UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

x

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

 

FOR THE QUARTERLY PERIOD ENDED June 30, 2007

OR

o

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

FOR THE TRANSITION PERIOD FROM              TO             .

COMMISSION FILE NO.: 000-50924

BEACON ROOFING SUPPLY, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE

 

36-4173371

(State or other jurisdiction of

 

(I.R.S. Employer

 incorporation or organization)

 

Identification No.)

 

 

 

One Lakeland Park Drive,

 

 

Peabody, Massachusetts

 

01960

(Address of principal executive offices)

 

(Zip Code)

 

978-535-7668

(Registrant’s telephone number, including area code)

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  x   NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (Check one):

Large Accelerated Filer  x

                  Accelerated Filer  o

                  Non-Accelerated Filer  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES 
o   NO  x

As of August 1, 2007, there were 44,273,312 outstanding shares of the registrant’s common stock, $.01 par value per share.

 




BEACON ROOFING SUPPLY, INC.

Form 10-Q

For the Quarter Ended June 30, 2007

INDEX

Part I.

Financial Information

Item 1.

Financial Statements (Unaudited)

 

Consolidated Balance Sheets

 

Consolidated Statements of Operations

 

Consolidated Statements of Cash Flows

 

Notes to Consolidated Financial Statements

 

 

Item 2.

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

 

Overview

 

Results of Operations

 

Seasonality and Quarterly Fluctuations

 

Liquidity and Capital Resources

 

Cautionary Statement

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

Interest Rate Risk

 

Foreign Exchange Risk

 

 

Item 4.

Controls and Procedures

 

 

Part II.

Other Information

 

 

Item 6.

Exhibits

 

 

Signature Page

 

 

 

Index to Exhibits

 

2




BEACON ROOFING SUPPLY, INC.

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

Consolidated Balance Sheets

 

 

(Unaudited)

 

(Unaudited)

 

(Note)

 

 

 

June 30,

 

June 30,

 

September 30,

 

 

 

2007

 

2006

 

2006

 

 

 

(Dollars in thousands)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,232

 

$

1,129

 

$

1,847

 

Accounts receivable, less allowance for doubtful accounts of $6,695 at June 30, 2007, $5,891 at June 30, 2006, and $5,020 at September 30, 2006

 

263,688

 

189,791

 

210,676

 

Inventories

 

192,735

 

181,484

 

164,285

 

Prepaid expenses and other assets

 

40,452

 

39,034

 

38,133

 

Deferred income taxes

 

13,578

 

11,324

 

10,704

 

 

 

 

 

 

 

 

 

Total current assets

 

517,685

 

422,762

 

425,645

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

74,010

 

57,950

 

59,291

 

Goodwill, net

 

353,781

 

270,034

 

289,282

 

Other assets, net

 

98,310

 

58,735

 

65,672

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,043,786

 

$

809,481

 

$

839,890

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

198,115

 

$

154,177

 

$

154,878

 

Accrued expenses

 

79,373

 

78,676

 

58,719

 

Current portions of long-term debt and other obligations

 

6,654

 

28,271

 

6,657

 

 

 

 

 

 

 

 

 

Total current liabilities

 

284,142

 

261,124

 

220,254

 

 

 

 

 

 

 

 

 

Borrowings under revolving lines of credit

 

44,571

 

199,288

 

229,752

 

Senior notes payable, net of current portion

 

344,750

 

46,511

 

69,282

 

Deferred income taxes

 

32,651

 

20,661

 

18,823

 

Long-term obligations under equipment financing and other, net of current portion

 

23,021

 

6,715

 

10,610

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common Stock (voting); $.01 par value; 100,000,000 shares authorized; 44,273,312 issued in June of 2007, 43,820,467 in June of 2006 and 43,866,484 issued in September of 2006

 

443

 

441

 

439

 

Undesignated preferred stock; 5,000,000 shares authorized, none issued or outstanding

 

 

 

 

Additional paid-in capital

 

210,333

 

201,993

 

203,433

 

Treasury stock

 

 

 

 

Retained earnings

 

95,332

 

66,789

 

81,361

 

Accumulated other comprehensive income

 

8,543

 

5,959

 

5,936

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

314,651

 

275,182

 

291,169

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,043,786

 

$

809,481

 

$

839,890

 

 

Note: The balance sheet at September 30, 2006

 has been derived from the audited financial statements at that date.

 The accompanying Notes are an integral part of the Consolidated Financial Statements

3




BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Operations

Unaudited

(Dollars in thousands, except per share data)

 

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

484,870

 

$

407,102

 

$

1,152,024

 

$

1,069,384

 

Cost of products sold

 

377,036

 

306,794

 

886,288

 

807,609

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

107,834

 

100,308

 

265,736

 

261,775

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (includes stock-based compensation expense of $1,338 and $833 for the three months ended in 2007 and 2006, respectively, and $3,943 and $2,166 for the nine months in 2007 and 2006, respectively)

 

81,183

 

67,829

 

222,249

 

191,228

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

26,651

 

32,479

 

43,487

 

70,547

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

7,401

 

4,845

 

20,110

 

13,157

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

19,250

 

27,634

 

23,377

 

57,390

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

7,745

 

10,580

 

9,406

 

22,651

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

11,505

 

$

17,054

 

$

13,971

 

$

34,739

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.26

 

$

0.39

 

$

0.32

 

$

0.82

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.26

 

$

0.38

 

$

0.31

 

$

0.79

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing

 

 

 

 

 

 

 

 

 

net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

44,263,602

 

43,799,489

 

44,020,089

 

42,598,829

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

45,017,314

 

45,003,474

 

44,938,812

 

43,900,509

 

 

The accompanying Notes are an integral part of the Consolidated Financial Statements.

4




BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Cash Flows

 

 

 

Nine Months ended June 30,

 

 

 

2007

 

2006

 

 

 

Unaudited (in thousands)

 

Operating activities:

 

 

 

 

 

Net income

 

$

13,971

 

$

34,739

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

23,321

 

17,143

 

Stock-based compensation

 

3,943

 

2,166

 

Unrealized gain on interest rate collar

 

 

(709

)

Deferred income taxes

 

(1,183

)

92

 

Changes in assets and liabilities, net of the effects of businesses acquired:

 

 

 

 

 

Accounts receivable

 

(19,626

)

(4,481

)

Inventories

 

(13,875

)

(35,359

)

Prepaid expenses and other assets

 

2,756

 

293

 

Accounts payable and accrued expenses

 

43,030

 

51,871

 

 

 

 

 

 

 

Net cash provided by operating activities

 

52,337

 

65,755

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of property and equipment, net of sale proceeds

 

(21,470

)

(16,103

)

Acquisition of businesses, net of cash acquired

 

(120,154

)

(285,701

)

 

 

 

 

 

 

Net cash used in investing activities

 

(141,624

)

(301,804

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Borrowings (repayments) under revolving lines of credit

 

(185,181

)

135,305

 

Net borrowings under senior notes payable, and other

 

279,742

 

52,031

 

Net proceeds from sale of common stock

 

 

51,576

 

Proceeds from exercise of options

 

1,115

 

1,500

 

Deferred financing costs

 

(3,047

)

(2,228

)

Income tax benefit from stock-based compensation deductions in excess of the associated compensation costs

 

2,040

 

5,264

 

 

 

 

 

 

 

Net cash provided by financing activities

 

94,669

 

243,448

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

3

 

(163

)

 

 

 

 

 

 

Net increase in cash

 

5,385

 

7,236

 

Cash and cash equivents (overdraft) at beginning of year

 

1,847

 

(6,107

)

 

 

 

 

 

 

Cash and cash equivalents (overdraft) at end of period

 

$

7,232

 

$

1,129

 

 

 

 

 

 

 

Non-cash transations:

 

 

 

 

 

Conversion of senior notes payable to new senior notes payable

 

$

66,839

 

$

25,160

 

 

The accompanying Notes are an integral part of the Consolidated Financial Statements

5




BEACON ROOFING SUPPLY, INC.
Notes to Consolidated Financial Statements (Unaudited)

1.   Basis of Presentation

Beacon Roofing Supply, Inc. (the ”Company”) prepared the consolidated financial statements following accounting principles generally accepted in the United States (GAAP) for interim financial information and the requirements of the Securities and Exchange Commission (SEC). As permitted under those rules, certain footnotes or other financial information required by GAAP for complete financial statements have been condensed or omitted. The balance sheet as of June 30, 2006 has been presented for a better understanding of the impact of seasonal fluctuations on our financial condition. Certain prior-year amounts have been reclassified to conform to the current-year presentation.

