Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Recent Events
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 an option to purchase additional shares to cover over-allotments. After
underwriting discounts and commissions but before expenses, we received net proceeds from the initial public offering (the "IPO") of approximately $157.2 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
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.
37
Table of Contents
Subsequent to April 30, 2016, we acquired Wall & Ceiling Supply Co., Inc. (Wall & Ceiling Supply) and Rockwise, LLC
(Rockwise) for a total purchase price of approximately $26.3 million. Wall & Ceiling Supply and Rockwise distribute wallboard and related building materials from four locations in
Washington, Arizona and Colorado. For the twelve months ended April 30, 2016, the combined companies generated approximately $35.2 million in net sales and the earnings of these entities
would have contributed approximately $4.5 million to our Adjusted EBITDA for that period, including operating synergies.
Effect of the Acquisition
On April 1, 2014, GMS Inc., 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., or the Predecessor. Successor is majority owned by certain affiliates of AEA and certain of our other
stockholders. We refer to this acquisition as the "Acquisition."
As
a result of the Acquisition, the financial information for the periods beginning on April 1, 2014, and through and including April 30, 2016, represents the consolidated
financial statements of the Successor. The financial information for the period prior to, and including, March 31, 2014, represents the consolidated financial statements of the Predecessor. Due
to the change in the basis of accounting resulting from the application of the acquisition method of accounting, the Predecessor's consolidated financial statements and the Successor's consolidated
financial statements are not necessarily comparable. The new basis of accounting primarily impacted the values of our inventory, long-lived and indefinite-lived intangible assets, and resulted in
increased depreciation and amortization expenses. The impact of the Acquisition also resulted in increased interest expense and increases in selling, general and administrative expenses. However, the
change in basis resulting from the Acquisition did not impact net sales or Adjusted EBITDA and, for these metrics, we believe combining Predecessor and Successor results provides meaningful
information. Accordingly, certain discussions below for net sales and Adjusted EBITDA present the combined results of the Predecessor and the Successor for the full year ended April 30, 2014.
Such combination was performed by mathematical addition and is not a presentation made in accordance with GAAP, although we believe it provides a meaningful method of comparison for these two metrics.
The combined net sales and Adjusted EBITDA data is being presented for informational purposes only. The combined operating results for these two metrics for the full year ended April 30, 2014
(i) have not been prepared on a pro forma basis as if the Acquisition occurred on the first day of the period, (ii) may not reflect the actual results we would have achieved absent the
Acquisition, (iii) may not be predictive of our future results of operations and (iv) should not be viewed as a substitute for the financial results of the Predecessor and the Successor
presented in accordance with GAAP. For all other metrics, to the extent that the change in basis had a material impact on our results, we have disclosed such impact under "Results of
Operations."
Business Overview
Founded in 1971, we are the leading North American distributor of wallboard and ceilings. Our core customer is the interior contractor,
who typically installs wallboard, ceilings and our other interior construction products in commercial and residential buildings. As a leading specialty distributor, we serve as a critical link between
our suppliers and a highly fragmented customer base of over 20,000 contractors. Our operating model combines a national platform with a local go-to-market strategy through over 185 branches
across the country. We believe this combination enables us to generate economies of scale while maintaining the high service levels, entrepreneurial culture and customer intimacy of a local business.
Our
growth strategy entails taking market share within our existing footprint, expanding into new markets by opening new branches and strategic acquisitions. We expect to continue to
capture profitable market share in our existing footprint by delivering industry-leading customer service. Our strategy for opening new branches is to further penetrate markets that are adjacent to
our existing operations. Typically, we have pre-existing customer relationships in these markets but need a new location to fully capitalize on those relationships. Since the beginning of full year
2014, we have opened 21 new branches and we currently expect to open several new branches each year depending on market conditions. In addition, we will continue to selectively pursue tuck-in
38
Table of Contents
acquisitions
and have a dedicated team of professionals to manage the process. Due to the large, highly fragmented nature of our market and our reputation throughout the industry, we believe we have
the potential to access a robust acquisition pipeline that will continue to supplement our organic growth. We use a rigorous targeting process to identify acquisition candidates that will fit our
culture and business model. As a result of our scale, purchasing power and ability to improve operations through implementing best practices, we believe we can achieve substantial synergies and drive
earnings accretion from our acquisition strategy.
Factors and Trends Affecting our Operating Results
General Economic Conditions and Outlook
Our business is sensitive to changes in general economic conditions, including, in particular, conditions in the North American
commercial construction and housing markets. The markets we serve are broadly categorized as commercial new construction, commercial R&R, residential new construction and residential R&R. We believe
all four end markets are currently in an extended period of expansion following a deep and prolonged downturn.
Our
addressable commercial construction market is composed of a variety of commercial and institutional sub-segments with varying demand drivers. Our commercial markets include offices,
hotels, retail stores and other commercial buildings, while our institutional markets include educational facilities, healthcare facilities, government buildings and other institutional facilities.
The principal demand drivers across these markets include the overall economic outlook, the general business cycle, government spending, vacancy rates, employment trends, interest rates, availability
of credit and demographic trends. Given the extreme depth of the last recession, despite the growth to date, activity in the commercial construction market remains well below average historical
levels. According to Dodge Data & Analytics, new commercial construction put in place was 935 million square feet during the 2015 calendar year, which is an increase of 38% from
680 million square feet during the 2010 calendar year. However, new commercial construction activity remains well below historical levels. New commercial construction square footage put in
place of 935 million square feet in 2015 would have needed to increase by 36% in order to achieve the historical market average of 1.3 billion square feet annually since 1970. We believe
this represents a significant growth opportunity as activity continues to improve.
We
believe commercial R&R spending is typically more stable than new commercial construction activity. Commercial R&R spending is driven by a number of factors, including commercial real
estate prices and rental rates, office vacancy rates, government spending and interest rates. Commercial R&R spending is also driven by commercial lease expirations and renewals, as well as tenant
turnover. Such events often result in repair, reconfiguration and/or upgrading of existing commercial space. As such, the commercial R&R market has historically been less volatile than commercial new
construction. While there is very limited third party data for commercial R&R spending, we believe spending in this end market is in a period of expansion.
Residential
construction activity is driven by a number of factors, including the overall economic outlook, employment, income growth, home prices, availability of mortgage financing,
interest rates and consumer confidence, among others. According to the U.S. Census Bureau, U.S. housing starts reached 1.1 million in the 2015 calendar year, which is an increase of 10% from
2014 starts of 1.0 million. While housing starts increased for the sixth consecutive year in 2015, activity in the market remains well below historical levels. New residential housing starts of
1.1 million in 2015 would have needed to increase by 30% in order to reach their historical market average of 1.5 million annually since 1970.
While
residential R&R activity is typically more stable than new construction activity, we believe the prolonged period of under-investment during the recent downturn will result in
above-average growth for the next several years. The primary drivers of residential R&R spending include changes in existing home prices, existing home sales, the average age of the housing stock,
consumer confidence and interest rates. According to the U.S. Census Bureau, residential R&R spending, including repairs and improvements, reached $285.4 billion in the 2015 calendar year,
which is an increase of 4.4% from $273.3 billion in 2014.
39
Table of Contents
Seasonality and Inflation
Our operating results are typically impacted by seasonality. Historically, sales of our products have been slightly higher in the first
and second quarters of each fiscal year (covering the calendar months of May through October) due to favorable weather and longer daylight conditions during these periods. Seasonal variations in
operating results may be impacted by inclement weather conditions, such as cold or wet weather, which can delay construction projects.
We
believe that our results of operations are not materially impacted by moderate changes in the economic inflation rate. In general, we have historically been successful in passing on
price increases from our vendors to our customers in a timely manner, although there is no assurance that we can successfully do so in the future.
Acquisitions
We complement our organic growth strategy with selective, tuck-in acquisitions. Since the beginning of full year 2014 through
April 30, 2016, we completed 15 strategic acquisitions, of Dakota Gypsum, Sun Valley Supply, Inc., Contractors' Choice Supply, Inc., Drywall Supply, Inc., AllSouth Drywall
Supply Company, Serrano Supply, Inc., Ohio Valley Building Products, LLC, J&B Materials, Inc., Tri-Cities Drywall & Supply Co., Badgerland Supply, Inc.,
Hathaway & Sons, Inc., Gypsum Supply Company, Robert N. Karpp Company, Inc., Professional Handling & Distribution, Inc. and M.R. Lee Building Materials, Inc.
totaling 38 branches. We believe that significant opportunities exist to expand our geographic footprint by executing additional strategic acquisitions and we consistently strive to maintain an
extensive and active acquisition pipeline. We are often evaluating several acquisition opportunities at any given time.
Debt Refinancings
Amounts outstanding under our $175.0 million revolving credit agreement with certain financial institutions, or the 2010 Credit
Facility, were repaid in conjunction with the Acquisition. At such time, we entered into the ABL Facility, the First Lien Facility and the Second Lien Facility. We refer to the First Lien Facility and
the Second Lien Facility, together, as the "Term Loan Facilities." As a result of the higher debt levels following these refinancings, our interest expense increased during the full year ended
April 30, 2014 and the fiscal years ended April 30, 2015 and 2016. See "Our Credit Facilities" below.
Our Products
The following is a summary of our net sales by product group for the fiscal years ended April 30, 2016 and 2015 and the full
year ended April 30, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ended
April 30,
2016
|
|
% of
Total
|
|
Fiscal Year
Ended
April 30,
2015
|
|
% of
Total
|
|
Full Year
Ended
April 30,
2014(1)
|
|
% of
Total
|
|
|
|
(dollars in thousands)
|
|
Wallboard
|
|
$
|
870,952
|
|
|
46.9
|
%
|
$
|
718,102
|
|
|
45.7
|
%
|
$
|
602,801
|
|
|
44.5
|
%
|
Ceilings
|
|
|
297,110
|
|
|
16.0
|
%
|
|
278,749
|
|
|
17.8
|
%
|
|
256,999
|
|
|
19.0
|
%
|
Steel Framing
|
|
|
281,340
|
|
|
15.1
|
%
|
|
243,173
|
|
|
15.5
|
%
|
|
216,538
|
|
|
16.0
|
%
|
Other Products
|
|
|
408,780
|
|
|
22.0
|
%
|
|
330,061
|
|
|
21.0
|
%
|
|
277,002
|
|
|
20.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
1,858,182
|
|
|
|
|
$
|
1,570,085
|
|
|
|
|
$
|
1,353,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
the combined results of the Predecessor and the Successor periods for the full year ended April 30, 2014. This combination was performed
by mathematical addition and is not a presentation made in accordance with GAAP. However, we believe it provides a meaningful method of comparison of net sales for the full year ended April 30,
2014 to the fiscal years ended April 30, 2016 and 2015. Net sales accounts were not impacted by the Acquisition.
40
Table of Contents
Results of Operations
Fiscal Years Ended April 30, 2016 (Fiscal 2016) and 2015 (Fiscal 2015)
The following table summarizes key components of our results of operations for the fiscal years ended April 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
April 30,
|
|
|
|
2016
|
|
2015(1)
|
|
|
|
(dollars in thousands)
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,858,182
|
|
$
|
1,570,085
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below)
|
|
|
1,265,018
|
|
|
1,091,114
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
593,164
|
|
|
478,971
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
470,035
|
|
|
396,155
|
|
Depreciation and amortization
|
|
|
64,215
|
|
|
64,165
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
534,250
|
|
|
460,320
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
58,914
|
|
|
18,651
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(37,418
|
)
|
|
(36,396
|
)
|
Change in fair value of financial instruments
|
|
|
(19
|
)
|
|
(2,494
|
)
|
Other income, net
|
|
|
3,671
|
|
|
1,916
|
|
|
|
|
|
|
|
|
|
Total other (expense), net
|
|
|
(33,766
|
)
|
|
(36,974
|
)
|
|
|
|
|
|
|
|
|
Income (loss) before tax
|
|
|
25,148
|
|
|
(18,323
|
)
|
Income tax expense (benefit)
|
|
|
12,584
|
|
|
(6,626
|
)
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP measures:
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
150,276
|
|
$
|
113,860
|
|
Adjusted EBITDA margin(2)(3)
|
|
|
7.4
|
%
|
|
6.7
|
%
|
-
(1)
-
Our
financial statements for fiscal 2015 were revised as discussed in Note 1, "Basis of Presentation, Business, and Summary of Significant Accounting
Policies" of Part II, Item 8 of this Annual Report on Form 10-K. Fiscal year ended April 30, 2015 amounts included in the table above reflect the revised balances for
income tax expense (benefit) and net income (loss).
-
(2)
-
Adjusted
EBITDA and Adjusted EBITDA margin are non-GAAP measures. See Item 6, "Selected Financial Data," for how we define and calculate Adjusted
EBITDA and Adjusted EBITDA margin, reconciliations thereof to net income (loss) and a description of why we believe these measures are important.
-
(3)
-
Our
Adjusted EBITDA for fiscal 2016 includes approximately $12.1 million from entities acquired during fiscal 2016 for the period prior to the date
of acquisition of such entities, as defined in and permitted by the ABL Facility and the Term Loan Facilities. Our Adjusted EBITDA for fiscal 2015 includes $8.1 million from entities acquired
in fiscal 2015 for the period prior to the date of acquisition of such entities, as defined in and permitted by the ABL Facility and the Term Loan Facilities. However, Adjusted EBITDA margin, which is
calculated as a percentage of net sales, excludes this $12.1 million and $8.1 million adjustment for fiscal 2016 and fiscal 2015, respectively, to be consistent with our calculation of
net sales for the same period.
41
Table of Contents
Net Sales
Net sales of $1,858.2 million for the fiscal year ended April 30, 2016 increased $288.1 million, or 18.3%, from
$1,570.1 million for the fiscal year ended April 30, 2015. Our performance in the fiscal year ended April 30, 2016 was strong as our sales increased across all product categories.
In the fiscal year ended April 30, 2016, our wallboard sales, which are impacted by both commercial and residential construction activity, increased by $152.8 million, or 21.3%, compared
to the fiscal year ended April 30, 2015. The increase in wallboard sales was a result of a 22.1% increase in unit volume primarily driven by greater end market demand, market share gains and
the impact of acquisitions, partially offset by a 0.7% decrease in pricing. In addition, in the fiscal year ended April 30, 2016, our ceiling sales increased $18.4 million, or 6.6%, from
the fiscal year ended April 30, 2015, and steel framing sales increased $38.2 million, or 15.7%. Ceiling and steel framing sales increased primarily as a result of increases in
commercial construction activity. For the fiscal year ended April 30, 2016, our other products sales category, which includes tools, insulation, joint treatment and various other products,
increased $78.7 million, or 23.8%, compared to the fiscal year ended April 30, 2015.
From
February 1, 2014 through April 30, 2016, we have completed 13 acquisitions, totaling 36 branches. These acquisitions contributed $215.8 million and
$44.4 million to our net sales in fiscal 2016 and fiscal 2015, respectively. Excluding these acquired sites, for fiscal 2016 and fiscal 2015, our base business net sales increased
$116.7 million, or 7.6%, compared to the fiscal year ended April 30, 2015. The overall increase in our base business net sales reflected the increase in demand for our products as a
result of the improvement in new housing starts, R&R activity and commercial construction, coupled with market share gains.
In
addition, our base business improved through the addition of 14 new greenfield branches opened, which contributed $57.3 million to our base business net sales in the fiscal
year ended April 30, 2016 while the nine new greenfield branches opened in fiscal 2015 contributed $21.3 million to our base business net sales for the fiscal year ended April 30,
2015.
The
following table breaks out our consolidated net sales into the base business component and the excluded component, which consist of recently acquired branches, as shown below:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
April 30,
|
|
(Unaudited)
|
|
2016
|
|
2015
|
|
|
|
(dollars in thousands)
|
|
Base business net sales
|
|
$
|
1,642,376
|
|
$
|
1,525,705
|
|
Recently acquired net sales (excluded from base business)
|
|
|
215,806
|
|
|
44,380
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,858,182
|
|
$
|
1,570,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
When
calculating our "base business" results, we exclude any branches that were acquired in the current fiscal year, prior fiscal year and three months prior to the start of the prior
fiscal year. Therefore, any acquisition occurring between February 1, 2014 and April 30, 2016 will be excluded from base business net sales for any period during fiscal 2016.
42
Table of Contents
We have excluded the following acquisitions from the base business for the periods identified:
|
|
|
|
|
|
|
|
Acquisition
|
|
Acquisition
Date
|
|
Branches
Acquired
|
|
Periods Excluded
|
Contractors' Choice Supply, Inc. (TX)
|
|
August 2014
|
|
|
1
|
|
August 2014 - April 2016
|
Drywall Supply, Inc. (NE)
|
|
October 2014
|
|
|
2
|
|
October 2014 - April 2016
|
AllSouth Drywall Supply Company (GA)
|
|
November 2014
|
|
|
1
|
|
November 2014 - April 2016
|
Serrano Supply, Inc. (IA)
|
|
February 2015
|
|
|
1
|
|
February 2015 - April 2016
|
Ohio Valley Building Products, LLC (WV)
|
|
February 2015
|
|
|
1
|
|
February 2015 - April 2016
|
J&B Materials, Inc. (CA, HI)
|
|
March 2015
|
|
|
5
|
|
March 2015 - April 2016
|
Tri-Cities Drywall & Supply Co. (WA)
|
|
September 2015
|
|
|
1
|
|
September 2015 - April 2016
|
Badgerland Supply, Inc. (WI, IL)
|
|
November 2015
|
|
|
6
|
|
November 2015 - April 2016
|
Hathaway & Sons, Inc. (CA)
|
|
November 2015
|
|
|
1
|
|
November 2015 - April 2016
|
Gypsum Supply Company (MI, OH)
|
|
January 2016
|
|
|
11
|
|
January 2016 - April 2016
|
Robert N. Karpp Company, Inc. (MA)
|
|
February 2016
|
|
|
3
|
|
February 2016 - April 2016
|
Professional Handling & Distribution, Inc. (IL)
|
|
February 2016
|
|
|
2
|
|
February 2016 - April 2016
|
M.R. Lee Building Materials, Inc. (IL)
|
|
April 2016
|
|
|
1
|
|
April 2016
|
Gross Profit and Gross Margin
Gross profit was $593.2 million for the fiscal year ended April 30, 2016 compared to $479.0 million for the fiscal
year ended April 30, 2015. The increase in gross profit was due to $288.1 million in additional sales, partially offset by a $173.9 million increase in cost of sales. Gross margin
on net sales increased to 31.9% for the fiscal year ended April 30, 2016 from 30.5% for the fiscal year ended April 30, 2015 primarily as the result of improved product margins and mix.
Our gross margin for the fiscal year ended April 30, 2015 was negatively impacted by 29 basis points due to the increase in cost of sales of $4.5 million related to a purchase
accounting adjustment related to the Acquisition. This fair value adjustment increased our cost of sales as the increase in inventory value was recorded over the average inventory turnover period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of warehouse, delivery and general and administrative expenses. Our selling,
general and administrative expenses increased $73.9 million, or 18.6%, to $470.0 million for the fiscal year ended April 30, 2016 from $396.2 million for the fiscal year
ended April 30, 2015. This increase was due to increases in warehouse expense of $10.7 million, of which $4.8 million was related to payroll; delivery expense of
$30.7 million, of which $21.1 million was related to payroll and $6.2 million was related to equipment rental cost increases; and increases in branch and corporate general and
administrative expenses of $32.4 million, of which $17.4 million was related to payroll, $7.5 million was related to employee benefits, $4.1 million was related to
increases in real estate rental expense and $1.9 million was related to the costs of acquisitions and our initial public offering. The increases in payroll and payroll related costs were
primarily due to increased headcount, which was due to the increase in delivered volume, acquisitions and the expansion of the Yard Support Center. Selling, general and administrative expenses were
25.3% and 25.2% of our net sales for the fiscal years ended April 30, 2016 and 2015, respectively.
Depreciation and Amortization Expense
Depreciation and amortization expense was $64.2 million for each of the fiscal years ended April 30, 2016 and 2015.
