaries. The term “Holdings” refers to SiteOne Landscape Supply, Inc. individually without its subsidiaries.

Our Company

We are the largest and only national wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation and maintenance of lawns, gardens, golf courses and other outdoor spaces. Through our expansive North American network of 477 branch locations in 44 states and five provinces, we offer a comprehensive selection of more than 100,000 stock keeping units, or SKUs, including irrigation supplies, fertilizer and control products (e.g., herbicides), landscape accessories, nursery goods, hardscapes (including pavers, natural stones and blocks), outdoor lighting and ice melt products. We also provide complementary, value-added consultative services to support our product offering and to help our customers operate and grow their businesses. Based on our net sales for the period ended January 3, 2016, or the 2015 Fiscal Year, we estimate that we are approximately four times the size of our largest competitor and larger than the next two through ten competitors combined. We believe, based on management’s estimates, that we have either the number one or number two local market position in nearly 80% of metropolitan statistical areas, or MSAs, where we have one or more branches. Our market leadership, coast-to-coast presence, broad product selection and extensive technical expertise provide us with significant competitive advantages and create a compelling value proposition for both our customers and suppliers.

Our customers choose us for a number of reasons, including the breadth and availability of the products we offer, our high level of expertise, the quality of our customer service, the convenience of our branch locations and the consistency of our timely delivery. Our ability to provide a “one-stop” shop experience for our customers is aligned with the growing trend of landscape contractors providing an increasingly broad array of products and services. Because extensive technical knowledge and experience are required to successfully design, install and maintain outdoor spaces, we believe our customers find great value in the advice and recommendations provided by our knowledgeable sales and service associates, many of whom are former landscape contractors or golf course superintendents. Our consultative services include assistance with irrigation network design, commercial project planning, generation of sales leads, marketing services and product support, as well as a series of technical and business management seminars that we call SiteOne University. These value-added services foster an ongoing relationship with our customers that is a key element of our business strategy.

We have a diverse base of more than 180,000 customers, and our top 10 customers accounted for approximately 5% of our 2015 Fiscal Year net sales, with no single customer accounting for more than 2% of net sales. Our typical customer is a private landscape contractor that operates in a single market. We interact regularly with our customers because of the recurring nature of landscape services and because most contractors buy products on an as-needed basis. We believe our high-touch customer service model strengthens relationships, builds loyalty and drives repeat business. In addition, our broad product portfolio, convenient branch locations and nationwide fleet of approximately 1,260 delivery vehicles position us well to meet the needs of our customers and ensure timely delivery of products.

 



 

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Our strong supplier relationships support our ability to provide a broad selection of products at attractive prices. We believe we are the largest customer for many of our key suppliers, who benefit from the size and scale of our distribution network. We source our products from more than 2,000 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes and other landscape products. Some of our largest suppliers include Hunter, Rain Bird, Toro, Oldcastle, Bayer, Syngenta, BASF, Dow AgroSciences, Vista and NDS. We also develop and sell products under our proprietary and market-leading brands LESCO and Green Tech, which together accounted for approximately 21% of our 2015 Fiscal Year net sales. We believe these highly-recognized brands attract customers to our branches and create incremental sales opportunities for other products.

We have a balanced mix of sales across product categories, construction sectors and end markets. We derived approximately 55% of our 2015 Fiscal Year net sales from the residential construction sector, 30% from the commercial (including institutional) construction sector and 15% from the recreational & other construction sector. By end market, we derived approximately 45% of our 2015 Fiscal Year net sales from the sale of maintenance products such as fertilizer and control products. Demand for maintenance products is typically stable, and the recurring nature of maintenance product sales helps to provide stability in our financial performance across economic cycles. The sale of products relating to new construction of homes, commercial buildings and recreational spaces accounted for approximately 37% of our 2015 Fiscal Year net sales. We expect sales in the new construction end market to continue to grow as a result of the ongoing recovery in demand for new single-family homes, multi-family housing units and non-residential buildings. Approximately 18% of our 2015 Fiscal Year net sales was derived from sales of products for the repair and upgrade of existing landscapes. These sales benefit from increasing existing home sales, increasing home prices and rising consumer spending.

Net Sales for 2015 Fiscal Year

 

LOGO

Over the past two years, we have completed ten acquisitions, and we intend to pursue additional acquisitions to complement our organic growth and achieve our strategic objectives. Our organic and acquisition-driven growth strategies have led to significant increases in net sales and Adjusted EBITDA. For our 2015 Fiscal Year, we generated net sales of $1.5 billion, Adjusted EBITDA of $112.6 million and net income of $28.9 million. See “—Summary Financial Data” for a reconciliation of our Adjusted EBITDA to net income (loss).

 



 

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Our Executive Leadership

Doug Black joined us as our Chief Executive Officer in April 2014. Mr. Black is the former President and COO of Oldcastle, the North American arm of CRH plc, where he helped grow net sales by over ten times and oversaw more than 100 acquisitions, including Oldcastle’s expansion into building products distribution. Mr. Black has joined a strong operational team with top-tier associates who have positively contributed to our performance. Mr. Black has also strengthened the capabilities of our executive leadership team by bringing in highly-qualified senior managers with functional expertise in strategy development, mergers and acquisitions, talent management, marketing, category management, supply chain management, national sales and information technology. These individuals have prior experience at a number of well-known companies within the building products and industrial distribution sectors, including Oldcastle, HD Supply, Grainger, MSC Industrial Direct, Wesco, Newell Rubbermaid and The Home Depot.

Under Mr. Black’s leadership, we have established a focused business strategy to develop and attract industry-leading talent, deliver more value to customers, generate superior financial performance, drive organic growth, execute on attractive acquisitions and increase working capital efficiency. We are also undertaking a variety of initiatives targeting pricing, category management, sales force performance and supply chain management. At the local level, we have increased our focus on gaining market share by adding capabilities to our 46 geographic areas and 477 branches and by empowering area managers and their teams to develop local strategies. These initiatives are in the early stages of implementation, and we believe they will continue to enhance our growth and profitability.

Our Industry

Based on management’s estimate, we believe that our addressable market in North America for the wholesale distribution of landscape supplies represented approximately $16 billion in revenue in 2015. Growth in our industry is driven by a broad array of factors, including consumer spending, housing starts, existing home sales, home prices, commercial construction, repair and remodeling spending, and demographic trends. Within the wholesale landscape supply distribution industry, products sold for residential applications represent the largest construction sector, followed by the commercial and recreational & other construction sectors.

The wholesale landscape supply distribution industry is highly fragmented, consisting primarily of regional private businesses that typically have a small geographic footprint, a limited product offering and limited supplier relationships. Wholesale landscape supply distributors primarily sell to landscape service firms, ranging from sole proprietorships to national enterprises. Landscape service firms include general landscape contractors and specialty landscape firms, such as lawn care, tree and foliage maintenance firms. Over the past decade, professional landscape contractors have increasingly offered additional products and services to meet their customers’ needs. These firms historically needed to make numerous trips to stores in various locations to source their products. Consequently, landscape professionals have come to value distribution partners who offer a “one-stop” shop with a larger variety of products and services, particularly given the recurring nature of landscape maintenance services.

According to an August 2015 Freedonia Group report, the U.S. wholesale landscape supply distribution industry was expected to grow at a compound annual growth rate, or CAGR, meaningfully higher than that of the overall economy through 2019. Hardscape and outdoor lighting products were expected to grow the fastest of our major landscape product categories through 2019 at an estimated CAGR of 7.3% and 8.1%, respectively. Industry growth is being driven, in part, by the rebound in the new residential and new non-residential (including commercial and institutional) construction markets. In 2015, the total number of U.S. housing starts was 1.1 million, significantly below the long-term median of 1.5 million. Housing starts are expected to grow 11.0% in 2016 to 1.2 million and 16.8% in 2017 to 1.4 million, according to the National Association of Home Builders. Additionally, U.S. non-residential construction spending is forecasted to grow 9.0% in 2016 and 9.3% in 2017, according to Dodge Data & Analytics.

 



 

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Other growth drivers of the landscape products industry include rising interest in more complex, decorative and functional landscaping spurred by the recent popularity of home and garden television shows and magazines; the increasingly popular concept of “outdoor living,” which involves relaxation, entertainment and spending more time outdoors with family and friends, and which continues to drive higher demand for landscape solutions that provide more functional living space and increase the value of the home; and rising demand for eco-friendly landscape products that promote water conservation and efficiency.

Our Competitive Strengths

We believe we benefit from the following competitive strengths:

Clear Market Leader in an Attractive Industry

We are the largest wholesale distributor of landscape supplies in the United States. Based on our 2015 Fiscal Year net sales, we estimate that we are approximately four times the size of our largest competitor and larger than the next two through ten competitors combined. We believe, based on management’s estimates, that we have either the number one or number two local market position in nearly 80% of the MSAs where we have at least one branch. Our industry is highly fragmented, comprised of thousands of small, private or family-run businesses that compete with us primarily on a local market basis. We are the only national distributor in the landscape supply industry, with an estimated market share of approximately 9% based on 2015 Fiscal Year net sales. As a result, we believe we have significant opportunities to increase our market share. Our national scale, broad product and service offering and market leadership also enable us to play an important role in the landscape supplies value chain by connecting a large and diverse set of manufacturers with a highly fragmented customer base.

Broadest Product Offering

We believe we offer the industry’s most comprehensive portfolio of landscape products, with over 100,000 SKUs from more than 2,000 suppliers. This broad product offering creates a “one-stop” shop for our customers and positively distinguishes us from our competitors. We maintain a high standard of product availability and timely delivery, which generally allows our customers to avoid investing significant capital to maintain their own inventory. In addition, our branches order specialty products directly from suppliers on behalf of our customers, who thereby benefit from our national purchasing scale, and we are able to supply custom services and products, such as fertilizers and soil blends, to meet specific job requirements. We also provide several proprietary products, including our LESCO and Green Tech brands, as well as promotional items offered through arrangements with selected manufacturers.

Superior Customer Value

We offer a variety of complementary, value-added services to support the sale of our products. At the local branch level, we have teams of experienced sales and service associates, many of whom are former landscape contractors or golf course superintendents. Our local staff provides customers with consultative services such as product selection and support, assistance with the design and implementation of landscape projects, and potential sales leads for new business opportunities. Our sales and service associates also coordinate the delivery of customer orders and help us to maintain our high delivery standards and fill rates. In addition, through our SiteOne University, we provide customers with technical training, licensing and business management seminars. We also offer a loyalty program, which we refer to as our Partners Program, under which customers can earn points redeemable for gift cards, account credits and other attractive commercial benefits. Our Partners Program, which has more than 9,000 enrolled customers as of January 3, 2016, also offers customers the opportunity to leverage our national buying power to purchase services for their businesses and employees. We believe the services we provide are an important differentiator that enhances the strength and longevity of our customer relationships.

 



 

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Strong and Scalable Platform for Driving Growth

Our national scale and geographic footprint make us an attractive partner for our customers and suppliers. Over the past year, we have invested in management, corporate infrastructure and information systems for operating a company significantly larger than our current scale. Our local area and branch managers benefit from the substantial business and industry knowledge of our executive and senior operational management teams to help grow our business in their markets. We believe our platform can be leveraged to expand our customer base and grow our business with existing products and services, as well as to support the launch of new product offerings in our existing markets. We expect our greatest opportunities to expand will be in markets in which we currently operate but do not yet have a leading market position in one or more of our product categories.

Proven Ability to Identify, Execute and Integrate Acquisitions

We are a leading player in the consolidation of the fragmented industry for wholesale distribution of landscape supplies. Our current management team has extensive experience in identifying, executing and integrating acquisitions. Our industry leadership position, geographic footprint, ability to integrate acquisitions and access to financial resources make us the buyer of choice for many of our potential targets and give us an advantage over competing potential acquirers. As a result, we are able to achieve attractive multiples in primarily negotiated transactions. Since the CD&R Acquisition (as defined below) in December 2013, we have completed the acquisition of ten companies, which we have integrated or are in the process of integrating into our business. A key element of our integration strategy is to achieve synergies at acquired companies from procurement, overhead cost reduction, sales initiatives and sharing of best practices across our organization. Our recent acquisitions have moved us into the leading position in several additional local markets or product categories. We expect the execution of synergistic acquisitions to continue to be an integral part of our growth strategy, and we intend to continue expanding our product line, geographic reach, market share and operational capabilities through future acquisitions.

Balanced Mix of Maintenance, New Construction and Repair and Upgrade Business

We have strategically invested in our product portfolio to position us to benefit from the ongoing recovery in the residential and commercial construction markets and to continue to benefit from stable growth of our maintenance products. We believe the new construction and repair and upgrade end markets provide us substantial upside in an economic upturn, and we are well-positioned to grow our business as a result of the continuing recovery in the housing sector and in construction spending for commercial buildings and facilities. In addition, our distribution of maintenance products provides a steady stream of more recurring sales, which we expect will further support our business through economic cycles. We believe our balanced sales mix in support of the maintenance, new construction and repair and upgrade end markets positions us to achieve consistent growth through our branch networks nationally.

Experienced and Proven Management Team Driving Organic and Acquisition Growth

We believe our management team, including regional vice presidents, area managers and branch managers, is among the most experienced in the industry. Members of our executive leadership team have a strong track record of improving performance and successfully driving both internal and acquisitive growth during their tenure with SiteOne and prior to joining our company. Our team not only has a clearly defined operational strategy to promote growth and profitability for SiteOne but also an ambitious vision to be a world-class leader in the industry. We believe the scale of our business and our leading market position will allow us to continue to attract and develop industry-leading talent.

 



 

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Our Strategies

We intend to leverage our competitive strengths to increase shareholder value through the following core strategies:

Build Upon Strong Customer and Supplier Relationships to Expand Organically

Our national footprint and broad supplier relationships, combined with our regular interaction with a large and diverse customer base, make us an important link in the supply chain for landscape products. Our suppliers benefit from access to our more than 180,000 customers, a single point of contact for improved production planning and efficiency, and our ability to bring new product launches quickly to market on a national scale. We intend to continue to increase our size and scale in customer, geographic and product reach, which we believe will continue to benefit our supplier base. Our customers in turn benefit from our local market leadership, talented associates, broad product offering and high inventory availability, timely delivery and complementary value-added services. We will continue to work with new and existing suppliers to maintain the most comprehensive product offering for our customers at competitive prices and enhance our role as a critical player in the supply chain. As we continue to grow, we believe our strong customer and supplier relationships will enable us to expand our market share in the landscape supplies industry.

Grow at the Local Level

The vast majority of our customers operate at a local level. We believe we can grow market share in our existing markets with limited capital investment by systematically executing local strategies to expand our customer base, increase the amount of our customers’ total spending with us, optimize our network of locations, coordinate multi-site deliveries, partner with strategic local suppliers, introduce new products and services, increase our share of underrepresented products in particular markets and improve sales force performance. We currently offer our full product line in only 23% of the U.S. MSAs where we have a branch, and therefore believe we have the capacity to offer significantly more product lines and services in our geographic markets.

Pursue Value-Enhancing Strategic Acquisitions

Through recently completed acquisitions, we have added new markets in the United States and Canada, new product lines, talented associates and operational best practices. In addition, we increased our sales by introducing products from our existing portfolio to customers of newly acquired companies. We intend to continue pursuing strategic acquisitions to grow our market share and enhance our local market leadership positions by taking advantage of our scale, operational experience and acquisition know-how to pursue and integrate attractive targets. We believe we have significant opportunities to add product categories in our existing markets through acquisitions. In addition, we currently have branches in 176 of the 381 U.S. MSAs and are focused on identifying and reviewing attractive new geographic markets for expansion through acquisitions. We will continue to apply a selective and disciplined acquisition strategy to maximize synergies obtained from enhanced sales and lower procurement and corporate costs.

 



 

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Execute on Identified Operational Initiatives

We have undertaken significant operational initiatives, utilizing our scale to improve our profitability, enhance supply chain efficiency, strengthen our pricing and category management capabilities, streamline and refine our marketing process and invest in more sophisticated information technology systems and data analytics. In addition, we work closely with our local area team leaders to improve sales, delivery and branch productivity. Although we are still in the early stages of these initiatives, they have already contributed to improvement in our profitability, and we believe we will continue to benefit from these and other operational improvements.

Be the Employer of Choice

We believe our associates are the key drivers of our success, and we aim to recruit, train, promote and retain the most talented and success-driven personnel in the industry. Our size and scale enable us to offer structured training and career path opportunities for our associates, while at the area and branch level we have built a vibrant and entrepreneurial culture that rewards performance. We promote ongoing, open and honest communication with our associates to ensure mutual trust, engagement and performance improvement. We believe that high-performing local leaders coupled with creative, adaptable and engaged associates are critical to our success and to maintaining our competitive position, and we are committed to being the employer of choice in our industry.

Refinancing and Dividend Transactions

On April 29, 2016, we refinanced our then-existing term loan facility, or the “Prior Term Loan Facility,” with an amended and restated $275.0 million term loan facility maturing on April 29, 2022, or the “Term Loan Facility” and, together with the ABL Facility, the “Credit Facilities.” We refer to this refinancing transaction in this prospectus as the “Refinancing.” We used borrowings under the Term Loan Facility to repay all $60.3 million of borrowings outstanding under the Prior Term Loan Facility, repay $29.9 million of borrowings outstanding under the ABL Facility, pay a special cash dividend of $176.0 million, or the “Special Cash Dividend,” to holders of our common stock and Preferred Stock (as described below) as of April 29, 2016 and pay fees and expenses associated with the Refinancing. For definitions and descriptions of the Credit Facilities, see “Risk Factors—Risks Related to Our Substantial Indebtedness” and “Description of Certain Indebtedness.”

Recent Developments

Expected First Fiscal Quarter 2016 Results

For the three months ended April 3, 2016, we expect net sales to be $324 million to $329 million, an increase of $98 million to $103 million, or 43% to 46% as compared to net sales of $225.8 million for the three months ended March 29, 2015; net loss to be $(8.0) million to $(5.0) million, an improvement of $1.8 million to $4.8 million, as compared to net loss of $(9.8) million for the three months ended March 29, 2015; and Adjusted EBITDA to be $2.8 million to $5.8 million (including $0.7 million from acquisitions), an increase of $9.5 million to $12.5 million, as compared to Adjusted EBITDA of $(6.7) million for the three months ended March 29, 2015. Our expected net sales growth for the three months ended April 3, 2016 reflects the impact of 2015 acquisitions and strong organic growth of 21% to 24% driven by favorable weather conditions and growth in commercial and residential construction markets. Our results for the quarter benefited from the increased sales volume and higher gross margins resulting from our initiatives in category management and pricing, partially offset by increased operating expenses resulting from our 2015 acquisitions and investments in staffing to support our growth.

Our ongoing liquidity needs are expected to be funded by cash on hand, net cash provided by operating activities and, as required, borrowings under the ABL Facility. Our borrowing base capacity under the ABL Facility was approximately $158.3 million as of April 3, 2016 after giving effect to approximately $159.4 million of revolving credit loans under the ABL Facility, a $31.4 million increase from $128.0 million of revolving credit

 



 

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loans outstanding as of January 3, 2016. As of April 3, 2016, on a pro forma as adjusted basis, after giving effect to the acquisition that closed subsequent to April 3, 2016, the Refinancing, the Special Cash Dividend and each of the other items described in “Capitalization,” we would have had total cash and cash equivalents of $9.0 million, debt of $402.4 million and capital leases of $10.1 million. See “Capitalization.”

The estimated results for the three months ended April 3, 2016 are preliminary, unaudited and subject to completion, reflect management’s current views and may change as a result of management’s review of results and other factors, including a wide variety of significant business, economic and competitive risks and uncertainties. Such preliminary results are subject to the closing of the first fiscal quarter of 2016 and finalization of financial and accounting procedures (which have yet to be performed) and should not be viewed as a substitute for full quarterly financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). We caution you that the estimates of net sales, net income and Adjusted EBITDA are forward-looking statements and are not guarantees of future performance or outcomes and that actual results may differ materially from those described above. Factors that could cause actual results to differ from those described above are set forth in “Risk Factors” and “Forward-Looking Statements.” You should read this information together with the financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for prior periods included elsewhere in this prospectus.

Neither our independent registered public accounting firm nor any other independent registered public accounting firm has audited, reviewed or compiled, examined or performed any procedures with respect to the estimated results, nor have they expressed any opinion or any other form of assurance on the estimated results.

Adjusted EBITDA Description and Reconciliation

For the definition of Adjusted EBITDA, see “—Summary Financial Data.”

We present Adjusted EBITDA in this prospectus to evaluate the operating performance and efficiency of our business. Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA is not a measure of our liquidity or financial performance under GAAP and should not be considered as an alternative to net income (loss), operating income or any other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of Adjusted EBITDA instead of net income (loss) has limitations as an analytical tool. Some of these limitations are further described in “—Summary Financial Data.”

 



 

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The following table reconciles Adjusted EBITDA to net loss for the periods presented:

 

     Three months ended
     April 3, 2016
(preliminary)
   March 29,
2015
(actual)
   (in millions)

(unaudited)

Net loss

   $(8.0) – $(5.0)    $(9.8)

Income tax benefit

   (3.4)    (6.3)

Interest expense, net

   2.6    2.4

Depreciation and amortization

   8.6    6.4
  

 

  

 

EBITDA

   $(0.2) – $2.8    (7.3)

Non-cash stock-based compensation (a)

   0.7    0.7

Gain on sale of assets (b)

   (0.1)    —  

Advisory fees (c)

   0.5    0.5

Financing fees (d)

   0.0    —  

Rebranding, acquisitions and other adjustments (e)

   1.2    0.4
  

 

  

 

Pre-acquisition Adjusted EBITDA

   $2.1 – $5.1    (5.7)

Acquired EBITDA (f)

   0.7    (1.0)
  

 

  

 

Adjusted EBITDA

   $2.8 – $5.8    $(6.7)
  

 

  

 

 

(a) Represents non-cash stock-based compensation expense recorded during the period.
(b) Represents the gain associated with the sale of assets not in the ordinary course of business.
(c) Represents fees paid to CD&R and Deere for consulting services. In connection with this offering, we expect to enter into termination agreements with CD&R and Deere pursuant to which the parties will agree to terminate the related consulting agreements. See “Certain Relationships and Related Party Transactions—Consulting Agreements.”
(d) Represents fees associated with our credit agreement amendment completed during the 2015 Fiscal Year and our initial registration process, which were recorded as an expense during the three months ended April 3, 2016.
(e) Represents (i) professional fees and retention payments related to historical acquisitions and (ii) consulting and professional fees. Although we have incurred professional fees and retention payments related to acquisitions in several historical periods and expect to incur such fees and payments for any future acquisitions, we cannot predict the timing or amount of any such fees or payments.
(f) Represents the historical Adjusted EBITDA for the pre-acquisition periods with respect to the 2015 and 2016 first fiscal quarters related to our four acquisitions that closed during the 2015 Fiscal Year: CLP SN Holdings, Inc. (the parent company of Shemin Nurseries), AMC Industries, Inc., Green Resource, LLC and Tieco, Inc., and our two acquisitions that closed during fiscal year 2016: Hydro-Scape Products, Inc. and Blue Max Materials, Inc., Blue Max Materials of Charleston, Inc., Blue Max Materials of Columbia, Inc. and Blue Max Materials of Grand Strand, Inc., which together comprise Blue Max.

Our History and Ownership

Our company was established in 2001, when Deere & Company (“Deere”) entered the market for wholesale landscape distribution through the acquisition of McGinnis Farms, a supplier of irrigation and nursery products with branches located primarily in the Southeastern United States. Subsequent acquisitions under Deere’s ownership included Century Rain Aid in 2001, United Green Mark in 2005 and LESCO in 2007, each of which significantly expanded our geographic footprint and broadened our product portfolio.

 



 

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In December 2013, CD&R Landscapes Holdings, L.P. (the “CD&R Investor”), an affiliate of Clayton Dubilier & Rice, LLC (“CD&R”), acquired a majority stake in us, which we refer to in this prospectus as the “CD&R Acquisition.” On December 23, 2013 (the “Closing Date”), Holdings issued 174,000 shares of cumulative convertible participating redeemable preferred stock (the “Preferred Stock”) to the CD&R Investor and 13,476,996 shares of common stock to Deere, with the Preferred Stock representing 60% of the outstanding capital stock of Holdings (on an as-converted basis) and the common stock representing the remaining 40% of the outstanding capital stock of Holdings (treating the Preferred Stock on an as-converted basis). The CD&R Investor was entitled to receive dividends in kind in respect of the Preferred Stock for the first two years following the CD&R Acquisition. As of the date of this prospectus, the CD&R Investor held 216,789 shares of Preferred Stock (representing 64.0% of the outstanding capital stock of Holdings (on an as-converted basis)) and the common stock held by Deere represented 34.1% of the outstanding capital stock of Holdings (assuming conversion of the Preferred Stock). Both the CD&R Investor and Deere are selling stockholders in this offering.

Following the CD&R Acquisition, we revitalized our acquisition strategy and have acquired ten businesses in the last two years. The historical annual net sales of these businesses prior to their respective acquisition dates totaled more than $350 million.

The CD&R Investor has notified us that, prior to the completion of this offering, it intends to convert all of its Preferred Stock into shares of common stock. After giving effect to this offering, including the conversion of the Preferred Stock and the sale of the shares to be sold in this offering by the selling stockholders, the CD&R Investor and Deere will beneficially own 47.5% and 25.3%, respectively, of the shares of our outstanding common stock.

The CD&R Investor and Deere received approximately $112.4 million and $60.2 million, respectively, in connection with the payment of the Special Cash Dividend.

Founded in 1978, CD&R is a private equity firm composed of a combination of investment professionals and operating executives pursuing an investment strategy predicated on building stronger, more profitable businesses. Since inception, CD&R has managed the investment of more than $21 billion in 65 businesses with an aggregate transaction value of more than $100 billion. CD&R has a disciplined and clearly defined investment strategy with a special focus on multi-location services and distribution businesses.

Deere, a Delaware corporation, is a world leader in the manufacture and distribution of products and services for agriculture, construction, forestry and turf care. Deere also provides financial services and other related activities.

Following the completion of this offering and after giving effect to the sale of shares in this offering, including the conversion of the Preferred Stock, the CD&R Investor and Deere will collectively own approximately 72.8% of our common stock. This concentration of ownership will allow them to exercise significant control over our business, which in turn will subject us to a number of risks, including:

 

    the CD&R Investor and Deere will have the right to designate for nomination for election a majority of our directors following the offering;

 

    the CD&R Investor and Deere will be entitled to pursue corporate opportunities without offering those opportunities to us; and

 

    the CD&R Investor and Deere could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination which another stockholder may otherwise view favorably or take an opposing view on employee retention or recruiting, or on our dividend policy.

See “Risk Factors—Risks Related to Our Common Stock and This Offering.”

 



 

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Organizational Capital Structure

The following chart illustrates our ownership and organizational structure, after giving effect to this offering:

 

LOGO

 

(1) SiteOne Landscape Supply Bidco, Inc. and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape are guarantors of the Credit Facilities. See “Description of Certain Indebtedness” for definitions and descriptions of our ABL Facility and Term Loan Facility. As of January 3, 2016 on a pro forma as adjusted basis, we had $98.1 million of outstanding borrowings under the ABL Facility and $275.0 million of outstanding borrowings under the Term Loan Facility.

 



 

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Risks Related to Our Business

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects, that you should consider before making a decision to invest in our common stock. These risks are discussed more fully in “Risk Factors.” These risks include, but are not limited to, the following:

 

    cyclicality in residential and commercial construction markets;

 

    general economic and financial conditions;

 

    weather conditions, seasonality and availability of water to end users;

 

    laws and government regulations applicable to our business that could negatively impact demand for our products;

 

    public perceptions that our products and services are not environmentally friendly;

 

    competitive industry pressures;

 

    product shortages and the loss of key suppliers;

 

    product price fluctuations;

 

    inventory management risks;

 

    ability to implement our business strategies and achieve our growth objectives;

 

    acquisition and integration risks;

 

    increased operating costs;

 

    risks associated with our large labor force;

 

    adverse credit and financial markets events and conditions; and

 

    other factors set forth under “Risk Factors” in this prospectus.

Market and Industry Data

This prospectus includes estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports from government agencies, reports by market research firms and our own estimates based on our management’s knowledge of, and experience in, the landscape supply industry and market sectors in which we compete. Third-party industry publications and forecasts generally state that the information contained therein has been obtained from sources generally believed to be reliable. The industry data sourced from The Freedonia Group is derived from their Industry Study #3300, “Landscaping Products,” published in August 2015. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the captions “Risk Factors,” “Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Service Marks, Trademarks and Trade Names

We own or have the right to use trademarks in connection with the operation of our business, including SiteOne and LESCO, which we consider important to our marketing activities. This prospectus also contains trademarks of other companies which to our knowledge are the property of their respective holders, including the John Deere name, and we do not intend our use or display of such marks to imply relationships with, or endorsements of us by, any other company. Solely for convenience, the trademarks referred to or incorporated by reference in this prospectus may appear without the ® or symbols, but the absence of such symbols does not

 



 

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indicate the registration status of the trademarks and is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to such trademarks.

Corporate Information

Our corporate headquarters are located at Mansell Overlook, 300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076. Our telephone number is (770) 255-2100.

 



 

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THE OFFERING

 

Common stock offered by the selling stockholders

10,000,000 shares.

 

Option to purchase additional shares of
common stock

The selling stockholders have granted the underwriters a 30-day option to purchase up to an additional 1,500,000 shares of common stock at the initial public offering price less underwriting discounts and commissions.

 

Common stock to be outstanding after this offering

39,542,239 shares.

 

Use of proceeds

We will not receive any proceeds from the sale of shares being sold in this offering, including from any exercise by the underwriters of their option to purchase additional shares. The selling stockholders will receive all of the net proceeds and bear all commissions and discounts from the sale of our common stock pursuant to this prospectus.

 

Dividend policy

We do not currently anticipate paying dividends on our common stock for the foreseeable future. See “Dividend Policy.”

 

Proposed trading symbol

“SITE”.

The number of shares of our common stock to be outstanding immediately following this offering is based on the number of our shares of common stock outstanding as of April 29, 2016, and excludes:

 

    2,990,499 shares of common stock issuable upon exercise of options to purchase shares outstanding as of April 29, 2016 at a weighted average exercise price of $10.03 per share; and

 

    2,000,000 shares of common stock reserved for future issuance following this offering under our equity plans.

Unless otherwise indicated, all information in this prospectus:

 

    assumes the conversion of all shares of the Preferred Stock into shares of common stock upon the closing of the offering (except that our historical financial data presented in “—Summary Financial Data,” “Capitalization,” “Selected Financial Data” and our financial statements and related notes included in this prospectus do not give effect to the conversion of the Preferred Stock);

 

    gives effect to the 11.6181 for 1 stock split of our common stock effected on April 29, 2016;

 

    assumes no exercise by the underwriters of their option to purchase additional shares;

 

    assumes that the initial public offering price of our common stock will be $21.00 per share (which is the midpoint of the price range set forth on the cover page of this prospectus);

 

    gives effect to amendments to our amended and restated certificate of incorporation and amended and restated by-laws to be adopted prior to the completion of this offering; and

 

    does not reflect option exercise adjustments made in connection with the payment of the Special Cash Dividend.

 



 

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SUMMARY FINANCIAL DATA

The following tables set forth summary historical consolidated and combined financial data as of the dates and for the periods indicated. For the purpose of discussing our financial results, we refer to ourselves as the “Successor Company” in the periods following the CD&R Acquisition and the “Predecessor Company” during the periods preceding the CD&R Acquisition. The summary historical financial data as of January 3, 2016 and December 28, 2014 and for the 2015 Fiscal Year and 2014 Fiscal Year (which include 53 and 52 weeks, respectively) and for each of the periods ended December 29, 2013 (the “2013 Successor Period,” which includes: (1) the results of operations of the Company for the one-week period from December 23, 2013 (the Closing Date of the CD&R Acquisition) through December 29, 2013 and (2) merger and advisory costs related to the CD&R Acquisition which were incurred prior to the Closing Date) and December 22, 2013 (the “2013 Predecessor Period,” which includes 51 weeks) have been derived from our audited consolidated and combined financial statements and related notes included in this prospectus.

In the opinion of our management, our unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair statement of our financial position, results of our operations and cash flows. Our historical consolidated and combined financial data may not be indicative of our future performance. The summary historical financial and operating data are qualified in their entirety by, and should be read in conjunction with, our financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Selected Financial Data” included in this prospectus.