In management’s opinion, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. The results for the three-month period (third quarter) and the nine-month period ended June 30, 2007 are not necessarily indicative of the results to be expected for the twelve months ending September 29, 2007 (“2007”).

The Company’s fiscal year ends on the close of business on the last Saturday in September of each year. Except for the fourth quarter of 2007, each of the Company’s 2007 and 2006 quarters ends or ended on the last day of the respective third calendar month. The results for the nine months ended June 30, 2007 included 189 business days as compared to 194 business days during the nine months ended June 30, 2006.

During the first quarter of 2007, the Company refinanced its prior credit facilities (Note 6) and invested the associated excess funds in a money market account, which have been classified as cash equivalents. The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

On December 16, 2005, the Company sold three million shares of common stock in a public offering at $18.33 per share (after the stock split discussed below). Selling stockholders also sold shares in the offering. The net proceeds to the Company from this offering, after all associated expenses, totaled approximately $51.6 million and were used to pay down revolver borrowings. The Company did not receive any proceeds from the sales by the selling stockholders.

In May 2006, the Company’s Board of Directors declared a three-for-two common stock split, which was paid in the form of a stock dividend on June 12, 2006 to the stockholders of record at the close of business on May 31, 2006. Accordingly, all share and per share data and the related capital amounts for all periods presented reflect the effects of this split. The Company’s treasury stock was retired in May 2006.

You should also read the financial statements and notes included in our 2006 Annual Report on Form 10-K. The accounting policies used in preparing these financial statements are the same as those described in that Annual Report.

2.   Earnings Per Share

The Company calculates basic income (loss) per share by dividing net income (loss) by the weighted-average number of common shares outstanding. Diluted net income per share includes the dilutive effects of stock awards.. As discussed in Note 1, the Company sold three million additional shares of common stock in December 2005 and completed a three-for-two stock split on June 12, 2006.

The following table reflects the calculation of weighted-average shares outstanding, adjusted for the stock split, for each period presented:

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding for basic

 

44,263,602

 

43,799,489

 

44,020,089

 

42,598,829

 

Dilutive effect of employee stock options

 

753,712

 

1,203,985

 

918,723

 

1,301,680

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares assuming dilution

 

45,017,314

 

45,003,474

 

44,938,812

 

43,900,509

 

 

6




3.   Stock-Based Compensation

Effective September 25, 2005, the Company adopted Statement of Financial Accounting Standards (“SFAS”) 123R, Share-Based Payments, using the modified-prospective transition method.  Under this method, compensation expense recognized in 2007 and 2006 included: (a) compensation cost for all unvested share-based awards granted prior to September 25, 2005, based on the grant date fair value estimated in accordance with SFAS 123, Accounting For Stock-Based Compensation, and (b) compensation cost for all share-based awards granted subsequent to September 24, 2005, based on the grant date fair value estimated in accordance with SFAS 123R. SFAS 123R also requires the Company to estimate forfeitures in calculating the expense related to stock-based compensation.

Compensation cost arising from stock options granted to employees and non-employee directors is recognized as an expense using the straight-line method over the vesting period. As of June 30, 2007, there was $7.8 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a period of 2.1 years. The Company recorded stock-based compensation expense of $1.3 million ($0.8 million net of tax) and $0.8 million ($0.5 million net of tax) for the three months ended June 30, 2007 and 2006, respectively and $3.9 million ($2.4 million net of tax) and $2.2 million ($1.3 million net of tax) for the nine months ended June 30, 2007 and 2006, respectively.

7




The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants issued in the first three quarters of 2007 and 2006:

 

Nine Months Ended
June 30,

 

 

 

2007

 

2006

 

Risk free interest rate

 

4.52 - 4.81

%

4.49 – 5.08

%

Expected life

 

5.0 years

 

5.0 years

 

Expected volatility

 

45

%

45

%

Expected dividend yield

 

0

%

0

%

 

Expected lives of the options granted and expected volatilities are based on the expected lives and historical volatilities of the options and stocks of comparable public companies and other factors.  An estimated cumulative forfeiture rate of 8.0% was used for expensing the fair value of unvested options during both of the periods above.

The following table summarizes stock options outstanding as of June 30, 2007, as well as activity during the nine months then ended:

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted-

 

Remaining

 

Aggregate

 

 

 

 

 

Average

 

Contractual

 

Intrinsic

 

 

 

Shares

 

Exercise Price

 

Life

 

Value

 

 

 

 

 

 

 

(Years)

 

(in Millions)

 

Outstanding at September 30, 2006

 

2,800,659

 

$

8.47

 

 

 

 

 

Granted

 

733,250

 

21.92

 

 

 

 

 

Exercised

 

(406,831

)

2.74

 

 

 

 

 

Forfeited

 

(78,658

)

20.20

 

 

 

 

 

Outstanding at June 30, 2007

 

3,048,420

 

$

12.17

 

7.3

 

$

20.1

 

Vested or expected to vest at June 30, 2007

 

2,974,734

 

$

11.97

 

7.3

 

$

20.1

 

Exercisable at June 30, 2007

 

1,820,328

 

$

6.91

 

6.3

 

$

19.4

 

 

As of June 30, 2007, there were remaining options to purchase 1,325,622 shares of common stock available for grant under the Company’s 2004 Stock Plan. The weighted-average grant date fair values of stock options granted during the nine months ended June 30, 2007 and 2006 were $10.07 and $10.13, respectively. The intrinsic values of stock options exercised during the nine months ended June 30, 2007 and 2006 were $5.7 million and $15.8 million, respectively. At June 30, 2007, the Company had $10.3 million of excess tax benefits available for potential deferred tax write-offs related to option accounting.

4.    Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income (loss). For the Company, these currently consist of the following items:

Unaudited

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

(Dollars in thousands, except per share data)

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

11,505

 

$

17,054

 

$

13,971

 

$

34,739

 

 

 

 

 

 

 

 

 

 

 

Net change in the value of financial derivatives, net of tax effect

 

1,571

 

 

1,175

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

2,559

 

1,077

 

1,432

 

1,191

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

15,635

 

$

18,131

 

$

16,578

 

$

35,930

 

 

8




5.   Acquisitions

North Coast Commercial Roofing Systems, Inc.

On April 2, 2007, the Company purchased 100% of the outstanding stock of North Coast Commercial Roofing Systems, Inc. and certain of its subsidiaries and affiliates (together “North Coast”), a Twinsburg, Ohio-based distributor of commercial roofing systems and related accessories, with 16 locations in eight U.S. states. North Coast has branches in Ohio, Illinois, Indiana, Kentucky, Michigan, New York, Pennsylvania and West Virginia. This purchase was funded with cash on hand along with funds borrowed under the Company’s U.S. revolving line of credit. North Coast had net sales of $235 million (unaudited), excluding the impact of North Coast recording gross commission sales of $18.4 million, for the year ended March 31, 2006. A total of $10.3 million of cash remains in escrow at June 30, 2007 for post-closing purchase price adjustments and indemnification claims, with $2.5 million included in other current assets and accrued expenses and $7.8 million in other long-term assets and liabilities. The Company has included the results of operations for North Coast from the date of acquisition and applied purchase accounting, which, along with certain purchase price adjustments, resulted in recorded goodwill of $61.7 million as follows (in 000’s):

Accounts receivable

 

$

31,737

 

Inventories

 

13,349

 

Prepaid expenses and other

 

949

 

Property and equipment

 

5,720

 

Deferred taxes

 

(11,297

)

Accounts payable and accrued expenses

 

(19,165

)

Net assets

 

21,293

 

Non-compete

 

3,300

 

Customer relationships

 

29,550

 

Goodwill

 

61,657

 

Purchase price

 

$

115,800

 

 

Roofing and Sheet Metal Supply, Inc.