Depreciation expense decreased by $5.5 million, due to assets becoming fully depreciated but was fully offset by an increase in amortization of acquired definite lived intangible assets of
$5.5 million. The definite lived intangible assets primarily consists of customer relationships obtained from acquisitions during fiscal 2016 and fiscal 2015.
43
Table of Contents
Other Expense
Other expense consists primarily of interest expense associated with our debt, interest income and miscellaneous non-operating income.
Interest
expense increased by $1.0 million to $37.4 million in the fiscal year ended April 30, 2016 from $36.4 million for the fiscal year ended
April 30, 2015. The Term Loan Facilities had a balance of $542.2 million and $546.1 million as of April 30, 2016 and 2015, respectively. See "Our Credit
Facilities." Interest expense of $31.3 million and $31.3 million related to the Term Loan Facilities was recognized for fiscal 2016 and fiscal 2015, respectively. Cash paid for interest
on the First Lien Facility was $18.5 million and $18.7 million in the fiscal years ended April 30, 2016 and 2015, respectively. Cash paid for interest on the Second Lien Facility
was $13.6 million and $11.5 million in the fiscal years ended April 30, 2016 and 2015, respectively. As discussed in "Recent Events" we fully repaid the Second Lien
Facility using net proceeds from our IPO. The ABL Facility, which was entered into in connection with the Acquisition, had a $101.9 million and $17.0 million outstanding balance as of
April 30, 2016 and 2015, respectively, and interest expense of $2.0 million and $1.2 million for fiscal 2016 and fiscal 2015, respectively. Other interest expense incurred in
fiscal 2016 and fiscal 2015 was $4.1 million and $3.9 million, respectively, primarily consisting of interest expense related to capitalized leases and deferred financing costs and
discounts amortized to interest expense.
Income Tax Expense (Benefit)
Income tax expense was $12.6 million for the fiscal year ended April 30, 2016 compared to an income tax benefit of
$6.6 million for the fiscal year ended April 30, 2015. This $19.2 million increase in income tax expense was primarily the result of an increase in taxable income due to higher
profitability. Our effective tax rate was 50.0% and 36.2% for the fiscal years ended April 30, 2016 and 2015, respectively. The increase in the rate from the fiscal year ended April 30,
2015 to the fiscal year ended April 30, 2016 is due to the generation of pre-tax operating profit. The effective tax rate of 50.0% varies from the federal and state blended statutory rate of
approximately 38.1%. This variance was driven primarily by the non-deductibility of interest expense and specific intangible asset amortization in certain states, which increased the effective rate by
5.2%. The remainder of the variance was related to other permanent non-deductible items, including meals and entertainment, certain transaction costs, and liabilities to noncontrolling interest
holders.
Net Income (Loss)
Net income of $12.6 million for the fiscal year ended April 30, 2016 increased $24.3 million from our net loss of
$11.7 million for the fiscal year ended April 30, 2015. The net income of $12.6 million for the fiscal year ended April 30, 2016 was comprised of operating profit of
$58.9 million, interest expense of $37.4 million, other income of $3.7 million and income tax expense of $12.6 million. The net loss of $11.7 million for the fiscal
year ended April 30, 2015 was comprised of operating profit of $18.7 million, interest expense of $36.4 million, decrease in the fair value of financial instruments of
$2.5 million, other income of $1.9 million and income tax benefit of $6.6 million.
Adjusted EBITDA
Adjusted EBITDA of $150.3 million for the fiscal year ended April 30, 2016 increased $36.4 million, or 32.0%, from
our Adjusted EBITDA of $113.9 million for the fiscal year ended April 30, 2015. The increase in Adjusted EBITDA was primarily due to increased profitability on higher net sales during
the fiscal year ended April 30, 2016, which was partially offset by increases in variable costs to support the increased sales volumes. These variable costs include warehouse and delivery costs
and other variable compensation.
44
Table of Contents
Fiscal Year Ended April 30, 2015 (Fiscal 2015), One Month Ended April 30, 2014
(Fiscal 2014 Successor Period) and Eleven Months Ended March 31, 2014 (Fiscal 2014 Predecessor Period)
The following table summarizes key components of our results of operations for the fiscal year ended April 30, 2015, the one
month ended April 30, 2014 and the eleven months ended March 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Successor
|
|
Predecessor
|
|
|
|
Fiscal Year
Ended
April 30, 2015(1)
|
|
One Month
Ended
April 30, 2014
|
|
Eleven Months
Ended
March 31, 2014
|
|
|
|
(dollars in thousands)
|
|
Statement of operations data
:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,570,085
|
|
$
|
127,332
|
|
$
|
1,226,008
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below)
|
|
|
1,091,114
|
|
|
97,955
|
|
|
853,020
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
478,971
|
|
|
29,377
|
|
|
372,988
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
396,155
|
|
|
46,052
|
|
|
352,930
|
|
Depreciation and amortization
|
|
|
64,165
|
|
|
6,336
|
|
|
12,253
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
460,320
|
|
|
52,388
|
|
|
365,183
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
18,651
|
|
|
(23,011
|
)
|
|
7,805
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(36,396
|
)
|
|
(2,954
|
)
|
|
(4,226
|
)
|
Change in fair value of financial instruments
|
|
|
(2,494
|
)
|
|
|
|
|
|
|
Change in fair value of mandatorily redeemable common shares(2)
|
|
|
|
|
|
|
|
|
(200,004
|
)
|
Other income, net
|
|
|
1,916
|
|
|
149
|
|
|
2,187
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense), net
|
|
|
(36,974
|
)
|
|
(2,805
|
)
|
|
(202,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before tax
|
|
|
(18,323
|
)
|
|
(25,816
|
)
|
|
(194,238
|
)
|
Income tax (benefit) expense
|
|
|
(6,626
|
)
|
|
(6,863
|
)
|
|
6,623
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(11,697
|
)
|
$
|
(18,953
|
)
|
$
|
(200,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP measures:
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(3)
|
|
$
|
113,860
|
|
$
|
8,372
|
|
$
|
78,690
|
|
Adjusted EBITDA margin(3)(4)
|
|
|
6.7
|
%
|
|
6.6
|
%
|
|
6.4
|
%
|
-
(1)
-
Our
financial statements for fiscal 2015 were revised as discussed in Note 1, "Basis of Presentation, Business, and Summary of Significant Accounting
Policies" of Part II, Item 8 of this Annual Report on Form 10-K. Fiscal year ended April 30, 2015 amounts included in the table above reflect the revised balances for
income tax (benefit) expense and net (loss).
-
(2)
-
Represents
the change in fair value of mandatorily redeemable common shares of the Predecessor, all of which were acquired by the Company on April 1,
2014 in connection with the Acquisition. These shares had certain redemption features which provided that upon the death or disability of the shareholder or termination of his employment, Predecessor
would be required to purchase these shares at their then current fair values. Pursuant to this provision, these shares were deemed to be mandatorily redeemable and, as such, were required to be
reflected as a liability at their estimated fair values at the end of any reporting period. Changes in fair value are reflected as "Change in fair value of mandatorily redeemable common shares" on our
consolidated statements of operations. Fair value was estimated based on commonly used valuation techniques. For additional details, see Note 9, "Predecessor Mandatorily Redeemable Common
Shares" of Part II, Item 8 of this Annual Report on Form 10-K.
45
Table of Contents
-
(3)
-
Adjusted
EBITDA and Adjusted EBITDA margin are non-GAAP measures. See Item 6, "Selected Financial Data," for how we define and calculate Adjusted
EBITDA and Adjusted EBITDA margin, reconciliations thereof to net income (loss) and a description of why we believe these measures are important.
-
(4)
-
Our
Adjusted EBITDA for fiscal 2015 includes approximately $8.1 million from entities acquired in fiscal 2015 for the period prior to the date of
acquisition of such entities, as defined in and permitted by the ABL Facility and the Term Loan Facilities. However, Adjusted EBITDA margin, which is calculated as a percentage of net sales, excludes
this $8.1 million adjustment for fiscal 2015 to be consistent with our calculation of net sales for the same period.
Net Sales
Net sales of $1,570.1 million for the fiscal year ended April 30, 2015 increased $216.7 million, or 16.0%, from
$1,353.3 million for the full year ended April 30, 2014. Our performance in fiscal 2015 was strong as our sales increased across all product categories. In fiscal 2015, our wallboard
sales, which are impacted by both commercial and residential construction activity, increased by $115.3 million, or 19.1% from the full year ended April 30, 2014, primarily as a result
of a 6.9% increase in product prices and an 11.5% increase in unit volume. In addition, in fiscal 2015, our ceiling sales increased $21.8 million, or 8.5%, from the full year ended
April 30, 2014, and steel framing sales increased $26.6 million, or 12.3%. Ceiling and steel framing sales are primarily driven by commercial construction activity.
During
the fiscal year ended April 30, 2015, we completed six acquisitions, totaling 11 branches. During the full year ended April 30, 2014, we completed two acquisitions,
totaling two branches. These acquisitions contributed $71.0 million and $14.1 million to our net sales in fiscal 2015 and the full year 2014, respectively. Excluding the sites we
acquired in fiscal 2015 and full year 2014, our base business net sales increased 11.9% compared to the full year ended April 30, 2014. When calculating our "base business" results, we exclude
any branches that were acquired in the current fiscal year, prior fiscal year and three months prior to the start of the prior fiscal year. The overall increase in our base business net sales for
fiscal 2015 reflected the increase in demand for our products as a result of the improvement in new housing starts, R&R activity and commercial construction, coupled with market share gains attributed
to continued improvements in customer service levels. In addition, our base business improved through the addition of nine new branches opened in fiscal 2015. These new branches contributed
$21.3 million to our base business net sales in fiscal 2015.
The
following table breaks out our consolidated net sales into the base business component and the excluded components, which are the recently acquired branches excluded from the base
business:
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Fiscal Year
Ended
April 30, 2015
|
|
Full Year
Ended
April 30, 2014
|
|
|
|
(dollars in thousands)
|
|
Base business net sales
|
|
$
|
1,499,036
|
|
$
|
1,339,228
|
|
Recently acquired net sales (excluded from base business)
|
|
|
71,049
|
|
|
14,112
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,570,085
|
|
$
|
1,353,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Table of Contents
We
have excluded the following acquisitions from the base business for the periods identified:
|
|
|
|
|
|
|
|
Acquisition
|
|
Acquisition
Date
|
|
Branches
Acquired
|
|
Periods Excluded
|
Dakota Gypsum (ND)
|
|
August 2013
|
|
|
1
|
|
August 2013 - April 2015
|
Sun Valley Supply, Inc. (AZ)
|
|
August 2013
|
|
|
1
|
|
August 2013 - April 2015
|
Contractors' Choice Supply, Inc. (TX)
|
|
August 2014
|
|
|
1
|
|
August 2014 - April 2015
|
Drywall Supply, Inc. (NE)
|
|
October 2014
|
|
|
2
|
|
October 2014 - April 2015
|
AllSouth Drywall Supply Company (GA)
|
|
November 2014
|
|
|
1
|
|
November 2014 - April 2015
|
Serrano Supply, Inc. (IA)
|
|
February 2015
|
|
|
1
|
|
February 2015 - April 2015
|
Ohio Valley Building Products, LLC (WV)
|
|
February 2015
|
|
|
1
|
|
February 2015 - April 2015
|
J&B Materials, Inc. (CA, HI)
|
|
March 2015
|
|
|
5
|
|
March 2015 - April 2015
|
Gross Profit and Gross Margin
Gross profit was $479.0 million for the fiscal year ended April 30, 2015. Gross profit during the one month ended
April 30, 2014 and the eleven months ended March 31, 2014 was $29.4 million and $373.0 million, respectively. As a result of the Acquisition, we applied the acquisition
method of accounting and increased the value of our inventory by $12.8 million as of April 1, 2014. This adjustment increased our cost of sales during the fiscal year ended
April 30, 2015 and the one month ended April 30, 2014 by $4.5 million and $8.3 million, respectively, as the related inventory was sold. Gross margin on net sales was 30.5%
for the fiscal year ended April 30, 2015. Our gross margin on net sales during the one month ended April 30, 2014 and the eleven months ended March 31, 2014 was 23.1% and 30.4%,
respectively. The purchase accounting adjustments to cost of sales negatively impacted our gross margin on net sales during the fiscal year ended April 30, 2015 and the one month ended
April 30, 2014 by 29 basis points and 652 basis points, respectively. The favorable gross profit in fiscal 2015 was primarily the result of increased volumes and higher pricing,
partially offset by higher cost of sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of warehouse, delivery and general and administrative expenses. Our selling,
general and administrative expenses were $396.2 million for the fiscal year ended April 30, 2015. For the one month ended April 30, 2014 and the eleven months ended
March 31, 2014, selling, general and administrative expenses were $46.1 million and $352.9 million, respectively. With respect to costs related to the Acquisition,
$16.2 million and $51.8 million were included in selling, general and administrative expenses for the one month ended April 30, 2014 and the eleven months ended March 31,
2014, respectively. Selling, general and administrative expenses were $399.0 million for the full year 2014. Excluding costs related to the Acquisition, these expenses were
$331.0 million. Excluding the Acquisition related costs, selling, general and administrative expenses increased $65.2 million, or 19.7%, to $396.2 million for the fiscal year
ended April 30, 2015. This increase was due to increases in warehouse expense of $3.3 million, of which $2.0 million was related to payroll; delivery expense of
$18.9 million, of which $11.8 million was related to payroll; and increases in branch and corporate general and administrative expenses of $43.0 million, of which
$24.1 million was related to payroll. The increases in payroll and payroll related costs were primarily due to increased headcount, which was due to the increase in delivered volume,
acquisitions and the expansion of the yard support center. Selling, general and administrative expenses were 25.2%, 36.2% and 28.8% of our net sales during the fiscal year ended April 30, 2015,
the one month ended April 30, 2014 and the eleven months ended March 31, 2014, respectively. Costs related to the Acquisition increased the percentage for the one month ended
April 30, 2014 and the eleven months ended March 31, 2014 by 1,272 basis points and 423 basis points, respectively.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were $64.2 million for the fiscal year ended April 30, 2015. For the one month
ended April 30, 2014 and the eleven months ended March 31, 2014, depreciation and amortization expenses were $6.3 million and $12.3 million, respectively. As a result of
the application of purchase accounting, at
47
Table of Contents
April 1,
2014, we increased the values of certain long-lived assets, including property and equipment. The impact of such adjustments increased depreciation expenses during the fiscal year
ended April 30, 2015 and the one month ended April 30, 2014 by $16.4 million and $2.6 million, respectively. Amortization of definite-lived intangibles for the fiscal year
ended April 30, 2015 was $32.0 million and was comprised of amortization on intangible assets acquired in the AEA Transaction. Amortization expenses for the one month ended
April 30, 2014 was $2.5 million, representing one month of expense for the acquired intangibles.
Other Expense
Other expense primarily consists of interest expense associated with our debt, interest income, miscellaneous non-operating income and
the change in fair value associated with the mandatorily redeemable common shares of Predecessor.
Interest
expense was $36.4 million in the fiscal year ended April 30, 2015. For the one month ended April 30, 2014 and the eleven months ended March 31, 2014,
interest expense was $3.0 million and $4.2 million, respectively. Our interest expense increased, subsequent to the Acquisition closing date, as a result of the incurrence of the term
loan debt in connection with the Acquisition. Amounts outstanding under our $175.0 million 2010 Credit Facility were fully repaid with the proceeds of the Term Loan Facilities. See
"Our Credit Facilities." The Term Loan Facilities had a balance of $546.1 million and $550.0 million as of April 30, 2015 and 2014, respectively. Interest expense of
$31.3 million and $2.6 million related to the Term Loan Facilities was recognized for the fiscal year ended April 30, 2015 and the one month ended April 30, 2014,
respectively. The ABL Facility, which was entered into in connection with the Acquisition, had a balance of $17.0 million as of April 30, 2015 and interest expense of $1.2 million
for the fiscal year ended April 30, 2015. Other interest expense incurred in the fiscal year ended April 30, 2015 was $3.9 million, primarily related to deferred financing costs
and discounts amortized to interest expense.
Because
Predecessor common stock included features that required Predecessor to redeem such shares upon the death or termination of employment with Predecessor by the shareholder, we
reflected the change in such fair value as a non-operating charge in our consolidated statements of operations for the eleven months ended March 31, 2014. This non-cash charge was
$200.0 million for the eleven months ended March 31, 2014. The change in the fair value of mandatorily redeemable common shares was attributable to appreciation of the value of the
common shares. On April 1, 2014, all outstanding shares were acquired in the Acquisition. See Note 9, "Predecessor Mandatorily Redeemable Common Shares" of Part II, Item 8
of this Annual Report on Form 10-K.
Income Tax (Benefit) Expense
Income tax benefit was $6.6 million for the fiscal year ended April 30, 2015. For the one month ended April 30,
2014, we recorded an income tax benefit of $6.9 million. For the eleven months ended March 31, 2014, we recorded an income tax expense of $6.6 million. We recorded valuation
allowances of $0.1 million, $1.3 million and $1.4 million in the fiscal year ended April 30, 2015, the one month ended April 30, 2014 and the eleven months ended
March 31, 2014, respectively. Our effective tax rate was 36.2%, 26.6% and 3.4% for the fiscal year ended April 30, 2015, the one month ended April 30, 2014 and the eleven months
ended March 31, 2014, respectively. Tax (benefit) expense for the one month ended April 30, 2014 and the eleven months ended March 31, 2014 differs from the statutory rate due to
non-deductible charges related to non-deductible Acquisition-related transaction costs, state taxes and other permanent items. For the eleven months ended March 31, 2014, the primary drivers of
the effective rate of 3.4% (or tax expense of $6.6 million) were $70.0 million of change in fair value of mandatorily redeemable common shares, $1.4 million in state income taxes,
$2.2 million in non-deductible Acquisition-related transaction costs and $0.1 million of other permanent differences offset by $68.0 million of tax at the statutory rate.
Net Loss
Net loss was $11.7 million, $19.0 million and $200.9 million, for the fiscal year ended April 30, 2015, the
one month ended April 30, 2014 and the eleven months ended March 31, 2014, respectively. The net loss of
48
Table of Contents
$11.7 million
for the fiscal year ended April 30, 2015 was comprised of operating profit of $18.7 million, interest expense of $36.4 million, decrease in the fair value of
financial instruments of $2.5 million, other income of $1.9 million and income tax benefit of $6.6 million. The net loss of $19.0 million for the one month ended
April 30, 2014 was comprised of operating loss of $23.0 million, interest expense of $3.0 million, other income of $0.2 million and income tax benefit of
$6.9 million. The net loss of $200.9 million for the eleven months ended March 31, 2014 was comprised of operating income of $7.8 million, interest expense of
$4.2 million, increase in the fair value of mandatorily redeemable common shares of $200.0 million, other income of $2.2 million and income tax expense of $6.6 million.
Adjusted EBITDA
Adjusted EBITDA of $113.9 million for the fiscal year ended April 30, 2015 increased $26.8 million, or 30.8%, from
our Adjusted EBITDA of $87.1 million for the full year ended April 30, 2014. Excluding $8.1 million in contributions from acquisitions for the pre-acquisition period, Adjusted
EBITDA margin increased approximately 31 basis points to 6.7% in the fiscal year ended April 30, 2015, compared to 6.4% in the full year ended April 30, 2014. The increase in Adjusted
EBITDA was primarily due to increased profitability on higher net sales during the fiscal year ended April 30, 2015, which was partially offset by increases in variable costs to support the
increased sales volumes. These variable costs include warehouse and delivery costs and other variable compensation. Additionally, expenses at our Yard Support Center increased approximately
$4.5 million in fiscal 2015, primarily due to higher payroll and payroll related costs associated with an increase in corporate headcount and higher incentive compensation expense associated
with our strong financial performance. See "Non-GAAP Financial Measures" for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly
comparable financial measure calculated in accordance with GAAP.