 

    Consolidated Successor Company          Combined
Predecessor
Company
 
    Pro
forma as
adjusted

year ended
January 3,
2016 (1)
    Year ended
January 3,
2016
    Year ended
December 28,
2014
    Period from
December 23,
2013 through

December 29,
2013 (2)
         Period from
December 31,
2012 through

December 22,
2013
 
             
    (in millions, except share and per share data)  

Statement of operations data:

             

Net sales

  $ 1,451.6      $ 1,451.6      $ 1,176.6      $ 5.3          $ 1,072.7   

Cost of goods sold

    1,022.5        1,022.5        865.5        4.1            783.0   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Gross profit

    429.1        429.1        311.1        1.2            289.7   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Gross margin

    29.6     29.6     26.4     22.6         27.0

Selling, general and administrative expenses

    373.3        373.3        269.0        14.1            235.6   

Other income

    4.0        4.0        3.1        —              3.6   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Operating income (loss)

    59.8        59.8        45.2        (12.9         57.7   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Interest and other non–operating (income) expenses

    25.0        11.4        9.1        0.1            0.1   

Income tax (benefit) expense

    14.0        19.5        14.4        (3.5         23.9   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Net income (loss)

  $ 20.8      $ 28.9      $ 21.7      $ (9.5       $ 33.7   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Net income (loss) attributable to Successor Company common stock/Predecessor Company equity interests (3)

  $ 20.8      $ (14.8   $ (4.0   $ (9.8       $ 33.7   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Net income (loss) per common share:(4)

             

Basic

  $ 0.53      $ (1.04   $ (0.29   $ (0.73         NM   

Diluted

  $ 0.52      $ (1.04   $ (0.29   $ (0.73         NM   
 

Weighted average number of common shares outstanding:

             

Basic

    39,513,007        14,209,843        13,818,138        13,476,996            NM   

Diluted

    39,773,178        14,209,843        13,818,138        13,476,996            NM   
 

Other financial data:

             

Adjusted EBITDA (5)

  $ 112.6      $ 112.6      $ 73.8      $ (2.9       $ 70.5   

 



 

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    Consolidated Successor Company          Combined
Predecessor
Company
 
    Pro
forma as
adjusted

year
ended
January 3,
2016 (1)
    Year
ended

January 3,
2016
    Year ended
December 28,
2014
    Period from
December 23,
2013 through

December 29,
2013 (2)
         Period from
December 31,
2012 through

December 22,
2013
 
             
    (in millions, except share and per share data and operations data)  
 

Balance sheet data (at period end):

             

Cash and cash equivalents

  $ 8.7      $ 20.1      $ 10.6      $ 19.3          $ 10.4   

Working capital

    283.8        297.4        282.4        286.4            292.1   

Total assets

    657.3        668.7        555.7        544.4            567.3   

Total debt (6)

    358.9        177.7        121.7        154.8         

Redeemable convertible preferred stock

    —          216.8        192.6        174.0         

Total stockholders’ equity

    112.0        87.8        78.8        68.7            276.2   
 

Operations (at period end):

             

Branch locations

    455        455        417        401            401   

 

(1) The balance sheet data as of January 3, 2016 is presented on a pro forma as adjusted basis to give effect to (i) the Refinancing and the payment of fees and expenses associated with the Refinancing, (ii) the Special Cash Dividend, (iii) the payment of an aggregate fee of $7.5 million to CD&R and Deere to terminate our consulting agreements with them, (iv) the planned conversion of all outstanding Redeemable convertible preferred stock into shares of our common stock, (v) $2.8 million in make-whole adjustment cash payments made to certain holders of options to purchase shares of our common stock in connection with adjustments to such options as a result of the Special Cash Dividend and (vi) $3.5 million of estimated offering expenses payable by the Company since January 3, 2016, as if each such item had occurred as of the balance sheet date. The statement of operations and net income (loss) per common share data for the year ended January 3, 2016 are presented on a pro forma as adjusted basis to give effect to (i) an increase in interest expense of $8.1 million resulting from the Refinancing and the income tax impact of that change, and (ii) the planned conversion of all of the outstanding Redeemable convertible preferred stock upon the closing of this offering, as if each such item had occurred as of December 29, 2014.

 

     The pro forma as adjusted weighted average shares outstanding includes the number of common shares issued as a result of the conversion of the Redeemable convertible preferred stock upon the closing of the offering. The number of shares converted is based on the actual 216,789 shares of preferred stock outstanding immediately prior to the closing converted at a rate of 116.7178. This ratio reflects the original conversion rate plus an adjustment for dividends accrued through the offering date, which is assumed to be $4.62 per share.

 

     The net income (loss) per common share presented on a pro forma as adjusted basis for the year ended January 3, 2016 reflects the following impact from the Refinancing and the planned conversion of the Reedemable convertible preferred stock:

 

     Consolidated Successor Company  
     Year ended
January 3,
2016
    Refinancing     Conversion of
Redeemable
convertible
preferred stock
     Pro forma as
adjusted
year ended
January 3,
2016
 
     (in millions, except share and per share data)  

Net income (loss) attributable to Successor Company common stock

   $ (14.8   $ (8.1   $ 43.7       $ 20.8   
         

Net income (loss) per common share:

         

Basic

   $ (1.04        $ 0.53   

Diluted

   $ (1.04        $ 0.52   
         

Weighted average number of common shares outstanding:

         

Basic

     14,209,843          25,303,164         39,513,007   

Diluted

     14,209,843          25,563,336         39,773,178   

 

(2) The consolidated statement of operations for the Successor Company is defined as the one-week period from December 23, 2013 through December 29, 2013 and includes $9.8 million of non–recurring costs related to the CD&R Acquisition.

 



 

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(3) Net income (loss) attributable to common stockholders represents net income (loss) minus accumulated Redeemable convertible preferred stock dividends, any beneficial conversion feature amortized in the period and any undistributed earnings allocated to the Redeemable convertible preferred stock to arrive at net income (loss) attributable to common stockholders, as follows:

 

    Consolidated Successor Company          Combined
Predecessor
Company
 
    Pro forma as
adjusted
year ended
January 3,
2016
    Year ended
January 3,
2016
    Year ended
December 28,
2014
    Period from
December 23,
2013 through

December 29,
2013
         Period from
December 31,
2012 through

December 22,
2013
 
             
   

(in millions)

            

Net income (loss)

  $ 20.8      $ 28.9      $ 21.7      $ (9.5       $ 33.7   

Less:

             

Redeemable convertible preferred stock dividends

    —          25.1        21.8        0.3         

Redeemable convertible preferred stock beneficial conversion feature

    —          18.6        3.9        —           

Undistributed earnings allocated to redeemable convertible preferred stock

    —          —          —          —           
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Net income (loss) attributable to Successor Company common stock/Predecessor Company equity interests

  $ 20.8      $ (14.8   $ (4.0   $ (9.8       $ 33.7   
 

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

 

(4) For the Predecessor Company period presented prior to December 23, 2013, we were not operated as a standalone entity and were carved out from Deere upon the consummation of the CD&R Acquisition. The carved out entity consisted of two separate legal entities that are presented on a combined basis, each with a different and nominal capital structure. As the results would not be comparable and may be considered not meaningful (“NM”), we do not present earnings per share for the predecessor period, during which we were operated as a component of Deere.
(5) In addition to our net income (loss) determined in accordance with GAAP, we present Adjusted EBITDA in this prospectus to evaluate the operating performance and efficiency of our business. Adjusted EBITDA represents EBITDA as further adjusted for items permitted under the covenants of our Credit Facilities. EBITDA represents our net income (loss) plus the sum of interest expense, net of interest income and excluding amortization of debt discount, income tax expense (benefit), depreciation, and amortization. Adjusted EBITDA is further adjusted for stock-based compensation expense, related party advisory fees, loss (gain) on sale of assets, other non-cash items, other non-recurring (income) and loss and the pre-acquisition Adjusted EBITDA of certain acquired companies. We believe that Adjusted EBITDA is an important supplemental measure of operating performance because:

 

    Adjusted EBITDA is used to test compliance with certain covenants under our Credit Facilities;

 

    we believe Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results;

 

    we believe Adjusted EBITDA is helpful in highlighting operating trends because it excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and the age and book depreciation of facilities and capital investments;

 

    we consider (gains) losses on the acquisition, disposal and impairment of assets as resulting from investing decisions rather than ongoing operations; and

 

    other significant non-recurring items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of our results.

 

     Adjusted EBITDA is not a measure of our liquidity or financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of Adjusted EBITDA instead of net income has limitations as an analytical tool. For example, this measure:

 

    does not reflect changes in, or cash requirements for, our working capital needs;

 

    does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

    does not reflect our tax expense or the cash requirements to pay our taxes;

 

    does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and

 

    does not reflect any cash requirements for such replacements, although depreciation and amortization are non-cash charges, and the assets being depreciated and amortized will often have to be replaced in the future.

 



 

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     Management compensates for these limitations by relying primarily on our GAAP results and by using Adjusted EBITDA only as a supplement to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies, limiting its usefulness as a comparative measure. The following table presents a reconciliation of Adjusted EBITDA to net income (loss):

 

    Consolidated Successor Company          Combined
Predecessor
 
    Year ended
January 3,
2016
    Year ended
December 28,
2014
    Period from
December 23,
2013 to

December 29,
2013
         Period from
December 31,
2012 to

December 22,
2013
 
           
    (in millions)             

Reported net income (loss)

  $ 28.9      $ 21.7      $ (9.5       $ 33.7   

Income tax (benefit) expense

    19.5        14.4        (3.5         23.9   

Interest expense, net

    11.4        9.1        0.1            0.4   

Depreciation & amortization

    31.2        20.3        0.2            10.2   
 

 

 

   

 

 

   

 

 

       

 

 

 

EBITDA

    91.0        65.5        (12.7         68.2   

Non-cash stock-based compensation (a)

    3.0        2.1        —              —     

(Gain) loss on sale of assets (b)

    0.4        0.6        —              —     

Advisory fees (c)

    2.0        2.0        —              —     

Financing fees (d)

    5.5        —          —              —     

Rebranding and other adjustments (e)

    4.6        3.6        9.8            2.3   
 

 

 

   

 

 

   

 

 

       

 

 

 

Pre-acquisition Adjusted EBITDA

    106.5        73.8        (2.9       $ 70.5   

Acquired EBITDA for the 2015 Fiscal Year (f)

    6.1        —          —              —     
 

 

 

   

 

 

   

 

 

       

 

 

 

Adjusted EBITDA

  $ 112.6      $ 73.8      $ (2.9       $ 70.5   
 

 

 

   

 

 

   

 

 

       

 

 

 

 

  (a) Represents non-cash stock-based compensation expense recorded during the period.
  (b) Represents any gain or loss associated with the sale or write-down of assets not in the ordinary course of business.
  (c) Represents fees paid to CD&R and Deere for consulting services. In connection with this offering, we expect to enter into termination agreements with CD&R and Deere pursuant to which the parties will agree to terminate the related consulting agreements. See “Certain Relationships and Related Party Transactions—Consulting Agreements.”
  (d) Represents fees associated with our debt amendment completed during the 2015 Fiscal Year and our initial registration process, which were recorded as an expense during the 2015 Fiscal Year.
  (e) Represents (i) expenses related to our rebranding to the name SiteOne, (ii) professional fees and retention payments related to historical acquisitions, (iii) severance payments and (iv) consulting and professional fees. Although we have incurred professional fees and retention payments related to acquisitions in several historical periods and expect to incur such fees for any future acquisitions, we cannot predict the timing or amount of any such fees.
  (f) Represents the historical Adjusted EBITDA for the pre-acquisition periods during the 2015 calendar year related to our four acquisitions that closed during the 2015 Fiscal Year: CLP SN Holdings, Inc. (the parent company of Shemin Nurseries), AMC Industries, Inc., Green Resource, LLC and Tieco, Inc., and our two acquisitions that closed during fiscal year 2016: Hydro-Scape Products, Inc. and Blue Max Materials, Inc., Blue Max Materials of Charleston, Inc., Blue Max Materials of Columbia, Inc. and Blue Max Materials of Grand Strand, Inc., which together comprise Blue Max. Does not include the historical Adjusted EBITDA for (i) Shemin, AMC, Green Resource, Tieco, Hydro-Scape and Blue Max of $19.1 million during the 2014 Fiscal Year or (ii) our four acquisitions that closed during the 2014 Fiscal Year, which were relatively minor. We have acquired ten businesses in the last two years. The historical annual net sales of these businesses prior to their respective acquisition dates totaled more than $350 million.

 

(6) Total debt includes current and non-current portion of long term debt offset by associated debt discount and excludes capital leases.

 



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. Our reputation, business, financial position, results of operations and cash flows are subject to various risks. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this prospectus, including our financial statements and related notes included in this prospectus, before making an investment decision. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us could materially and adversely affect our reputation, business, financial position, results of operations or cash flows. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below.

Risks Related to Our Business and Our Industry

Cyclicality in our business could result in lower net sales and reduced cash flows and profitability. We have been, and in the future may be, adversely impacted by declines in the new residential and commercial construction sectors, as well as in spending on repair and upgrade activities.

We sell a significant portion of our products for landscaping activities associated with new residential and commercial construction sectors, which have experienced cyclical downturns, some of which have been severe. The strength of these markets depends on, among other things, housing starts, consumer spending, non-residential construction spending activity and business investment, which are a function of many factors beyond our control, including interest rates, employment levels, availability of credit, consumer confidence and capital spending. Weakness or downturns in residential and commercial construction markets could have a material adverse effect on our business, operating results or financial condition.

Sales of landscape supplies to contractors serving the residential construction sector represent a significant portion of our business, and demand for our products is highly correlated with new residential construction. Housing starts are dependent upon a number of factors, including housing demand, housing inventory levels, housing affordability, foreclosure rates, demographic changes, the availability of land, local zoning and permitting processes, the availability of construction financing and the health of the economy and mortgage markets. Unfavorable changes in any of these factors could adversely affect consumer spending, result in decreased demand for homes and adversely affect our business. Beginning in mid-2006 and continuing through late-2011, the homebuilding industry experienced a significant downturn. The decrease in homebuilding activity had a significant adverse effect on our business during such time. According to the U.S. Census Bureau, 1.1 million housing units were started in 2015, representing an increase of approximately 11% from 2014. Nevertheless, housing starts in 2015 remained significantly below their historical long-term average. In addition, some analysts project that the demand for residential construction may be negatively impacted as the number of renting households has increased in recent years and as a shortage in the supply of affordable housing is expected to result in lower home ownership rates. The timing and extent of any recovery in homebuilding activity and the resulting impact on demand for landscape supplies are uncertain.

Our net sales also depend, in significant part, on commercial construction, which similarly recently experienced a severe downturn. Previously, downturns in the commercial construction market have typically lasted about two to three years, resulting in market declines of approximately 20% to 40%, while the most recent downturn in the commercial construction market lasted over four years, resulting in a market decline of approximately 60%. According to Dodge Data & Analytics, commercial construction put in place began to recover in 2013 and increased approximately 22% in 2014 and 7% in 2015. However, 2015 new commercial construction spending was still well below pre-recession levels. We cannot predict the duration of the current market conditions or the timing or strength of any future recovery of commercial construction activity in our markets.

 

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We also rely, in part, on repair and upgrade of existing landscapes. High unemployment levels, high mortgage delinquency and foreclosure rates, lower home prices, limited availability of mortgage and home improvement financing, and significantly lower housing turnover, may restrict consumer spending, particularly on discretionary items such as landscape projects, and adversely affect consumer confidence levels and result in reduced spending on repair and upgrade activities.

Our business is affected by general business, financial market and economic conditions, which could adversely affect our financial position, results of operations and cash flows.

Our business and results of operations are significantly affected by general business, financial market and economic conditions. General business, financial market and economic conditions that could impact the level of activity in the wholesale landscape supply industry include the level of new home sales and construction activity, interest rate fluctuations, inflation, unemployment levels, tax rates, capital spending, bankruptcies, volatility in both the debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, global economic growth, local, state and federal government regulation, and the strength of regional and local economies in which we operate. With respect to the residential construction sector in particular, spending on landscape projects is largely discretionary and lower levels of consumer spending or the decision by home-owners to perform landscape upgrades or maintenance themselves rather than outsource to contractors may adversely affect our business. There was a significant decline in economic growth in the United States, which began in the second half of 2007 and continued through the last quarter of 2009. There can be no guarantee that the improvements since that time in the general economy and our markets will be sustained or continue.

Seasonality affects the demand for our products and services and our results of operations and cash flows.

The demand for our products and services and our results of operations are affected by the seasonal nature of our irrigation, outdoor lighting, nursery, landscape accessories, fertilizers, turf protection products, grass seed, turf care equipment and golf course maintenance supplies. Such seasonality causes our results of operations to vary considerably from quarter to quarter. Typically, our net sales and net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters. Our net sales and net income, however, are significantly lower in the first and fourth quarters due to lower landscaping, irrigation and turf maintenance activities in these quarters. Accordingly, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Our operations are substantially dependent on weather conditions.

We supply landscape, irrigation and turf maintenance products, the demand for each of which is affected by weather conditions, including, without limitation, potential impacts, if any, from climate change. In particular, droughts could cause shortage in the water supply, which may have an adverse effect on our business. For instance, our supply of plants could decrease, or prices could rise, due to such water shortages, and customer demand for certain types of plants may change in ways in which we are unable to predict. Such water shortages may also make irrigation or the maintenance of turf uneconomical. Governments may implement limitations on water usage that make effective irrigation or turf maintenance unsustainable, which could negatively impact the demand for our products. In California, for instance, mandatory water restrictions went into effect across the state in 2015. We have also recently seen an increased demand in California for products related to drought-tolerant landscaping, including hardscapes and plants that require low amounts of water. There is a risk that demand for landscaping products will decrease overall due to persistent drought conditions in some of the geographic markets we serve, or that demand will change in ways that we are unable to predict.

Furthermore, adverse weather conditions, such as droughts, severe storms and significant rain or snowfall, can adversely impact the demand for our products, timing of product delivery, or our ability to deliver products at all. For example, severe winter storms can cause hazardous road conditions, which may prevent personnel from traveling or delivering to service locations. In addition, unexpectedly severe weather conditions, such as excessive heat or cold, may result in certain applications in the maintenance product cycle being omitted for a season or damage to or loss of nursery goods, sod and other green products in our inventory, which could result in losses requiring writedowns.

 

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Laws and government regulations applicable to our business could increase our legal and regulatory expenses, and impact our business, financial position, results of operations and cash flows.

Our business is subject to significant federal, state, provincial and local laws and regulations. These laws and regulations include laws relating to consumer protection, wage and hour requirements, the employment of immigrants, labor relations, permitting and licensing, building code requirements, workers’ safety, the environment, employee benefits, marketing and advertising and the application and use of herbicides, pesticides and other chemicals. In particular, we anticipate that various federal, state, provincial and local governing bodies may propose additional legislation and regulation that may be detrimental to our business, may decrease demand for the products we supply or may substantially increase our operating costs, including proposed legislation, such as environmental regulations related to chemical use, water use, climate change, equipment efficiency standards and other environmental matters; other consumer protection laws or regulations; or health care coverage. It is difficult to predict the future impact of the broad and expanding legislative and regulatory requirements affecting our businesses and changes to such requirements may adversely affect our business, financial position, results of operations and cash flows. In addition, if we were to fail to comply with any applicable law or regulation, we could be subject to substantial fines or damages, be involved in litigation, suffer losses to our reputation or suffer the loss of licenses or incur penalties that may affect how our business is operated, which, in turn, could have a material adverse impact on our business, financial position, results of operations and cash flows.

Public perceptions that the products we use and the services we deliver are not environmentally friendly or safe may adversely impact the demand for our products or services.

We sell, among other things, fertilizers, herbicides, fungicides, pesticides, rodenticides and other chemicals. Public perception that the products we use and the services we deliver are not environmentally friendly or safe or are harmful to humans or animals, whether justified or not, or the improper application of these chemicals, could reduce demand for our products and services, increase regulation or government restrictions or actions, result in fines or penalties, impair our reputation, involve us in litigation, damage our brand names and otherwise have a material adverse impact on our business, financial position, results of operations and cash flows.

Our industry and the markets in which we operate are highly competitive and fragmented, and increased competitive pressures could reduce our share of the markets we serve and adversely affect our business, financial position, results of operations and cash flows.

We operate in markets with relatively few large competitors, but barriers to entry in the landscape supply industry are generally low, and we may have several competitors within a local market area. Competition varies depending on product line, type of customer and geographic area. Some local competitors may be able to offer higher levels of service or a broader selection of inventory than we can in particular local markets. As a result, we may not be able to continue to compete effectively with our competitors. Any of our competitors may foresee the course of market development more accurately than we do, provide superior service, sell or distribute superior products, have the ability to supply or deliver similar products and services at a lower cost, or on more favorable credit terms, develop stronger relationships with our customers and other consumers in the landscape supply industry, adapt more quickly to evolving customer requirements than we do, develop a superior network of distribution centers in our markets or access financing on more favorable terms than we can obtain. As a result, we may not be able to compete successfully with our competitors.

Competition can also reduce demand for our products and services, negatively affect our product sales and services or cause us to lower prices. Consolidation of professional landscape service firms may result in increased competition for their business. Certain product manufacturers that sell and distribute their products directly to landscapers may increase the volume of such direct sales. Our suppliers may also elect to enter into exclusive supplier arrangements with other distributors.

Former employees may start landscape supply businesses similar to ours, in competition with us. Our industry faces low barriers to entry, making the possibility of former employees starting similar businesses more

 

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likely. Increased competition from businesses started by former employees may reduce our market share and adversely affect our business, financial position, results of operations and cash flows.

Our customers consider the performance of the products we distribute, our customer service and price when deciding whether to use our services or purchase the products we distribute. Excess industry capacity for certain products in several geographic markets could lead to increased price competition. We may be unable to maintain our operating costs or product prices at a level that is sufficiently low for us to compete effectively. If we are unable to compete effectively with our existing competitors or new competitors enter the markets in which we operate, our financial condition, operating results and cash flows may be adversely affected.

We do not currently sell our products through the Internet. Online retailers may move toward distributing wholesale landscape supply products. Should online retailers develop superior distribution networks or offer lower prices, they may increase competition in our industry and negatively impact our business, financial position, results of operations and cash flows.

Product shortages, loss of key suppliers, failure to develop relationships with qualified suppliers or dependence on third-party suppliers and manufacturers could affect our financial health.

Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers and other suppliers. Any disruption in our sources of supply, particularly of the most commonly sold items, could result in a loss of revenues, reduced margins and damage to our relationships with customers. Supply shortages may occur as a result of unanticipated increases in demand or difficulties in production or delivery. When shortages occur, our suppliers often allocate products among distributors. The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our financial condition, operating results, and cash flows.

Our ability to continue to identify and develop relationships with qualified suppliers who can satisfy our high standards for quality and our need to be supplied with products in a timely and efficient manner is a significant challenge. Our suppliers’ ability to provide us with products can also be adversely affected in the event they become financially unstable, particularly in light of continuing economic difficulties in various regions of the United States and the world, fail to comply with applicable laws, encounter supply disruptions, shipping interruptions or increased costs, or face other factors beyond our control.

Our agreements with suppliers are generally terminable by either party on limited notice, and in some cases we do not have written agreements with our suppliers. If market conditions change, suppliers may stop offering us favorable terms. Our suppliers may increase prices or reduce discounts on the products we distribute and we may be unable to pass on any cost increase to our customers, thereby resulting in reduced margins and profits. Failure by our suppliers to continue to supply us with products on favorable terms, commercially reasonable terms, or at all, could put pressure on our operating margins or have a material adverse effect on our financial condition, results of operations and cash flows.

The prices and costs of the products we purchase may be subject to large and significant price fluctuations. We might not be able to pass cost increases through to our customers, and we may experience losses in a rising price environment. In addition, we might have to lower our prices in a declining price environment, which could also lead to losses.

We purchase and sell a wide variety of products, the price and availability of which may fluctuate, and may be subject to large and significant price increases. Many of our contracts with suppliers include prices for commodities such as grass seed and chemicals used in fertilizer that are not fixed or are tied to an index, which allows our suppliers to change the prices of their products as the input prices fluctuate. Our business is exposed to these fluctuations, as well as to fluctuations in our costs for transportation and distribution. Changes in prices for the products that we purchase affect our net sales and cost of goods sold, as well as our working capital

 

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requirements, levels of debt and financing costs. We might not always be able to reflect increases in our costs in our own pricing. Any inability to pass cost increases on to customers may adversely affect our business, financial condition and results of operations. In addition, if market prices for the products that we sell decline, we may realize reduced profitability levels from selling such products and lower revenues from sales of existing inventory of such products.

We are subject to inventory management risks; insufficient inventory may result in lost sales opportunities or delayed revenue, while excess inventory may harm our gross margins.

We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence because of changing customer requirements, fluctuating commodity prices, or the life-cycle of nursery goods, sod and other green products. In order to successfully manage our inventories, including grass seed, chemicals used in fertilizers, and nursery goods, sod and other green products, we must estimate demand from our customers and purchase products that substantially correspond to that demand. If we overestimate demand and purchase too much of a particular product, we face a risk that the price of that product will fall, leaving us with inventory that we cannot sell profitably. In addition, we may have to write down such inventory if we are unable to sell it for its recorded value. Contracts with certain suppliers require us to take on additional inventory or pay a penalty, even in circumstances where we have excess inventory. By contrast, if we underestimate demand and purchase insufficient quantities of a product and the price of that product were to rise, we could be forced to purchase that product at a higher price and forego profitability in order to meet customer demand. Insufficient inventory levels may lead to shortages that result in delayed revenue or loss of sales opportunities altogether as potential end-customers turn to competitors’ products that are readily available. Our business, financial condition and results of operations could suffer a material adverse effect if either or both of these situations occur frequently or in large volumes.

Many factors, such as weather conditions, agricultural limitations and restrictions relating to the management of pests and disease, affect the supply of nursery goods, grass seed, sod and other green products. If the supply of these products available is limited, prices could rise, which could cause customer demand to be reduced and our revenues and gross margins to decline. For example, nursery goods, sod and grass seed are perishable and have a limited shelf life. Should we be unable to sell our inventory of nursery goods, grass seed, sod and other green products within a certain timeframe, we may face losses requiring write-downs. In contrast, we may not be able to obtain high-quality nursery goods and other green products in an amount sufficient to meet customer demand. Even if available, nursery goods from alternate sources may be of lesser quality or may be more expensive than those currently grown or purchased by us. If we are unable to effectively manage our inventory and that of our distribution partners, our results of operations could be adversely affected.

We may not successfully implement our business strategies, including achieving our growth objectives.

We may not be able to fully implement our business strategies or realize, in whole or in part within the expected time frames, the anticipated benefits of our various growth or other initiatives. Our various business strategies and initiatives, including our growth, operational and management initiatives, are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. The execution of our business strategy and our financial performance will continue to depend in significant part on our executive management team and other key management personnel, the smooth transition of new senior leadership and our executive management team’s ability to execute the new operational initiatives that they are undertaking. In addition, we may incur certain costs as we pursue our growth, operational and management initiatives, and we may not meet anticipated implementation timetables or stay within budgeted costs. As these initiatives are undertaken, we may not fully achieve our expected efficiency improvements or growth rates, or these initiatives could adversely impact our customer retention, supplier relationships or operations. Also, our business strategies may change from time to time in light of our ability to implement our business initiatives, competitive pressures, economic uncertainties or developments, or other factors.

 

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We may be unable to successfully acquire and integrate other businesses.

Our historical growth has been driven in part by acquisitions, and future acquisitions are an important element of our business strategy. We may be unable to continue to grow our business through acquisitions. We may not be able to continue to identify suitable acquisition targets and may face increased competition for these acquisition targets. In addition, acquired businesses may not perform in accordance with expectations, and our business judgments concerning the value, strengths and weaknesses of acquired businesses may not prove to be correct. We may also be unable to achieve expected improvements or achievements in businesses that we acquire. At any given time, we may be evaluating or in discussions with one or more acquisition targets, including entering into non-binding letters of intent. Future acquisitions may result in the incurrence of debt and contingent liabilities, legal liabilities, goodwill impairments, increased interest expense and amortization expense and significant integration costs.

Acquisitions involve a number of special risks, including:

 

    our inability to manage acquired businesses or control integration costs and other costs relating to acquisitions;

 

    potential adverse short-term effects on operating results from increased costs or otherwise;

 

    diversion of management’s attention;

 

    failure to retain existing key personnel of the acquired business and recruit qualified new employees at the location;

 

    failure to successfully implement infrastructure, logistics and systems integration;

 

    potential impairment of goodwill;

 

    risks associated with the internal controls of acquired companies;

 

    exposure to legal claims for activities of the acquired business prior to acquisition and inability to realize on any indemnification claims, including with respect to environmental and immigration claims;

 

    the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabilities; and

 

    our inability to obtain financing necessary to complete acquisitions on attractive terms or at all.

Our strategy could be impeded if we do not identify, or face increased competition for, suitable acquisition targets, and such increased competition could result in higher purchase price multiples we have to pay for acquisition targets or reduce the number of suitable targets. Our business, financial condition, results of operations and cash flows could be adversely affected if any of the foregoing factors were to occur.

Increases in operating costs could adversely impact our business, financial position, results of operations and cash flows.

Our financial performance is affected by the level of our operating expenses, such as occupancy costs associated with the leases for our branch locations and costs of fuel, vehicle maintenance, equipment, parts, wages and salaries, employee benefits, health care, self-insurance costs and other insurance premiums as well as various regulatory compliance costs, all of which may be subject to inflationary pressures. In particular, our financial performance is adversely affected by increases in these operating costs.

Most of our facilities are located in leased premises. Many of our current leases are non-cancelable and typically have terms ranging from three to five years, with options to renew for specified periods of time. We believe that leases we enter into in the future will likely be long-term and non-cancelable and have similar renewal options. However, we may be unable to renew our current or future leases on favorable terms or at all

 

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which could have an adverse effect on our operations and costs. In addition, if we close a location, we generally remain committed to perform our obligations under the applicable lease, which include, among other things, payment of the base rent for the balance of the lease term.

We deliver a substantial volume of products to our customers by truck. Petroleum prices have fluctuated significantly in recent years. Prices and availability of petroleum products are subject to political, economic and market factors that are outside our control. Political events in petroleum-producing regions as well as hurricanes and other weather-related events may cause the price of fuel to increase. Our operating profit will be adversely affected if we are unable to obtain the fuel we require or to fully offset the anticipated impact of higher fuel prices through increased prices or fuel surcharges to our customers. Besides passing fuel costs on to customers, we have not entered into any hedging arrangements that protect against fuel price increases and we do not have any long-term fuel purchase contracts. If shortages occur in the supply of necessary petroleum products and we are not able to pass along the full impact of increased petroleum prices to our customers, our results of operations would be adversely affected.

We cannot predict the extent to which we may experience future increases in costs of occupancy, fuel, vehicle maintenance, equipment, parts, wages and salaries, employee benefits, health care, self-insurance costs and other insurance premiums as well as various regulatory compliance costs and other operating costs. To the extent such costs increase, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, and the rates we pay to our suppliers may increase, any of which could have a material adverse impact on our business, financial position, results of operations and cash flows.

Risks associated with our large labor force could have a significant adverse effect on our business.

We have an employee base of approximately 2,850 associates. Various federal and state labor laws govern our relationships with our employees and affect our operating costs. These laws include employee classifications as exempt or non-exempt, minimum wage requirements, unemployment tax rates, workers’ compensation rates, overtime, family leave, anti-discrimination laws, safety standards, payroll taxes, citizenship requirements and other wage and benefit requirements for employees classified as non-exempt. As our employees may be paid at rates that relate to the applicable minimum wage, further increases in the minimum wage could increase our labor costs. Employees may make claims against us under federal or state laws, which could result in significant costs. Significant additional government regulations, including the Employee Free Choice Act, the Paycheck Fairness Act and the Arbitration Fairness Act, could materially affect our business, financial condition and results of operations. In addition, we compete with other companies for many of our employees in hourly positions, and we invest significant resources to train and motivate our employees to maintain a high level of job satisfaction. Our hourly employment positions have historically had high turnover rates, which can lead to increased spending on training and retention and, as a result, increased labor costs. If we are unable to effectively retain highly qualified employees in the future, it could adversely impact our business, financial position, results of operations and cash flows.

None of our employees are currently covered by collective bargaining or other similar labor agreements. However, if a larger number of our employees were to unionize, including in the wake of any future legislation that makes it easier for employees to unionize, our business could be negatively affected. Any inability by us to negotiate collective bargaining arrangements could cause strikes or other work stoppages, and new contracts could result in increased operating costs. If any such strikes or other work stoppages occur, or if other employees become represented by a union, we could experience a disruption of our operations and higher labor costs.

In addition, certain of our suppliers have unionized work forces and certain of our products are transported by unionized truckers. Strikes, work stoppages or slowdowns could result in slowdowns or closures of facilities where the products that we sell are manufactured or could affect the ability of our suppliers to deliver such products to us. Any interruption in the production or delivery of these products could delay or reduce availability of these products and increase our costs.

 

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We depend on a limited number of key personnel. We may not be able to attract or retain key executives, which could adversely impact our business and inhibit our ability to operate and grow successfully.

We depend upon the ability and experience of a number of our executive management and other key personnel who have substantial experience with our operations and within our industry, including Doug Black, our Chief Executive Officer. The loss of the services of one or a combination of our senior executives or key employees could have a material adverse effect on our results of operations. Our business may also be negatively impacted if one of our senior executives or key employees is hired by a competitor. Our success also depends on our ability to continue to attract, manage and retain other qualified management personnel as we grow. We may not be able to continue to attract or retain such personnel in the future.

Adverse credit and financial market events and conditions could, among other things, impede access to, or increase the cost of, financing or cause our customers to incur liquidity issues that could lead to some of our products not being purchased or being cancelled, or result in reduced operating revenue and net income, any of which could have an adverse impact on our business, financial position, results of operations and cash flows.

Disruptions in credit or financial markets could, among other things, lead to impairment charges, make it more difficult for us to obtain, or increase our cost of obtaining, financing for our operations or investments or to refinance our indebtedness, cause our lenders to depart from prior credit industry practice and not give technical or other waivers under the Credit Facilities, to the extent we may seek them in the future, thereby causing us to be in default under one or more of the Credit Facilities. These disruptions could also cause our customers to encounter liquidity issues that could lead to a reduction in the amount of our products purchased or services used, could result in an increase in the time it takes our customers to pay us, or could lead to a decrease in pricing for our products, any of which could adversely affect our accounts receivable, among other things, and, in turn, increase our working capital needs. In addition, adverse developments at federal, state and local levels associated with budget deficits resulting from economic conditions could result in federal, state and local governments increasing taxes or other fees on businesses, including us, to generate more tax revenues, which could negatively impact spending by customers on our products.

The majority of our net sales are derived from credit sales, which are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the geographic areas in which they operate, and the failure to collect monies owed from customers could adversely affect our working capital and financial condition.

The majority of our net sales in our 2015 Fiscal Year were derived from the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the areas where they operate. We offer credit to customers, generally on a short-term basis, either through unsecured credit that is based solely upon the creditworthiness of the customer, or secured credit for materials sold for a specific project where we establish a security interest in the material used in the project. The type of credit we offer depends on the customer’s financial strength. If any of our customers are unable to repay credit that we have extended in a timely manner, or at all, our working capital, financial condition, operating results and cash flows would be adversely affected. Further, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward.