On August 30, 2006, the Company purchased certain assets of Roofing & Sheet Metal Supply, Inc. (“RSM”), a Tulsa, Oklahoma-based distributor of residential and commercial roofing products with locations in Tulsa, Oklahoma, Joplin, Missouri and Springdale and Fort Smith, Arkansas. This purchase was funded through the Company’s U.S. revolving line of credit. A total of $1.0 million of cash remains in escrow at June 30, 2007 for post-closing indemnification claims and is included in other current assets. RSM had net sales of $33 million (unaudited) for the year ended November 30, 2005. The Company has included the results of operations for RSM from the date of acquisition and applied preliminary purchase accounting, which, along with certain purchase price adjustments, has resulted in recorded goodwill of $15.3 million as follows (in 000’s):

Net assets

 

$

3,376

 

Customer relationships

 

6,739

 

Goodwill

 

15,258

 

Purchase price

 

$

25,373

 

 

Roof Depot, Inc.

On August 25, 2006, the Company purchased certain assets of Roof Depot, Inc. (“Roof Depot”), a Minnesota-based distributor of residential and commercial roofing and other related building products with locations in Minneapolis and Stillwater, Minnesota. This purchase was funded through the Company’s U.S. revolving line of credit. A total of $1.0 million of cash remains in escrow at June 30, 2007 for post-closing indemnification claims and is included in other current assets. Roof Depot had net sales of $31 million (unaudited) for the year ended December 31, 2005. The Company has included the results of operations for Roof Depot from the date of acquisition and applied preliminary purchase accounting, which, along with certain purchase price adjustments, has resulted in recorded goodwill of $4.0 million as follows (in 000’s):

Net assets

 

$

10,218

 

Customer relationships

 

3,863

 

Goodwill

 

4,019

 

Purchase price

 

$

18,100

 

 

Mississippi Roofing Supply, Inc., Sunbelt Supply LLC and Alabama Roofing Supply LLC

On January 17, 2006, the Company purchased certain assets of Mississippi Roofing Supply, Inc., Sunbelt Supply LLC, and Alabama Roofing Supply LLC (together the “Supply Companies”), three affiliated distributors of roofing and other building products with two locations in Alabama and one in Mississippi. This purchase was funded through the Company’s U.S. revolving line of credit and term loans. A total of $0.8 million of cash was in escrow at June 30, 2007 for post-closing indemnification claims and was included in other current assets. These escrow funds were disbursed to the sellers in July 2007. The Supply Companies had combined net sales of $76 million (unaudited) for the year ended December 31, 2005. The Company has included the results of operations for the Supply Companies from the date of acquisition. The purchase price was adjusted for the Supply Companies’ financial performance for the year ended December 31, 2005. The Company applied purchase accounting, which, along with certain final purchase price adjustments for the final working capital levels and the 2005 financial results, has resulted in recorded goodwill of $53.5 million as follows (in 000’s):

Net assets

 

$

7,754

 

Non-compete

 

315

 

Customer relationships

 

7,825

 

Goodwill

 

53,531

 

Purchase price

 

$

69,425

 

 

9




C&S Roofing Materials, Inc. D/B/A Pacific Supply Company

On January 10, 2006, the Company purchased certain assets of C&S Roofing Materials, Inc. D/B/A Pacific Supply Company (“Pacific”), a distributor of roofing and other building products with four locations in Orange and Los Angeles counties in California. This purchase was funded through the Company’s U.S. revolving line of credit. A total of $2.1 million of cash was in escrow at June 30, 2007 for post-closing indemnification claims and was included in other current assets. These escrow funds were disbursed to the sellers in July 2007. Pacific had net sales of $53 million (unaudited) for the year ended December 31, 2005. The Company has included the results of operations for Pacific from the date of acquisition and applied purchase accounting, which, along with certain final purchase price adjustments, resulted in recorded goodwill of $26.7 million as follows (in 000’s):

Net assets

 

$

6,740

 

Non-compete

 

181

 

Customer relationships

 

9,700

 

Goodwill

 

26,669

 

Purchase price

 

$

43,290

 

 

SDI Holding, Inc.

On October 14, 2005, the Company purchased 100% of the outstanding stock of SDI Holding, Inc. (“Shelter”), a distributor of roofing and other building products with 51 branches in 14 states at the time of the acquisition. This purchase was funded through the Company’s U.S. revolving line of credit and term loans. Based upon Shelter’s final performance for the 2005 calendar year, the sellers qualified for an earn-out payment of $6.4 million, which was paid in June 2006. Shelter had net sales of $342 million (unaudited) for the year ended December 31, 2005. The Company has included the results of operations for Shelter from the date of acquisition and applied purchase accounting, which, along with certain final purchase price adjustments, resulted in recorded goodwill of $78.0 million as follows (in 000’s):

Accounts receivable

 

$

48,351

 

Inventories

 

53,108

 

Property and equipment

 

15,317

 

Other assets

 

17,271

 

Accounts payable and accrued expenses

 

(57,042

)

Other liabilities

 

(8,976

)

Beneficial leases

 

610

 

Non-compete

 

842

 

Customer relationships

 

25,852

 

Goodwill

 

77,993

 

Purchase price

 

$

173,326

 

 

Supplemental Pro Forma Information—Unaudited

The unaudited pro forma net sales for the nine months ended June 30, 2007, assuming the acquisition of North Coast had occurred at the beginning of the year, were $1,250 million. Pro forma net income and net income per share for that period has not been presented as the impact of the North Coast acquisition was not material. The unaudited pro forma summary information below for the nine months ended June 30, 2006, gives effect to the acquisition of Shelter as if the acquisition had occurred at the beginning of that period and is after giving effect to certain adjustments, including amortization of the intangible assets subject to amortization, interest expense incurred as a consequence of the increased borrowings under the Company’s credit facilities, and related income taxes. The impact of North Coast and the aggregate impact of the inclusion of the other 2006 acquisitions - Pacific, the Supply Companies, Roof Depot and RSM - on the pro forma net income and net income per share presented below was not material and therefore has not been presented. However, had the impact from those acquired companies also been included in the pro forma net sales below, total pro forma net sales (unaudited) would have been $1,352 million for the nine months ended June 30, 2006 and $529 million for the three months ended June 30, 2006 (not presented). The unaudited pro forma summary information below is not necessarily indicative of the financial results that would have occurred if the Shelter acquisition had been consummated at the beginning of that period, nor is it necessarily indicative of the financial results which may be attained in the future.

10




The pro forma summary information is based upon available information and upon certain assumptions that the Company’s management believes are reasonable.

 

Unaudited

 

Nine Months Ended
June 30,

 

(Dollars in thousands, except per share data)

 

2006

 

 

 

 

 

Net sales

 

$

1,085,206

 

 

 

 

 

Net income

 

34,199

 

 

 

 

 

Net income per share:

 

 

 

 

Basic

 

0.80

 

 

 

 

 

 

Diluted

 

$

0.78

 

 

Other Recent Acquisitions

On May 18, 2007, the Company purchased certain assets of Wholesale Roofing Supply (“WRS”), a single location distributor of residential and commercial roofing products located in Knoxville, Tennessee.  Additionally, on November 23, 2005, the Company purchased certain assets of Easton Wholesale Company, Inc. (“Easton”), a single location distributor of building products located in Easton, Maryland. Pro forma information has not been provided for these acquisitions since the impact to the financial statements was not material.

11




6.                                      Debt

Senior Secured Credit Facility

On November 2, 2006, the Company entered into an amended and restated seven-year $500 million U.S. senior secured credit facility and a C$15 million senior secured Canadian credit facility with GE Antares Capital (“GE Antares”) and a syndicate of other lenders (combined, the “Credit Facility”). The Credit Facility refinanced the prior credit facilities that also were provided through GE Antares. The Credit Facility provides the Company with lower interest rates and available funds for future acquisitions and ongoing working capital requirements. In addition, the Credit Facility increased the allowable total equipment financing and/or capital lease financing to $35 million. The Credit Facility provides for a cash receipts lock-box arrangement that gives the Company sole control over the funds in lock-box accounts, unless excess availability is less than $10 million or an event of default occurs, in which case the senior secured lenders would have the right to take control over such funds and to apply such funds to repayment of the senior debt.

