GMS Inc.
Consolidated Statements of Cash Flows
Years Ended April 30, 2017, 2016, and 2015
(in thousands of dollars)
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|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
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2017
|
|
2016
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
48,886
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
25,565
|
|
|
26,667
|
|
|
32,208
|
|
Accretion and amortization of debt discount and deferred financing fees
|
|
|
9,793
|
|
|
3,438
|
|
|
3,374
|
|
Amortization of intangible assets
|
|
|
43,675
|
|
|
37,548
|
|
|
31,957
|
|
Provision for losses on accounts and notes receivable
|
|
|
(122
|
)
|
|
(1,032
|
)
|
|
(233
|
)
|
Provision for obsolescence of inventory
|
|
|
425
|
|
|
80
|
|
|
1,077
|
|
Decrease in fair value of contingent consideration
|
|
|
(1,484
|
)
|
|
|
|
|
|
|
Equity-based compensation
|
|
|
3,142
|
|
|
4,733
|
|
|
9,012
|
|
(Gain)/Loss on sale or impairment of assets
|
|
|
(336
|
)
|
|
(645
|
)
|
|
1,089
|
|
Loss on fair value of financial instruments
|
|
|
|
|
|
|
|
|
2,494
|
|
Changes in assets and liabilities net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Trade accounts and notes receivable
|
|
|
(20,400
|
)
|
|
(27,338
|
)
|
|
(11,649
|
)
|
Inventories
|
|
|
(18,390
|
)
|
|
(699
|
)
|
|
(4,610
|
)
|
Accounts payable
|
|
|
(3,763
|
)
|
|
1,055
|
|
|
(3,655
|
)
|
Deferred income tax
|
|
|
(20,114
|
)
|
|
(20,499
|
)
|
|
(21,664
|
)
|
Prepaid expenses and other assets
|
|
|
(412
|
)
|
|
(4,682
|
)
|
|
1,989
|
|
Accrued compensation and employee benefits
|
|
|
4,440
|
|
|
3,454
|
|
|
8,204
|
|
Accrued expenses and liabilities
|
|
|
626
|
|
|
5,551
|
|
|
9,170
|
|
Liabilities to noncontrolling interest holders
|
|
|
1,133
|
|
|
446
|
|
|
1,862
|
|
Income tax receivable / payable
|
|
|
(5,956
|
)
|
|
7,106
|
|
|
(905
|
)
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|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
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66,708
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|
|
47,747
|
|
|
48,023
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(11,083
|
)
|
|
(7,692
|
)
|
|
(13,940
|
)
|
Proceeds from sale of assets
|
|
|
3,995
|
|
|
9,847
|
|
|
3,807
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|
Purchase of financial instruments
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|
|
|
|
|
|
|
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(4,638
|
)
|
Acquisition of businesses, net of cash acquired
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|
|
(150,428
|
)
|
|
(120,195
|
)
|
|
(67,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(157,516
|
)
|
|
(118,040
|
)
|
|
(82,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Repayments on the revolving credit facility
|
|
|
(1,011,925
|
)
|
|
(697,144
|
)
|
|
(303,099
|
)
|
Borrowings from the revolving credit facility
|
|
|
1,013,365
|
|
|
782,104
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|
|
320,049
|
|
Payments of principal on long-term debt
|
|
|
(4,584
|
)
|
|
(3,931
|
)
|
|
(3,927
|
)
|
Principal repayments of capital lease obligations
|
|
|
(5,208
|
)
|
|
(4,249
|
)
|
|
(4,327
|
)
|
Proceeds from issuance of common stock in initial public offering, net of underwriting discounts
|
|
|
156,941
|
|
|
|
|
|
|
|
Proceeds from sales of common stock
|
|
|
|
|
|
|
|
|
5,370
|
|
Repayment of term loan
|
|
|
(160,000
|
)
|
|
|
|
|
|
|
Proceeds from term loan amendment
|
|
|
481,225
|
|
|
|
|
|
|
|
Repayments on term loan amendment
|
|
|
(381,225
|
)
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
(2,637
|
)
|
|
(391
|
)
|
|
|
|
Stock repurchases
|
|
|
|
|
|
(5,827
|
)
|
|
|
|
Exercise of stock options
|
|
|
345
|
|
|
6,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
86,297
|
|
|
77,081
|
|
|
14,066
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(4,511
|
)
|
|
6,788
|
|
|
(20,378
|
)
|
Balance, beginning of period
|
|
|
19,072
|
|
|
12,284
|
|
|
32,662
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
14,561
|
|
$
|
19,072
|
|
$
|
12,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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Supplemental cash flow disclosures:
|
|
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|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
49,163
|
|
$
|
26,067
|
|
$
|
16,111
|
|
Cash paid for interest
|
|
|
26,443
|
|
|
34,557
|
|
|
31,720
|
|
Supplemental schedule of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital lease
|
|
$
|
9,410
|
|
$
|
7,542
|
|
$
|
5,211
|
|
Change in fair value of derivative instrument
|
|
|
184
|
|
|
1,889
|
|
|
|
|
Issuance of installment notes associated with equity-based compensation liability awards
|
|
|
5,352
|
|
|
1,557
|
|
|
1,644
|
|
Increase in other liabilities due to transition guidance
|
|
|
|
|
|
3,208
|
|
|
|
|
Increase to other assets and decrease to property and equipment
|
|
|
|
|
|
833
|
|
|
1,837
|
|
Non cash property and equipment adjustments
|
|
|
|
|
|
110
|
|
|
115
|
|
Increase (decrease) in insurance claims payable and insurance recoverable
|
|
|
1,876
|
|
|
(25,715
|
)
|
|
6,350
|
|
The accompanying notes are an integral part of these consolidated financial statements.
70
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies
The terms "we", "our", "us", "Successor" or the "Company" refer to GMS Inc. and its subsidiaries. When such terms are used in this manner throughout the notes to the consolidated
financial statements, they are in reference only to the corporation, GMS Inc. and its subsidiaries, and are not used in reference to the Board of Directors, corporate officers, management, or
any individual employee or group of employees.
On
April 1, 2014, GYP Holdings I Corp., or the Successor, acquired, through its wholly-owned entities, GYP Holdings II Corp. and GYP Holdings III Corp., all of the capital stock
of Gypsum Management and Supply, Inc. (the "Predecessor"). Successor is majority owned by certain affiliates of AEA Investors LP, or "AEA", and certain of our other stockholders. We
refer to this acquisition as the "Acquisition" and April 1, 2014 as the "Acquisition Date". We were previously known as GYP Holdings I Corp. and changed our name to GMS Inc. on
July 6, 2015.
We
have no independent operations and our only asset is our investment in the Predecessor.
Revision of Previously Issued Statements of Cash Flows
During the preparation of the Annual Report on Form 10-K for the year ended April 30, 2017, the Company determined that cash flows
related to payments of working capital settlements were inappropriately classified as financing activities in the Consolidated Statements of Cash Flows for the fiscal years ended April 30, 2016
and 2015. This resulted in understatements of "Cash used in investing activities" (specifically the line item "Acquisitions of businesses, net of cash acquired") and "Cash provided by financing
activities" (specifically the line item "Cash paid for contingent consideration") of $6,598 and $1,001 in the Consolidated Statements of Cash Flows for the years ended April 30, 2016 and 2015,
respectively. The Company assessed the materiality of the misstatement in accordance with SEC Staff Accounting Bulletin No. 99, Materiality, and concluded that this misstatement was not
material to the Company's previously issued financial statements and that amendments of previously filed reports were therefore not required. However, the Company has elected to revise the previously
reported amounts in the 2016 and 2015 Consolidated Statements of Cash Flows in this Form 10-K filing. Disclosure of the revised amounts for applicable fiscal 2017 interim periods will also be
reflected in future filings containing such interim periods.
The
effect of this revision on the line items within the Company's Consolidated Statement of Cash Flows for the year ended April 30, 2016 was as follows:
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|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2016
|
|
|
|
As previously
reported
|
|
Adjustment
|
|
As revised
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
$
|
(113,597
|
)
|
$
|
(6,598
|
)
|
$
|
(120,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
$
|
(111,442
|
)
|
$
|
(6,598
|
)
|
$
|
(118,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Cash paid for contingent consideration
|
|
$
|
(6,598
|
)
|
$
|
6,598
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
$
|
70,483
|
|
$
|
6,598
|
|
$
|
77,081
|
|
|
|
|
|
|
|
|
|
|
|
|
71
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
The
effect of this revision on the line items within the Company's Consolidated Statement of Cash Flows for the year ended April 30, 2015 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2015
|
|
|
|
As previously
reported
|
|
Adjustment
|
|
As revised
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(66,695
|
)
|
$
|
(1,001
|
)
|
|
(67,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
$
|
(81,466
|
)
|
$
|
(1,001
|
)
|
$
|
(82,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Cash paid for contingent consideration
|
|
$
|
(1,001
|
)
|
$
|
1,001
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
$
|
13,065
|
|
$
|
1,001
|
|
$
|
14,066
|
|
|
|
|
|
|
|
|
|
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|
Business
Founded in 1971, we are a distributor of specialty building products including wallboard, suspended ceiling systems, or ceilings, steel framing
and other complementary specialty building products. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of wallboard and ceilings
contractors and homebuilders, and to a lesser extent, general contractors and individuals. We have created a national footprint with more than 205 branches across 42 states.
Initial and Secondary Public Offerings
On May 13, 2016, we amended and restated our certificate of incorporation to increase our authorized share count to
550,000,000 shares of stock, including 500,000,000 shares of common stock and 50,000,000 shares of preferred stock, each with a par value $0.01 per share and to split our
common stock 10.158-for-1. Unless otherwise noted herein, historic share data has been adjusted to give effect to the stock split.
On
June 1, 2016, we completed our initial public offering, or IPO, of 8,050,000 shares of common stock at a price of $21.00 per share, including 1,050,000 shares of common stock
that were issued as a result of the exercise in full by the underwriters of an option to purchase additional shares to cover over-allotments. Our common stock began trading on the New York Stock
Exchange, or the NYSE, on May 26, 2016 under the ticker symbol "GMS". After underwriting discounts and commissions, but before expenses, we received net proceeds from the IPO of approximately
$156.9 million. We used these proceeds together with cash on hand to repay $160.0 million principal amount of our term loan debt outstanding under our senior secured second lien term
loan facility, or the Second Lien Facility, which was a payment in full of the entire loan balance due under the Second Lien Facility.
On
February 22, 2017, certain stockholders of the Company completed a secondary public offering of 7,992,500 shares of the Company's common stock at a price to the public of
$29.25 per share, including 1,042,500 shares of common stock that were issued as a result of the exercise in full by the underwriters of an option to purchase additional shares that was granted by the
selling stockholders. The common stock offered in the secondary offering included 3,549,302 shares offered by affiliates of AEA.
72
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
Principles of Consolidation
The Consolidated Financial Statements present the results of operations, financial position and cash flows of the Company and its subsidiaries.
All material intercompany balances and transactions have been eliminated in consolidation. Results of operations of businesses acquired are included from their respective dates of acquisition.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP")
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
We recognize revenue at the point of sale or upon delivery to the customer's site when the following four basic criteria are
met:
-
-
persuasive evidence of an arrangement exists;
-
-
delivery has occurred or services have been rendered;
-
-
the price to the buyer is fixed or determinable; and
-
-
collectability is reasonably assured.
Revenue,
net of estimated returns and allowances, is recognized when sales transactions occur and title is passed and the related product is delivered. Revenue includes any applicable
shipping and handling costs invoiced to the
customer. The expense related to such costs is included in "Selling, general and administrative" expenses in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
Cost of Sales
"Cost of sales" reflects the direct cost of goods purchased from third parties, rebates earned from vendors, adjustments for inventory reserves,
and the cost of inbound freight.
Operating Expenses
"Operating expenses" include "Selling, general and administrative" expenses and "Depreciation and amortization". "Selling, general and
administrative" expenses include expenses related to the delivery and warehousing of our products, as well as employee compensation and benefits expenses for employees in our branches and yard support
center, as well as other administrative expenses, such as legal, accounting, and IT costs. Included in "Selling, general and administrative" expenses are delivery expenses of $205,019, $159,098 and
$128,381 for 2017, 2016 and 2015, respectively. "Depreciation and amortization" expenses include depreciation expense on our property and equipment as well as amortization expense on our finite lived
intangible assets.
73
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying
values of cash and cash equivalents approximate their fair values due to the short-term nature of these investments.
Trade Accounts Receivable
Accounts receivable are evaluated for collectability based on numerous factors including the age of the receivable and the history of writeoffs.
We maintain allowances for doubtful accounts for estimated losses due to the failure of our customers to make required payments, as well as allowances for sales returns and cash discounts.
Our
estimate of the allowance for doubtful accounts is based on an assessment of individual past due accounts, historical write-off experience, accounts receivable aging and the current
economic trends. Account balances are written off when the potential for recovery is considered remote. Our estimates for cash discounts and returns are based on an analysis of historical write-offs.
Based on our evaluation, we have established estimated reserves for uncollectible accounts, returns and cash discounts of $9,851 and $8,607 as of April 30, 2017 and 2016, respectively.