Because we depend on certain of our customers to repay extensions of credit, if the financial condition of our customers declines, our credit risk could increase as a result. Significant contraction in the residential and non-residential construction markets, coupled with limited credit availability and stricter financial institution underwriting standards, could adversely affect the operations and financial stability of certain of our customers. Should one or more of our larger customers declare bankruptcy, it could adversely affect the collectability of our accounts receivable, bad debt reserves and net income.

 

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Because we operate our business through highly dispersed locations across the United States, our operations may be materially adversely affected by inconsistent practices and the operating results of individual branches may vary.

We operate our business through a network of highly dispersed locations throughout the United States, supported by corporate executives and services in our headquarters, with local branch management retaining responsibility for day-to-day operations and adherence to applicable local laws. Our operating structure could make it difficult for us to coordinate procedures across our operations in a timely manner or at all. We may have difficulty attracting and retaining local personnel. In addition, our branches may require significant oversight and coordination from headquarters to support their growth. Inconsistent implementation of corporate strategy and policies at the local level could materially and adversely affect our overall profitability, prospects, business, results of operations, financial condition and cash flows. In addition, the operating results of an individual branch may differ from that of another branch for a variety of reasons, including market size, management practices, competitive landscape, regulatory requirements and local economic conditions. As a result, certain of our branches may experience higher or lower levels of growth than other branches.

Compliance with, or liabilities under, environmental, health and safety laws and regulations, including laws and regulations pertaining to the use and application of fertilizers, herbicides, insecticides and fungicides, could result in significant costs that adversely impact our reputation, business, financial position, results of operations and cash flows.

We are subject to federal, state, provincial and local environmental, health and safety laws and regulations, including laws that regulate the emission or discharge of materials into the environment, govern the use, packaging, labeling, transportation, handling, treatment, storage, disposal and management of chemicals and hazardous substances and waste, and protect the health and safety of our employees and users of our products. Such laws also impose liability for investigating and remediating, and damages resulting from, present and past releases of hazardous substances, including releases at sites we have ever owned, leased or operated or used as a disposal site. We could be subject to fines, penalties, civil or criminal sanctions, personal injury, property damage or other third-party claims as a result of violations of, or liabilities under, these laws and regulations. We could also incur significant investigation and cleanup costs for contamination at any currently or formerly owned or operated facilities, including LESCO’s manufacturing and blending facilities. In addition, changes in, or new interpretations of, existing laws, regulations or enforcement policies, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including obligations with respect to any potential health hazards of our products, may lead to additional compliance or other costs that could have a material adverse effect on our business, financial position, results of operations and cash flows.

In addition, in the United States, products containing herbicides and pesticides generally must be registered with the U.S. Environmental Protection Agency, or the “EPA,” and similar state agencies before they can be sold or applied. The failure to obtain or the cancellation of any such registration, or the withdrawal from the marketplace of such products, could have an adverse effect on our business, the severity of which would depend in part on the products involved, whether other products could be substituted and whether our competitors were similarly affected. The herbicides and pesticides we use are manufactured by independent third parties and are evaluated by the EPA as part of its ongoing exposure risk assessment. The EPA may decide that a herbicide or pesticide we use will be limited or will not be re-registered for use in the United States. We cannot predict the outcome or the severity of the effect of the EPA’s continuing evaluations.

In addition, the use of certain herbicide and pesticide products is regulated by various federal, state, provincial and local environmental and public health agencies. We may be unable to prevent violations of these or other regulations from occurring. Even if we are able to comply with all such regulations and obtain all necessary registrations and licenses, the herbicides and pesticides or other products we supply could be alleged to cause injury to the environment, to people or to animals, or such products could be banned in certain circumstances. The regulations may also apply to customers who may fail to comply with environmental, health

 

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and safety laws and subject us to liabilities. Costs to comply with environmental, health and safety laws, or to address liabilities or obligations thereunder, could have a material adverse impact on our reputation, business, financial position, results of operations and cash flows.

Our business exposes us to risks associated with hazardous materials and related activities, not all of which are covered by insurance.

Because our business includes the managing, handling, storing, selling and transporting and disposing of certain hazardous materials, such as fertilizers, herbicides, pesticides, fungicides and rodenticides, we are exposed to environmental, health, safety and other risks. We carry insurance to protect us against many accident-related risks involved in the conduct of our business and we maintain insurance coverage in accordance with our assessment of the risks involved, the ability to bear those risks and the cost and availability of insurance. Each of these insurance policies is subject to exclusions, deductibles and coverage limits. We do not insure against all risks and may not be able to insure adequately against certain risks and may not have insurance coverage that will pay any particular claim. We also may be unable to obtain at commercially reasonable rates in the future adequate insurance coverage for the risks we currently insure against, and certain risks are or could become completely uninsurable or eligible for coverage only to a reduced extent. Our business, financial condition and results of operations could be materially impaired by environmental, health, safety and other risks that reduce our revenues, increase our costs or subject us to other liabilities in excess of available insurance.

The nature of our business exposes us to construction defect and product liability claims as well as other legal proceedings.

We rely on manufacturers and other suppliers to provide us with the products we sell and distribute. As we do not have direct control over the quality of the products manufactured or supplied by such third-party suppliers, we are exposed to risks relating to the quality of the products we distribute. It is possible that inventory from a manufacturer or supplier could be sold to our customers and later be alleged to have quality problems or to have caused personal injury, subjecting us to potential claims from customers or third parties. We have been subject to such claims in the past, which have been resolved without material financial impact.

We operate a large fleet of trucks and other vehicles. From time to time, the drivers of these vehicles are involved in accidents which could result in material personal injuries and property damage claims and in which goods carried by these drivers may be lost or damaged.

We cannot make assurances that we will be able to obtain insurance coverage to address a portion of these types of liabilities on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. Further, while we seek indemnification against potential liability for products liability claims from relevant parties, including but not limited to manufacturers and suppliers, we may be unable to recover under such indemnification agreements. An unsuccessful product liability defense could be highly costly and accordingly result in a decline in revenues and profitability. Finally, even if we are successful in defending any claim relating to the products we distribute, claims of this nature could negatively impact customer confidence in our products and our company.

From time to time, we may be involved in government inquiries and investigations, as well as employment, tort proceedings, including toxic tort actions, and other litigation. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, including environmental investigation, remediation and other proceedings commenced by government authorities. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could adversely affect our operations or could require us to pay substantial amounts of money. Additionally, defending against lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources from other matters regardless of the ultimate outcome.

 

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Our rebranding could adversely affect our business and profitability as we are no longer affiliated with Deere’s strong brand and reputation.

We have historically marketed our products and services using the “John Deere Landscapes” trademark and brand name, and variations thereof, and the logo associated with Deere, in each case pursuant to a license from Deere. The association with Deere may have in the past provided us with preferred status among our customers, vendors and other persons due to Deere’s widely recognized brand, perceived high-quality products and services and strong capital base and financial strength. We formally shifted our advertising and marketing materials to our new brand name, SiteOne Landscape Supply, during the fourth quarter of 2015. Some of our existing customers may choose to stop doing business with us because we no longer use the Deere name, and it may be more difficult to attract new customers with our new brand.

Our rebranding could prompt some third parties to re-price, modify or terminate their distribution or vendor relationships with us. Our ability to attract and retain highly qualified independent sales intermediaries and dedicated sales specialists for our products may also be negatively affected. We may be required to lower the prices of our products, increase our sales commissions and fees, change long-term selling and marketing agreements and/or take other action to maintain our relationship with our sales intermediaries and distribution partners, all of which could have an adverse effect on our financial condition and results of operations. We cannot accurately predict the effect that our rebranding will have on our business, customers or employees.

We rely on our computer and data processing systems, and a large-scale malfunction or failure in our information technology systems could disrupt our business, create potential liabilities for us or limit our ability to effectively monitor, operate and control our operations and adversely impact our reputation, business, financial position, results of operations and cash flows.

Our ability to keep our business operating effectively depends on the functional and efficient operation of our enterprise resource planning, telecommunications, inventory tracking, billing and other information systems. We rely on these systems to track transactions, billings, payments and inventory, as well as to make a variety of day-to-day business decisions. We may experience system malfunctions, interruptions or security breaches from time to time. Our systems also run older generations of software that may be unable to perform as efficiently as, and fail to communicate well with, newer systems. We are in the process of upgrading our management information technology systems. As we implement or develop new systems in the future, we may elect to modify, replace or discontinue certain technology initiatives, which could result in write-downs, and changes or modifications to our information technology systems could cause disruptions to our operations or cause challenges with respect to our compliance with laws, regulations or other applicable standards.

A significant or large-scale malfunction, interruption or security breach of our systems could adversely affect our ability to manage and keep our operations running efficiently and damage our reputation. A malfunction that results in a wider or sustained disruption to our business could have a material adverse effect on our business, financial condition and results of operations, as well as on the ability of management to align and optimize technology to implement business strategies. A security breach might also lead to violations of privacy laws, regulations, trade guidelines or practices related to our customers and employees and could result in potential claims from customers, employees, shareholders or regulatory agencies. If our disaster recovery plans do not work as anticipated, or if any third-party vendors to which we have outsourced certain information technology or other services fail to fulfill their obligations to us, our operations may be adversely impacted and any of these circumstances could adversely impact our reputation, business, financial position, results of operations and cash flows.

If we fail to protect the security of personal information about our customers, we could be subject to interruption of our business operations, private litigation, reputational damage and costly penalties.

We rely on, among other things, commercially available systems, software, tools and monitoring to provide security for collecting, processing, transmitting and storing confidential customer information, such as

 

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payment card and personally identifiable information. The systems we currently use for payment card transactions, and the technology utilized in payment cards themselves, all of which can put payment card data at risk, are central to meeting standards set by the payment card industry, or PCI. We continue to evaluate and modify our systems and protocols for PCI compliance purposes; however PCI data security standards may change from time to time. Activities by third parties, advances in computer and software capabilities and encryption technology, new tools and discoveries and other events or developments may facilitate or result in a compromise or breach of our systems. Any compromises, breaches or errors in application related to our systems or failures to comply with data security standards set by the PCI could cause damage to our reputation and interruptions in our operations, including our customers’ ability to pay for our products and services by credit card or their willingness to purchase our products and services, and could further result in a violation of applicable laws, regulations, orders, industry standards or agreements and subject us to costs, penalties, litigation and liabilities which could have a material adverse impact on our reputation, business, financial position, results of operations and cash flows.

We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.

Our ability to compete effectively depends in part on our rights to service marks, trademarks, trade names and other intellectual property rights we own or license, particularly our registered brand names SiteOne and LESCO. We have not sought to register or protect every one of our marks or brand names either in the United States or in every country in which they are or may be used. Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same protection in other countries as we would in the United States. If we are unable to protect our proprietary information and brand names, we could suffer a material adverse impact on our reputation, business, financial position, results of operations and cash flows. Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products, services or activities infringe their intellectual property rights.

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the NYSE, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

We have operated as a private company since our separation from Deere, and before that operated as a subsidiary of Deere. As a public company, we will incur additional legal, accounting, compliance and other expenses that we have not incurred as a private company. Following this offering, we will become obligated to file annual and quarterly information and other reports with the SEC, as required by the Securities Exchange Act of 1934, as amended, or the Exchange Act, and applicable SEC rules. We will also become subject to other reporting and corporate governance requirements, including certain requirements of the NYSE, which will impose significant compliance obligations upon us and increase our operating costs. Among other things, we will need to institute a comprehensive compliance function related to various regulations, establish additional internal policies and controls, prepare financial statements that are compliant with SEC reporting requirements on a timely basis, draft a proxy statement and hold annual meetings of stockholders, appoint independent directors, comply with additional corporate governance matters and utilize outside counsel and accountants in the above activities.

The Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules subsequently implemented by the SEC and the NYSE, have imposed increased regulation and disclosure obligations and have required enhanced corporate governance practices of public companies. Our efforts to comply with evolving laws, regulations and standards are likely to result in increased administrative expenses and a diversion of management’s time and attention from sales-generating activities. These changes will require a significant commitment of additional resources. We may not be successful in implementing these

 

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requirements, and implementing them could materially adversely affect our business, financial condition, results of operations and cash flows. If we do not implement or comply with such requirements in a timely manner, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE. Any such action could harm our reputation and the confidence of investors and could materially adversely affect our business and cause our stock price to decline.

These changes will also place additional demands on our finance and accounting staff and on our financial accounting and information systems. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we will be required, among other things, to define and expand the roles and the duties of our board of directors and its committees and institute more comprehensive compliance and investor relations functions.

Any deficiencies in our financial reporting or internal controls could adversely affect our business and the trading price of our common stock.

As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting. Beginning with our second annual report following this offering, we will be required to provide a management report on internal control over financial reporting.

If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. In addition, our internal control over financial reporting will not prevent or detect all errors and fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If there are material weaknesses or failures in our ability to meet any of the requirements related to the maintenance and reporting of our internal controls, investors may lose confidence in the accuracy and completeness of our financial reports, which in turn could cause the price of our common stock to decline. Moreover, effective internal controls are necessary to produce reliable financial reports and to prevent fraud. If we have deficiencies in our internal controls, it may negatively impact our business, results of operations and reputation. In addition, we could become subject to investigations by the NYSE, the SEC or other regulatory authorities, which could require additional management attention and which could adversely affect our business.

We may be subject to securities litigation, which is expensive and could divert management attention and resources from our business.

Our share price may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could adversely impact our business. Any adverse determination in litigation could also subject us to significant liabilities.

Risks Related to Our Substantial Indebtedness

We have substantial indebtedness and may incur substantial additional indebtedness, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business or satisfy our obligations.

As of January 3, 2016, on a pro forma as adjusted basis, we had $373.1 million aggregate principal amount of total long-term consolidated indebtedness outstanding and $11.1 million of capital leases.

 

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Landscape Holding and Landscape are parties to a credit agreement dated December 23, 2013, which has been amended pursuant to Amendment No. 1 dated June 13, 2014, Amendment No. 2 dated January 26, 2015, Amendment No. 3 dated February 13, 2015 and Amendment No. 4 dated October 20, 2015 (such agreement, as so amended, the “ABL Credit Agreement”), providing for an asset-based loan facility in the amount of up to $325.0 million, subject to availability under a borrowing base, with UBS AG, Stamford Branch, as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto (the “ABL Facility”).

Landscape Holding and Landscape are parties to an amended and restated credit agreement dated April 29, 2016, providing for a senior secured term loan facility in the amount of $275.0 million with UBS AG, Stamford Branch, as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto (the “Term Loan Facility” and, together with the ABL Facility, the “Credit Facilities”).

In addition, we are able to incur additional indebtedness in the future, subject to the limitations contained in the agreements governing our indebtedness. Our substantial indebtedness could have important consequences to you. Because of our substantial indebtedness:

 

    our ability to engage in acquisitions without raising additional equity or obtaining additional debt financing is limited;

 

    our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future;

 

    a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes;

 

    we are exposed to the risk of increased interest rates because borrowings under the Credit Facilities and certain floating rate operating and capital leases are at variable rates of interest;

 

    it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness;

 

    we may be more vulnerable to general adverse economic and industry conditions;

 

    we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns;

 

    our ability to refinance indebtedness may be limited or the associated costs may increase;

 

    our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and

 

    we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve operating margins of our businesses.

Increases in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability.

Our indebtedness under the Credit Facilities bears interest at variable rates, and as a result, increases in interest rates would increase the cost of servicing our indebtedness and could materially reduce our profitability and cash flows. As of January 3, 2016, on a pro forma as adjusted basis, each one percentage point change in interest rates would result in an approximately $1.0 million change in the annual interest expense on the amount outstanding under the ABL Facility. As of January 3, 2016, on a pro forma as adjusted basis, each one percentage point change in interest rates would result in an approximately $1.7 million change in the annual interest expense on the Term Loan Facility. The impact of increases in interest rates could be more significant for us than it would be for some other companies because of our substantial indebtedness.

 

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A lowering or withdrawal of the ratings, outlook or watch assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.

The ratings, outlook or watch assigned to our indebtedness could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, current or future circumstances relating to the basis of the rating, outlook, or watch such as adverse changes to our business, so warrant. Based on the financial performance of our businesses and the outlook for future years, our credit ratings, outlook or watch could be negatively impacted. Any lowering of our ratings, outlook or watch likely would make it more difficult or more expensive for us to obtain additional debt financing.

The agreements and instruments governing our indebtedness contain restrictions and limitations that could significantly impact our ability to operate our business.

Our Credit Facilities contain customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. The negative covenants limit the ability of Landscape Holding and Landscape to:

 

    incur additional indebtedness;

 

    pay dividends, redeem stock or make other distributions;

 

    repurchase, prepay or redeem subordinated indebtedness;

 

    make investments;

 

    create restrictions on the ability of Landscape Holding’s restricted subsidiaries to pay dividends or make other intercompany transfers;

 

    create liens;

 

    transfer or sell assets;

 

    make negative pledges;

 

    consolidate, merge, sell or otherwise dispose of all or substantially all of Landscape Holding’s assets;

 

    enter into certain transactions with affiliates; and

 

    designate subsidiaries as unrestricted subsidiaries.

In addition, the ABL Facility is subject to various covenants requiring minimum financial ratios, and our additional borrowings may be limited by these financial ratios. Our ability to comply with the covenants and restrictions contained in the Credit Facilities, may be affected by economic, financial and industry conditions beyond our control including credit or capital market disruptions. The breach of any of these covenants or restrictions could result in a default that would permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay indebtedness, lenders having secured obligations, such as the lenders under the Credit Facilities, could proceed against the collateral securing the indebtedness. In any such case, we may be unable to borrow under the Credit Facilities and may not be able to repay the amounts due under such facilities. This could have serious consequences to our financial position and results of operations and could cause us to become bankrupt or insolvent.

Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.

Our ability to make scheduled payments on, or to refinance our obligations under, our indebtedness depends on the financial and operating performance of our subsidiaries, which, in turn, depends on their results of operations, cash flows, cash requirements, financial position and general business conditions and any legal and regulatory restrictions on the payment of dividends to which they may be subject, many of which may be beyond our control.

 

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We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our indebtedness, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

The final maturity date of the ABL Facility is October 20, 2020. The final maturity date of the Term Loan Facility is April 29, 2022. We may be unable to refinance any of our indebtedness or obtain additional financing, particularly because of our high levels of indebtedness. Market disruptions, such as those experienced in 2008 and 2009, as well as our significant indebtedness levels, may increase our cost of borrowing or adversely affect our ability to refinance our obligations as they become due. If we are unable to refinance our indebtedness or access additional credit, or if short-term or long-term borrowing costs dramatically increase, our ability to finance current operations and meet our short-term and long-term obligations could be adversely affected.

Risks Related to Our Common Stock and This Offering

Holdings is a holding company with no operations of its own, and it depends on its subsidiaries for cash to fund all of its operations and expenses, including to make future dividend payments, if any.

Our operations are conducted entirely through our subsidiaries, and our ability to generate cash to fund operations and expenses, to pay dividends or to meet debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries through dividends or intercompany loans. Deterioration in the financial condition, earnings or cash flow of Landscape and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, to the extent that Holdings needs funds, and its subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of our financing arrangements, or are otherwise unable to provide such funds, it could materially adversely affect our business, financial condition, results of operations and cash flows.

Further, the terms of the agreements governing the Credit Facilities restrict the ability of our subsidiaries to pay dividends, make loans or otherwise transfer assets to Holdings. Furthermore, our subsidiaries are permitted under the terms of the Credit Facilities and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to us. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock.

We do not currently expect to declare or pay dividends on our common stock for the foreseeable future. Payments of dividends, if any, will be at the sole discretion of our board of directors after taking into account various factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications of the payment of dividends by us to our stockholders or by our subsidiaries (including Landscape) to us, and such other factors as our board of directors may deem relevant. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock. To the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends.

Our common stock has no prior public market and the market price of our common stock may be volatile and could decline after this offering.

Prior to this offering, there has been no public market for our common stock, and an active market for our common stock may not develop or be sustained after this offering. We and the selling stockholders will negotiate the initial public offering price per share with the representatives of the underwriters and, therefore, that price

 

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may not be indicative of the market price of our common stock after this offering. In the absence of an active public trading market, you may not be able to liquidate your investment in our common stock. In addition, the market price of our common stock may fluctuate significantly. Factors that could affect our stock price include:

 

    industry or general market conditions;

 

    domestic and international economic factors unrelated to our performance;

 

    changes in our customers’ or their end-users’ preferences;

 

    new regulatory pronouncements and changes in regulatory guidelines;

 

    lawsuits, enforcement actions and other claims by third parties or governmental authorities;

 

    actual or anticipated fluctuations in our quarterly operating results;

 

    changes in securities analysts’ estimates of our financial performance or lack of research coverage and reports by industry analysts;

 

    action by institutional stockholders or other large stockholders (including the CD&R Investor and Deere), including future sales;

 

    failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices;

 

    announcements by us of significant impairment charges;

 

    speculation in the press or investment community;

 

    investor perception of us and our industry;

 

    changes in market valuations or earnings of similar companies;

 

    announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships;

 

    war, terrorist acts and epidemic disease;

 

    any future sales of our common stock or other securities; and

 

    additions or departures of key personnel.

In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price. The stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the affected company. Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention and resources, which would harm our business, results of operations, financial condition and cash flows.

Future sales of shares by existing stockholders could cause our stock price to decline.

Sales of substantial amounts of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Based on shares outstanding as of April 29, 2016, upon completion of this offering, we will have 39,542,239 outstanding shares of common stock. All of the shares sold pursuant to this offering will be immediately tradable without restriction under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by “affiliates,” as that term is defined in Rule 144 under the Securities Act, or Rule 144.

 

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The remaining 29,542,239 shares of common stock as of April 29, 2016 will be restricted securities within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject to applicable volume, means of sale, holding period and other limitations of Rule 144 under the Securities Act or pursuant to an exception from registration under Rule 701 under the Securities Act, subject to the lock-up agreements entered into by us, the CD&R Investor, Deere and our executive officers and directors.

Upon completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of common stock to be issued under our equity compensation plans and, as a result, all shares of common stock acquired upon exercise of stock options granted under our plans will also be freely tradable under the Securities Act, subject to the terms of the lock-up agreements, unless purchased by our affiliates. As of April 29, 2016, there were stock options outstanding to purchase a total of 2,990,499 shares of our common stock. In addition, 2,000,000 shares of our common stock are reserved for future issuances under the equity incentive plan adopted in connection with this offering.

In connection with this offering, the CD&R Investor, Deere, our executive officers and directors have signed lock-up agreements under which, subject to certain exceptions, they have agreed not to sell, transfer or dispose of or hedge, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for a period of 180 days after the date of this prospectus except with the prior written consent of Deutsche Bank Securities, Inc. Following the expiration of this 180-day lock-up period, 29,542,239 shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144 under the Securities Act or pursuant to an exception from registration under Rule 701 under the Securities Act. See “Shares Available for Future Sale” for a discussion of the shares of common stock that may be sold into the public market in the future. In addition, our significant stockholders may distribute shares that they hold to their investors who themselves may then sell into the public market following the expiration of the lock-up period. Such sales may not be subject to the volume, manner of sale, holding period and other limitations of Rule 144 under the Securities Act. As resale restrictions end, the market price of our common stock could decline if the holders of those shares sell them or are perceived by the market as intending to sell them. Furthermore, stockholders currently representing substantially all of the outstanding shares of our common stock will have the right to require us to register shares of common stock for resale under the Securities Act.

In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existing stockholders and could cause the trading price of our common stock to decline.

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If there is no coverage of our company by securities or industry analysts, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of these analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

A few significant stockholders will have significant influence over us and may not always exercise their influence in a way that benefits our public stockholders.

Following the completion of this offering, the CD&R Investor and Deere will own approximately 47.5% and 25.3%, respectively, of the outstanding shares of our common stock assuming that the underwriters do not

 

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exercise their option to purchase additional shares. Prior to the completion of this offering, we, the CD&R Investor and Deere will enter into an amendment and restatement to our existing stockholders agreement, or the amended stockholders agreement, pursuant to which the CD&R Investor and Deere will agree to vote in favor of one another’s designees to our board of directors, among other matters. As a result, the CD&R Investor and Deere will exercise significant influence over all matters requiring stockholder approval for the foreseeable future, including approval of significant corporate transactions, which may reduce the market price of our common stock.

As long as the CD&R Investor and Deere collectively continue to own at least 50% of our outstanding common stock, the CD&R Investor and Deere generally will be able to determine the outcome of corporate actions requiring stockholder approval, including the election of the members of our board of directors, the approval of significant corporate transactions such as mergers and the sale of substantially all of our assets. Even after the CD&R Investor and Deere reduce their beneficial ownership below 50% of our outstanding common stock, they will likely still be able to assert significant influence over our board of directors and certain corporate actions. Following the consummation of this offering, the CD&R Investor and Deere will have the right to designate for nomination for election a majority of our directors.

Because the CD&R Investor’s and Deere’s interests may differ from your interests, actions the CD&R Investor and Deere take as our controlling stockholders or as significant stockholders may not be favorable to you. For example, the concentration of ownership held by the CD&R Investor and Deere could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination which another stockholder may otherwise view favorably. Other potential conflicts could arise, for example, over matters such as employee retention or recruiting, or on our dividend policy.

Under our amended and restated certificate of incorporation, the CD&R Investor and Deere and their respective affiliates and, in some circumstances, any of our directors and officers who is also a director, officer, employee, member or partner of the CD&R Investor or Deere and their respective affiliates, have no obligation to offer us corporate opportunities.

The policies relating to corporate opportunities and transactions with the CD&R Investor or Deere to be set forth in our second amended and restated certificate of incorporation, or amended and restated certificate of incorporation, address potential conflicts of interest between Holdings, on the one hand, and the CD&R Investor or Deere and their respective officers, directors, employees, members or partners who are directors or officers of our company, on the other hand. In accordance with those policies, the CD&R Investor and Deere may pursue corporate opportunities, including acquisition opportunities that may be complementary to our business, without offering those opportunities to us. By becoming a stockholder in Holdings, you will be deemed to have notice of and have consented to these provisions of our amended and restated certificate of incorporation. Although these provisions are designed to resolve conflicts between us and the CD&R Investor or Deere and their respective affiliates fairly, conflicts may not be so resolved.

Future offerings of equity securities may adversely affect the market price of our common stock.

If, in the future, we decide to issue debt or equity securities that rank senior to our common stock, it is likely that such securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in us.

 

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Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated by-laws could discourage, delay or prevent a change of control of our company and may affect the trading price of our common stock.

Our amended and restated certificate of incorporation and second amended and restated by-laws, or amended and restated by-laws, include a number of provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. For example, prior to the completion of this offering, our amended and restated certificate of incorporation and amended and restated by-laws will collectively:

 

    authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;

 

    establish a classified board of directors, as a result of which our board of directors will be divided into three classes, with members of each class serving staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting;

 

    limit the ability of stockholders to remove directors if the CD&R Investor and Deere cease to own at least 40% of the outstanding shares of our common stock;

 

    provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office;

 

    prohibit stockholders from calling special meetings of stockholders if the CD&R Investor and Deere cease to own at least 40% of the outstanding shares of our common stock;

 

    prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders, if the CD&R Investor and Deere cease to own at least 40% of the outstanding shares of our common stock;

 

    establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders; and

 

    require the approval of holders of at least 66 23% of the outstanding shares of our common stock to amend our amended and restated by-laws and certain provisions of our amended and restated certificate of incorporation if the CD&R Investor and Deere cease to own at least 40% of the outstanding shares of our common stock.

These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if the provisions are viewed as discouraging takeover attempts in the future.

Our amended and restated certificate of incorporation and amended and restated by-laws may also make it difficult for stockholders to replace or remove our management. Furthermore, the existence of the foregoing provisions, as well as the significant amount of common stock that the CD&R Investor and Deere will own following this offering, could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of our stockholders.

We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not intend to declare and pay dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to service our debt, to fund our growth, to develop our business, for working capital needs and for general corporate purposes. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock

 

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will appreciate in value or even maintain the price at which our stockholders have purchased their shares. In addition, Holdings’ operations are conducted entirely through our subsidiaries. As such, to the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to Holdings for the payment of dividends. Further, the agreements governing the Credit Facilities significantly restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us.

We expect to be a “controlled company” within the meaning of the NYSE rules and, as a result, we will qualify for, and currently intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After completion of this offering, the CD&R Investor and Deere will control a majority of the voting power of our outstanding common stock. Accordingly, we expect to qualify as a “controlled company” within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain NYSE corporate governance standards, including:

 

    the requirement that a majority of the board of directors consist of independent directors;

 

    the requirement that our nominating and corporate governance committee be composed entirely of independent directors;

 

    the requirement that we have a compensation committee that is composed entirely of independent directors; and

 

    the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors, our nominating and corporate governance committee and compensation committee will not consist entirely of independent directors and such committees may not be subject to annual performance evaluations. Consequently, you will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance rules and requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.

Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, other employees, agents or stockholders, (iii) any action asserting a claim arising out of or under the General Corporation Law of the State of Delaware, or the DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware (including, without limitation, any action asserting a claim arising out of or pursuant to our amended and restated certificate of incorporation or our amended and restated by-laws) or (iv) any action asserting a claim that is governed by the internal affairs doctrine. By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum. The choice of forum provision in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or any of our directors, officers, other employees, agents or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements and cautionary statements. Some of the forward-looking statements can be identified by the use of terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “project,” “potential,” or the negative of these terms, and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time that may cause our business not to develop as we expect, and it is not possible for us to predict all of them. Factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following:

 

    cyclicality in residential and commercial construction markets;

 

    general economic and financial conditions;

 

    weather conditions, seasonality and availability of water to end-users;

 

    laws and government regulations applicable to our business that could negatively impact demand for our products;

 

    public perceptions that our products and services are not environmentally friendly;

 

    competitive industry pressures;

 

    product shortages and the loss of key suppliers;

 

    product price fluctuations;

 

    inventory management risks;

 

    ability to implement our business strategies and achieve our growth objectives;

 

    acquisition and integration risks;

 

    increased operating costs;

 

    risks associated with our large labor force;

 

    adverse credit and financial markets events and conditions;

 

    credit sale risks;

 

    retention of key personnel;

 

    performance of individual branches;

 

    environmental, health and safety laws and regulations;

 

    hazardous materials and related materials;

 

    construction defect and product liability claims;

 

    rebranding;

 

    computer data processing systems;

 

    security of personal information about our customers;

 

    intellectual property and other proprietary rights;

 

    requirements of being a public company;

 

    risks related to our internal controls;

 

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    the possibility of securities litigation;

 

    our substantial indebtedness and our ability to obtain financing in the future;

 

    increases in interest rates; and

 

    risks related to other factors discussed in this prospectus.

You should read this prospectus completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this prospectus are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this prospectus, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, changes in future operating results over time or otherwise.

Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

 

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USE OF PROCEEDS

The selling stockholders will receive all of the net proceeds from the sale of shares of our common stock offered pursuant to this prospectus. We will not receive any proceeds from the sale of shares being sold in this offering, including from any exercise by the underwriters of their option to purchase additional shares. The selling stockholders will bear the underwriting commissions and discounts attributable to their sale of our common stock, and we will bear the remaining expenses. See “Principal and Selling Stockholders.”

 

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DIVIDEND POLICY

We do not expect to declare or pay dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings, if any, to service our debt, finance the growth and development of our business and for working capital and general corporate purposes. Our ability to pay dividends to holders of our common stock in the future will be limited as a practical matter by the Credit Facilities, insofar as we may seek to pay dividends out of funds made available to us by Landscape or its subsidiaries, because Landscape’s debt instruments directly or indirectly restrict Landscape’s ability to pay dividends or make loans to us. Any future determination to pay dividends on our common stock is subject to the discretion of our board of directors and will depend upon various factors, including our results of operations, financial condition, liquidity requirements, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions and other factors that our board of directors may deem relevant. See “Description of Certain Indebtedness” for a description of the restrictions on our ability to pay dividends.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our consolidated capitalization as of January 3, 2016 on:

 

    an actual basis;

 

    an as adjusted basis, after giving effect to (i) the Refinancing and the payment of fees and expenses associated with the Refinancing, (ii) the payment of the Special Cash Dividend and (iii) $2.8 million in make-whole adjustment cash payments made to certain holders of options to purchase shares of our common stock in connection with adjustments to such options as a result of the Special Cash Dividend, as if each such item had occurred as of the balance sheet date; and

 

    a pro forma as adjusted basis, after giving effect to the foregoing and (i) the payment of an aggregate fee of $7.5 million to CD&R and Deere to terminate our consulting agreements with them, (ii) the conversion of all outstanding Redeemable convertible preferred stock into shares of our common stock upon the closing of this offering and (iii) $3.5 million of estimated offering expenses payable by the Company since January 3, 2016, as if each such item had occurred as of the balance sheet date.

You should read the following table in conjunction with the sections entitled “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Certain Relationships and Related Party Transactions,” “Description of Certain Indebtedness” and our financial statements and related notes included in this prospectus.

 

     As of January 3, 2016  
     Actual     As Adjusted     Pro forma
as adjusted(1)
 
     (in millions)  

Cash and cash equivalents

   $ 20.1      $ 19.7      $ 8.7   
  

 

 

   

 

 

   

 

 

 

Long term debt and capital leases, including current portions:

      

ABL Facility

   $ 128.0      $ 98.1      $ 98.1   

Prior Term Loan Facility

     60.5        —          —     

Term Loan Facility

     —          275.0        275.0   

Debt discount

     (10.8     (14.2     (14.2

Capital Leases

     11.1        11.1        11.1   
  

 

 

   

 

 

   

 

 

 

Total debt and capital leases

     188.8        370.0        370.0   
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock

     216.8        216.8        —     

Stockholders’ equity:

      

Common stock, par value $0.01; 1,000,000,000 shares authorized and 14,250,111 outstanding, actual; 39,553,275 shares outstanding, pro forma as adjusted

     0.1        0.1        0.4   

Additional paid-in capital

     113.1        —          216.5   

Accumulated deficit

     (24.2     (92.7     (103.7

Accumulated other comprehensive loss

     (1.2     (1.2     (1.2
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     87.8        (93.8     112.0   
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 493.4      $ 493.0      $ 482.0   
  

 

 

   

 

 

   

 

 

 
(1) The increase in total debt as a result of the Refinancing would have resulted in an increase to interest expense of $13.6 million for the year ended January 3, 2016, as if the Refinancing had occurred as of December 29, 2014.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest in us will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock. Dilution results from the fact that the per share offering price of the common stock exceeds the book value per share attributable to the shares of common stock held by existing stockholders.