The Credit Facility consists of a U.S. revolving credit facility of $150 million (the “US Revolver”), which includes a sub-facility of $20 million for letters of credit, and a $350 million term loan (the “Term Loan”). The Credit Facility also includes a C$15 million senior secured revolving credit facility provided by GE Canada Finance Holding Company (the “Canada Revolver”). There was a combined $112.5 million available for borrowings under the US Revolver and Canada Revolver and a combined $44.6 million outstanding at June 30, 2007. There were also $6.5 million of outstanding standby letters of credit at June 30, 2007. The Term Loan has required amortization of 1% per year, payable in quarterly installments of approximately $0.9 million, and the remainder is due in 2013. The Credit Facility may also be expanded by up to an additional $200 million under certain conditions. There are mandatory prepayments under the Credit Facility under certain conditions, including the following cash flow condition:

Excess Cash Flow

On May 15 of each fiscal year, commencing on May 15, 2008, the Company must pay an amount equal to 50% of the Excess Cash Flow (as defined in the Credit Facility) for the prior fiscal year, not to exceed $7.0 million with respect to any fiscal year.

The US Revolver carries an interest rate of LIBOR plus 1% (6.32% at June 30, 2007) and the Term Loan carries an interest rate of LIBOR plus 2% (7.32% at June 30, 2007). The Canada revolver carries an interest rate at the Canadian prime plus 0.75% (6.00% at June 30, 2007). Unused fees on the revolving credit facilities are 0.25% per annum. Availability under the revolving credit facilities is limited to 85% of eligible accounts receivable, increasing to 90% from January through April of each year. Financial covenants, which apply only to the Term Loan, are limited to a leverage ratio and a yearly capital expenditure limitation as follows:

Maximum Consolidated Leverage Ratio

On the last day of each fiscal quarter, commencing with the quarter ended December 31, 2006, the Company’s Consolidated Leverage Ratio, as defined, must not be greater than 4.00:1.0.

Capital Expenditures

The Company cannot incur aggregate Capital Expenditures, as defined, in excess of three percent (3.00%) of consolidated gross revenue for any fiscal year.

As of June 30, 2007, the Company was in compliance with these covenants. Substantially all Company assets, including the capital stock and assets of wholly owned subsidiaries, secure obligations under the Credit Facility. In consideration of the refinancing, the Company evaluated the treatment of pre-existing and new financing costs in accordance with Emerging Issues Task Force (“EITF”) 96-19:   Debtor’s Accounting for a Modification or Exchange of Debt Instruments, and EITF 98-14: Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangement, and accordingly most of those costs are being amortized over the term of the Credit Facility.

Prior Senior Secured Credit Facilities

The credit facilities in place prior to the Credit Facility discussed above were amended in October 2005 and January 2006, scheduled to mature on October 14, 2010 and consisted of a $280 million U.S. revolving line of credit and a $C15 million Canadian revolving line of credit, referred to as revolvers, and term loans totaling $90 million. These facilities provided for the same lock-box arrangements as under the Credit Facility.

At the time of the refinancing discussed above, there was $227.8 million of borrowings outstanding under the prior revolvers. The outstanding revolver borrowings at that date carried a weighted-average interest rate of 7.03%. The outstanding revolver borrowings at September 30, 2006 and June 30, 2006 carried weighted-average interest rates of 6.97% and 7.05%, respectively, and were classified as long-term debt since the amounts were expected to be outstanding for greater than one year.

Equipment Financing Facilities

The Company has two equipment financing facilities that allow for the financing of purchased transportation and material handling equipment totaling $32.9 million, with $14.9 million of remaining availability as of June 30, 2007. There was $18.0 million of equipment financing loans outstanding at June 30, 2007, with fixed interest rates ranging from 4.7% to 7.4%.

12




7.                                      Foreign Sales

Foreign (Canadian) sales totaled $31.3 and $69.4 million in the three and nine months ended June 30, 2007, respectively, and $29.2 and $68.2 million in the three and nine months ended June 30, 2006, respectively.

8.                                      Financial Derivatives

The Company uses derivative financial instruments for hedging and non-trading purposes to manage its exposure to changes in interest rates. Use of derivative financial instruments in hedging programs subjects the Company to certain risks, such as market and credit risks. Market risk represents the possibility that the value of the derivative instrument will change. In a hedging relationship, the change in the value of the derivative is offset to a great extent by the change in the value of the underlying hedged item. Credit risk related to derivatives represents the possibility that the counterparty will not fulfill the terms of the contract. The notional, or contractual, amount of the Company’s derivative financial instruments is used to measure interest to be paid or received and does not represent the Company’s exposure due to credit risk. The Company’s current derivative instruments are with counterparties rated very highly by nationally recognized credit rating agencies.

The Company is using interest rate derivative instruments to manage the risk of interest rate changes by converting a portion of its variable-rate borrowings into fixed-rate borrowings. There were interest rate derivative instruments outstanding in a total notional amount of $300 million at June 30, 2007, which consisted of: a) interest rate swaps totaling $200 million, expiring in February 2010, with a fixed rate of 4.97%; b) a $50 million interest rate collar expiring in March 2010 with a floor rate of 3.99% and a cap rate of 5.75%; and c) a $50 million interest rate collar expiring in February 2010 with a floor rate of 3.75% and a cap rate of 6.00%. The combined fair market value of the agreements resulted in a recorded asset of approximately $2.0 million at June 30, 2007, which was determined based on current interest rates and expected future trends. The Company entered into these instruments during the second quarter of 2007 and cancelled the prior interest rate derivative instruments that had notional amounts totaling $150 million. The current derivative instruments are designated as cash flow hedges, for which the Company records the effective portions of changes in their fair value, net of tax, in other comprehensive income (Note 4). Any ineffective portion of the hedges is recognized in earnings, of which there has been none to date. The prior derivative instruments were not designated as hedges and therefore changes in their fair values were recorded in interest expense.

9.                                      Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which clarifies when tax benefits should be recorded in financial statements, requires certain disclosures of uncertain tax matters and provides guidance on how any tax reserves should be classified in a balance sheet. FIN 48 will be effective for the Company in the fiscal year beginning September 30, 2007. The Company is currently evaluating the impact that the adoption of FIN 48 will have on its consolidated financial statements, although the impact is not currently expected to be material.

In February 2007, the FASB issued Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits companies to measure many financial instruments and certain other items at fair value at specified election dates. SFAS 159 will be effective in the fiscal year beginning September 28, 2008. The Company is currently evaluating the impact that the adoption of SFAS 159 will have on its consolidated financial statements, although the impact is not currently expected to be material.

13




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

You should read the following discussion in conjunction with Management’s Discussion and Analysis included in our 2006 Annual Report on Form 10-K. Unless otherwise specifically indicated, all references to “2007” and “YTD 2007” refer to the three months (third quarter) and nine months (year-to-date) ended June 30, 2007, respectively, of our fiscal year ending September 29, 2007, and all references to “2006 and “YTD 2006” refer to the three months (third quarter) and nine months (year-to-date) ended June 30, 2006, respectively, of our fiscal year ended September 30, 2006.

Overview

We are one of the largest distributors of residential and non-residential roofing materials in the United States and Canada. We are also a distributor of other complementary building products, including siding, windows, specialty lumber products and waterproofing systems for residential and non-residential building exteriors. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors and, to a lesser extent, general contractors, retailers and building materials suppliers.

As of August 1, 2007, we distribute up to 10,000 SKUs through 178 branches in the United States and Canada. We had 2,740 employees as of June 30, 2007, including our sales and marketing team of 1,031 employees.

In fiscal year 2006, approximately 93% of our net sales were in the United States. We stock one of the most extensive assortments of high-quality branded products in the industry, enabling us to deliver products to our customers on a timely basis.