Inventories
"Inventories, net" consist of materials purchased for resale and include wallboard, ceilings, steel framing and other specialty building
products. The cost of our inventories is determined by the moving average cost method, which approximates the first-in, first-out approach. We monitor our inventory levels by branch and record
provisions for excess inventories based on slower moving inventory. We define excess inventory as the amount of inventory on hand in excess of the historical usage, excluding items purchased in the
last 12 months. We then review our most recent history of sales and adjustments of such excess inventory and apply our judgment as to forecasted demand and other factors, including liquidation
value, to determine the required adjustments to net realizable value. In addition, at the end of each year, we evaluate our inventory at each branch and write off and dispose of obsolete products. Our
inventories are generally not susceptible to technological obsolescence.
Vendor Rebates
Typical arrangements with our vendors provide for us to receive a rebate of a specified amount after we achieve any of a number of measures
generally related to the volume of our purchases over a period of time. We record these rebates to effectively reduce our cost of sales in the period in which we sell the product. Throughout the year,
we estimate the amount of rebates receivable for the periodic programs based upon
the expected level of purchases. We accrue for the receipt of vendor rebates based on purchases and also reduce inventory to reflect the deferral of cost of sales.
Property and Equipment
"Property and equipment, net" is recorded at cost. Buildings, furniture, fixtures and equipment are depreciated using the straight-line method
over the estimated useful lives of the assets. Expenditures for improvements and betterments, which extend the useful lives of assets, are capitalized while maintenance and repairs are charged to
expense as incurred. Property and equipment obtained through acquisition are stated at
74
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
estimated
fair value as of the acquisition date, and are depreciated over their estimated remaining useful lives. Gains and losses related to the sale of property and equipment are recorded as
"Selling, general and administrative" expenses.
Property
and equipment is depreciated and amortized using the following estimated useful lives:
|
|
|
|
|
Life (years)
|
Buildings
|
|
25 - 39
|
Leasehold improvements
|
|
1 - 15
|
Furniture, fixtures, and automobiles
|
|
3 - 5
|
Warehouse and delivery equipment
|
|
4 - 5
|
Assets held under capital lease
|
|
2 - 11
|
Leased
property and equipment meeting capital lease criteria are capitalized at the lower of the present value of the related lease payments or the fair value of the leased asset at the
inception of the lease. Leasehold improvements and assets under capital leases are amortized using the straight-line method over the shorter of their estimated useful lives or the initial term of the
related lease.
Long-lived
assets to be held and used are reviewed for impairment whenever facts and circumstances indicate that the carrying amount of an asset may not be recoverable. For impairment
testing of long-lived assets, we identify asset groups at the lowest level for which identifiable cash flows are largely independent of the cash flows for other groups of assets and liabilities.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the assets. If
the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in an amount by which the carrying amount of the asset exceeds the estimated fair value of
the asset.
Assets
are classified as held for sale if the Company commits to a plan to sell the asset within one year and actively markets the asset in its current condition for a price that is
reasonable in comparison to its estimated fair value. Assets held for sale are stated at lower of depreciated cost or estimated fair value less expected disposition costs and are recorded within
"Prepaid expenses and other current assets".
During
2017, 2016 and 2015, the Company recognized impairment losses of $485, $373 and $173, respectively, related to land and buildings held for sale. These losses were included in
"Selling, general and administrative" expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Goodwill
Goodwill represents the excess of purchase price over fair value of net assets acquired. We do not amortize goodwill, but do assess goodwill for
impairment in the fourth quarter of each fiscal year or whenever events or circumstances indicate that it is "more likely than not" that the fair value of a reporting unit had dropped below its
carrying value. For the fiscal 2017, 2016 and 2015 annual impairment tests, the fair values of our identified reporting units were estimated using a discounted cash flow ("DCF") analysis, a market
comparable method, and a market transaction approach. The weighting of each approach used was 50%, 40%, and 10% for the DCF approach, the market comparable approach and the transaction approach
respectively. There were no goodwill impairment charges recorded. See Note 5, "Goodwill and Intangible Assets," for a complete description of the Company's goodwill.
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Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
Intangible Assets
The Company typically uses an income method to estimate the fair value of "Intangible assets", which is based on forecasts of the expected
future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the
amount and timing of future cash flows (including expected growth rates and profitability), the underlying product, the economic barriers to entry and the discount rate applied to the cash flows.
Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions.
Determining
the useful life of an intangible asset also requires judgment. Certain intangibles are expected to have indefinite lives based on their history and the Company's plans to
continue to support and build the acquired brands. Other acquired intangible assets such as customer relationships and other brand or trade names are expected to have definite useful lives. All of the
Company's customer-related intangibles are expected to have definite useful lives. The costs of definite lived intangibles are amortized over their estimated lives.
Deferred Financing Costs
The Company capitalizes debt issuance costs and amortizes them over the term of the related debt. The Company uses the straight-line method to
amortize debt issuance costs related to the ABL Facility (as defined below), while the effective interest method is used to amortize debt issuance costs related to the Term Loan Facilities (as defined
below). Amortization of debt issuance costs is recorded in "Interest expense" within the Consolidated Statements of Operations and Comprehensive Income (Loss). Lender and third party deferred
financing costs are reported as a reduction of the Term Loan Facilities of $5,712 and $11,147 as of April 30, 2017 and 2016, respectively, in the Consolidated Balance Sheets. Lender and third
party deferred financing costs related to the ABL Facility are reported as an asset of $2,950 and $2,544 as of April 30, 2017 and 2016, respectively, in the Consolidated Balance Sheets.
Amortization of the Term Loan Facilities and ABL Facility costs were $2,247, $2,961 and $2,907 in 2017, 2016 and 2015, respectively. In addition, in connection with refinancing of the ABL and term
loans, $7,103 was written off in 2017.
Derivative Instruments
The Derivative financial instruments are recognized as either assets or liabilities in the Consolidated Balance Sheets and measured at fair
value. Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings. If the derivative does qualify as a hedge, under the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification ("ASC") Topic 815, "
Derivatives and hedging
", changes in the fair value will either be offset against the change in
fair value of the hedged assets, liabilities or firm commitments or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a
hedge's change in fair value is immediately recognized in earnings.
We
enter into interest rate derivative agreements, commonly referred to as caps or swaps, with the objective of minimizing the risks and costs associated with financing activities, as
well as to maintain an appropriate mix of fixed-and floating-rate debt. These agreements are contracts to exchange variable-rate for fixed-interest rate payments over the life of the agreements.
For
derivative instruments designated as hedges per ASC 815, we record the effective portions of changes in their fair value, net of taxes, in "Comprehensive income (loss)" to the extent
the derivative is considered perfectly
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Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
effective
in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged, until the hedged item is recognized in earnings (commonly referred to as the "hedge
accounting" method).
The
effectiveness of the hedges is periodically assessed by management during the lives of the hedges by: 1) comparing the current terms of the hedges with the related hedged debt
to assure they continue to coincide and 2) evaluating the ability of the counterparties to the hedges to honor their obligations under the hedges. Any ineffective portions of the hedges are
recognized in earnings through interest expense, financing costs and other expenses.
During
the year ended April 30, 2015, we elected to designate a derivative instrument as a cash flow hedge in accordance with ASC 815. This instrument is an interest rate cap on
quarterly resetting 3-month LIBOR, based on a strike rate of 2.0% and payable quarterly. This instrument effectively caps the interest rate at 5.75% on an initial notional amount of $275,000 of our
variable rate debt obligation under the First Lien Facility, or any replacement facility with similar terms. The interest rate cap was purchased for $4,638 on October 31, 2014, designated as a
hedge on January 31, 2015, and expires on October 31, 2018.
This
derivative instrument is recorded in the Consolidated Balance Sheet as of April 30, 2017 and 2016, respectively, as an asset at its fair value of $88 and $271 within "Other
assets". The valuation of this instrument was determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of the derivative. This
analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatilities.
The
decrease in fair value of the instrument from the purchase date to the date of hedge designation was $2,494 and is reflected in earnings through "Change in fair value of financial
instruments" on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended April 30, 2015. The increase in fair value from the effective hedge date to the year
ended April 30, 2015 was $10 and was recorded in "(Decrease) increase in fair value of financial instruments, net of tax" in "Comprehensive income (loss)". The decrease in fair value for the
year ended April 30, 2016 was $1,158 and was recorded in "(Decrease) increase in fair value of financial instruments, net of tax" in "Comprehensive income (loss)". The increase in fair value
for the year ended April 30, 2017 was $264 and was recorded in "(Decrease) increase in fair value of financial instruments, net of tax" in "Comprehensive income (loss)". The Company believes
there have been no material changes in the creditworthiness of the counterparty to this cap agreement and believes the risk of nonperformance by such party is minimal. See Note 16, "Accumulated
Other Comprehensive (Loss) Income."
We
consider the interest rate cap to be a Level 2 fair value measurement for which market-based pricing inputs are observable. Generally, we obtain our Level 2 pricing
inputs from our counterparties. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, which can be derived from observable data or are
supported by observable levels at which transactions are executed in the marketplace.
For
derivatives that do not qualify or are not designated as hedging instruments for accounting purposes, changes in fair value are recorded in current period earnings (commonly referred
to as the "mark-to-market" method). We did not have any derivatives that did not qualify or were not designated as hedging instruments for accounting purposes, during the years ended April 30,
2017, 2016 and 2015, other than as noted above.
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
Insurance Liabilities
The Company is self-insured for certain losses related to medical claims. The Company has deductible-based insurance policies for certain losses
related to general liability, workers' compensation and automobile. The deductible amount is $250, $500 and $1,000 for general liability, workers' compensation and automobile, respectively. The
Company has stop-loss coverage to limit the exposure arising from claims. The coverage consists of a primary layer and an excess layer. The primary layer of coverage is from $500 to $2,000 and the
excess layer covers claims from $2,000 to $100,000. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Insurance losses for
claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in
the insurance industry and historical loss development experience.
At
April 30, 2017 and 2016, the aggregate liabilities for medical self-insurance were $3,429 and $3,342, respectively, and are recorded in "Other accrued expenses and current
liabilities" within the Consolidated Balance Sheets. At April 30, 2017 and 2016, reserves for general liability, automobile and workers' compensation totaled approximately $15,934 and $12,213
respectively, and are recorded in "Other accrued expenses and current liabilities" and "Other liabilities" in the Consolidated Balance Sheets. During the year ended April 30, 2016, an insured
automobile claim related to prior years, subject to a $500 deductible, was paid by our insurance carrier in the amount of approximately $26,300. At April 30, 2017 and 2016, expected recoveries
for general liability, automobile and workers' compensation totaled approximately $6,708 and $4,832, respectively and are recorded in "Prepaid expenses and other current assets" and "Other assets" in
the Consolidated Balance Sheets.
Income Taxes
Income taxes are accounted for in accordance with ASC 740 "
Income Taxes
," which requires the use
of the asset and liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Inherent in the measurement of deferred balances are certain judgments and interpretations of existing tax law and published guidance as applicable to our operations.
We
evaluate our deferred tax assets to determine if valuation allowances are required. In assessing the realizability of deferred tax assets, we consider both positive and negative
evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The primary negative evidence considered includes the cumulative
operating losses generated in prior periods. The primary positive evidence considered includes the reversal of deferred tax liabilities related to depreciation and amortization that would occur within
the same jurisdiction and during the carry-forward period necessary to absorb the federal and state net operating losses and other deferred tax assets. The reversal of such liabilities would utilize
the federal and state net operating losses and other deferred tax assets.
We
record amounts for uncertain tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority.
Consequently, changes in our assumptions and judgments could materially affect amounts recognized related to income tax uncertainties and may affect our results of operations or financial position. We
believe our assumptions for estimates are reasonable, although actual results may have a positive or negative material impact on the balances of such tax positions. Historically, the variation of
estimates to actual results is not significant and material variation is not expected in the future.
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
Credit and Economic Risk
The Company's sources of liquidity have been and are expected to be cash from operating activities, available cash balances and the ABL Facility
and the Term Loan Facilities. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade
accounts and notes receivable. The Company assesses the credit standing of counterparties as considered necessary. The Company routinely assesses the financial strength of its customers and generally
does
not require collateral. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base. The Company
provides for doubtful accounts based on historical experience and when current conditions indicate that collection is doubtful. Accounts are written off when deemed uncollectible. In certain
situations, the Company provides the customer with the right of product return; we have established a reserve for returns based on historic returns. The Company does not enter into financial
instruments for trading or speculative purposes.
The
Company purchases a majority of its inventories from a select group of vendors. Without these vendors, the Company's ability to acquire inventory would be significantly impaired.
Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in
an orderly transaction between market participants on the measurement date. The carrying values of cash and cash equivalents, receivables, accounts payable, other current liabilities and accrued
interest approximates fair value due to its short-term nature. Based on borrowing rates available to the Company for loans with similar terms, the carrying values of the ABL Facility and other debt
approximate fair value.
Accounting
guidance establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:
|
|
|
Level 1
|
|
Inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.
|
Level 2
|
|
Inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term
of the asset or liability. The fair values of our liabilities for Stock Appreciation Rights, Liabilities to Non-controlling interest holders, and Deferred Compensation liabilities are based on Level 2 inputs.
|
Level 3
|
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.
|
Advertising Expense
The cost of advertising is expensed as incurred and presented within "Selling, general and administrative" expenses in the Consolidated
Statements of Operations and Comprehensive Income (Loss). The Company incurred approximately $2,270, $2,043, and $1,805 in advertising costs for the years ended April 30, 2017, 2016, and 2015,
respectively.
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
Equity-Based Compensation
We account for stock options granted to employees and directors by recording compensation expense based on the award's fair value, estimated on
the date of grant using the Black-Scholes option-pricing model. Equity-based compensation expense is recognized on a schedule that approximates the graded vesting of the awards.
