false--12-29FY201900016507290.010.010.010.0110000000001000000000100000000010000000004091099240910992415917274159172740890081408900814157081641570816P16Y10M24DP3Y3M18D0020000020000023000000P12YP12YP6YP2YP2YP2YP4YP3YP4Y0.250.250.250.250.250.250.250.25P10Y00000 0001650729 2018-12-31 2019-12-29 0001650729 2020-02-21 0001650729 2019-06-28 0001650729 2019-12-29 0001650729 2018-12-30 0001650729 2018-01-01 2018-12-30 0001650729 2017-01-02 2017-12-31 0001650729 us-gaap:CommonStockMember 2019-12-29 0001650729 2017-01-01 0001650729 us-gaap:CommonStockMember 2018-12-31 2019-12-29 0001650729 us-gaap:RetainedEarningsMember 2019-12-29 0001650729 us-gaap:CommonStockMember 2017-12-31 0001650729 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-01-01 0001650729 us-gaap:RetainedEarningsMember 2017-01-01 0001650729 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-30 0001650729 us-gaap:RetainedEarningsMember 2017-01-02 2017-12-31 0001650729 us-gaap:AdditionalPaidInCapitalMember 2017-01-01 0001650729 us-gaap:AdditionalPaidInCapitalMember 2017-01-02 2017-12-31 0001650729 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-12-30 0001650729 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-01-02 2017-12-31 0001650729 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 2019-12-29 0001650729 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 2019-12-29 0001650729 us-gaap:CommonStockMember 2017-01-01 0001650729 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-30 0001650729 us-gaap:CommonStockMember 2018-01-01 2018-12-30 0001650729 us-gaap:RetainedEarningsMember 2018-01-01 0001650729 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-29 0001650729 2017-12-31 0001650729 us-gaap:CommonStockMember 2018-12-30 0001650729 2018-01-01 0001650729 us-gaap:CommonStockMember 2017-01-02 2017-12-31 0001650729 us-gaap:AdditionalPaidInCapitalMember 2019-12-29 0001650729 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-12-30 0001650729 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001650729 us-gaap:RetainedEarningsMember 2018-12-30 0001650729 us-gaap:AdditionalPaidInCapitalMember 2018-12-30 0001650729 us-gaap:RetainedEarningsMember 2017-12-31 0001650729 us-gaap:RetainedEarningsMember 2018-12-31 2019-12-29 0001650729 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001650729 2018-12-31 0001650729 us-gaap:AccountingStandardsUpdate201602Member 2018-12-31 0001650729 site:TrancheETermLoansMember us-gaap:SeniorNotesMember 2018-08-14 0001650729 site:CDRMember 2013-12-23 2013-12-23 0001650729 site:CDRMember us-gaap:CommonStockMember 2013-12-23 0001650729 us-gaap:CommonStockMember us-gaap:OverAllotmentOptionMember 2017-05-01 2017-05-01 0001650729 us-gaap:CommonStockMember site:SecondaryOfferingMember 2017-07-20 2017-07-20 0001650729 us-gaap:CommonStockMember site:SecondaryOfferingMember 2017-05-01 2017-05-01 0001650729 us-gaap:SeniorNotesMember 2018-08-14 0001650729 site:CDRMember us-gaap:RedeemableConvertiblePreferredStockMember 2013-12-23 0001650729 srt:MinimumMember 2018-12-31 2019-12-29 0001650729 srt:MaximumMember 2018-12-31 2019-12-29 0001650729 us-gaap:NonUsMember us-gaap:SalesRevenueNetMember us-gaap:GeographicConcentrationRiskMember 2018-12-31 2019-12-29 0001650729 us-gaap:RevolvingCreditFacilityMember 2018-08-14 2018-08-14 0001650729 site:CDRMember 2013-12-23 0001650729 us-gaap:CommonStockMember site:SecondaryOfferingMember 2017-05-01 0001650729 us-gaap:CommonStockMember site:SecondaryOfferingMember 2017-07-26 0001650729 us-gaap:EmployeeStockOptionMember 2018-12-31 2019-12-29 0001650729 site:SiteOneLandscapeSupplyHoldingLLCMember 2013-12-23 0001650729 us-gaap:BuildingAndBuildingImprovementsMember 2018-12-31 2019-12-29 0001650729 us-gaap:ToolsDiesAndMoldsMember 2018-12-31 2019-12-29 0001650729 srt:MaximumMember us-gaap:VehiclesMember 2018-12-31 2019-12-29 0001650729 srt:MinimumMember us-gaap:VehiclesMember 2018-12-31 2019-12-29 0001650729 srt:MaximumMember us-gaap:EquipmentMember 2018-12-31 2019-12-29 0001650729 srt:MinimumMember us-gaap:FurnitureAndFixturesMember 2018-12-31 2019-12-29 0001650729 srt:MaximumMember us-gaap:FurnitureAndFixturesMember 2018-12-31 2019-12-29 0001650729 srt:MinimumMember us-gaap:EquipmentMember 2018-12-31 2019-12-29 0001650729 2020-01-01 2019-12-29 0001650729 site:LandscapingProductsMember 2018-12-31 2019-12-29 0001650729 site:AgronomicMember 2017-01-02 2017-12-31 0001650729 site:LandscapingProductsMember 2018-01-01 2018-12-30 0001650729 site:LandscapingProductsMember 2017-01-02 2017-12-31 0001650729 site:AgronomicMember 2018-12-31 2019-12-29 0001650729 site:AgronomicMember 2018-01-01 2018-12-30 0001650729 site:AllAroundMember 2018-12-31 0001650729 site:AspenValleyLandscapeSupplyInc.Member 2017-01-31 0001650729 site:TwoThousandNineteenAcquisitionsMember 2019-12-29 0001650729 site:TwoThousandSeventeenAcquisitionsMember 2017-01-02 2017-12-31 0001650729 site:TwoThousandNineteenAcquisitionsMember 2018-12-31 2019-12-29 0001650729 site:TwoThousandEighteenAcquisitionsMember 2018-12-30 0001650729 site:CentralProMember 2018-07-31 0001650729 site:HarmonyGardensMember 2017-10-31 0001650729 site:TwoThousandEighteenAcquisitionsMember 2018-01-01 2018-12-30 0001650729 site:LandscapeDepotMember 2019-04-30 0001650729 site:CuttingEdgeMember 2019-01-31 0001650729 site:AtlanticMember 2018-02-28 0001650729 site:TwoThousandSeventeenAcquisitionsMember 2017-12-31 0001650729 site:PeteRoseMember 2018-01-31 0001650729 site:VillageMember 2018-03-31 0001650729 site:DirtDoctorsIncMember 2019-12-29 0001650729 site:StoneForestMaterialsMember 2017-02-28 0001650729 site:LosAngelesMember site:AmericanBuilderSupplyMember 2017-03-31 0001650729 site:MarshallStoneMember 2017-09-30 0001650729 site:StoneandSoilDepotInc.Member 2019-05-31 0001650729 site:LandscapersChoiceMember 2018-05-31 0001650729 site:FishersMember 2019-04-30 0001650729 site:AutoRainMember 2018-06-30 0001650729 site:AllAmericanMember 2018-06-30 0001650729 site:TerrazzoMember 2018-04-30 0001650729 site:TrendsetMember 2019-08-31 0001650729 site:LasVegasMember site:AmericanBuilderSupplyMember 2017-03-31 0001650729 site:SouthCoastSupplyMember 2017-08-31 0001650729 site:LandscapeXpressMember 2018-07-31 0001650729 site:VossMember 2019-07-31 0001650729 site:DanielStoneLandscapingSuppliesIncMember 2019-12-29 0001650729 site:DesignOutdoorMember 2019-09-30 0001650729 site:AngelosSuppliesMember 2017-03-31 0001650729 site:KirkWoodMember 2018-07-31 0001650729 site:CCSandAndStoneMember 2018-10-31 0001650729 site:EvergreenMember 2017-05-31 0001650729 site:StoneCenterMember 2018-07-31 0001650729 site:AllProHorticultureInc.Member 2019-02-28 0001650729 us-gaap:LeaseholdImprovementsMember 2019-12-29 0001650729 us-gaap:VehiclesMember 2019-12-29 0001650729 us-gaap:EquipmentMember 2019-12-29 0001650729 us-gaap:ConstructionInProgressMember 2018-12-30 0001650729 us-gaap:VehiclesMember 2018-12-30 0001650729 us-gaap:LandMember 2019-12-29 0001650729 us-gaap:ToolsDiesAndMoldsMember 2018-12-30 0001650729 us-gaap:FurnitureAndFixturesMember 2018-12-30 0001650729 us-gaap:BuildingMember 2019-12-29 0001650729 us-gaap:BuildingMember 2018-12-30 0001650729 us-gaap:ToolsDiesAndMoldsMember 2019-12-29 0001650729 us-gaap:ConstructionInProgressMember 2019-12-29 0001650729 us-gaap:FurnitureAndFixturesMember 2019-12-29 0001650729 us-gaap:LeaseholdImprovementsMember 2018-12-30 0001650729 us-gaap:LandMember 2018-12-30 0001650729 us-gaap:EquipmentMember 2018-12-30 0001650729 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2018-12-31 2019-12-29 0001650729 us-gaap:CustomerRelationshipsMember 2019-12-29 0001650729 us-gaap:CustomerRelationshipsMember 2018-12-31 2019-12-29 0001650729 us-gaap:TrademarksMember 2018-12-30 0001650729 us-gaap:TrademarksMember 2018-12-31 2019-12-29 0001650729 us-gaap:CustomerRelationshipsMember 2018-12-30 0001650729 us-gaap:TrademarksMember 2019-12-29 0001650729 us-gaap:CustomerRelationshipsMember 2018-01-01 2018-12-30 0001650729 us-gaap:TrademarksMember 2018-01-01 2018-12-30 0001650729 us-gaap:GeneralAndAdministrativeExpenseMember 2018-12-31 2019-12-29 0001650729 us-gaap:CostOfSalesMember 2018-12-31 2019-12-29 0001650729 us-gaap:RestrictedStockUnitsRSUMember 2018-12-31 2019-12-29 0001650729 us-gaap:EmployeeStockOptionMember 2019-12-29 0001650729 us-gaap:PerformanceSharesMember 2018-12-31 2019-12-29 0001650729 us-gaap:RestrictedStockUnitsRSUMember 2019-12-29 0001650729 site:DeferredStockUnitsMember 2018-12-31 2019-12-29 0001650729 site:DeferredStockUnitsMember 2019-12-29 0001650729 us-gaap:PerformanceSharesMember 2019-12-29 0001650729 us-gaap:EmployeeStockOptionMember 2018-01-01 2018-12-30 0001650729 us-gaap:EmployeeStockOptionMember 2017-01-02 2017-12-31 0001650729 us-gaap:PerformanceSharesMember 2018-12-30 0001650729 us-gaap:RestrictedStockUnitsRSUMember 2018-12-30 0001650729 site:DeferredStockUnitsMember 2018-12-30 0001650729 us-gaap:PerformanceSharesMember 2018-01-01 2018-12-30 0001650729 us-gaap:RestrictedStockUnitsRSUMember 2018-01-01 2018-12-30 0001650729 site:DeferredStockUnitsMember 2018-01-01 2018-12-30 0001650729 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2018-12-31 2019-12-29 0001650729 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2018-12-31 2019-12-29 0001650729 us-gaap:RestrictedStockUnitsRSUMember site:SharebasedCompensationAwardTrancheFourMember 2018-12-31 2019-12-29 0001650729 us-gaap:EmployeeStockOptionMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2018-12-31 2019-12-29 0001650729 us-gaap:EmployeeStockOptionMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2018-12-31 2019-12-29 0001650729 us-gaap:EmployeeStockOptionMember site:SharebasedCompensationAwardTrancheFourMember 2018-12-31 2019-12-29 0001650729 us-gaap:EmployeeStockOptionMember us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2018-12-31 2019-12-29 0001650729 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2018-12-31 2019-12-29 0001650729 site:InterestRateSwapContractThreeMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-17 0001650729 site:InterestRateSwapContractTwoMember us-gaap:DesignatedAsHedgingInstrumentMember 2017-06-30 0001650729 site:InterestRateSwapContractFourMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-24 0001650729 site:InterestRateSwapContractOneMember us-gaap:DesignatedAsHedgingInstrumentMember 2017-06-30 0001650729 site:InterestRateSwapContractFiveMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-26 0001650729 site:InterestRatesSwapContractSixMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-26 0001650729 us-gaap:InterestRateSwapMember us-gaap:InterestExpenseMember 2018-01-01 2018-12-30 0001650729 us-gaap:InterestRateSwapMember us-gaap:InterestExpenseMember 2018-12-31 2019-12-29 0001650729 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-12-29 0001650729 us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-30 0001650729 us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-12-29 0001650729 us-gaap:OtherNoncurrentAssetsMember us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-12-29 0001650729 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-30 0001650729 us-gaap:AccruedLiabilitiesMember us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-12-29 0001650729 us-gaap:OtherNoncurrentAssetsMember us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-30 0001650729 us-gaap:AccruedLiabilitiesMember us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-30 0001650729 us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-12-29 0001650729 us-gaap:OtherNoncurrentLiabilitiesMember us-gaap:InterestRateContractMember us-gaap:DesignatedAsHedgingInstrumentMember 2018-12-30 0001650729 us-gaap:RevolvingCreditFacilityMember 2019-12-29 0001650729 us-gaap:SeniorNotesMember 2018-12-30 0001650729 us-gaap:RevolvingCreditFacilityMember 2018-12-30 0001650729 us-gaap:SeniorNotesMember 2019-12-29 0001650729 srt:MaximumMember us-gaap:RevolvingCreditFacilityMember us-gaap:BaseRateMember 2015-10-19 2015-10-19 0001650729 site:TrancheBTermLoanMember us-gaap:SeniorNotesMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-08-14 2018-08-14 0001650729 us-gaap:InterestRateSwapMember 2018-12-31 2019-12-29 0001650729 srt:MinimumMember us-gaap:RevolvingCreditFacilityMember us-gaap:LondonInterbankOfferedRateLIBORMember 2015-10-19 2015-10-19 0001650729 srt:MinimumMember us-gaap:RevolvingCreditFacilityMember 2019-12-29 0001650729 srt:MaximumMember us-gaap:RevolvingCreditFacilityMember us-gaap:LondonInterbankOfferedRateLIBORMember 2015-10-19 2015-10-19 0001650729 site:TrancheETermLoansMember us-gaap:SeniorNotesMember 2018-08-14 2018-08-14 0001650729 site:TrancheBTermLoanMember us-gaap:SeniorNotesMember us-gaap:BaseRateMember 2018-08-14 2018-08-14 0001650729 us-gaap:RevolvingCreditFacilityMember 2019-02-01 0001650729 us-gaap:RevolvingCreditFacilityMember 2018-12-31 2019-12-29 0001650729 srt:MinimumMember us-gaap:RevolvingCreditFacilityMember 2018-12-30 0001650729 us-gaap:SeniorNotesMember 2018-08-14 2018-08-14 0001650729 srt:MinimumMember us-gaap:RevolvingCreditFacilityMember us-gaap:BaseRateMember 2015-10-19 2015-10-19 0001650729 us-gaap:RevolvingCreditFacilityMember 2018-01-01 2018-12-30 0001650729 us-gaap:OtherNoncurrentAssetsMember us-gaap:InterestRateSwapMember 2019-12-29 0001650729 site:TrancheBTermLoanMember us-gaap:SeniorNotesMember 2019-12-29 0001650729 us-gaap:AccountingStandardsUpdate201609Member 2018-12-31 2019-12-29 0001650729 us-gaap:AccountingStandardsUpdate201609Member 2017-01-02 2017-12-31 0001650729 us-gaap:AccountingStandardsUpdate201609Member 2018-01-01 2018-12-30 0001650729 us-gaap:StateAndLocalJurisdictionMember 2018-12-30 0001650729 us-gaap:StateAndLocalJurisdictionMember 2019-12-29 0001650729 us-gaap:DomesticCountryMember 2018-12-30 0001650729 us-gaap:ForeignCountryMember 2019-12-29 0001650729 us-gaap:DomesticCountryMember 2019-12-29 0001650729 us-gaap:ForeignCountryMember 2018-12-30 0001650729 site:DeereMember site:FinancingFeesMember srt:AffiliatedEntityMember 2017-01-02 2017-07-26 0001650729 site:TruGreenMember srt:AffiliatedEntityMember 2017-01-02 2017-07-26 0001650729 us-gaap:LetterOfCreditMember 2018-12-31 2019-12-29 0001650729 site:NurseryProductsandGrassSeedsMember 2019-12-29 0001650729 us-gaap:LetterOfCreditMember 2018-01-01 2018-12-30 0001650729 us-gaap:StockCompensationPlanMember 2018-01-01 2018-12-30 0001650729 us-gaap:StockCompensationPlanMember 2018-12-31 2019-12-29 0001650729 us-gaap:StockCompensationPlanMember 2017-01-02 2017-12-31 0001650729 site:GardenDeptMember us-gaap:SubsequentEventMember 2020-01-14 0001650729 site:EmpireMember us-gaap:SubsequentEventMember 2020-01-07 0001650729 site:WittkopfMember us-gaap:SubsequentEventMember 2020-01-02 0001650729 srt:ParentCompanyMember 2019-12-29 0001650729 srt:ParentCompanyMember 2018-12-30 0001650729 srt:ParentCompanyMember 2018-12-31 2019-12-29 0001650729 srt:ParentCompanyMember 2018-01-01 2018-12-30 0001650729 srt:ParentCompanyMember 2017-01-02 2017-12-31 0001650729 srt:ParentCompanyMember 2017-01-01 0001650729 srt:ParentCompanyMember 2017-12-31 0001650729 srt:ParentCompanyMember us-gaap:RedeemableConvertiblePreferredStockMember 2013-12-23 0001650729 srt:ParentCompanyMember 2013-12-23 0001650729 srt:ParentCompanyMember site:CDRMember 2013-12-29 2013-12-29 0001650729 srt:ParentCompanyMember us-gaap:CommonStockMember us-gaap:IPOMember 2016-05-16 2016-05-16 0001650729 srt:ParentCompanyMember site:CDRMember 2018-01-01 2018-12-30 0001650729 srt:ParentCompanyMember site:SiteOneLandscapeSupplyHoldingLLCMember 2013-12-23 0001650729 srt:ParentCompanyMember site:CDRMember 2016-01-03 0001650729 srt:ParentCompanyMember site:CDRMember us-gaap:RedeemableConvertiblePreferredStockMember 2016-05-02 2016-05-02 0001650729 srt:ParentCompanyMember site:CDRMember 2018-12-31 2019-12-29 site:location site:state iso4217:USD iso4217:USD xbrli:shares site:store xbrli:shares site:province xbrli:pure site:ton
Table of Contents