Liquidity and Capital Resources
Summary
We depend on cash flow from operations, cash on hand and funds available under the ABL Facility to finance working capital needs and
capital expenditures. We believe that these sources of funds will be adequate to fund debt service requirements and provide cash, as required, to support our strategies, ongoing operations, capital
expenditures, lease obligations and working capital for at least the next 12 months.
In
February 2016, we amended our ABL Facility to exercise the $100.0 million accordion feature of the ABL Facility which increased the aggregate revolving commitments from
$200.0 million to $300.0 million and increased the sublimit for same day swing line borrowings from $20.0 million to $30.0 million. The other terms of the ABL Facility
remain unchanged.
As
of April 30, 2016, we had available borrowing capacity of approximately $187.2 million under our $300.0 million ABL Facility, after giving effect to the amendment
to the ABL Facility. For a summary of selected terms of the ABL Facility and other indebtedness, see "Our Credit Facilities."
During
the fiscal years ended April 30, 2016 and 2015, our use of cash was primarily driven by our investing activities, particularly our investments in acquisitions and property
and equipment for our operating facilities.
As
discussed in "Recent Events" we repaid the Second Lien Term Loan using proceeds from our Initial Public Offering.
Treasury Stock
In the fiscal year ended April 30, 2016, we repurchased 394,577 shares of our common stock at a cost of $5.8 million in
connection with our separation agreement with a former employee. We then reissued these shares for proceeds of $4.9 million. 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 accumulated deficit of $1.0 million. We do not have plans to repurchase a significant number of shares
in the near future.
49
Table of Contents
Cash Flows
A summary of our operating, investing and financing activities is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Fiscal Year
Ended
April 30, 2016
|
|
Fiscal Year
Ended
April 30, 2015
|
|
One Month
Ended
April 30, 2014
|
|
|
|
Eleven Months
Ended
March 31, 2014
|
|
|
|
(in thousands)
|
|
Cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
47,747
|
|
$
|
48,023
|
|
$
|
(14,925
|
)
|
|
|
|
$
|
36,059
|
|
Cash flows used in investing activities
|
|
|
(111,442
|
)
|
|
(81,466
|
)
|
|
(703,300
|
)
|
|
|
|
|
(8,371
|
)
|
Cash flows provided by (used in) financing activities
|
|
|
70,483
|
|
|
13,065
|
|
|
750,887
|
|
|
|
|
|
(16,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
6,788
|
|
$
|
(20,378
|
)
|
$
|
32,662
|
|
|
|
|
$
|
10,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Cash from operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization,
equity-based compensation, deferred taxes and the effects of changes in operating assets and liabilities, which were primarily the changes in working capital discussed above.
Net
cash provided by operating activities was $47.7 million for the fiscal year ended April 30, 2016. This cash provided by operating activities was the result of net
income of $12.6 million, non-cash adjustments of $70.8 million, including depreciation and amortization of $67.7 million, and changes in current assets and liabilities of
$11.8 million, partially offset by cash used for primary working capital of $27.0 million, primarily driven by an increase in trade accounts and notes receivable, and deferred tax
benefits of $20.5 million.
Net
cash provided by operating activities was $48.0 million for the fiscal year ended April 30, 2015. This primarily consisted of non-cash charges of $81.0 million,
including depreciation and amortization of $67.5 million, combined with changes in current assets and liabilities of $20.3 million, partially offset by a net loss of
$11.7 million, deferred tax benefits of $21.7 million and changes in primary working capital of $19.9 million, which was necessary to support the sales increases in the fiscal
year ended April 30, 2015 as well as the addition of acquired businesses and new branches.
Net
cash used in operating activities was $14.9 million in the one month ended April 30, 2014, which primarily consisted of a net loss of $19.0 million and deferred
tax benefits of $6.9 million, partially offset by non-cash charges of $7.8 million, including depreciation and amortization of $6.6 million, combined with changes in current
assets and liabilities of $3.2 million. In the eleven months ended March 31, 2014, cash provided by operating activities of $36.1 million was primarily driven by non-cash charges
of $214.7 million, including the change in fair value of mandatorily redeemable common shares of $200.0 million and depreciation and amortization of $12.8 million, combined with
changes in current assets and liabilities of $57.0 million including approximately $48.9 million in costs associated with the Acquisition, partially offset by a net loss of
$200.9 million, deferred tax benefits of $7.1 million and changes in primary working capital of $27.6 million.
Investing Activities
Net cash used in investing activities consists primarily of cash used for acquisitions; investments in our facilities including
purchases of land, buildings, and leasehold improvements; and purchases of fleet assets, IT, and other equipment. We present this figure net of proceeds from asset sales which typically relate to
sales of our fleet assets and assets held for sale.
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Table of Contents
In
the fiscal year ended April 30, 2016, net cash used in investing activities was $111.4 million, net of $9.8 million in proceeds from asset sales. This amount
consisted of $113.6 million used to acquire seven businesses, $2.5 million of facilities expenditures consisting of building and leasehold improvements, and $5.1 million of other
capital expenditures in fiscal 2016.
In
the fiscal year ended April 30, 2015, net cash used in investing activities was $81.5 million, net of $3.8 million in proceeds from asset sales. This amount
consisted of $66.7 million used to acquire six businesses, $4.6 million used to acquire an interest rate cap (see Note 1, "Basis of Presentation, Business and Summary of
Significant Accounting Policies" of Part II, Item 8 of this Annual Report on Form 10-K), $10.1 million of facilities expenditures and $3.8 million of other capital
expenditures. Our facilities expenditures included investments made to purchase land and warehouses for the purpose of relocating and optimizing branches in Atlanta, Georgia and Milton, Florida and
leasehold improvements associated with the relocation of our corporate headquarters.
During
the one month ended April 30, 2014, net cash used in investing activities was $703.3 million. Of this amount, $703.0 million was used in the Acquisition.
During
the eleven months ended March 31, 2014, net cash used in investing activities was $8.4 million, net of $4.4 million in proceeds from asset sales. This amount
consisted of $5.0 million used to acquire two businesses, $3.8 million in facilities expenditures and $3.9 million of other capital expenditures. Our facilities expenditures
included investments made to purchase land and warehouses for the purpose of relocating and optimizing branches in Winston-Salem, North Carolina and Duluth, Georgia.
Capital
expenditures vary depending on prevailing business factors, including current and anticipated market conditions. Historically, capital expenditures have for the most part
remained at relatively low levels in comparison to the operating cash flows generated during the corresponding periods. We expect our fiscal 2017 capital expenditures to be approximately
$8.0 million to $10.0 million (excluding acquisitions) primarily related to fleet and equipment purchases, facilities and IT investments to support our operations.
Financing Activities
Cash provided by, or used in, financing activities consists primarily of borrowings and related repayments under our credit agreements,
as well as repayments of capital lease obligations and proceeds from the sales of equity.
Net
cash provided by financing activities was $70.5 million for the fiscal year ended April 30, 2016, consisting primarily of net borrowings from the ABL Facility of
$85.0 million and proceeds from stock option exercises of $5.4 million, offset by payments of contingent consideration of $6.6 million, principal payments on long-term debt and
capital lease obligations of $8.2 million, stock repurchases of $4.7 million after giving effect to the exercise of certain options and the repurchase of the related shares and debt
issuance costs of $0.4 million incurred in connection with the exercise of the accordion feature of the ABL Facility
Net
cash provided by financing activities was $13.1 million for the fiscal year ended April 30, 2015, consisting primarily of net borrowings from the ABL Facility of
$17.0 million. In the one month ended April 30, 2014, cash provided from financing activities was $750.9 million, which consisted of $546.5 million (net of original issue
discount) received from the issuance of debt under the Term Loan Facilities and $224.1 million received from the sales of our common stock as a result of the Acquisition. In the eleven months
ended March 31, 2014, cash used in financing activities of $16.9 million primarily consisted of net cash repayments on the 2010 Credit Facility of $13.8 million. For the fiscal
year ended April 30, 2013, cash provided by financing activities of $5.4 million primarily consisted of borrowings of $9.5 million on the 2010 Credit Facility, partially offset by
principal payments on long-term debt and capital lease obligations.
Adjusted Working Capital
Adjusted working capital is an important measurement that we use in determining the efficiencies of our operations and our ability to
readily convert assets into cash. Adjusted working capital represents current assets,
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excluding
cash and cash equivalents, minus current liabilities, excluding current maturities of long-term debt. The material components of adjusted working capital for us include accounts receivable,
inventory and accounts payable. Management of our adjusted working capital helps to ensure we can maximize our return and continue to invest in our operations for future growth. Comparing our adjusted
working capital to that of other companies in our industry may be difficult, as other companies may calculate adjusted working capital differently than we do. A summary of working capital and adjusted
working capital as of April 30, 2016, 2015 and 2014 is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
April 30,
2015
|
|
April 30,
2014
|
|
|
|
(in thousands)
|
|
Trade accounts and notes receivable, net of allowances
|
|
$
|
270,257
|
|
$
|
214,321
|
|
$
|
188,612
|
|
Inventories, net
|
|
|
165,766
|
|
|
147,603
|
|
|
135,309
|
|
Accounts payable
|
|
|
(91,500
|
)
|
|
(77,834
|
)
|
|
(70,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344,523
|
|
|
284,090
|
|
|
253,815
|
|
Other current assets
|
|
|
46,667
|
|
|
65,056
|
|
|
66,084
|
|
Other current liabilities
|
|
|
(129,075
|
)
|
|
(128,950
|
)
|
|
(72,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
262,115
|
|
$
|
220,196
|
|
$
|
247,469
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
(19,072
|
)
|
|
(12,284
|
)
|
|
(32,662
|
)
|
Current maturities of long term debt
|
|
|
35,581
|
|
|
23,709
|
|
|
6,085
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted working capital
|
|
$
|
278,624
|
|
$
|
231,621
|
|
$
|
220,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
adjusted working capital increased by $47.0 million from April 30, 2015 to April 30, 2016 as a result of an increase in working capital of $41.9 million
and current maturities of long term debt of $11.9 million, offset by a $6.8 million increase in cash and cash equivalents. Working capital increased by $41.9 million as a result
of an increase in trade accounts and notes receivable and inventories, net of $55.9 million and $18.2 million, respectively, partially offset by an increase in accounts payable of
$13.7 million and a decrease in other current assets of $18.4 million. The increase in trade accounts and notes receivable was related to increases in sales and to working capital needs
related to acquisitions.
Our
adjusted working capital increased by $10.7 million from April 30, 2014 to April 30, 2015 as a result of an increase in trade accounts and notes receivable and
inventories, net of $25.7 million and $12.3 million, respectively, partially offset by an increase in accounts payable of $7.7 million and an increase in other current
liabilities, net (excluding cash and cash equivalents and current maturities of long-term debt), of $19.5 million. The increases in trade accounts and notes receivable, inventories, net and
accounts payable were related to increases in sales and to working capital needs related to acquisitions. The increase in other current liabilities, net (excluding cash and cash equivalents and
current maturities of long-term debt) was related to increases in accrued compensation and employee benefits of $12.2 million and other accrued liabilities of $26.7 million, partially
offset by an increase to prepaid expenses and other current assets of $23.7 million. Working capital decreased $27.3 million from April 30, 2014 to April 30, 2015 as a
result of the same factors which impacted adjusted working capital combined with the decrease in cash and cash equivalents of $20.4 million and the increase in current maturities of long-term
debt of $17.6 million.
Our Credit Facilities
Our long-term debt consisted of the following at April 30, 2016 and 2015:
Acquisition Debt (Successor)
On April 1, 2014, our wholly-owned subsidiaries, GYP Holdings II Corp., as parent guarantor, and GYP Holdings III Corp., as
borrower, entered into the Term Loan Facilities in the aggregate amount of $550.0 million in connection with the Acquisition. The proceeds from the Term Loan Facilities were used to
(i) repay all amounts
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Table of Contents
outstanding
under the 2010 Credit Facility in the amount of $86.1 million, (ii) pay the Acquisition purchase price and (iii) pay related fees and expenses.
The
First Lien Facility was issued in an original aggregate principal amount of $388.1 million (net of $1.9 million of original issue discount). The Second Lien Facility
was issued in an original aggregate principal amount of $158.4 million (net of $1.6 million of original issue discount). At April 30, 2016, the borrowing interest rates for the
First Lien Facility and Second Lien Facility were 4.75% and 7.75%, respectively. Accrued interest, presented within other accrued expenses and current liabilities in our consolidated balance sheets,
was approximately $0.2 million and $1.1 million at April 30, 2016 and 2015, respectively, and cash paid for interest was $32.1 million and $30.3 million in the
fiscal year ended April 30, 2016 and 2015, respectively. The First Lien Facility permits us to add one or more incremental term loans up to a fixed amount of $100.0 million (shared with
the Second Lien Facility) plus a certain amount depending on a secured first lien leverage ratio test included in the First Lien Facility. The Second Lien Facility permits us to also add one or more
incremental term loans up to a fixed amount of $100.0 million (shared with the First Lien Facility) plus a certain amount depending on a secured leverage ratio test included in the Second Lien
Facility. The First Lien Facility bears interest at LIBOR (subject to a floor of 1.00%) plus a borrowing margin of 3.75%. The Second Lien Facility bears interest at LIBOR (subject to a floor of 1.00%)
plus a borrowing margin of 6.75%. The First Lien Facility amortizes in nominal quarterly installments equal to approximately $975 thousand or 0.25% of the original aggregate principal amount of
the First Lien Facility and matures on April 1, 2021. The Second Lien Facility has no amortization and matures on April 1, 2022. Provided that the individual affected lenders agree
accordingly, the maturities of the term loans under the Term
Loan Facilities, may, upon our request and without the consent of any other lender, be extended. Further, we are not subject to any financial maintenance covenants pursuant to the terms of the Term
Loan Facilities.
In
connection with our IPO on June 1, 2016, we used net proceeds of $157.2 million together with cash on hand to repay the $160.0 million principal amount of our
term loan debt outstanding under the Second Lien Facility, which was a payment in full of the entire loan balance due under the Second Lien Facility. See "Recent Events."
Asset Based Lending Facility (Successor)
The asset-based revolving credit facility, or the ABL Facility, entered into on April 1, 2014, provides for revolving loans and
the issuance of letters of credit up to an initial maximum aggregate principal amount of $200.0 million. 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,
2016 and 2015, there were approximately $0.4 million and $0.3 million accrued interest payable, respectively, on the ABL Facility. In the fiscal year ended April 30, 2016 and
2015, we paid interest and other fees of $1.9 million and $0.9 million, respectively, on the ABL Facility.
In
February 2016, we amended our ABL Facility to exercise the $100.0 million accordion feature of the ABL Facility which increased the aggregate revolving commitments from
$200.0 million to $300.0 million and increased the sublimit for same day swing line borrowings from $20.0 million to $30.0 million. The other terms of the ABL Facility
remain unchanged.
At
our 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 Credit Agreement, based on average daily availability for the most recent fiscal quarter. The ABL Facility also
contains an unused commitment fee subject to utilization, as included in the ABL Facility Credit Agreement.
The
ABL Facility will mature on April 1, 2019 unless the individual affected lenders agree to extend the maturity of their respective loans under the ABL Facility upon our request
and without the consent of any other lender. The ABL Facility contains a cross default provision with the Term Loan Facility.
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Table of Contents
As
of April 30, 2016, approximately $187.2 million was available for future borrowings under our ABL Facility, after giving effect to the amendment to the ABL Facility.
Collateral under the ABL Facility and Term Loan Facilities
The ABL Facility is collateralized by (a) first priority perfected liens on our (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) third priority perfected liens on our remaining assets not constituting ABL Priority Collateral, subject to customary exceptions (collectively, "Term Priority Collateral").
The
First Lien Facility and the Second Lien Facility are collateralized by (a) first priority liens and second priority liens, respectively, on the Term Priority Collateral and
(b) second priority liens and third priority liens, respectively, on the ABL Priority Collateral, subject to customary exceptions.
Prepayments under the ABL Facility and Term Loan Facilities
The ABL Facility may be prepaid at our 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 and (ii) the aggregate amount of commitments. Mandatory prepayments do not result in a permanent reduction of the
lenders' commitments under the ABL Facility.
The
Term Loans under the Term Loan Facilities may be prepaid at any time without penalty. 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 assets sales and issuances or incurrences of non-permitted 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, 2016 and 2015, there was no requirement for a prepayment related to excess cash flow nor were there fees related to the repayment of the Second Lien Facility. See
"Recent Events."
Guarantees
GYP Holdings III Corp. is the borrower under Term Loan Facilities and the lead borrower under the ABL Facility. Our wholly-owned
subsidiary, GYP Holdings II Corp. (and direct parent of GYP Holdings III Corp.) guarantees our payment obligations under the Term Loan Facilities and the ABL Facility. Certain of our other
subsidiaries are co-borrowers under the ABL Facility and guarantee our payment obligations under the Term Loan Facilities.
Covenants under the ABL Facility and Term Loan Facilities
The ABL Facility contains certain affirmative covenants, including financial and other reporting requirements. We were in compliance
with all such covenants at April 30, 2016 and 2015.
The
Term Loan Facilities contain a number of covenants that limit our ability and the ability of our restricted subsidiaries, as described in the Term Loan Credit Agreements, to:
(i) incur more indebtedness; (ii) pay dividends, redeem stock or make other distributions; (iii) make investments; (iv) create restrictions on the ability of our restricted
subsidiaries to pay dividends to us or make other intercompany transfers; (v) create liens securing indebtedness; (vi) transfer or sell assets; (vii) merge or consolidate;
(viii) enter into certain transactions with our affiliates; and (ix) prepay or amend the terms of certain indebtedness. We were in compliance with all restrictive covenants at
April 30, 2016 and 2015.
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Table of Contents
Events of Default under the ABL Facility and Term Loan Facilities
The ABL Facility and Term Loan Facilities 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.
Asset Based Lending Facility (Predecessor)
In conjunction with the Acquisition, the outstanding balance of our 2010 Credit Facility was paid in full and unamortized deferred
financing charges of $1.6 million were written off as part of the purchase price accounting.
Installment Notes
The installment note for the one month ended April 30, 2014 represents the outstanding note for the payout of the stock
appreciation rights. The installment notes as of April 30, 2015 represent notes for subsidiary stock repurchases from shareholders and notes for the payout of stock appreciation rights. The
installment notes as of April 30, 2016 represent notes for subsidiary stock repurchases from shareholders, notes for the payout of stock appreciation rights and a note to a seller of an
acquired business.
Contractual Obligations
We enter into long-term obligations and commitments in the normal course of business, primarily debt obligations and non-cancelable
operating leases. As of April 30, 2016, after giving effect to our IPO, our contractual cash obligations over the next several periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
Ending
April 30,
2017
|
|
Fiscal Year
Ending
April 30,
2018
|
|
Fiscal Year
Ending
April 30,
2019
|
|
Fiscal Year
Ending
April 30,
2020
|
|
Fiscal Year
Ending
April 30,
2021
|
|
Thereafter
|
|
|
|
(in thousands)
|
|
First Lien Facility
|
|
$
|
3,900
|
|
$
|
3,900
|
|
$
|
3,900
|
|
$
|
3,900
|
|
$
|
366,600
|
|
$
|
|
|
Second Lien Facility(1)
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
19,228
|
|
|
17,900
|
|
|
17,715
|
|
|
17,529
|
|
|
15,904
|
|
|
|
|
Capital leases(2)
|
|
|
4,668
|
|
|
3,128
|
|
|
1,717
|
|
|
840
|
|
|
701
|
|
|
393
|
|
Facility operating leases
|
|
|
17,329
|
|
|
14,767
|
|
|
10,414
|
|
|
8,305
|
|
|
6,328
|
|
|
12,159
|
|
Equipment operating leases
|
|
|
25,143
|
|
|
24,116
|
|
|
21,264
|
|
|
16,467
|
|
|
10,184
|
|
|
3,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(3)
|
|
$
|
230,268
|
|
$
|
63,811
|
|
$
|
55,010
|
|
$
|
47,041
|
|
$
|
399,717
|
|
$
|
16,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
In
connection with our IPO, we used net proceeds of $157.2 million together with cash on hand to repay the $160.0 million principal amount of
our term loan debt outstanding under the Second Lien Facility, which was a payment in full of the entire loan balance due under the Second Lien Facility. See "Recent Events."