Determining
the fair value of stock options under the Black-Scholes option-pricing model requires judgment, including estimating the fair value per share of our common stock, volatility,
expected term of the awards, dividend yield and risk-free interest rate. The assumptions used in calculating the fair value of stock options represent our best estimates, based on management's
judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the model change significantly, share-based compensation recorded for
future awards may differ materially from that recorded for awards granted previously.
We
estimate potential forfeitures of stock options and adjust share-based compensation expense accordingly. The estimate of forfeitures is adjusted over the requisite service period to
the extent that actual forfeitures differ from prior estimates. We estimate forfeitures based upon our historical experience with employee turnover, and, on an annual basis, review the estimated
forfeiture rate and make changes as factors affecting the forfeiture rate calculations and assumptions changes.
We
intend to use authorized and unissued shares to satisfy share award exercises, unless otherwise noted.
Stock Appreciation Rights, Deferred Compensation and Liabilities to Noncontrolling Interest Holders
Certain subsidiaries have equity based compensation agreements with the subsidiary's employees and minority shareholders. These agreements are
stock appreciation rights, deferred compensation agreements and liabilities to noncontrolling interest holders. Since these agreements are typically settled in cash or notes, and do not meet the
criteria established by ASC 718, "
CompensationStock Compensation
" to be accounted for in "Stockholders' equity", they are accounted for as
liability awards. See Note 12, "Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests."
Treasury Stock
In fiscal 2016, we repurchased 394,577 shares of our common stock at a cost of $5,827 in connection with our separation agreement with a former
employee. We then reissued these shares for proceeds of $4,856. The difference between the cost of the treasury stock and the proceeds from its reissuance was accounted for, using the "cost" method,
as an increase to "Retained Earnings (Accumulated deficit)" of $971.
We
did not have any treasury stock activity during fiscal 2017.
Net Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of outstanding common shares for the
period. Diluted earnings (loss) per share reflects the potential dilution that could occur if instruments that may require the issuance of common shares in the future were settled and the underlying
common shares were issued. Diluted earnings (loss) per share is computed by increasing the weighted-average number of outstanding common shares computed in basic earnings (loss) per share to include
the dilutive effect of stock options and other equity-based instruments held by the Company's employees and directors during
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
each
period. In periods of net loss, the number of shares used to calculate diluted earnings per share is the same as basic earnings per share.
Diluted
net earnings (loss) per common share equals basic net earnings (loss) per common share for fiscal 2015, as the effect of stock options and other equity-based instruments
(collectively "stock-based compensation securities") are anti-dilutive because the Company incurred losses from continuing operations in that period. During fiscal 2015, stock-based compensation
securities were excluded from the calculation of diluted earnings (loss) per share because their effect would have been anti-dilutive. The number of diluted shares excluded from the calculation was
10,417 shares.
Recent Accounting Pronouncements
Revenue recognition
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), to clarify the
principles used to recognize revenue for all entities. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of ASU 2014-09 by one year. As a result of this
deferral, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017, which for us will be in the fiscal year beginning May 1, 2018. We are continuing to
perform our detailed evaluation, using the five-step model specified in the guidance, to assess the impacts of the new standard. Specifically, under the new standard, we anticipate the
following:
-
-
Under the new standard, revenue will be recognized when we satisfy our performance obligation by transferring promised goods or services to our
customer. The standard allows for application of the guidance to a portfolio of contracts or performance obligations with similar characteristics. Since our individual sales transactions are very
similar in nature, we anticipate applying the guidance to all transactions as a portfolio. We expect that the effects of applying this guidance to the portfolio would not differ materially from
applying the guidance to individual performance obligations within that portfolio.
-
-
Revenue recognition will be achieved upon delivery of goods to our customers.
-
-
To determine the amount of consideration which we expect to be entitled in exchange for transferring promised goods, we will consider if
variable consideration exists. We will consider the terms of the contract and our customary business practices to determine the transaction price. We are currently reviewing our pricing policies and
customer incentive programs, as well as our existing accounting polices related to these items to determine whether we have any variable or non-cash consideration.
Entities
will have the option to apply the final standard retrospectively or use a modified retrospective method, which would recognize the cumulative effect of the standards in retained
earnings at the date of initial application.
An entity will not restate prior periods if it uses the modified retrospective method, but will be required to disclose the amount by which each financial statement line item is affected in the
current reporting period by the application of the standard as compared to the guidance in effect prior to the change, as well as reasons for significant changes. The company intends to adopt the
updated standard in the first quarter of fiscal 2019. The company is currently in the process of assessing which adoption methodology to apply. Based on our analysis performed to date, we do not
expect the adoption of ASU 2014-09 to have a material impact on our financial position or results of operations, but adoption of the standard will result in additional disclosures regarding our
revenue recognition policies.
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
Required Assessment of Going Concern
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to
Continue as a Going Concern" ("ASU 2014-15"). The accounting standard states that regardless of financial condition, every entity is required to assess its ability to continue operating as a going
concern for the period of time that extends one year from the issuance of interim or annual financial statements. The standard was adopted by the Company for its fiscal year ending April 30,
2017. If a quarterly or annual assessment indicates the presence of one or more conditions that raise substantial doubt, as defined in the standard, about an entity's ability to continue as a going
concern for the upcoming one-year period, the standard requires disclosure in the footnotes that accompany the financial statements. The adoption of this standard did not result in any impact on the
Company's financial position, results of operations or cash flows.
Inventory
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 340): Simplifying the Measurement of Inventory. Under this guidance, entities
utilizing the FIFO or average cost method should measure inventory at the lower of cost or net realizable value, whereas net realizable value is defined as the estimated selling price in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU will be effective for us on May 1, 2018. We do not expect the adoption of this ASU to
have a material impact on our Consolidated Financial Statements.
Deferred Taxes
In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"). This
amendment changes how deferred taxes are recognized by eliminating the requirement of presenting deferred tax liabilities and assets as current and noncurrent on the balance sheet. Instead, the
requirement will be to classify all deferred tax liabilities and assets as noncurrent. ASU 2015-17 is effective for annual reporting periods beginning after December 15, 2016, including interim
periods within that reporting period, with earlier adoption permitted. ASU 2015-17 can be adopted either prospectively or retrospectively to all periods presented. The Company early adopted ASU
2015-17 retrospectively as of July 31, 2016. As a result, $11,047 of our deferred tax assets previously presented in current assets as of April 30, 2016 have been reclassified to
"Deferred income taxes, net", a long-term liability, in the Consolidated Balance Sheet as of
that date. Adoption of this standard did not impact on the results of operations or cash flows in the current or previous reporting periods.
Leases
In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"). The new standard establishes a right-of-use (ROU) model
that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or
operating, with such classification affecting the pattern of expense recognition in the statement of operations. The new standard is effective for the Company's fiscal year beginning May 1,
2019, including interim reporting periods within that fiscal year. A modified transition approach is required for lessees for capital and operating leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While the Company is still evaluating the impact of its pending
adoption of the new standard on its Consolidated Financial Statements, the Company expects that upon adoption it will recognize ROU assets and liabilities that could be material.
Share-Based Compensation
In March 2016, the FASB issued ASU No. 2016-09, "CompensationStock Compensation (Topic 718): Improvements
to Employee Share Based Payment Accounting" ("ASU 2016-09"). Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences;
(b) classification of awards as either equity or liabilities; (c) forfeitures; and (d) classification on the statement of cash flows. The accounting standard will be effective for
the Company beginning the first quarter
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
of
fiscal 2018, and early adoption is permitted. We are currently in the process of evaluating the impact of the adoption on our Consolidated Financial Statements.
Credit Losses of Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, "Financial InstrumentsCredit Losses:
Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). The new guidance changes the accounting for equity investments, financial liabilities under the fair value option, and the
presentation and disclosure requirements for financial instruments. The accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2019, and early adoption
is permitted. We are currently evaluating the impact of this accounting standard update on our Consolidated Financial Statements.
Statement of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Clarification of Certain Cash
Receipts and Cash Payments" ("ASU 2016-15"). The new guidance is intended to reduce diversity in practice related to certain cash receipts and payment in the statement of cash flows by adding or
clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. We have not
adopted this standard yet. We are currently evaluating the impact of the adoption on our Consolidated Financial Statements.
Income Taxes
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-entity Transfers of Assets Other than
Inventory" ("ASU 2016-16"). This new guidance is intended to improve the accounting for intra-entity transfers of assets other than inventory by requiring recognition of income tax consequences of
intra-entity transfers of assets other than inventory when the transfer occurs. ASU 2016-16 is effective for annual and interim periods beginning after December 15, 2017. Early adoption is
permitted. The amendments in this update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of
adoption. We are currently in the process of evaluating the impact of the adoption on our Consolidated Financial Statements.
Statement of Cash Flows
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" ("ASU
2016-18"). The new guidance is intended to reduce diversity of practice by adding or clarifying guidance on classification and presentation of changes in restricted cash on the statement of cash
flows. ASU 2016-18 is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. The amendments in this update should be applied retrospectively to
all periods presented. This standard will only be applicable to the Consolidated Statements of Cash Flow to the extent we have restricted cash.
Definition of a Business
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations: Clarifying the Definition of a Business"
("ASU 2017-01"). The new guidance clarifies the definition of a business to help companies evaluate whether acquisition or disposal transactions should be accounted for as assets groups or as
businesses. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2019 on a prospective basis. The impact of this accounting standard update will
be facts and circumstances dependent, but we do not expect the adoption of this accounting standard to have an impact on our Consolidated Financial Statements.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU No. 2017-04, "IntangiblesGoodwill and Other:
Simplifying the Test for Goodwill Impairment" ("ASU 2017-04").
The new guidance removes Step 2 of the goodwill impairment test, which required the assessment of fair value of individual assets and liabilities of a reporting unit to measure goodwill impairments.
Under ASU 2017-04, goodwill
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
impairment
will be the amount by which a reporting unit's carrying value exceeds its fair value. The accounting standard update will be effective for the Company beginning in the first quarter of
fiscal 2021 on a prospective basis, and early adoption is permitted. We do not expect ASU 2017-04 to impact the results of our goodwill impairment tests.
Gains and Losses from the Derecognition of Nonfinancial Assets
In February 2017, the FASB issued ASU No. 2017-05, "Gains and Losses from the
Derecognition of Nonfinancial Assets". The new guidance includes clarification that "nonfinancial assets within the scope of ASC 610-20 may include nonfinancial assets transferred within a legal
entity to a counterparty." Clarification that "an entity should allocate consideration to each distinct asset by applying the guidance in ASC 610 on allocating the transaction price to performance
obligations. A requirement for entities "to derecognize a distinct nonfinancial asset or distinct in substance nonfinancial asset in a partial sale transaction when it (1) does not have (or
ceases to have) a controlling financial interest in the legal entity that holds the asset in accordance with ASC 810 and (2) transfers control of the asset in accordance with ASC 610." The
effective date of the new guidance and the transition methods are aligned with the requirements in the new revenue standard, as amended by ASU 2015-14, which delays the effective date of the new
revenue standard (ASU 2014-09) by one year and permits early adoption on a limited basis. We are currently in the process of evaluating the impact of the adoption on our Consolidated Financial
Statements, but we do not expect the adoption of this accounting standard to have an impact on our Consolidated Financial Statements.
2. Business Acquisitions
The Company operates in a highly fragmented industry. A key component of the Company's strategy is growth through acquisition that expands its geographic coverage, provides complementary
lines of business and increases its market share.
The
Company has accounted for all business combinations using the purchase method to record a new cost basis for the assets acquired and liabilities assumed. The Company recorded, based
on purchase price allocations, intangible assets representing customer relationships, tradenames, and excess of purchase price over the estimated fair values of the net assets acquired as "Goodwill"
in the accompanying Consolidated Financial Statements. The goodwill is attributable to synergies achieved through the streamlining of operations combined with improved margins attainable through
increased market presence, and is all attributed to our one operating reportable segments. The results of operations are reflected in the Consolidated Financial Statements of the Company from the date
of acquisition.