 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
__________________________
FORM 10-K
__________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 29, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period From __________ to ___________

Commission file number: 001-37760
siteonelogoa04.jpg
SiteOne Landscape Supply, Inc.

(Exact name of registrant as specified in its charter)
__________________________
Delaware
46-4056061
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
  
  
 300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076
(Address of principal executive offices) (Zip Code)

(470) 277-7000
(Registrant’s telephone number, including area code)

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

Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value per share
 
SITE
 
New York Stock Exchange


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

None
(Title of class)




Table of Contents

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes    No   
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes    No   
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No  

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No   
As of June 30, 2019, there were 41,199,427 shares of common stock of SiteOne Landscape Supply, Inc. outstanding, and the aggregate market value of the voting and non-voting common equity of SiteOne Landscape Supply, Inc. held by non-affiliates (assuming only for purposes of this computation that directors and officers may be affiliates) was approximately $2,824,318,243 based on the closing price of SiteOne Landscape Supply, Inc.’s common stock on The New York Stock Exchange (“NYSE”) on June 28, 2019 (the last trading day of our most recently completed fiscal second quarter).  
As of February 21, 2020, the number of shares of the registrant’s common stock outstanding were 41,789,003, par value $0.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement to be filed with the U.S. Securities and Exchange Commission in connection with the registrant’s 2020 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III hereof. Such Proxy Statement will be filed within 120 days of the registrant’s fiscal year ended December 29, 2019.
 


Table of Contents

 
 
 
TABLE OF CONTENTS
 
 
Page number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



1

Table of Contents

Special Note Regarding Forward-Looking Statements and Information
This Annual Report on Form 10-K contains forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 that could cause our business not to develop as we expect may emerge from time to time 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;
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;
ability to pass along product cost increases;
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;
retention of key personnel;
construction defect and product liability claims;
impairment of goodwill;
adverse credit and financial markets events and conditions;
credit sale risks;
performance of individual branches;
environmental, health and safety laws and regulations;
hazardous materials and related materials;
laws and government regulations applicable to our business that could negatively impact demand for our products;
computer data processing systems;
cybersecurity incidents;
security of personal information about our customers;
intellectual property and other proprietary rights;
the possibility of securities litigation;
unanticipated changes in our tax provisions;
our substantial indebtedness and our ability to obtain financing in the future;
increases in interest rates;
risks related to our common stock;
terrorism or the threat of terrorism; and
risks related to other factors discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
You should read this report completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements made in this report are qualified by these cautionary statements. These forward-looking statements are made only as of the date of this report, 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.