-
(2)
-
Includes
interest on capital lease obligations.
-
(3)
-
Does
not reflect any borrowings under the ABL Facility. As of April 30, 2016, we had approximately $101.9 million in short-term swing line
borrowings and eurodollar loans outstanding under the ABL Facility.
We
may, from time to time, repurchase or otherwise retire or extend our debt and/or take other steps to reduce our debt or otherwise improve our financial position. These actions may
include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and/or opportunistic refinancing of debt. The amount of debt that may be repurchased or otherwise
retired or refinanced, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations. Our affiliates may also
purchase our debt from time to time, through open market purchases or other transactions. In such cases, our debt may not be retired, in which case we would continue to pay interest in
55
Table of Contents
accordance
with the terms of the debt, and we would continue to reflect the debt as outstanding in our consolidated balance sheets.
We
lease certain office and warehouse facilities and equipment, some of which provide renewal options. 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 approximated $41.7 million, $29.9 million, $1.5 million and
$19.9 million for the fiscal years ended April 30, 2016 and 2015, the one month ended April 30, 2014 and the eleven months ended March 31, 2014, respectively. As existing
leases expire, we anticipate such leases will be renewed or replaced with other leases that are substantially similar in terms, which are consistent with market rates at the time of renewal.
Off Balance Sheet Arrangements
At April 30, 2016, we did not have any relationships with unconsolidated entities or financial partnerships for the purpose of
facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.
Critical Accounting Policies
Our discussion and analysis of operating results and financial condition are based upon our audited financial statements included
elsewhere in this Annual Report on Form 10-K. The preparation of our financial statements, in accordance with GAAP, requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, net sales, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are
reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our consolidated financial statements and
involve difficult, subjective or complex judgments by management. Although these estimates are based on management's best knowledge of current events and actions that may impact us in the future,
actual results may be materially different from the estimates.
We
believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements and that the
judgments and estimates are reasonable.
Use of Estimates
The preparation of consolidated financial statements, in conformity with 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
-
-
collectibility is reasonably assured.
Revenue,
net of estimated returns and allowances, is recognized when sales transactions occur and title is passed, the related product is delivered, and 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.
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Table of Contents
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses due to the failure of our customers to make required payments.
Management believes the accounting estimate related to the allowance for doubtful accounts is a "critical accounting estimate" as it involves complex judgments about our customers' ability to pay.
The
allowance for doubtful accounts is based on an assessment of individual past due accounts, historical write-off experience, accounts receivable aging, customer disputes and the
business environment. Account balances are charged off when the potential for recovery is considered remote.
Management
believes the allowance amounts recorded, in each instance, represent its best estimate of future outcomes. If there is a deterioration of a major customer's financial
condition, if we become aware of additional information related to the creditworthiness of a major customer, or if future actual default rates on trade receivables in general differ from those
currently anticipated, we may have to adjust its allowance for doubtful accounts, which would affect earnings in the period the adjustments were made. Based on our evaluation, we record reserves to
reduce the related receivables to amounts we reasonably believe are collectible.
Inventories
Inventories consist primarily 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 potential 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 fiscal 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.
During
the fiscal year, we perform periodic cycle counts and write-off excess or damaged inventory as needed. At fiscal year-end, we take a physical inventory count and record any
necessary additional write-offs.
Long-Lived Assets and Goodwill
Our long-lived assets consist primarily of property, equipment, intangible assets and goodwill. The valuation and the impairment
testing of these long-lived assets involve significant judgments and assumptions, particularly as they relate to the identification of reporting units, asset groups and the determination of fair
value.
We
test our tangible and intangible long-lived assets subject to amortization for impairment whenever facts and circumstances indicate that the carrying amount of an asset may not be
recoverable. We test goodwill for impairment annually, or more frequently if triggering events occur indicating that there may be impairment.
We
have recorded goodwill and perform testing for potential goodwill impairment at a reporting unit level. A reporting unit is an operating segment, or a business unit one level below an
operating segment for which discrete financial information is available, and for which management regularly reviews the operating results. Additionally, components within an operating segment can be
aggregated as a single reporting unit if they have similar economic characteristics. We have performed testing on each of our reporting units which contain goodwill.
During
the fourth quarters of fiscal 2016, fiscal 2015 and full year 2014, we performed our annual impairment assessments of goodwill, which did not indicate that an impairment existed.
During each assessment, we determined that the fair value of our reporting units which contain goodwill exceeded their carrying values.
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 of 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
57
Table of Contents
undiscounted
future cash flow 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 by the amount by
which the carrying amount of the asset exceeds the estimated fair value of the asset.
As
discussed above, changes in management intentions, market events or conditions, projected future net sales, operating results, cash flow of our reporting units and other similar
circumstances could affect the assumptions used in the impairment tests. Although management currently believes that the estimates used in the evaluation of goodwill and other long-lived assets are
reasonable, differences between actual and expected net sales, operating results and cash flow could cause these assets to be impaired. If any asset were determined to be impaired, this could have a
material adverse effect on our results of operations and financial position, but not our cash flow from operations.
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 or technology life cycles, 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 intangible assets are expected to have indefinite lives based on their history and our 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 determinable useful lives. All of
our customer-related intangibles are expected to have determinable useful lives. The costs of determinable-lived intangibles are amortized to expense over their estimated lives.
Equity-Based Compensation
Prior to our IPO, we utilized the Black-Scholes option-pricing model to estimate the grant-date fair value of all stock options. The
Black-Scholes option-pricing model requires the use of weighted average 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. Because we did not have sufficient history to estimate the expected volatility of our common stock price,
expected volatility was based on the average volatility of peer public entities that are similar in size and industry. We estimated the expected term of all stock options based on previous history of
exercises. The risk-free rate was 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 was 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 a valuation of our common stock. In the absence of a public trading market prior to our IPO, we determined the fair value of our common stock utilizing methodologies,
approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Aid, "Valuation of Privately-Held-Company Equity Securities Issued as Compensation." Our
approach considered contemporaneous common stock valuations in determining the equity value of our company using a weighted combination of various methodologies, each of which can be categorized under
either of the following two valuation approaches: the income approach and the market approach. The assumptions used in calculating the fair value of stock-based payment awards represented our best
estimates, but these estimates involved inherent uncertainties and the application of management judgment.
We
estimated 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
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least
annually. The weighted average assumptions used in the Black-Scholes option-pricing model for the fiscal year ended April 30, 2015 are set forth below:
|
|
|
|
|
|
|
April 30, 2015
|
|
Volatility
|
|
|
59.54
|
%
|
Expected life (years)
|
|
|
6.00
|
|
Risk-free interest rate
|
|
|
1.78
|
%
|
Dividend yield
|
|
|
|
%
|
In
the fiscal year ended April 30, 2016, we did not issue any stock option awards. In the fiscal year ended April 30, 2015, we issued 2,824,050 stock option awards to
employees that vest based on service only. The weighted average grant date fair value of each stock option was $4.73 and the aggregate fair value of options outstanding and the aggregate fair value of
options vested was $8.8 million and $5.3 million, respectively. 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. This expense is recorded on an accelerated basis over the requisite service period of each separate vesting tranche. Equity-based compensation expense
related to stock option awards was $2.7 million in the fiscal year ended April 30, 2016 and $6.5 million for the fiscal year ended April 30, 2015 and was included as a
component of "Selling, general and administrative" expenses in our consolidated statements of operations and comprehensive income (loss). In fiscal 2016, we also recognized related income tax benefits
of $2.6 million, which has been partially offset by a valuation allowance. At April 30, 2016 and 2015, the unrecognized compensation expense related to stock option awards was
$2.3 million and $5.6 million, respectively, with a remaining weighted average life of 2.0 years and 3.1 years, respectively.
Subsidiary Equity-Based Deferred Compensation Arrangements
Some of our operating subsidiaries sponsor deferred compensation arrangements that entitle selected employees of those subsidiaries to
participate in increases in the adjusted book value of a specified number of shares of common stock of those subsidiaries. Adjusted book value for this purpose generally means the book value of the
relevant shares, as increased, or decreased, to reflect those shares' ratable portion of any annual earnings, or losses, of the relevant subsidiary (based on the total number of outstanding shares of
the relevant subsidiary). Employees participate in these deferred compensation arrangements in one or more of three ways: through cash-based stock appreciation rights (described below under the
heading "
Stock appreciation rights
"), by holding common stock of the applicable subsidiary (described below under the heading
"
Liabilities to noncontrolling interest holders
") and/or through deferred compensation programs (described below under the heading
"
Deferred compensation
"). As of April 30, 2016, in accordance with the provisions of the transition guidance set forth in ASC Topic
718, CompensationStock Compensation ("ASC 718"), the estimated fair values of these arrangements are reflected as liabilities. The determination of fair value is a significant estimate,
which is based on assumptions including the expected book value of the subsidiary per share at the time of redemption and the expected termination date of each award holder. To determine the expected
book value of the subsidiary at redemption date, we have used a lognormal binomial method. Significant inputs to this estimate include historical book values of the subsidiaries, our expected
incremental borrowing rate, the expected retirement age of certain individuals and the expected volatility of the underlying book values of the subsidiary's equity. This estimate is, by its nature,
subjective and involves a high
degree of judgment and assumptions. These assumptions may have a significant effect on our estimates of fair value, and the use of different assumptions, as well as changes in market conditions, could
have a material effect on our results of operations or financial condition. As a result of the transition guidance stated within ASC 718, we have recorded these liability awards at fair value as of
April 30, 2016. The impact of this guidance was recognized as a decrease to retained earnings as of April 30, 2016. The total impact of applying the transition guidance, net of taxes,
was $3.2 million. The arrangements are described in further detail below:
Stock appreciation rights.
Certain subsidiaries have granted stock appreciation rights to certain employees under which payments are
dependent on the
appreciation in the adjusted book value of a specified number of shares 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 certain terminations of employment. Vesting periods vary by grant date and range from fiscal 2016 to fiscal 2018.
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Table of Contents
Liabilities to noncontrolling interest holders.
As described in Note 14, "Stock Appreciation Rights, Deferred Compensation and
Redeemable
Noncontrolling Interests" of Part II, Item 8 of this Annual Report on Form 10-K, noncontrolling interests were issued to certain employees of the subsidiaries in the form of
common stock. All of these noncontrolling interest awards are subject to buy-sell agreements that require the stock to be redeemed for its adjusted book value, subject in certain cases to an agreed
upon minimum value, only upon termination of employment. These instruments are redeemed in cash, typically in annual installments over the five years following termination of employment.
In
connection with the Acquisition, noncontrolling interest holders had the option to reinvest their ownership interests in the subsidiaries into GMS Inc. Noncontrolling interests
of $32.5 million were reinvested into GMS Inc.
Deferred compensation.
During fiscal 2014, each employee who held redeemable noncontrolling interests as described above was granted a
deferred
compensation obligation entitling the employee to a payment based on a
percentage of the adjusted book value of his or her associated noncontrolling interest at the time of payment. These deferred compensation obligations become payable only upon the employee's death,
disability, termination without cause or retirement. The obligations are paid in cash, usually in annual installments over the five years following termination of employment.
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 continue to be 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 immaterial and material variation is not expected in the future.
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 reserve 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 continually revise these estimates to reflect actual rebates earned based on actual and projected purchase levels. If we fail to achieve a measure which
is required to obtain a vendor rebate, we will have to record a charge in the period in which we determine the criteria or measure for the vendor rebate will not be met to the extent the vendor rebate
was estimated and included as a reduction to cost of sales. Historically, our actual rebates have been within our expectations used for our estimates.
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Derivative Instruments
We enter into interest rate derivative agreements, 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.
For
derivative instruments designated as hedges for accounting purposes, 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 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: (i) comparing the current terms of the hedges with the related hedged
debt to assure they continue to coincide and (ii) through an evaluation of 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 million 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 $4.6 million 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, 2016 as an asset at its fair value of $0.3 million 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 each 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 the hedge was $2.5 million and is reflected in "Change in fair value of financial instruments"
on our 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 April 30, 2015
was $10 thousand and was recorded in "Increase in fair value of financial instrument, net of tax." The decrease in fair value from April 30, 2015 to April 30, 2016 was
$1.2 million and was recorded in "Decrease in fair value of financial instrument, net of tax." We believe there have been no material changes in the creditworthiness of the counterparty to this
cap agreement and believe the risk of nonperformance by such party is minimal.
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. Prior to full year 2014, we entered into an interest-rate swap agreement as a fixed-rate payor to mitigate interest-rate risk associated with floating interest rate
borrowings under our revolving credit facility on an initial notional amount of $35.0 million. Per the terms of the contract, the Predecessor received fixed interest of 0.69% in exchange for
floating interest indexed to the one-month LIBOR rate. Changes in fair value resulted in a gain of $0.2 million for the eleven month period ended March 31, 2014 and are recognized in our
consolidated statements of operations and comprehensive income (loss), in "Other income, net." The interest rate swap was terminated in the eleven month period ended March 31, 2014 with a
penalty of $0.1 million and interest of $16 thousand recorded in "Other income, net" in our consolidated statements of operations and comprehensive income (loss).
Newly Issued Accounting Pronouncements
Presentation of an unrecognized tax benefit
In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists" ("ASU 2013-11"),
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Table of Contents
which
resolves diversity in practice on the financial statement presentation of an unrecognized tax benefit when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward
exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss
carry-forward, a similar tax loss, or a tax credit carryforward, except in certain situations, as defined in ASU 2013-11. The amendments in ASU 2013-11 are effective prospectively for fiscal years,
and interim periods within those years, beginning after December 15, 2013. We adopted ASU 2013-11 on May 1, 2014. The adoption of this standard did not materially impact our financial
position, results of operations, or cash flows.
Discontinued operations
In April 2014, the FASB issued ASU No. 2014-08, "Reporting discontinued operations and disclosure of disposals of
components of an entity" ("ASU 2014-08"). The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity's financial results or a
business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures
for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years,
beginning on or after December 15, 2014 (early adoption were permitted only for disposals that have not been previously reported). The impact on us of adopting ASU 2014-08 will depend on the
nature and size of future disposals, if any, of a component of ours after the effective date. We had elected to early adopt ASU 2014-08 effective May 1, 2014. As a result of the adoption of
this standard, the classification of a disposal made in fiscal 2015 that did not represent a strategic shift in our direction or have a major impact on our financial position or results of operations
was not reported as a discontinued operation.
Revenue recognition
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from contracts with customers" ("ASU 2014-09"). The amended guidance
outlines a single comprehensive revenue model for entities to use in accounting for revenue arising from contracts with customers. The guidance supersedes most current revenue recognition guidance,
including industry-specific guidance. The core principle of the revenue model is that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." Entities have the option of using either a full retrospective or modified approach to
adopt the guidance. In July 2015, the FASB decided on a one-year delay in the effective date of ASU 2014-09, to be effective for annual reporting periods beginning after December 15, 2017,
including interim periods within that reporting period, and a permission to early adopt for interim and annual periods beginning after December 15, 2016. We are currently evaluating the impact
of adopting ASU 2014-09.
Going Concern
In August 2014, the FASB issued ASU 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern"
("ASU 2014-15"), which requires management to evaluate
whether there are conditions or events that raise substantial doubt about an organization's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is
effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact the adoption of this ASU will have on
our consolidated financial statements.
Debt Issuance Costs
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03") which changes
the presentation of debt issuance costs in financial statements. Under ASU 2015-03, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than
as an asset. Amortization of the costs is reported as interest expense. The guidance is effective prospectively for fiscal years, and interim reporting periods within those years, beginning on or
after December 15, 2015. Early adoption is permitted and upon adoption, the guidance must be applied retroactively to all periods presented in the financial statements. Management has early
adopted the standard and retroactively applied it to all periods presented in the financial statements. The adoption of this standard did not materially impact our financial position, results of
operations, or cash flows.
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Business Combinations
In September 2015, the FASB issued ASU No. 2015-16, "Simplifying the accounting for measurement-period adjustments" ("ASU
2015-16"). The amended guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined. The amendments are effective prospectively for the fiscal years, and interim reporting periods within those years, beginning on or after December 15, 2015 (early
adoption were permitted only for financial statements that have not been issued). Management has early adopted the standard. The adoption of this standard did not materially impact our financial
position, results of operations, or cash flows.
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 is in the process of
determining the method of adoption and assessing the impact ASU 2015-17 will have on its consolidated financial statements.
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 our 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 we are still evaluating the impact of our pending adoption of the new
standard on our consolidated financial statements, we expect that upon adoption, the recognition of ROU assets and liabilities could be material.
Equity Compensation
In March 2016, the FASB issued ASU 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 amendments are effective
for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. We are
currently in the process of evaluating the impact of the adoption on our consolidated financial statements.
Non-GAAP Financial Measures
Adjusted EBITDA
The following is a reconciliation of our net income (loss) to Adjusted EBITDA for the fiscal years ended April 30, 2016 and
2015, the one month ended April 30, 2014 and the eleven months ended March 31, 2014, as well as the calculation of Adjusted EBITDA for the full year ended April 30, 2014. EBITDA,
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. See Item 6, "Selected Financial Data," for how we define and calculate Adjusted EBITDA and Adjusted EBITDA margin as non-GAAP
measures and a description of why we believe these measures are important.
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The
following is a reconciliation of our net income (loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Fiscal Year
Ended
April 30,
2016
|
|
Fiscal Year
Ended
April 30,
2015(l)
|
|
One Month
Ended
April 30,
2014
|
|
|
|
Eleven Months
Ended
March 31,
2014
|
|
|
|
|
|
|
|
(in thousands)
|
|
Net income (loss)
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
$
|
(18,953
|
)
|
|
|
|
$
|
(200,861
|
)
|
Interest expense
|
|
|
37,418
|
|
|
36,396
|
|
|
2,954
|
|
|
|
|
|
4,226
|
|
Change in fair value of mandatorily redeemable shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,004
|
|
Interest income
|
|
|
(928
|
)
|
|
(1,010
|
)
|
|
(76
|
)
|
|
|
|
|
(846
|
)
|
Income tax expense (benefit)
|
|
|
12,584
|
|
|
(6,626
|
)
|
|
(6,863
|
)
|
|
|
|
|
6,623
|
|
Depreciation expense
|
|
|
26,667
|
|
|
32,208
|
|
|
3,818
|
|
|
|
|
|
12,224
|
|
Amortization expense
|
|
|
37,548
|
|
|
31,957
|
|
|
2,518
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
125,853
|
|
$
|
81,228
|
|
$
|
(16,602
|
)
|
|
|
|
$
|
21,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive compensation(a)
|
|
$
|
|
|
$
|
|
|
$
|
20
|
|
|
|
|
$
|
2,427
|
|
Stock appreciation rights expense(b)
|
|
|
1,988
|
|
|
2,268
|
|
|
80
|
|
|
|
|
|
1,288
|
|
Redeemable noncontrolling interests(c)
|
|
|
880
|
|
|
1,859
|
|
|
71
|
|
|
|
|
|
2,957
|
|
Equity-based compensation(d)
|
|
|
2,699
|
|
|
6,455
|
|
|
1
|
|
|
|
|
|
27
|
|
Acquisition related costs(e)
|
|
|
|
|
|
837
|
|
|
16,155
|
|
|
|
|
|
51,809
|
|
Severance, other costs related to discontinued operations and closed branches, and certain other costs(f)
|
|
|
379
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
Transaction costs (acquisitions and other)(g)
|
|
|
3,751
|
|
|
1,891
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on disposal of assets
|
|
|
(645
|
)
|
|
1,089
|
|
|
170
|
|
|
|
|
|
(1,034
|
)
|
Management fee to related party(h)
|
|
|
2,250
|
|
|
2,250
|
|
|
188
|
|
|
|
|
|
|
|
Effects of fair value adjustments to inventory(i)
|
|
|
1,009
|
|
|
5,012
|
|
|
8,289
|
|
|
|
|
|
|
|
Interest rate swap and cap mark-to-market(j)
|
|
|
19
|
|
|
2,494
|
|
|
|
|
|
|
|
|
(192
|
)
|
Contributions from acquisitions(k)
|
|
|
12,093
|
|
|
8,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
150,276
|
|
$
|
113,860
|
|
$
|
8,372
|
|
|
|
|
$
|
78,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Represents
compensation paid to certain executives who were majority owners prior to the Acquisition. Following the Acquisition, these executives'
compensation agreements were amended and, going forward, we do not anticipate additional adjustments.