(a) 2017 Acquisitions
In fiscal 2017, the Company completed the following acquisitions, with an aggregate purchase price of $153,676, comprised of $148,705 of cash consideration and
$4,971 of consideration related to working capital settlements and contingent consideration, subject to finalization of working capital settlement amounts. In connection with these acquisitions, the
Company incurred transaction costs of $2,160 in the year ended April 30, 2017. These costs are included in "Selling, general and administrative" expenses in the Company's accompanying
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
2. Business Acquisitions (Continued)
Consolidated
Statements of Operations and Comprehensive Income (Loss). The purpose of these acquisitions was to expand the geographical coverage of the Company and grow the business.
|
|
|
|
|
Company name
|
|
Form of acquisition
|
|
Date of acquisition
|
Wall & Ceiling Supply Co., Inc.
|
|
Purchase of net assets
|
|
May 2, 2016
|
Rockwise, LLC
|
|
Purchase of net assets
|
|
July 5, 2016
|
Steven F. Kempf Building Materials, Inc.
|
|
Purchase of net assets
|
|
August 29, 2016
|
Olympia Building Supplies, LLC/Redmill, Inc.
|
|
Purchase of 100% of outstanding common stock
|
|
September 1, 2016
|
United Building Materials, Inc.
|
|
Purchase of net assets
|
|
October 3, 2016
|
Ryan Building Materials, Inc.
|
|
Purchase of net assets
|
|
October 31, 2016
|
Interior Products Supply
|
|
Purchase of net assets
|
|
December 5, 2016
|
Hawaii-based distribution assets of Grabber Construction Products
|
|
Purchase of net assets
|
|
February 1, 2017
|
The
preliminary allocation of consideration for these acquisitions is summarized as follows:
|
|
|
|
|
|
|
Preliminary
purchase price
allocation
April 30, 2017
|
|
Cash and cash equivalents
|
|
$
|
1,558
|
|
Trade accounts and notes receivable
|
|
|
37,691
|
|
Inventories
|
|
|
16,504
|
|
Property and equipment
|
|
|
8,357
|
|
Other assets
|
|
|
657
|
|
Tradenames
|
|
|
9,490
|
|
Customer relationships
|
|
|
64,660
|
|
Goodwill
|
|
|
37,728
|
|
Deferred tax liability
|
|
|
(6,011
|
)
|
Liabilities assumed
|
|
|
(16,958
|
)
|
|
|
|
|
|
Purchase price
|
|
$
|
153,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
of $25,510 and other intangible assets of $53,550 are expected to be deductible for U.S. federal income tax purposes. Goodwill of $12,218 and other intangibles of $20,600 are
nondeductible for U.S. federal income tax purposes. The Company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities
assumed, but the Company is waiting for additional information necessary to finalize those fair values, specifically, the finalization of working capital settlements. Thus, the provisional
measurements of fair value set forth above are preliminary. Such changes are not expected to be significant. The Company expects to complete the purchase price allocation as soon as practicable, but
no later than one year from the applicable acquisition date. The pro forma impact of these acquisitions is not presented as it is not considered material to our Consolidated Financial Statements.
85
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
2. Business Acquisitions (Continued)
(b) 2016 Acquisitions
In fiscal 2016, the Company completed the following acquisitions, with an aggregate purchase price of $117,181, comprised of $114,812 net of cash consideration
and $2,369 of consideration related to working capital settlements and contingent consideration, subject to finalization of working capital settlement amounts. In connection with
these acquisitions, the Company incurred transaction costs of $2,056 in the year ended April 30, 2016. These costs are included in "Selling, general and administrative" expenses in the
Company's accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). The purpose of these acquisitions was to expand the geographical coverage of the Company and grow the
business.
|
|
|
|
|
Company name
|
|
Form of acquisition
|
|
Date of acquisition
|
Tri-Cities Drywall & Supply Co.
|
|
Purchase of net assets
|
|
September 29, 2015
|
Badgerland Supply, Inc.
|
|
Purchase of net assets
|
|
November 2, 2015
|
Hathaway & Sons, Inc.
|
|
Purchase of net assets
|
|
November 9, 2015
|
Gypsum Supply Company
|
|
Purchase of 100% of outstanding common stock
|
|
January 1, 2016
|
Robert N. Karpp Co., Inc.
|
|
Purchase of net assets
|
|
February 1, 2016
|
Professional Handling & Distribution, Inc.
|
|
Purchase of net assets
|
|
February 1, 2016
|
M.R. Lee Building Materials, Inc.
|
|
Purchase of net assets
|
|
April 4, 2016
|
The
allocation of consideration for these acquisitions is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary
purchase price
allocation
April 30, 2016
|
|
Adjustments/
Reclassifications
|
|
Final purchase
price allocation
April 30, 2017
|
|
Cash and cash equivalents
|
|
$
|
956
|
|
$
|
(3
|
)
|
$
|
953
|
|
Trade accounts and notes receivable
|
|
|
26,707
|
|
|
281
|
|
|
26,988
|
|
Inventories
|
|
|
17,543
|
|
|
160
|
|
|
17,703
|
|
Property and equipment
|
|
|
9,236
|
|
|
|
|
|
9,236
|
|
Other assets
|
|
|
808
|
|
|
|
|
|
808
|
|
Tradenames
|
|
|
12,500
|
|
|
|
|
|
12,500
|
|
Below market leases
|
|
|
2,020
|
|
|
|
|
|
2,020
|
|
Customer relationships
|
|
|
29,055
|
|
|
|
|
|
29,055
|
|
Goodwill
|
|
|
38,833
|
|
|
(434
|
)
|
|
38,399
|
|
Deferred tax liability
|
|
|
(6,676
|
)
|
|
|
|
|
(6,676
|
)
|
Liabilities assumed
|
|
|
(13,804
|
)
|
|
(1
|
)
|
|
(13,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price
|
|
$
|
117,178
|
|
$
|
3
|
|
$
|
117,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
fiscal 2017, the Company finalized the purchase price allocations. Goodwill of $13,357 and other intangible assets of $26,335 are expected to be deductible for U.S. federal income
tax purposes. Goodwill of $25,042 and other intangibles of $17,240 are nondeductible for U.S. federal income tax purposes. The pro forma impact of these acquisitions is not presented as it is not
considered material to our Consolidated Financial Statements.
86
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
2. Business Acquisitions (Continued)
(c) 2015 Acquisitions
In fiscal 2015, the Company completed the following acquisitions, with an aggregate purchase price of $72,208, comprised of $69,168 net of cash consideration and
$3,040 of contingent consideration. In connection with these acquisitions, the Company incurred transaction costs of $12 and $945 in the years ended April 30, 2016 and 2015, respectively. These
costs are included in "Selling, general and administrative" expenses in the Company's accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). The purpose of these
acquisitions was to expand the geographical coverage of the Company and grow the business.
|
|
|
|
|
Company name
|
|
Form of acquisition
|
|
Date of acquisition
|
Contractors' Choice Supply, Inc.
|
|
Purchase of net assets
|
|
August 1, 2014
|
Drywall Supply, Inc.
|
|
Purchase of net assets
|
|
October 1, 2014
|
Allsouth Drywall Supply Company
|
|
Purchase of net assets
|
|
November 24, 2014
|
Serrano Supply, Inc.
|
|
Purchase of net assets
|
|
February 2, 2015
|
Ohio Valley Building Products, LLC
|
|
Purchase of net assets
|
|
February 16, 2015
|
J&B Materials, Inc.
|
|
Purchase of net assets
|
|
March 16, 2015
|
The
final allocation of consideration for these acquisitions is summarized as follows:
|
|
|
|
|
|
|
Final
purchase price
allocation
|
|
Trade accounts and notes receivable
|
|
$
|
15,066
|
|
Inventories
|
|
|
8,760
|
|
Property and equipment
|
|
|
5,116
|
|
Other assets
|
|
|
76
|
|
Tradenames
|
|
|
3,260
|
|
Customer relationships
|
|
|
30,840
|
|
Goodwill
|
|
|
20,337
|
|
Liabilities assumed
|
|
|
(11,247
|
)
|
|
|
|
|
|
Purchase price
|
|
$
|
72,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
fiscal 2016, the Company finalized the purchase price allocations. Goodwill of $20,337 and other intangible assets of $34,100 are expected to be deductible for U.S. federal income
tax purposes. The pro forma impact of these acquisitions is not presented as it is not considered material to our Consolidated Financial Statements.
87
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
3. Prepaid expenses and other current assets
"Prepaid expenses and other current assets" at April 30, 2017 and 2016 consist of the following:
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2017
|
|
2016
|
|
IPO readiness
|
|
$
|
|
|
$
|
5,091
|
|
Insurance recoveries and other receivables
|
|
|
3,727
|
|
|
3,974
|
|
Assets held for sale(1)
|
|
|
948
|
|
|
2,598
|
|
Prepaid rent
|
|
|
1,771
|
|
|
1,141
|
|
Taxes, tags and licenses
|
|
|
838
|
|
|
695
|
|
Prepaid supplies
|
|
|
1,104
|
|
|
679
|
|
Management fee
|
|
|
|
|
|
375
|
|
Prepaid insurance and payroll taxes
|
|
|
|
|
|
257
|
|
Refundable income taxes
|
|
|
682
|
|
|
|
|
Other
|
|
|
2,333
|
|
|
1,738
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,403
|
|
$
|
16,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
As
of April 30, 2017 and 2016, certain land, buildings and building improvements met the held for sale criteria and have been included as a component of other
current assets. Upon meeting the held for sale criteria, these assets were no longer depreciated. In fiscal 2017 and 2016, the Company received proceeds of $1,440 and $7,093, respectively, related to
disposals of assets held for sale.
4. Property and Equipment
"Property and equipment" at April 30, 2017 and 2016 consists of the following:
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2017
|
|
2016
|
|
Land
|
|
$
|
50,009
|
|
$
|
50,001
|
|
Buildings and leasehold improvements
|
|
|
81,872
|
|
|
77,049
|
|
Machinery and equipment
|
|
|
90,303
|
|
|
78,142
|
|
Construction in progress
|
|
|
3,690
|
|
|
2,445
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
225,874
|
|
|
207,637
|
|
Less: accumulated depreciation and amortization
|
|
|
71,409
|
|
|
54,377
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net of accumulated depreciation and amortization
|
|
$
|
154,465
|
|
$
|
153,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
"Depreciation
and amortization" expense for property and equipment was $25,565, $26,667, and $32,208 for fiscal 2017, 2016, and 2015 respectively.
88
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
5. Goodwill and Intangible Assets.
"Goodwill" as of April 30, 2017 and 2016 consists of the following:
|
|
|
|
|
|
|
Carrying
Amount
|
|
Balance at May 1, 2015
|
|
$
|
348,811
|
|
Working capital adjustments
|
|
|
(1,338
|
)
|
Goodwill acquired during the year
|
|
|
38,833
|
|
|
|
|
|
|
Balance at April 30, 2016
|
|
|
386,306
|
|
|
|
|
|
|
Working capital adjustments
|
|
|
(390
|
)
|
Goodwill acquired during the year
|
|
|
37,728
|
|
|
|
|
|
|
Balance at April 30, 2017
|
|
$
|
423,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's definite lived intangible assets as of April 30, 2017 and 2016 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2017
|
|
|
|
|
|
Weighted
average
amortization
period
|
|
|
|
Estimated
useful lives
(years)
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
value
|
|
Customer relationships
|
|
5 - 13
|
|
|
10.9
|
|
$
|
273,196
|
|
$
|
111,291
|
|
$
|
161,905
|
|
Definite lived tradenames
|
|
5 - 20
|
|
|
18.3
|
|
|
25,250
|
|
|
1,718
|
|
|
23,532
|
|
Vendor agreement
|
|
8
|
|
|
|
|
|
5,644
|
|
|
2,176
|
|
|
3,468
|
|
Leasehold interests
|
|
7 - 13
|
|
|
8.2
|
|
|
2,516
|
|
|
496
|
|
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
$
|
306,606
|
|
$
|
115,681
|
|
$
|
190,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2016
|
|
|
|
|
|
Weighted
average
amortization
period
|
|
|
|
Estimated
useful lives
(years)
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
value
|
|
Customer relationships
|
|
5 - 13
|
|
|
10.8
|
|
$
|
208,526
|
|
$
|
69,929
|
|
$
|
138,597
|
|
Definite lived tradenames
|
|
5 - 20
|
|
|
19.5
|
|
|
15,760
|
|
|
447
|
|
|
15,313
|
|
Vendor agreement
|
|
8
|
|
|
|
|
|
5,644
|
|
|
1,470
|
|
|
4,174
|
|
Leasehold interests
|
|
7 - 13
|
|
|
8.2
|
|
|
2,516
|
|
|
178
|
|
|
2,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
$
|
232,446
|
|
$
|
72,024
|
|
$
|
160,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's indefinite-lived intangible assets, other than goodwill, consist of tradenames which have a carrying amount of $61,368 as of April 30, 2017 and 2016.
Amortization
expense related to intangible assets was $43,675, $37,548, and $31,957 for fiscal 2017, 2016, and 2015, respectively, and is recorded in "Depreciation and amortization"
expense in the Consolidated Statements of
89
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
5. Goodwill and Intangible Assets. (Continued)
Operations
and Comprehensive Income (Loss). The estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter is expected to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
Tradenames
|
|
Vendor
agreement
|
|
Leasehold
interests
|
|
Total
|
|
Years ending April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
37,780
|
|
$
|
1,503
|
|
$
|
706
|
|
$
|
318
|
|
$
|
40,307
|
|
2019
|
|
|
30,392
|
|
|
1,503
|
|
|
706
|
|
|
318
|
|
|
32,919
|
|
2020
|
|
|
23,809
|
|
|
1,503
|
|
|
706
|
|
|
318
|
|
|
26,336
|
|
2021
|
|
|
18,715
|
|
|
1,473
|
|
|
706
|
|
|
318
|
|
|
21,212
|
|
2022
|
|
|
14,764
|
|
|
1,445
|
|
|
644
|
|
|
318
|
|
|
17,171
|
|
Thereafter
|
|
|
36,445
|
|
|
16,105
|
|
|
|
|
|
430
|
|
|
52,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
161,905
|
|
$
|
23,532
|
|
$
|
3,468
|
|
$
|
2,020
|
|
$
|
190,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Other Accrued Expenses and Current Liabilities
"Other accrued expenses and current liabilities" at April 30, 2017 and 2016 consists of the following:
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2017
|
|
2016
|
|
Insurance related liabilities
|
|
$
|
11,027
|
|
$
|
8,340
|
|
Sales taxes payable
|
|
|
8,920
|
|
|
9,297
|
|
Contingent consideration
|
|
|
5,708
|
|
|
7,265
|
|
Accrued rebates
|
|
|
3,041
|
|
|
2,054
|
|
Real estate and personal property taxes
|
|
|
1,686
|
|
|
1,431
|
|
Accrued professional services fees
|
|
|
872
|
|
|
1,741
|
|
Accrued interest
|
|
|
721
|
|
|
678
|
|
Deferred revenue
|
|
|
573
|
|
|
626
|
|
Accrued franchise tax
|
|
|
224
|
|
|
271
|
|
Income taxes payable
|
|
|
216
|
|
|
5,444
|
|
Other
|
|
|
4,903
|
|
|
4,667
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,891
|
|
$
|
41,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
7. Long-Term Debt
"Long-term debt" as of April 30, 2017 and 2016 consists of the following:
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2017
|
|
2016
|
|
First Lien Term Loan due 2021(1)(2)
|
|
$
|
470,245
|
|
$
|
373,998
|
|
Second Lien Term Loan(3)(4)
|
|
|
|
|
|
154,517
|
|
ABL Facility
|
|
|
103,353
|
|
|
101,910
|
|
Capital lease obligations, at an annual rate of 5.50%, due in monthly installments through August 2022
|
|
|
15,611
|
|
|
11,449
|
|
Installment notes at fixed rates up to 2.7%, due in monthly and annual installments through April 2021(5)
|
|
|
5,711
|
|
|
2,736
|
|
|
|
|
|
|
|
|
|
|
|
|
594,920
|
|
|
644,610
|
|
Less: Current portion
|
|
|
11,530
|
|
|
35,581
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
583,390
|
|
$
|
609,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Net
of unamortized discount of $1,658 and $1,355 as of April 30, 2017 and 2016, respectively.