2

Table of Contents


PART I

As used in this Annual Report on Form 10-K for the fiscal year ended December 29, 2019, references to: “we,” “us,” “our,” “SiteOne,” or the “Company” refer to SiteOne Landscape Supply, Inc. and its consolidated subsidiaries. The term “Holdings” refers to SiteOne Landscape Supply, Inc. individually without its subsidiaries. References to the “2019 Fiscal Year,” the “2018 Fiscal Year,” and the “2017 Fiscal Year” refer to the fiscal years ended December 29, 2019, December 30, 2018, and December 31, 2017, respectively.

Item 1. Business
The following discussion of our business contains “forward-looking statements,” as discussed in “Special Note Regarding Forward-Looking Statements and Information” above. Our business, operations, and financial condition are subject to various risks as set forth in Part I, Item 1A., ‘‘Risk Factors’’ below. The following information should be read in conjunction with the Risk Factors, Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Supplementary Data and related notes included elsewhere in this Annual Report on Form 10-K.
Company 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. As of December 29, 2019, we had over 550 branch locations in 45 U.S. states and six Canadian provinces. Through our expansive North American network, we offer a comprehensive selection of more than 120,000 stock keeping units (“SKUs”) including irrigation supplies, fertilizer and control products (e.g., herbicides), landscape accessories, nursery goods, hardscapes (including pavers, natural stone, and blocks), outdoor lighting, and ice melt products. We also provide value-added consultative services to complement our product offerings and to help our customers operate and grow their businesses. 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.
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 over 1,500 delivery vehicles position us well to meet the needs of our customers and ensure timely delivery of products. We source our products from approximately 4,000 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.
We have a balanced mix of sales across product categories, construction sectors, and end markets. We derived approximately 56% of our 2019 Fiscal Year Net sales from the residential construction sector, 31% from the commercial (including institutional) construction sector, and 13% from the recreational and other construction sector. By end market, we derived approximately 42% of our 2019 Fiscal Year Net sales from maintenance of residential, commercial, and recreational properties. The recurring nature of landscape maintenance demand helps to provide stability in our financial performance across economic cycles. Fertilizer and control products are the primary products used in maintenance. The sale of products relating to new construction of homes, commercial buildings, and recreational spaces accounted for approximately 41% of our 2019 Fiscal Year Net sales. These products primarily include irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories. Approximately 17% of our 2019 Fiscal Year Net sales were 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.

3

Table of Contents

Net Sales for 2019 Fiscal Year
a10kpiecharts2019.jpg
Our History
Our company was established after Deere & Company (“Deere”) entered the wholesale landscape distribution market through the acquisitions of McGinnis Farms and Century Rain Aid in 2001, United Green Mark in 2005, and LESCO Inc. (“LESCO”) in 2007, each of which significantly expanded our geographic footprint and broadened our product portfolio. In December 2013, an affiliate (the “CD&R Investor”) of Clayton, Dubilier & Rice, LLC (“CD&R”) purchased a 60% interest in our company from Deere (“CD&R Acquisition”). On May 17, 2016, we completed the initial public offering (“IPO”) of our common stock in which Deere and the CD&R Investor were the sole sellers of our common stock to the public. On December 5, 2016, May 1, 2017, and July 26, 2017, we completed secondary offerings of our common stock in which Deere and the CD&R Investor were the sole sellers.
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 $20 billion in revenue in 2019. 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 industry, products sold for residential applications represent the largest construction sector, followed by the commercial and recreational and 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 and other accounting for approximately one-tenth of industry sales.
The wholesale landscape supply 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 branches in various locations to source their products. Consequently, landscape professionals have come to value distribution partners who offer a larger variety of product categories and services, particularly given the recurring nature of landscape maintenance services.
Our Strategies
Key elements of our strategy are as follows:
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 230,000 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,

4

Table of Contents

which we believe will continue to benefit our supplier base. 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.
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 only in approximately 30% of the metropolitan statistical areas (“MSAs”) in the United States 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 better serve our customers, grow our market share, and enhance our local market leadership positions by taking advantage of our scale, operational experience, and acquisition know-how. In addition, we currently have branches in approximately 50% of the 384 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.
Execute on Identified Operational Initiatives
We continue to undertake 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.  Additionally, we have continued our e-Commerce initiative, to include the enhancement of our website and business-to-business (B2B) e-Commerce platform.  Although we are still in the early stages of these initiatives, they have already enhanced our customer service, 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 Products and Services
Our comprehensive portfolio of landscape products consists of over 120,000 SKUs from approximately 4,000 suppliers. Our product portfolio includes irrigation, fertilizer and other, control products, landscape accessories, nursery goods, hardscapes, and outdoor lighting products. 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 required by items such as nursery goods and hardscapes, provides us with a competitive advantage over many competitors who offer a more limited selection of product categories.
Refer to “Note 2. Revenue from Contracts with Customers” to our audited financial statements for information on our Net sales in landscaping products (irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories) and agronomic and other products (fertilizer, control products, ice melt, equipment, and other products).
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.

5

Table of Contents

Fertilizer & Other
Our fertilizer and 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.
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.
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 often tied to sales of fertilizers and control products, as well as sales of nursery goods and hardscapes 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. 
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.
Hardscapes
Hardscapes include pavers, natural stone, blocks, and other durable materials.
Proprietary Branded Products
In addition to distributing branded products of third parties, we offer products under our proprietary brands. Sales of LESCO®, SiteOne Green Tech®, and Pro-Trade® together accounted for approximately 15% of our 2019 Fiscal Year Net sales, the large majority of which is attributable to LESCO®.
LESCO® 
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 products like engine oil, windshield washer fluid, ice melt, trimmer line and soil tests. LESCO® products are sold through our branches and retail outlets such as The Home Depot and True Value.
SiteOne Green Tech® 
We offer pre-packaged landscape and irrigation management solutions that are designed to help customers manage and conserve water under the SiteOne Green Tech® brand. The core SiteOne Green Tech® product lines include central irrigation control systems, solar assemblies, fertilizer injection systems, irrigation pumps, and hand-held remote control equipment.
Pro-Trade® 
In 2017, we launched a line of professional-grade LED lamps and lighting solutions under our Pro-Trade® brand. The Pro-Trade® line of products is sold exclusively through our branches and currently includes landscape lighting products, wire connectors, and centrifugal pumps. In total, we introduced another 20 products in 2019 and plan to continue expanding our Pro-Trade® offering in 2020.

6

Table of Contents

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 our products as well as 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 offer a loyalty rewards program, our Partners Program, which had approximately 20,000 enrolled customers as of December 29, 2019 and provides business and personal rewards, access to business services at preferred rates and technical training and support. Reward points may be spent, for example, on credit on-account, trips and special events, gift cards to major retailers, and SiteOne University courses and educational events. Access to preferred rate business services includes, for example, payroll and select human resource services, cell phone services, office supplies, auto and fleet insurance, and fuel rebates. For the 2019 Fiscal Year, Partners Program participants accounted for approximately 52% 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 functions.
At the local market level, we organize our over 550 branches and approximately 400 outside sales representatives into 46 designated “areas” that each typically serve a defined geography, 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.
We support our over 550 branches and 46 areas with regional management and company-wide 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. 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.
Our outside sales force is organized by geographic area. 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 with customers in 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 five different market verticals: landscape and grounds maintenance, golf, retail, international, and environmental accounts. 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.

7

Table of Contents

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 and creates a valuable connection between our suppliers and our customers.  Of our approximately 4,000 suppliers, few are set up to serve the shipping needs of our customers as their supply chains are typically focused on bulk quantities shipped from only a few locations. In contrast, many of our customers often require comparatively small quantities of products from numerous suppliers to complete a typical project, making it unfeasible to source directly from those suppliers.  Our branch network provides significant value to our suppliers by maintaining local availability of core and complementary products in quantities our customers need.
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.  Branches are strategically located near residential areas with convenient 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.
Direct Distribution
Our direct distribution business provides point-to-point logistics for bulk quantities of landscape products between suppliers 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 supplier relationships, marketing expertise, and ordering and logistics infrastructure to serve this demand, requiring less working capital investment for these sales. Approximately 7% of our 2019 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.
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 230,000 firms and individuals, with our top 10 customers collectively accounting for approximately 4% of our 2019 Fiscal Year Net sales, with no single customer accounting for more than 2% of Net sales. Small customers, with annual purchases of up to $25,000, made up 28% of our 2019 Fiscal Year Net sales. Medium customers, with annual purchases between $25,000 and $150,000, made up 34% of our 2019 Fiscal Year Net sales. Large customers, with annual purchases over $150,000, made up 38% of our 2019 Fiscal Year Net sales. Some of our largest customers include BrightView, The Home Depot, Weedman, and TruGreen. Distribution of our LESCO® proprietary branded products on a wholesale basis to retailers represented less than 1% of our 2019 Fiscal Year Net sales.
Suppliers
We source our products from approximately 4,000 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, Turf Care Supply, Cresline, Bayer, NDS, NuFarm, and Syngenta. Purchases from our top 10 suppliers accounted for approximately 35% of total purchases for our 2019 Fiscal Year.

8

Table of Contents

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 typically 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 purchase volume targets. Our ability to earn these volume-based incentives is an important factor in our financial results. In certain cases, we have entered into supply contracts with terms that exceed one year for the manufacture of our LESCO® branded fertilizer, 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. We are one of the only wholesale distributors which carries the full line of irrigation, fertilizer and 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), BWI, Target Specialty Products, Howard Fertilizer and Chemical, Heritage Landscape Supply Group (a subsidiary of SRS Distribution), BFG Supply, and Winfield Solutions.
We believe smaller, regional or local competitors still comprise approximately 88% of the landscape supply industry based on 2019 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.
Associates
As of December 29, 2019, we had approximately 4,600 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 provide significant benefits to our associates. Approximately 92% of our associates are employed on a full-time, year-round basis. Our associate count currently includes approximately 400 seasonal associates, who are temporarily employed due to the weather-dependent nature of our business. An associate is anyone employed by the Company.
Service Marks, Trademarks and Trade Names
We hold various trademark registrations, including SiteOne®, LESCO®, SiteOne Green Tech®, and Pro-Trade®, 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
For a discussion regarding seasonality and weather, refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Weather Conditions and Seasonality,” of this Annual Report on Form 10-K.
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.