-
(b)
-
Represents
non-cash compensation expenses related to stock appreciation rights agreements. For additional details regarding stock appreciation rights, refer
to "Critical Accounting PoliciesSubsidiary Equity-Based Deferred Compensation Arrangements."
-
(c)
-
Represents
non-cash compensation expense related to changes in the redemption values of noncontrolling interests. For additional details regarding
redeemable noncontrolling interests of our subsidiaries, refer to "Critical Accounting PoliciesSubsidiary Equity-Based Deferred Compensation Arrangements."
-
(d)
-
Represents
non-cash equity-based compensation expense related to the issuance of stock options.
-
(e)
-
Represents
non-recurring expenses related specifically to the Acquisition, including fees to financial advisors, accountants, attorneys and other
professionals as well as costs related to the retirement of corporate stock appreciation rights. Also included are one-time bonuses paid to certain employees in connection with the Acquisition.
-
(f)
-
Represents
severance expenses, other costs related to discontinued operations and closed branches and certain other costs permitted in calculations under
the ABL Facility and the Term Loan Facilities.
64
Table of Contents
-
(g)
-
Represents
one-time costs related to our initial public offering and acquisitions (other than the Acquisition) paid to third party advisors.
-
(h)
-
Represents
management fees paid by us to our Sponsor. Following our IPO, our Sponsor no longer receives management fees from us.
-
(i)
-
Represents
the non-cash cost of sales impact of purchase accounting adjustments to increase inventory to its estimated fair value, primarily related to the
Acquisition.
-
(j)
-
Represents
the mark-to-market adjustments for certain financial instruments.
-
(k)
-
Represents
earnings of acquired entities from the beginning of the periods presented to the date of such acquisition, as well as certain purchasing
synergies and cost savings, as defined in and permitted by the ABL Facility and the First Lien Facility. Contributions from acquisitions are not reflected for periods prior to fiscal 2015.
-
(l)
-
Our
financial statements for fiscal 2015 were revised as discussed in Note 1, "Basis of Presentation, Business, and Summary of Significant Accounting
Policies" of Part II, Item 8 of this Annual Report on Form 10-K. Fiscal year ended April 30, 2015 amounts included in the table above reflect the revised balances for
income tax expense (benefit) and net income (loss).
The
following is the calculation of Adjusted EBITDA for the full year ended April 30, 2014. As discussed above, the change in basis resulting from the Acquisition did not impact
Adjusted EBITDA. Although this presentation of Adjusted EBITDA on a combined basis is not a presentation made in accordance with GAAP, we believe it provides a meaningful method of comparison to the
other periods presented in this Annual Report on Form 10-K.
|
|
|
|
|
(in thousands)
|
|
Adjusted
EBITDA
|
|
Eleven Months Ended March 31, 2014
|
|
$
|
78,690
|
|
One Month Ended April 30, 2014
|
|
|
8,372
|
|
|
|
|
|
|
Full Year Ended April 30, 2014
|
|
$
|
87,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Working Capital
Adjusted working capital represents current assets, excluding cash and cash equivalents, minus current liabilities, excluding current
maturities of long-term debt. Adjusted working capital is not a recognized term under GAAP and does not purport to be an alternative to working capital. Management believes that adjusted working
capital is useful in analyzing the cash flow and working capital needs of the Company. We exclude cash and cash equivalents and current maturities of long-term debt to evaluate the investment in
working capital required to support our business.
The
following is a reconciliation from working capital, the most directly comparable financial measure under GAAP, to adjusted working capital as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
April 30,
2015
|
|
April 30,
2014
|
|
|
|
(in thousands)
|
|
Current assets
|
|
$
|
482,690
|
|
$
|
426,980
|
|
$
|
390,005
|
|
Current liabilities
|
|
|
220,575
|
|
|
206,784
|
|
|
142,536
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
262,115
|
|
$
|
220,196
|
|
$
|
247,469
|
|
Cash and cash equivalents
|
|
|
(19,072
|
)
|
|
(12,284
|
)
|
|
(32,662
|
)
|
Current maturities of long-term debt
|
|
|
35,581
|
|
|
23,709
|
|
|
6,085
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted working capital
|
|
$
|
278,624
|
|
$
|
231,621
|
|
$
|
220,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Table of Contents
Item 8. Financial Statements and Supplementary Data
GMS Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Audited Consolidated Financial Statements
|
|
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
68
|
|
Consolidated Balance Sheets April 30, 2016 and 2015
|
|
|
70
|
|
Consolidated Statements of Operations and Comprehensive Income (Loss) Year Ended
April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and Period From May 1, 2013 to March 31, 2014 (Predecessor)
|
|
|
71
|
|
Consolidated Statements of Stockholders' Equity Year Ended April 30, 2016
and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and Period From May 1, 2013 to March 31, 2014 (Predecessor)
|
|
|
72
|
|
Consolidated Statements of Cash Flows Year Ended April 30, 2016 and 2015,
Period From April 1, 2014 to April 30, 2014 (Successor) and Period From May 1, 2013 to March 31, 2014 (Predecessor)
|
|
|
73
|
|
Notes to Consolidated Financial Statements Year Ended April 30, 2016 and
2015, Period From April 1, 2014 to April 30, 2014 (Successor) and Period From May 1, 2013 to March 31, 2014 (Predecessor)
|
|
|
74
|
|
67
Table of Contents
Report of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of
GMS Inc.
In
our opinion, the accompanying consolidated balance sheets as of April 30, 2016 and April 30, 2015 and the related consolidated statements of operations and comprehensive
income (loss), of stockholders' equity and of
cash flows for the years ended April 30, 2016 and 2015 and for the period from April 1, 2014 to April 30, 2014 present fairly, in all material respects, the financial position of
GMS Inc. and its subsidiaries (Successor) as of April 30, 2016 and April 30, 2015 and the results of their operations and their cash flows for the years ended April 30,
2016 and 2015 and for the period from April 1, 2014 to April 30, 2014 in conformity with accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Atlanta,
Georgia
July 12, 2016
68
Table of Contents
Report of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of
Gypsum Management and Supply, Inc.
In
our opinion, the accompanying consolidated statements of operations and comprehensive income (loss), of stockholders' equity and of cash flow for the period from May 1, 2013 to
March 31, 2014 present fairly, in all material respects, the financial position of Gypsum Management and Supply, Inc. and its subsidiaries (Predecessor) for the period from May 1,
2013 to March 31, 2014 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Atlanta,
Georgia
July 28, 2015
69
Table of Contents
GMS Inc.
Consolidated Balance Sheets
April 30, 2016 and 2015
(in thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
April 30,
2015
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19,072
|
|
$
|
12,284
|
|
Trade accounts and notes receivable, net of allowances of $8,607 and $8,633, respectively
|
|
|
270,257
|
|
|
214,321
|
|
Inventories, net
|
|
|
165,766
|
|
|
147,603
|
|
Deferred income tax assets, net
|
|
|
11,047
|
|
|
9,836
|
|
Prepaid expenses and other current assets
|
|
|
16,548
|
|
|
42,936
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
482,690
|
|
|
426,980
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
153,260
|
|
|
158,824
|
|
Goodwill
|
|
|
386,306
|
|
|
348,811
|
|
Intangible assets, net
|
|
|
221,790
|
|
|
215,762
|
|
Other assets
|
|
|
7,815
|
|
|
10,599
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,251,861
|
|
$
|
1,160,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
91,500
|
|
$
|
77,834
|
|
Accrued compensation and employee benefits
|
|
|
51,680
|
|
|
48,069
|
|
Other accrued expenses and current liabilities
|
|
|
41,814
|
|
|
57,172
|
|
Current portion of long-term debt
|
|
|
8,667
|
|
|
6,759
|
|
Revolving credit facility
|
|
|
26,914
|
|
|
16,950
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
220,575
|
|
|
206,784
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
609,029
|
|
|
533,275
|
|
Deferred income taxes, net
|
|
|
52,250
|
|
|
69,671
|
|
Other liabilities
|
|
|
33,600
|
|
|
23,222
|
|
Liabilities to noncontrolling interest holders, less current portion
|
|
|
25,247
|
|
|
28,452
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
940,701
|
|
|
861,404
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, authorized 500,000,000 shares; 32,892,905 and 32,757,905 shares issued and outstanding at April 30, 2016 and 2015,
respectively
|
|
|
329
|
|
|
328
|
|
Preferred stock, $0.01 par value, authorized 50,000,000 shares; 0 shares issued and outstanding at April 30, 2016 and 2015
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
334,244
|
|
|
329,884
|
|
Accumulated deficit
|
|
|
(22,265
|
)
|
|
(30,650
|
)
|
Accumulated other comprehensive (loss) income
|
|
|
(1,148
|
)
|
|
10
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
311,160
|
|
|
299,572
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
1,251,861
|
|
$
|
1,160,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
70
Table of Contents
GMS Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
Year Ended April 30, 2016 and 2015, Period From April 1,
2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year Ended
April 30, 2016
|
|
Year Ended
April 30, 2015
|
|
April 1 -
April 30, 2014
|
|
|
|
May 1, 2013 -
March 31, 2014
|
|
|
|
|
|
Net sales
|
|
$
|
1,858,182
|
|
$
|
1,570,085
|
|
$
|
127,332
|
|
|
|
|
$
|
1,226,008
|
|
Cost of sales (exclusive of depreciation and amortization shown separately below)
|
|
|
1,265,018
|
|
|
1,091,114
|
|
|
97,955
|
|
|
|
|
|
853,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
593,164
|
|
|
478,971
|
|
|
29,377
|
|
|
|
|
|
372,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
470,035
|
|
|
396,155
|
|
|
46,052
|
|
|
|
|
|
352,930
|
|
Depreciation and amortization
|
|
|
64,215
|
|
|
64,165
|
|
|
6,336
|
|
|
|
|
|
12,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
534,250
|
|
|
460,320
|
|
|
52,388
|
|
|
|
|
|
365,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
58,914
|
|
|
18,651
|
|
|
(23,011
|
)
|
|
|
|
|
7,805
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(37,418
|
)
|
|
(36,396
|
)
|
|
(2,954
|
)
|
|
|
|
|
(4,226
|
)
|
Change in fair value of financial instruments
|
|
|
(19
|
)
|
|
(2,494
|
)
|
|
|
|
|
|
|
|
|
|
Change in fair value of mandatorily redeemable common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,004
|
)
|
Other income, net
|
|
|
3,671
|
|
|
1,916
|
|
|
149
|
|
|
|
|
|
2,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense), net
|
|
|
(33,766
|
)
|
|
(36,974
|
)
|
|
(2,805
|
)
|
|
|
|
|
(202,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
25,148
|
|
|
(18,323
|
)
|
|
(25,816
|
)
|
|
|
|
|
(194,238
|
)
|
Provision for (benefit from) income taxes
|
|
|
12,584
|
|
|
(6,626
|
)
|
|
(6,863
|
)
|
|
|
|
|
6,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
$
|
(18,953
|
)
|
|
|
|
$
|
(200,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,799,098
|
|
|
32,450,401
|
|
|
32,341,751
|
|
|
|
|
|
|
|
Diluted
|
|
|
33,125,242
|
|
|
32,450,401
|
|
|
32,341,751
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
$
|
(0.59
|
)
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
$
|
(0.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
$
|
(18,953
|
)
|
|
|
|
$
|
(200,861
|
)
|
(Decrease) increase in fair value of financial instrument, net of tax
|
|
|
(1,158
|
)
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
11,406
|
|
$
|
(11,687
|
)
|
$
|
(18,953
|
)
|
|
|
|
$
|
(200,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
71
Table of Contents
GMS Inc.
Consolidated Statements of Stockholders' Equity
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30,
2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
Treasury Stock
|
|
Total
Stockholders'
Equity
(Deficit)
|
|
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at May 1, 2013
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
(274,846
|
)
|
$
|
|
|
|
|
|
$
|
|
|
$
|
(274,846
|
)
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
(200,861
|
)
|
|
|
|
|
|
|
|
|
|
|
(200,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2014
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
(475,707
|
)
|
$
|
|
|
|
|
|
$
|
|
|
$
|
(475,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 1, 2014
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
$
|
|
|
$
|
|
|
Capital contribution
|
|
|
32,341,752
|
|
|
324
|
|
|
318,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318,387
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
(18,953
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 30, 2014
|
|
|
32,341,752
|
|
$
|
324
|
|
$
|
318,063
|
|
$
|
(18,953
|
)
|
$
|
|
|
|
|
|
$
|
|
|
$
|
299,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
(11,697
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,697
|
)
|
Sales of common stock
|
|
|
416,153
|
|
|
4
|
|
|
5,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,370
|
|
Equity-based compensation
|
|
|
|
|
|
|
|
|
6,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,455
|
|
Increase in fair value of financial instrument, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 30, 2015
|
|
|
32,757,905
|
|
$
|
328
|
|
$
|
329,884
|
|
$
|
(30,650
|
)
|
$
|
10
|
|
|
|
|
$
|
|
|
$
|
299,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
12,564
|
|
|
|
|
|
|
|
|
|
|
|
12,564
|
|
Change in accounting for liability awards
|
|
|
|
|
|
|
|
|
|
|
|
(3,208
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,208
|
)
|
Decrease in fair value of financial instrument, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,158
|
)
|
|
|
|
|
|
|
|
(1,158
|
)
|
Equity-based compensation
|
|
|
|
|
|
|
|
|
2,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,699
|
|
Stock repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394,577
|
|
|
(5,827
|
)
|
|
(5,827
|
)
|
Exercise of stock options
|
|
|
135,000
|
|
|
1
|
|
|
1,661
|
|
|
(971
|
)
|
|
|
|
|
(394,577
|
)
|
|
5,827
|
|
|
6,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 30, 2016
|
|
|
32,892,905
|
|
$
|
329
|
|
$
|
334,244
|
|
$
|
(22,265
|
)
|
$
|
(1,148
|
)
|
|
|
|
$
|
|
|
$
|
311,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
72
Table of Contents
GMS Inc.
Consolidated Statements of Cash Flows
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014
(Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year Ended
April 30, 2016
|
|
Year Ended
April 30, 2015
|
|
April 1 -
April 30, 2014
|
|
|
|
May 1, 2013 -
March 31, 2014
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
$
|
(18,953
|
)
|
|
|
|
$
|
(200,861
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and
equipment
|
|
|
26,667
|
|
|
32,208
|
|
|
3,818
|
|
|
|
|
|
12,215
|
|
Accretion and amortization of debt discount and deferred financing fees
|
|
|
3,438
|
|
|
3,374
|
|
|
275
|
|
|
|
|
|
516
|
|
Amortization of intangible assets
|
|
|
37,548
|
|
|
31,957
|
|
|
2,518
|
|
|
|
|
|
38
|
|
Change in fair value of mandatorily redeemable common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,004
|
|
Provision for losses on accounts and notes
receivable
|
|
|
(1,032
|
)
|
|
(233
|
)
|
|
856
|
|
|
|
|
|
1,262
|
|
Provision for obsolescence of inventory
|
|
|
80
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
|
|
4,733
|
|
|
9,012
|
|
|
113
|
|
|
|
|
|
1,940
|
|
(Gain) loss on sale or impairment of assets
|
|
|
(645
|
)
|
|
1,089
|
|
|
170
|
|
|
|
|
|
(1,034
|
)
|
Loss (gain) on fair value of financial instruments
|
|
|
|
|
|
2,494
|
|
|
|
|
|
|
|
|
(208
|
)
|
Deferred income tax expense
|
|
|
(20,499
|
)
|
|
(21,664
|
)
|
|
(6,893
|
)
|
|
|
|
|
(7,097
|
)
|
Prepaid expenses and other assets
|
|
|
(4,682
|
)
|
|
1,989
|
|
|
(7,138
|
)
|
|
|
|
|
(342
|
)
|
Accrued compensation and employee benefits
|
|
|
3,454
|
|
|
8,204
|
|
|
3,434
|
|
|
|
|
|
9,721
|
|
Other accrued expenses and liabilities
|
|
|
5,551
|
|
|
9,170
|
|
|
7,561
|
|
|
|
|
|
47,612
|
|
Liabilities to noncontrolling interest holders
|
|
|
446
|
|
|
1,862
|
|
|
40
|
|
|
|
|
|
737
|
|
Income taxes
|
|
|
7,106
|
|
|
(905
|
)
|
|
(757
|
)
|
|
|
|
|
(850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,729
|
|
|
67,937
|
|
|
(14,956
|
)
|
|
|
|
|
63,653
|
|
Changes in primary working capital components, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts and notes receivable
|
|
|
(27,338
|
)
|
|
(11,649
|
)
|
|
(18,120
|
)
|
|
|
|
|
(9,640
|
)
|
Inventories
|
|
|
(699
|
)
|
|
(4,610
|
)
|
|
9,861
|
|
|
|
|
|
(19,286
|
)
|
Accounts payable
|
|
|
1,055
|
|
|
(3,655
|
)
|
|
8,290
|
|
|
|
|
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
|
|
47,747
|
|
|
48,023
|
|
|
(14,925
|
)
|
|
|
|
|
36,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(7,692
|
)
|
|
(13,940
|
)
|
|
(434
|
)
|
|
|
|
|
(7,736
|
)
|
Proceeds from sale of assets
|
|
|
9,847
|
|
|
3,807
|
|
|
161
|
|
|
|
|
|
4,411
|
|
Purchase of financial instruments
|
|
|
|
|
|
(4,638
|
)
|
|
|
|
|
|
|
|
|
|
Acquisition of Gypsum Management and Supply, Inc., net of cash acquired
|
|
|
|
|
|
|
|
|
(703,027
|
)
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
(113,597
|
)
|
|
(66,695
|
)
|
|
|
|
|
|
|
|
(5,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(111,442
|
)
|
|
(81,466
|
)
|
|
(703,300
|
)
|
|
|
|
|
(8,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments on the revolving credit facility
|
|
|
(697,144
|
)
|
|
(303,099
|
)
|
|
|
|
|
|
|
|
(531,918
|
)
|
Borrowings from the revolving credit facility
|
|
|
782,104
|
|
|
320,049
|
|
|
|
|
|
|
|
|
518,113
|
|
Proceeds from term loans
|
|
|
|
|
|
|
|
|
546,450
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
(391
|
)
|
|
|
|
|
(19,359
|
)
|
|
|
|
|
|
|
Payments of principal on long-term debt
|
|
|
(3,931
|
)
|
|
(3,927
|
)
|
|
(11
|
)
|
|
|
|
|
(292
|
)
|
Principal repayments of capital lease obligations
|
|
|
(4,249
|
)
|
|
(4,327
|
)
|
|
(301
|
)
|
|
|
|
|
(3,312
|
)
|
Proceeds from payments of stockholder notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
463
|
|
Proceeds from sales of common stock
|
|
|
|
|
|
5,370
|
|
|
224,108
|
|
|
|
|
|
|
|
Payment of contingent consideration
|
|
|
(6,598
|
)
|
|
(1,001
|
)
|
|
|
|
|
|
|
|
|
|
Stock repurchases
|
|
|
(5,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
6,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
70,483
|
|
|
13,065
|
|
|
750,887
|
|
|
|
|
|
(16,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
6,788
|
|
|
(20,378
|
)
|
|
32,662
|
|
|
|
|
|
10,742
|
|
Balance, beginning of period
|
|
|
12,284
|
|
|
32,662
|
|
|
|
|
|
|
|
|
13,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
19,072
|
|
$
|
12,284
|
|
$
|
32,662
|
|
|
|
|
$
|
24,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
26,067
|
|
$
|
16,111
|
|
$
|
410
|
|
|
|
|
$
|
15,018
|
|
Cash paid for interest
|
|
|
34,557
|
|
|
31,720
|
|
|
2,595
|
|
|
|
|
|
3,710
|
|
Supplemental schedule of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital lease
|
|
$
|
7,542
|
|
$
|
5,211
|
|
$
|
353
|
|
|
|
|
$
|
3,880
|
|
Change in fair value of derivative instrument
|
|
|
1,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of installment notes
|
|
|
1,557
|
|
|
1,644
|
|
|
|
|
|
|
|
|
795
|
|
Increase in other liabilities due to transition
guidance
|
|
|
3,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Predecessor interests
|
|
|
|
|
|
|
|
|
94,247
|
|
|
|
|
|
|
|
Increase to other assets and decrease to property and equipment
|
|
|
833
|
|
|
1,837
|
|
|
|
|
|
|
|
|
|
|
Non-cash property and equipment adjustments
|
|
|
110
|
|
|
115
|
|
|
|
|
|
|
|
|
(112
|
)
|
(Decrease) increase in insurance claims payable and insurance recoverable
|
|
|
(25,715
|
)
|
|
6,350
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
73
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014
(Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(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.