-
(2)
-
Net
of deferred financing costs of $5,712 and $6,847 as of April 30, 2017 and 2016, respectively.
-
(3)
-
Net
of unamortized discount of $0 and $1,183 as of April 30, 2017 and 2016, respectively.
-
(4)
-
Net
of deferred financing costs of $0 and $4,300 as of April 30, 2017 and 2016, respectively.
-
(5)
-
Net
of unamortized discount of $751 as of April 30, 2017.
Acquisition Debt
On April 1, 2014, the Company's wholly-owned subsidiaries, GYP Holdings II Corp., as parent guarantor (in such capacity, "Holdings"), and
GYP Holdings III Corp., as borrower (in such capacity, the "Borrower" and, together with Holdings and the Subsidiary Guarantors (as defined below), the "Loan Parties"), entered into a senior secured
first lien term loan facility (the "First Lien Facility") and a senior secured second lien term loan facility (the "Second Lien Facility" and, together with the First Lien Facility, the "Term Loan
Facilities") in the aggregate amount of $550,000 to acquire Gypsum Management and Supply, Inc. The proceeds from the Term Loan Facilities were used to (i) repay all amounts outstanding
under the 2010 Credit Facility in the amount of $86,120, (ii) pay the acquisition purchase price and (iii) pay related fees and expenses.
The
Term Loan Facility originally consisted of a First Lien Term Loan and a Second Lien Term Loan (respectively, the "First Term Loan" and "Second Term Loan"). The First Term Loan was
issued in an original aggregate principal amount of $388,050 (net of $1,950 of original issue discount). The Second Term Loan was issued in an original aggregate principal amount of $158,400 (net of
$1,600 of original issue discount) and is no longer outstanding. At April 30, 2017, the borrowing interest rate for the First Term Loan was 4.67%. Accrued interest, presented within "Other
accrued expenses and current liabilities" in our Consolidated Balance Sheets, was $181 and $246 at April 30, 2017 and 2016, respectively. Cash paid for interest was $21,567, $32,130 and $30,251
for fiscal 2017, 2016 and 2015, respectively. The First Lien Facility permits the Borrower to add one or more incremental term loans up to a fixed amount of $100,000 plus a certain amount depending on
a secured first
91
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
7. Long-Term Debt (Continued)
lien
leverage ratio test included in the First Lien Facility. After giving effect to the post year end amendment to the First Lien Facility on June 7, 2017, the First Term Loan bears interest
at LIBOR (subject to a floor of 1.00%) plus a borrowing margin of 3.00%. The First Term Loan amortizes in nominal quarterly installments of $1,444, or 0.25% of the aggregate principal amount of the
First Term Loan and matures on April 1, 2023. Provided that the
individual affected lenders agree accordingly, the maturities of the First Lien Term Loan may, upon the Borrower's request and without the consent of any other lender, be extended.
On
September 27, 2016, the Company entered into an Incremental First Lien Term Commitments Amendment (the "First Amendment") to the First Lien Credit Agreement, dated
April 1, 2014, among GYP Holdings III Corp., as borrower, GYP Holdings II Corp., the financial institutions from time to time party thereto, as lenders, and Credit Suisse AG, as administrative
agent and collateral agent. The First Amendment amended the First Lien Credit Agreement to, among other things, provide for a new first lien term loan facility under the First Lien Credit Agreement in
the aggregate principal amount of approximately $481,225 with an interest at a floating rate based on LIBOR, with a 1.00% floor, plus 3.50%, representing a twenty five basis point improvement compared
to the interest rate of the existing First Lien Term Loan immediately prior to giving effect to the First Amendment. Net proceeds from the new First Lien Term Loan were used to repay the Company's
existing First Lien Term Loan of $381,225 and a portion of the loans under the ABL Facility as well as to pay related expenses.
On
June 7, 2017, the Company entered into a Second Amendment to the First Lien Credit Agreement, dated April 1, 2014, among GYP Holdings III Corp., as borrower, GYP
Holdings II Corp., the financial institutions from time to time party thereto, as lenders, and Credit Suisse AG, as administrative agent and collateral agent, see Note 21, "Subsequent Events."
Asset Based Lending Facility
The Asset Based Lending Credit Facility (the "ABL Facility"), entered into on April 1, 2014, originally provided for revolving loans and
the issuance of letters of credit up to a maximum aggregate principal amount of $200,000 (subject to availability under a borrowing base). GYP Holdings III Corp. is the lead borrower (in such
capacity, the "Lead Borrower"). Extensions of credit under the ABL Facility will be limited by a borrowing base calculated periodically based on specified percentages of the value of eligible
inventory and eligible accounts receivable, subject to certain reserves and other adjustments. As of April 30, 2017, the Company had $231,249 of available borrowings and $103,353 in borrowings
outstanding under the ABL Facility as presented within "Long-term debt, less current portion" on the Consolidated Balance Sheets. As of April 30, 2016, the Company had $187,185 of available
borrowings and $101,910 in short-term swing line borrowings and eurodollar loans outstanding under the ABL Facility as presented within "Revolving credit facility" under "Current Liabilities" on the
Consolidated Balance Sheets. As of April 30, 2017 and 2016, there was $532 and $422 accrued interest payable, respectively on the facility. In fiscal 2017, 2016 and 2015, we paid interest and
other fees on the facility of $4,148, $1,900 and $941, respectively. The ABL Facility also permits the Company to request increases in the amount of the revolving, swing line and letter of credit
facilities up to an aggregate maximum amount of $345,000 for the total commitments under the ABL Facility (including all incremental commitments).
As
of April 30, 2017 and 2016, the Company reflected $2,950 and $2,544, respectively, of deferred financing costs related to the ABL Facility in "other assets" on its Consolidated
Balance Sheets.
92
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
7. Long-Term Debt (Continued)
In fiscal 2017, the Company entered into the Second Amendment to the ABL Credit Agreement. The Second
Amendment amended the ABL Credit Agreement to, among other things, provide for an increase in the revolving credit commitments thereunder to $345,000 (including an increase in the swing line limit to
$34,500), an extension of the maturity date to November 18, 2021, and a 0.25% decrease in the interest rate margin at each pricing level thereunder.
In
fiscal 2016, we amended our ABL Facility to exercise the $100,000 accordion feature of the ABL Facility which increased the aggregate revolving commitments from $200,000 to $300,000,
and increased the sublimit for same day swing line borrowings from $20,000 to $30,000. The other terms of the ABL Facility remain unchanged.
At
the Company's option, the interest rates applicable to the loans under the ABL Facility are based at LIBOR or base rate plus, in each case, an applicable margin. The margins
applicable for each elected interest rate are subject to a pricing grid, as defined in the ABL Facility agreement, based on average daily availability for the most recent fiscal quarter. The
applicable rate of interest for fiscal 2017 and 2016 was 2.58% and 2.97%, respectively. The ABL Facility also contains an unused commitment fee subject to utilization, as included in the ABL Facility
agreement.
The
ABL Facility will mature on November 18, 2021 unless the individual affected lenders agree to extend the maturity of their respective loans under the ABL Facility upon the
Company's request and without the consent of any other lender. The ABL Facility contains a cross default provision with the First Lien Facility.
Collateral under the ABL Facility and Term Loan Facilities
The ABL Facility is collateralized by (a) first priority perfected liens on the following assets of the Loan Parties: (i) accounts
receivable; (ii) inventory; (iii) deposit accounts; (iv) cash and cash equivalents; (v) tax refunds and tax payments; (vi) chattel paper; and (vii) documents,
instruments, general intangibles, securities accounts, books and records, proceeds and supporting obligations related to each of the foregoing, subject to certain exceptions (collectively, "ABL
Priority Collateral") and (b) second priority perfected liens on the remaining assets of the Loan Parties not constituting ABL Priority Collateral, subject to customary exceptions
(collectively, "Term Priority Collateral").
The
First Lien Facility is collateralized by (a) first priority liens on the Term Priority Collateral and (b) second priority liens on the ABL Priority Collateral, subject
to customary exceptions.
Prepayments under the ABL Facility and Term Loan Facilities
The Term Loans may be prepaid at any time, subject to, in the case of a repricing transaction that occurs within 6 months of
June 7, 2017, a prepayment equal to the principal amount of the term loans subject to such prepayment multiplied by 1.00%. Under certain circumstances and subject to certain exceptions, the
Term Loan Facilities will be subject to mandatory prepayments in the amount equal to:
-
-
100% of the net proceeds of certain asset sales and issuances or incurrences of nonpermitted indebtedness; and
-
-
50% of annual excess cash flow for any fiscal year, such percentage to decrease to 25% or 0% depending on the attainment of certain total
leverage ratio targets.
As
of April 30, 2017 there was no prepayment required related to excess cash flow.
The
ABL Facility may be prepaid at the Company's option at any time without premium or penalty and will be subject to mandatory prepayment if the outstanding ABL Facility exceeds the
lesser of the (i) borrowing base
93
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
7. Long-Term Debt (Continued)
and
(ii) the aggregate amount of commitments. Mandatory prepayments do not result in a permanent reduction of the lenders' commitments under the ABL Facility.
Guarantees
Holdings guarantees the payment obligations under the ABL Facility and the Term Loan Facilities. Certain of Holdings' subsidiaries
(i) guarantee the payment obligations under the Term Loan Facilities (in such capacity, the "Subsidiary Guarantors") and (ii) are co-borrowers under the ABL Facility.
Covenants under the ABL Facility and Term Loan Facilities
The ABL Facility contains certain affirmative covenants, including financial and other reporting requirements. The Company is in compliance with
all such covenants at April 30, 2017.
The
Term Loan Facilities contain a number of covenants that limit the ability of the Borrower and its restricted subsidiaries, as described in the Term Loan Facilities, to: incur more
indebtedness; pay dividends, redeem stock or make other distributions; make investments; create restrictions on the ability of the Company's restricted subsidiaries to pay dividends to the Company or
make other intercompany transfers; create liens securing indebtedness; transfer or sell assets; merge or consolidate; enter into certain transactions with the Company's affiliates; and prepay or amend
the terms of certain indebtedness. The Company is in compliance with all covenants at April 30, 2017.
Events of Default under the ABL Facility and Term Loan Facilities
The ABL Facility and Term Loan Facilities also provide for customary events of default, including non-payment of principal, interest or fees,
violation of covenants, material inaccuracy of representations or warranties, specified cross default to other material indebtedness, certain bankruptcy events, certain ERISA events, material
invalidity of guarantees or security interest, material judgments and changes of control.
Write-off of Debt Discount and Deferred Financing Fees
During the fiscal year ended April 30, 2017 the company recorded write-offs of $7,103 related to deferred financing costs and debt
discounts, which is included in "Write-off of debt discount and deferred financing fees" on the Consolidated Statements of Operations and Comprehensive Income (Loss). The amount of the write-offs
consisted of the following: $5,426 related to the Second Lien Facility paid off in conjunction with the IPO on June 1, 2016; $1,466 related to the First Lien Facility as part of a
September 27, 2016 refinancing; and $211 related to the ABL Facility as part of a November 18, 2016 refinancing.
Debt Maturities
As of April 30, 2017, the scheduled principal payments of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
Notes(1)
|
|
ABL
Facility
|
|
Capital
Leases
|
|
First Lien
Term Loan(2)
|
|
Total
|
|
Years ending April 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
$
|
1,232
|
|
$
|
|
|
$
|
5,486
|
|
$
|
4,812
|
|
$
|
11,530
|
|
2019
|
|
|
1,231
|
|
|
|
|
|
4,383
|
|
|
4,812
|
|
|
10,426
|
|
2020
|
|
|
1,231
|
|
|
|
|
|
2,974
|
|
|
4,812
|
|
|
9,017
|
|
2021
|
|
|
1,095
|
|
|
|
|
|
1,593
|
|
|
463,179
|
|
|
465,867
|
|
2022
|
|
|
659
|
|
|
103,353
|
|
|
889
|
|
|
|
|
|
104,901
|
|
Thereafter
|
|
|
1,014
|
|
|
|
|
|
286
|
|
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,462
|
|
$
|
103,353
|
|
$
|
15,611
|
|
$
|
477,615
|
|
$
|
603,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Gross
of unamortized discount of $751 as of April 30, 2017.