9

Table of Contents

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 associates 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 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. Refer to “Note 11. Commitments and Contingencies” to our audited consolidated financial statements.
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.
Available Information
We make available free of charge on the “Investor Relations” page of our website, www.siteone.com, our filed and furnished reports on Forms 10-K, 10-Q, and 8-K, and all amendments thereto, as soon as reasonably practicable after the reports are filed with or furnished to the Securities and Exchange Commission (the “SEC”).
Our Corporate Governance Guidelines, Board of Directors Communication Policy, Business Code of Conduct and Ethics, Financial Code of Ethics, and the Charters of the Audit Committee, the Human Resources and Compensation Committee, and the Nominating and Corporate Governance Committee of the Board of Directors are also available on the “Investor Relations” page of our website. The information contained on our website is not incorporated herein by reference. Copies of these documents (without exhibits, when applicable) are also available free of charge upon request to us at 300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076, Attention: Investor Relations or by telephone at (404) 277-7000. In addition, the SEC maintains a website that contains reports, proxy, and information statements, and other information regarding issuers, including us, that file electronically with the SEC at www.sec.gov. We are required to disclose any change to, or waiver from, our Business Code of Conduct and Ethics for our executive officers and Board members. We use our website to disseminate this disclosure as permitted by applicable SEC rules.



10

Table of Contents

Item 1A. Risk Factors

You should carefully consider the factors described below, in addition to the other information set forth in this Annual Report on Form 10-K. These risk factors are important to understanding the contents of this Annual Report on Form 10-K and of other reports. Our reputation, business, financial position, results of operations, and cash flows are subject to various risks. The risks and uncertainties described below are not the only ones relevant to us. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also adversely impact our reputation, business, financial position, results of operations and cash flows.
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 in the past, 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, changes in the tax laws, availability of credit, geopolitics, 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. 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 is cyclical in nature and subject to downturns, which can be severe. 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%. 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.
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, geopolitics, 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.

11

Table of Contents

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 typically 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 shortages 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. For instance, over the course of the last decade, California has enacted laws aimed at reducing state-wide water consumption in response to the state’s most recent drought, which lasted seven years and officially ended in March 2019. We have also 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 or severe 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, wildfires, hurricanes 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, increased rain during the second quarter of 2019 negatively impacted demand for our products and inhibited our organic sales growth. In addition, severe winter storms can cause hazardous road conditions, which may prevent personnel from traveling or delivering to service locations. Other types of unexpected 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 write-downs.
Public perceptions that the products we use and the services we deliver are not environmentally friendly or safe may result in significant costs and 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 that may result in significant costs, damage our brand names and otherwise have a material adverse impact on our business, financial position, results of operations and cash flows. Customers are also using social media to provide feedback and information about our Company and products and services in a manner that can be quickly and broadly disseminated. To the extent a customer has a negative experience and shares it over social media, it may adversely impact our brand and reputation.
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, lower prices 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.

12

Table of Contents

In addition, we may face increased competition from new market entrants or companies in adjacent industries expanding into the landscape supply industry. Such competition may result in the diminution of our market share or the loss of one or more of our major customers, either of which would adversely affect our business, financial position, results of operations, and cash flows. Further, existing and future competitors, and private equity firms, increasingly compete with us for acquisitions, which can increase prices and reduce the number of suitable opportunities available to us; the acquisitions they make may also adversely impact our market position.
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 associates may start landscape supply businesses similar to ours, in competition with us. Our industry faces low barriers to entry, making the possibility of former associates starting similar businesses more likely. Increased competition from businesses started by former associates 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.
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, fail to comply with applicable laws, encounter supply disruptions, shipping interruptions, trade restrictions, tariffs 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 or worsen, suppliers may stop offering us favorable terms, including volume-based incentive 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. For example, many of our contracts with suppliers include prices for commodities such as grass seed and chemicals used in fertilizer that are not fixed or 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. Recently, governments of the United States and China reached a trade deal, which includes tariffs on certain Chinese goods. As a result, we may be forced to continue paying above market prices for certain products that we purchase. Changes in prices for the products that we purchase affect our Net sales and Cost of goods sold, as well as our working capital 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.

13

Table of Contents

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 time frame, 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 business, financial condition, and 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, and our executive management team’s ability to execute the 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.
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 by both existing competitors as well as new market entrants. 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 customers or key personnel of the acquired business and recruit qualified new associates at
the location;
failure to successfully implement infrastructure, logistics and systems integration which could, among other things, increase the risk of a cybersecurity incident;

14

Table of Contents

potential impairment of goodwill;
our inability to obtain financing necessary to complete acquisitions on attractive terms or at all;
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; and
the risks inherent in the systems of the acquired business and risks associated with unanticipated events or liabilities.
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, 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 continued to fluctuate significantly in recent years. Prices and availability of petroleum products are subject to political, economic, and market factors that are outside our control. Political and military events in petroleum-producing regions, including the Middle East, 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 labor force and our customer’s labor force could have a significant adverse effect on our business.
We have an employee base of approximately 4,600 associates. Various federal and state labor laws govern our relationships with our associates 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 associates may be paid at rates that relate to the applicable minimum wage, further increases in the minimum wage could increase our labor costs. Associates 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 associates in hourly positions, and we invest significant resources to train and motivate our associates 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 associates in the future, it could adversely impact our business, financial position, results of operations, and cash flows.

15

Table of Contents

None of our associates are currently covered by collective bargaining or other similar labor agreements. However, if a larger number of our associates were to unionize, including in the wake of any future legislation that makes it easier for associates 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 associates 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.
Further, a large portion of our customers are in the landscape services industry, which is labor intensive. Demand for our products may be impacted by our customers’ ability to attract, train and retain workers. Increases in our customers’ personnel costs or the inability of our customers to hire sufficient personnel, which may be amplified in periods of low unemployment rates and tight labor market conditions, could adversely impact our business, financial position, results of operations, and cash flows.
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.
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 are subject to such claims from time to time.
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 do not have written indemnification agreements from all of our suppliers and we may be unable to recover under such indemnification agreements that exist. 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 tort proceedings, including toxic tort and product liability actions, and employment 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.

16

Table of Contents

An impairment of goodwill and/or other intangible assets could reduce Net income.
Acquisitions frequently result in the recording of goodwill and other intangible assets. As of December 29, 2019, goodwill represented approximately 13% of our total assets. Goodwill is currently not amortized for financial reporting purposes and is subject to impairment testing at least annually using a fair-value based approach. The identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units. Our accounting for impairment contains uncertainty because management must use its judgment in determining appropriate assumptions to be used in the measurement of fair value. We determine the fair values of our reporting units by using both a market and income approach.

We evaluate the recoverability of goodwill for impairment in between our annual tests when events or changes in circumstances including a sustained decline in our market capitalization, indicate that the carrying amount of goodwill may not be recoverable. Any impairment of goodwill will reduce Net income in the period in which the impairment is recognized.
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 orders being canceled, 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 (as defined under “—Risks Related to Our Substantial Indebtedness” below), 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 2019 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.
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 executives and services from 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 and profitability than other branches.

17

Table of Contents

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 associates 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 (“EPA”) and similar state agencies before they can be sold or distributed. 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. We are subject to such allegations from time to time. The regulations may also apply to customers who may fail to comply with environmental, health 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 adequate insurance coverage at commercially reasonable rates in the future 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.
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 or nutrient 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

18

Table of Contents

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.
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 and the systems of certain third-party vendors 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. Some of our systems run older generations of software that may be unable to perform as efficiently as, and fail to communicate well with, newer systems. As we implement or develop new systems in the future, we may elect to modify, replace or discontinue certain technology initiatives. 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 or interruption of our systems or the systems of third-party vendors 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. 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.
In the event of a cybersecurity incident, we could experience operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings or suffer damage to our reputation.

In addition to the disruptions that may occur from interruptions in our information technology systems, cybersecurity threats and sophisticated and targeted cyberattacks pose a risk to our information technology systems. We have established security policies, processes and defenses designed to help identify and protect against intentional and unintentional misappropriation or corruption of our information technology systems and information and disruption of our operations. Despite these efforts, our information technology systems may be damaged, disrupted or shut down due to attacks by unauthorized access, malicious software, computer viruses, undetected intrusion, hardware failures or other events, and in these circumstances our disaster recovery plans may be ineffective or inadequate. These breaches or intrusions could lead to business interruption, exposure of proprietary or confidential information, data corruption, damage to our reputation, exposure to legal and regulatory proceedings and other costs. A security breach might also lead to violations of privacy laws, regulations, trade guidelines or practices related to our customers and associates and could result in potential claims from customers, associates, shareholders or regulatory agencies. Such events could adversely impact on our reputation, business, financial position, results of operations, and cash flows. In addition, we could be adversely affected if any of our significant customers or suppliers experiences any similar events that disrupt their business operations or damage their reputation.

While we maintain monitoring practices and protections of our information technology to reduce these risks and test our systems on an ongoing basis for potential threats, there can be no assurance that these efforts will prevent a cyber-attack or other security breach. In addition, we carry cybersecurity insurance to help mitigate the financial exposure and related notification procedures in the event of intentional intrusion; however, there can be no assurance that our insurance will adequately protect against potential losses that could adversely affect our business.
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, tokenization, tools, and monitoring to provide security for collecting, processing, transmitting and storing confidential customer information, such as 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

19

Table of Contents

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 trademarks SiteOne®, LESCO®, SiteOne Green Tech®, and Pro-Trade®. 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.
We may be subject to securities litigation, which is expensive and could divert management attention and resources from our business.
Our share price has experienced significant volatility recently and may continue to be volatile in the future. 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.
We may be subject to unanticipated changes in our tax provisions, including further changes to applicable U.S. tax laws.
We are subject to income and other taxes in U.S. federal and state jurisdictions, as well as Canada. Changes in applicable U.S. or Canadian tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could impact our tax expense and profitability. For example, in December 2017, Congress enacted, and the President signed, significant changes to the federal income tax code known as The Tax Cuts and Jobs Act (the “2017 Tax Act”). Although we have completed the accounting for the tax effects of the 2017 Tax Act, it is not possible to predict the effects of potential changes in the tax laws or changes in their interpretation and whether they could have a material adverse impact on our operating results. We have filed our tax returns in prior years based upon certain filing positions we believe are appropriate. If the Internal Revenue Service or state taxing authorities disagree with these filing positions, we may owe additional taxes.

A terrorist attack or the threat of a terrorist attack could have a material adverse effect on our business.
Discretionary spending on landscape projects is generally adversely affected during times of economic or political
uncertainty. The potential for terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or
hostility could create these types of uncertainties and negatively impact our business for the short or long term in ways that cannot
presently be predicted.
Risks Related to Our 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 December 29, 2019, we had $534.6 million aggregate principal amount of total long-term consolidated indebtedness outstanding and $22.9 million of finance leases.
SiteOne Landscape Supply Holding, LLC (“Landscape Holding”) and SiteOne Landscape Supply, LLC (“Landscape”) are parties to a credit agreement dated December 23, 2013, which has been amended pursuant to the First Amendment dated June 13, 2014, the Second Amendment dated January 26, 2015, the Third Amendment dated February 13, 2015, the Fourth Amendment dated October 20, 2015, the Omnibus Amendment dated May 24, 2017, and the Sixth Amendment dated February 1, 2019 (such agreement, as so amended, the “ABL Credit Agreement”), providing for an asset-based loan facility in the amount of up to $375.0 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”).