Execution of the operating plan at each of our branches drives our financial results. Revenues are impacted by the relative strength of the residential and non-residential roofing markets we serve. We allow each of our branches to develop its own marketing plan and mix of products based upon its local market. We differentiate ourselves from the competition by providing customer services, including job site delivery, tapered insulation layouts and design and metal fabrication, and by providing credit. We consider customer relations and our employees’ knowledge of roofing and exterior building materials to be very important to our ability to increase customer loyalty and maintain customer satisfaction. We invest significant resources in training our employees in sales techniques, management skills and product knowledge. Although we consider these attributes important drivers of our business, we continually pay close attention to controlling operating costs.

Our growth strategy includes both internal growth (opening branches, growing sales with existing customers, adding new customers and introducing new products) and acquisition growth.  Our main acquisition strategy is to target market leaders in geographic areas that we do not service. Our April 2007 acquisition of North Coast Commercial Roofing Systems, Inc. (“North Coast”) is one example of this approach. North Coast is a distributor of commercial roofing systems and related accessories with 16 locations in eight states in the Midwest and Northeast. North Coast has minimal branch overlap with our existing operations.  In addition, we also acquire smaller companies to supplement branch openings within existing markets. Our August 2006 acquisition of Roof Depot, Inc. (“Roof Depot”), which was integrated into our Midwest region, is one example of such an acquisition.

Results of Operations

The following table shows, for the periods indicated, information derived from our consolidated statements of operations expressed as a percentage of net sales for the periods presented. Percentages may not foot due to rounding.

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

100.0

%

100.0

%

100.0

%

100.0

%

Cost of products sold

 

77.8

 

75.4

 

77.0

 

75.5

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

22.2

 

24.6

 

23.1

 

24.5

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

16.7

 

16.7

 

19.3

 

17.9

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

5.5

 

8.0

 

3.8

 

6.6

 

Interest expense

 

(1.5

)

(1.2

)

(1.8

)

(1.2

)

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

4.0

 

6.8

 

2.0

 

5.4

 

Income taxes

 

(1.6

)

(2.6

)

(0.8

)

(2.2

)

 

 

 

 

 

 

 

 

 

 

Net income

 

2.4

%

4.2

%

1.2

%

3.2

%

 

14




In managing our business, we consider all growth, including branch expansion, to be internal growth unless it results from an acquisition. When we refer to growth in existing markets or internal growth in our discussion and analysis of financial condition and results of operations, we include growth from existing and newly opened branches but exclude growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period. At June 30, 2007, we had a total of 177 branches in operation. For 2007, 155 branches were included in our existing market calculations and 22 branches were excluded because they were acquired during or after the quarter ended June 30, 2006. Acquired markets for 2007 include North Coast, RSM, Roof Depot and WRS (Note 5).  For YTD 2007, 95 branches were included in our existing market calculations and 82 branches were excluded because they were acquired during or after the year ended September 30, 2006. Acquired markets for YTD 2007 include North Coast, RSM, Roof Depot, Pacific, the Supply Companies, Shelter, WRS and Easton (Note 5). Percentages in the tables below may not foot due to rounding.

Three Months Ended June 30, 2007 (“2007”) Compared to the Three Months Ended June 30, 2006 (“2006”) Existing and Acquired Markets

For the Three Months Ended
(Dollars in thousands)

 

 

Existing Markets

 

Acquired Markets

 

Consolidated

 

 

 

June 30,

 

June 30,

 

June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

398,396

 

$

407,102

 

$

86,474

 

$

 

$

484,870

 

$

407,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

93,173

 

100,308

 

14,661

 

 

107,834

 

100,308

 

Gross Margin

 

23.4

%

24.6

%

17.0

%

 

 

22.2

%

24.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

67,767

 

67,829

 

13,416

 

 

81,183

 

67,829

 

Operating Expenses as a % of Net Sales

 

17.0

%

16.7

%

15.5

%

 

 

16.7

%

16.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

25,406

 

$

32,479

 

1,245

 

$

 

26,651

 

32,479

 

Operating Margin

 

6.4

%

8.0

%

1.4

%

 

 

5.5

%

8.0

%

 

15




Net Sales

Consolidated net sales increased $77.8 million, or 19.1%, to $484.9 million in 2007 from $407.1 million in 2006. Existing market sales declined $8.7 million or 2.1%, while acquired markets contributed an increase of $86.5 million. We attribute the existing market sales decline to the following factors:

·                  a substantial decline in new residential construction, especially in the mid-Atlantic states;

·                  a slowdown in re-roofing and reconstruction activities in certain areas of Texas, the Gulf Coast and Southeastern US that were affected by Hurricanes Katrina and Rita; and

·                  overall estimated price decreases of 0% to 2% compared to 2006; partially offset by

·                  increased demand for non-residential roofing products, especially in the Northeast, Mid-Atlantic, Texas, and Canada;

·                  growth in complementary products, especially in the Shelter regions; and

·                  the positive impact of eight new branches opened in existing markets since June 30, 2006.

We opened two new branches in our existing markets during the third quarter of 2007 and one new branch in existing markets during the third quarter of 2006.  For 2007, our acquired markets had combined product group sales of $12.2, $70.6 and $3.7 million in residential roofing products, non-residential roofing products and complementary building products, respectively, while the product group sales for our existing markets were as follows:

For the Three Months Ended

 

June 30, 2007

 

June 30, 2006

 

 

 

 

 

 

 

Sales

 

Mix

 

Sales

 

Mix

 

Change

 

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential roofing products

 

$

184,947

 

46.4

%

$

201,315

 

49.5

%

$

(16,368

)

-8.1

%

Non-residential roofing products

 

125,178

 

31.4

%

118,988

 

29.2

%

6,190

 

5.2

%

Complementary building products

 

88,271

 

22.2

%

86,799

 

21.3

%

1,472

 

1.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

398,396

 

100.0

%

$

407,102

 

100.0

%

$

(8,706

)

-2.1

%

 

Note: Total 2007 existing market sales of $398.4 million plus 2007 sales from acquired markets of $86.5 million equal $484.9 million of total 2007 sales. Our total 2006 sales of $407.1 million consisted entirely of sales from existing markets. We believe the existing market information is useful to investors because it helps explain organic growth or decline.

16




Gross Profit

For the Three Months Ended

 

June 30,

 

June 30,

 

 

 

 

 

 

 

 

 

2007

 

2006

 

Change

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$

107.8

 

$

100.3

 

$

7.5

 

 

 

7.5

%

Existing markets

 

93.2

 

100.3

 

(7.1)

 

 

 

-7.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

22.2

%

24.6

%

 

 

-2.4

%

 

 

Existing markets

 

23.4

%

24.6

%

 

 

-1.3

%

 

 

 

Our existing markets’ gross profit declined $7.1 million or 7.1% in 2007, while acquired markets’ gross profit increased $14.7 million.  Existing markets’ gross margin decreased to 23.4% in 2007 from 24.6% in 2006. The decreases were caused primarily by increased competitive conditions due to the business slowdown in the industry. We experienced the highest margin compression in the markets that have a higher mix of new residential roofing sales, such as in our mid-Atlantic and California regions, while our other regions with a higher mix of re-roofing sales have experienced generally lower market compression in the 50-200 basis point range.  Our overall gross margin decreased to 22.2% from 24.6% due primarily to the same factors and from an increased sales mix of the traditionally lower gross margin non-residential roofing, mainly due to the addition of North Coast.

17




Operating Expenses

For the Three Months Ended

 

June 30,

 

June 30,

 

 

 

 

 

 

 

 

 

2007

 

2006

 

Change

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

$

81.2

 

$

67.8

 

$

13.4

 

 

 

19.7

%

Existing markets

 

67.8

 

67.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses as a % of sales

 

16.7

%

16.7

%

 

 

 

 

 

Existing markets

 

17.0

%

16.7

%

 

 

0.3

%

 

 

 

Our existing markets’ operating expenses were $67.8 million for both 2007 and 2006, while our acquired markets’ operating expenses totaled $13.4 million. Stock option expense increased $0.5 million. The acquired markets’ operating expenses included $2.1 million for the amortization of intangible assets recorded under purchase accounting. Although there was no change in our existing markets’ 2007 operating expenses compared to 2006, the following is a brief discussion of the major changes in the components of those expenses. Payroll and related costs increased by $0.8 million primarily from our additional eight branches, offset somewhat by payroll cost saving measures. We saw savings of $0.6 million in other general and administrative expenses and $0.6 million in other selling expenses from cost cutting, while warehouse expenses increased $0.3 million principally from our eight new branches opened in existing markets since June 30, 2006.  Depreciation and amortization expense increased $0.4 million in 2007 from 2006.