-
(2)
-
Gross
of unamortized discount of $1,658 and deferred financing costs of $5,712 as of April 30, 2017.
94
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
7. Long-Term Debt (Continued)
Refer
to Note 21 of the Notes to Consolidated Financial Statements for more information on the recent events regarding debt maturities.
Installment Notes
The installment notes of $5,711 and $2,736 as of April 30, 2017 and 2016, respectively, represent notes for subsidiary stock repurchases
from shareholders, notes for the payout of stock appreciation rights and a note to the seller of an acquired company. The installment notes as of April 30, 2017 represent notes for subsidiary
stock repurchases from shareholders and a note for the payout of stock appreciation rights. See Note 12, "Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling
Interests."
8. Retirement Plan
The Company maintains a 401(k) defined contribution retirement plan for its employees. Participants are allowed to choose from a selection of mutual funds in order to designate how both
employer and employee contributions are invested. Under the plan, the Company matches 50% of each employee's contributions on the first 4% of the employee's compensation contributed. The Company
contributed $3,665, $1,743, and $1,120, in fiscal 2017, 2016, and 2015, respectively.
9. Income Taxes
Income tax expense (benefit) for fiscal 2017, 2016, and 2015 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Current federal
|
|
$
|
37,164
|
|
$
|
28,043
|
|
$
|
11,638
|
|
Current state
|
|
|
5,875
|
|
|
5,162
|
|
|
2,688
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
43,039
|
|
|
33,205
|
|
|
14,326
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred federal
|
|
|
(19,011
|
)
|
|
(19,993
|
)
|
|
(17,492
|
)
|
Deferred state
|
|
|
(1,374
|
)
|
|
(628
|
)
|
|
(3,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(20,385
|
)
|
|
(20,621
|
)
|
|
(20,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for (benefit from) income taxes
|
|
$
|
22,654
|
|
$
|
12,584
|
|
$
|
(6,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
9. Income Taxes (Continued)
Total
income tax expense (benefit) from continuing operations differed from the amount computed by applying the federal statutory rate of 35% for fiscal 2017, 2016, and 2015 due to the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Federal income taxes at statutory rate
|
|
$
|
25,039
|
|
$
|
8,802
|
|
$
|
(6,413
|
)
|
State income taxes, net of federal income tax benefit
|
|
|
2,236
|
|
|
2,336
|
|
|
(51
|
)
|
Net change in valuation allowance
|
|
|
214
|
|
|
(60
|
)
|
|
(1,134
|
)
|
Nondeductible meals & entertainment
|
|
|
761
|
|
|
627
|
|
|
462
|
|
338(h)(10) election
|
|
|
(6,936
|
)
|
|
|
|
|
|
|
Redeemable noncontrolling interests
|
|
|
1,053
|
|
|
291
|
|
|
550
|
|
Nondeductible transaction costs
|
|
|
109
|
|
|
253
|
|
|
|
|
Other
|
|
|
178
|
|
|
335
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,654
|
|
$
|
12,584
|
|
$
|
(6,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes for financial reporting purposes differ from the amount computed by applying the statutory federal rate primarily due to the effect of state income taxes, net of federal
benefit, permanent differences, the change in the valuation allowance related to certain state net operating losses, and the 338(h)(10) election. In fiscal 2017 the Company made an election under
Section 338 (h)(10) of the Internal Revenue Code which effectively changed the
tax treatment of the Company's acquisition of Gypsum Supply Company from a stock transaction to an asset transaction for tax purposes. As a result of this election, the Company decreased its deferred
tax liabilities and tax expense by $6,936.
96
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
9. Income Taxes (Continued)
The
tax effects of temporary differences, which give rise to deferred income taxes as of April 30, 2017 and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2017
|
|
2016
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
Allowances on accounts and notes receivable
|
|
$
|
5,792
|
|
$
|
4,924
|
|
Accrued payroll and related costs
|
|
|
1,651
|
|
|
2,013
|
|
Insurance reserves
|
|
|
1,139
|
|
|
1,920
|
|
Inventory costs
|
|
|
2,430
|
|
|
1,725
|
|
Deferred compensation
|
|
|
9,293
|
|
|
9,080
|
|
Equity compensation
|
|
|
3,424
|
|
|
2,593
|
|
Derivative instrument
|
|
|
1,488
|
|
|
1,589
|
|
Deferred financing costs
|
|
|
|
|
|
143
|
|
Acquisition related costs
|
|
|
1,732
|
|
|
895
|
|
Net operating loss carry-forwards
|
|
|
2,949
|
|
|
855
|
|
Deferred rent
|
|
|
996
|
|
|
791
|
|
Noncompete agreements
|
|
|
819
|
|
|
573
|
|
Other deferred tax assets, net
|
|
|
2,576
|
|
|
2,149
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
34,289
|
|
|
29,250
|
|
Less: Valuation allowance
|
|
|
(297
|
)
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
Total deferred income tax assets, net of valuation allowance
|
|
|
33,992
|
|
|
29,167
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
(53,345
|
)
|
|
(62,599
|
)
|
Rebates
|
|
|
(1,007
|
)
|
|
(1,270
|
)
|
Depreciation
|
|
|
(3,808
|
)
|
|
(6,501
|
)
|
Deferred financing costs
|
|
|
(2,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(60,812
|
)
|
|
(70,370
|
)
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities, net
|
|
$
|
(26,820
|
)
|
$
|
(41,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
fiscal 2017, 2016, and 2015, the Company generated certain state net operating loss carry-forwards which are available for use against taxable income in each respective state. The
Company had state net operating losses available for carry-forward of $21,116 and $20,228 in fiscal 2017 and 2016, respectively, which expire through the fiscal year ending in 2037.
Deferred
tax assets and liabilities are computed by applying the federal and state income tax rates in effect to the gross amounts of temporary differences and other tax attributes, such
as net operating loss carry-forwards. In assessing if the deferred tax assets will be realized, the Company considers whether it is more likely than not that some or all of these deferred tax assets
will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which these deductible temporary differences reverse.
As of April 30, 2017, except as noted in the following paragraph, the Company believes that it is more likely than not that all of its deferred tax assets relating to separate company state
return filings will be realized. The tax credits, carryforwards and net operating losses expire from 2018 to 2037.
97
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
9. Income Taxes (Continued)
Management
makes an assessment to determine if its deferred tax assets are more likely than not to be realized. Valuation allowances are established in the event that management believes
that it is more likely than not the related tax benefits will not be realized. The valuation allowance as of April 30, 2017 and 2016 was $297 and $83, respectively, and primarily relates to
state net operating loss carry forwards. During fiscal 2017, the valuation allowance increased by $214 due to additional NOL carryforwards. From the year ended April 30, 2015 to the year ended
April 30, 2016 the valuation allowance decreased by $60.
The
Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. The Company's policy for recording penalties and interest
related tax items in "Selling, general and administrative" expense.
At
April 30, 2017, the tax years ended April 30, 2017, 2016, 2015, and 2014 and the tax period ended March 31, 2014 remain subject to examination by the U.S.
Internal Revenue Service. In states in which the Company conducts business, the statute of limitation periods for examination generally vary from three to four years.
Certain years from which net operating losses are still being carried forward remain subject to examination by the taxing authorities. The Company regularly assesses the potential outcomes of future
examinations to ensure the Company's provision for income taxes is sufficient. The Company recognizes liabilities based on estimates of whether additional taxes will be due and believes that no
liability for uncertain tax position is necessary as of April 30, 2017 and 2016.
10. Stockholders' Equity
Stockholders' Equity
The Company authorized 500,000,000 shares of $0.01 par value common stock of which 40,970,905 and 32,892,905 shares were outstanding at
April 30, 2017 and 2016, respectively.
The
Company authorized 50,000,000 shares of $0.01 par value preferred stock of which there were no shares outstanding at April 30, 2017 and 2016.
11. Equity-Based Compensation
General
The Company has a 2014 GYP Holdings I Corp. Stock Option Plan (the "Plan") that provides for granting of stock options and other equity awards.
The Plan authorizes 3,591,422 shares of common stock for issuance. The stock options vest over a four year period and have a 10-year term. The plan is designed to motivate and retain individuals who
are responsible for the attainment of our primary long-term performance goals. The plan provides a means whereby our employees and directors develop a sense of ownership and personal involvement in
our development and financial success and encourage them to devote their best efforts to our business. The Company accounts for share-based awards in accordance with ASC 718. ASC 718 requires
measurement of compensation cost for all share-based awards at fair value on the grant date (or measurement date if different) and recognition of compensation expense, net of estimated forfeitures,
over the requisite service period for awards expected to vest.
Stock Option Awards
We utilize the Black-Scholes option-pricing model to estimate the grant-date fair value of all stock options granted during fiscal year 2017.
The Black-Scholes option-pricing model requires the use of weighted average
98
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
11. Equity-Based Compensation (Continued)
assumptions
for estimated expected volatility, estimated expected term of stock options, risk-free rate, estimated expected dividend yield, and the fair value of the underlying common stock at the
date of grant. Due to the recent date of our initial public offering as discussed in Note 1, "Basis of Presentation, Business and Summary of Significant Accounting Policies," we do not have
sufficient history to estimate the expected volatility of our common stock price. Thus, expected volatility has been based on the average volatility of peer public entities that are similar in size
and industry. We estimate the expected term of all stock options based on previous history of exercises. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for
the expected term of the stock option. The expected dividend yield is 0% as we have not declared any common stock dividends to date and do not expect to declare common stock dividends in the near
future. The fair value of the underlying common stock at the date of grant was determined based on the value of our common stock at the date of grant. We estimate forfeitures based on our historical
analysis of actual stock option forfeitures and employee turnover. Actual forfeitures are recorded when incurred and estimated forfeitures are reviewed and adjusted at least annually. The weighted
average assumptions used in the Black-Scholes option-pricing model for the year ended April 30, 2017 are set forth below:
|
|
|
|
|
|
|
April 30,
2017
|
|
Volatility
|
|
|
40.68
|
%
|
Expected life (years)
|
|
|
6.0
|
|
Risk-free interest rate
|
|
|
1.55
|
%
|
Dividend yield
|
|
|
|
%
|
In
fiscal 2017, the Company accounted for 180,539 stock option awards issued to employees that vest based on service only. The weighted average grant date fair value of each stock option
was $9.68. All of these awards vest over a four-year period. Additionally, all these options could vest earlier in the event of a change in control, merger or other acquisition.
The
Company did not issue any stock option awards in fiscal 2016.
In
fiscal 2015, the Company accounted for 2,824,050 stock option awards issued to employees that vest based on service only. The weighted average grant date fair value of each stock
option was $4.73. All of these options could vest earlier in the event of a change in control, merger or other acquisition.
The
aggregate fair value of options outstanding, including vested and unvested, at April 30, 2017 and April 30, 2016 was $10,753 and $9,131, respectively. The aggregate
fair value of options vested at April 30, 2017 and April 30, 2016 was $5,653 and $3,005, respectively.
The
expense related to the vesting of stock options is recorded on an accelerated basis over the requisite service period of each separate vesting tranche. Share-based compensation
expense related to stock option awards was $2,368, $2,697 and $6,455 for the years ended April 30, 2017, 2016 and 2015, respectively, and was included as a component of "Selling, general and
administrative" expenses in our Consolidated Statements of Operations and Comprehensive Income (Loss). As of April 30, 2017 and 2016, the unrecognized compensation expense related to stock
option awards was $1,869 and $2,344, respectively, with a remaining vested life of 1.52 years and 2.0 years, respectively.
99
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
11. Equity-Based Compensation (Continued)
A summary of stock option activity for the years ended April 30, 2017 and 2016 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
Weighted
average
exercise
price
|
|
Weighted
average
remaining
contractual
life (years)
|
|
Aggregate
intrinsic
value
|
|
Outstanding at May 1, 2015
|
|
|
2,824,050
|
|
$
|
12.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
529,595
|
|
|
12.31
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
359,349
|
|
|
12.31
|
|
|
|
|
|
|
|
Options expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2016
|
|
|
1,935,106
|
|
$
|
12.37
|
|
|
7.98
|
|
$
|
16,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
180,539
|
|
|
23.65
|
|
|
|
|
|
|
|
Options exercised
|
|
|
28,000
|
|
|
12.31
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2017
|
|
|
2,087,645
|
|
$
|
13.49
|
|
|
7.23
|
|
$
|
47,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2017
|
|
|
1,211,044
|
|
|
12.48
|
|
|
7.02
|
|
$
|
28,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest after April 30, 2017
|
|
|
876,601
|
|
$
|
14.88
|
|
|
7.52
|
|
$
|
18,655
|
|
Aggregate
intrinsic value represents the fair value of the underlying common stock at the date of grant, in excess of the weighted average exercise price multiplied by the number of
options outstanding or exercisable. Options expected to vest are unvested shares net of expected forfeitures.
As
of April 30, 2017 and 2016, the aggregate intrinsic value of unvested options outstanding was $18,655 and $11,120, respectively, and the aggregate intrinsic value of options
vested was $28,681 and $5,580, respectively. The total intrinsic value of stock option awards exercised was approximately $580 and $8,892 during the fiscal years ended April 30, 2017 and 2016,
respectively.
12. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests
Certain subsidiaries have equity based compensation arrangements with certain subsidiary's employees and
minority shareholders. These arrangements are stock appreciation rights, deferred compensation agreements and liabilities to noncontrolling interest holders. Since these arrangements are typically
settled in cash or notes, and do not meet the criteria established by ASC 718 to be accounted for in "Stockholders' equity", they are accounted for as liability awards. As a result of the guidance
stated within ASC 718, we have recorded these liability awards at fair value as of April 30, 2017 and 2016.
Stock appreciation rights
Certain subsidiaries have granted stock appreciation rights to certain employees under which payments are dependent on
the
appreciation in the book value per share, adjusted for certain provisions, of the applicable subsidiary. Settlements of the awards can be made in a combination of cash or installment notes, generally
paid over four years, upon a triggering event. Vesting periods vary by grant date and range from fiscal 2017 to fiscal 2018. Current liabilities related to these plans of $878 and $808 were recorded
as components of "Accrued compensation and employee benefits" at April 30, 2017 and 2016, respectively.
100
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
12. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests (Continued)
Long-term
liabilities related to these plans of $19,784 and $19,725 were recorded as components of "Other liabilities" as of April 30, 2017 and 2016, respectively. Below is a summary of changes
to the liability:
|
|
|
|
|
Stock appreciation rights as of April 30, 2015 (at book value)
|
|
$
|
8,069
|
|
Compensation expense recorded prior to transition guidance adjustment
|
|
|
594
|
|
Redemption notes
|
|
|
(947
|
)
|
Change in fair value
|
|
|
12,817
|
|
|
|
|
|
|
Stock appreciation rights as of April 30, 2016 (at fair value)
|
|
$
|
20,533
|
|
Amounts redeemed
|
|
|
(28
|
)
|
Change in fair value
|
|
|
157
|
|
|
|
|
|
|
Stock appreciation rights as of April 30, 2017 (at fair value)
|
|
$
|
20,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded stock appreciation rights expense of $149, $1,988, and $2,268, in fiscal years 2017, 2016, and 2015, respectively, and is included as a component of "Selling,
general and administrative" expenses in our Consolidated Statements of Operations and Comprehensive Income (Loss). In fiscal 2016, the Company recorded $11,245 as an increase to "Accumulated deficit"
in our Consolidated Balance Sheets as a result of the change in value due to the transition guidance in ASC 718.
Deferred compensation
Subsidiaries' shareholders have entered into other deferred compensation agreements that granted the shareholders a payment
based on a percentage in excess of book value, adjusted for certain provisions, upon an occurrence as defined in the related agreements, which are called "Buy Sell" agreements. Current liabilities
related to these plans of $300 and $0 were recorded as components of "Accrued compensation and employee benefits" at April 30, 2017 and 2016, respectively. The remaining liabilities related to
these plans of $3,450 and $3,270 were recorded as components of "Other liabilities" as of April 30, 2017 and 2016, respectively. These instruments are redeemed in cash or installment notes,
generally paid in annual installments generally over the five years following termination of employment. Below is a summary of changes to the liability:
|
|
|
|
|
Deferred compensation as of April 30, 2015 (at book value)
|
|
$
|
3,490
|
|
Compensation expense recorded prior to transition guidance adjustment
|
|
|
81
|
|
Redemption notes
|
|
|
(31
|
)
|
Change in fair value
|
|
|
(270
|
)
|
|
|
|
|
|
Deferred compensation as of April 30, 2016 (at fair value)
|
|
$
|
3,270
|
|
Amounts redeemed
|
|
|
|
|
Change in fair value
|
|
|
480
|
|
|
|
|
|
|
Deferred compensation as of April 30, 2017 (at fair value)
|
|
$
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded redeemable noncontrolling interests expense of $480, $45, and $289, in fiscal years 2017, 2016, and 2015, respectively, and is included as a component of "Selling,
general and administrative" expenses in our Consolidated Statements of Operations and Comprehensive Income (Loss). In fiscal 2016, the Company recorded $234 as a decrease to "Accumulated deficit" in
our Consolidated Balance Sheets as a result of the change in value due to the transition guidance in ASC 718.
101
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
12. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests (Continued)
Liabilities to noncontrolling interest holders
As described in Note 1, "Basis of Presentation, Business and Summary of Significant Accounting
Policies," noncontrolling interests were issued to certain employees of the subsidiaries. All of the noncontrolling interest awards are subject to mandatory redemption on termination of employment for
any reason. These instruments are redeemed in cash or installment notes, generally paid in annual installments over the five years following termination of employment.
Liabilities
related to these agreements are classified as share based liability awards and are measured at intrinsic value under ASC 718. Intrinsic value is determined to be the stated
redemption value of the shares. Under the terms of the employee agreements, the redemption value is determined based on the book value of the subsidiary, as adjusted for certain items. As of
April 30, 2017, the total fair value of these liabilities was $24,309. Amounts expected to be paid in the next year are included in "Accrued compensation and employee benefits" at
April 30,
2017 in the amount of $1,733. Long term liabilities of $22,576 related to this plan were recorded to "Liabilities to noncontrolling interest holders, less current portion" at April 30, 2017.
Below is a summary of changes to the liability:
|
|
|
|
|
Non-controlling interests as of April 30, 2015 (at book value)
|
|
$
|
30,039
|
|
Compensation expense recorded prior to transition guidance adjustment
|
|
|
473
|
|
Redemption notes
|
|
|
(629
|
)
|
Change in fair value
|
|
|
(3,298
|
)
|
|
|
|
|
|
Non-controlling interests as of April 30, 2016 (at fair value)
|
|
$
|
26,585
|
|
Amounts redeemed
|
|
|
(5,354
|
)
|
Change in fair value
|
|
|
3,078
|
|
|
|
|
|
|
Non-controlling interests as of April 30, 2017 (at fair value)
|
|
$
|
24,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded redeemable noncontrolling interests expense of $3,056, $881, and $1,570 in fiscal 2017, 2016, and 2015, respectively, and is included as a component of "Selling,
general and administrative" expenses in our Consolidated Statements of Operations and Comprehensive Income (Loss). In fiscal 2016, the Company recorded $3,706 as a decrease to "Accumulated deficit" in
our Consolidated Balance Sheets as a result of the change in value due to the transition guidance in ASC 718.
In
connection with the Acquisition, noncontrolling interest holders had the option to convert their interests in the subsidiaries into the Company. Noncontrolling interests of $32,545
were converted into the Company's common shares at the date of the Acquisition.
Upon
the termination of employment or other triggering events including death or disability of the noncontrolling stockholders in the Company's subsidiaries, we are obligated to
purchase, or redeem, the noncontrolling interests at either an agreed upon price or a formula value provided in the stockholder agreements. This formula value is typically based on the book value per
share of the subsidiary's equity, including certain adjustments.
13. Transactions With Related Parties
The Company leases office and warehouse facilities from partnerships owned by certain stockholders of GMS Inc. and its subsidiaries. At April 30, 2017, these leases had
expiration dates through fiscal 2021. Rent expense related to these leases included in the accompanying Consolidated Financial Statements approximated
102
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
13. Transactions With Related Parties (Continued)
$780,
$628, and $903 for fiscal 2017, 2016, and 2015, respectively, and are recorded in "Selling, general and administrative" expenses. At April 30, 2017, future minimum payments under the
terms of the leases aggregated to $1,105.
The
Company purchases inventories from its former subsidiary, Southern Wall Products, Inc. ("SWP"), on a continuing basis. Certain stockholders of the Company are stockholders of
SWP, which was spun-off from Gypsum Management and Supply, Inc. on August 31, 2012. The Company purchased inventory from SWP for distribution in the amount of $12,990, $12,795, and
$11,926 as of April 30, 2017, 2016, and 2015, respectively. Amounts due to SWP for purchases of inventory for distribution as of April 30, 2017 and 2016 were $1,091 and $1,097,
respectively, and are included in "Accounts payable".
Prior
to the Company's IPO, we had a management agreement in place with AEA Investors LP. The agreement required the Company to pay AEA an annual management fee of $2,250 per year
following the Acquisition for advisory and consulting services. The fee was payable in quarterly installments of $563 in advance of the upcoming calendar quarter on the first day, and is included in
"Selling, general and administrative" expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).
14. Commitments and Contingencies
Lease Commitments
The Company is obligated under certain capital leases covering our fleet of vehicles as well as one facility. The fleet vehicle leases have
terms ranging from one to five years and the facility lease has a term of 11 years. The carrying value of property and equipment under capital leases was $15,018 and $10,928 as of
April 30, 2017 and 2016, respectively, net of accumulated depreciation of $8,331 and $6,696, respectively. Amortization of assets held under capital leases was $5,310, $4,685, and $4,320 as of
April 30 2017, 2016, and 2015, respectively, and is included with depreciation expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
The
Company also has certain noncancelable operating lease agreements, primarily office and warehouse facilities and equipment. These leases generally contain renewal options for periods
ranging from one to five years. Rent expense for operating leases, which may have escalating rents over the terms of the leases, is recorded on a straight-line basis over the minimum lease terms. Rent
expense under operating leases, including amounts paid to affiliated partnerships, approximated $56,220, $41,733, and $29,910 as of April 30, 2017, 2016, and 2015, respectively. As existing
leases expire, the Company anticipates such leases will be renewed or replaced with other leases that are substantially similar in terms and rental amounts which are consistent with market rates at
the time of renewal.
103
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
14. Commitments and Contingencies (Continued)
At
April 30, 2017, the approximate amounts of the annual future minimum lease payments under noncancelable operating leases, including amounts payable to affiliated partnerships,
and future maturities of capital lease obligations are as follows:
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Operating
|
|
Year Ended April 30,
|
|
|
|
|
|
|
|
2018
|
|
$
|
6,208
|
|
$
|
52,204
|
|
2019
|
|
|
4,830
|
|
|
44,770
|
|
2020
|
|
|
3,208
|
|
|
37,165
|
|
2021
|
|
|
1,709
|
|
|
28,333
|
|
2022
|
|
|
922
|
|
|
17,750
|
|
Thereafter
|
|
|
296
|
|
|
16,850
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,173
|
|
$
|
197,072
|
|
|
|
|
|
|
|
|
|
Less: Interest
|
|
|
1,562
|
|
|
|
|
Less: Current portion
|
|
|
5,486
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term capitalized lease obligations
|
|
$
|
10,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation, Claims and Assessment
The Company is a defendant in various lawsuits and administrative actions associated with personal injuries, claims of former employees, and
other events arising in the normal course of business. As discussed in Note 1, "Insurance Liabilities", the Company records liabilities for these claims, as well as assets for
amounts recoverable from the insurer, for these claims covered by insurance.
15. Segments
The Company applies the provisions of ASC Topic 280, "
Segment Reporting
." ASC 280, which is based on a management approach to segment
reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products, major customers and the geographies in which the
entity holds material assets and reports revenue. An operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating
decision maker ("CODM") and for which discrete financial information is available. For purposes of evaluation under these segment reporting principles, the CODM assesses the Company's ongoing
performance based on the periodic review of net sales, Adjusted EBITDA and certain other measures for each of the operating segments. Based on the provisions of ASC 280, the Company has determined
that it has seven operating segments. These operating segments are based on the seven geographic divisions, which are Central, Midwest, Northeast, Southern, Southeast, Southwest and Western. Prior to
May 1, 2016, we had six operating segments, Central, Northeast, Southern, Southeast, Southwest and Western. On May 1, 2016, in connection with a reorganization of our geographic regional
reporting lines, we created a new operating segment for the Midwest region, which was part of the Central reporting unit. In accordance with ASC 350, we allocated goodwill and indefinite lived
intangibles of $50,973 and $5,995, respectively to the newly created operating segment (which is also the reporting unit) based on the estimated fair value of the unit.