Our historical net tangible book value as of January 3, 2016 was $152.3 million and on a pro forma as adjusted basis, after giving effect to the Refinancing, the Special Cash Dividend and each of the items described in “Capitalization,” our pro forma adjusted net tangible book value would have been $(40.3) million. Net tangible book value per share before the offering has been determined by dividing net tangible book value (total book value of tangible assets less total liabilities) by the number of shares of common stock outstanding as of January 3, 2016, after giving effect to the conversion of all outstanding shares of Preferred Stock at the time of the offering.

We will not receive any proceeds from the sale of common stock by the selling stockholders in this offering. Consequently, this offering will not result in any change to our net tangible book value per share, prior to giving effect to the payment of estimated fees and expenses in connection with this offering. Purchasing shares of common stock in this offering will result in net tangible book value dilution to new investors of $22.00 per share. The following table illustrates this per share dilution to new investors:

 

           Per Share  

Assumed initial public offering price per share

     $ 21.00   

Net tangible book value per share as January 3, 2016

   $ 3.9     

Pro forma impact on net tangible book value per share

   $ (4.9  
  

 

 

   

Dilution of net tangible book value per share to new investors

     $ 22.00   
    

 

 

 

The following table summarizes, as of April 29, 2016, the total number of shares of common stock owned by the existing stockholders prior to the completion of this offering, the total consideration paid and the average price per share paid by the existing stockholders (amounts in millions, except percentages and per share data):

 

     Shares Purchased    Total Consideration      Average Price
Per Share
 

Existing stockholders

   39,542,239
   $
399.5
  
   $ 10.10   

The foregoing table does not reflect options outstanding under our stock incentive plans or equity incentive awards to be granted after this offering. As of April 29, 2016, there were 2,990,499 options outstanding with an average exercise price of $10.03 per share.

To the extent that any of these stock options are exercised there may be further dilution to new investors. See “Executive Compensation” and Note 7 to our audited financial statements included in this prospectus.

After giving effect to the sale of shares by the selling stockholders in this offering, new investors will hold 10 million shares, or 25.3% of the total number of shares of common stock after this offering, and existing stockholders will hold 74.7% of the total shares outstanding. If the underwriters exercise their option to purchase additional shares in full, the number of shares held by new investors will increase to 11.5 million, or 29.1% of the total number of shares of common stock after this offering, and the percentage of shares held by existing stockholders will decrease to 70.9% of the total shares outstanding.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.

 

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SELECTED FINANCIAL DATA

The following tables set forth selected historical consolidated and combined financial data as of the dates and for the periods indicated. The selected historical financial data as of January 3, 2016 and December 28, 2014 and for each of the 2015 Fiscal Year, 2014 Fiscal Year, 2013 Successor Period and 2013 Predecessor Period have been derived from our audited consolidated and combined financial statements and related notes included in this prospectus. The selected historical financial data as of December 29, 2013, December 22, 2013, December 30, 2012 and January 1, 2012 and for the fiscal years ended December 30, 2012 and January 1, 2012, have been derived from our unaudited financial statements and related notes not included in this prospectus.

In the opinion of our management, our condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair statement of our financial position, results of our operations and cash flows. Our historical financial data may not be indicative of our future performance. The selected historical financial and operating data are qualified in their entirety by, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included in this prospectus.

 

    Consolidated Successor Company          Combined Predecessor Company  
    Year
Ended
January 3,
2016
    Year ended
December 28,
2014
    Period from
December 23,
2013 through
December 29,
2013 (1)
         Period from
December 31,
2012 through
December 22,
2013
    Year ended
December 30,
2012
    Year
ended
January 1,
2012
 
               
   

(in millions, except share and per share data)

 

 

Statement of operations data:

               

Net sales

  $ 1,451.6      $ 1,176.6      $ 5.3          $ 1,072.7      $ 1,062.0      $ 1,014.7   

Cost of good sold

    1,022.5        865.5        4.1            783.0        744.6        710.2   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Gross profit

    429.1        311.1        1.2            289.7        317.4        304.5   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Selling, general and administrative

    373.3        269.0        14.1            235.6        281.4        283.5   

Other income

    4.0        3.1        —              3.6        5.0        4.9   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Operating income (loss)

    59.8        45.2        (12.9         57.7        41.0        25.9   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Interest and other non-operating (income) expenses

    11.4        9.1        0.1            0.1        (9.1     0.8   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Net income (loss) before taxes

    48.4        36.1        (13.0         57.6        50.1        25.1   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income tax (benefit) expense

    19.5        14.4        (3.5         23.9        (21.0     4.4   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 28.9      $ 21.7      $ (9.5       $ 33.7      $ 71.1      $ 20.7   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Successor Company common stock/Predecessor Company equity interests (2)

  $ (14.8   $ (4.0   $ (9.8       $ 33.7      $ 64.9      $ 13.1   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Net income (loss) per common share: (3)

               

Basic

  $ (1.04   $ (0.29   $ (0.73         NM        NM        NM   

Diluted

  $ (1.04   $ (0.29   $ (0.73         NM        NM        NM   

Weighted average number of common shares outstanding:

               

Basic

    14,209,843        13,818,138        13,476,996            NM        NM        NM   

Diluted

    14,209,843        13,818,138        13,476,996            NM        NM        NM   

 

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    Consolidated Successor Company          Combined Predecessor Company  
    As of
January 3,
2016
    As of
December 28,
2014
    As of
December 29,
2013
         As of
December 22,
2013
    As of
December 30,
2012
    As of
January 1,
2012
 
               
   

(in millions)

 

 

Balance sheet data:

               

Total assets

  $ 668.7      $ 555.7      $ 544.4          $ 567.3      $ 541.3      $ 552.0   

Total debt (4)

    177.7        121.7        154.8            —          —          4.8   

Redeemable convertible preferred stock

    216.8        192.6        174.0             

 

(1) The consolidated statement of operations data for the Successor Company is defined as the one week period from December 23, 2013 through December 29, 2013 and includes $9.8 million of non-recurring costs related to the CD&R Acquisition.
(2) Net income (loss) attributable to common stockholders represents net income (loss) minus accumulated redeemable convertible preferred stock dividends, any beneficial conversion feature amortized in the period and any undistributed earnings allocated to the redeemable convertible preferred stock to arrive at net income (loss) attributable to common stockholders, as follows:

 

    Consolidated Successor Company          Combined Predecessor Company  
    Year ended
January 3,
2016
    Year ended
December 28,
2014
    Period from
December 23,
2013 through

December 29,
2013
         Period from
December 31,
2012 through

December 22,
2013
    Year ended
December 30,
2012
    Year
ended

January 1,
2012
 
               
   

(in millions)

 

 

Net income (loss)

  $ 28.9      $ 21.7      $ (9.5       $ 33.7      $ 71.1      $ 20.7   

Less:

               

Net income attributable to non-controlling interest

                6.2        7.6   

Redeemable convertible preferred stock dividends

    25.1        21.8        0.3             

Redeemable convertible preferred stock beneficial conversion feature

    18.6        3.9        —               

Undistributed earnings allocated to redeemable convertible preferred stock

    —          —          —               
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Successor Company common stock/Predecessor Company equity interests

  $ (14.8   $ (4.0   $ (9.8       $ 33.7      $ 64.9      $ 13.1   
 

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

 

(3) For the Predecessor Company periods presented prior to December 23, 2013, we were not operated as a standalone entity and were carved out from Deere upon the consummation of the CD&R Acquisition. The carved out entity consisted of two separate legal entities that are presented on a combined basis, each with a different and nominal capital structure. As the results would not be comparable and may be considered not meaningful (NM), we do not present earnings per share for the predecessor periods, during which we were operated as a component of Deere.
(4) Total debt includes current and non-current portions of long-term debt offset by associated debt discount.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following information should be read in conjunction with “Summary Financial Data,” “Selected Financial Data” and our financial statements and related notes included in this prospectus. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this prospectus, particularly in “Risk Factors” and “Forward-Looking Statements.”

Overview

We are the largest and only national wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation and maintenance of lawns, gardens, golf courses and other outdoor spaces. Through our expansive North American network of 477 branch locations in 44 states and five provinces, we offer a comprehensive selection of more than 100,000 SKUs, including fertilizer and control products (e.g., herbicides), irrigation supplies, landscape accessories, nursery goods, hardscapes (including pavers, natural stones and blocks) and outdoor lighting. We also provide complementary, value-added consultative services to support our product offering and to help our customers operate and grow their businesses.

We have a diverse base of more than 180,000 customers, and our top 10 customers accounted for approximately 5% of our 2015 Fiscal Year net sales, with no single customer accounting for more than 2% of net sales. Our typical customer is a private landscape contractor that operates in a single market. We source our products from more than 2,000 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes and other landscape products. Our strong supplier relationships support our ability to provide a broad selection of products at attractive prices. We also develop and sell products under our proprietary and market-leading brands LESCO and Green Tech, which together accounted for approximately 21% of our 2015 Fiscal Year net sales. We believe these highly-recognized brands attract customers to our branches and create incremental sales opportunities for other products.

We hired Doug Black as our Chief Executive Officer in April 2014. Since joining SiteOne, Mr. Black has strengthened the capabilities of our executive leadership team by bringing in highly-qualified senior managers with functional expertise in strategy development, mergers and acquisitions, talent management, marketing, category management, supply chain management, national sales and information technology. Under Mr. Black’s leadership, we have established a focused business strategy to further develop and attract industry-leading talent, deliver more value to customers, generate superior financial performance, drive organic growth, execute on attractive acquisitions and increase working capital efficiency. We are also undertaking a variety of initiatives targeting pricing, category management, sales force performance and supply chain management. At the local level, we have increased our focus on gaining market share by adding capabilities to our 46 geographical areas and 477 branches and by empowering area managers and their teams to develop local strategies. These initiatives are in the early stages of implementation, and we believe they will continue to enhance our growth and profitability.

CD&R Acquisition

SiteOne Landscape Supply, Inc. (collectively with all its subsidiaries referred to in this prospectus as “SiteOne,” the “Company,” “we,” “us” and “our” and individually as “Holdings”) indirectly owns 100% of the membership interest in SiteOne Landscape Supply Holding, LLC (referred to in this prospectus as “Landscape Holding”). Landscape Holding is the parent and sole owner of SiteOne Landscape Supply, LLC (referred to in

 

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this prospectus as “Landscape”). Prior to the CD&R Acquisition described below, Deere & Company (“Deere”) was the sole owner of Landscape Holding.

On December 23, 2013 (the “Closing Date”), a wholly-owned subsidiary of Holdings acquired 100% of the ownership interest in Landscape Holding from Deere in exchange for common shares of Holdings representing 40% of Holdings’ then outstanding capital stock (assuming conversion of the Preferred Stock) plus cash consideration of approximately $314 million, net of pre-closing and post-closing adjustments. Holdings also issued 174,000 shares of Preferred Stock to the CD&R Investor, representing 60% of the then outstanding capital stock of Holdings (on an as-converted basis). As part of the transaction, Landscape Holding also acquired from Deere the affiliated company LESCO, Inc. (“LESCO”). We refer to the transactions described in this paragraph as the “CD&R Acquisition.”

Presentation

Our financial statements included in this prospectus have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We use a 52/53 week fiscal year with the fiscal year ending on the Sunday nearest to December 31 in each year. Our fiscal quarters end on the Sunday nearest to March 31, June 30 and September 30, respectively. For the purpose of discussing our financial results, we refer to ourselves as the “Successor Company” in the periods following the CD&R Acquisition, and the “Predecessor Company” during the periods preceding the CD&R Acquisition.

This discussion of our financial condition is presented for the fiscal year ended January 3, 2016 (the “2015 Fiscal Year,” which included 53 weeks), the fiscal year ended December 28, 2014 (the “2014 Fiscal Year,” which includes 52 weeks), the Predecessor Company period from December 31, 2012 through December 22, 2013 (the “2013 Predecessor Period,” which includes 51 weeks) and the Successor Company period from December 23, 2013 through December 29, 2013 (the “2013 Successor Period”).

The consolidated statement of operations for the 2013 Successor Period reflects:

 

    our results of operations for the one-week period from December 23, 2013 (the Closing Date) through December 29, 2013, and

 

    merger and advisory costs of $9.8 million related to the CD&R Acquisition that were incurred prior to the Closing Date.

We manage our business as a single reportable segment. Within our organizational framework, the same operational resources support multiple geographic regions and performance is evaluated at a consolidated level. We also evaluate performance based on discrete financial information on a regional basis. Since all of our regions have similar operations and share similar economic characteristics, we aggregate regions into a single operating and reportable segment. These similarities include (1) long-term financial performance, (2) the nature of products and services, (3) the types of customers we sell to and (4) the distribution methods used.

Key Business and Performance Metrics

We focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and performance of our business. These metrics include:

Net sales. We generate net sales primarily through the sale of landscape supplies, including irrigation systems, fertilizer & control products, landscape accessories, nursery goods, hardscapes and outdoor lighting to our customers who are primarily landscape contractors serving the residential and commercial construction sectors. Our net sales include billings for freight and handling charges, and commissions on the sale of control products that we sell as an agent. Net sales are presented net of any discounts, returns, customer rebates, and sales or other revenue-based tax.

 

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Organic sales. In managing our business, we consider all growth, including the opening of new greenfield branches, to be organic growth unless it results from an acquisition. When we refer to organic growth, we include increases in growth from newly-opened greenfield branches and decreases in growth from closing existing branches but exclude increases in 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 organic growth is a useful measure of our growth as we may choose to open or close stores in any given market depending upon the needs of our customers or our strategic growth opportunities.

Cost of goods sold. Our cost of goods sold includes all inventory costs, such as purchase price paid to suppliers, net of any rebates received, as well as inbound freight and handling, and other costs associated with the inventory, including direct and indirect labor costs. Our cost of goods sold excludes the cost to deliver the products to our customers through our stores (which is included in net sales). Cost of goods sold is recognized primarily using the first-in first-out method of accounting for the inventory sold.

Gross profit and gross margin. We believe that gross profit and gross margin are useful for evaluating our operating performance. We define gross profit as net sales less cost of goods sold, exclusive of depreciation. We define gross margin as gross profit divided by net sales.

Selling, general and administrative expenses (operating expenses). Our operating expenses are primarily comprised of selling, general and administrative costs, which include personnel expenses (salaries, wages, employee benefits, payroll taxes, stock compensation and bonuses), rent, fuel, vehicle maintenance costs, insurance, utilities, repair and maintenance and professional fees. Operating expenses also include depreciation and amortization.

Adjusted EBITDA. In addition to the metrics discussed above, we believe that Adjusted EBITDA is useful for evaluating our operating performance and efficiency of our business. EBITDA represents our net income (loss) plus the sum of interest expense, net of interest income excluding amortization of debt discount, income tax expense (benefit), depreciation and amortization. Adjusted EBITDA represents EBITDA as further adjusted for items that are permitted under the covenants of our Credit Facilities, such as stock-based compensation expense, related party management fees, loss (gain) on sale of assets, other non-cash items, other non-recurring (income) and loss, and the pre-acquisition EBITDA of certain acquired companies. See “—Results of Operations—Quarterly Results of Operations Data” for more information about how we calculate EBITDA and Adjusted EBITDA and the limitations of those metrics.

Key Factors Affecting Our Operating Results

In addition to the metrics described above, a number of other important factors may affect our results of operations in any given period.

Weather Conditions and Seasonality

In a typical year, our operating results are impacted by seasonality. Typically, our net sales and net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters. Our net sales have been significantly lower in the first and fourth quarters due to lower landscaping, irrigation and turf maintenance activities in these quarters, and we have typically incurred net losses in these quarters. Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as snow or rain, which not only impact the demand for certain products like fertilizer and ice melt but also can delay construction projects where our products are used.

Industry and Key Economic Conditions

Our business depends on demand from customers for landscape products and services. The landscape supply industry includes a significant amount of landscape products, such as irrigation systems, outdoor lighting, lawn care supplies, nursery goods and landscape accessories, for use in the construction of newly built homes,

 

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commercial buildings and recreational spaces. The landscape distribution industry has historically grown in line with rates of growth in residential housing and commercial building. The industry is also affected by trends in home prices, home sales and consumer spending. As general economic conditions improve or deteriorate, consumption of these products and services tends also to fluctuate. The landscape distribution industry also includes a significant amount of landscape products like fertilizer, herbicides and ice melt for use in maintaining existing landscapes or facilities. The use of these products is also tied to general economic activity, but levels of sales are not as closely correlated to construction markets.

Popular Consumer Trends

Preferences in housing, lifestyle and environmental awareness can also impact the overall level of demand and mix for the products we offer. Examples of current trends we believe are important to our business include a heightened interest in professional landscape services inspired by the popularity of home and garden television shows and magazines; the increasingly popular concept of “outdoor living,” which has been a key driver of sales growth for our hardscapes and outdoor lighting products; and the social focus on eco-friendly products that promote water conservation, energy efficiency and the adoption of “green” standards.

Acquisitions

In addition to our organic growth we continue to grow our business through acquisitions in an effort to better service our existing customers and to attract new customers. These acquisitions have allowed us to further broaden our product lines and extend our geographic reach and leadership positions in local markets. In accordance with GAAP, the results of the acquisitions we have completed are reflected in our financial statements from the date of acquisition forward. We incur transaction costs in connection with identifying and completing acquisitions and ongoing integration costs as we integrate acquired companies and seek to achieve synergies at acquired companies. In total, we have invested over $160 million in ten acquisitions since 2013 with the largest investment being $58 million for the acquisition of Shemin Nurseries. The following is a summary of these acquisitions:

 

    On April 4, 2016, we acquired the assets of Blue Max Materials, Inc., Blue Max Materials of Charleston, Inc., Blue Max Materials of Columbia, Inc. and Blue Max Materials of the Grand Strand, Inc., which together comprise Blue Max Materials. Blue Max Materials includes five locations serving both North and South Carolina. The acquisition creates a leading position for SiteOne in the North and South Carolina hardscapes and landscape accessories markets.

 

    On January 4, 2016, we acquired the outstanding stock of Hydro-Scape Products, Inc., which includes 17 locations serving Southern California. The acquisition creates a leading position for SiteOne in the Southern California irrigation and landscape accessories markets.

 

    On August 31, 2015, we acquired the assets of Tieco, Inc., which includes six branch locations serving Alabama and Florida with irrigation, lighting, pump and well products. The acquisition creates a leading position for SiteOne in Alabama and the Florida panhandle irrigation markets.

 

    On August 5, 2015, we acquired all of the outstanding stock of Green Resource, LLC, which includes five branch locations serving North and South Carolina with chemicals, seed, fertilizer and erosion control products. The acquisition creates a leading position for SiteOne in North and South Carolina across all of our product lines.

 

    On May 8, 2015, we acquired all of the outstanding stock of AMC Industries, Inc., which includes nine branch locations serving Texas and Oklahoma with irrigation products and domestic water systems. The acquisition creates a leading position for SiteOne in the South Texas and Oklahoma irrigation markets.

 

   

On February 27, 2015, we acquired all of the outstanding stock of CLP SN Holdings, Inc., the parent company of Shemin Nurseries, which includes 30 branch locations supplying primarily nursery goods

 

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in 18 major metropolitan markets across 14 states of the Eastern region of the United States and Texas. The acquisition gives SiteOne a leading position in the distribution of nursery products in the Northeast, Southeast, Midwest and Texas regions.

 

    On October 1, 2014, we acquired the assets of Boston Irrigation Supply Company, Inc., which includes five branch locations serving the Northeast with irrigation, outdoor lighting and pump systems. The acquisition strengthens our leadership positions in the states of Massachusetts, Connecticut, New Hampshire and New York.

 

    On September 23, 2014, we acquired the assets of Stockyard Horticultural Supply, Inc., which consists of one branch location in Arlington, Tennessee. The acquisition gives SiteOne a leading position for nursery products in the Memphis metropolitan market.

 

    On July 28, 2014, we acquired the assets of Diamond Head Sprinkler Supply, Inc., which includes three branch locations serving the state of Hawaii with irrigation and outdoor lighting products. The acquisition creates a leading position for SiteOne in the Hawaii irrigation market.

 

    On April 14, 2014, we acquired the assets of Eljay Irrigation, Ltd., which includes nine branch locations serving four provinces of Western Canada with irrigation, landscape lighting and landscape accessories. The acquisition provides us with a leading irrigation platform in Western Canada.

We expect the execution of synergistic acquisitions to continue to be an integral part of our growth strategy, and we intend to continue expanding our product line, geographic reach, market share and operational capabilities through future acquisitions.

Volume-Based Pricing

We generally procure our products through purchase orders rather than under long-term contracts with firm commitments. We work to develop strong relationships with a select group of suppliers that we target based on a number of factors, including brand and market recognition, price, quality, product support, service levels, delivery terms and their strategic positioning. We generally have annual supplier agreements, and while they generally do not provide for specific product pricing, many include volume-based financial incentives that we earn by meeting or exceeding target purchase volumes. Our ability to earn these volume-based incentives is an important factor in our financial results. In limited cases, we have entered into supply contracts with terms that exceed one year for the manufacture of our LESCO branded fertilizer and some nursery stock and grass seed, which may require us to purchase products in the future.

Strategic Initiatives

We have undertaken significant operational initiatives, utilizing our scale to improve our profitability, enhance supply chain efficiency, strengthen our pricing and category management capabilities, streamline and refine our marketing process and invest in more sophisticated information technology systems and data analytics. We are increasingly focusing on our procurement and supply management initiatives to reduce sourcing costs. We are also implementing new inventory planning and stocking systems and evaluating ways to further improve the freight and logistics processes in an effort to reduce costs as well as improve our reliability and level of service. In addition, we work closely with our local branches to improve sales, delivery and branch productivity. We believe we will continue to benefit from the following initiatives, among others:

 

    Pricing initiatives, including the implementation of a centralized pricing strategy and a targeted discounting strategy, were rolled out beginning in the second quarter of 2015 and are expected to continue through 2017.

 

    Category management initiatives, including the development of a private label strategy and reorganization of brands and product lines by preferred suppliers, were rolled out beginning in the first quarter of 2015 and will continue through 2017.

 

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    Supply chain initiatives, including the implementation of new inventory planning and stocking systems, are targeted for rollout throughout 2016 and 2017.

 

    Sales performance initiatives, including the development and implementation of compensation and incentive plans and comprehensive sales force and management training, were rolled out beginning in the third quarter of 2015 and are expected to continue through 2017.

 

    Marketing initiatives, including the SiteOne brand launch, relaunch of the Partners Program and implementation of a digital marketing strategy, were rolled out beginning in the third quarter of 2015 and are expected to continue through 2018.

Working Capital

In addition to affecting our net sales, fluctuations in prices of supplies tend to result in changes in our reported inventories, trade receivables and trade payables, even when our sales volumes and our rate of turnover of these working capital items remain relatively constant. Our business is characterized by a relatively high level of reported working capital, the effects of which can be compounded by changes in prices. Our working capital needs are exposed to these price fluctuations, as well as to fluctuations in our cost for transportation and distribution. We might not always be able to reflect increases in our costs in our own pricing. The strategic initiatives described above are designed to reduce our exposure to these fluctuations and maintain and improve our efficiency.

 

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Results of Operations

In the following discussion of our results of operation, we make comparisons among the 2015 Fiscal Year, the 2014 Fiscal Year and the 2013 Predecessor Period as supplemented by the 2013 Successor Period. As previously discussed in the “Presentation” section above, the 2013 Successor Period reflects: (1) our results of operations for the one week period from December 23, 2013 (the Closing Date of the CD&R Acquisition) through December 29, 2013 and (2) merger and advisory costs of $9.8 million related to the CD&R Acquisition that were incurred prior to the Closing Date.

Consolidated Statements of Operations

 

     Consolidated Successor Company          Combined
Predecessor
Company
 
     Year ended
January 3,
2016
    Year ended
December 28,
2014
    Period from
December 23,
2013
through
December 29,
2013
         Period from
December 31,
2012
through
December 22,
2013
 
           (in millions)  

Net sales

   $ 1,451.6      $ 1,176.6      $ 5.3          $ 1,072.7   

Cost of goods sold

     1,022.5        865.5        4.1            783.0   
  

 

 

   

 

 

   

 

 

       

 

 

 

Gross profit

     429.1        311.1        1.2            289.7   
  

 

 

   

 

 

   

 

 

       

 

 

 

Selling, general and administrative expenses

     373.3        269.0        14.1            235.6   

Other income

     4.0        3.1        —              3.6   
  

 

 

   

 

 

   

 

 

       

 

 

 

Operating income (loss)

     59.8        45.2        (12.9         57.7   
  

 

 

   

 

 

   

 

 

       

 

 

 

Interest and other non-operating (income) expenses

     11.4        9.1        0.1            0.1   

Income tax (benefit) expense

     19.5        14.4        (3.5         23.9   
  

 

 

   

 

 

   

 

 

       

 

 

 

Net income (loss)

   $ 28.9      $ 21.7      $ (9.5       $ 33.7   
  

 

 

   

 

 

   

 

 

       

 

 

 
 

Net sales

     100.0     100.0     100.0         100.0

Cost of goods sold

     70.4     73.6     77.4         73.0
  

 

 

   

 

 

   

 

 

       

 

 

 

Gross profit

     29.6     26.4     22.6         27.0
  

 

 

   

 

 

   

 

 

       

 

 

 

Selling, general and administrative expenses

     25.7     22.9     266.0         22.0

Other income

     0.3     0.3     0.0         0.3
  

 

 

   

 

 

   

 

 

       

 

 

 

Operating income (loss)

     4.1     3.8     (243.4 )%          5.3
  

 

 

   

 

 

   

 

 

       

 

 

 

Interest and other non-operating (income) expenses

     0.8     0.8     1.9         0.0

Income tax (benefit) expense

     1.3     1.2     (66.0 )%          2.2
  

 

 

   

 

 

   

 

 

       

 

 

 

Net income (loss)

     2.0     1.8     (179.3 )%          3.1

Comparison of the 2015 Fiscal Year to the 2014 Fiscal Year

Net sales

Net sales for the 2015 Fiscal Year increased 23% to $1,452 million as compared to $1,177 million for the 2014 Fiscal Year. Organic sales growth contributed 7% to overall growth, and acquisitions contributed an additional 16%. Organic sales growth was driven by growth in the irrigation, outdoor lighting, hardscapes and landscape accessories categories, which together grew over 10% as a result of an increase in residential and commercial construction. Net sales for fertilizer and other maintenance products increased by 2%, reflecting modest market growth and poor weather, as the late wet spring negatively impacted spring fertilizer applications. Acquisitions contributed $193 million to net sales growth. Net sales growth for the 2015 Fiscal Year, adjusted for the additional week in the fiscal period compared to the 2014 Fiscal Year, would have been approximately 2 percentage points less, or 21%.

 

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Costs of goods sold

Cost of goods sold for the 2015 Fiscal Year increased 18% to $1,023 million from $866 million for the 2014 Fiscal Year. The increase in cost of goods sold was primarily driven by the increased net sales growth, including acquisitions. Relative to net sales, cost of goods sold was lower as a result of cost savings resulting from our category management initiative and lower inbound freight costs attributable to supply chain improvements and lower fuel costs.

Gross profit and gross margin

Gross profit for the 2015 Fiscal Year increased 38% to $429 million as compared to $311 million for the 2014 Fiscal Year. Gross profit growth was driven by the increase in net sales resulting from organic growth and acquisitions in addition to margin expansion resulting from our focus on operational improvements in pricing and category management. Gross margin increased 320 basis points to 29.6% in the 2015 Fiscal Year as compared to 26.4% in the 2014 Fiscal Year. Operational improvements in pricing and category management contributed approximately 240 basis points of the improvements, with pricing and category management each accounting for approximately half. Gross margins also benefitted from improved product mix (approximately 30 basis points), primarily attributable to acquisitions and reduced freight and logistics costs (approximately 40 basis points). Our 2014 and 2015 acquisitions contributed positively to our gross margins for the 2015 Fiscal Year due to their favorable product mix, synergies of integration and the high quality of the acquired companies.

Selling, general and administrative expenses (operating expenses)

Operating expenses for the 2015 Fiscal Year increased 39% to $373 million from $269 million for the 2014 Fiscal Year. The increase in operating expenses was primarily driven by the acquisitions made in 2014 and 2015 as well as investments made in personnel and information technology to support our sales growth and strategic initiatives. Operating expenses expressed as a percentage of net sales increased from 25.7% for the 2015 Fiscal Year as compared to 22.9% for the 2014 Fiscal Year. The depreciation and amortization component of our operating expenses increased $11 million to $31.2 million for the 2015 Fiscal Year, primarily as a result of our acquisitions in 2014 and 2015.

Interest expense and other non-operating income/expense

Interest expense and other non-operating income/expense increased $2.3 million to $11.4 million in the 2015 Fiscal Year from $9.1 million in the 2014 Fiscal Year. Interest expense and other non-operating income was higher due to higher interest expense resulting from higher average outstanding borrowings and $1.2 million of unamortized debt discounts expensed as a result of a debt amendment in October 2015.

Income tax (benefit) expense

Income tax expense was $19.5 million during the 2015 Fiscal Year as compared to income tax expense of $14.4 million during the 2014 Fiscal Year. The effective tax rate was 40.3% during the 2015 Fiscal Year as compared to 39.9% for the 2014 Fiscal Year. The effective rates during the 2015 Fiscal Year and the 2014 Fiscal Year were impacted primarily by the effects of state income taxes.

Comparison of the 2014 Fiscal Year to the 2013 Successor Period and 2013 Predecessor Period

The discussion below addresses the 2014 Fiscal Year and the 2013 Predecessor Period as supplemented by the 2013 Successor Period. We include the 2013 Successor Period in the comparison discussion, although that period may not be meaningful because it consists of our results of operations for only a one-week period. Further, that period may not be comparable to our recurring operations as it includes $9.8 million of non-recurring costs related to the CD&R Acquisition.

Net sales

Net sales for the 2014 Fiscal Year increased 9% to $1,177 million as compared to $1,073 million for the 2013 Predecessor Period and $5 million for the 2013 Successor Period. Organic sales grew 8%, primarily driven

 

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by 11% growth in the irrigation, nursery, landscape accessories and outdoor lighting product categories, which benefitted not only from increases in commercial and residential construction but also, in the case of outdoor lighting and hardscapes, from increased consumer demand for those products. Net sales for maintenance products increased 4%, driven by market growth and increased demand for ice melt products resulting from winter storms. Acquisitions contributed an additional $15 million to net sales growth.

Cost of goods sold

Cost of goods sold for the 2014 Fiscal Year increased 10% to $866 million as compared to $783 million for the 2013 Predecessor Period and $4 million for the 2013 Successor Period. Cost of goods sold associated with organic growth was the primary driver of the increase. Cost of goods sold was negatively impacted primarily by higher supply chain costs and lower supplier incentives related to sales.

Gross profit and gross margin

Gross profit for the 2014 Fiscal Year increased 7% to $311 million as compared to $290 million for the 2013 Predecessor Period and $1 million for the 2013 Successor Period. Gross profit increased primarily because of the increased sales volume. Gross margin decreased 55 basis points to 26.4%, primarily attributable to the higher supply chain costs (approximately 50 basis points) resulting from increased volume through external distribution centers and increased inbound freight. Acquisitions contributed positively to gross profits for the 2014 Fiscal Year.

Selling, general and administrative expenses (operating expenses)

Operating expenses increased $19 million, or 7.7%, to $269 million during the 2014 Fiscal Year as compared to $236 million for the 2013 Predecessor Period and $14 million for the 2013 Successor Period, which included $9.8 million of non-recurring costs related to the CD&R Acquisition. Further, depreciation and amortization resulting from the CD&R Acquisition accounted for $9.9 million of the $19 million increase in operating expenses. Another component of our operating expenses, personnel and administrative expenses, also increased due to higher sales volume and costs associated with becoming a stand-alone company. Operating expenses expressed as a percentage of net sales were 22.9% for the 2014 Fiscal Year as compared to 22.0% for the 2013 Predecessor Period (we do not believe this metric is meaningful for the 2013 Successor Period due to the non-recurring costs related to the CD&R Acquisition in that period). Operating expenses adjusted for the increase in depreciation and amortization expressed as a percentage of net sales were 22.0% for the 2014 Fiscal Year.

Interest expense and other non-operating income/expense

Interest expense and other non-operating income/expense was $9.1 million during the 2014 Fiscal Year as compared to $0.1 million for the 2013 Predecessor Period and $0.1 million for the 2013 Successor Period. Interest expense increased to $9.1 million as compared to $0.5 million and $0.1 million in the 2013 Predecessor Period and 2013 Successor Periods, respectively. The increase was due to the increase in average outstanding borrowings as a result of new debt financing incurred in connection with the CD&R Acquisition.

Income tax (benefit) expense

Income tax expense was $14.4 million during the 2014 Fiscal Year as compared to income tax expense of $23.9 million for the 2013 Predecessor Period and an income tax benefit of $(3.5) million for the 2013 Successor Period. The effective tax rate was 39.9% during the 2014 Fiscal Year as compared to 41.5% for the 2013 Predecessor Period and 26.9% during the 2013 Successor Period. The effective tax rate during the 2014 Fiscal Year was impacted primarily by the effects of state income taxes, while the 2013 Successor Period was impacted primarily by nondeductible items. The effective tax rate for the 2013 Predecessor Period was impacted primarily by the effects of state income taxes and an increase to a valuation allowance related to a federal foreign tax credit.