Existing markets’ operating expenses as a percentage of net sales increased to 17.0% from 16.7%, primarily due to the lower existing market sales and the relatively fixed nature of our operating expenses. Overall operating expenses remained unchanged at 16.7% of net sales in 2007 from 2006, due primarily to the inclusion of North Coast, which has lower operating costs as a percentage of sales.

Interest Expense

Interest expense increased $2.6 million to $7.4 million in 2007 from $4.8 million in 2006. We refinanced our credit facilities in November 2006 and incurred additional borrowings to finance our acquisitions, both of which increased our debt level since June 30, 2006. Interest rates also increased from the prior year, which affected our variable-rate debt.

Income Taxes

Income tax expense of $7.7 million was recorded in 2007, an effective tax rate of 40.2%, compared to income tax expense of $10.6 million in 2006, an effective tax rate of 38.3%. The increase in our overall effective tax rate was principally due to the impact of a reversal of previously accrued income taxes of $0.6 million in 2006.

18




Nine Months Ended June 30, 2007 (“YTD 2007”) Compared to the Nine Months Ended June 30, 2006 (“YTD 2006”)

Existing and Acquired Markets

For the Nine Months Ended
(Dollars in thousands)

 

 

 

Existing Markets

 

Acquired Markets

 

Consolidated

 

 

 

June 30,

 

June 30,

 

June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

707,304

 

$

741,491

 

$

444,720

 

$

327,893

 

$

1,152,024

 

$

1,069,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

166,676

 

181,154

 

99,060

 

80,621

 

265,736

 

261,775

 

Gross Margin

 

23.6

%

24.4

%

22.3

%

24.6

%

23.1

%

24.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

119,340

 

120,715

 

102,909

 

70,513

 

222,249

 

191,228

 

Operating Expenses as a % of Net Sales

 

16.9

%

16.3

%

23.1

%

21.5

%

19.3

%

17.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

47,336

 

60,439

 

(3,849

)

10,108

 

43,487

 

70,547

 

Operating Margin

 

6.7

%

8.2

%

-0.9

%

3.1

%

3.8

%

6.6

%

 

19




Net Sales

Consolidated net sales increased $82.6 million, or 7.7%, to $1.15 billion in YTD 2007 from $1.07 billion in YTD 2006. Existing market sales declined $34.2 million or 4.6%, while acquired markets contributed an increase of $116.8 million.  We attribute the existing market sales decline to the factors outlined below. After adjusting for the five fewer business days this year, our existing market sales decline for YTD 2007 was 2.1%, with significantly lower price inflation than in YTD 2006.

We believe our YTD 2007 existing market sales were affected by the following factors:

·                    a substantial decline in new residential construction, especially in the mid-Atlantic states;

·                    a significant slowdown in re-roofing and reconstruction activities in certain areas of Texas, the Gulf Coast and Southeastern US that were affected by Hurricanes Katrina and Rita;

·                    five fewer business days; and

·                    harsher winter conditions this year in the Northeast, Canada, and Midwest; partially offset by

·    the positive impact of six new branches opened in existing markets since June 30, 2006.

We opened five new branches in our existing markets and opened two and closed two in our acquired markets during YTD 2007, while we had opened five new branches in existing markets during YTD 2006.  For YTD 2007, our acquired markets had combined product group sales of $212.7, $141.0 and $91.0 million in residential roofing products, non-residential roofing products and complementary building products, respectively, while the product group sales for our existing markets were as follows:

For the Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change Based

 

 

 

June 30, 2007

 

June 30, 2006

 

 

 

 

 

On Average Sales

 

 

 

Sales

 

Mix

 

Sales

 

Mix

 

Change

 

Per Business Day

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential roofing products

 

$

297,732

 

42.1

%

$

320,218

 

43.2

%

$

(22,486

)

-7.0%

 

-4.6%

 

Non-residential roofing products

 

257,467

 

36.4

%

251,380

 

33.9

%

6,087

 

2.4%

 

5.1%

 

Complementary building products

 

152,105

 

21.5

%

169,893

 

22.9

%

(17,788

)

-10.5%

 

-8.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

707,304

 

100.0

%

$

741,491

 

100.0

%

$

(34,187

)

-4.6%

 

-2.1%

 

 

Note: Total YTD 2007 existing market sales of $707.3 million plus YTD 2007 sales from acquired markets of $444.7 million equal $1,152.0 million of total YTD 2007 sales. Our total YTD 2006 sales of $1,069.4 million consisted of $741.5 million from existing markets plus $327.9 million from acquired markets. We believe the existing market information is useful to investors because it helps explain organic growth or decline.

20




Gross Profit
For the Nine Months Ended

 

June 30,

 

June 30,

 

 

 

 

 

 

 

 

 

2007

 

2006

 

Change

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$

265.7

 

$

261.8

 

$

3.9

 

 

 

1.5

%

Existing markets

 

166.7

 

181.2

 

(14.5

)

 

 

-8.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

23.1

%

24.5

%

 

 

-1.4

%

 

 

Existing markets

 

23.6

%

24.4

%

 

 

0.8

%

 

 

 

Our existing markets’ gross profit declined $14.5 million or 8.0% in YTD 2007, while acquired markets’ gross profit increased $18.4 million.  Existing markets’ gross margin decreased to 23.6% in YTD 2007 from 24.4% in YTD 2006. These decreases were caused by an increase in competitive conditions due to the business slowdown in the industry. Our overall gross margin has also decreased due primarily to those factors and the increase in product mix of traditionally lower gross margin non-residential roofing products.  We expect our future quarterly overall gross margins to fluctuate from 22% to 25% depending on our product mix and competitive circumstances.

21




Operating Expenses

For the Nine Months Ended

 

June 30,

 

June 30,

 

 

 

 

 

 

 

 

 

2007

 

2006

 

Change

 

 

 

(dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

$

222.2

 

$

191.2

 

$

31.0

 

 

 

16.2

%

Existing markets

 

119.3

 

120.7

 

(1.4

)

 

 

-1.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses as a % of sales

 

19.3

%

17.9

%

 

 

1.4

%

 

 

Existing markets

 

16.9

%

16.3

%

 

 

0.6

%

 

 

 

Our existing markets’ operating expenses of $119.3 million decreased by 1.1% or $1.4 million from $120.7 million in 2006 while acquired markets’ operating expenses increased $32.4 million. Stock option expense increased $1.8 million. The acquired markets’ YTD 2007 and YTD 2006 operating expenses included $9.2 and $5.8 million, respectively, for the amortization of intangible assets recorded under purchase accounting. The existing markets’ operating expense decline was due primarily to lower payroll and related costs ($0.9 million), lower other general and administrative expenses ($0.5 million) and transportation and other selling expenses ($0.8 million) from cost-saving measures and from our lower sales volume, partially offset by increased warehouse expense ($1.3 million) principally from our six new branches opened in existing markets since June 30, 2006. In addition, existing markets’ general and administrative expenses have benefited from leveraging certain expenses over a larger base of branches, including our acquired markets. Depreciation and amortization expense increased $0.9 million in YTD 2007 from YTD 2006.

Existing markets’ operating expenses as a percentage of net sales increased to 16.9% from 16.3%, primarily due to the lower sales and the relatively fixed aspect of our operating expenses. Overall operating expenses increased to 19.3% of net sales in YTD 2007 from 17.9% in YTD 2006, primarily due to higher operating cost percentages at Shelter and Pacific and the impact from the additional amortization expense mentioned above, offset somewhat by a lower operating cost percentage at North Coast.

Interest Expense

Interest expense increased $7.0 million to $20.1 million in YTD 2007 from $13.1 million in YTD 2006. We refinanced our credit facilities in November 2006 and incurred additional borrowings to finance our acquisitions, both of which increased our debt level since June 30, 2006. Interest rates also increased from the prior year, which affects our variable rate-debt.