104
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
15. Segments (Continued)
Due
to similarities between the geographic operating segments, we have aggregated them into one reportable segment in accordance with ASC 280. The accounting policies of the operating
segments are the same as those described in the summary of significant policies. In addition to our reportable segment, the Company's consolidated results include corporate activities, which includes
our corporate office building and related yard support activities and Tool Source Warehouse, Inc., which functions primarily as an internal distributor of tools.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2017
|
|
|
|
|
|
April 30, 2017
|
|
|
|
Net
sales
|
|
Gross
profit
|
|
Depreciation &
amortization
|
|
Adjusted
EBITDA
|
|
|
|
Total assets
|
|
Geographic divisions
|
|
$
|
2,298,871
|
|
$
|
750,564
|
|
$
|
68,001
|
|
$
|
186,155
|
|
$
|
1,376,655
|
|
Other
|
|
|
20,275
|
|
|
8,007
|
|
|
310
|
|
|
2,074
|
|
|
11,916
|
|
Corporate
|
|
|
|
|
|
|
|
|
929
|
|
|
|
|
|
4,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,319,146
|
|
$
|
758,571
|
|
$
|
69,240
|
|
$
|
188,229
|
|
$
|
1,393,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
Year Ended April 30, 2016
|
|
|
|
|
|
April 30, 2016
|
|
|
|
Net
sales
|
|
Gross
profit
|
|
Depreciation &
amortization
|
|
Adjusted
EBITDA
|
|
|
|
Total assets
|
|
Geographic divisions
|
|
$
|
1,842,634
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|
$
|
587,213
|
|
$
|
63,093
|
|
$
|
137,459
|
|
$
|
1,217,871
|
|
Other
|
|
|
15,548
|
|
|
5,951
|
|
|
295
|
|
|
724
|
|
|
12,310
|
|
Corporate
|
|
|
|
|
|
|
|
|
827
|
|
|
|
|
|
10,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,858,182
|
|
$
|
593,164
|
|
$
|
64,215
|
|
$
|
138,183
|
|
$
|
1,240,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2015
|
|
|
|
|
|
April 30, 2015
|
|
|
|
Net
sales
|
|
Gross
profit
|
|
Depreciation &
amortization
|
|
Adjusted
EBITDA
|
|
|
|
Total assets
|
|
Geographic divisions
|
|
$
|
1,558,209
|
|
$
|
474,363
|
|
$
|
63,136
|
|
$
|
105,247
|
|
$
|
1,143,637
|
|
Other
|
|
|
11,876
|
|
|
4,608
|
|
|
288
|
|
|
549
|
|
|
10,421
|
|
Corporate
|
|
|
|
|
|
|
|
|
741
|
|
|
|
|
|
6,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,570,085
|
|
$
|
478,971
|
|
$
|
64,165
|
|
$
|
105,796
|
|
$
|
1,160,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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105
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
15. Segments (Continued)
Reconciliation
to Consolidated Financial Statements:
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|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
Net income (loss)
|
|
$
|
48,886
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
Interest expense
|
|
|
36,463
|
|
|
37,418
|
|
|
36,396
|
|
Interest income
|
|
|
(152
|
)
|
|
(928
|
)
|
|
(1,010
|
)
|
Income tax expense (benefit)
|
|
|
22,654
|
|
|
12,584
|
|
|
(6,626
|
)
|
Depreciation expense
|
|
|
25,565
|
|
|
26,667
|
|
|
32,208
|
|
Amortization expense
|
|
|
43,675
|
|
|
37,548
|
|
|
31,957
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
177,091
|
|
$
|
125,853
|
|
$
|
81,228
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock appreciation income or (expense)
|
|
$
|
148
|
|
$
|
1,988
|
|
$
|
2,268
|
|
Redeemable noncontrolling interests
|
|
|
3,536
|
|
|
880
|
|
|
1,859
|
|
Equity-based compensation
|
|
|
2,534
|
|
|
2,699
|
|
|
6,455
|
|
Severance and other permitted costs
|
|
|
(157
|
)
|
|
379
|
|
|
413
|
|
Transaction costs (acquisitions and other)
|
|
|
2,249
|
|
|
3,751
|
|
|
2,728
|
|
(Gain) loss on disposal of assets
|
|
|
(338
|
)
|
|
(645
|
)
|
|
1,089
|
|
Management fee to related party
|
|
|
188
|
|
|
2,250
|
|
|
2,250
|
|
Effects of fair value adjustments to inventory
|
|
|
946
|
|
|
1,009
|
|
|
5,012
|
|
Interest rate cap mark-to-market
|
|
|
382
|
|
|
19
|
|
|
2,494
|
|
Secondary public offering costs
|
|
|
1,385
|
|
|
|
|
|
|
|
Debt transaction costs
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA add-backs
|
|
|
11,138
|
|
|
12,330
|
|
|
24,568
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
188,229
|
|
$
|
138,183
|
|
$
|
105,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
The
Company does not earn revenues or have long-lived assets located in foreign countries. In accordance with the enterprise-wide disclosure requirements of ASC 280, the Company's net
sales from external customers by main product lines are as follows as of April 30, 2017, 2016, and 2015, respectively:
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|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
Wallboard
|
|
$
|
1,058,400
|
|
$
|
870,952
|
|
$
|
718,102
|
|
Ceilings
|
|
|
341,007
|
|
|
297,110
|
|
|
278,749
|
|
Steel framing
|
|
|
374,151
|
|
|
281,340
|
|
|
243,173
|
|
Other products
|
|
|
545,588
|
|
|
408,780
|
|
|
330,061
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
2,319,146
|
|
$
|
1,858,182
|
|
$
|
1,570,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
106
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
16. Accumulated Other Comprehensive (Loss) Income
The following table sets forth the changes to "Accumulated other comprehensive (loss) income," net of tax by component for the year ended April 30, 2017 and 2016:
|
|
|
|
|
|
|
Gain (loss) on
interest rate cap
|
|
Accumulated other comprehensive (loss) income as of May 1, 2014
|
|
$
|
|
|
Other comprehensive income before reclassification
|
|
|
10
|
|
Reclassification to earnings from accumulated other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income as of April 30, 2015
|
|
$
|
10
|
|
|
|
|
|
|
Other comprehensive loss before reclassification
|
|
|
(1,177
|
)
|
Reclassification to earnings from accumulated other comprehensive (loss) income(1)
|
|
|
19
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income as of April 30, 2016
|
|
$
|
(1,148
|
)
|
|
|
|
|
|
Other comprehensive loss before reclassification
|
|
|
(118
|
)
|
Reclassification to earnings from accumulated other comprehensive (loss) income(1)
|
|
|
382
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income as of April 30, 2017
|
|
$
|
(884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(3)
-
Amounts
are recorded as a component of "Change in fair value of financial instruments" in the Consolidated Statements of Operations.
"(Decrease)
increase in fair value of financial instruments, net of tax" recorded in "Accumulated other comprehensive income (loss)" is reclassified to earnings as each of the hedged
forecasted transactions occur. During the next twelve months, the Company expects to reclassify approximately $1.0 million, net of tax, to earnings.
107
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
17. Earnings (Loss) Per Common Share
The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock for fiscal 2017, 2016, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Net income (loss)
|
|
$
|
48,886
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding per common share
|
|
|
40,260,405
|
|
|
32,799,098
|
|
|
32,450,401
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
1.21
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding per common share
|
|
|
40,260,405
|
|
|
32,799,098
|
|
|
32,450,401
|
|
Add: Shares of common stock assumed issued upon exercise of stock options
|
|
|
809,620
|
|
|
326,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding per common share
|
|
|
41,070,025
|
|
|
33,125,242
|
|
|
32,450,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
1.19
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per shares for the year ended April 30, 2015 excludes 10,417 shares as these shares would have been antidilutive due to the Company's net loss for the year.
18. Condensed Parent Company Financial Information
On a standalone basis, the Company has no material assets or operations other than its ownership in GYP Holdings II Corp., which in turn has no material assets or operations other than
its ownership in GYP Holdings III Corp. GYP Holdings III Corp. is the Lead Borrower under the ABL Facility and the Borrower under the Term
Loan Facilities, all of which contain significant restrictions on the Company's ability to obtain funds from GYP Holdings III Corp. or any of GYP Holdings III Corp.'s subsidiaries through dividends,
loans or advances. Accordingly, the following condensed financial information has been presented on a "Parent-only" basis.
Under
a "Parent-only" presentation, the Company's investments in its consolidated subsidiaries are presented under the equity method of accounting using the same accounting principles
and policies described in the notes to the Consolidated Financial Statements.
The
following table presents the financial position of the Company as of April 30, 2017 and 2016, and the results of operations as of April 30, 2017, 2016 and 2015,
respectively.
108
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
18. Condensed Parent Company Financial Information (Continued)
GMS Inc.
Condensed Parent Company Balance Sheets
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
2017
|
|
2016
|
|
Investment in subsidiary
|
|
$
|
514,606
|
|
$
|
311,160
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
514,606
|
|
|
311,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share, authorized 500,000,000 shares; 40,970,905 and 32,892,905 shares issued at April 30, 2017 and 2016,
respectively
|
|
|
410
|
|
|
329
|
|
Preferred stock, par value $0.01 per share, authorized 50,000,000 shares; 0 shares issued at April 30, 2017 and April 30, 2016,
respectively
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
488,459
|
|
|
334,244
|
|
Retained earnings (accumulated deficit)
|
|
|
26,621
|
|
|
(22,265
|
)
|
Accumulated other comprehensive loss
|
|
|
(884
|
)
|
|
(1,148
|
)
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
$
|
514,606
|
|
$
|
311,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMS Inc.
Condensed Parent Company Statements of Operations and Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended April 30,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Net income (loss) in subsidiaries
|
|
$
|
48,886
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
Net income (loss)
|
|
$
|
48,886
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
Comprehensive income (loss)
|
|
$
|
49,150
|
|
$
|
11,406
|
|
$
|
(11,687
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
40,260,405
|
|
|
32,799,098
|
|
|
32,450,401
|
|
Diluted
|
|
|
41,070,025
|
|
|
33,125,242
|
|
|
32,450,401
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.21
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
Diluted
|
|
$
|
1.19
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
There
were no cash flows for GMS Inc. for the years ended April 30, 2017, 2016 and 2015 as there were no dividends, loans or advances between GMS Inc. and its
subsidiaries.
At
April 30, 2017, restricted net assets of the Company's consolidated subsidiaries approximated $513,100. As of April 30, 2017, 2016, and 2015 the Company's consolidated
subsidiaries did not pay any cash dividends to the Company.
109
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
19. Valuation and Qualifying Accounts
Allowance for Doubtful Accounts Rollforward
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Balance at
beginning of
period
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Provision
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Charged to
other
accounts(a)
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Deductions
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Balance
at end of
period
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Fiscal Year Ended April 30, 2017
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$
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(8,607
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)
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(1,792
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)
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(819
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)
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1,367
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$
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(9,851
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)
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Fiscal Year Ended April 30, 2016
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$
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(8,633
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)
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(908
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)
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77
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857
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$
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(8,607
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)
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Fiscal Year Ended April 30, 2015
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$
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(2,752
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)
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(5,828
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)
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(1,158
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1,105
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$
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(8,633
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)
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-
(a)
-
Charged
to other accounts represents the net (increase) decrease for specifically reserved accounts, as well as the net change in reserves for sales discounts,
service charges and sales returns.
Valuation Allowance on Deferred Tax Assets Rollforward
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Balance
at beginning
of period
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Additions
charged to costs
and expenses
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Deductions
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Balance
at end of
period
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Fiscal Year Ended April 30, 2017
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$
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(83
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(255
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)
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41
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$
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(297
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)
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Fiscal Year Ended April 30, 2016
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$
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(143
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)
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(38
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)
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98
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$
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(83
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)
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Fiscal Year Ended April 30, 2015
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$
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(1,276
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)
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(67
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)
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1,200
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$
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(143
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)
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20. Selected Quarterly Financial Data (Unaudited)
The following table sets forth certain unaudited financial information for each quarter of the year ended April 30, 2017 and 2016. The unaudited quarterly information includes all
adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for the fair presentation of the information presented. Operating results for interim periods
are not necessarily indicative of the results that may be expected for a full fiscal year.
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Year Ended April 30, 2017
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First
Quarter
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Second
Quarter
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Third
Quarter
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Fourth
Quarter
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Net sales
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$
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549,800
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$
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591,846
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$
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562,523
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$
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614,977
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Gross profit
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178,585
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193,224
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185,727
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201,035
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Net income (loss)
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9,163
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17,224
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8,226
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14,273
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Per share data
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Weighted average shares outstanding(1):
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Basic
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38,200,597
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40,942,905
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40,942,905
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40,955,632
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Diluted
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38,602,378
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41,319,651
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41,577,675
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41,758,974
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Net income (loss) per share(1):
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Basic
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$
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0.24
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$
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0.42
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$
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0.20
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$
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0.35
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Diluted
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$
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0.24
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$
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0.42
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$
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0.20
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$
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0.33
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110
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
(in thousands of dollars, except for share and per share data)
20. Selected Quarterly Financial Data (Unaudited) (Continued)
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Year Ended April 30, 2016
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First
Quarter
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Second
Quarter
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Third
Quarter
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Fourth
Quarter
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Net sales
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$
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452,441
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$
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458,077
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$
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420,482
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$
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527,182
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Gross profit
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140,888
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143,913
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134,160
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174,203
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Net income (loss)
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3,011
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2,825
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(2,212
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)
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8,940
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Per share data
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Weighted average shares outstanding(1):
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Basic
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32,677,418
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32,737,956
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32,890,930
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32,892,905
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Diluted
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32,830,677
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32,898,075
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32,890,930
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33,155,140
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Net income (loss) per share(1):
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Basic
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$
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0.09
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$
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0.09
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$
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(0.07
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)
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$
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0.27
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Diluted
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$
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0.09
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$
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0.09
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$
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(0.07
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)
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$
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0.27
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-
(1)
-
Basic
and diluted net income (loss) per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly basic and diluted
net income (loss) per share amounts may not equal annual basic and diluted net income (loss) per share amounts.
21. Subsequent Events
The Company has evaluated subsequent events through June 30, 2017, which is the date these financial statements were issued.
Subsequent
to the end of fiscal 2017, on June 7, 2017 we entered into a second amendment to our First Lien Credit Agreement, dated April 1, 2014, among GYP Holdings III
Corp., as borrower, GYP Holdings II Corp., the financial institutions from time to time party thereto, as lenders, and Credit Suisse AG, as administrative agent
and collateral agent. Under the terms of the amendment, we borrowed $577,615 which will mature April 1, 2023 and will bear interest at a floating rate based on LIBOR, with a 1% floor, plus 3%.
The previous rate was 3.5%. The net proceeds were used to repay the existing First Lien Term Loan outstanding balance of $477,616 and approximately $94,000 of loans under our asset based revolving
credit facility.
Also
on June 7, 2017, we completed an offering of 5,750,000 shares of common stock by certain of the Company's existing stockholders, including certain affiliates of AEA
Investors LP (collectively, the "Selling Stockholders"), at a public offering price of $33.00 per share, including 750,000 shares of common stock that were sold as a result of the exercice in
full by the underwriters of an option to purchase additional shares that was granted by the Selling Stockholders.
111
Table of Contents