 

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Quarterly Results of Operations Data

The following tables set forth our net sales, cost of goods sold (exclusive of depreciation), gross profit, selling, general and administrative expenses and Adjusted EBITDA data (including a reconciliation of Adjusted EBITDA to net income (loss)) for each of the most recent eight fiscal quarters. We have prepared the quarterly data on a basis that is consistent with the financial statements included in this prospectus. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of these data. This information is not a complete set of financial statements and should be read in conjunction with our financial statements and related notes included in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

 

    Three months ended  
    January 3,
2016
    September 27,
2015
    June 28,
2015
    March 29,
2015
    December 28,
2014
    September 28,
2014
    June 29,
2014
    March 30,
2014
 
   

(in millions)

 
   

(unaudited)

 

Net sales

  $ 339.8      $ 404.5      $ 481.5      $ 225.8      $ 249.5      $ 326.2      $ 388.5      $ 212.4   

Cost of goods sold

    235.2        286.1        334.0        167.2        184.0        242.1        279.6        159.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    104.6        118.4        147.5        58.6        65.5        84.1        108.9        52.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses

    110.7        98.2        91.3        73.1        68.8        67.9        71.1        61.2   

Other income

    1.2        1.3        0.7        0.8        1.1        0.7        0.6        0.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (4.9     21.5        56.9        (13.7     (2.2     16.9        38.4        (7.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other non-operating (income) expenses

    3.6        2.8        2.6        2.4        2.2        2.2        2.3        2.4   

Income tax (benefit) expense

    (2.7     7.4        21.1        (6.3     (1.8     6.0        14.2        (4.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (5.8   $ 11.3      $ 33.2      $ (9.8   $ (2.6   $ 8.7      $ 21.9      $ (6.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (1)

  $ 13.2      $ 35.6      $ 70.5      $ (6.7   $ 7.1      $ 23.7      $ 45.9      $ (2.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net sales as a percentage of annual net sales

    23.4     27.9     33.2     15.5     21.2     27.7     33.0     18.1

Gross profit as a percentage of annual gross profit

    24.4     27.6     34.4     13.6     21.1     27.0     35.0     16.9

Adjusted EBITDA as a percentage of annual Adjusted EBITDA

    11.7     31.6     62.6     (5.9 )%      9.6     32.1     62.2     (3.9 )% 

 

(1) In addition to our net income (loss) determined in accordance with GAAP, we present Adjusted EBITDA in this prospectus to evaluate the operating performance and efficiency of the Company’s business. Adjusted EBITDA represents EBITDA as further adjusted for items permitted under the covenants of our Credit Facilities. EBITDA represents our net income (loss) plus the sum of interest expense, net of interest income and excluding amortization of debt discount, income tax expense (benefit), depreciation, and amortization. Adjusted EBITDA is further adjusted for stock-based compensation expense, related party advisory fees, loss (gain) on sale of assets, other non-cash items, other non-recurring (income) and loss and the pre-acquisition Adjusted EBITDA of certain acquired companies. We believe that Adjusted EBITDA is an important supplemental measure of operating performance because:

 

    Adjusted EBITDA is used to test compliance with certain covenants under our Credit Facilities;

 

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    we believe Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results.

 

    we believe Adjusted EBITDA is helpful in highlighting operating trends, because it excludes the results of decisions that are outside the control of operating management and that can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, age and book depreciation of facilities and capital investments.

 

    we consider (gains) losses on the acquisition, disposal and impairment of assets as resulting from investing decisions rather than ongoing operations; and

 

    other significant non-recurring items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of our results.

Adjusted EBITDA is not a measure of our liquidity or financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. The use of Adjusted EBITDA instead of net income has limitations as an analytical tool. For example, these measures:

 

    do not reflect changes in, or cash requirements for, our working capital needs;

 

    do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

    do not reflect our tax expense or the cash requirements to pay our taxes;

 

    do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and do not reflect any cash requirements for such replacements.

 

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Management compensates for these limitations by relying primarily on our GAAP results and by using Adjusted EBITDA only as a supplement to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies limiting their usefulness as a comparative measure. The following table presents a reconciliation of Adjusted EBITDA to net income (loss):

 

    Three Months Ended  
    January 3,
2016
    September 27,
2015
    June 28,
2015
    March 29,
2015
    December 28,
2014
    September 28,
2014
    June 29,
2014
    March 30,
2014
 
   

(in millions)

 
   

(unaudited)

 

Reported net income (loss)

  $     (5.8   $     11.3      $     33.2      $     (9.8   $     (2.6   $     8.7      $     21.9      $     (6.3

Income tax (benefit) expense

    (2.7     7.4        21.1        (6.3     (1.8     6.0        14.2        (4.0

Interest expense, net

    3.6        2.7        2.7        2.4        2.1        2.2        2.3        2.5   

Depreciation & amortization

    8.7        8.3        7.8        6.4        5.6        4.9        5.5        4.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    3.8        29.7        64.8        (7.3     3.3        21.8        43.9        (3.5

Non-cash stock-based compensation (a)

    0.7        0.8        0.8        0.7        0.6        0.5        1.0        —     

(Gain) loss on sale of assets (b)

    0.2        —          0.2        —          —          0.2        0.3        0.1   

Advisory fees (c)

    0.5        0.5        0.5        0.5        0.5        0.5        0.5        0.5   

Financing fees (d)

    3.5        2.0        —          —          —          —          —          —     

Rebranding and other adjustments (e)

    3.2        0.7        0.3        0.4        2.7        0.7        0.2        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-acquisition Adjusted EBITDA

    11.9        33.7        66.6        (5.7     7.1        23.7        45.9        (2.9

Acquired EBITDA for the 2015 Fiscal Year (f)

    1.3        1.9        3.9        (1.0     —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 13.2      $ 35.6      $ 70.5      $ (6.7   $ 7.1      $ 23.7      $ 45.9      $ (2.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Represents non-cash stock-based compensation expense recorded during the period.
  (b) Represents any gain or loss associated with the sale or write-down of assets not in the ordinary course of business.
  (c) Represents fees paid to CD&R and Deere for consulting services. In connection with this offering, we expect to enter into a termination agreement with CD&R and Deere pursuant to which the parties will agree to terminate the related consulting agreements. See “Certain Relationships and Related Party Transactions—Consulting Agreements.”
  (d) Represents fees associated with our debt amendment completed during the 2015 Fiscal Year and our initial registration process, which were recorded as an expense during the 2015 Fiscal Year.
  (e) Represents (i) expenses related to our rebranding to the name SiteOne, (ii) professional fees and retention payments related to historical acquisitions, (iii) severance payments and (iv) consulting and professional fees. Although we have incurred professional fees and retention payments related to acquisitions in several historical periods and expect to incur such fees for any future acquisitions, we cannot predict the timing or amount of any such fees.
  (f) Represents the historical Adjusted EBITDA for the pre-acquisition periods during the 2015 calendar years related to our four acquisitions that closed during the 2015 Fiscal Year: Shemin, AMC, Green Resource and Tieco, and our two acquisitions that closed during fiscal year 2016: Hydro-Scape and Blue Max. Does not include the historical Adjusted EBITDA for (i) Shemin, AMC, Green Resource, Tieco, Hydro-Scape and Blue Max of $19.1 million during the 2014 Fiscal Year or (ii) our four acquisitions that closed during the 2014 Fiscal Year, which were relatively minor. We have acquired ten businesses in the last two years. The historical annual net sales of these businesses prior to their respective acquisition dates totaled more than $350 million.

 

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Liquidity and Capital Resources

Our ongoing liquidity needs are expected to be funded by cash on hand, net cash provided by operating activities and, as required, borrowings under the ABL Facility. We expect that cash provided from operations and available capacity under the ABL Facility will provide sufficient funds to operate our business, make expected capital expenditures and meet our liquidity requirements for the following 12 months, including payment of interest and principal on our debt.

Our borrowing base capacity under the ABL Facility was approximately $112.5 million as of January 3, 2016 after giving effect to approximately $128.0 million of revolving credit loans under the ABL Facility. As of January 3, 2016, we had cash and cash equivalents of $20.1 million, a $9.5 million increase from $10.6 million as of December 28, 2014.

Our borrowing base capacity under the ABL Facility was approximately $158.3 million as of April 3, 2016 after giving effect to approximately $159.4 million of revolving credit loans under the ABL Facility, a $31.4 million increase from $128.0 million of revolving credit loans as of January 3, 2016. As of April 3, 2016, on a pro forma as adjusted basis, after giving effect to the acquisition that closed subsequent to April 3, 2016, the Refinancing, the Special Cash Dividend and each of the other items described in “Capitalization,” we would have had total cash and cash equivalents of $9.0 million, debt of $402.4 million and capital leases of $10.1 million. See “Capitalization.”

Working capital, excluding cash and cash equivalents, was $277.3 million as of January 3, 2016, increasing $5.5 million as compared to $271.8 million at the year ended December 28, 2014. The increase in working capital was attributable to increases in accounts receivable and inventory, primarily resulting from acquisitions, offset by increases in accrued compensation relating to the timing of incentive payments and accrued liabilities also resulting from acquisitions.

Capital expenditures have averaged $6.0 million from the 2013 Fiscal Year to the 2015 Fiscal Year and represent an average of 0.5% net sales over this time period.

Information about our cash flows, by category, is presented in our statements of cash flows and is summarized below:

 

     Consolidated Successor Company          Combined
Predecessor
Company
 
     Year ended
January 3,
2016
    Year ended
December 28,
2014
    Period from
December 23,
2013
through
December 29,
2013
         Period from
December 31,
2012
through
December 22,
2013
 
          
                 (in millions)             
                               

Net cash provided by (used in):

            

Operating activities

   $ 71.0      $ 52.7      $ (6.0       $ 41.8   

Investing activities

   $ (111.0   $ (26.9   $ (313.9       $ (3.0

Financing activities

   $ 49.7      $ (34.2   $ 328.8          $ (33.1

Cash flow from operating activities

Cash flow from operating activities for the 2015 Fiscal Year was $71.0 million as compared to $52.7 million for the 2014 Fiscal Year. Cash flow from operations in the 2015 Fiscal Year benefited from higher net income and an increase in accrued liabilities, primarily attributable to the timing of annual incentive payments.

Cash flow from operating activities for the 2014 Fiscal Year was $52.7 million as compared to $41.8 million for the 2013 Predecessor Period and $(6.0) million for the 2013 Successor Period. Cash flow from operations in the 2014 Fiscal Year benefited from improvements in working capital, driven by accounts payable initiatives.

 

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Cash flow used in investing activities

Cash used in investing activities for the 2015 Fiscal Year was $111.0 million as compared to $26.9 million in the 2014 Fiscal Year. $78.0 million of the increase was related to acquisitions which closed during the 2015 Fiscal Year. The remaining $6.3 million of the increase related primarily to capital expenditures for leasehold improvements and information technology investments.

Cash used in investing activities for the 2014 Fiscal Year was $26.9 million as compared to $313.9 million in the 2013 Successor Period and $3.0 million in the 2013 Predecessor Period. Cash flow used in investing activities for the 2013 Successor Period primarily reflects cash used to finance the CD&R Acquisition. The increase in cash flow used in investing activities in the 2014 Fiscal Year as compared to the 2013 Predecessor Period reflects our 2014 acquisitions.

Cash flow provided by (used in) financing activities

Cash provided by financing activities was $49.7 million for the 2015 Fiscal Year compared to a cash use of $34.2 million for the 2014 Fiscal Year. The increase in cash provided reflected borrowings on the ABL Facility during the 2015 Fiscal Year, primarily used to fund our investing activities.

Cash used by financing activities was $34.2 million for the 2014 Fiscal Year due primarily to $35.7 million in payments on the ABL Facility, partially offset by $5.3 million of proceeds from a common stock issuance to employees.

Cash provided by financing activities was $328.8 million for the 2013 Successor Period. As part of the CD&R Acquisition, we received equity proceeds from the issuance of the preferred stock of $174.0 million, and we borrowed $166.6 million of debt under the Credit Facilities, net of $16.9 million in debt issuance costs.

Cash used by financing activities was $33.1 million for the 2013 Predecessor Period due to net repayments on an intercompany payable to Deere.

External Financing

Term Loan Facility

Landscape Holding and Landscape (collectively, the “Term Loan Borrower”) are parties to the Amended and Restated Term Loan Credit Agreement (the “Amended and Restated Term Loan Credit Agreement”) dated April 29, 2016 (providing for a senior secured term loan facility), with UBS AG, Stamford Branch as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto.

Landscape Holding and Landscape are the borrowers under the Term Loan Facility. The Term Loan Facility provides for a senior secured term loan credit facility in the amount of $275.0 million.

The final maturity date of the Term Loan Facility is April 29, 2022. In addition, however, the Amended and Restated Term Loan Credit Agreement provides the right for individual lenders to extend the maturity date of their loans upon the request of the Term Loan Borrower and without the consent of any other lender.

Subject to certain conditions, without the consent of the then existing lenders (but subject to the receipt of commitments), the Term Loan Facility may be expanded (or a new term loan facility, revolving credit facility or letter of credit facility added) by up to (i) $100.0 million plus (ii) an additional amount that will not cause the net secured leverage ratio after giving effect to the incurrence of that additional amount and any use of proceeds thereof to exceed 3.50 to 1.00.

 

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The Term Loan Facility is subject to mandatory prepayment provisions, covenants and events of default described in “Description of Certain Indebtedness—Term Loan Facility.” Failure to comply with these covenants and other provisions could result in an event of default under the Term Loan Facility. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the Term Loan Facility to be immediately due and payable and enforce their interest in collateral pledged under the agreement.

Refinancing

On April 29, 2016, we completed the Refinancing, including amending and restating the Prior Term Loan Facility by entering into the Amended and Restated Term Loan Credit Agreement. We used borrowings under the Term Loan Facility to repay all $60.3 million of borrowings outstanding under the Prior Term Loan Facility, repay $29.9 million of borrowings outstanding under the ABL Facility, pay the Special Cash Dividend and pay fees and expenses associated with the Refinancing.

ABL Facility

Landscape Holding and Landscape are borrowers under the senior asset-based credit facility (the “ABL Facility”) of up to $325.0 million, subject to borrowing base availability. The ABL Facility is secured by a first lien on the inventory and receivables. The ABL Facility is guaranteed by SiteOne Landscape Supply Bidco, Inc. (“Bidco”), an indirect wholly-owned subsidiary of Holdings. Availability is determined using borrowing base calculations of eligible inventory and receivable balances. The interest rate on the ABL Facility is LIBOR plus an applicable margin ranging from 1.25% to 2.0% or an alternate base rate for U.S. dollar-denominated borrowings plus an applicable margin ranging from 0.25% to 1.0%. The interest rates on outstanding balances at January 3, 2016 range from 2.04% to 4.25%. Additionally, the borrowers pay a 0.25% commitment fee on the unfunded amount. The ABL Facility matures on October 20, 2020.

The ABL Facility is subject to mandatory prepayments if the outstanding loans and letters of credit exceed either the aggregate revolving commitments of the current borrowing base, in an amount equal to such excess. Additionally, the ABL Facility is subject to various covenants requiring minimum financial ratios, and additional borrowings may be limited by these financial ratios. The ABL Facility is also subject to other covenants and events of default described in “Description of Certain Indebtedness—ABL Facility.” Failure to comply with these covenants and other provisions could result in an event of default under the ABL Facility. If an event of default occurs, the lenders could elect to declare all amounts outstanding under the ABL Facility to be immediately due and payable, enforce their interest in collateral pledged under the agreement or restrict the borrowers’ ability to obtain additional borrowings thereunder.

Limitations on Distributions and Dividends by Subsidiaries

The ability of our subsidiaries to make distributions and dividends to us depends on their operating results, cash requirements and financial condition and general business conditions, as well as restrictions under the laws of our subsidiaries’ jurisdictions.

The agreements governing the Credit Facilities restrict the ability of our subsidiaries to pay dividends, make loans or otherwise transfer assets to us. Further, our subsidiaries are permitted under the terms of the Credit Facilities and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans to us.

 

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Contractual Obligations

The following table presents our contractual obligations and commitments as of January 3, 2016. The future contractual requirements include payments required for our operating leases, capital leases, indebtedness and any other long-term liabilities reflected on our balance sheet.

 

     Less
than
1 Year
     1-3
Years
     3-5
Years
     More
than
5 Years
     Total  
    

(in millions)

 

Contractual obligations (payments due by period):

              

Long term debt (1)

   $ 0.6       $ 1.2       $ 186.7       $ —         $ 188.5   

Interest on long term debt (2)

     6.1         6.1         6.1         —           18.3   

Capital leases (3)

     4.5         7.1         1.0         —           12.6   

Operating leases

     32.3         49.0         26.8         54.4         162.5   

Purchase obligations (4)

     52.5         20.3         —           —           72.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total obligations and commitments

   $ 96.0       $ 83.7       $ 220.6       $ 54.4       $ 454.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The table above does not give effect to the Refinancing. See “Capitalization.”
(2) The interest on long term debt includes payments for agent administration fees. The interest rates for the ABL Facility are calculated based on the rates as of January 3, 2016.
(3) Capital leases consist of leases for delivery vehicles.
(4) Purchase obligations include various commitments with vendors to purchase goods and services, primarily inventory. These purchase obligations are generally cancelable, but we have no intent to cancel and incur a penalty for not meeting the minimum required purchases. In addition, this table excludes purchase obligations of acquisitions made since January 3, 2016.

Off-Balance Sheet Arrangements

In accordance with GAAP, operating leases for the majority of our store locations are not reflected in our consolidated balance sheet.

Quantitative and Qualitative Disclosures about Market Risk

The economy and its impact on discretionary consumer spending, labor wages, fuel, fertilizer and other material costs, home sales, unemployment rates, insurance costs, foreign exchange and medical costs could have a material adverse impact on future results of operations.

We are aware of the potentially unfavorable effects inflationary pressures may create through higher asset replacement costs and related depreciation, higher interest rates and higher material costs.

Commodity Risk

Our operating performance may be affected by price fluctuations in commodity-based products like grass seed, fertilizer and glyphosate that we purchase and sell. We are also exposed to fluctuations in fuel costs as we deliver a substantial portion of the products we sell by truck. We seek to minimize the effects of inflation and changing prices through economies of purchasing and inventory management resulting in cost reductions and productivity improvements as well as price increases to maintain gross margins.

Product Price Risk

Our business model is to buy and sell at current market prices, in quantities approximately equal to estimated customer demand. We do not take significant “long” or “short” positions in the products we sell in an

 

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attempt to speculate on changes in product prices. Because we maintain inventories in order to serve the needs of our customers, we are subject to the risk of reductions in market prices for the products we hold in inventory, but we actively manage this risk by adjusting prices and managing our inventory levels.

Interest Rate Risk

We are subject to interest rate risk associated with our debt. While changes in interest rates do not affect the fair value of our variable-rate debt, they do affect future earnings and cash flows through higher interest expense.

 

    The ABL Facility bears interest (i) in the case of U.S. dollar-denominated loans, either at LIBOR or the Prime Rate, at our option, plus applicable borrowing margins and (ii) in the case of Canadian dollar denominated loans, either at the Bankers’ Acceptances Rate or the Canadian Prime Rate, at our option, plus applicable borrowing margins. The borrowing margins are defined by a pricing grid, as included in the ABL Facility agreement, based on average excess availability for the previous quarter.

 

    The Term Loan Facility bears interest at LIBOR (subject to a floor of 1.00%) plus a borrowing margin of 5.50% (which decreases to 5.25% following this offering) or the Prime Rate plus a borrowing margin of 4.50% (which decreases to 4.25% following this offering) at the borrower’s election.

A 1% increase in interest rates on our variable-rate debt would increase our annual forecasted interest expense by approximately $2.7 million (based on pro forma as adjusted borrowings as of January 3, 2016).

Credit Risk

We have a credit policy in place and monitor exposure to credit risk on an ongoing basis. We perform credit evaluations on all customers requesting credit above a specified exposure level. In the normal course of business, we provide credit to our customers, perform ongoing credit evaluations of these customers and maintain reserves for potential credit losses. Our typical credit terms extend 30 days from the date of purchase, but terms of up to 60 days are not uncommon. We typically have limited risk from a concentration of credit risk as no individual customer represents greater than 10% of the outstanding accounts receivable balance. Bad debt reserves, which we use as a proxy for our bad debt exposure, were 2.6% of gross receivables as January 3, 2016.

Investments, if any, are only in liquid securities and only with counterparties with appropriate credit ratings. Transactions involving derivative financial instruments are with counterparties with which we have a signed netting agreement and which have appropriate credit ratings. We do not expect any counterparty to fail to meet its obligations.

Critical Accounting Policies and Estimates

Revenue Recognition

Sales of products are recorded when the sales price is determinable and the risks and rewards of ownership are transferred to independent parties. This transfer occurs primarily when goods are picked up by a customer at the store or when goods are delivered to a customer location. In all cases, when a sale is recorded by the Company, no significant uncertainty exists surrounding the purchaser’s obligation to pay.

Our net sales include billings for freight and handling charges and commissions on the sale of control products that we sell as an agent. Net sales are presented net of any discounts, returns, customer rebates and sales or other revenue-based tax. Provisions for returns are estimated and accrued at the time a sale is recognized. We make appropriate provisions based on experience for costs such as doubtful receivables and sales incentives. We also have entered into agency agreements with certain of its suppliers whereby we operate as a sales agent of those suppliers. The suppliers retain title to their merchandise until we sell it and determine the prices at which we can sell the suppliers’ merchandise. As such, we recognize these agency sales on a net basis and records only its product margin as commission revenue within net sales.

 

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Sales Incentives

We offer certain customers rebates which are accrued based on sales volumes. In addition, we offer a points-based reward program whereby reward points can be redeemed for credit on account or merchandise (such as gift cards or vacation trips). We accrue a liability for this program based on sales volumes and an estimate of points that will be redeemed before expiration. Liabilities for these sales incentives are included in accrued liabilities.

Acquisitions

From time to time we enter into strategic acquisitions in an effort to better service existing customers and to attain new customers. When we acquire a controlling financial interest in an entity or group of assets that are determined to meet the definition of a business, we apply the acquisition method described in ASC Topic 805, Business Combinations. In accordance with GAAP, the results of the acquisitions we have completed are reflected in our financial statements from the date of acquisition forward.

We allocate the purchase consideration paid to acquire the business to the assets and liabilities acquired based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. If during the measurement period (a period not to exceed 12 months from the acquisition date) we receive additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown to us, we make the appropriate adjustment to the purchase price allocation retroactive to the period in which the acquisition occurred.

Significant judgment is required to estimate the fair value of intangible assets and in assigning their respective useful lives. Accordingly, we typically engage third-party valuation specialists, who work under the direction of management, for significant tangible and intangible assets. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain.

We typically use an income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants, and include the amount and timing of future cash flows (including expected growth rates and profitability), a brand’s relative market position and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

Determining the useful life of an intangible asset also requires judgment. All of our acquired intangible assets (e.g., trademarks, customer relationships and non-compete arrangements) are expected to have finite useful lives. Our assessment as to whether trademarks have an indefinite life or a finite life is based on a number of factors including competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the regions in which the brands are sold. Our estimates of the useful lives of finite-lived intangible assets are primarily based on these same factors.

The costs of finite-lived intangible assets are amortized to expense over their estimated lives. The value of residual goodwill is not amortized, but is tested at least annually for impairment as described in the following note.

Goodwill

Goodwill represents the acquired fair value of a business in excess of the fair values of tangible and identified intangible assets acquired and liabilities assumed. We test goodwill on an annual basis as of July 31 and additionally if an event occurs or circumstances change that would indicate the carrying amount may be impaired.

The impairment test is a two-step process. The first step requires us to estimate and compare the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, the

 

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goodwill is not considered impaired. To the extent a reporting unit’s carrying amount exceeds its fair value, the reporting unit’s goodwill may be impaired and the second step of the impairment test must be performed. The second step involves assigning the reporting unit’s fair value to all of its recognized and unrecognized assets and liabilities as if the reporting unit had been acquired in a business combination in order to determine the implied fair value of the reporting unit’s goodwill as of the testing date. The implied fair value of the reporting unit’s goodwill is then compared to the carrying amount of goodwill to quantify an impairment loss, if any, which would equal the excess of the carrying amount of goodwill over the goodwill’s implied fair value. Each of our reporting units’ fair value has substantially exceeded its carrying value at each test date.

Beneficial Conversion Features

The Successor Company has issued and outstanding Preferred Stock with dividends that have been paid-in-kind. We record paid-in-kind dividends at carrying value on the issuance date. The paid-in-kind dividends in the form of Preferred Stock contained the same conversion ratio as the Preferred Stock issued on the Closing Date. For certain Preferred Stock issued as dividends paid-in-kind, the stated conversion price was determined to be less than the common stock price as of the dividend payment date, resulting in the recognition of a beneficial conversion feature (“BCF”) in additional paid-in capital. Since the Preferred Stock does not have a fixed or determinable redemption date and is readily convertible at any time, we immediately amortize any BCF recognized through retained earnings.

Stock-Based Compensation

Stock compensation expense for common stock options is based on the estimated fair value on the grant date using the Black-Scholes option pricing model. It is recorded in selling, general and administrative expenses with a corresponding increase in stockholders’ equity and generally recognized straight-line over the vesting periods. We issue new shares of common stock upon exercise of stock options.

Common Stock Valuation

In the absence of any publicly traded quotes for our common stock, our board of directors, with input from management, determined a reasonable estimate of the fair value of our common stock for purposes of determining fair value of our common stock on date of sale and stock options on the date of grant. We determined the fair value of our common stock utilizing methodologies and assumptions consistent with the American Institute of Certified Public Accountants Practice Aid “Valuation of Privately-Held-Company Equity Securities Issued as Compensation.” In determining the equity value of our company, we considered the following two valuation approaches: the income approach and the market approach. In addition we exercised judgment in evaluating and assessing the foregoing based on several factors including:

 

    the nature and history of our business;

 

    our current and historical operating performance;

 

    our expected future operating performance;

 

    financial condition at the grant date;

 

    the lack of marketability of our common stock;

 

    publicly available information of companies we consider peers based on a number of factors, including, but not limited to, similarity to us with respect to industry, business model, geographic diversification and other factors;

 

    likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our company given prevailing market conditions;

 

    industry information such as market size and growth; and

 

    macroeconomic conditions.

 

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Income approach

The income approach estimates the value of our company based on the discounted cash flow (“DCF”) method. The cash flows utilized in the DCF method are based on our most recent long-range forecast. The discount rate is intended to reflect the risks inherent in our future cash flows. Because the cash flows are only projected over a limited number of years, it is also necessary under the income approach to compute a terminal value as of the last period for which discrete cash flows are projected. The terminal value is calculated using the modified Gordon Growth Model, which is determined by taking the projected cash flow for the terminal year of the projection period and applying a capitalization factor (discount rate less the long-term growth rate). This amount is then discounted to its present value using a discount rate to arrive at the present value of the terminal value. The discounted project cash flows and terminal value are totaled to arrive at an indicated aggregate enterprise value under the income approach. In applying the income approach, we derived the discount rate from an analysis of the cost of capital of our comparable industry peer companies as of each valuation date and adjusted it to reflect the risks inherent in our business cash flows. Discount rates of 11.0% and 11.5% were used in the valuations for the 2015 Fiscal Year.

Market approach

The market approach incorporates various methodologies to estimate the enterprise value of a company and includes the guideline public company (“GPC”) method which utilizes market multiples of comparable companies that are publicly traded and the guidelines merged and acquired company (“GMAC”) method which utilizes multiples achieved in comparable industry mergers and acquisition transactions.

When considering which companies to include in our comparable industry peer companies, we mainly focused on U.S.-based publicly traded companies in the industry in which we operate and selected comparable industry peer companies and transactions on the basis of operational and economic similarity to our business at the time of the valuation. The selection of our comparable industry peer companies requires us to make judgments as to the comparability of these companies to us. We considered a number of factors including the business in which the peer company is engaged, business size, market share, revenue model, development stage and historical operating results. We then analyzed the business and financial profiles of the peer companies for relative similarities to us and, based on this assessment, we selected our comparable industry peer companies. The selection of our comparable industry peer companies has changed over time as we continue evaluation whether the selected companies remain comparable to us and considering recent initial public offerings and sale transactions. Based on these considerations, we believe the comparable peer companies are a representative group for purposes of selecting sales and EBITDA multiples in the performance of contemporaneous valuations.

For the valuation in the 2015 Fiscal Year, we equally weighted the income approach, the GPC market approach and the GMAC market approach. We believe an equal weighting of the three approaches is appropriate as it utilizes both management’s expectations of future results and an estimate of the market’s valuation of companies similar to Holdings. Determining fair value requires the exercise of significant judgment, including judgment about appropriate discount rates, the amount and timing of expected future cash flows, as well as the relevant comparable company sales and earnings multiples for the market approach.

Once we determined our enterprise value, we then made adjustments to establish total invested capital. Total invested capital is first allocated to our outstanding debt based on the carrying value of the debt in our financial statements (which approximates fair value). The total invested capital, after allocation of value to outstanding debt, is further reduced by the fair value of outstanding stock options. The residual total invested capital is then prescribed to our outstanding common stock (on an as-converted basis) in order to estimate a per share value.

 

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The following table provides, by grant date, the number of stock options awarded from December 23, 2013 to January 3, 2016, the exercise price for each set of grants, the associated estimated fair value of our common stock and the fair value of the option. Option exercise price adjustments resulting from the Special Cash Dividend are not reflected in the table below as they occurred after January 3, 2016. See “Executive Compensation—Compensation Discussion and Analysis—Long-Term Incentives.”

 

Grant Date

   Options
Granted
     Exercise
Price
     Fair Value
of
Common
Stock
     Fair Value of
Option
 

May 19, 2014

     1,298,904       $ 8.61       $ 10.33       $ 4.97   

September 30, 2014

     842,312       $ 8.61       $ 10.33       $ 4.91   

January 9, 2015

     522,815       $ 11.53       $ 11.19       $ 4.71   

April 14, 2015

     127,799       $ 12.48       $ 11.19       $ 3.38   

June 3, 2015

     52,281       $ 12.48       $ 15.58       $ 6.69   

July 27, 2015

     87,136       $ 17.30       $ 15.58       $ 4.75   

September 8, 2015

     137,094       $ 17.30       $ 15.58       $ 4.74   

November 2, 2015

     27,883       $ 17.30       $ 18.16       $ 6.56   

Our board intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. In accordance with our equity incentive plan, the board determines the fair value of our common stock and sets the exercise price of the applicable options with input from management and third-party specialists, as well as our assessment of additional objective and subjective factors that we believe are relevant. For financial reporting purposes, we retrospectively applied a common stock valuation received after the grant date for the May 19, 2014, September 30, 2014, June 3, 2015 and November 2, 2015 option grants. We completed common stock valuations as of December 2013, June 2014, January 2015, June 2015 and December 2015.

Recently Issued and Adopted Accounting Pronouncements

See Note 1 to our audited consolidated and combined financial statements, included in this prospectus, for a description of recently issued and adopted accounting pronouncements.

Accounting Pronouncements Issued But Not Yet Adopted

See Note 1 to our audited consolidated and combined financial statements, included in this prospectus, for a description of accounting pronouncements that have been issued but not yet adopted.

 

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BUSINESS

Our Company

We are the largest and only national wholesale distributor of landscape supplies in the United States and have a growing presence in Canada. Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation and maintenance of lawns, gardens, golf courses and other outdoor spaces. Through our expansive North American network of 477 branch locations in 44 states and five provinces, we offer a comprehensive selection of more than 100,000 SKUs including irrigation supplies, fertilizer and control products (e.g., herbicides), landscape accessories, nursery goods, hardscapes (including pavers, natural stones and blocks), outdoor lighting and ice melt products. We also provide complementary, value-added consultative services to support our product offering and to help our customers operate and grow their businesses. Based on our 2015 Fiscal Year net sales, we estimate that we are approximately four times the size of our largest competitor and larger than the next two through ten competitors combined. We believe, based on management’s estimates, that we have either the number one or number two local market position in nearly 80% of MSAs where we have one or more branches. Our market leadership, coast-to-coast presence, broad product selection and extensive technical expertise provide us with significant competitive advantages and create a compelling value proposition for both our customers and suppliers.

Our customers choose us for a number of reasons, including the breadth and availability of the products we offer, our high level of expertise, the quality of our customer service, the convenience of our branch locations and the consistency of our timely delivery. Our ability to provide a “one-stop” shop experience for our customers is aligned with the growing trend of landscape contractors providing an increasingly broad array of products and services. Because extensive technical knowledge and experience are required to successfully design, install and maintain outdoor spaces, we believe our customers find great value in the advice and recommendations provided by our knowledgeable sales and service associates, many of whom are former landscape contractors or golf course superintendents. Our consultative services include assistance with irrigation network design, commercial project planning, generation of sales leads, marketing services and product support, as well as a series of technical and business management seminars that we call SiteOne University. These value-added services foster an ongoing relationship with our customers that is a key element of our business strategy.

We have a diverse base of more than 180,000 customers, and our top 10 customers accounted for approximately 5% of our 2015 Fiscal Year net sales, with no single customer accounting for more than 2% of net sales. Our typical customer is a private landscape contractor that operates in a single market. We interact regularly with our customers because of the recurring nature of landscape services and because most contractors buy products on an as-needed basis. We believe our high-touch customer service model strengthens relationships, builds loyalty and drives repeat business. In addition, our broad product portfolio, convenient branch locations and nationwide fleet of approximately 1,260 delivery vehicles position us well to meet the needs of our customers and ensure timely delivery of products.