As
a result of the Acquisition and resulting change in control and changes due to the impact of purchase accounting, we are required to present separately the operating results for the
Predecessor periods ending on or prior to March 31, 2014 and the Successor periods beginning on or after April 1, 2014. References throughout the notes to "Successor 2016" relate to the
fiscal year ended April 30, 2016, references throughout the notes to "Successor 2015" relate to the fiscal year ended April 30, 2015, references throughout the notes to "Successor 2014"
relate to the one month ended April 30, 2014 and references throughout the notes to "Predecessor 2014" relate to the eleven months ended March 31, 2014. The results of the Successor are
not comparable to the results of the Predecessor.
We
have no independent operations and our only asset is our investment in the Predecessor.
Revision of Financial Statements
During the preparation of the Annual Report on Form 10-K for the year ended April 30, 2016, the Company determined that
an inappropriate statutory tax rate was used to value deferred tax liabilities related to certain assets purchased in the Acquisition as of April 1, 2014. This resulted in an understatement of
"Deferred income taxes, net" and "Goodwill", as of April 30, 2015, and an overstatement of "Provision for (benefit from) income taxes" and an understatement of "Net income (loss)" for the year
ended April 30, 2015. 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 Consolidated Financial Statements for the prior periods and that amendments of previously filed reports were therefore not required. However, the Company determined
that the impact of the corrections would be too significant to record during fiscal 2016. As such, the revision for the correction is reflected in the 2015 financial information in this
Form 10-K filing. Disclosure of the revised amounts will also be reflected in future filings containing the applicable periods.
74
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(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 Operations for the year ended April 30, 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30, 2015
|
|
|
|
As previously
reported
|
|
Adjustment
|
|
As revised
|
|
Provision for (benefit from) income taxes
|
|
$
|
(4,526
|
)
|
$
|
(2,100
|
)
|
$
|
(6,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(13,797
|
)
|
$
|
(2,100
|
)
|
$
|
(11,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.43
|
)
|
$
|
0.07
|
|
$
|
(0.36
|
)
|
Diluted
|
|
$
|
(0.43
|
)
|
$
|
0.07
|
|
$
|
(0.36
|
)
|
The
effect of this revision on the line items within the Company's Consolidated Balance Sheet as of April 30, 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2015
|
|
|
|
As previously
reported
|
|
Adjustments
|
|
As revised
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
342,411
|
|
$
|
6,400
|
|
$
|
348,811
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,154,576
|
|
$
|
6,400
|
|
$
|
1,160,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes, net
|
|
$
|
65,371
|
|
$
|
4,300
|
|
$
|
69,671
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
857,104
|
|
|
4,300
|
|
|
861,404
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(32,750
|
)
|
|
2,100
|
|
|
(30,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
297,472
|
|
|
2,100
|
|
|
299,572
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
1,154,576
|
|
$
|
6,400
|
|
$
|
1,160,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30, 2015
|
|
|
|
As previously
reported
|
|
Adjustment
|
|
As revised
|
|
Net income (loss)
|
|
$
|
(13,797
|
)
|
$
|
2,100
|
|
$
|
(11,697
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense
|
|
|
(19,584
|
)
|
|
(2,100
|
)
|
|
(21,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
|
$
|
48,023
|
|
$
|
|
|
$
|
48,023
|
|
75
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
Business
Founded in 1971, we are a distributor of specialty building products including wallboard, suspended ceilings 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 185 branches across 41 states.
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
-
-
collectibility is reasonably assured.
Revenue,
net of estimated returns and allowances, is recognized when sales transactions occur and title is passed, the related product is delivered, and 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
76
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
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 $159,098, $128,381, $9,727 and $99,822 for Successor 2016, Successor 2015, Successor 2014
and Predecessor 2014, respectively. "Depreciation and amortization" expenses include depreciation expense on our property and equipment as well as amortization expense on our finite lived intangible
assets.
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
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 writeoffs.
Based on our evaluation, we have established estimated reserves for uncollectible accounts, returns and cash discounts of $8,607 and $8,633 as of April 30, 2016 and 2015, 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.
77
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
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 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.
In
the Successor and Predecessor periods, 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
Successor 2016, Successor 2015 and Predecessor 2014, the Company recognized impairment losses of $373, $173 and $728, 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) in Successor 2016, Successor 2015 and
Predecessor 2014. The Company did not recognize any impairments in Successor 2014.
78
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
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 2016, fiscal 2015 and full year 2014 annual impairment tests, the fair values of our identified reporting units were estimated using a discounted cash flow
("DCF") analysis and a market comparable method, with each method being equally weighted in the calculation. There were no goodwill impairment charges recorded. See Note 6, "Goodwill and
Intangible Assets," for a complete description of the Company's goodwill.
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 or technology life cycles, 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 determinable useful lives. The costs of determinable-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 $11,147 and $13,311 as of April 30, 2016 and 2015, respectively, in the Consolidated Balance Sheets. Lender
and third party deferred financing costs related to the ABL Facility are reported as an asset of $2,544 and $2,949 as of April 30, 2016 and 2015, respectively, in the Consolidated Balance
Sheets. Amortization of these costs was $2,961, $2,907, $235 and $516 in Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014, respectively.
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 Codificaiton ("ASC") Topic 815, "
Derivatives and hedging
", changes in the fair value
79
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
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 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, 2016 and 2015, respectively, as an asset at its fair value of $271 and $2,160 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). The increase in fair value from the effective hedge date to the year ended April 30, 2015 was $10 and
was recorded in "Increase in fair value of financial instruments" in "Comprehensive income (loss)". The decrease in fair value from the effective hedge date to the year ended April 30, 2016 was
$1,158 and was recorded in "Decrease in fair value of financial instruments" 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 18, "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
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
these
assumptions are observable in the marketplace throughout the full term of the instrument, 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). Prior to Predecessor 2014, the Company entered into an interest-rate swap agreement as a fixed-rate payor to mitigate interest-rate risk associated with floating
interest rate borrowings under the ABL Facility on an initial notional amount of $35,000. Per the terms of the contract, the Predecessor received fixed interest of 0.69 percent in exchange for
floating interest indexed to the one-month LIBOR rate. Changes in fair value resulted in a gain of $208 for Predecessor 2014. These gains and losses are recognized in the Consolidated Statements of
Operations and Comprehensive Income (Loss), in "Other income, net". The interest rate swap was terminated in Predecessor 2014 with a penalty of $105 and interest of $16 and is recorded in "Other
income, net" in the Consolidated Statements of Operations and Comprehensive Income (Loss). We consider the interest rate swap to be a Level 2 fair value measurement for which market-based
pricing inputs are observable.
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, 2016 and 2015, the aggregate liabilities for medical self-insurance were $3,342 and $2,468, respectively, and are recorded in "Other liabilities" within the
Consolidated Balance Sheets. At April 30, 2016 and 2015, reserves for general liability, automobile and workers' compensation totaled approximately $12,213 and $36,808 respectively, and are
recorded in "Other accrued expenses and current liabilities" and "Other liabilities" in the Consolidated Balance Sheets, the majority of the fiscal 2015 amount relates to an insured automobile claim,
subject to a $500 deductible. During the year ended April 30, 2016, the claim was paid by our insurance carrier in the amount of approximately $26,300, subject to the deductible. At
April 30, 2016 and 2015, recoveries for general liability, automobile and workers' compensation, totaled approximately $4,832 and $30,714, 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.
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
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.
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 approximates fair value. The Term Loan Facilities approximates fair value as the debt was issued on the Acquisition Date and interest rates have not changed significantly.
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
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
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.
|
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 $2,043, $1,805, $114 and $1,282 in advertising costs in Successor 2016, Successor 2015, Successor 2014 and
Predecessor 2014, respectively.
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.
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
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 14, "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 "Accumulated deficit" of $971.
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 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 the Successor 2015 and Successor 2014 periods, 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 those periods. During Successor 2015
and Successor 2014, stock-based compensation securities were excluded from the calculation of diluted earnings (loss) per share because their effect would have been anti-dilutive.
Recent Accounting Pronouncements
Presentation of an unrecognized tax benefit
In July 2013, the FASB issued Accounting Standards Update ("ASU") No. 2013-11, "Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carry-forward, a Similar Tax Loss, or a Tax Credit Carry-forward Exists" ("ASU 2013-11"), which resolves diversity in practice on the financial
statement presentation of an unrecognized tax benefit when a net operating loss carry-forward, a similar tax loss, or a tax credit carry-forward exists. An unrecognized tax benefit, or a portion of an
unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carry-forward, a similar tax loss, or a tax credit
carryforward, except in certain situations, as defined in ASU 2013-11. The amendments in ASU 2013-11 are effective prospectively for fiscal years, and interim periods within those years, beginning
after December 15, 2013. The Company adopted ASU 2013-11 on May 1, 2014. The
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
adoption
of this standard did not materially impact the Company's financial position, results of operations, or cash flows.
Discontinued operations
In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosure of Disposals of
Components of an Entity" ("ASU 2014-08"). The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity's financial results or a
business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures
for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years,
beginning on or after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The impact on the Company of adopting ASU 2014-08 will depend on
the nature and size of future disposals, if any, of a component of the Company after the effective date. The Company has elected to early adopt ASU2014-08 effective May 1, 2014. As a result of
the adoption of this standard, the classification of a disposal made in fiscal 2015 that did not represent a strategic shift in the Company's direction or have a major impact on the Company's
financial position or results of operations was not reported as a discontinued operation.
Revenue recognition
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). The amended guidance
outlines a single comprehensive revenue model for entities to use in accounting for revenue arising from contracts with customers. The guidance supersedes most current revenue recognition guidance,
including industry-specific guidance. The core principle of the revenue model is that "an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services." Entities have the option of using either a full retrospective or modified approach to
adopt the guidance. ASU 2014-09 is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017 (early adoption is not permitted). The Company
is currently evaluating the impact of adopting ASU 2014-09.
Going Concern
In August 2014 the FASB issued ASU 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern",
which requires management to evaluate whether there are conditions or events that raise substantial doubt about an organization's ability to continue as a going concern and to provide related footnote
disclosures. ASU 2014-15 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact the
adoption of this ASU will have on its Consolidated Financial Statements.
Debt Issuance Costs
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs," which changes the presentation
of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset.
Amortization of the costs is reported as interest expense. The guidance is effective prospectively for fiscal years, and interim reporting periods within those years, beginning on or after
December 15, 2015. Early adoption is permitted and upon adoption, the guidance must be applied retroactively to all periods presented in the financial statements. Management has elected early
adoption of the standard and retroactively applied it all periods presented in the accompanying Consolidated Financial Statements.
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
1. Basis of Presentation, Business and Summary of Significant Accounting Policies (Continued)
Business Combinations
In September 2015, the FASB issued ASU No. 2015-16, "Simplifying the accounting for measurement-period adjustments" ("ASU
2015-16"). The amended guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined. The amendments are effective prospectively for the fiscal years, and interim reporting periods within those years, beginning on or after December 15, 2015 (early
adoption were permitted only for financial statements that have not been issued). Management has early adopted the standard. The adoption of this standard did not materially impact our financial
position, results of operations, or cash flows.
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 is in the process of
determining the method of adoption and assessing the impact ASU 2015-17 will have on its Consolidated Financial Statements.
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.
Equity Compensation
In March 2016, the FASB issued ASU 2016-09, "CompensationStock Compensation (Topic 718): Improvements to Employee
ShareBased 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 amendments are effective for public
companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company is
currently in the process of evaluating the impact of the adoption on its Consolidated Financial Statements.
2. Acquisition of Gypsum Management and Supply, Inc.
On the Acquisition Date, the Company acquired all of the outstanding common shares of Gypsum Management and Supply, Inc. (Predecessor) for a purchase price of $821,045. The
Acquisition was accounted for using the acquisition method of accounting, in accordance with ASC 805, "
Business Combinations,
" which requires that
assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
2. Acquisition of Gypsum Management and Supply, Inc. (Continued)
consideration
transferred was funded with approximately $224,000 cash from AEA and co-investors, approximately $503,000 from the Term Loan Facilities and $94,279 of interests that were converted from
ownership interests of
certain members of Predecessor management and noncontrolling interest holders. The table below summarizes the consideration transferred to acquire Gypsum Management and Supply, Inc. which
includes cash and certain noncontrolling interests in subsidiaries of Gypsum Management and Supply, Inc.:
Consideration Transferred
|
|
|
|
|
Cash consideration and issuance of debt
|
|
$
|
726,766
|
|
Conversion of Predecessor interests
|
|
|
94,279
|
|
|
|
|
|
|
Total consideration
|
|
$
|
821,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
identified assets acquired and liabilities assumed based on their estimated fair values at the Acquisition Date are as follows:
|
|
|
|
|
|
|
Final
purchase price
allocation
|
|
Cash and cash equivalents
|
|
$
|
23,740
|
|
Trade accounts and notes receivable
|
|
|
169,867
|
|
Inventories
|
|
|
146,044
|
|
Prepaid expenses and other current assets
|
|
|
18,200
|
|
Intangible assets
|
|
|
216,182
|
|
Property and equipment
|
|
|
176,623
|
|
Other assets
|
|
|
19,541
|
|
Current portion of long-term debt
|
|
|
(2,185
|
)
|
Accounts payable
|
|
|
(62,116
|
)
|
Accrued compensation and employee benefits
|
|
|
(41,357
|
)
|
Other accrued expenses and current liabilities
|
|
|
(15,399
|
)
|
Deferred income tax liabilities
|
|
|
(88,387
|
)
|
Long-term debt, less current portion
|
|
|
(5,583
|
)
|
Other liabilities
|
|
|
(31,588
|
)
|
Liabilities to noncontrolling interest holders
|
|
|
(29,673
|
)
|
|
|
|
|
|
Total identifiable net assets
|
|
$
|
493,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
327,136
|
|
|
|
|
|
|
The
Company acquired intangible assets of $216,182. See Note 6, "Goodwill and Intangible Assets," for the summary of the fair value estimates of the identifiable intangible assets
and their useful lives.
The
$327,136 of goodwill represents the cost in excess of the fair value of net assets acquired and is attributable to the entrepreneurial culture and leading market position of
Predecessor and the expected significant growth of the business. The fair value was determined based on market participant assumptions using common valuation techniques. The goodwill is not deductible
for income tax purposes.
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
2. Acquisition of Gypsum Management and Supply, Inc. (Continued)
The
Company incurred Acquisition-related costs of $68,801, of which $837, $16,155 and $51,809 were incurred in Successor 2015, Successor 2014 and Predecessor 2014, respectively, and
which are included in "Selling, general and administrative" expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).
As
discussed in Note 1, certain prior year amounts were revised to properly reflect deferred income tax liabilities and the related goodwill established during purchase
accounting. As a result of these revisions, "Deferred income taxes, net" and "Goodwill" on the Consolidated Balance Sheet increased by $6,400 as of April 30, 2015.
3. 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, in accordance with ASC 805, to record a new cost basis for the assets acquired and liabilities assumed.
The Company recorded, based on preliminary purchase price allocations, intangible assets representing client 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. The results of operations are reflected in the Consolidated Financial Statements of the Company from the date of acquisition.
(a) 2016 Acquisitions
In
fiscal 2016, the Company completed the following acquisitions, with an aggregate purchase price of $117,178, comprised of $114,554 net of cash consideration and $2,624 of 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. These acquisitions increased net sales by $72,277 for the year ended April 30, 2016.
|
|
|
|
|
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
|
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GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
3. Business Acquisitions (Continued)
The
preliminary allocation of consideration for these acquisitions is summarized as follows:
|
|
|
|
|
|
|
Preliminary
purchase price
allocation
April 30, 2016
|
|
Trade accounts and notes receivable
|
|
$
|
26,707
|
|
Inventories
|
|
|
17,543
|
|
Property and equipment
|
|
|
9,236
|
|
Other assets
|
|
|
1,764
|
|
Tradenames
|
|
|
12,500
|
|
Below market leases
|
|
|
2,020
|
|
Customer relationships
|
|
|
29,055
|
|
Goodwill
|
|
|
38,833
|
|
Deferred tax liability
|
|
|
(6,676
|
)
|
Liabilities assumed
|
|
|
(13,804
|
)
|
|
|
|
|
|
Purchase price
|
|
$
|
117,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
of $13,736 and other intangible assets of $26,335 are expected to be deductible for U.S. federal income tax purposes. Goodwill of $25,097 and other intangibles of $17,240 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. 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.
(b) 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 year 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. These acquisitions increased net sales by $44,380 for the year ended April 30, 2015.
|
|
|
|
|
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
|
89
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
3. Business Acquisitions (Continued)
The final allocation of consideration for these acquisitions is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preliminary
purchase price
allocation
April 30, 2015
|
|
Adjustments/
Reclassifications
|
|
Final purchase
price allocation
April 30, 2016
|
|
Trade accounts and notes receivable
|
|
$
|
14,935
|
|
$
|
131
|
|
$
|
15,066
|
|
Inventories
|
|
|
8,760
|
|
|
|
|
|
8,760
|
|
Property and equipment
|
|
|
5,116
|
|
|
|
|
|
5,116
|
|
Other assets
|
|
|
76
|
|
|
|
|
|
76
|
|
Tradenames
|
|
|
3,260
|
|
|
|
|
|
3,260
|
|
Customer relationships
|
|
|
30,840
|
|
|
|
|
|
30,840
|
|
Goodwill
|
|
|
21,675
|
|
|
(1,338
|
)
|
|
20,337
|
|
Liabilities assumed
|
|
|
(11,268
|
)
|
|
21
|
|
|
(11,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Purchase price
|
|
$
|
73,394
|
|
$
|
(1,186
|
)
|
$
|
72,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
fiscal 2016, the Company paid out $2,459 in contingent consideration and recorded adjustments to working capital resulting in a decrease to total consideration paid of $1,186.
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.
(c) 2014 Acquisitions
In full year 2014, the Company completed the following acquisitions, with an aggregate purchase price of $5,518, comprised entirely of cash consideration. In
connection with these 2014 acquisitions, the Company incurred transaction costs of $120 in full year 2014. These amounts are reported 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.
These acquisitions increased net sales by $14,112 for full year 2014.
|
|
|
|
|
Company name
|
|
Form of acquisition
|
|
Date of acquisition
|
Sun Valley Supply, Inc.
|
|
Purchase of net assets
|
|
August 1, 2013
|
Dakota Gypsum
|
|
Purchase of net assets
|
|
August 19, 2013
|
90
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
3. Business Acquisitions (Continued)
The
final allocation of consideration for these acquisitions is summarized as follows:
|
|
|
|
|
|
|
Final
purchase price
allocation
|
|
Trade accounts and notes receivable
|
|
$
|
1,679
|
|
Inventories
|
|
|
1,402
|
|
Property and equipment
|
|
|
773
|
|
Assets acquired and liabilities assumed, net
|
|
|
19
|
|
Goodwill
|
|
|
1,645
|
|
|
|
|
|
|
Purchase price
|
|
$
|
5,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
full year 2014, the Company finalized the purchase price allocation and recorded adjustments to contingent considerations resulting in a decrease in total consideration paid of $560.