Income Taxes

Income tax expense was $9.4 million in YTD 2007, an effective tax rate of 40.2%, compared to $22.7 million in YTD 2006, which was an effective tax rate of 39.5%. The slight increase in our overall effective tax rate was principally due to the impact of reversals of previously accrued income taxes in 2006.

22




Seasonality and Quarterly Fluctuations

In general, sales and net income are highest during our first, third and fourth fiscal quarters, which represent the peak months of construction, especially in our branches in the northeastern U.S. and in Canada. Our sales are substantially lower during the second quarter, when we historically have incurred low net income levels or net losses. These quarterly fluctuations have diminished as we have diversified into the southern regions of the United States.

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

We generally experience a slowing of collections of our accounts receivable during our second quarter, mainly due to the inability of some of our customers to conduct their businesses effectively in inclement weather in certain of our regions. We continue to attempt to collect those receivables, which require payment under our standard terms. We do not provide any concessions to our customers during this quarter of the year, although we may take advantage of seasonal incentives from our vendors. Also during the second quarter, we generally experience our lowest availability under our senior secured credit facilities, which are asset-based lending facilities.

Certain Quarterly Financial Data

The following table sets forth certain unaudited quarterly data for fiscal years 2007 and 2006 which, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of this data. Results of any one or more quarters are not necessarily indicative of results for an entire fiscal year or of continuing trends. Totals may not foot due to rounding.

 

(dollars in millions, except per share data)

 

Fiscal 2007

 

Fiscal 2006

 

(unaudited)

 

Qtr 1

 

Qtr 2

 

Qtr 3

 

Qtr 1

 

Qtr 2

 

Qtr 3

 

Qtr 4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

380.2

 

$

286.9

 

$

484.9

 

$

339.9

 

$

322.4

 

$

407.1

 

$

431.3

 

Gross profit

 

91.7

 

66.2

 

107.8

 

83.7

 

77.8

 

100.3

 

102.2

 

Income (loss) from operations

 

21.1

 

(4.2

)

26.7

 

25.7

 

12.4

 

32.5

 

29.7

 

Net income (loss)

 

$

8.8

 

$

(6.3

)

$

11.5

 

$

12.9

 

$

4.8

 

$

17.1

 

$

14.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share - basic

 

$

0.20

 

$

(0.14

)

$

0.26

 

$

0.32

 

$

0.11

 

$

0.39

 

$

0.33

 

Earnings per Share - fully diluted

 

$

0.20

 

$

(0.14

)

$

0.26

 

$

0.31

 

$

0.11

 

$

0.38

 

$

0.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarterly sales as % of year’s sales

 

 

 

 

 

 

 

22.6

%

21.5

%

27.1

%

28.8

%

Quarterly gross profit as % of year’s gross profit

 

 

 

 

 

 

 

23.0

%

21.4

%

27.6

%

28.1

%

Quarterly income from operations as % of year’s income from operations

 

 

 

 

 

 

 

25.6

%

12.4

%

32.4

%

29.6

%

 

The calculation of the net loss per share for the second quarter of 2007 did not include the effect of stock options since the impact would have been anti-dilutive.

Liquidity and Capital Resources

We had cash and cash equivalents of $7.2 million at June 30, 2007 compared to $1.1 million at June 30, 2006 and $1.8 million at September 30, 2006. Our net working capital was $233.5 million at June 30, 2007 compared to $161.6 million at June 30, 2006 and $205.4 million at September 30, 2006.

23




YTD 2007 Compared to YTD 2006

Our net cash provided by operating activities was $52.3 million for YTD 2007 compared to $65.8 million for YTD 2006. Our income from operations decreased to $43.5 million in YTD 2007 from $70.5 million in YTD 2006. Inventory levels, excluding the effect of acquisitions, increased by $13.9 million primarily due to a normal seasonal build-up, including at North Coast, and six new branches, with inventory turns in our existing markets consistent with YTD 2006. Accounts receivable, excluding the effect of acquisitions, increased by $19.6 million in YTD 2007, mostly due to seasonality, including at North Coast. The number of days outstanding for accounts receivable, based upon year-to-date sales, increased in YTD 2007, mainly due to our higher mix of non-residential roofing sales that generally have longer payment terms. The negative cash impact from the increases in accounts receivable and inventory was more than offset by a mostly seasonal increase of $43.0 million in accounts payable and accrued expenses.

Net cash used in investing activities in YTD 2007 was $141.6 million compared to $301.8 million in YTD 2006, due primarily to our acquisitions for which we paid $120.2 and $285.7 million, respectively. Net capital expenditures in YTD 2007 increased by $5.4 million compared to YTD 2006 due to a higher number of purchases of new transportation and warehouse equipment to service our larger number of branches.

Net cash provided by financing activities was $94.7 million in YTD 2007 compared to $243.4 million in YTD 2006. The net cash provided by financing activities in YTD 2007 primarily reflects borrowings under our new term loan to refinance our prior revolving facilities and term loans and payment of related deferred financing costs. The net cash provided by financing activities in YTD 2006 primarily reflected borrowings under our prior revolving lines of credit and term loans, mostly for our acquisitions, and the net proceeds from our secondary stock offering in December 2005.

Capital Resources

Our principal source of liquidity at June 30, 2007 was our cash and cash equivalents of $7.2 million and our available borrowings of $112.5 million under revolving lines of credit. Our borrowing base availability is determined primarily by trade accounts receivable, less outstanding borrowings. Borrowings outstanding under the revolving lines of credit in the accompanying balance sheets at September 30, 2006 and June 30, 2006 were classified as long-term liabilities in accordance with EITF Issue 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Arrangements that include both a Subjective Acceleration Clause and a Lock-Box Arrangement.

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

Significant factors which could affect future liquidity include the following:

· the adequacy of available bank lines of credit;

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

· cash flows generated from operating activities;

· acquisitions; and

· capital expenditures.

Our primary capital needs are for working capital obligations and other general corporate purposes, including acquisitions and capital expenditures. Our primary sources of working capital are cash from operations and cash equivalents supplemented by bank borrowings. In the past, we have financed acquisitions initially through increased bank borrowings, the issuance of common stock and other borrowings. We then repay any such borrowings with cash flows from operations. The November 2006 refinancing of our credit facilities discussed below provided us with approximately $47 million of additional funds at the time of the closing for future acquisitions and ongoing working capital requirements. We have funded our past capital expenditures through increased bank borrowings, including equipment financing, or through capital leases and then have reduced these obligations with cash flows from operations.

We believe we have adequate current liquidity and availability of capital to fund our present operations, meet our commitments on our existing debt and fund anticipated growth, including expansion in existing and targeted market areas. We continually seek potential acquisitions and from time to time hold discussions with acquisition candidates. If suitable acquisition opportunities or working capital needs arise that would require additional financing, we believe that our financial position and earnings history provide a strong base for obtaining additional financing resources at competitive rates and terms, as we have in the past. We may also issue additional shares of common stock to raise funds, which we did in December 2005, or we may issue preferred stock.

24




Indebtedness

We currently have the following credit facilities:

·   a senior secured credit facility in the U.S.;

·   a Canadian senior secured credit facility; and

·   two equipment financing facilities.

Senior Secured Credit Facility

On November 2, 2006, we entered into an amended and restated seven-year $500 million U.S. senior secured credit facility and a C$15 million senior secured Canadian credit facility with GE Antares Capital (“GE Antares”) and a syndicate of other lenders (combined, the “Credit Facility”). The Credit Facility refinanced the prior $370 million credit facilities that also were provided through GE Antares. The Credit Facility provides us with lower interest rates and available funds for future acquisitions and ongoing working capital requirements. In addition, the Credit Facility increases the allowable total equipment financing and/or capital lease financing to $35 million. The Credit Facility provides for a cash receipts lock-box arrangement that gives us sole control over the funds in lock-box accounts, unless excess availability is less than $10 million or an event of default occurs, in which case the senior secured lenders would have the right to take control over such funds and to apply such funds to repayment of the senior debt.