20

Table of Contents

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 with UBS AG, Stamford Branch, as administrative agent and collateral agent, and the other financial institutions and lenders from time to time party thereto (which was amended on November 23, 2016, May 24, 2017, December 12, 2017 and August 14, 2018 and as may be further amended, supplemented, waived or otherwise modified from time to time, the “Term Loan Facility” and, together with the ABL Facility, the “Credit Facilities”), which matures on October 29, 2024. On August 14, 2018, the Term Loan Facility was amended to, among other things, (i) add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche E Term Loans”) in an aggregate principal amount of $347.4 million and (ii) increase the aggregate principal amount of Tranche E Term Loans under the Term Loan Facility to $447.4 million.
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. 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;
although we enter into interest rate hedging transactions periodically, we are exposed to the risk of increased interest rates because borrowings under the Credit Facilities and certain floating rate operating and finance 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 December 29, 2019 each one percentage point change in interest rates would result in an approximately $0.9 million change in the annual interest expense on the amount outstanding under the ABL Facility. As of December 29, 2019, each one percentage point change in interest rates would result in an approximately $0.5 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.
In addition, in certain circumstances, our variable rate indebtedness uses the London Interbank Offer Rate (“LIBOR”) as a benchmark for establishing the interest rate. The LIBOR has been subject of national, international, and other regulatory guidance and proposals for reform. In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit rates for calculation of LIBOR after 2021. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness.

We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the Investment Company Act of 1940. Additionally, we cannot assure you that financing will be available on acceptable terms, if at all. Deterioration in the credit markets, which could delay our ability to sell certain of our loan investments in a timely manner, could also negatively impact our cash flows.
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.

21

Table of Contents

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.
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 February 1, 2024. The final maturity date of the Term Loan Facility is October 29, 2024. 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.

22

Table of Contents

Risks Related to Our Common Stock
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.
The market price of our common stock may be volatile.
The stock market in general and our common stock in particular have recently experienced significant volatility and the market price of our common stock may continue to fluctuate significantly. Among the factors that could affect our stock price are:
industry or general market conditions;
domestic and international economic and political 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;
action by institutional stockholders or other large stockholders, 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 that you will be able to resell your shares at or above your purchase 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.

23

Table of Contents

Future sales of shares by us could cause our stock price to decline.
Sales of substantial amounts of our common stock in the public market, 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.
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 associate arrangement or otherwise. Any of these issuances could result in dilution to our existing stockholders and could cause the trading price of our common stock to decline.
Future offerings of debt or 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.
Anti-takeover provisions in our second amended and restated certificate of incorporation and second 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 second amended and restated certificate of incorporation, or amended and restated certificate of corporation, 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, our amended and restated certificate of incorporation and amended and restated by-laws collectively:
authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;
provide for a classified board of directors, which divides our board of directors 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;
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;
prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders; and
establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders.
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 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 will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

24

Table of Contents

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.
Our amended and restated certificate of incorporation designates 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 provides that the Court of Chancery of the State of Delaware is, to the fullest extent permitted by law, 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 (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.
    
Item 1B. Unresolved Staff Comments
Not applicable.


25

Table of Contents

Item 2. Properties
Our corporate headquarters is located on leased premises at 300 Colonial Center Parkway, Suite 600, Roswell, Georgia 30076. Our corporate headquarters is approximately 55,000 square feet and the lease will expire in April 2026.
We and our operating companies own and lease a variety of facilities in 45 states and six 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. We also lease three facilities that are operated as our South, West, and North Distribution Centers. The South Distribution Center located in Fairburn, Georgia, is approximately 192,000 square feet, and commenced operations in the first quarter of 2017. The West Distribution Center located in Colton, California, is approximately 179,000 square feet, and commenced operations in the first quarter of 2018. The North Distribution Center located in Carlisle, Pennsylvania, is approximately 201,000 square feet, and commenced operations in the first quarter of 2018. The significant majority of our facilities are subject to operating leases, and we own 15 properties. As of December 29, 2019, we operated 555 branches in the following locations:

State /Province
 
Number of Locations
 
State /Province
 
Number of Locations
California
 
73
 
Oklahoma
 
5
Florida
 
60
 
Wisconsin
 
5
Texas
 
37
 
Oregon
 
4
North Carolina
 
36
 
Nevada
 
4
Massachusetts
 
30
 
Kentucky
 
3
New York
 
20
 
Nebraska
 
3
Michigan
 
20
 
New Hampshire
 
3
South Carolina
 
18
 
Utah
 
3
New Jersey
 
17
 
Hawaii
 
2
Georgia
 
17
 
Delaware
 
2
Virginia
 
16
 
Iowa
 
2
Illinois
 
16
 
Louisiana
 
2
Missouri
 
15
 
Arkansas
 
1
Connecticut
 
15
 
Maine
 
1
Ohio
 
13
 
Mississippi
 
1
Colorado
 
12
 
New Mexico
 
1
Pennsylvania
 
11
 
North Dakota
 
1
Tennessee
 
11
 
Rhode Island
 
1
Washington
 
10
 
South Dakota
 
1
Indiana
 
10
 
Ontario
 
6
Maryland
 
10
 
British Columbia
 
4
Alabama
 
6
 
Alberta
 
2
Minnesota
 
6
 
Manitoba
 
1
Arizona
 
6
 
Québec
 
1
Idaho
 
5
 
Saskatchewan
 
1
Kansas
 
5
 
 
 
 



26

Table of Contents


Item 3. Legal Proceedings
We are not currently involved in any material litigation or arbitration. We anticipate that 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, and 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.

Item 4. Mine Safety Disclosures
Not applicable.

27

Table of Contents

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Shares of our common stock trade on the NYSE under the symbol “SITE”.
Holders
As of February 21, 2020, there was one registered holder of our common stock. The number of record holders does not include individuals or entities who beneficially own shares, but whose shares are held of record by a broker, bank, or other nominee, but does include each such broker, bank, or other nominee as one record holder.
Dividends
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. Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Limitations on Distributions and Dividends by Subsidiaries” for a description of the restrictions on our ability to pay dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
Refer to Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report on Form 10-K, which information will be set forth in SiteOne’s Proxy Statement for the 2020 Annual Meeting of Stockholders.
Stock Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act.
The graph below presents the Company’s cumulative total shareholder returns relative to the performance of the NYSE Composite Index, Standard & Poor's MidCap 400 Index and Dow Jones US Industrial Supplier Index for the period commencing on May 12, 2016 (the Company’s initial day of trading) and ending on December 29, 2019, the end of our last fiscal year. All values assume a $100 initial investment at the opening price of the Company’s common stock on the NYSE and data for the NYSE Composite Index, Standard & Poor's MidCap 400 Index and Dow Jones US Industrial Supplier Index assumes all dividends were reinvested on the date paid. The points on the graph represent fiscal year-end values based on the last trading day of each fiscal year. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common stock.

28

Table of Contents

stockgraphannuala02.jpg

Recent Sales of Unregistered Securities
None.

Purchases of Equity Securities by Issuer and Affiliates Purchasers
None.


29

Table of Contents

Item 6. Selected Financial Data
The following tables set forth selected historical consolidated financial data as of the dates and for the periods indicated. The selected balance sheet data as of December 29, 2019 and December 30, 2018, and the statement of operations data for each of the 2019 Fiscal Year, 2018 Fiscal Year, and 2017 Fiscal Year have been derived from our audited consolidated financial statements and related notes included in this Annual Report on Form 10-K. The selected balance sheet data as of December 31, 2017, January 1, 2017, and January 3, 2016 and the statement of operations data for the 2016 Fiscal Year and 2015 Fiscal Year have been derived from our audited financial statements and related notes not included in this Annual Report on Form 10-K.
In the opinion of our management, our 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 Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included in this Annual Report on Form 10-K.
 
Year ended
 
December 29, 2019
 
December 30, 2018
 
December 31, 2017
 
January 1, 2017
 
January 3, 2016
 
(in millions, except share and per share data)
Statement of operations data:
 
 
 
 
 
 
 
 
 
Net sales
$
2,357.5

 
$
2,112.3

 
$
1,861.7

 
$
1,648.2

 
$
1,451.6

Cost of goods sold
1,584.3

 
1,434.2

 
1,266.2

 
1,132.5

 
1,022.5

Gross profit
773.2

 
678.1

 
595.5

 
515.7

 
429.1

Selling, general and administrative
654.3

 
578.8

 
502.2

 
446.5

 
373.3

Other income
6.0

 
8.0

 
4.5

 
4.8

 
4.0

Operating income
124.9

 
107.3

 
97.8

 
74.0

 
59.8

Interest and other non-operating expenses
33.4

 
32.1

 
25.2

 
22.1

 
11.4

Income before taxes
91.5

 
75.2

 
72.6

 
51.9

 
48.4

Income tax expense
13.8

 
1.3

 
18.0

 
21.3

 
19.5

Net income
$
77.7

 
$
73.9

 
$
54.6

 
$
30.6

 
$
28.9

Net income (loss) attributable to common shares(1)
$
77.7

 
$
73.9

 
$
54.6

 
$
(91.4
)
 
$
(14.8
)
Net income (loss) per common share:
 
 
 
 
 
 
 
 
 
Basic
$
1.89

 
$
1.83

 
$
1.37

 
$
(3.01
)
 
$
(1.04
)
Diluted
$
1.82

 
$
1.73

 
$
1.29

 
$
(3.01
)
 
$
(1.04
)
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
41,218,843

 
40,488,196

 
39,754,595

 
30,316,087

 
14,209,843

Diluted
42,750,348

 
42,633,309

 
42,193,432

 
30,316,087

 
14,209,843

 
As of
December 29,
2019
 
As of
December 30,
2018
 
As of
December 31,
2017
 
As of
January 1,
2017
 
As of
January 3,
2016
Balance sheet data:
(in millions)
Total assets
1,443.3

 
1,168.5

 
910.7

 
742.6

 
668.7

Total debt (2)
524.9

 
558.2

 
463.6

 
375.5

 
177.7

Redeemable convertible preferred stock

 

 

 

 
216.8


30

Table of Contents

 
Year ended
 
December 29, 2019
 
December 30, 2018
 
December 31, 2017
 
January 1, 2017
 
January 3, 2016
 
(in millions, except share and per share data)
Net income
$
77.7

 
$
73.9

 
$
54.6

 
$
30.6

 
$
28.9

Less:
 
 
 
 
 
 
 
 
 
Redeemable convertible preferred stock dividends

 

 

 
9.6

 
25.1

Redeemable convertible preferred stock beneficial conversion feature

 

 

 

 
18.6

Special cash dividend paid to preferred stockholders

 

 

 
112.4

 

Net income (loss) attributable to common shares
$
77.7

 
$
73.9

 
$
54.6

 
$
(91.4
)
 
$
(14.8
)
______________

(1)
Net income (loss) attributable to common shares represents Net income minus accumulated Preferred Stock dividends, any beneficial conversion feature amortized in the period, and special cash dividend paid to preferred stockholders.
(2)
Total debt includes current and non-current portions of long-term debt offset by unamortized debt discount and issuance costs.
    