Our strong supplier relationships support our ability to provide a broad selection of products at attractive prices. We believe we are the largest customer for many of our key suppliers, who benefit from the size and scale of our distribution network. We source our products from more than 2,000 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes and other landscape products. Some of our largest suppliers include Hunter, Rain Bird, Toro, Oldcastle, Bayer, Syngenta, BASF, Dow AgroSciences, Vista and NDS. We also develop and sell products under our proprietary and market-leading brands LESCO and Green Tech, which together accounted for approximately 21% of our 2015 Fiscal Year net sales. We believe these highly recognized brands attract customers to our branches and create incremental sales opportunities for other products.

We have a balanced mix of sales across product categories, construction sectors and end markets. We derived approximately 55% of our 2015 Fiscal Year net sales from the residential construction sector, 30% from the commercial (including institutional) construction sector and 15% from the recreational & other construction

 

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sector. By end market, we derived approximately 45% of our 2015 Fiscal Year net sales from the sale of maintenance products such as fertilizer and control products. Demand for maintenance products is typically stable, and the recurring nature of maintenance product sales helps to provide stability in our financial performance across economic cycles. The sale of products relating to new construction of homes, commercial buildings and recreational spaces accounted for approximately 37% of our 2015 Fiscal Year net sales. We expect sales in the new construction end market to continue to grow as a result of the ongoing recovery in demand for new single-family homes, multi-family housing units and non-residential buildings. Approximately 18% of our 2015 Fiscal Year net sales was derived from sales of products for the repair and upgrade of existing landscapes. These sales benefit from increasing existing home sales, increasing home prices and rising consumer spending.

Net Sales for 2015 Fiscal Year

 

LOGO

Over the past two years, we have completed ten acquisitions, and we intend to pursue additional acquisitions to complement our organic growth and achieve our strategic objectives. Our organic and acquisition-driven growth strategies have led to significant increases in net sales and Adjusted EBITDA. For our 2015 Fiscal Year, we generated net sales of $1.5 billion, Adjusted EBITDA of $112.6 million and net income of $28.9 million. See “Prospectus Summary—Summary Financial Data” for a reconciliation of our Adjusted EBITDA to net income (loss).

Our Executive Leadership

Doug Black joined us as our Chief Executive Officer in April 2014. Mr. Black is the former President and COO of Oldcastle, the North American arm of CRH plc, where he helped grow net sales by over ten times and oversaw more than 100 acquisitions, including Oldcastle’s expansion into building products distribution. Mr. Black has joined a strong operational team with top-tier associates who have positively contributed to our performance. Mr. Black has also strengthened the capabilities of our executive leadership team by bringing in highly qualified senior managers with functional expertise in strategy development, mergers and acquisitions, talent management, marketing, category management, supply chain management, national sales and information technology. These individuals have prior experience at a number of well-known companies within the building products and industrial distribution sectors, including Oldcastle, HD Supply, Grainger, MSC Industrial Direct, Wesco, Newell Rubbermaid and The Home Depot.

Under Mr. Black’s leadership, we have established a focused business strategy to develop and attract industry-leading talent, deliver more value to customers, generate superior financial performance, drive organic growth, execute on attractive acquisitions and increase working capital efficiency. We are also undertaking a variety of initiatives targeting pricing, category management, sales force performance and supply chain management. At the local level, we have increased our focus on gaining market share by adding capabilities to our 46 geographic areas and 477 branches and by empowering area managers and their teams to develop local strategies. These initiatives are in the early stages of implementation, and we believe they will continue to enhance our growth and profitability.

 

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Our Industry

Based on management’s estimates, we believe that our addressable market in North America for the wholesale distribution of landscape supplies represented approximately $16 billion in revenue in 2015. Growth in our industry is driven by a broad array of factors, including consumer spending, housing starts, existing home sales, home prices, commercial construction, repair and remodeling spending, and demographic trends. Within the wholesale landscape supply distribution industry, products sold for residential applications represent the largest construction sector, followed by the commercial and recreational & other sectors. Based on management estimates, we believe that nursery products represent the largest product category in the industry, with sales accounting for more than one-third of industry sales, followed by landscape accessories with approximately one-fifth of industry sales and each of control products, hardscapes, irrigation products and outdoor lighting, and fertilizer & other accounting for approximately one-tenth of industry sales.

The wholesale landscape supply distribution industry is highly fragmented, consisting primarily of regional private businesses that typically have a small geographic footprint, a limited product offering and limited supplier relationships. Wholesale landscape supply distributors primarily sell to landscape service firms, ranging from sole proprietorships to national enterprises. Landscape service firms include general landscape contractors and specialty landscape firms, such as lawn care, tree and foliage maintenance firms. Over the past decade, professional landscape contractors have increasingly offered additional products and services to meet their customers’ needs. These firms historically needed to make numerous trips to stores in various locations to source their products. Consequently, landscape professionals have come to value distribution partners who offer a “one-stop” shop with a larger variety of products and services, particularly given the recurring nature of landscape maintenance services.

According to an August 2015 Freedonia Group report, the U.S. wholesale landscape supply distribution industry was expected to grow at a CAGR meaningfully higher than that of the overall economy through 2019. Hardscape and outdoor lighting products were expected to grow the fastest of our major landscape product categories through 2019 at an estimated CAGR of 7.3% and 8.1%, respectively.

Residential Construction Sector Growth Trends

The purchase of a home, whether new or existing, is a common reason for upgrading or modifying lawns, gardens and other outdoor spaces. Industry surveys indicate that the majority of homeowners prefer to hire landscape professionals for help with their outdoor projects.

Growth in the market for landscape products is primarily driven by new residential construction. In 2015, the total number of U.S. housing starts was 1.1 million, significantly below the long-term median of 1.5 million. Housing starts are expected to grow 11.0% in 2016 to 1.2 million and 16.8% in 2017 to 1.4 million, according to the National Association of Home Builders. The chart below sets forth the total number of U.S. housing starts from 2000 through 2015, NAHB’s projected numbers for 2016 and 2017 and the long-term median (1959 - 2015).

Historical and projected U.S. total housing starts (in thousands)

 

LOGO

Source: U.S. Census Bureau, National Association of Homebuilders.

 

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Rising interest in more complex, decorative and functional landscaping spurred by the recent popularity of home and garden television shows and magazines has further boosted demand for professional landscape services. The increasingly popular concept of “outdoor living,” which involves relaxation, entertainment and spending more time with family and friends outdoors, continues to drive higher demand for landscape solutions that provide more functional living space and increase the value of the home. Freedonia projects that demand for outdoor lighting will increase as homeowners continue to enhance property values with architectural features, monuments and plants that warrant illumination during non-daylight hours. In addition, an increasing shift from AC to low voltage DC power sources and advances in LED technology simplify installation and facilitate more reliable and attractive outdoor lighting systems.

As residents face lawn watering restrictions resulting from recent drought conditions in the Western and Southern regions of the United States, demand for eco-friendly landscape products that promote water conservation has also grown meaningfully. This includes the use of hardscapes as lawn substitutes as well as smart water systems for increased water efficiency.

Another growth driver in our industry includes residential repair and remodel spending, which has historically been less cyclical than spending on new residential construction. According to the Home Improvement Research Institute’s report as of September 2015, the U.S. home improvement products market reached a peak of $300 billion in 2006 before declining by approximately 16% to $253 billion in 2009. The industry has since rebounded to an estimated $318 billion in 2015.

Driven by the rebound in existing home sales, rising home prices, the ongoing rehabilitation of previously foreclosed properties, the availability of consumer capital at low interest rates, the increasing age of U.S. housing stock and demand for energy-efficient projects, industry analysts expect significant long-term growth in residential repair and remodel expenditures. The Home Improvement Research Institute forecasts that the home improvement products market will grow at a CAGR of 4.4% from 2015 to 2017.

U.S. spending on home improvement products ($ in billions)

 

LOGO

Source: Home Improvement Research Institute

Commercial and Recreational Construction Sector Growth Trends

Demand for landscape products in the commercial and recreational construction sector is driven by factors such as new building construction and companies renovating the exteriors of their facilities to attract new customers and tenants. Additionally, eco-friendly landscape products are frequently specified by design professionals for use in commercial, institutional and municipal landscape irrigation applications. Technology solutions include fully integrated rainwater harvesting/reuse systems, organic fertilizers, remote water management systems, energy efficient pump systems and solar-powered irrigation controller assemblies.

 

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The non-residential construction market has rebounded strongly following the 2008 - 2009 recession with steady growth through 2015. According to Dodge Data & Analytics, U.S. non-residential construction spending is forecasted to grow 9.0% in 2016 and 9.3% in 2017. The chart below sets forth the total dollars spent on U.S. non-residential construction from 2006 to 2017.

U.S. non-residential construction spending ($ in billions)

 

LOGO

Source: Dodge Data & Analytics

Our Competitive Strengths

We believe we benefit from the following competitive strengths:

Clear Market Leader in an Attractive Industry

We are the largest wholesale distributor of landscape supplies in the United States. Based on our 2015 Fiscal Year net sales, we estimate that we are approximately four times the size of our largest competitor and larger than the next two through ten competitors combined. We believe, based on management’s estimates, that we have either the number one or number two local market position in nearly 80% of MSAs where we have at least one branch. Our industry is highly fragmented, comprised of thousands of small, private or family-run businesses that compete with us primarily on a local market basis. We are the only national distributor in the landscape supply industry, with an estimated market share of approximately 9% based on 2015 Fiscal Year net sales. As a result, we believe we have significant opportunities to increase our market share. Our national scale, broad product and service offering and market leadership also enable us to play an important role in the landscape supplies value chain by connecting a large and diverse set of manufacturers with a highly fragmented customer base.

Broadest Product Offering

We believe we offer the industry’s most comprehensive portfolio of landscape products with over 100,000 SKUs from more than 2,000 suppliers. This broad product offering creates a “one-stop” shop for our customers and positively distinguishes us from our competitors. We maintain a high standard of product availability and timely delivery, which generally allows our customers to avoid investing significant capital to maintain their own inventory. In addition, our branches order specialty products directly from suppliers on behalf of our customers, who thereby benefit from our national purchasing scale, and we are able to supply custom services and products, such as fertilizers and soil blends, to meet specific job requirements. We also provide several proprietary products, including our LESCO and Green Tech brands, as well as promotional items offered through arrangements with selected manufacturers.

Superior Customer Value

We offer a variety of complementary, value-added services to support the sale of our products. At the local branch level, we have teams of experienced sales and service associates, many of whom are former landscape

 

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contractors or golf course superintendents. Our local staff provides customers with consultative services such as product selection and support, assistance with the design and implementation of landscape projects, and potential sales leads for new business opportunities. Our sales and service associates also coordinate the delivery of customer orders and help us to maintain our high delivery standards and fill rates. In addition, through our SiteOne University, we provide customers with technical training, licensing and business management seminars. We also offer a loyalty program, which we refer to as our Partners Program, under which customers can earn points redeemable for gift cards, account credits and other attractive commercial benefits. Our Partners Program, which has more than 9,000 enrolled customers as of January 3, 2016, also offers customers the opportunity to leverage our national buying power to purchase services for their businesses and employees. We believe the services we provide are an important differentiator that enhances the strength and longevity of our customer relationships.

Strong and Scalable Platform for Driving Growth

Our national scale and geographic footprint make us an attractive partner for our customers and suppliers. Over the past year, we have invested in management, corporate infrastructure and information systems for operating a company significantly larger than our current scale. Our local area and branch managers benefit from the substantial business and industry knowledge of our executive and senior operational management teams to help grow our business in their markets. We believe our platform can be leveraged to expand our customer base and grow our business with existing products and services, as well as to support the launch of new product offerings in our existing markets. We expect our greatest opportunities to expand will be in markets in which we currently operate but do not yet have a leading market position in one or more of our product categories.

Proven Ability to Identify, Execute and Integrate Acquisitions

We are a leading player in the consolidation of the fragmented industry for wholesale distribution of landscape supplies. Our current management team has extensive experience in identifying, executing and integrating acquisitions. Our industry leadership position, geographic footprint, ability to integrate acquisitions and access to financial resources make us the buyer of choice for many of our potential targets and give us an advantage over competing potential acquirers. As a result, we are able to achieve attractive multiples in primarily negotiated transactions. Since the CD&R Acquisition in December 2013, we have completed the acquisition of ten companies, which we have integrated or are in the process of integrating into our business. A key element of our integration strategy is to achieve synergies at acquired companies from procurement, overhead cost reduction, sales initiatives and sharing of best practices across our organization. Our recent acquisitions have moved us into the leading position in several additional local markets or product categories. We expect the execution of synergistic acquisitions to continue to be an integral part of our growth strategy, and we intend to continue expanding our product line, geographic reach, market share and operational capabilities through future acquisitions.

Balanced Mix of Maintenance, New Construction and Repair and Upgrade Business

We have strategically invested in our product portfolio to position us to benefit from the ongoing recovery in the residential and commercial construction markets and to continue to benefit from stable growth of our maintenance products. We believe the new construction and repair and upgrade end markets provide us substantial upside in an economic upturn, and we are well-positioned to grow our business as a result of the continuing recovery in the housing sector and in construction spending for commercial buildings and facilities. In addition, our distribution of maintenance products provides a steady stream of more recurring sales, which we expect will further support our business through economic cycles. We believe our balanced sales mix in support of the maintenance, new construction and repair and upgrade end markets positions us to achieve consistent growth through our branch networks nationally.

 

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Experienced and Proven Management Team Driving Organic and Acquisition Growth

We believe our management team, including regional vice presidents, area managers and branch managers, is among the most experienced in the industry. Members of our executive leadership team have a strong track record of improving performance and successfully driving both internal and acquisitive growth during their tenure with SiteOne and prior to joining our company. Our team not only has a clearly defined operational strategy to promote growth and profitability for SiteOne but also an ambitious vision to be a world-class leader in the industry. We believe the scale of our business and our leading market position will allow us to continue to attract and develop industry-leading talent.

Our Strategies

We intend to leverage our competitive strengths to increase shareholder value through the following core strategies:

Build Upon Strong Customer and Supplier Relationships to Expand Organically

Our national footprint and broad supplier relationships, combined with our regular interaction with a large and diverse customer base, make us an important link in the supply chain for landscape products. Our suppliers benefit from access to our more than 180,000 customers, a single point of contact for improved production planning and efficiency, and our ability to bring new product launches quickly to market on a national scale. We intend to continue to increase our size and scale in customer, geographic and product reach, which we believe will continue to benefit our supplier base. Our customers in turn benefit from our local market leadership, talented associates, broad product offering and high inventory availability, timely delivery and complementary value-added services. We will continue to work with new and existing suppliers to maintain the most comprehensive product offering for our customers at competitive prices and enhance our role as a critical player in the supply chain. As we continue to grow, we believe our strong customer and supplier relationships will enable us to expand our market share in the landscape supplies industry.

Grow at the Local Level

The vast majority of our customers operate at a local level. We believe we can grow market share in our existing markets with limited capital investment by systematically executing local strategies to expand our customer base, increase the amount of our customers’ total spending with us, optimize our network of locations, coordinate multi-site deliveries, partner with strategic local suppliers, introduce new products and services, increase our share of underrepresented products in particular markets and improve sales force performance. We currently offer our full product line in only 23% of the U.S. MSAs where we have a branch, and therefore believe we have the capacity to offer significantly more product lines and services in our geographic markets.

Pursue Value-Enhancing Strategic Acquisitions

Through recently completed acquisitions, we have added new markets in the United States and Canada, new product lines, talented associates and operational best practices. In addition, we increased our sales by introducing products from our existing portfolio to customers of newly acquired companies. We intend to continue pursuing strategic acquisitions to grow our market share and enhance our local market leadership positions by taking advantage of our scale, operational experience and acquisition know-how to pursue and integrate attractive targets. We believe we have significant opportunities to add product categories in our existing markets through acquisitions. In addition, we currently have branches in 176 of the 381 U.S. MSAs and are focused on identifying and reviewing attractive new geographic markets for expansion through acquisitions. We will continue to apply a selective and disciplined acquisition strategy to maximize synergies obtained from enhanced sales and lower procurement and corporate costs.

 

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Execute on Identified Operational Initiatives

We have undertaken significant operational initiatives, utilizing our scale to improve our profitability, enhance supply chain efficiency, strengthen our pricing and category management capabilities, streamline and refine our marketing process and invest in more sophisticated information technology systems and data analytics. In addition, we work closely with our local area team leaders to improve sales, delivery and branch productivity. Although we are still in the early stages of these initiatives, they have already contributed to improvement in our profitability, and we believe we will continue to benefit from these and other operational improvements.

Be the Employer of Choice

We believe our associates are the key drivers of our success, and we aim to recruit, train, promote and retain the most talented and success-driven personnel in the industry. Our size and scale enable us to offer structured training and career path opportunities for our associates, while at the area and branch level we have built a vibrant and entrepreneurial culture that rewards performance. We promote ongoing, open and honest communication with our associates to ensure mutual trust, engagement and performance improvement. We believe that high-performing local leaders coupled with creative, adaptable and engaged associates are critical to our success and to maintaining our competitive position, and we are committed to being the employer of choice in our industry.

Our History and Ownership

Our company was established in 2001, when Deere entered the market for wholesale landscape distribution through the acquisition of McGinnis Farms, a supplier of irrigation and nursery products with branches located primarily in the Southeastern United States. Subsequent acquisitions under Deere’s ownership included Century Rain Aid in 2001, United Green Mark in 2005 and LESCO in 2007, each of which significantly expanded our geographic footprint and broadened our product portfolio.

In December 2013, the CD&R Investor acquired a majority stake in us. On December 23, 2013, we issued 174,000 shares of Preferred Stock to the CD&R Investor and 13,476,996 shares of common stock to Deere, with the Preferred Stock representing 60% of the outstanding capital stock of Holdings (on an as-converted basis) and the common stock representing the remaining 40% of the outstanding capital stock of Holdings (treating the Preferred Stock on an as-converted basis). The CD&R Investor was entitled to receive dividends in kind in respect of the Preferred Stock for the first two years following the CD&R Acquisition. As of the date of this prospectus, the CD&R Investor held 216,789 shares of Preferred Stock (representing 64.0% of the outstanding capital stock of Holdings (on an as-converted basis)) and the common stock held by Deere represented 34.1% of the outstanding capital stock of Holdings (assuming conversion of the Preferred Stock). Both the CD&R Investor and Deere are selling stockholders in this offering.

Following the CD&R Acquisition, we have revitalized our acquisition strategy and have acquired ten businesses in the last two years. The historical annual net sales of these businesses prior to their respective acquisition dates totaled more than $350 million.

Our Products and Markets

Our ability to provide a broad range of products is essential to our success. We believe we offer the industry’s most comprehensive portfolio of landscape products with over 100,000 SKUs from more than 2,000 suppliers. Our product portfolio includes irrigation, fertilizer & other, control products, landscape accessories, nursery goods, hardscapes and outdoor lighting products. In each of the 2015 Fiscal Year, 2014 Fiscal Year, 2013 Predecessor Period and 2013 Successor Period, sales of irrigation, fertilizer & other and control products each accounted for 10% or more of our net sales.

 

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Our customers value our product breadth and geographic reach, as well as our on-site expertise and consultative services. While pricing is important to our customers, availability, convenience and expertise are also important factors in their purchase decisions. In addition to other capabilities, our ability to offer the significant yard space and special equipment that items such as nursery goods and hardscapes require provides us with a competitive advantage over many competitors who offer a more limited selection of product categories.

 

 

LOGO

See Note 13 to our audited financial statements included in this prospectus for more information on our net sales in the maintenance (fertilizer & other and control products), irrigation and outdoor lighting, landscape accessories and hardscapes and nursery goods categories.

Irrigation

Our irrigation products include controllers, valves, sprinkler heads and irrigation and drainage pipes. The market for irrigation products has historically provided stable growth and is driven primarily by new home construction and maintenance of existing irrigation systems. We believe water conservation regulations and rising consumer interest in more complex decorative and functional landscaping will continue to drive demand for upgraded irrigation systems.

Fertilizer & Other

Our fertilizer & other products include fertilizer, grass seed and ice melt products. Fertilizer products are sold to the maintenance end market and accordingly are relatively stable through economic cycles.

 

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Control Products

Our control products are specialty products that include herbicides, fungicides, rodenticides and other pesticides. Similar to fertilizer products, control products sales are strongly tied to the maintenance end market and accordingly are relatively stable through economic cycles. We expect that future growth for control products will be aided by the introduction of new bio-pesticides derived from natural materials.

Landscape Accessories

Our landscape accessories products include mulches, soil amendments, tools and sod. Landscape accessories are typically sold in combination with other landscape supply products. As a result, sales of these accessories are tied to sales of spreaders and sprayers used to apply fertilizers and control products, as well as sales of nursery goods and hardscape products.

Nursery Goods

Our nursery goods include deciduous shrubs, evergreen shrubs and trees, ornamental trees, shade trees, both field grown and container-grown nursery stock and hundreds of plant species and cultivars available in a number of heights and bloom colors. We believe increased demand for nursery goods will be driven by the rising interest in outdoor living spaces, including patios, outdoor kitchens, open-air living rooms and decks that extend the living space to the outdoors. We also believe the nursery goods category represents a growth opportunity due to its size and our relatively low penetration of the market to date.

Outdoor Lighting

Our outdoor lighting products include accent lights, dark lights, path lights, up lights, down lights, wall lights and pool and aquatic area lighting. Outdoor lighting products are expected to grow at an estimated 8.1% through 2019, according to Freedonia, due in part to growing trends in outdoor living and an interest in improving the exterior appearance of homes. In addition, the recent shift from AC to low voltage DC power sources and advances in LED technology are expected to contribute to additional demand for outdoor lighting products.

Hardscapes

Hardscapes include paving stones, blocks and other durable materials. According to Freedonia, the hardscape market is expected to grow at an estimated CAGR of 7.3% through 2019. We believe that this trend, combined with our relatively low market share in hardscapes, provides us with a significant growth opportunity.

Proprietary Branded Products

In addition to distributing branded products of third parties, we offer products under our proprietary brands. Sales of LESCO and Green Tech together accounted for approximately 21% of our 2015 Fiscal Year net sales, the large majority of which is attributable to LESCO.

LESCO

We acquired LESCO and its associated brands in 2007. LESCO is a premium brand and maintains strong brand awareness with golf and professional landscape contractors.

Under the LESCO brand, we offer formulations of fertilizer (liquid and granular), combination products (pesticides on a fertilizer carrier), control products (liquid and granular pesticides), specialty chemicals, turf seed, application equipment (engine powered and walk behind or other non-engine powered), paint, maintenance

 

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products like engine oil, windshield washer, ice melt, trimmer line and soil tests. In 2015, we introduced Basic Seed and Basic Nutrition, “sub-brands” of LESCO, under which we offer fertilizer and landscape accessories. LESCO products are sold through our branches and retail outlets such as The Home Depot and Ace Hardware.

 

LOGO      LOGO      LOGO

Green Tech

We offer pre-packaged landscape and irrigation management solutions that are designed to help customers manage and conserve water under the Green Tech brand. The core Green Tech product lines include central irrigation control systems, solar assemblies, fertilizer injection systems, irrigation pumps and hand-held remote control equipment.

Services

We offer a variety of complementary, value-added services to support the sale of our products. We do not derive separate revenue for these services, but we believe they are an important differentiator in establishing our value proposition to our customers.

Product Knowledge and Technical Expertise

Consultative services provided by our local staff, many of whom are former landscape contractors or golf course superintendents, include product selection and support, assistance with design and implementation of landscape projects and potential sales leads for new business opportunities. Our SiteOne University program provides customers with access to substantive training and informational seminars that directly support the growth of their businesses. The program includes technical training, licensing, certifications and business management seminars. In addition, our product category experts provide technical knowledge on the features and benefits of products we provide as well as on job installation techniques.

Project Services

We partner with our customers by providing consultative services to help them save time, money and effort in bidding for new projects and for new landscape installations. Our regionally based project services teams specialize in quoting, estimating and completing sales for customers who compete in the commercial construction sector. Other services provided by our project services teams include specifications assistance and irrigation design.

Partners Program

We also offer a loyalty program, our Partners Program, which had more than 9,000 enrolled customers as of January 3, 2016 and provides business and personal rewards, access to preferred business services and technical training and support. Reward points may be spent, for example, on equipment purchases, credit awards, trips and special events, gift cards to major retailers and SiteOne University courses and educational events. Access to preferred business services includes, for example, payroll and select human resources services, cell phone services, office supplies, auto and fleet insurance and fuel rebates. For the 2015 Fiscal Year, Partners Program participants accounted for approximately 45% of our net sales.

Operational Structure

Our operational philosophy is to create local area teams and branch networks specifically designed to best meet our customers’ needs at the local market level, while supporting these teams with the resources of a large company delivered through regional and divisional management, including company-wide corporate functions.

 

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At the local market level, we organize our 477 branches and approximately 300 outside sales representatives into 46 designated “areas” that each serve a defined geography, typically a large MSA or a combination of MSAs in close proximity. Area managers are responsible for organization and talent planning, branch operations, sales strategy and product delivery strategy. Area managers are supported by an area business manager responsible for executing the local market strategies and key initiatives to grow sales and profitability. Branch managers report to the area business manager, while outside sales representatives report to the area manager directly.

We support our 477 branches and 46 areas with regional management and company-wide corporate functions providing: management of business performance; development and execution of local strategies; sharing of best practices; execution and integration of acquisitions; finance and accounting expertise (credit/collections, payables); category management and procurement; supply chain (planners, buyers); pricing strategies; marketing; and information technology. All of our branches are integrated on a single technology platform, allowing us to leverage our full operational scale for procurement, inventory management, financial support, data analytics and performance reporting.

Sales

We are the largest and only national wholesale distributor of landscape supplies in the United States, and we have a growing presence in Canada. We have an extensive North American platform of 477 branch locations in 44 states and five provinces. Approximately 98% of our 2015 Fiscal Year net sales were within the United States.

 

LOGO

Our approximately 300 outside sales representatives and approximately 2,500 field employees have regular interaction with our customers due to the recurring nature of landscape services and the fact that most contractors

 

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tend to buy products on an as-needed basis. We rely heavily on local teams for sales, marketing and strategy execution, with our strategic marketing initiatives supported by company-wide customer analytics and programs in order to drive acquisition and retention of customers. Our high-touch customer service model strengthens relationships, builds loyalty and drives repeat business with our customers.

Our outside sales force is organized by geographic area and specialty. Each area maintains a number of outside sales representatives who drive sales growth on behalf of several branches across a variety of accounts from landscape contractors to municipal agencies. We also maintain a sales force of agronomic sales representatives who are focused on growing sales to the golf industry.

We have a national account sales organization which leads sales strategy and execution for our largest national and regional customers. The national sales team is organized around four different market sectors: landscape and grounds maintenance, golf, retail and international. Each national account manager is responsible for a group of large accounts and coordinates our business with them both nationally and locally through our local sales representatives. National account managers negotiate national programs with our largest customers in order to increase our share of their business.

Pricing

Our pricing strategy is developed nationally and deployed locally with input from regional and area managers to adjust for market-specific conditions. Depending upon the local competitive dynamics, pricing can be tailored to the region, market or customer level as needed. Our pricing team monitors market supply and demand trends that impact our supplier community and customer base and is able to adjust pricing based upon those trends in order to remain competitive.

Category Management

Our category management initiatives are developed at the national level, with input from local and regional level management. We track product demand, market size and share and we use this information to improve our product mix and select appropriate suppliers. We believe these initiatives enable us to provide improved service to customers and drive supply chain efficiencies, leading to increased market share and margin growth. We have a dedicated team for each category, which enables us to build specific category strategies that are nationally based but can be, through a series of menu options, tailored to support a specific region or area.

Marketing

Our marketing department is integral to our strategy and helps drive the business through brand management, print marketing, including catalogs and promotional fliers, and digital marketing, which includes search engine optimization and website development. Our marketing department is also responsible for customer management and is focused on developing ways to successfully acquire, retain and reactivate customers. We also focus on branch merchandising by evaluating our customers’ buying patterns and seeking opportunities to show case products that we believe will attract customer interest and help promote our “one-stop” shop capabilities.

Distribution Network

We use two distribution models to offer a comprehensive selection of products and meet the needs of each local market.

Branches

Our branch network is the core of our operations. Our branches receive products in large quantities from our suppliers. Once received from suppliers, products are stored and merchandised in smaller, less-than-truckload quantities for sale to our customers. Our branches provide various services such as repackaging several product types required by our customers for a particular job.

 

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Branches are strategically located near residential areas with good highway access. In-store merchandising displays are utilized to emphasize product features and seasonal promotions. We primarily lease 5,000 to 15,000 square foot facilities in both freestanding and multi-tenant buildings, with secured outside storage yards averaging from 10,000 to 20,000 square feet in some branches.

Our branch network connects large landscape product producers with smaller volume landscape contractors whose consumption patterns tend to make them uneconomical to be served directly by producers. The breadth of our landscape product offerings allows us to provide customers with complete solutions for their project needs as they are able to obtain small volumes of many different products from us more efficiently and economically than if they dealt directly with multiple suppliers or distributors. Our network of branches allows us to service most customers from multiple locations and also enables us to move products efficiently and economically throughout our branch system to service customers on a timely basis.

The majority of our branches carry multiple product categories but do not carry all of them. Branches that carry our full product lines combine our regular branch facilities with large 8-to-15 acre yards suitable for nursery goods and hardscape products. Yards are well-equipped to manage truckload-purchased landscape, nursery and hardscape products and can maintain a diverse variety of greenhouse and nursery plants. All locations offering nursery goods have water distribution systems to maintain inventories, and many of these locations have access to municipal water supply, wells or ponds.

Direct Distribution

Our direct distribution business provides point-to-point logistics for full truckloads or larger quantities of landscape products between producers and customers. Our direct distribution business provides customers with sourcing and logistics support services for inventory management and delivery, in many cases more economically than the producers might otherwise provide. We believe that producers view us not as competitors but as providers of a valuable service, brokering these large orders through the use of our network. We typically do not maintain inventory for direct distribution but rather use our existing producer relationships, marketing expertise and ordering and logistics infrastructure to serve this demand, requiring less working capital investment for these sales. Approximately 7% of our 2015 Fiscal Year net sales were from direct distribution.

Direct distribution is preferred for contractors with large projects, typically designed by professional landscape architects. Contractors work hand-in-hand with our outside sales and inside sales teams, including project planning support with material take-offs, product sourcing and bid preparation. Using our large vendor network, our associates arrange convenient direct shipments to jobs, coordinated and staged according to each phase of construction. This distribution channel primarily handles bulk nursery, agronomic, landscape and hardscape products.

Construction Sectors

We supply products primarily to contractors in the residential, commercial and recreational & other construction sectors. Approximately 55% of our 2015 Fiscal Year net sales derived from the residential sector, 30% from the commercial sector and 15% from the recreational & other construction sector.

Residential

Our residential sector includes installation work (e.g., irrigation systems, nursery goods, outdoor lighting, hardscapes, etc.) for new single-family and multi-family housing as well as repair, upgrade and maintenance activities for existing homes. Demand in our residential sector is primarily influenced by general economic conditions, population growth, employment levels, mortgage rates and consumer spending. Many of the customers we serve in this sector are small, local landscape service companies and installers.

 

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Commercial

Our commercial sector includes products for landscape installation, repair, upgrade and maintenance for non-residential buildings, such as office space, hotels, retail centers, manufacturing plants, warehouses, schools, hospitals and government facilities. The key drivers for this sector are general levels of economic activity, vacancy rates and government spending. Customers in this sector include small, private landscape contractors as well as larger, more regionally-focused landscape firms.

Recreational & Other

Our recreational sector consists primarily of the sale of maintenance products to golf courses. We also include within this sector our sales to other recreational facilities, such as parks, athletic fields and outdoor resorts; sales to infrastructure-related projects for federal, state and municipal governments; and sales to other customers unrelated to residential or commercial construction. Key drivers of this sector are consumer confidence, levels of recreational activity and government spending. A large proportion of the customers in this sector are facility operators who buy directly from us instead of using an intermediary landscape contractor.

End Markets

Our sales can be broken down into three separate end markets: (1) landscape maintenance, (2) the installation of landscape materials for new construction and (3) the repair and upgrade of existing landscaping. These categories accounted for 45%, 37% and 18%, respectively, of our 2015 net sales.

Maintenance

We sell a variety of items that are designed to maintain the health of existing landscaping, such as fertilizers and control products, pesticides and herbicides. Ice melt is also a significant maintenance product that is used to maintain walkways and driveways during cold weather periods. Our maintenance sales tend to be more stable through economic cycles than our sales for either the new construction or repair and upgrade end markets.

New Construction

We sell a variety of products that are frequently installed during the construction of new single-family or multi-family residences. These items typically include irrigation systems, nursery goods, outdoor lighting and hardscapes. These products are also frequently installed by our customers during the construction of non-residential buildings, such as commercial office space and retail centers, though often on a much larger scale. Our sales and service associates have significant expertise and tools available to assist customers with the planning and design of new landscape installations, including irrigation networks, which positively differentiates us from competitors and creates substantial value for our customers.

Repair and Upgrade

Similar to new construction, repair and upgrade of existing landscaping is common and can be triggered by a number of potential factors and events, including changing consumer preferences, home prices, environmental regulations, weather damage, product obsolescence and technological improvements. In particular, a recent or pending sale of a home has been cited as a key driver of residential repair and upgrade activity. The same types of products we sell for new construction are generally sold to our customers for repair and upgrade projects.

Customers

Our customers are primarily residential and commercial landscape professionals who specialize in the design, installation and maintenance of lawns, gardens, golf courses and other outdoor spaces. Our customer base consists of more than 180,000 firms and individuals, with our top 10 customers accounting for approximately 5%

 

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of our 2015 Fiscal Year net sales, with no single customer accounting for more than 2% of net sales. Small customers, with purchases of up to $10,000, made up 17% of our 2015 Fiscal Year net sales. Medium customers, with purchases between $10,000 and $200,000, made up 54% of our 2015 Fiscal Year net sales. Large customers, with purchases over $200,000, made up 28% of our 2015 Fiscal Year net sales. Some of our largest customers include BrightView, The Home Depot, Davey Tree Expert Company and TruGreen. Distribution of our LESCO proprietary branded products on a wholesale basis to retailers represented approximately 1% of our 2015 Fiscal Year net sales.