Goodwill of $1,645 is 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.
4. Prepaid expenses and other current assets
"Prepaid expenses and other current assets" at April 30, 2016 and 2015 consists of the following:
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
April 30,
2015
|
|
IPO readiness
|
|
$
|
5,091
|
|
$
|
320
|
|
Insurance recoveries and other receivables
|
|
|
3,974
|
|
|
27,854
|
|
Assets held for sale(1)
|
|
|
2,598
|
|
|
8,721
|
|
Prepaid rent
|
|
|
1,141
|
|
|
923
|
|
Taxes, tags and licenses
|
|
|
695
|
|
|
688
|
|
Prepaid supplies
|
|
|
679
|
|
|
463
|
|
Management fee
|
|
|
375
|
|
|
375
|
|
Prepaid insurance and payroll taxes
|
|
|
257
|
|
|
721
|
|
Refundable income taxes
|
|
|
|
|
|
1,662
|
|
Other
|
|
|
1,738
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,548
|
|
$
|
42,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
As
of April 30, 2016 and 2015, certain land, buildings and building improvements met the held for sale criteria and have been included as a component
of capitalized other current assets. Upon meeting the held for sale criteria, these assets were no longer depreciated. In fiscal 2016 and fiscal 2015, the Company received proceeds of $7,093 and $150,
respectively, related to disposals of assets held for sale.
91
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
5. Property and Equipment
"Property and equipment" at April 30, 2016 and 2015 consists of the following:
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
April 30,
2015
|
|
Land
|
|
$
|
50,001
|
|
$
|
49,984
|
|
Buildings and leasehold improvements
|
|
|
77,049
|
|
|
75,153
|
|
Machinery and equipment
|
|
|
78,142
|
|
|
66,946
|
|
Construction in progress
|
|
|
2,445
|
|
|
2,047
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
207,637
|
|
|
194,130
|
|
Less: accumulated depreciation and amortization
|
|
|
54,377
|
|
|
35,306
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net of accumulated depreciation and amortization
|
|
$
|
153,260
|
|
$
|
158,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
"Depreciation
and amortization" expense for property and equipment was $26,667, $32,208, $3,818 and $12,215 for Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014,
respectively.
6. Goodwill and Intangible Assets
As discussed in Note 1, certain prior year amounts were revised to properly reflect deferred income tax liabilities and the related goodwill established during purchase
accounting. As a result of these revisions, "Goodwill" on the Consolidated Balance Sheet increased by $6,400 as of April 30, 2015.
"Goodwill"
at April 30, 2016 and 2015 consists of the following:
|
|
|
|
|
|
|
Carrying
Amount
|
|
Balance at May 1, 2014
|
|
$
|
327,136
|
|
Goodwill acquired during the year (Note 3)
|
|
|
21,675
|
|
|
|
|
|
|
Balance at April 30, 2015
|
|
|
348,811
|
|
|
|
|
|
|
Working capital adjustments (Note 3)
|
|
|
(1,338
|
)
|
Goodwill acquired during the year (Note 3)
|
|
|
38,833
|
|
|
|
|
|
|
Balance at April 30, 2016
|
|
$
|
386,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
6. Goodwill and Intangible Assets (Continued)
The
Company's definite lived intangible assets as of April 30, 2016 and 2015 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2016
|
|
|
|
|
|
Weighted
average
amortization
period
|
|
|
|
Estimated
useful lives
(years)
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
value
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2015
|
|
|
|
|
|
Weighted
average
amortization
period
|
|
|
|
Estimated
useful lives
(years)
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
value
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
8 - 13
|
|
|
11.0
|
|
$
|
179,471
|
|
$
|
33,610
|
|
$
|
145,861
|
|
Definite lived tradenames
|
|
20
|
|
|
|
|
|
3,260
|
|
|
51
|
|
|
3,209
|
|
Vendor agreement
|
|
8
|
|
|
|
|
|
5,644
|
|
|
765
|
|
|
4,879
|
|
Leasehold interests
|
|
8 - 13
|
|
|
10.9
|
|
|
496
|
|
|
51
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
$
|
188,871
|
|
$
|
34,477
|
|
$
|
154,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's indefinite lived intangible assets consist of tradenames which have a carrying amount of $61,368 as of April 30, 2016 and 2015.
Amortization
expense related to intangible assets was $37,548, $31,957, $2,518 and $38 in Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014, respectively, and is
recorded in "Depreciation and amortization" expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). The
93
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
6. Goodwill and Intangible Assets (Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
34,189
|
|
$
|
854
|
|
$
|
706
|
|
$
|
318
|
|
$
|
36,067
|
|
2018
|
|
|
27,412
|
|
|
854
|
|
|
706
|
|
|
318
|
|
|
29,290
|
|
2019
|
|
|
21,483
|
|
|
854
|
|
|
706
|
|
|
318
|
|
|
23,361
|
|
2020
|
|
|
16,275
|
|
|
854
|
|
|
706
|
|
|
318
|
|
|
18,153
|
|
2021
|
|
|
12,299
|
|
|
824
|
|
|
706
|
|
|
318
|
|
|
14,147
|
|
Thereafter
|
|
|
26,939
|
|
|
11,073
|
|
|
644
|
|
|
748
|
|
|
39,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
138,597
|
|
$
|
15,313
|
|
$
|
4,174
|
|
$
|
2,338
|
|
$
|
160,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Other Accrued Expenses and Current Liabilities
"Other accrued expenses and current liabilities" at April 30, 2016 and 2015 consist of the following:
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
April 30,
2015
|
|
Sales taxes payable
|
|
$
|
9,297
|
|
$
|
7,309
|
|
Insurance related liabilities
|
|
|
8,340
|
|
|
33,427
|
|
Contingent consideration
|
|
|
7,265
|
|
|
2,358
|
|
Income taxes payable
|
|
|
5,444
|
|
|
|
|
Accrued rebates
|
|
|
2,054
|
|
|
1,676
|
|
Accrued professional services fees
|
|
|
1,741
|
|
|
1,287
|
|
Real estate and personal property taxes
|
|
|
1,431
|
|
|
1,082
|
|
Accrued interest
|
|
|
678
|
|
|
1,420
|
|
Deferred revenue
|
|
|
626
|
|
|
784
|
|
Accrued franchise tax
|
|
|
271
|
|
|
376
|
|
Contingent liabilities to sellers
|
|
|
|
|
|
4,821
|
|
Other
|
|
|
4,667
|
|
|
2,632
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,814
|
|
$
|
57,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
8. Long-Term Debt
"Long-term debt" at April 30, 2016 and 2015 consists of the following:
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
April 30,
2015
|
|
First Lien Term Loan due 2021(1)(2)
|
|
$
|
373,998
|
|
$
|
376,180
|
|
Second Lien Term Loan due 2022(3)(4)
|
|
|
154,517
|
|
|
153,585
|
|
ABL Facility
|
|
|
101,910
|
|
|
16,950
|
|
Capital lease obligation, at an annual rate of 5.25%, due in monthly installments through August 2022 (Note 16)
|
|
|
11,449
|
|
|
8,628
|
|
Installment notes at fixed rates up to 2.7%, due in monthly and annual installments through April 2021
|
|
|
2,736
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
644,610
|
|
|
556,984
|
|
Less: Current portion
|
|
|
35,581
|
|
|
23,709
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
609,029
|
|
$
|
533,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Net
of unamortized discount of $1,355 and $1,640 as of April 30, 2016 and 2015, respectively.
-
(2)
-
Net
of deferred financing costs of $6,847 and $8,280 as of April 30, 2016 and 2015, respectively.
-
(3)
-
Net
of unamortized discount of $1,183 and $1,384 as of April 30, 2016 and 2015, respectively.
-
(4)
-
Net
of deferred financing costs of $4,300 and $5,031 as of April 30, 2016 and 2015, respectively.
Acquisition Debt (Successor)
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 consists of a First Lien Term Loan and a Second Lien Term Loan (respectively, the "First Term Loan" and "Second Term Loan" and collectively, the "Term Loans"). 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). At April 30, 2016, the borrowing interest rate for the First Term Loan and Second Term Loan was 4.75% and 7.75%, respectively. Accrued
interest, presented within "Other accrued expenses and current liabilities" in our Consolidated Balance Sheets, was $246 and $1,119 at April 30, 2016 and 2015, respectively. Cash paid for
interest was $32,130, $30,251 and $2,491 for Successor 2016, Successor 2015 and Successor 2014, respectively. The First Lien Facility permits the Borrower to add one or more incremental term loans up
to a fixed amount of $100,000 (shared with the Second Term Loan) plus a certain amount depending on a secured first lien leverage ratio test
95
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
8. Long-Term Debt (Continued)
included
in the First Lien Facility. The Second Lien Facility permits the Borrower to add one or more incremental term loans up to a fixed amount of $100,000 (shared with the First Lien Facility) plus
a certain amount depending on a secured leverage ratio test included in the Second Lien Facility. The First Term Loan bears interest at LIBOR (subject to a floor of 1.00%) plus a borrowing margin of
3.75%. The Second Term Loan bears interest at LIBOR (subject to a floor of 1.00%) plus a borrowing margin of 6.75%. The First Term Loan amortizes in nominal quarterly installments of $975, or 0.25% of
the original aggregate principal amount of the First Term Loan and matures on April 1, 2021. The Second Term Loan has no amortization and matures on April 1, 2022.
Provided that the individual affected lenders agree accordingly, the maturities of the Term Loans may, upon the Borrower's request and without the consent of any other lender, be extended.
On
June 1, 2016, we repaid the entire outstanding principal balance under the Second Lien Term Loan, see Note 23, "Subsequent Events."
Asset Based Lending Facility (Successor)
The Asset Based Lending Credit Facility (the "ABL Facility"), entered into on April 1, 2014, provides 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, 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, 2015, the Company had $171,688 of available borrowings and $16,950 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, 2016 and 2015, there was $422 and $280 accrued interest payable, respectively on the
facility. In Successor 2016, Successor 2015 and Successor 2014, we paid interest and other fees on the facility of $1,900, $941 and $76, 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 $300,000 for the total commitments under the ABL Facility (including
all incremental commitments).
As
of April 30, 2016 and 2015, the Company reflected $2,544 and $2,949, respectively, of deferred financing costs related to the ABL Facility in "other assets" on its Consolidated
Balance Sheets.
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 2016 and fiscal 2015 was 2.97% and 3.75%, respectively. The ABL Facility also contains an unused commitment fee subject to utilization, as included in the ABL
Facility agreement.
96
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
8. Long-Term Debt (Continued)
The
ABL Facility will mature on April 1, 2019 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 Term Loan 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) third 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 and the Second Lien Facility are collateralized by (a) first priority liens and second priority liens, respectively, on the Term Priority Collateral and
(b) second priority liens and third priority liens, respectively, 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 without penalty, except that the Second Term Loan is subject to a 1% prepayment premium on
voluntary prepayments and certain mandatory prepayments made prior to April 1, 2016. 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, 2016 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 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.
97
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
8. Long-Term Debt (Continued)
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, 2016.
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 restrictive covenants at April 30, 2016.
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.
Asset Based Lending Facility (Predecessor)
In conjunction with the Acquisition of the Predecessor, the outstanding balance of the 2010 Credit Facility was paid in full and
unamortized deferred financing charges of $1,641 were written off as part of the purchase price accounting.
Debt Maturities
As of April 30, 2016, the scheduled quarterly principal payments of long-term debt, excluding capital leases and installment
notes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien
Term Loan
|
|
Second Lien
Term Loan
|
|
Total
|
|
Years ending April 30,
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
3,900
|
|
$
|
160,000
|
|
$
|
163,900
|
|
2018
|
|
|
3,900
|
|
|
|
|
|
3,900
|
|
2019
|
|
|
3,900
|
|
|
|
|
|
3,900
|
|
2020
|
|
|
3,900
|
|
|
|
|
|
3,900
|
|
2021
|
|
|
366,600
|
|
|
|
|
|
366,600
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
382,200
|
|
$
|
160,000
|
|
$
|
542,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
8. Long-Term Debt (Continued)
Installment Notes
The installment notes as of April 30, 2016 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, 2015 represent notes for subsidiary stock repurchases from
shareholders and a note for the payout of stock appreciation rights. See Note 14, "Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests."
9. Predecessor Mandatorily Redeemable Common Shares
Prior to the Acquisition, our founders owned one hundred percent of the outstanding shares of Gypsum Management and Supply, Inc. (Predecessor). These shares had certain redemption
features which provided that upon the death or disability of the shareholder or termination of his employment, Predecessor would be required to purchase these shares at their then current fair values.
Pursuant to this provision, these shares were deemed to be mandatorily redeemable and, as such, were required to be reflected as a liability at their estimated fair values at the end of any reporting
period. Changes in fair value are reflected as "Change in fair value of mandatorily redeemable common shares" on our Consolidated Statements of Operations and Comprehensive Income (Loss). Fair value
was estimated based on common valuation techniques. On April 1, 2014, all outstanding shares were acquired or converted into the equity of GMS Inc. at the Acquisition Date.
The
following table sets forth a roll forward of the Level 3 fair values of the Predecessor's mandatorily redeemable common shares. These techniques were based on a combination of
a discounted cash flow analysis, which was determined using management's projections, and a market comparable method.
|
|
|
|
|
|
|
Mandatorily
Redeemable
Common Shares
|
|
Balance as of May 1, 2013
|
|
$
|
459,628
|
|
Increase in fair value
|
|
|
200,004
|
|
|
|
|
|
|
Balance as of March 31, 2014
|
|
|
659,632
|
|
Acquisition of Predecessor equity interests by GMS Inc.
|
|
|
(659,632
|
)
|
|
|
|
|
|
Balance as of March 31, 2014
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Retirement Plan
The Company maintains a defined contribution retirement plan for its employees. Participants are allowed to choose from a 401(k) 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
$1,743, $1,120, $86, and $891 in Successor 2016, Successor 2015, Successor 2014, and Predecessor 2014, respectively.
99
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
11. Income Taxes
As discussed in Note 1, during the preparation of the Annual Report on Form 10-K for the year ended April 30,
2016, the Company determined that the statutory tax rate used to value deferred tax liabilities related to certain assets purchased in the Acquisition as of April 1, 2014 needed to be adjusted.
This misstatement resulted in an understatement of the net deferred tax liability and goodwill, and in 2015, an overstatement of tax expense and a resultant understatement of net income (loss) for the
year ended April 30, 2015. The impact of this revision for periods presented are reflected in the disclosure that follows.
Income
tax expense (benefit) for Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year Ended
April 30, 2016
|
|
Year Ended
April 30, 2015
|
|
April 1 -
April 30, 2014
|
|
|
|
May 1, 2013 -
March 31, 2014
|
|
|
|
|
|
Current federal
|
|
$
|
28,043
|
|
$
|
11,638
|
|
$
|
(2
|
)
|
|
|
|
$
|
13,498
|
|
Current state
|
|
|
5,162
|
|
|
2,688
|
|
|
|
|
|
|
|
|
3,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
33,205
|
|
|
14,326
|
|
|
(2
|
)
|
|
|
|
|
16,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred federal
|
|
|
(19,993
|
)
|
|
(17,492
|
)
|
|
(7,382
|
)
|
|
|
|
|
(8,711
|
)
|
Deferred state
|
|
|
(628
|
)
|
|
(3,460
|
)
|
|
521
|
|
|
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(20,621
|
)
|
|
(20,952
|
)
|
|
(6,861
|
)
|
|
|
|
|
(10,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,584
|
|
$
|
(6,626
|
)
|
$
|
(6,863
|
)
|
|
|
|
$
|
6,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income tax expense (benefit) from continuing operations differed from the amount computed by applying the federal statutory rate of 35% for Successor 2016, Successor 2015,
Successor 2014 and Predecessor 2014 due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year Ended
April 30, 2016
|
|
Year Ended
April 30, 2015
|
|
April 1 -
April 30, 2014
|
|
|
|
May 1, 2013 -
March 31, 2014
|
|
|
|
|
|
Federal income taxes at statutory rate
|
|
$
|
8,802
|
|
$
|
(6,413
|
)
|
$
|
(9,036
|
)
|
|
|
|
$
|
(67,983
|
)
|
State income taxes, net of federal income tax benefit
|
|
|
2,336
|
|
|
(51
|
)
|
|
192
|
|
|
|
|
|
1,383
|
|
Change in fair value of mandatorily redeemable common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,001
|
|
Net change in valuation allowance
|
|
|
(60
|
)
|
|
(1,134
|
)
|
|
100
|
|
|
|
|
|
(279
|
)
|
Nondeductible meals & entertainment
|
|
|
627
|
|
|
462
|
|
|
35
|
|
|
|
|
|
354
|
|
Redeemable noncontrolling interests
|
|
|
291
|
|
|
550
|
|
|
14
|
|
|
|
|
|
816
|
|
Nondeductible transaction costs
|
|
|
253
|
|
|
|
|
|
1,891
|
|
|
|
|
|
2,232
|
|
Other permanent differences
|
|
|
104
|
|
|
88
|
|
|
9
|
|
|
|
|
|
104
|
|
Other
|
|
|
231
|
|
|
(128
|
)
|
|
(68
|
)
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,584
|
|
$
|
(6,626
|
)
|
$
|
(6,863
|
)
|
|
|
|
$
|
6,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 release of valuation allowance related to certain state net operating losses, and non-deductible non-cash debt related charges.
100
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
11. Income Taxes (Continued)
The tax effects of temporary differences, which give rise to deferred income taxes as of April 30, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
April 30,
2015
|
|
Current deferred income tax assets:
|
|
|
|
|
|
|
|
Allowances on accounts and notes receivable
|
|
$
|
4,924
|
|
$
|
5,454
|
|
Accrued payroll and related costs
|
|
|
2,013
|
|
|
1,772
|
|
Insurance reserves
|
|
|
1,920
|
|
|
1,204
|
|
Inventory costs
|
|
|
1,725
|
|
|
1,702
|
|
Other
|
|
|
1,840
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
Total current deferred income tax assets
|
|
|
12,422
|
|
|
11,782
|
|
Less: Valuation allowance
|
|
|
(30
|
)
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
Total current deferred income tax assets
|
|
|
12,392
|
|
|
11,725
|
|
|
|
|
|
|
|
|
|
Current deferred income tax liabilities:
|
|
|
|
|
|
|
|
Rebates
|
|
|
(1,270
|
)
|
|
(1,889
|
)
|
Other
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total current deferred income tax liabilities
|
|
|
(1,345
|
)
|
|
(1,889
|
)
|
|
|
|
|
|
|
|
|
Current deferred income tax assets, net
|
|
$
|
11,047
|
|
$
|
9,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred income tax assets:
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
9,080
|
|
$
|
3,981
|
|
Equity compensation
|
|
|
2,593
|
|
|
2,402
|
|
Derivative instrument
|
|
|
1,589
|
|
|
886
|
|
Acquisition related costs
|
|
|
1,038
|
|
|
|
|
State net operating loss carry-forwards
|
|
|
864
|
|
|
1,031
|
|
Deferred rent
|
|
|
791
|
|
|
82
|
|
Noncompete agreements
|
|
|
558
|
|
|
317
|
|
Interest rate swap
|
|
|
|
|
|
56
|
|
Other
|
|
|
387
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
Total non-current deferred income tax assets
|
|
|
16,900
|
|
|
10,774
|
|
Less: Valuation allowance
|
|
|
(53
|
)
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
Non-current deferred income tax assets
|
|
|
16,847
|
|
|
10,688
|
|
Non-current deferred income tax liabilities:
|
|
|
|
|
|
|
|
Amortization on intangible assets
|
|
|
(62,599
|
)
|
|
(67,092
|
)
|
Depreciation
|
|
|
(6,498
|
)
|
|
(13,041
|
)
|
Capital
|
|
|
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
Total non-current deferred tax liabilities
|
|
|
(69,097
|
)
|
|
(80,359
|
)
|
|
|
|
|
|
|
|
|
Non-current deferred income tax liabilities, net
|
|
$
|
(52,250
|
)
|
$
|
(69,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014, the Company generated certain state net operating loss carry-forwards which are available for use against taxable
income in each respective state.