31

Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the “Selected Financial Data” and the accompanying consolidated financial statements and related notes included in this Annual Report on Form 10-K.

For the discussion of the financial condition and results of operations for the year ended December 30, 2018 compared to the year ended December 31, 2017, refer to "Part II—Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" and "—Liquidity and Capital Resources" in our Annual Report on Form 10-K for the fiscal year ended December 30, 2018 filed with the SEC on February 27, 2019, which discussion is incorporated herein by reference.
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 Annual Report on Form 10-K, particularly in “Special Note Regarding Forward-Looking Statements and Information” and “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

Overview

SiteOne Landscape Supply, Inc. (collectively with all its subsidiaries referred to in this Annual Report on Form 10-K as “SiteOne,” the “Company,” “we,” “us”, and “our” or individually as “Holdings”) indirectly owns 100% of the membership interest in SiteOne Landscape Supply Holding, LLC (“Landscape Holding”). Landscape Holding is the parent and sole owner of SiteOne Landscape Supply, LLC (“Landscape”).

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 over 550 branch locations in 45 U.S. states and six Canadian provinces, we offer a comprehensive selection of more than 120,000 SKUs, including irrigation supplies, fertilizer and control products (e.g., herbicides), landscape accessories, nursery goods, hardscapes (including pavers, natural stone, and blocks), outdoor lighting, and ice melt products to green industry professionals. We also provide value-added consultative services to complement our product offerings and to help customers operate and grow their businesses.
        
Presentation

Our financial statements included in this report 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.
This discussion of our financial condition is presented for the 2019 Fiscal Year, which ended on December 29, 2019 and included 52 weeks and 252 Selling Days and the 2018 Fiscal Year, which ended on December 30, 2018 and included 52 weeks and 252 Selling Days. “Selling Days” are defined below within the Key Business and Performance Metrics section.
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 utilized.

 
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 and 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 taxes.

32

Table of Contents

Non-GAAP 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 Sales 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.
Non-GAAP Selling Days. Selling Days are defined as business days, excluding Saturdays, Sundays and holidays, that our branches are open during the year. Depending upon the location and the season, our branches may be open on Saturdays and Sundays; however for consistency, those days have been excluded from the calculation of Selling Days.
Non-GAAP Organic Daily Sales. We define Organic Daily Sales as Organic Sales divided by the number of Selling Days in the relevant reporting period. We believe Organic Sales growth and Organic Daily Sales growth are useful measures for evaluating our performance as we may choose to open or close branches in any given market depending upon the needs of our customers or our strategic growth opportunities. Refer to “Results of Operations—Quarterly Results of Operations Data” for a reconciliation of Organic Daily Sales to Net sales.
Cost of goods sold. Our Cost of goods sold includes all inventory costs, such as purchase price paid to suppliers, net of any volume-based incentives, as well as inbound freight and handling, and other costs associated with inventory. Our Cost of goods sold excludes the cost to deliver the products to our customers through our branches, which is included in Selling, general and administrative expenses. 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-based compensation and bonuses), rent, fuel, vehicle maintenance costs, insurance, utilities, repairs and maintenance, and professional fees. Operating expenses also include depreciation and amortization.

Non-GAAP Adjusted EBITDA. In addition to the metrics discussed above, we believe that Adjusted EBITDA is useful for evaluating the operating performance and efficiency of our business. EBITDA represents our Net income (loss) plus the sum of income tax (benefit), interest expense, net of interest income, and depreciation and amortization. Adjusted EBITDA represents EBITDA as further adjusted for items such as stock-based compensation expense, (gain) loss on sale of assets not in the ordinary course of business, other non-cash items, financing fees, other fees and expenses related to acquisitions and other non-recurring (income) loss. Refer to “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. Historically, 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 historically incurred net losses in these quarters. Seasonal variations in operating results may also be significantly impacted by inclement weather conditions, such as snow storms, wet weather, and hurricanes, which not only impact the demand for certain products like fertilizer and ice melt, but also may 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, commercial buildings, and recreational spaces. The landscape supply 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

33

Table of Contents

products and services also tends to fluctuate. The landscape supply industry also includes a significant amount of agronomic products such as 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 are reflected in our financial statements from the date of acquisition forward. Additionally, we incur transaction costs in connection with identifying and completing acquisitions as well as ongoing integration costs as we integrate acquired companies and seek to achieve synergies. As of December 29, 2019, we have invested approximately $220 million in 23 acquisitions since the start of the 2018 Fiscal Year. The following is a summary of the acquisitions completed during the 2019 and 2018 Fiscal Years:

In December 2019, we acquired the assets and assumed the liabilities of Daniel Stone & Landscaping Supplies, Inc. (“Daniel Stone”). With one location in the greater Austin, Texas market, Daniel Stone is a distributor of hardscapes and landscape supplies to landscape professionals.

In December 2019, we acquired all of the members’ interests of Dirt Doctors, Inc. (“Dirt Doctors”). With three locations in the greater New England market, Dirt Doctors is a distributor of hardscapes and landscape supplies to landscape professionals.

In September 2019, we acquired the assets and assumed the liabilities of Design Outdoor, Inc. (“Design Outdoor”). With one location in the greater Reno/Lake Tahoe, Nevada area, Design Outdoor is a distributor of hardscapes products to landscape professionals.

In August 2019, we acquired the assets and assumed the liabilities of Trendset Concrete Products, Inc. (“Trendset”). With one location in the greater Seattle, Washington market, Trendset is a distributor of hardscapes products to landscape professionals.

In July 2019, we acquired the assets and assumed the liabilities of L.H. Voss Materials Dublin and its affiliates, Mt. Diablo Landscape Centers and Clark’s Home & Garden (collectively, “Voss”). With five locations across the East Bay in Northern California, Voss is a distributor of hardscapes and landscape supplies to landscape professionals.

In May 2019, we acquired the assets and assumed the liabilities of Stone and Soil Depot, Inc. (“Stone and Soil”). With three locations in the greater San Antonio, Texas market, Stone and Soil is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals.

In April 2019, we acquired the assets and assumed the liabilities of Fisher’s Landscape Depot (“Fisher’s”). With two locations in Western Ontario, Canada, Fisher’s is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals.

In April 2019, we acquired the assets and assumed the liabilities of Landscape Depot, Inc. (“Landscape Depot”). With three locations in the greater Boston, Massachusetts market, Landscape Depot is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals.

In February 2019, we acquired the assets and assumed the liabilities of All Pro Horticulture, Inc. (“All Pro”). With one location in Long Island, New York, All Pro is a market leader in the distribution of agronomics and erosion control products to landscape professionals.


34

Table of Contents

In January 2019, we acquired the assets and assumed the liabilities of Cutting Edge Curbing Sand & Rock (“Cutting Edge”). With one location in Phoenix, Arizona, Cutting Edge is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals.

In December 2018, we acquired the assets and assumed the liabilities of All Around Landscape Supply and Santa Ynez Stone & Topsoil (“All Around”). With four locations in Santa Barbara County, California, All Around is a market leader in the distribution of irrigation, hardscapes, and landscape supplies to landscape professionals.

In October 2018, we acquired the assets and assumed the liabilities of C&C Sand and Stone (“C&C”). With four locations in Colorado, C&C is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals.

In July 2018, we acquired the assets and assumed the liabilities of Central Pump & Supply, Inc. d/b/a CentralPro (“CentralPro”). With 11 locations throughout Central Florida, CentralPro is a market leader in the distribution of irrigation, lighting, and drainage products to landscape professionals.

In July 2018, we acquired the assets and assumed the liabilities of Stone Center LC (“Stone Center”). With one location in Manassas, Virginia, Stone Center is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals.

In July 2018, we acquired the outstanding stock of Koppco, Inc. and Kirkwood Material Supply, Inc. (collectively “Kirkwood”). With eight locations in the St. Louis, Missouri metropolitan area, Kirkwood is a market leader in the distribution of hardscapes and nursery supplies to landscape professionals.

In July 2018, we acquired the outstanding stock of LandscapeXpress, Inc. (“Landscape Express”). With four locations in the Boston, Massachusetts metropolitan area, Landscape Express is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals.

In June 2018, we acquired the assets and assumed the liabilities of Southwood Valley Turf II, Ltd, d/b/a All American Stone and Turf (“All American”). With one location in College Station, Texas, All American is a market leader in the distribution of hardscapes and landscape supplies to landscape professionals in East Texas.

In June 2018, we acquired the outstanding stock of Auto-Rain Supply Inc. (“Auto-Rain”). With five locations in Washington and Idaho, Auto-Rain is a market leader in the distribution of irrigation and related products to landscape professionals.

In May 2018, we acquired the assets and assumed the liabilities of Landscaper’s Choice Wholesale Nursery and Supply (“Landscaper’s Choice”). With two locations in Naples and Bonita Springs, Florida, Landscaper’s Choice is a market leader in wholesale nursery distribution.

In April 2018, we acquired the assets and assumed the liabilities of Northwest Marble & Terrazzo Co. (“Terrazzo”). With two locations in Bellevue and Marysville, Washington, Terrazzo is a market leader in the distribution of natural stone and hardscapes material to landscape professionals.

In March 2018, we acquired the assets and assumed the liabilities of the distribution locations of Village Nurseries Landscape Centers (“Village”). With three locations in Orange, Huntington Beach, and Sacramento, California, Village is a market leader in wholesale nursery distribution.

In February 2018, we acquired the outstanding stock of Atlantic Irrigation Specialties, Inc. and the limited liability company interests of Atlantic Irrigation South, LLC (collectively, “Atlantic”). With 33 locations in 12 states within the Eastern U.S. and two provinces in Eastern Canada, Atlantic is a market leader in the distribution of irrigation, lighting, drainage, and landscaping equipment to green industry professionals.

In January 2018, we acquired the assets and assumed the liabilities of Pete Rose, Inc. (“Pete Rose”). With one location in Richmond, Virginia, Pete Rose is a market leader in the distribution of natural stone and hardscapes material to landscape professionals.