Suppliers

Our market leadership, coast-to-coast market presence, broad product selection and extensive technical expertise have allowed us to develop strong relationships with our suppliers. Our size and broad national network make us an attractive partner for many industry-leading manufacturers, which has allowed us to maintain strong, long-term relationships with our supply base. Our scale advantages also lead to larger volume-based rebates, and we believe we are generally able to negotiate more favorable purchasing terms than many of our smaller competitors in the industry.

We source our products from more than 2,000 suppliers, including the major irrigation equipment manufacturers, turf and ornamental fertilizer/chemical companies, and a variety of suppliers who specialize in nursery goods, outdoor lighting, hardscapes and other landscape products. Some of our largest suppliers include Hunter, Rain Bird, Toro, Oldcastle, Bayer, Syngenta, BASF, Dow AgroSciences, Vista and NDS. Purchases from our top 10 suppliers accounted for approximately 40% of total purchases for our 2015 Fiscal Year.

 

 

Irrigation     Fertilizer &
Other
    Control
Products
    Landscape
Accessories
    Nursery

Goods

    Hardscapes     Outdoor
Lighting

Hunter

Rain Bird

Toro

    Knox

Dupont

Lebanon

    Syngenta

Dow
 AgroSciences

BASF

Bayer

    Garick

Corona

NDS

    Flowerwood
 Nursery

Monrovia
Growers

    Oldcastle

Pavestone

    Vista

FX Luminaire

We generally procure our products through purchase orders rather than under long-term contracts with firm commitments. We work to develop strong relationships with a select group of suppliers that we target based on a number of factors, including brand and market recognition, price, quality, product support and service, service levels, delivery terms and their strategic positioning. We generally have annual supplier agreements, and while they generally do not provide for specific product pricing, many include volume-based financial incentives that we earn by meeting or exceeding target purchase volumes. Our ability to earn these volume-based incentives is an important factor in our financial results. In limited cases, we have entered into supply contracts with terms that exceed one year for the manufacture of our LESCO branded fertilizer and some nursery goods and grass seed, which may require us to purchase products in the future.

Competition

The majority of our competition comes from other wholesale landscape supply distributors. Among wholesale distributors, we primarily compete against a small number of regional distributors and many small, local, privately-owned distributors. Some of our competitors carry several product categories, while others mainly focus on one product category such as irrigation, fertilizer/control, nursery goods or hardscapes. SiteOne is one of the only wholesale distributors which carries the full line of irrigation, fertilizer & other, control products, landscape accessories, nursery goods, hardscapes and outdoor lighting products.

We believe our top nine largest competitors include Ewing, Harrell’s, Horizon Distributors (a subsidiary of Pool Corporation), Imperial Sprinkler Supply, Central Turf & Irrigation Supply, Atlantic Irrigation, Reinders, FIS Outdoor and Longhorn.

 

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We believe smaller, regional or local competitors still comprise approximately 91% of the landscape supply industry based on 2015 net sales. The principal competitive factors in our business include, but are not limited to, location, availability of materials and supplies, technical product knowledge and expertise, advisory or other service capabilities, delivery capabilities, pricing of products and availability of credit.

Properties

Our corporate headquarters are located on leased premises at Mansell Overlook, 300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076. Our corporate headquarters is approximately 43,000 square feet and the lease will expire in April 2026.

We and our operating companies own and lease a variety of facilities in 44 states and five provinces for branch operations, offices and storage. We primarily lease 5,000 to 15,000 square foot facilities in both freestanding and multi-tenant buildings, with secured outside storage yards averaging from 10,000 to 20,000 square feet in some branches. The significant majority of our facilities are subject to operating leases, and we own 15 properties. As of the date of this prospectus, we operated 477 branches in the following locations:

 

State /Province

  

Number of Locations

California

  

53

Florida

  

50

Texas

  

36

North Carolina

   30

Massachusetts

   21

Michigan

  

18

New Jersey

  

18

Ohio

   16

Georgia

   15

South Carolina

  

15

Illinois

   15

New York

   15

Pennsylvania

  

13

Connecticut

  

12

Maryland

  

12

Virginia

  

12

Indiana

  

11

Tennessee

   11

Alabama

   10

Missouri

   7

Minnesota

   6

Oklahoma

   6

Arizona

   5

Kansas

   5

Washington

   5

State /Province

  

Number of Locations

Wisconsin    5
Colorado    4

New Hampshire

  

4

Oregon

  

4

Utah

  

4

Hawaii

  

3

Idaho

  

3

Kentucky

  

3

Nebraska

  

3

Delaware

  

2

Iowa

  

2

Louisiana

  

2

Mississippi

  

2

Arkansas

  

1

Maine

  

1

New Mexico

  

1

Nevada

  

1

Rhode Island

  

1

South Dakota

  

1

British Columbia

  

4

Ontario

  

4

Alberta

  

3

Manitoba

  

1

Saskatchewan

  

1

  
 

 

Employees

As of January 3, 2016, we had approximately 2,850 associates, none of whom were affiliated with labor unions. We believe that we have good relations with our associates. Additionally, we believe that the training provided through our development programs and our entrepreneurial, performance-based culture provides significant benefits to our associates. Approximately 94% of our associates are employed on a full-time, year-round basis. Our employee count currently includes approximately 23 seasonal associates, who are temporarily employed due to the weather-dependent nature of our business.

 

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Our Brand

We transitioned from using variations on the Deere name and logo to using the SiteOne brand name as of December 31, 2015. We believe the SiteOne name highlights the benefits of our “one-stop” shop business model, whereby professional landscape contractors can fulfill their landscape product needs in one place.

We believe that our strong customer and supplier relationships have led to the rapid acceptance of our new brand that supports our mission of providing top quality services and products to our customers.

Service Marks, Trademarks and Trade Names

We hold various trademark registrations, including SiteOne and LESCO, which we consider important to our marketing activities. Generally, trademark rights have a perpetual life, provided that they are renewed on a timely basis and continue to be used properly as trademarks. We intend to maintain these trademark registrations and the other trademarks associated with our business so long as they remain valuable to our business. In addition, other than commercially available software licenses, we do not believe that any of our licenses for third-party intellectual property are material to our business, taken as a whole.

Weather Conditions and Seasonality

In a typical year, our operating results are impacted by seasonality. Typically, our net sales and net income have been higher in the second and third quarters of each fiscal year due to favorable weather and longer daylight conditions during these quarters. Our net sales have been significantly lower in the first and fourth quarters due to lower landscaping, irrigation and turf maintenance activities in these quarters, and we have typically incurred net losses in these quarters. Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as snow or rain, which can not only impact the demand for certain products like fertilizer and ice melt but also delay construction projects where our products are used.

Regulatory Compliance

Government Regulations

We are subject to various federal, state, provincial and local laws and regulations, compliance with which increases our operating costs, limits or restricts the products and services we provide or the methods by which we offer and sell those products and services or conduct our business and subjects us to the possibility of regulatory actions or proceedings. Noncompliance with these laws and regulations can subject us to fines or various forms of civil or criminal prosecution, any of which could have a material adverse effect on our reputation, business, financial position, results of operations and cash flows.

These federal, state, provincial and local laws and regulations include laws relating to consumer protection, wage and hour, deceptive trade practices, permitting and licensing, state contractor laws, workers’ safety, tax, healthcare reforms, collective bargaining and other labor matters, environmental and employee benefits.

Environmental, Health and Safety Matters

We are subject to numerous federal, state, provincial and local environmental, health and safety laws and regulations, including laws that regulate the emission or discharge of materials into the environment, govern the use, handling, treatment, storage, disposal and management of hazardous substances and wastes, protect the health and safety of our employees and users of our products and impose liability for investigating and remediating, and damages resulting from, present and past releases of hazardous substances at sites we have ever owned, leased or operated or used as a disposal site.

In the United States, we are regulated under many environmental, health and safety laws, including the Comprehensive Environmental Response, Compensation and Liability Act, the Federal Environmental Pesticide

 

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Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Clean Air Act, the Clean Water Act and the Occupational Safety and Health Act, each as amended. Certain laws, such as those requiring the registration of herbicides and pesticides, and regulating their use, also involve the oversight of regulatory authorities and public health agencies. Although we strive to comply with such laws and have processes in place designed to achieve compliance, we may be unable to prevent violations of these or other laws from occurring. We could also incur significant investigation and clean-up costs for contamination at any currently or formerly owned or operated facilities, including LESCO’s manufacturing and blending facilities.

In addition, we cannot predict the effect of possible future environmental, health or safety laws on our operations. Changes in, or new interpretations of, existing laws, regulations or enforcement policies, the discovery of previously unknown contamination, or the imposition of other environmental liabilities or obligations in the future, including obligations with respect to any potential health hazards of our products, may lead to additional compliance or other costs.

Legal Proceedings

We are not currently involved in any material litigation or arbitration. We anticipate that, similar to the rest of the landscape supply industry, we will be subject to litigation and arbitration from time to time in the ordinary course of business. At this time, we do not expect any of these proceedings to have a material effect on our reputation, business, financial position, results of operations or cash flows. However, we can give no assurance that the results of any such proceedings will not materially affect our reputation, business, financial position, results of operations and cash flows.

 

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MANAGEMENT

Directors and Executive Officers

The following table sets forth information about our directors and executive officers as of April 29, 2016.

 

Name

   Age     

Present Positions

Paul S. Pressler

     59       Chairman

Doug Black

     51       Chief Executive Officer, Director

John Guthrie

     50       Executive Vice President, Chief Financial Officer and Assistant Secretary

Pascal Convers

     51       Executive Vice President, Strategy and Development

Ross Anker

     52       Executive Vice President, Category Management, Marketing and IT

Briley Brisendine

     45       Executive Vice President, General Counsel and Secretary

Joseph Ketter

     47       Senior Vice President, Human Resources

William W. Douglas, III

     55       Director

Kenneth A. Giuriceo

     42       Director

John Lagemann

     57       Director

Wes Robinson

     51       Director

David H. Wasserman

     49       Director

Jack L. Wyszomierski

     60       Director

Paul S. Pressler has served as Chairman of the board of directors since December 2013. Mr. Pressler joined CD&R in 2009 and is currently Chairman of David’s Bridal, Inc. and served as Chairman of AssuraMed Holding, Inc. from 2010 to 2013. From 2002 to 2007, Mr. Pressler served as President and Chief Executive Officer of Gap Inc. Previously, he spent 15 years in senior leadership roles with The Walt Disney Company, including Chairman of the global theme park and resorts division, President of Disneyland and President of The Disney Stores. Mr. Pressler serves on the boards of The DryBar, Inc. and eBay Inc. He holds a B.S. in Business Economics from the State University of New York at Oneonta. Mr. Pressler’s extensive executive and financial experience and experience as a director of other businesses qualify him to serve on our board of directors.

Doug Black has served as SiteOne’s Chief Executive Officer since April of 2014. Prior to joining SiteOne, Mr. Black was President and Chief Operating Officer of Oldcastle Inc., an integrated building materials manufacturer and distributor and a wholly owned subsidiary of Irish-based CRH plc. During his 18-year career with Oldcastle, Mr. Black led the company’s entry into building products distribution and then held several senior leadership roles including Chief Operating Officer and Chief Executive Officer of Oldcastle Architectural Products, and Chief Operating Officer and Chief Executive Officer of Oldcastle Materials. Prior to Oldcastle, Mr. Black’s business career began at McKinsey & Company in 1992 where he led strategy, sales force effectiveness and plant improvement projects in the telecommunications, airline, lumber, paper and packaging industries. While serving as a U.S. Army Engineer Officer from 1986 to 1990, he completed construction projects in the Southeastern U.S., Central America and South America. Mr. Black earned an M.B.A. from Duke University’s Fuqua School of Business as a Fuqua Scholar and a B.S. in Mathematical Science/Civil Engineering from the U.S. Military Academy, West Point, where he was an AP all-American fullback and NCAA Scholar Athlete. Mr. Black’s intimate knowledge of our day-to-day operations as Chief Executive Officer, his prior role as a management consultant and his extensive experience working in this industry qualify him to serve on our board of directors.

John Guthrie serves as SiteOne’s Executive Vice President, Chief Financial Officer and Assistant Secretary. Mr. Guthrie joined SiteOne as head of finance shortly after it was formed in 2001 and has been instrumental in helping SiteOne build its market leading position. In addition to his financial leadership role, Mr. Guthrie has also been responsible for Human Resources, Procurement, IT and Region Management. Mr. Guthrie joined SiteOne from Deere & Company where he held various positions in finance. Mr. Guthrie has

 

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also held positions in engineering and manufacturing at Commonwealth Edison and Turtle Wax. Mr. Guthrie earned B.S. in Chemical Engineering from the University of Illinois and an M.B.A. from the University of Chicago.

Pascal Convers joined SiteOne in July 2014 and serves as our Executive Vice President of Strategy and Development. Prior to joining SiteOne, Mr. Convers held a number of senior leadership positions over the course of 10 years at CRH plc, a leading construction materials companies. From 2009 to 2014, he served as Senior Vice President of Strategy and Development for Oldcastle Materials, a division of CRH. He has also served as CRH’s Managing Director for concrete operations in France. Prior to CRH, Mr. Convers spent 13 years at Eastman Chemical Company, where he held senior leadership roles in Europe, North America and Asia Pacific. Mr. Convers holds a B.S. in Chemical Engineering from the National School of Chemistry in Rennes, France, an M.S. in Materials and Processing from Ecole Des Mines de Paris, and an M.B.A from Duke University.

Ross Anker joined SiteOne as Executive Vice President of Category Management, Marketing and IT in October of 2014. His responsibilities extended to include IT in May of 2015. Prior to joining SiteOne, Mr. Anker was Vice President of Category Management at HD Supply supporting the construction division, White Cap. From 1996 to 2006, he held the position of Senior Vice President of Product Management, Marketing, IT and 6 Sigma at MSC Industrial Supply. This role also included responsibility for the strategic team and two subsidiaries, Enco and SPI. In 1993, Mr. Anker founded a computer consultancy firm and supported customers such as RR Donnelly & Sons and MSC Industrial Supply. Prior to this, Mr. Anker held senior positions within a number of consultancy firms in the United Kingdom. Mr. Anker holds a B.S. in Computer Science from North Staffordshire University in England.

Briley Brisendine joined SiteOne as Executive Vice President, General Counsel and Secretary in September 2015. Prior to joining SiteOne, Mr. Brisendine spent 12 years at The Home Depot, Inc., where he held a number of senior leadership positions in the legal department. For a portion of his time at The Home Depot, he helped grow the HD Supply division through a number of acquisitions and served as the division’s primary counsel. Most recently, he served as Vice President and Deputy General Counsel of The Home Depot, with responsibility for all legal issues related to securities and corporate governance, corporate finance, store operations, privacy, tax, real estate, international, M&A and general corporate matters. Mr. Brisendine also managed The Home Depot’s Risk Management department. Prior to joining The Home Depot, he spent seven years as an attorney at McKenna, Long & Aldridge, LLP, a national law firm, where he focused on securities, corporate governance and M&A matters. Mr. Brisendine holds a B.A. in Finance from Wofford College and a Juris Doctorate from the Walter F. George School of Law at Mercer University.

Joseph Ketter joined SiteOne as Senior Vice President of Human Resources in July 2015. Prior to joining SiteOne, Mr. Ketter served as the Executive Vice President of Human Resources for Graham Packaging, where he led global human resources. Previously, Mr. Ketter held a number of senior human resources leadership positions over the course of 19 years at Newell Rubbermaid, a leading manufacturer and marketer of consumer and commercial products. In his last role with Newell Rubbermaid (Senior Vice President of Human Resources—Development) he reported to the Chief Development Officer and provided strategic human resources support to multiple divisions. Mr. Ketter holds a B.A. in Human Resource Management and Management from Ohio University and graduated from Cooper Industries’ Employee Relations Training Program.

William (Bill) W. Douglas, III has served as one of our directors since April 2016. Mr. Douglas serves as Executive Vice President of Coca-Cola Enterprises, Inc. (“CCE”), one of the largest independent bottlers for The Coca-Cola Company that operates across seven countries in Europe. Mr. Douglas has announced his plans to retire from CCE in June 2016. He served as Executive Vice President, Supply Chain at CCE until April 2015. Prior to that, he was Executive Vice President & Chief Financial Officer of CCE from May 2008 to October 2013, Senior Vice President and Chief Financial Officer of CCE from May 2005 to May 2008, and Vice President, Controller and Principal Accounting Officer from July 2004 until May 2005. Prior to joining CCE,

 

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Mr. Douglas served as Chief Financial Officer of Coca-Cola HBC, one of the largest bottlers of non-alcoholic beverages in Europe. Mr. Douglas received a degree in Accounting from the J.M. Tull School of Accounting at the University of Georgia. Mr. Douglas’ extensive executive, financial reporting, mergers & acquisitions and supply chain experience qualify him to serve on our board of directors.

Kenneth A. Giuriceo has served as one of our directors since December 2013. Mr. Giuriceo has been with CD&R for 11 years. He leads or co-leads CD&R’s investments in SiteOne, David’s Bridal, Inc., Healogics Holding Corp. and TruGreen Holding Corporation, as he did with the investments in Envision Healthcare Holdings, Inc., Sally Beauty Holdings, Inc. and ServiceMaster Global Holdings, Inc. Prior to joining CD&R, Mr. Giuriceo worked in the Principal Investment Area and Investment Banking Division of Goldman, Sachs & Co. He is a director of David’s Bridal, Inc., Healogics Holding Corp., US Foods, Inc. and TruGreen Holding Corporation and a former director of Envision Healthcare Holdings, Inc., Sally Beauty Holdings, Inc. and ServiceMaster Global Holdings, Inc. Mr. Giuriceo earned a B.S. from Boston College and an M.B.A. from Harvard Business School. Mr. Giuriceo’s extensive executive and financial experience, knowledge of the capital markets, and experience as a director of other businesses qualify him to serve on our board of directors.

John Lagemann has served as one of our directors since December 2013. Mr. Lagemann is Senior Vice President, Sales & Marketing in the Agriculture and Turf Division of Deere, a position he has held since September 2012. In this position, John is responsible for sales and go-to market activities in the Americas and Australia, and Global Marketing Sales Services. Mr. Lagemann joined Deere as a marketing representative at the Kansas City Sales Branch in 1982. He worked with dealers and customers in various field assignments at the Kansas City Sales Branch until 1994. He was named Manager, Factory Marketing at John Deere Harvester Works in 1994 and became manager of Deere’s operations in Australia, New Zealand, and East Asia in 1999. Mr. Lagemann was named Vice President of Sales for the United States and Canada in 2002. In May 2009, he was appointed Vice President, Agriculture and Turf Sales and Marketing for the United States, Canada, Australia and New Zealand. Mr. Lagemann earned his bachelor’s degree in Feed Science and Management and his M.B.A. from Kansas State University. Mr. Lagemann brings to our board his leadership, financial and core business skills, his extensive experience in marketing and his intimate knowledge of our business, all of which qualify him to serve on our board of directors.

Wes Robinson has served as one of our directors since December 2013. Mr. Robinson is currently Director, Corporate Business Development at Deere & Company and has been with Deere since 2007. In this role, Mr. Robinson leads global initiatives for all acquisitions, divestitures and joint ventures. From 2011 to 2013, he served Deere as Director, Global Corporate Finance. He has also served as Manager, Corporate Business Development. Before joining Deere, Mr. Robinson held leadership positions in business development at Purina Mills LLC and Koch Industries. Mr. Robinson holds a B.S. in Agriculture from Oklahoma State University and an M.B.A. from Vanderbilt University. Mr. Robinson’s intimate knowledge of our business and his experience at Deere give him beneficial insight into our capital and liquidity needs, in addition to our challenges, opportunities and operations, which qualify him to serve on our board of directors.

David H. Wasserman has served as one of our directors since December 2013. Mr. Wasserman has been with CD&R for 17 years and is a member of CD&R’s Management and Investment Committees. Mr. Wasserman is currently a director at Univar Inc., ServiceMaster Global Holdings, Inc. and Solenis International L.P. He previously served on the boards of Kinko’s, Inc., Covansys Corporation, Culligan Ltd., Hertz Global Holdings, Inc. and ICO Global Communications (Holdings) Limited. Before joining CD&R, Mr. Wasserman worked in the Principal Investment Area at Goldman, Sachs & Co. and as a management consultant at Monitor Company. He is a graduate of Amherst College and holds an M.B.A. from Harvard Business School. Mr. Wasserman’s extensive knowledge of the capital markets, experience as a management consultant and experience as a director of other distribution businesses with nationwide locations give him beneficial insight into our capital and liquidity needs, in addition to our challenges, opportunities and operations and qualify him to serve on our board of directors.

Jack L. Wyszomierski has served as one of our directors since April 2016. From June 2004 to June 2009, Mr. Wyszomierski served as the Executive Vice President and Chief Financial Officer of VWR International,

 

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LLC, a supplier of laboratory supplies, equipment and supply chain solutions to the global research laboratory industry. From 1982 to 2003, Mr. Wyszomierski held positions of increasing responsibility within the finance group at Schering-Plough Corporation, a health care company, culminating with his appointment as Executive Vice President and Chief Financial Officer in 1996. Prior to joining Schering-Plough, he was responsible for capitalization planning at Joy Manufacturing Company, a producer of mining equipment, and was a management consultant at Data Resources, Inc. Mr. Wyszomierski currently serves on the Board of Directors of Athersys, Inc., Exelixis, Inc. and Xoma, Ltd. He previously served on the Board of Directors of Unigene Laboratories, Inc. He holds an M.S. in Industrial Administration and a B.S. in Administration, Management Science and Economics from Carnegie Mellon University. Mr. Wyszomierski’s extensive executive, financial reporting and accounting experience, and his service as a director and audit committee member of other public companies, qualify him to serve on our board of directors.

Board Composition and Director Independence

Our board of directors is composed of eight directors. Our amended and restated certificate of incorporation provides for a classified board of directors, with members of each class serving staggered three-year terms. We will have two directors in Class I (Messrs. Douglas and Wasserman), three directors in Class II (Messrs. Black, Pressler and Wyszomierski) and three directors in Class III (Messrs. Giuriceo, Lagemann and Robinson). Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. See “Description of Capital Stock—Anti-Takeover Effects of our Certificate of Incorporation and By-Laws—Classified Board of Directors.”

In addition, under the amended stockholders agreement, the CD&R Investor and Deere will have the right to designate nominees for our board of directors, whom we refer to as the CD&R Designees and Deere Designees, respectively, subject to the maintenance of specified ownership requirements. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”

Our board of directors is led by our non-executive Chairman, Mr. Pressler, a CD&R Designee. The amended stockholders agreement will provide that a CD&R Designee will serve as our Chairman of the board of directors as long as the CD&R Affiliates own at least 25% of the outstanding shares of our common stock.

The number of members on our board of directors may be fixed by resolution adopted from time to time by the board of directors. Subject to our amended stockholders agreement, any vacancies or newly created directorships may be filled only by the affirmative vote of a majority of directors then in office, even if less than a quorum, or by a sole remaining director. Each director shall hold office until his or her successor has been duly elected and qualified, or until his or her earlier death, resignation or removal.

With respect to any vacancy of a CD&R-designated or Deere-designated director, the CD&R Investor and Deere, respectively, will have the right to designate a new director for election by a majority of the remaining directors then in office.

Our board of directors has determined that Messrs. Douglas and Wyszomierski are “independent” as defined under the applicable stock exchange rules and the Exchange Act and rules and regulations promulgated thereunder.

Controlled Company

After the completion of this offering, we anticipate that the CD&R Investor and Deere will control a majority of the voting power of our outstanding common stock. The CD&R Investor and Deere will collectively own approximately 72.8% of our common stock (or approximately 69.0% if the underwriters exercise in full their option to purchase additional shares) after the completion of this offering. Accordingly, we expect to qualify

 

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as a “controlled company” within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain NYSE corporate governance standards, including:

 

    the requirement that a majority of the board of directors consist of independent directors;

 

    the requirement that our nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance rules and requirements. The “controlled company” exception does not modify audit committee independence requirements of Rule 10A-3 under the Exchange Act and the NYSE rules.

Board Committees

Our board of directors maintains an Audit Committee and a Compensation Committee. Upon the listing of our common stock, our board of directors will also maintain a Nominating and Corporate Governance Committee. Under the NYSE rules, we are required to have one independent director on our Audit Committee during the 90-day period beginning on the date of effectiveness of the registration statement filed with the SEC in connection with this offering. After such 90-day period and until one year from the date of effectiveness of the registration statement, we are required to have a majority of independent directors on our Audit Committee. Thereafter, our Audit Committee is required to be composed entirely of independent directors. As a NYSE controlled company, we are not required to have independent Compensation or Nominating and Corporate Governance Committees. The following is a brief description of our committees.

Audit Committee

Our Audit Committee is responsible, among its other duties and responsibilities, for overseeing our accounting and financial reporting processes, the audits of our financial statements, the qualifications and independence of our independent registered public accounting firm, the effectiveness of our internal control over financial reporting and the performance of our internal audit function and independent registered public accounting firm. Our Audit Committee reviews and assesses the qualitative aspects of our financial reporting, our processes to manage business and financial risks, and our compliance with significant applicable legal, ethical and regulatory requirements. Our Audit Committee is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm. The charter of our Audit Committee will be available without charge on the investor relations portion of our website upon the listing of our common stock.

Upon the listing of our common stock, the members of our Audit Committee are expected to be Mr. Douglas (Chairman), Mr. Wyszomierski and Mr. Giuriceo. Our board of directors has designated each of the three members as “audit committee financial experts,” and each of the three members has been determined to be “financially literate” under the NYSE rules. Our board of directors has also determined that Mr. Douglas and Mr. Wyszomierski are “independent” as defined under the NYSE rules and the Exchange Act and rules and regulations promulgated thereunder.

 

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Compensation Committee

Our Compensation Committee is responsible, among its other duties and responsibilities, for reviewing and approving all forms of compensation to be provided to, and employment agreements with, the executive officers and directors of our company and its subsidiaries (including the Chief Executive Officer), establishing the general compensation policies of our company and its subsidiaries and reviewing, approving and overseeing the administration of the employee benefits plans of our company and its subsidiaries. Our Compensation Committee also periodically reviews management development and succession plans. The charter of our Compensation Committee will be available without charge on the investor relations portion of our website upon the listing of our common stock.

Upon the listing of our common stock, the members of our Compensation Committee are expected to be Mr. Pressler (Chairman), Mr. Robinson and Mr. Wasserman. In light of our status as a “controlled company” within the meaning of the corporate governance standards of the NYSE following this offering, we are exempt from the requirement that our Compensation Committee be composed entirely of independent directors under listing standards applicable to membership on the Compensation Committee, with a written charter addressing the committee’s purpose and responsibilities and the requirement that there be an annual performance evaluation of the Compensation Committee.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee will be responsible, among its other duties and responsibilities, for identifying and recommending candidates to the board of directors for election to our board of directors, reviewing the composition of the board of directors and its committees, developing and recommending to the board of directors corporate governance guidelines that are applicable to us, and overseeing board of directors evaluations. The charter of our Nominating and Corporate Governance Committee will be available without charge on the investor relations portion of our website upon listing of our common stock.

Upon the listing of our common stock, the members of our Nominating and Corporate Governance Committee are expected to be Mr. Wasserman (Chairman), Mr. Lagemann and Mr. Pressler. In light of our status as a “controlled company” within the meaning of the corporate governance standards of the NYSE following this offering, we are exempt from the requirement that our Nominating Committee be composed entirely of independent directors, with a written charter addressing the committee’s purpose and responsibilities and the requirement that there be an annual performance evaluation of the Nominating Committee.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee currently are Mr. Pressler, Mr. Wasserman and Mr. Lagemann. See “Certain Relationships and Related Party Transactions” for a discussion of agreements among Holdings, CD&R, the CD&R Investor and Deere.

Business Code of Conduct and Ethics and Financial Code of Ethics

Upon the listing of our common stock, we will adopt a Financial Code of Ethics that applies to the CEO, CFO and Controller, or persons performing similar functions, and other designated officers and associates, including the primary financial officer of each of our business units and the Treasurer. We will also have a Business Code of Conduct and Ethics applicable to all of our directors, officers and associates. The Financial Code of Ethics and the Business Code of Conduct and Ethics each will address matters such as conflicts of interest, confidentiality, fair dealing and compliance with laws and regulations. The Financial Code of Ethics and the Business Code of Conduct and Ethics will be available without charge on the investor relations portion of our website upon the listing of our common stock.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This compensation discussion and analysis provides information regarding our compensation philosophies, plans and practices and the governance of those matters. This section also provides information about the material elements of compensation that were paid to or earned by our “named executive officers” (“NEOs”) for our fiscal year ended January 3, 2016 (the “2015 Fiscal Year”). Our named executive officers for the 2015 Fiscal Year were:

 

    Doug Black, Chief Executive Officer

 

    John Guthrie, Executive Vice President, Chief Financial Officer and Assistant Secretary

 

    Pascal Convers, Executive Vice President, Strategy & Development

 

    Briley Brisendine, Executive Vice President, General Counsel and Secretary (starting September 8, 2015)

 

    Joseph Ketter, Senior Vice President, Human Resources (starting July 27, 2015)

Compensation Philosophy and Objectives; Role of Compensation Committee

We seek to provide compensation and benefit programs that support our business strategies and objectives by attracting, retaining and developing individuals with necessary expertise and experience. Our incentive programs are designed to encourage performance and results that will create value for us and our stockholders while avoiding unnecessary risks.

The executive compensation programs are intended to create a performance culture geared toward exceptional customer service, value and retention. In particular, the executive compensation programs have the following objectives:

 

    To reward our executives commensurate with their performance, experience and capabilities.

 

    To cause our executives to have equity in the Company in order to align their interests with the interests of our owners and allow our executives to share in our owners’ success.

 

    To enable us to attract and retain top executive talent.

Determination of Executive Compensation

The following describes the primary roles and responsibilities of those involved in the determination of executive compensation levels, plan designs, and policies.

Compensation Committee

Our Compensation Committee is responsible for reviewing and approving the compensation and benefits of our associates (including our NEOs), directors and certain consultants, approving stock incentive compensation and other incentive arrangements, and approving employment and related agreements. In performing these duties, the Committee is supported by its independent consultant and certain members of executive management, as described below.

Independent Consultant

In anticipation of this offering, the Compensation Committee engaged Pearl Meyer & Partners (“Pearl Meyer”) as its independent consultant. Pearl Meyer reports to and is directed by the Compensation Committee, and provides no other services to the Company. During 2015, Pearl Meyer provided competitive market data and advice to the Compensation Committee on various aspects of the executive and non-employee director

 

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compensation programs in connection with this offering. In performing these services, Pearl Meyer interacts with executive management and attends Compensation Committee meetings.

Executive Management

Certain members of executive management are involved in the executive compensation determination process. For example, our Senior Vice President, Human Resources provides requested information and perspectives on the compensation program, our General Counsel provides legal advice and perspectives, and our Chief Executive Officer makes specific recommendations for compensation levels and program designs for executives other than himself. These individuals generally attend Compensation Committee meetings, but are excused when their compensation is being discussed.

Elements of Our Executive Compensation Program

During our 2015 Fiscal Year, the compensation program for executives, including our NEOs, consisted of salary, short-term cash incentive compensation, long-term equity incentive compensation and certain benefits. Set forth below is a chart outlining each element of our compensation program in the 2015 Fiscal Year for our executive officers, the objectives of each component, and the key measures used in determining each component.

 

Pay Component

 

Objective of Pay Component

 

Key Measure

Base Salary

 

•    Provide competitive pay and reflect individual contributions

 

•    Current compensation relative to competitive rates for similar roles

•    Individual performance

Annual Cash Incentives

 

•    Reward achievement of short-term business objectives and results

 

•    Corporate EBITDA goal

Equity Awards

 

•    Stock options to align executive and stockholder interests

 

•    Stock purchase opportunities to create “buy in” and immediate stock ownership

 

•    Create “ownership culture”

 

•    Provide retention incentives

 

•    Stock price appreciation

•    Continuation of employment

Benefits

 

•    Health, disability and life insurance, 401(k) retirement plan and other employee benefits provide a safety net of protection in the case of illness, disability, death or retirement.

 

•    Generally, competitive benefits relative to market

A description of each component of compensation for the NEOs in the 2015 Fiscal Year is below, including a summary of the factors considered in determining the applicable amount payable or achievable under each component.

Determination of Executive Officer Compensation

Base Salary

Base salaries are set to attract, retain and reward executive talent. The determination of any particular executive’s base salary is based on personal performance, experience in the role, competitive rates of pay for comparable roles, significance of the role to the company and the availability of such executives. Each year, the Compensation Committee considers merit salary increases for our executives generally, including our NEOs. In March 2015, the Compensation Committee approved a 3% merit salary increase for Messrs. Black, Guthrie and Convers. In addition, associates receive salary increases as they are promoted to reflect their more significant

 

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roles. In November 2015, in addition to the March merit increase, Mr. Guthrie’s salary was increased to $300,000 to reflect the competitive range of salaries paid to executives in roles similar to Mr. Guthrie’s role. The salary paid to each of our NEOs in our 2015 Fiscal Year is shown in the “Summary Compensation Table” following this Compensation Discussion and Analysis.

Annual Cash Incentives

Our annual cash incentives are designed to focus our NEOs on achieving planned results against key financial metrics for the Company as a whole and, in certain cases, reward them for the achievement of specific individual performance criteria which the Compensation Committee subjectively determines based on its assessment of the executive’s performance during the year. By conditioning a significant portion of our NEOs’ potential total cash compensation on the Company’s achievement of annual financial performance, we reinforce our focus on achieving profitable growth.