The Credit Facility consists of a U.S. revolving credit facility of $150 million (the “US Revolver”), which includes a sub-facility of $20 million for letters of credit, and an initial $350 million term loan (the “Term Loan”). The Credit Facility also includes a C$15 million senior secured revolving credit facility provided by GE Canada Finance Holding Company (the “Canada Revolver”). There was a combined $112.5 million available for borrowings under the US Revolver and Canadian Revolver at June 30, 2007 and $44.6 million outstanding. There were $6.5 million of outstanding standby letters of credit at June 30, 2007. The Term Loan requires amortization of 1% per year, payable in quarterly installments of approximately $0.9 million, and the remainder is due in 2013. The Credit Facility may also be expanded by up to an additional $200 million under certain conditions. There are mandatory prepayments under the Credit Facility under certain conditions, including the following cash flow condition:

Excess Cash Flow

On May 15 of each fiscal year, commencing on May 15, 2008, we must pay an amount equal to 50% of the Excess Cash Flow (as defined in the Credit Facility) for the prior fiscal year, not to exceed $7.0 million with respect to any fiscal year.

Interest on borrowings under the U.S. credit facility is payable at our election at either of the following rates:

·                  the base rate (that is the higher of (a) the base rate for corporate loans quoted in The Wall Street Journal or (b) the Federal Reserve overnight rate plus ½ of 1%) plus a margin of  0.75% for the Term Loan.

·                  the current LIBOR Rate plus a margin of 1.00% (for U.S. Revolver loans) or 2.00% (for Term Loan).

Interest under the Canadian credit facility is payable at our election at either of the following rates:

·                  an index rate (that is the higher of (1) the Canadian prime rate as quoted in The Globe and Mail and (2) the 30-day BA Rate plus 0.75%), or

·                  the BA rate as described in the Canadian facility plus 1.00%.

The US Revolver currently carries an interest rate of LIBOR plus 1% (6.32% at June 30, 2007), while the Canada revolver carries an interest rate of the Canadian prime rate plus 0.75% (6.00% at June 30, 2007), and the Term Loan carries an interest rate of LIBOR plus 2% (7.32% at June 30, 2007). Unused fees on the revolving credit facilities are 0.25% per annum. Availability under the revolving credit facilities is limited to 85% of eligible accounts receivable, increasing to 90% from January through April of each year. Financial covenants, which apply only to the Term Loan, are limited to a leverage ratio and a yearly capital expenditure limitation as follows:

Maximum Consolidated Leverage Ratio

On the last day of each fiscal quarter, commencing with the quarter ended December 31, 2006, our Consolidated Leverage Ratio, as defined, must not be greater than 4.00:1.0.

Capital Expenditures

We cannot incur aggregate Capital Expenditures, as defined, in excess of three percent (3.00%) of consolidated gross revenue for any fiscal year.

As of June 30, 2007, we were in compliance with these covenants. Substantially all of our assets, including the capital stock and assets of wholly-owned subsidiaries, secure obligations under the Credit Facility.

25




Prior Senior Secured Credit Facilities

The credit facilities in place prior to the Credit Facility discussed above were amended in October 2005 and January 2006, scheduled to mature on October 14, 2010 and consisted of a $280 million U.S. revolving line of credit and a $C15 million Canadian revolving line of credit, referred to as revolvers, and term loans totaling $90 million. These facilities provided for the same lock-box arrangements as under the Credit Facility.

At the time of the refinancing discussed above, there was $227.8 million of borrowings outstanding under the prior revolvers. The outstanding revolver borrowings at that date carried a weighted-average interest rate of 7.03%. The outstanding revolver borrowings at September 30, 2006 and June 30, 2006 carried weighted-average interest rates of 6.97% and 7.05%, respectively, and were classified as long-term debt since the amounts were expected to be outstanding for greater than one year.

Equipment Financing Facilities

We have two equipment financing facilities that allow for the financing of purchased transportation and material handling equipment totaling $32.9 million with $14.9 million of remaining availability as of June 30, 2007. There was $18.0 million of equipment financing loans outstanding at June 30, 2007, with fixed interest rates ranging from 4.7% to 7.4%.

26




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

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

Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include those set forth under the heading “Risk Factors” in our Form 10-K for the fiscal year ended September 30, 2006.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our interest rate risk relates primarily to the variable-rate borrowings under our Credit Facility. The following discussion of our interest rate swaps and collars (see “Financial Derivatives” below) is based on a 10% change in interest rates. These changes are hypothetical scenarios used to calibrate potential risk and do not represent our view of future market changes. The interest rate collars have had no impact yet on our interest expense. As the hypothetical figures discussed below indicate, changes in fair value based on the assumed change in rates generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. The effect of a variation in a particular assumption is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which may magnify or counteract the sensitivities.

At June 30, 2007, we had $348.3 million of term loans outstanding under our Credit Facility. Our weighted-average effective interest rate on that debt, after considering the effect of the interest rate swaps, was 7.13% at June 30, 2007. A hypothetical 10% increase in interest rates in effect at June 30, 2007, would have increased annual interest expense on the borrowings outstanding at that date by approximately $2.5 million.

We enter into interest rate swaps and collars to minimize the risks and costs associated with financing activities, as well as to maintain an appropriate mix of fixed-and floating-rate debt. The swap agreements discussed below are contracts to exchange variable-rate for fixed-interest rate payments over the life of the agreements. The collar agreements, also discussed below, provide for fixed-rate caps and floors. The aggregate fair value of these swaps and collars represented a gain of $2.0 million at June 30, 2007. A hypothetical increase (or decrease) of 10% in interest rates from the level in effect at June 30, 2007, would result in an aggregate (loss) or gain in value of the swaps and collars of approximately ($2.8) million or $2.9 million, respectively.

Financial Derivatives

As discussed above, we use interest rate derivative instruments to manage the risk of interest rate changes by converting a portion of our variable-rate borrowings into fixed-rate borrowings. We had interest rate derivative instruments outstanding in a total notional amount of $300 million at June 30, 2007, which consisted of: a) interest rate swaps totaling $200 million, expiring in February 2010, with a fixed rate of 4.97%; b) a $50 million interest rate collar expiring in March 2010 with a floor rate of 3.99% and a cap rate of 5.75%; and c) a $50 million interest rate collar expiring in February 2010 with a floor rate of 3.75% and a cap rate of 6.00%. We entered into these instruments during the second quarter of 2007 and cancelled the prior interest rate derivative instruments that had notional amounts totaling $150 million. The increase in the total notional amount was due to the increased borrowings under our Credit Facility. The current derivative instruments are designated as cash flow hedges, for which we record the effective portions of changes in their fair value, net of tax, in other comprehensive income. We recognize any ineffective portion of our hedges in earnings, of which there has been none to date. The prior derivative instruments were not designated as hedges and therefore changes in their fair values were recorded in interest expense.

Foreign Exchange Risk

There have been no material changes from what we reported in our Form 10-K for the year ended September 30, 2006.

Item 4. Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Act”). The rules refer to the controls and other procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified. As of June 30, 2007, management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management, including the CEO and CFO, concluded that as of June 30, 2007, our disclosure controls and procedures were effective at ensuring that material information related to us or our consolidated subsidiaries is made known to them and is disclosed on a timely basis in our reports filed under the Act. We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Based on the most recent evaluation, we have concluded that no significant changes in our internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

27




Part II. Other Information

Items 1-5 are not applicable and have been omitted.

Item 6. Exhibits

(a) Exhibits required by Item 601 of Regulation S-K

Exhibit
Number

 

Document Description

 

 

 

31.1

 

Certification by Robert R. Buck pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification by David R. Grace pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification by Robert R. Buck and David R. Grace pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

28




Signature Page

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 8, 2007.

 

BEACON ROOFING SUPPLY, INC.

 

 

 

 

BY:

/s/ David R. Grace

 

 

David R. Grace, Senior Vice President & Chief Financial
Officer, and duly authorized signatory on behalf of the Registrant

 

29




Index to Exhibits

Exhibit
Number

 

Document Description

 

 

 

31.1

 

Certification by Robert R. Buck pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2

 

Certification by David R. Grace pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification by Robert R. Buck and David R. Grace pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

30