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

35

Table of Contents


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 strategic positioning. We typically 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 purchase volume targets. Our ability to earn these volume-based incentives is an important factor in our financial results. In certain cases, we have entered into supply contracts with terms that exceed one year for the manufacture of our LESCO® branded fertilizer, some nursery goods, and grass seed, which may require us to purchase products in the future.

Strategic Initiatives

We continue to undertake 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 focusing on our procurement and supply chain management initiatives to better serve our customers and reduce sourcing costs. We are also implementing new inventory planning and stocking system functionalities and new transportation management systems in an effort to reduce costs as well as improve our reliability and level of service. In addition, we continue to enhance our website and B2B e-Commerce platform, which we believe provides the convenience of an online sales channel, enhanced account management functionality, and industry specific productivity tools for our customers. We also 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 development of a centralized pricing and discounting strategy and the implementation of data analytics to aid special pricing and bidding, were initiated beginning in the second quarter of 2015 and are expected to continue through 2021.

Category management initiatives, including the implementation of organic growth strategies, the development of our private label product strategy, the expansion of product lines, and the reorganization of brands and products by preferred suppliers, were initiated beginning in the first quarter of 2015 and are expected to continue through 2022.

Supply chain initiatives, including the implementation of new inventory planning and stocking systems, the installation of new distribution centers, local hubs in large markets, and local fleet utilization and cost improvement, were initiated in the fourth quarter of 2016 and are expected to continue through 2022.

Sales force performance initiatives, including the implementation of new compensation plans, the restructuring of our sales force, the formal sales and product training for sales force and management, and the implementation of a comprehensive CRM, were initiated beginning in the third quarter of 2015 and are expected to continue through 2022.

Marketing initiatives, including a relaunch of the Partners Program and implementation of a digital marketing strategy, were initiated beginning in the third quarter of 2015 and are expected to continue through 2022.

E-Commerce initiatives, including the relaunch of our website and the implementation of a B2B e-Commerce platform, which provides the convenience of an online sales channel, enhanced account management functionality, and industry specific productivity tools for our customers, are expected to continue through 2022.

Operational excellence initiatives, including the implementation of best practices in branch operations which encompasses safety, merchandising, stocking and assortment, customer engagement, delivery, labor management, as well as branch systems automation and enhancement including the rollout of barcoding, are expected to continue through 2022.

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 these increases in our pricing. The strategic initiatives described above are designed to reduce our exposure to these fluctuations and maintain and improve our efficiency.

 

36

Table of Contents

Results of Operations

In the following discussion of our results of operations, we make comparisons among the 2019 Fiscal Year and the 2018 Fiscal Year.
Consolidated Statements of Operations
 
 
 
 
 
 
 
 
 
December 31, 2018 to December 29, 2019
 
January 1, 2018 to December 30, 2018
 
 
(in millions)
Net sales
 
$
2,357.5

100.0
%
 
$
2,112.3

100.0
%
Cost of goods sold
 
1,584.3

67.2
%
 
1,434.2

67.9
%
Gross profit
 
773.2

32.8
%
 
678.1

32.1
%
Selling, general and administrative expenses
 
654.3

27.8
%
 
578.8

27.4
%
Other income
 
6.0

0.3
%
 
8.0

0.4
%
Operating income
 
124.9

5.3
%
 
107.3

5.1
%
Interest and other non-operating expenses
 
33.4

1.4
%
 
32.1

1.5
%
Income tax expense
 
13.8

0.6
%
 
1.3

0.1
%
Net income
 
$
77.7

3.3
%
 
$
73.9

3.5
%

Comparison of the 2019 Fiscal Year to the 2018 Fiscal Year

Net sales

Net sales for the 2019 Fiscal Year increased 12% to $2,357.5 million as compared to $2,112.3 million for the 2018 Fiscal Year. Organic Daily Sales for the 2019 Fiscal Year grew 5% as we benefited from demand growth in our end markets and price increases in response to cost inflation. Organic Daily Sales for landscaping products (irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories) grew 5% reflecting strength in both the new construction and the repair and upgrade end markets. Organic Daily Sales for agronomic products (fertilizer, control products, ice melt, equipment, and other products) grew 4% reflecting steady growth in the maintenance end market. Acquisitions contributed 7%, or $151.5 million, to Net sales growth.

Cost of goods sold

Cost of goods sold for the 2019 Fiscal Year increased 10% to $1,584.3 million from $1,434.2 million for the 2018 Fiscal Year. The increase in Cost of goods sold was primarily driven by the increased Net sales growth, including growth from acquisitions.

Gross profit and gross margin

Gross profit for the 2019 Fiscal Year increased 14% to $773.2 million as compared to $678.1 million for the 2018 Fiscal Year. Gross profit growth was primarily driven by the Net sales increase. Gross margin increased 70 basis points to 32.8% in the 2019 Fiscal Year as compared to 32.1% in the 2018 Fiscal Year. The improvement in gross margin reflected the contributions from acquisitions and strategic inventory purchases ahead of price increases.

Selling, general and administrative expenses (operating expenses)

Operating expenses for the 2019 Fiscal Year increased 13% to $654.3 million from $578.8 million for the 2018 Fiscal Year. The increase in operating expenses was primarily driven by additional costs associated with acquisitions and inflationary growth in wages and benefits. Operating expenses as a percentage of Net sales increased to 27.8% for the 2019 Fiscal Year compared to 27.4% for the 2018 Fiscal Year. The increase in operating expenses as a percentage of Net sales primarily reflected the impact from acquisitions with higher operating expenses as a percentage of Net sales. Depreciation and amortization increased $7.2 million to $59.5 million primarily as a result of our acquisitions.

Interest expense and other non-operating expense


37

Table of Contents

Interest expense and other non-operating expense increased 4% to $33.4 million in the 2019 Fiscal Year from $32.1 million in the 2018 Fiscal Year. The increase was primarily the result of higher average debt levels in the 2019 Fiscal Year as compared to the 2018 Fiscal Year.

Income tax expense

Income tax expense was $13.8 million during the 2019 Fiscal Year as compared to $1.3 million during the 2018 Fiscal Year. The effective tax rate was 15.1% during the 2019 Fiscal Year as compared to 1.7% for the 2018 Fiscal Year. The increase in the effective tax rate was due primarily to a decrease in the amount of excess tax benefits recognized as a component of Income tax expense in the Consolidated Statements of Operations. Excess tax benefits of $9.6 million were recognized for the 2019 Fiscal Year as compared to $16.3 million for the 2018 Fiscal Year.

     Net income

Net income for the 2019 Fiscal Year increased 5% to $77.7 million as compared to $73.9 million for the 2018 Fiscal Year. The increase in Net income was primarily attributable to Net sales growth, partially offset by increased operating expenses and a higher effective tax rate.

Quarterly Results of Operations Data
The following tables set forth certain financial data for each of the most recent eight fiscal quarters including our unaudited Net sales, Cost of goods sold, Gross profit, Selling, general and administrative expenses, Net income (loss) and Adjusted EBITDA data (including a reconciliation of Adjusted EBITDA to Net income (loss)). We have prepared the quarterly data on a basis that is consistent with the financial statements included in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.


38

Table of Contents

(In millions except per share information and percentages, unaudited)
 
 
 
 
 
 
 
 
 
2019 Fiscal Year
 
2018 Fiscal Year
 
Year
 
Qtr 4
 
Qtr 3
 
Qtr 2
 
Qtr 1
 
Year
 
Qtr 4
 
Qtr 3
 
Qtr 2
 
Qtr 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
2,357.5

 
$
535.0

 
$
652.8

 
$
752.4

 
$
417.3

 
$
2,112.3

 
$
474.6

 
$
578.5

 
$
687.8

 
$
371.4

Cost of goods sold
1,584.3

 
365.0

 
437.6

 
494.4

 
287.3

 
1,434.2

 
325.9

 
387.5

 
457.9

 
262.9

Gross profit
773.2

 
170.0

 
215.2

 
258.0

 
130.0

 
678.1

 
148.7

 
191.0

 
229.9

 
108.5

Selling, general and administrative expenses
654.3

 
166.8

 
165.0

 
166.7

 
155.8

 
578.8

 
150.1

 
151.8

 
145.2

 
131.7

Other income
6.0

 
1.2

 
2.3

 
1.4

 
1.1

 
8.0

 
2.0

 
2.3

 
1.1

 
2.6

Operating income (loss)
124.9

 
4.4

 
52.5

 
92.7

 
(24.7
)
 
107.3

 
0.6

 
41.5

 
85.8

 
(20.6
)
Interest and other non-operating expenses
33.4

 
7.5

 
8.2

 
8.7

 
9.0

 
32.1

 
8.3

 
9.2

 
8.0

 
6.6

Income tax (benefit) expense
13.8

 
(5.6
)
 
9.7

 
19.3

 
(9.6
)
 
1.3

 
(5.6
)
 
2.4

 
14.7

 
(10.2
)
Net income (loss)
$
77.7

 
$
2.5

 
$
34.6

 
$
64.7

 
$
(24.1
)
 
$
73.9

 
$
(2.1
)
 
$
29.9

 
$
63.1

 
$
(17.0
)
Net income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
1.89

 
$
0.06

 
$
0.84

 
$
1.57

 
$
(0.59
)
 
$
1.83

 
$
(0.05
)
 
$
0.74

 
$
1.56

 
$
(0.43
)
Diluted
$
1.82

 
$
0.06

 
$
0.81

 
$
1.52

 
$
(0.59
)
 
$
1.73

 
$
(0.05
)
 
$
0.70

 
$
1.48

 
$
(0.43
)
Adjusted EBITDA(1)
$
201.1

 
$
22.2

 
$
70.5

 
$
114.3

 
$
(5.9
)
 
$
176.0

 
$
18.1

 
$
60.0

 
$
103.0

 
$
(5.1
)
Net sales as a percentage of annual Net sales
100.0
%
 
22.7
%
 
27.7
%
 
31.9
%
 
17.7
 %
 
100.0
%
 
22.4
%
 
27.4
%
 
32.6
%
 
17.6
 %
Gross profit as a percentage of annual Gross profit
100.0
%
 
22.0
%
 
27.8
%
 
33.4
%
 
16.8
 %
 
100.0
%
 
21.9
%
 
28.2
%
 
33.9
%
 
16.0
 %
Adjusted EBITDA as a percentage of annual Adjusted EBITDA
100.0
%
 
11.0
%
 
35.1
%
 
56.8
%
 
(2.9
)%
 
100.0
%
 
10.3
%
 
34.1
%
 
58.5
%
 
(2.9
)%

_____________________________________

(1)
In addition to our Net income (loss) determined in accordance with GAAP, we present Adjusted EBITDA in this Annual Report on Form 10-K to evaluate the operating performance and efficiency of our business. EBITDA represents our Net income (loss) plus the sum of income tax (benefit), interest expense, net of interest income, and depreciation and amortization. Adjusted EBITDA is further adjusted for stock-based compensation expense, (gain) loss on sale of assets, other non-cash items, financing fees, other fees and expenses related to acquisitions and other non-recurring (income) loss. 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 long-term debt agreements;
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;
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

39

Table of Contents

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 Income tax (benefit) expense or the cash requirements to pay our income taxes;
does 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 does not reflect any cash requirements for such replacements.