All of our NEOs (other than Mr. Brisendine) were eligible in the 2015 Fiscal Year to receive cash incentive bonuses based on achievement of pre-established annual financial performance targets that were approved by the Compensation Committee. For 2015, Mr. Brisendine did not participate in the annual cash incentive program and instead, his 2015 Fiscal Year bonus was paid, on a pro rata basis, pursuant to a contractual guarantee under his employment agreement, as described below under “—Additional Bonuses”.

For the 2015 Fiscal Year, each NEO (other than Mr. Brisendine) had a target incentive opportunity expressed as a percent of his salary for the year (125% for Mr. Black and 50% for the other NEOs). This target incentive opportunity was multiplied by a weighted performance multiple for the achievement of our Corporate EBITDA, our primary financial performance goal for our NEOs, as compared to the Corporate EBITDA goals established by the Compensation Committee in the beginning of the year. For the 2015 Fiscal Year, the weight allocated to the Corporate EBITDA criteria for each NEO was 90% for Mr. Black, 100% for Mr. Ketter and 80% for the other NEOs.

For purposes of calculating the payouts under the 2015 annual incentive plan, Corporate EBITDA was calculated using the EBITDA for the Company for the fiscal year, as further adjusted for items such as stock-based compensation expense, related party management fees, loss (gain) on sale of assets, other noncash items, other nonrecurring (income) and loss.

The Corporate EBITDA goals established by our Compensation Committee in the beginning of the year, as adjusted, consisted of a threshold Corporate EBITDA of $81.1 million (achievement below which would result in no bonus being earned, but, if achieved, would result in a Corporate EBITDA multiple of 50% for the bonus), a target Corporate EBITDA of $94 million (which, if achieved, would result in a Corporate EBITDA multiple of 100% for the bonus), and a “stretch” EBITDA of $103.6 million (which, if achieved, would result in a Corporate EBITDA multiple of 150% for the bonus). The Corporate EBITDA weighted performance multiplier was determined by interpolating the percentage achievement between the threshold, target and stretch levels. For the 2015 Fiscal Year, we achieved Corporate EBITDA of $100.4 million, for a Corporate EBITDA multiple of 132%.

In addition to the Corporate EBITDA criteria applied to our NEOs’ 2015 bonuses, our Compensation Committee exercised its discretion to determine the actual bonus to be paid to Mr. Black based on its subjective assessment of his individual performance for the year, and for the other NEOs, delegated this discretion to Mr. Black. While these individual criteria were related to specific individual performance measures (for example, Mr. Black’s performance measure focused on corporate safety, Mr. Guthrie’s performance measures focused on the Company’s finance and information technology team and vision, our ERP system conversion and reporting improvement, and Mr. Convers’ performance measures focused on deal performance and local market strategies), and the Compensation Committee considered approximate weights to give to these measures (approximately 10% for Mr. Black and approximately 20% for each of Messrs. Guthrie and Convers), precise formulaic procedures were not applied to determine the amount of the NEO’s bonus that would be paid based on the achievement of these measures. Rather, the Compensation

 

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Committee or Mr. Black, as applicable, used its subjective assessments of the NEOs’ individual achievements against these performance measures as a guide to determine the actual incentive compensation amounts to be paid to the NEO for the 2015 Fiscal Year.

These determinations, taken together, resulted in bonus payments for the 2015 Fiscal Year of $1,077,895 to Mr. Black, $167,000 to Mr. Guthrie, $206,000 to Mr. Convers and $90,000 to Mr. Ketter (determined on a pro rata basis for the period of Mr. Ketter’s service in 2015).

The 2015 annual bonus plan award paid to each of our NEOs is shown in the “Summary Compensation Table” following this Compensation Discussion and Analysis under the “Non-Equity Incentive Plan Compensation” column, except for Mr. Brisendine’s bonus (which is shown in the “Bonus” column because it was contractually guaranteed).

Additional Cash Bonuses

In addition to the 2015 annual bonus, the Company also approved one-time cash bonuses for Messrs. Brisendine and Ketter as an inducement to them to commence employment with the Company. In addition, Mr. Brisendine’s 2015 bonus was guaranteed to be paid, on a pro rata basis for the period of his 2015 service, at the stretch level (75% of his salary) pursuant to his employment offer letter. The additional cash bonus paid to each of our NEOs is shown in the “Summary Compensation Table” following this Compensation Discussion and Analysis under the “Bonus” column.

Long-Term Incentives

Stock Incentive Plan

Prior to the adoption of the Omnibus Equity Incentive Plan, as described below under “Changes to the Compensation Program in Connection with the Initial Public Offering—Omnibus Equity Incentive Plan,” our NEOs participated in the Amended and Restated SiteOne Landscape Supply, Inc. Stock Incentive Plan (f/k/a CD&R Landscapes Parent, Inc. Stock Incentive Plan, the “Stock Incentive Plan”). The Stock Incentive Plan was established to provide a stock ownership opportunity for executives following CD&R’s investment in the Company. The Stock Incentive Plan was intended to align the interests of NEOs and other key associates with our other stockholders, in order to reinforce the NEOs’ and other key associates’ focus on increasing stockholder value. Given the ownership structure and life-cycle stage of the Company, the Compensation Committee approved a program for the NEOs based on (a) allowing them to initially purchase fully vested shares at the then fair market value and (b) providing an up-front grant of stock options either at hire or at appropriate times during the associate’s tenure (including promotion and acceptance of additional responsibility). This approach was intended to motivate the NEOs to increase the value of the Company, and therefore our share price, over time. The vesting requirement on the stock options granted under the Stock Incentive Plan was 20% per year over five years, and was intended as a tool to retain executive talent. Also, our stock option grants help protect our business and workforce because recipients of stock options are required to agree to restrictive covenants.

While the Compensation Committee does not currently make routine annual grants to any of our executives, the Compensation Committee may, from time to time, provide an equity award to one or more of our NEOs to retain and reward key talent or to reflect increased responsibilities. The Compensation Committee may also review and approve equity awards for promotions.

In 2015, Mr. Brisendine and Mr. Ketter were granted 87,136 and 58,091 stock options, respectively, in connection with the commencement of their employment. In addition, in 2015, Mr. Brisendine purchased 29,045 shares of the Company’s common stock and Mr. Ketter purchased 4,066 shares. The accounting fair market value of the options granted to each of our NEOs is shown in the “Summary Compensation Table” following this Compensation Discussion and Analysis under the “Option Awards” column, as well as the “Grant of Plan-Based Awards Table” following this Compensation Discussion and Analysis.

 

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In connection with the declaration and payment of the Special Cash Dividend, we adjusted the exercise price of stock options that were outstanding as of the record date for the Special Cash Dividend to preserve their intrinsic value by reducing the exercise price of the options by the per-share amount of the Special Cash Dividend, except that no option exercise price was reduced below 25% of the fair market value of a share of the Company’s common stock immediately after giving effect to the Special Cash Dividend. We paid a supplemental cash payment to holders of stock options for which the reduction in exercise price was less than the full amount of the Special Cash Dividend due to this 25% limitation, in order to make up the remainder of the Special Cash Dividend.

The option exercise price adjustments are not reflected in this Compensation Discussion and Analysis as they occurred after January 3, 2016. See “Prospectus Summary—Refinancing and Dividend Transactions.”

Omnibus Equity Incentive Plan

On April 28, 2016, we adopted an omnibus equity incentive plan, which enables us to better align our compensation programs with those typical of companies with publicly traded securities, as described below under “—Changes to the Compensation Program in Connection with the Initial Public Offering—Omnibus Equity Incentive Plan.”

Stock Ownership and Retention Guidelines

The Company has established stock ownership and retention guidelines in order to further align the long term interests of our executive officers with those of our stockholders. Our stock ownership guidelines require that our executive officers own shares of the Company’s common stock having an aggregate value equal to a multiple of the executive officer’s annual base salary, as follows:

 

Position

   Multiple  

Chief Executive Officer

     5x Annual Base Salary   

All Other Executive Committee Members

     2x Annual Base Salary   

Shares that count for purposes of ownership under the share ownership guidelines include (i) shares held directly by the executives and (ii) the in-the-money value of vested stock options.

Generally, each executive will have five years from the date he or she becomes subject to these guidelines to achieve compliance. Executives are required to hold 100% of shares acquired as a result of settlement of compensatory awards (net of any shares withheld for taxes) until ownership guidelines have been met.

Compensation Risk Assessment

The Compensation Committee assessed the risks associated with our compensation and practices to evaluate whether they create risks that are likely to have a material adverse effect on us. Based on its assessment, the Compensation Committee concluded that our compensation policies and practices do not create incentives to take risks that are likely to have a material adverse effect on us. We believe we have allocated our compensation among base salary, short term incentives and long-term equity in such a way as to not encourage excessive risk taking.

Anti-Hedging/Pledging Policies

We intend that effective as of the closing of this offering, our directors, executive officers and all other associates will be prohibited from entering into hedging or monetization transactions designed to limit the financial risk of ownership of the Company’s securities. These include prepaid variable forward contracts, equity swaps, collars, exchange funds and other similar transactions, as well as speculative transactions in derivatives of the Company’s securities, such as puts, calls, options (other than those granted under our compensation plans) or other derivatives.

 

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Employment Agreements and Severance Agreements

We have entered into an employment agreement with our Chief Executive Officer which includes severance benefits, salary, bonus, benefits and the specific terms described below under “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table—Doug Black Employment Agreement.” We have also entered into an employment offer letter and a Separation Benefit Agreement with Mr. Brisendine which includes severance benefits, salary, bonus, benefits and the specific terms described below under “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table—Briley Brisendine Employment Arrangement.” Under certain circumstances, we recognize that special arrangements with respect to an executive’s employment may be necessary or desirable. In connection with their commencement of employment, we entered into an employment agreement with Mr. Black setting forth the terms of his employment as our CEO and we entered into a severance agreement with Mr. Brisendine setting forth certain severance benefits to be received by him upon a qualifying termination of employment. On April 22, 2016, the Compensation Committee approved, and Messrs. Ketter, Guthrie and Convers are expected to sign, severance agreements with terms substantially similar to the agreement entered into with Mr. Brisendine, including a severance payment of 18 months of base salary.

Other Benefits

The benefits provided to our NEOs are generally the same as those provided to our other salaried associates and include, but are not limited to, medical, dental, health, life, accident, hospitalization and disability insurance, and a tax-qualified 401(k) plan. Several of our NEOs and their spouses attend an annual customer event. We also cover certain of Mr. Convers’ commuting, lodging and other travel expenses. In addition, our Chief Executive Officer’s employment agreement provides him with an annual executive-level physical examination. See below under “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table—Doug Black Employment Agreement.”

Tax and Accounting Considerations

While the accounting and tax treatment of compensation generally has not been a consideration in determining the amounts of compensation for our executive officers, the Compensation Committee and management have taken into account the accounting and tax impact of various program designs to balance the potential cost to us with the value to the executive. As our stock is not currently publicly traded, the Compensation Committee has not previously taken the deductibility limit imposed by Section 162(m) of the Internal Revenue Code into consideration in making compensation decisions. Following this offering, the Compensation Committee will review and consider the deductibility of executive compensation under Section 162(m) and, where appropriate, will seek to qualify the variable compensation paid to our named executive officers for an exemption from the deductibility limitations of Section 162(m), including under the applicable transition period. However, the Compensation Committee may authorize compensation payments that do not comply with the exemptions in Section 162(m) when we believe that such payments are appropriate to attract and retain executive talent.

The expenses associated with executive compensation issued to our executive officers and other key associates are reflected in our financial statements. We account for stock-based programs in accordance with the requirements of ASC 718, Compensation-Stock Compensation, which requires companies to recognize in the income statement the grant date value of equity-based compensation issued to associates over the vesting period of such awards.

2016 Executive Compensation Actions

No adjustments have been made to base salary, other than annual merit increases. No adjustments were made to the target annual incentive opportunity for the NEOs for 2016. Furthermore, the annual cash incentive plan for 2016 remains virtually the same as 2015 with a mix of Corporate EBITDA and individual performance

 

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for each NEO. With respect to long-term, equity-based compensation, the Board has adopted the Omnibus Incentive Plan, as discussed above. Also, in advance of this offering, we expect to enter into severance agreements with certain executive officers of the Company.

Summary Compensation Table

The following table sets forth the compensation of our NEOs.

 

Name and Principal Position

   Year      Salary
($) (1)
     Bonus
($) (2)
     Option
Awards

($) (3)
     Non-Equity
Incentive Plan
Compensation
($) (4)
     All Other
Compensation
($) (5)
     Total
($)
 

Doug Black

     2015         678,625         0         0         1,077,895         18,114         1,774,634   

Chief Executive Officer

     2014         425,000         618,750         4,622,400         400,840         10,400         6,077,390   

John Guthrie

     2015         269,230         0         0         167,000         8,077         444,307   

Chief Financial Officer

     2014         234,057         42,308         1,033,650         110,584         15,242         1,435,841   

Pascal Convers

     2015         313,212         0         0         206,000         51,462         570,674   

Executive Vice President, Strategy & Development

     2014         129,230         106,923         1,027,260         41,048         29,473         1,333,934   
                    

Briley Brisendine

     2015         106,346         150,000         412,650         —           2,450         671,446   

Executive Vice President, General Counsel

                    

Joe Ketter

     2015         114,231         133,500         275,950         90,000         2,617         616,298   

Senior Vice President, Human Resources

                    

 

(1) Represents the actual sum of regular pay, paid-time off, holiday and back pay for the 2015 Fiscal Year. 2015 salary paid to Mr. Brisendine and Mr. Ketter was prorated for the period of their employment with the Company in the 2015 Fiscal Year. 2014 salary paid to Mr. Black and Mr. Convers was prorated for the period of their employment with the Company in the 2014 Fiscal Year.
(2) The Company paid a sign-on bonus of $70,000 and $133,500 to Mr. Brisendine and Mr. Ketter, respectively, in connection with their commencement of employment. In addition, Mr. Brisendine’s 2015 bonus was guaranteed to be paid out at the stretch level (75% of his salary), prorated for the portion of the year that he was employed with the Company, pursuant to his employment offer letter.
(3) The amount reported is valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, modified to exclude any forfeiture assumptions related to service-based vesting conditions. See Note 7, “Employee Benefit and Stock Incentive Plans,” to our audited financial statements included in this prospectus for a discussion of the relevant assumptions used in calculating these amounts.
(4) Includes annual incentive payments made on February 26, 2016 for the 2015 Fiscal Year. For more detail, see above under “—Determination of Executive Officer Compensation—Annual Cash Incentives.”
(5) For the 2015 Fiscal Year, reflects: (i) a Company 401(k) match made to each NEO of $10,400 for each of Messrs. Black and Convers, $8,077 for Mr. Guthrie, $2,450 for Mr. Brisendine, and $2,617 for Mr. Ketter; (ii) $5,588 for Mr. Black for his family members’ attendance, together with Mr. Black, at an annual customer event attended by customers and their spouses or significant others; (iii) $2,126 for an annual executive physical examination for Mr. Black and (iii) $24,498 of commuting expenses and $16,564 of lodging expenses for Mr. Convers.

 

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Grants of Plan-Based Awards for Fiscal Year 2015

The following table provides information concerning awards granted to the NEOs in the 2015 Fiscal Year under any plan.

 

Name

   Grant
Date
     Estimated Future Payouts Under Non-
Equity Incentive Plan Awards (1)
     All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#) (2)
     Exercise or
Base Price
of Option
Awards ($)
     Grant
Date
Fair Value
of Stock
and
Option
Awards
($) (3)
 
      Threshold $      Target $          Maximum $               

Doug Black

        418,438         836,875         n/a            

John Guthrie

        67,308         134,615         n/a            

Pascal Convers

        78,303         156,606         n/a            

Briley Brisendine

     9/8/2015         n/a         n/a         n/a         87,136         17.30         412,650   

Joseph Ketter

     7/27/2015                  58,091         17.30         275,950   
        33,750         67,500         n/a            

 

(1) For a discussion of the payout opportunities under our short-term cash incentive plan for the 2015 Fiscal Year, see above under “—Determination of Executive Officer Compensation—Annual Cash Incentives.” The maximum amount of payouts is uncapped.
(2) These options vest in five equal installments on each of the first through fifth anniversaries from the grant date.
(3) The amounts related to options reported in this column are valued based on the aggregate grant date fair value computed using the Black-Scholes valuation method, in accordance with FASB ASC Topic 718, modified to exclude the effect of estimated forfeitures. See Note 7, “Employee Benefit and Stock Incentive Plans,” to our audited financial statements included in this prospectus for a discussion of the relevant assumptions used in calculating these amounts.

Narrative Disclosure to Summary Compensation Table and Grant Plan-Based Awards Table

Doug Black Employment Agreement

Mr. Black’s employment agreement provides for his employment at-will, and may be terminated at any time by either party. Under his agreement, Mr. Black is entitled to a base salary and is eligible for payment of an annual cash bonus, with a target amount equal to 125% of his base salary. Mr. Black received a signing bonus of $500,000 in connection with his entering into the employment agreement. The signing bonus was subject to repayment in the event Mr. Black voluntarily terminates his employment or the Company terminated his employment for cause prior to the 18 month anniversary of the commencement of his employment.

The employment agreement provides for certain severance benefits. If Mr. Black’s employment is terminated without “cause,” or if he terminates his employment for “good reason,” he is entitled to receive (a) all salary, bonus and benefits earned but unpaid as of the date of termination, (b) severance pay consisting of 18 months of his base salary, his bonus for the year in which his employment terminates based on actual results, plus an additional amount equal to such bonus, prorated for the portion of the performance year that Mr. Black had remained employed and (c) continued medical, dental and vision insurance coverage for 18 months at active employee rates (on an after tax-basis). Severance will be paid in monthly installments, except that if Mr. Black is terminated within 12 months after a change in control then his severance will be paid in a lump sum. If Mr. Black is terminated for “cause,” or he voluntarily terminates his employment, or if Mr. Black’s employment is terminated due to death, he is only entitled to receive salary, bonus and benefits earned but unpaid as of the date of termination. If Mr. Black’s employment is terminated due to disability, he is entitled to receive (a) salary, bonus and benefits earned but unpaid as of the date of termination and (b) continued medical, dental and vision insurance coverage for 18 months at active employee rates. Any severance payments payable are conditioned upon to Mr. Black’s execution and non-revocation of a release.

 

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“Cause” is defined in the employment agreement as (i) conviction of, or plea of nolo contendere to, a crime constituting a felony in the U.S. or a specified type of misdemeanor, (ii) willful or grossly negligent failure to perform material duties, (iii) willful material violation of company policy, (iv) material breach of a binding agreement to which he is a party and (v) willful conduct that materially and demonstrably harms the Company or any of its subsidiaries. Notice and cure provisions apply.

“Good Reason” is defined in the employment agreement as (i) a material reduction in base salary, (ii) a material reduction in annual incentive compensation opportunity, (iii) a material reduction in his authority, (iv) a transfer of the executive’s primary workplace to a location more than 50 miles from the Company’s headquarters (v) the failure to elect (or re-elect upon term expiration) him to our Board, the removal of Mr. Black from our Board or (vi) material breach by the Company or any of its subsidiaries of an agreement to which Mr. Black is the counterparty. Notice and cure provisions apply.

Briley Brisendine Employment Arrangement

On August 17, 2015, the Company entered into an offer letter with Mr. Brisendine in connection with his employment as Executive Vice President and General Counsel, effective September 8, 2015. Under his offer letter, Mr. Brisendine is entitled to an annual base salary equal to $350,000 and is eligible for payment of an annual cash bonus, with a target amount equal to 50% of his base salary, subject to meeting performance goals set annually. In addition, Mr. Brisendine’s 2015 bonus was guaranteed to be paid, on a pro rata basis for the period of his service in 2015, at the stretch level (75% of his salary). Mr. Brisendine also received a signing bonus of $70,000 in connection with his commencement of employment, subject to repayment in the event Mr. Brisendine voluntarily terminates his employment or of the Company terminates his employment for cause or misconduct prior to the one year anniversary of the commencement of his employment. Mr. Brisendine is also entitled to participate in employee benefit and welfare plans available to other members of senior management.

In connection with the commencement of Mr. Brisendine’s employment, the Company also entered into a “separation benefit agreement” with Mr. Brisendine, which provides for certain severance benefits in the event of termination of Mr. Brisendine’s employment. If Mr. Brisendine’s employment is terminated without “cause,” or if he terminates his employment for “good reason,” he is entitled to receive (a) all salary, bonus and benefits earned but unpaid as of the date of termination, (b) severance pay consisting of 18 months of his base salary, an amount equal to his bonus for the year in which his employment terminates based on actual results, prorated for the portion of the performance year that Mr. Brisendine had remained employed and (c) continued medical, dental and vision insurance coverage for 18 months at active employee rates (on an after tax-basis). Severance will be paid in monthly installments, except that if Mr. Brisendine is terminated within 12 months after a change in control then his severance will be paid in a lump sum. If Mr. Brisendine is terminated for “cause,” or he voluntarily terminates his employment without “good reason,” or if Mr. Brisendine’s employment is terminated due to death, he is only entitled to receive salary, bonus and benefits earned but unpaid as of the date of termination. If Mr. Brisendine’s employment is terminated due to disability, he is entitled to receive (a) salary, bonus and benefits earned but unpaid as of the date of termination and (b) continued medical, dental and vision insurance coverage for 18 months at active employee rates. Any severance payments payable are conditioned upon to Mr. Brisendine’s execution and non-revocation of a release.

“Cause” is defined in the separation benefit agreement as (i) conviction of, or plea of nolo contendere to, a crime constituting a felony in the U.S. or a specified type of misdemeanor, (ii) willful or grossly negligent failure to perform material duties, (iii) willful material violation of company policy, (iv) material breach of a binding agreement to which he is a party and (v) willful conduct that materially and demonstrably harms the Company or any of its subsidiaries. Notice and cure provisions apply.

“Good Reason” is defined in the separation benefit agreement as (i) a reduction in base salary, (ii) a reduction in annual incentive compensation opportunity that is not offset with other increases in compensation,

 

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(iii) a material reduction in his authority, (iv) a material reduction in his aggregate welfare benefits, (v) a transfer of the executive’s primary workplace to a location more than 30 miles from the Company’s headquarters or (vi) material breach by the Company or any of its subsidiaries of an agreement to which Mr. Brisendine is the counterparty. Notice and cure provisions apply.

Stock Incentive Plan

The Stock Incentive Plan and an Employee Stock Option Agreement govern each grant of stock options to our NEOs and provide, among other things, the vesting provisions of the options and the option term. Options granted under the Stock Incentive Plan generally vest in five equal annual installments, subject to the recipient’s continued employment, and have a term of ten years. In the event an executive’s employment is terminated due to death or disability, the remaining options will immediately vest. In the case of a termination for “cause” (as defined in the Stock Incentive Plan), all of an executive’s options, whether vested or unvested, will be canceled effective upon the executive’s termination of employment. Following a termination of an executive’s employment other than for “cause,” vested options granted under the Stock Incentive Plan are canceled unless the executive exercises the options within 90 days (or 180 days if the termination was due to death, disability or retirement after age 65) or, if sooner, prior to the options’ normal expiration date. For more detail on the Stock Incentive Plan, see above under “—Determination of Executive Officer Compensation—Long-Term Incentives.”

The disclosure regarding stock options in this Compensation Discussion and Analysis, the “Summary Compensation Table,” the “Grant of Plan-Based Awards” table, and the “Outstanding Equity Awards” table refers to the accounting fair market value of options held by each of our NEOs, and the exercise price of each such option, as of January 3, 2016 (or as of the grant date, if specified). In connection with the declaration and payment of the Special Cash Dividend, the exercise price of each option outstanding on the record date for the Special Cash Dividend was adjusted to preserve its intrinsic value by reducing the exercise price by the per-share amount of the Special Cash Dividend, except that no option exercise price was reduced below 25% of the fair market value of a share of the Company’s common stock immediately after giving effect to the Special Cash Dividend. Where the fair market value of an award is disclosed herein, it is the fair market value as of the date of grant or as of January 3, 2016, as applicable, and does not reflect any adjustment that we made to reflect the Special Cash Dividend.

Outstanding Equity Awards at Fiscal Year End 2015

 

Name

   Number of Securities
Underlying
Unexercised Options
(#) Exercisable (1)
     Number of Securities
Underlying
Unexercised Options
(#) Unexercisable (1)
     Option
Exercise
Price ($)
     Option
Expiration
Date
 

Doug Black

     371,779         557,669         8.61         5/19/2024   

John Guthrie

     41,825         62,738         8.61         5/19/2024   
     41,825         62,738         8.61         9/30/2024   

Pascal Convers

     83,650         125,475         8.61         9/30/2024   

Briley Brisendine

     —           87,136         17.30         9/8/2025   

Joseph Ketter

     —           58,091         17.30         7/27/2025   

 

(1) Messrs. Black’s, Guthrie’s and Convers’ options vest in five equal installments on each of the first through fifth anniversaries from December 23, 2013, which was the date of the CD&R Acquisition. Messrs. Brisendine’s and Ketter’s options vest in five equal installments on each of the first through fifth anniversaries from September 8, 2015 and July 27, 2015, respectively, which were the dates their options were granted.

Option Exercises in Fiscal Year 2015

There were no options exercised in Fiscal Year 2015.

 

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Potential Payments Upon Termination or Change in Control

Severance Payments

The information below describes and quantifies compensation that would have become payable to Mr. Black per the terms of his employment agreement if his employment had been terminated on January 3, 2016. For a description of the potential payments upon a termination pursuant to the employment agreement with Mr. Black, see “—Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table—Doug Black Employment Agreement.”

 

Name

   Description    Disability($)      Without Cause/For Good
            Reason ($)             
 

Doug Black

   Severance Pay      n/a         2,082,145   
   Prorated Bonus      n/a         1,077,895   
   Employer Paid COBRA      24,691         24,691   
   Total      24,691         3,723,679   

The information below describes and quantifies compensation that would have become payable to Mr. Brisendine per the terms of his separation benefit agreement if his employment had been terminated on January 3, 2016. For a description of the potential payments upon a termination pursuant to the separation benefit agreement with Mr. Brisendine, see “—Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table—Briley Brisendine Employment Arrangement.” In addition, in the event Mr. Brisendine’s employment had terminated on January 3, 2016 as a result of his death, permanent and total disability, or by the Company for its sole convenience and not due to his misconduct or other cause, he would not have been obligated to repay the $70,000 sign-on bonus that was paid to him in connection with his hiring.

 

Name

   Description    Disability($)      Without Cause/
For Good Reason ($)
 

Briley Brisendine

   Severance Pay      n/a         525,000   
   Employer Paid COBRA      23,295         23,295   
   Total      23,295         548,295   

Accelerated Vesting of Options on Certain Terminations of Employment or a Change in Control

If a NEO’s employment is terminated as a result of the NEO’s death or disability, then the unvested options held by the NEO at the time of his or her death or disability will accelerate and become vested. Upon a termination for cause, all of the NEO’s options, whether vested or unvested, are forfeited. Upon a termination for any other reason, all unvested options will be forfeited. For more detail on the Stock Incentive Plan, see above under “—Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table—Stock Incentive Plan.”

If we undergo a “change in control,” as defined below, stock options will generally accelerate and be cancelled in exchange for a cash payment equal to the change in control price per share minus the exercise price of the applicable option, unless the Compensation Committee elects to provide for alternative awards in lieu of cancellation and payment. Under the Stock Incentive Plan, a “change in control” is generally defined as the first to occur of the following events:

 

    the acquisition by any person, entity or “group” (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of more than 50% of the combined voting power of our then outstanding voting securities, other than any such acquisition by us, any of our subsidiaries, any employee benefit plan of ours or any of our subsidiaries, or by the CD&R Investor (or its affiliates or successors), or any affiliates of any of the foregoing;

 

   

the merger, consolidation or other similar transaction involving us, as a result of which both (x) persons who were our stockholders immediately prior to such merger, consolidation, or other similar

 

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transaction do not, immediately thereafter, own, directly or indirectly, more than 50% of the combined voting power entitled to vote generally in the election of directors of the merged or consolidated company, and (y) any or all of the CD&R Investor and its affiliates and successors (individually or collectively) do not, immediately thereafter, own, directly or indirectly, more than 50% of the combined voting power entitled to vote generally in the election of directors of the merged or consolidated company;

 

    within any 12-month period, the persons who were our directors at the beginning of such period (called “incumbent directors”) cease to constitute at least a majority of our Board, except that any director elected or nominated for election to the board by a majority of the incumbent directors then still in office is deemed to be an incumbent director for these purposes; or

 

    the sale, transfer or other disposition of all or substantially all of our assets to one or more persons or entities that are not, immediately prior to such sale, transfer or other disposition, affiliates of ours.

A public offering of the Company’s common stock does not constitute a change in control.

As described above, assuming a termination of employment or change in control (without assumption of the stock options) on January 3, 2016, our NEOs would have received benefits from the accelerated vesting of unvested stock options in the following amounts:

 

Name

   Termination Due to Death or
Disability (1)($)
     Change in Control (1)($)  

Doug Black

     4,848,000         4,848,000   

John Guthrie

     1,090,800         1,090,800   

Pascal Convers

     1,090,800         1,090,800   

Briley Brisendine

     0         0   

Joseph Ketter

     0         0   

 

(1) Fair market value as of January 3, 2016 of $17.30 per share of the Company’s common stock was consistent with the determination of the Audit Committee in July 2015 in accordance with the Stock Incentive Plan, on the basis of a valuation performed by an independent valuation firm. Fair market value as determined by the Audit Committee for the Stock Incentive Plan differs from the “fair value” of our equity based on a retrospective valuation that we used for financial reporting purposes (see “Critical Accounting Policies and Estimates—Common Stock Valuation” above). The value of stock options held by Messrs. Brisendine and Ketter is shown in this table as zero because the exercise price of their stock options is the same as this fair market value.

Changes to the Compensation Program in Connection with the Initial Public Offering

The following is a summary of the long-term incentive plan our Board has adopted and our stockholders have approved in connection with this offering. The following description of the material terms and conditions of this plan is qualified by reference to the full text of the plan, which is filed as an exhibit to this registration statement.

Omnibus Equity Incentive Plan

Background. As described above (see “—Compensation Discussion and Analysis—Long-Term Incentives”), we have provided our officers and other associates with long-term equity incentives under the Stock Incentive Plan. Our Board has adopted, and our stockholders have approved the SiteOne Landscape Supply, Inc. 2016 Omnibus Equity Incentive Plan (the “Omnibus Incentive Plan”) pursuant to which we will make grants of incentive compensation to our directors, officers and other associates. Upon the adoption of the Omnibus Incentive Plan, the Stock Incentive Plan terminated and no more awards will be made thereunder. However, awards previously granted under the Stock Incentive Plan will be unaffected by the termination of the Stock Incentive Plan. The following are the material terms of the Omnibus Incentive Plan.

 

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Administration. Our Board has the authority to interpret the terms and conditions of the Omnibus Incentive Plan, to determine eligibility for and terms of awards for participants and to make all other determinations necessary or advisable for the administration of the Omnibus Incentive Plan. The Board may delegate its authority to any committee of the Board (the Board or such committee is referred to below as the “Administrator”). To the extent consistent with applicable law, the Administrator may further delegate the ability to grant awards to our Chief Executive Officer or other of our officers. In addition, subcommittees may be established to the extent necessary to comply with Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), or Rule 16b-3 under the Securities Exchange Act of 1934.

Eligible Award Recipients. Our directors, officers, other associates and consultants are eligible to receive awards under the Omnibus Incentive Plan.

Awards. Awards under the Omnibus Incentive Plan may be made in the form of stock options, which may be either incentive stock options or non-qualified stock options; stock purchase rights; restricted stock; restricted stock units; performance shares; performance units; stock appreciation rights (“SARs”); dividend equivalents; deferred share units; and other stock-based awards.

Shares Subject to the Omnibus Incentive Plan. Subject to adjustment as described below, a total of 2,000,000 shares of the Company’s common stock will be available for issuance under the Omnibus Incentive Plan. As of April 29, 2016, there were 2,990,499 shares subject to outstanding awards under the Stock Incentive Plan. Shares issued under the Omnibus Incentive Plan may be authorized but unissued shares or shares reacquired by us. All of the shares under the Omnibus Incentive Plan may be granted as incentive stock options within the meaning of the Code. During any period that Section 162(m) of the Code is applicable to us, (1) the maximum number of stock options, SARs or other awards based solely on the increase in the value of common stock that a participant may receive in any calendar year is 500,000; (2) a participant may receive a maximum of 250,000 performance shares, shares of performance-based restricted stock and restricted stock units in any calendar year; and (3) the maximum dollar value that may be earned in connection with the grant of performance units during any calendar year may not exceed $2,500,000. The maximum number of shares that each non-employee director may be granted in respect to awards shall not exceed 15,000 per calendar year, and the maximum amount of cash that may be paid to any non-employee director may not exceed $300,000 per calendar year.

Any shares covered by an award, or portion of an award, granted under the Omnibus Incentive Plan that terminates, is forfeited, is repurchased, expires or lapses for any reason will again be available for the grant of awards under the Omnibus Incentive Plan. Additionally, any shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligations pursuant to any award under the Omnibus Incentive Plan will again be available for issuance. The Omnibus Incentive Plan permits us to issue replacement awards to employees of companies acquired by us, but those replacement awards would not count against the share maximum listed above and any forfeited replacement awards would not be eligible to be available for future grant. Shares subject to outstanding awards under the Stock Incentive Plan that are forfeited also would not be available for future grant.

Terms and Conditions of Options and Stock Appreciation Rights. An “incentive stock option” is an option that meets the requirements of Section 422 of the Code, and a “non-qualified stock option” is an option that does not meet those requirements. A “stock appreciation right” (or SAR) is the right of a participant to a payment, in cash, shares of common stock, or a combination of cash and shares equal to the amount by which the market value of a share of common stock exceeds the exercise price of the stock appreciation right. An option or SAR granted under the Omnibus Incentive Plan will be exercisable only to the extent that it is vested on the date of exercise. No option or SAR may be exercisable more than ten years from the grant date. The Administrator may include in the option agreement the period during which an option may be exercised following termination of employment or service. SARs may be granted to pa