 
Management compensates for these limitations by relying primarily on the 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):

(In millions, unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 Fiscal Year
 
2018 Fiscal Year
 
 
Year
 
Qtr 4
 
Qtr 3
 
Qtr 2
 
Qtr 1
 
Year
 
Qtr 4
 
Qtr 3
 
Qtr 2
 
Qtr 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported Net income (loss)
$
77.7

 
$
2.5

 
$
34.6

 
$
64.7

 
$
(24.1
)
 
$
73.9

 
$
(2.1
)
 
$
29.9

 
$
63.1

 
$
(17.0
)
 
Income tax (benefit) expense
13.8

 
(5.6
)
 
9.7

 
19.3

 
(9.6
)
 
1.3

 
(5.6
)
 
2.4

 
14.7

 
(10.2
)
 
Interest expense, net
33.4

 
7.5

 
8.2

 
8.7

 
9.0

 
32.1

 
8.3

 
9.2

 
8.0

 
6.6

 
Depreciation & amortization
59.5

 
14.8

 
14.6

 
14.7

 
15.4

 
52.3

 
14.0

 
14.1

 
12.5

 
11.7

EBITDA
184.4

 
19.2

 
67.1

 
107.4

 
(9.3
)
 
159.6

 
14.6

 
55.6

 
98.3

 
(8.9
)
 
Stock-based compensation(a)
11.7

 
2.0

 
2.5

 
5.4

 
1.8

 
7.9

 
1.8

 
1.9

 
2.1

 
2.1

 
(Gain) loss on sale of assets(b)
0.3

 
0.1

 
0.1

 

 
0.1

 
(0.4
)
 
(0.1
)
 
(0.3
)
 
0.1

 
(0.1
)
 
Financing fees(c)

 

 

 

 

 
0.8

 
0.1

 
0.7

 

 

 
Acquisitions and other adjustments(d)
4.7

 
0.9

 
0.8

 
1.5

 
1.5

 
8.1

 
1.7

 
2.1

 
2.5

 
1.8

Adjusted EBITDA(e)
$
201.1

 
$
22.2

 
$
70.5

 
$
114.3

 
$
(5.9
)
 
$
176.0

 
$
18.1

 
$
60.0

 
$
103.0

 
$
(5.1
)
_____________________________________

(a)
Represents stock-based compensation expense recorded during the period.
(b)
Represents any gain or loss associated with the sale of assets not in the ordinary course of business.
(c)
Represents fees associated with our debt refinancing and debt amendments.
(d)
Represents professional fees, retention and severance payments, and performance bonuses related to historical acquisitions. Although we have incurred professional fees, retention and severance payments, and performance bonuses 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.
(e)
Adjusted EBITDA excludes any earnings or loss of acquisitions prior to their respective acquisition dates for all periods presented.
 









40

Table of Contents

The following table presents a reconciliation of Organic Daily Sales to Net sales:

(In millions, except Selling Days; unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 Fiscal Year
 
2018 Fiscal Year
 
 
Year
 
Qtr 4
 
Qtr 3
 
Qtr 2
 
Qtr 1
 
Year
 
Qtr 4
 
Qtr 3
 
Qtr 2
 
Qtr 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported Net sales
$
2,357.5

 
$
535.0

 
$
652.8

 
$
752.4

 
$
417.3

 
$
2,112.3

 
$
474.6

 
$
578.5

 
$
687.8

 
$
371.4

 
Organic sales(a)
2,077.1

 
469.3

 
570.4

 
660.1

 
377.3

 
1,983.4

 
434.2

 
535.1

 
653.2

 
360.9

 
Acquisition contribution(b)
280.4

 
65.7

 
82.4

 
92.3

 
40.0

 
128.9

 
40.4

 
43.4

 
34.6

 
10.5

Selling Days
252

 
61

 
63

 
64

 
64


252

 
61

 
63

 
64

 
64

Organic Daily Sales
$
8.2

 
$
7.7

 
$
9.1

 
$
10.3

 
$
5.9

 
$
7.9

 
$
7.1

 
$
8.5

 
$
10.2

 
$
5.6


_____________________________________

(a)
Organic sales equals reported Net sales less Net sales from branches acquired in 2018 and 2019.
(b)
Represents Net sales from acquired branches that have not been under our ownership for at least four full fiscal quarters at the start of the 2019 Fiscal Year. Includes Net sales from branches acquired in 2018 and 2019.


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 $263.4 million as of December 29, 2019, after giving effect to approximately $92.8 million of revolving credit loans under the ABL Facility, a $30.3 million decrease from $123.1 million of revolving credit loans as of December 30, 2018. As of December 29, 2019, we had total cash and cash equivalents of $19.0 million, total debt (net of debt discounts and issuance costs) of $524.9 million, and finance leases of $22.9 million.
Working capital was $455.0 million as of December 29, 2019, a decrease of $28.0 million as compared to $483.0 million as of December 30, 2018. The decrease in working capital reflects the $48.6 million addition of the Current portion of operating leases liability as a result of the adoption of the lease accounting standard during the first quarter of 2019, partially offset by an increase in inventory associated with 2019 acquisitions.
Capital expenditures of $19.5 million for the 2019 Fiscal Year were 0.8% of Net sales for the year. Capital expenditures have averaged $16.3 million annually from the 2017 Fiscal Year to the 2019 Fiscal Year representing an average of 0.8% of 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:
 
For the year
 
December 31, 2018 to December 29, 2019
 
January 1, 2018 to December 30, 2018
 
(in millions)
Net cash provided by (used in):
 
 
 
    Operating activities
$
130.8

 
$
78.1

    Investing activities
$
(91.9
)
 
$
(164.1
)
    Financing activities
$
(37.3
)
 
$
86.8


41

Table of Contents

Cash flow provided by operating activities

Cash flow provided by operating activities for the 2019 Fiscal Year was $130.8 million as compared to $78.1 million for the 2018 Fiscal Year. The increase in operating cash flow reflected improved turns in inventory and accounts receivable.

Cash flow used in investing activities

Cash used in investing activities for the 2019 Fiscal Year was $91.9 million as compared to $164.1 million for the 2018 Fiscal Year. The decrease in Cash used in investing was primarily attributable to reduced investment in acquisitions. Capital expenditures of $19.5 million were $4.6 million higher in the 2019 Fiscal Year compared to $14.9 million in the 2018 Fiscal Year. The increase was primarily attributable to investments in barcoding and material handling equipment.

Cash flow (used in) provided by financing activities

Cash flow used in financing activities was $37.3 million for the 2019 Fiscal Year as compared to cash flow provided by financing activities of $86.8 million in the 2018 Fiscal Year. The decrease was primarily attributable to reduced borrowings resulting from the combination of lower acquisition investments and higher operating cash flows.
    
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 dated April 29, 2016, which was amended on November 23, 2016, May 24, 2017, December 12, 2017, and August 14, 2018, providing for a senior secured term loan facility (the “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. In connection with the amendment on August 14, 2018, the final maturity date of the Term Loan Facility was extended to October 29, 2024.
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 Landscape Holding 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 increased (or a new term loan facility, revolving credit facility, or letter of credit facility added) by up to (i) the greater of (a) $175.0 million and (b) 100% of Consolidated EBITDA (as defined in the Amended and Restated Term Loan Credit Agreement) for the trailing 12-month period plus (ii) an additional amount that will not cause the net secured leverage ratio after giving effect to the incurrence of such additional amount and any use of proceeds thereof to exceed 3.50 to 1.00.
The Term Loan Facility is subject to mandatory prepayment provisions, covenants, and events of default. 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.
Term Loan Facility Amendments
On August 14, 2018, we amended the Term Loan Facility (the “Fourth Amendment”) to, among other things, (i) add an additional credit facility under the Term Loan Facility consisting of additional term loans (the “Tranche E Term Loans”) in an aggregate principal amount of $347.4 million and (ii) increase the aggregate principal amount of Tranche E Term Loans under the Term Loan Facility to $447.4 million. Proceeds of the Tranche E Term Loans were used to, among other things, (i) repay in full the Tranche D Term Loans and (ii) repay approximately $96.8 million of borrowings outstanding under the ABL Facility.

The Tranche E Term Loans bear interest, at Landscape Holding’s option, at either (i) an adjusted LIBOR rate (as defined in the Term Loan Facility) plus an applicable margin equal to 2.75% or (ii) an alternative base rate plus an applicable margin equal to 1.75%. The other terms of the Tranche E Term Loans are generally the same as the terms applicable to the previously existing term loans under the Term Loan Facility, provided that certain terms of the Term Loan Facility were modified by the Fourth Amendment. The interest rate on the outstanding balance was 4.46% as of December 29, 2019.

The Term Loan Facility contains customary representations and warranties and customary affirmative and negative covenants. The negative covenants limit the ability of Landscape Holding and Landscape to:

42

Table of Contents

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;
conduct, transact, or otherwise engage in businesses or operations at Landscape Holding other than certain specified exceptions relating to its role as a holding company of Landscape and its subsidiaries;
enter into certain transactions with affiliates; and
designate subsidiaries as unrestricted subsidiaries.
ABL Facility
Landscape Holding and Landscape (collectively, the “ABL Borrower”) are parties to the credit agreement dated December 23, 2013 (as amended by the First Amendment to the Credit Agreement, dated June 13, 2014, the Second Amendment to the Credit Agreement, dated January 26, 2015, the Third Amendment to the Credit Agreement, dated February 13, 2015, the Fourth Amendment to the Credit Agreement, dated October 20, 2015, the Omnibus Amendment to the Credit Agreement, dated May 24, 2017, and the Sixth Amendment to the Credit Agreement, dated February 1, 2019, providing for an asset-based credit facility (the “ABL Facility”) in the amount of up to $375.0 million. The ABL Facility is secured by a first lien on the inventory and receivables of the Borrowers. The ABL Facility is guaranteed by SiteOne Landscape Supply Bidco, Inc. (“Bidco”), an indirect wholly-owned subsidiary of the Company, and each direct and indirect wholly-owned U.S. restricted subsidiary of Landscape. Availability is determined using borrowing base calculations of eligible inventory and receivable balances. The interest rate on the ABL Facility is LIBOR (as defined in the ABL Credit Agreement) plus an applicable margin ranging from 1.25% to 1.75% or an alternate base rate for U.S. denominated borrowings plus an applicable margin ranging from 0.25% to 0.75%