101
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
11. Income Taxes (Continued)
The
Company had state net operating losses available for carry-forward of $20,228 and $23,596 in Successor 2016 and Successor 2015, respectively, which expire through the fiscal year ending in 2036.
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, 2016, 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 2017 to 2036.
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, 2016 and 2015 of $83 and $143, respectively, primarily relates to state
net operating loss carry forwards. During fiscal 2016 and 2015, the valuation allowance decreased by $60 and $1,134, respectively, which is primarily due to increased profitability. During the month
ended April 30, 2014 the valuation allowance increased by $100 and during the eleven months ended March 31, 2014, the valuation allowance decreased by $279.
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 to uncertain tax positions is to record these amounts in "Selling, general and administrative" expense.
At
April 30, 2016, Successor 2016, Successor 2015, Successor 2014 and Predecessor 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 reserves are necessary as of April 30, 2016 and 2015.
12. Stockholders' Equity
Successor Stockholders' Equity
The Company authorized 500,000,000 shares of $0.01 par value common stock of which 32,892,905 and 32,757,905 were outstanding at
April 30, 2016 and 2015, 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, 2016 and 2015.
On
May 13, 2016, we amended and restated our certificate of incorporation, see Note 23, "Subsequent Events."
102
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
13. 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. The Black-Scholes
option-pricing model requires the use of weighted average 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. Prior to our initial public offering discussed in Note 23, "Subsequent Events," we did not have sufficient history to
estimate the expected volatility of our common stock price, 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 a valuation of our common stock. 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, 2015 are set forth below:
|
|
|
|
|
|
|
April 30,
2015
|
|
Volatility
|
|
|
59.54
|
%
|
Expected life (years)
|
|
|
6.0
|
|
Risk-free interest rate
|
|
|
1.78
|
%
|
Dividend yield
|
|
|
|
%
|
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 and the aggregate fair value of options outstanding was $13,361 and the aggregate fair value of options vested as of April 30, 2015 was $2,228. 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. This expense is recorded on an accelerated basis over the
requisite service period of each separate vesting tranche. Share-based compensation expense related to stock
103
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
13. Equity-Based Compensation (Continued)
option
awards was $2,699 and $6,455 for the year ended April 30, 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). The Company also recognized related income tax benefits of $2,593. At April 30, 2016 and 2015, the unrecognized
compensation expense related to stock option awards was $2,344 and $5,570, respectively, with a remaining weighted average life of 2.0 years and 3.1 years, respectively.
The
Company did not issue any stock option awards in fiscal 2016.
A
summary of stock option activity for the year ended April 30, 2016 and 2015 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
options
|
|
Weighted
average
exercise
price
|
|
Weighted
average
remaining
contractual
life (years)
|
|
Aggregate
intrinsic
value
|
|
Outstanding at May 1, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
2,824,050
|
|
$
|
12.53
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2016
|
|
|
645,327
|
|
$
|
12.35
|
|
|
7.96
|
|
$
|
5,580
|
|
Expected to vest after April 30, 2016
|
|
|
1,289,779
|
|
$
|
12.38
|
|
|
8.00
|
|
$
|
11,120
|
|
Aggregate
intrinsic value represents the fair value of the underlying common stock at the date of grant, which was determined based on the per share valuation of our common stock 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, 2016, the aggregate fair value of options outstanding was $8,792 and the aggregate fair value of options vested was $5,286. The total intrinsic value of stock
option awards exercised was approximately $8,892 during the fiscal year ended April 30, 2016.
On
May 13, 2016, we amended and restated our certificate of incorporation, see Note 23, "Subsequent Events."
Subsidiaries' Stock Option Plans
Certain subsidiaries of the Company granted stock options to certain employees prior to Predecessor 2014 under various plans (the
"Subsidiary Plans"). The options were valued based on the underlying common stock changes from year to year and compensation expense was recognized over the vesting
period. Compensation expense recognized in Successor 2014 and Predecessor 2014, was $1 and $27, respectively. All stock options awarded under the Subsidiary Plans were exercised or expired prior to
April 30, 2015.
104
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
14. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests
Certain subsidiaries have equity based compensation arrangements with certain of the 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 transition guidance stated within ASC 718, we have recorded these liability awards at
fair value as of April 30, 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 $808 and $1,050 were recorded
as components of "Accrued compensation and employee benefits" at April 30, 2016 and 2015, respectively. Long-term liabilities related to these plans of $19,725 and $7,019 were recorded as
components of "Other liabilities" at April 30, 2016 and 2015, respectively. Below is a summary of changes to the liability:
|
|
|
|
|
|
|
As of
April 30, 2016
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded stock appreciation rights expense of $1,988, $2,268, $80 and $1,288 in Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014, respectively, and is
included as a component of "Selling, general and administrative" expenses in our Consolidated Statements of Operations and Comprehensive Income (Loss). In Successor 2016, the Company recorded $11,245
as an increase to "Accumlated 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 $0 and $11 were recorded as components of "Accrued compensation and employee benefits" at April 30, 2016 and 2015, respectively. The remaining liabilities related to
these plans of $3,270 and $3,479 were recorded as components of "Other liabilities" at April 30, 2016 and 2015, respectively.
105
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
14. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests (Continued)
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:
|
|
|
|
|
|
|
As of
April 30, 2016
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded redeemable noncontrolling interests expense of $45, $289, $31 and $626 in Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014, respectively, and is
included as a component of "Selling, general and administrative" expenses in our Consolidated Statements of Operations and Comprehensive Income (Loss). In Successor 2016, the Company recorded $234 as
a decrease to "Accumlated deficit" in our Consolidated Balance Sheets as a result of the change in value due to the transition guidance in ASC 718.
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 generally 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, 2016, the total fair value of these liabilities was $26,585. Amounts expected to be paid in the next year are included in "Accrued compensation and employee benefits" at
April 30, 2016 in the amount of $1,338. Long term liabilities of $25,247 related to this plan were recorded to "Liabilities to noncontrolling interest holders, less current portion" at
April 30, 2016. Below is a summary of changes to the liability:
|
|
|
|
|
|
|
As of
April 30, 2016
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded redeemable noncontrolling interests expense of $881, $1,570, $40 and $2,331 in Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014, respectively, and
is included as a component of "Selling, general and administrative" expenses in our Consolidated Statements of Operations and
106
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
14. Stock Appreciation Rights, Deferred Compensation and Redeemable Noncontrolling Interests (Continued)
Comprehensive
Income (Loss). In Successor 2016, the Company recorded $3,706 as a decrease to "Accumlated 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.
15. 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, 2016, these leases had
expiration dates through fiscal 2021. Rent expense related to these leases included in the accompanying Consolidated Financial Statements approximated $628, $903, $77 and $854 for Successor 2016,
Successor 2015, Successor 2014 and Predecessor 2014, respectively, and are recorded in "Selling, general and administrative" expenses. At April 30, 2016, future minimum payments under the terms
of the leases aggregated to $1,849.
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 $12,795, $11,926, $1,037
and $10,033 in Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014, respectively. Amounts due to SWP for purchases of inventory for distribution as of April 30, 2016 and 2015
were $1,097 and $943, respectively, and are included in "Accounts payable". Purchases between Gypsum Management and Supply, Inc. and SWP prior to the spin-off were accounted for as intercompany
transactions and eliminated in consolidation.
The
Company has a management agreement in place with AEA Investors LP. The agreement requires the Company to pay AEA an annual management fee of $2,250 per year following the
Acquisition for advisory and consulting services. The fee is 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).
On
June 1, 2016, we terminated our management agreement with AEA Investors LP in connection with our initial public offering, see Note 23, "Subsequent Events."
107
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
16. 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 $10,928 and $8,555 at
April 30, 2016 and 2015, respectively, net of accumulated depreciation of $6,696 and $5,005, respectively. Amortization of assets held under capital leases is $4,685, $4,320, $309 and $3,398 in
Successor 2016, Successor
2015, Successor 2014 and Predecessor 2014, 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 $41,733, $29,910, $1,458 and $19,878 for Successor 2016, Successor 2015, Successor 2014 and Predecessor
2014, 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.
At
April 30, 2016, 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,
|
|
|
|
|
|
|
|
2017
|
|
$
|
4,098
|
|
$
|
42,472
|
|
2018
|
|
|
2,782
|
|
|
38,883
|
|
2019
|
|
|
1,513
|
|
|
31,678
|
|
2020
|
|
|
708
|
|
|
24,772
|
|
2021
|
|
|
608
|
|
|
16,512
|
|
Thereafter
|
|
|
327
|
|
|
15,984
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,036
|
|
$
|
170,301
|
|
|
|
|
|
|
|
|
|
Less: Current portion
|
|
|
4,098
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term capitalized lease obligations
|
|
$
|
5,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, and assets
for amounts recoverable from the insurer, for these claims covered by insurance.
108
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
17. 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 six geographic divisions, which are Central, Northeast, Southern, Southeast, Southwest and Western. 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. The Company has revised its prior year presentation of
segment Total Assets and Depreciation and Amortization to record $6,918 of corporate assets as of April 30, 2015 and corporate Depreciation and Amortization of $741, $42 and $397 for the
Successor 2015, Successor 2014 and Predecessor 2014 periods, respectively, originally disclosed as part of "Geographic divisions". In addition, in its "Geographic divisions" segment the Company has
increased accounts receivable by $1,051 as of April 30, 2015 and increased net sales by $12,523, $858 and $9,421 for Successor 2015, Successor 2014 and Predecessor 2014 periods, respectively,
to correct amounts which were previously reflected in "Other." The prior year misclassification was not material to the previously issued financial statements. In connection with the current year
presentation, the Company has also reclassified its "Corporate" related balances out of "Other". Net sales, Adjusted EBITDA and certain other measures for the reportable segment and total continuing
operations for the periods indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor April 30, 2016
|
|
April 30, 2016
|
|
|
|
Net sales
|
|
Gross profit
|
|
Depreciation &
amortization
|
|
Adjusted
EBITDA
|
|
Total assets
|
|
Geographic divisions
|
|
$
|
1,842,634
|
|
$
|
587,213
|
|
$
|
63,093
|
|
$
|
149,552
|
|
$
|
1,230,049
|
|
Other
|
|
|
15,548
|
|
|
5,951
|
|
|
295
|
|
|
724
|
|
|
11,179
|
|
Corporate
|
|
|
|
|
|
|
|
|
827
|
|
|
|
|
|
10,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,858,182
|
|
$
|
593,164
|
|
$
|
64,215
|
|
$
|
150,276
|
|
$
|
1,251,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor 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
|
|
$
|
113,311
|
|
$
|
1,143,637
|
|
Other
|
|
|
11,876
|
|
|
4,608
|
|
|
288
|
|
|
549
|
|
|
10,421
|
|
Corporate
|
|
|
|
|
|
|
|
|
741
|
|
|
|
|
|
6,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,570,085
|
|
$
|
478,971
|
|
$
|
64,165
|
|
$
|
113,860
|
|
$
|
1,160,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
17. Segments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor April 1 - April 30, 2014
|
|
|
|
Net sales
|
|
Gross profit
|
|
Depreciation &
amortization
|
|
Adjusted
EBITDA
|
|
Geographic divisions
|
|
$
|
126,478
|
|
$
|
29,164
|
|
$
|
6,274
|
|
$
|
8,468
|
|
Other
|
|
|
854
|
|
|
213
|
|
|
20
|
|
|
(96
|
)
|
Corporate
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
127,332
|
|
$
|
29,377
|
|
$
|
6,336
|
|
$
|
8,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor May 1 - March 31, 2014
|
|
|
|
Net sales
|
|
Gross profit
|
|
Depreciation &
amortization
|
|
Adjusted
EBITDA
|
|
Geographic divisions
|
|
$
|
1,218,198
|
|
$
|
370,235
|
|
$
|
11,651
|
|
$
|
79,040
|
|
Other
|
|
|
7,810
|
|
|
2,753
|
|
|
205
|
|
|
(350
|
)
|
Corporate
|
|
|
|
|
|
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,226,008
|
|
$
|
372,988
|
|
$
|
12,253
|
|
$
|
78,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year Ended
April 30, 2016
|
|
Year Ended
April 30, 2015
|
|
April 1 -
April 30, 2014
|
|
|
|
May 1, 2013 -
March 31, 2014
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
150,276
|
|
$
|
113,860
|
|
$
|
8,372
|
|
|
|
|
$
|
78,690
|
|
Interest expense
|
|
|
(37,418
|
)
|
|
(36,396
|
)
|
|
(2,954
|
)
|
|
|
|
|
(4,226
|
)
|
Change in fair value of mandatorily redeemable common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,004
|
)
|
Interest income
|
|
|
928
|
|
|
1,010
|
|
|
76
|
|
|
|
|
|
846
|
|
Income tax (expense) benefit
|
|
|
(12,584
|
)
|
|
6,626
|
|
|
6,863
|
|
|
|
|
|
(6,623
|
)
|
Depreciation expense
|
|
|
(26,667
|
)
|
|
(32,208
|
)
|
|
(3,818
|
)
|
|
|
|
|
(12,224
|
)
|
Amortization expense
|
|
|
(37,548
|
)
|
|
(31,957
|
)
|
|
(2,518
|
)
|
|
|
|
|
(38
|
)
|
Executive compensation
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
(2,427
|
)
|
Stock appreciation rights expense
|
|
|
(1,988
|
)
|
|
(2,268
|
)
|
|
(80
|
)
|
|
|
|
|
(1,288
|
)
|
Redeemable noncontrolling interests
|
|
|
(880
|
)
|
|
(1,859
|
)
|
|
(71
|
)
|
|
|
|
|
(2,957
|
)
|
Equity-based compensation
|
|
|
(2,699
|
)
|
|
(6,455
|
)
|
|
(1
|
)
|
|
|
|
|
(27
|
)
|
Acquisition related costs
|
|
|
|
|
|
(837
|
)
|
|
(16,155
|
)
|
|
|
|
|
(51,809
|
)
|
Severance and other costs for discontinued operations and closed branches
|
|
|
(379
|
)
|
|
(413
|
)
|
|
|
|
|
|
|
|
|
|
Transaction costs (acquisitions and other)
|
|
|
(3,751
|
)
|
|
(1,891
|
)
|
|
|
|
|
|
|
|
|
|
Gain (loss) on disposal of assets
|
|
|
645
|
|
|
(1,089
|
)
|
|
(170
|
)
|
|
|
|
|
1,034
|
|
Management fee to related party
|
|
|
(2,250
|
)
|
|
(2,250
|
)
|
|
(188
|
)
|
|
|
|
|
|
|
Effects of fair value adjustments to inventory
|
|
|
(1,009
|
)
|
|
(5,012
|
)
|
|
(8,289
|
)
|
|
|
|
|
|
|
Interest rate swap and cap mark-to-market
|
|
|
(19
|
)
|
|
(2,494
|
)
|
|
|
|
|
|
|
|
192
|
|
Contributions from acquisitions
|
|
|
(12,093
|
)
|
|
(8,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
$
|
(18,953
|
)
|
|
|
|
$
|
(200,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
17. Segments (Continued)
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 for Successor 2016, Successor 2015, Successor 2014 and Predecessor 2014, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year Ended
April 30, 2016
|
|
Year Ended
April 30, 2015
|
|
April 1 -
April 30, 2014
|
|
|
|
May 1, 2013 -
March 31, 2014
|
|
|
|
|
|
Wallboard
|
|
$
|
870,952
|
|
$
|
718,102
|
|
$
|
58,529
|
|
|
|
|
$
|
544,272
|
|
Ceilings
|
|
|
297,110
|
|
|
278,749
|
|
|
23,559
|
|
|
|
|
|
233,440
|
|
Steel
|
|
|
281,340
|
|
|
243,173
|
|
|
19,365
|
|
|
|
|
|
197,173
|
|
Other products
|
|
|
408,780
|
|
|
330,061
|
|
|
25,879
|
|
|
|
|
|
251,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
1,858,182
|
|
$
|
1,570,085
|
|
$
|
127,332
|
|
|
|
|
$
|
1,226,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. 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, 2016 and 2015:
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
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)" are reclassified to earnings as each of the hedged
forecasted transactions occur. During the next twelve months, the Company expects to reclassify approximately $392, net of tax, to earnings.
111
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
19. Earnings (Loss) Per Common Share
The following table sets forth the computation of basic and diluted earnings (loss) per share of common stock for Successor 2016, Successor 2015 and Sucessor 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
April 1 -
April 30, 2014
|
|
|
|
April 30, 2016
|
|
April 30, 2015
|
|
Net income (loss)
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
$
|
(18,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding per common share
|
|
|
32,799,098
|
|
|
32,450,401
|
|
|
32,341,751
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
$
|
(0.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding per common share
|
|
|
32,799,098
|
|
|
32,450,401
|
|
|
32,341,751
|
|
Add: Shares of common stock assumed issued upon exercise of stock options
|
|
|
326,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding per common share
|
|
|
33,125,242
|
|
|
32,450,401
|
|
|
32,341,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
$
|
(0.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
May 13, 2016, we amended and restated our certificate of incorporation, see Note 23, "Subsequent Events."
20. 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, 2016 and 2015, and the results of operations for the Successor 2016, Successor 2015 and
Successor 2014.
112
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
20. Condensed Parent Company Financial Information (Continued)
GMS Inc.
Condensed Parent Company Balance Sheets
|
|
|
|
|
|
|
|
|
|
April 30,
2016
|
|
April 30,
2015
|
|
Investment in subsidiary
|
|
$
|
311,160
|
|
$
|
299,572
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
311,160
|
|
|
299,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, authorized 500,000,000 shares; 32,892,905 and 32,757,905 shares issued and outstanding at April 30, 2016 and 2015,
respectively
|
|
|
329
|
|
|
328
|
|
Additional paid-in capital
|
|
|
334,244
|
|
|
329,884
|
|
Accumulated deficit
|
|
|
(22,265
|
)
|
|
(30,650
|
)
|
Accumulated other comprehensive income
|
|
|
(1,148
|
)
|
|
10
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
$
|
311,160
|
|
$
|
299,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMS Inc.
Condensed Parent Company Statements of Operations and Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
April 30, 2016
|
|
Year Ended
April 30, 2015
|
|
April 1 - April 30,
2014
|
|
Net income (loss) in subsidiaries
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
$
|
(18,953
|
)
|
Net income (loss)
|
|
$
|
12,564
|
|
$
|
(11,697
|
)
|
$
|
(18,953
|
)
|
Comprehensive income (loss)
|
|
$
|
11,406
|
|
$
|
(11,687
|
)
|
$
|
(18,953
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,799,098
|
|
|
32,450,401
|
|
|
32,341,751
|
|
Diluted
|
|
|
33,125,242
|
|
|
32,450,401
|
|
|
32,341,751
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
$
|
(0.59
|
)
|
Diluted
|
|
$
|
0.38
|
|
$
|
(0.36
|
)
|
$
|
(0.59
|
)
|
GMS Inc.
Condensed Parent Company Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
April 30, 2016
|
|
Year Ended
April 30, 2015
|
|
April 1 - April 30,
2014
|
|
Net cash provided by operating activities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
(224,108
|
)
|
Net cash provided by financing activities
|
|
$
|
|
|
$
|
|
|
$
|
224,108
|
|
At
April 30, 2016, restricted net assets of the Company's consolidated subsidiaries approximated $309,660. During Successor 2016, Successor 2015, Successor 2014 and Predecessor
2014, the Company's consolidated subsidiaries did not pay any cash dividends to the Company.
113
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
20. Condensed Parent Company Financial Information (Continued)
On
May 13, 2016, we amended and restated our certificate of incorporation, see Note 23, "Subsequent Events."
21. Valuation and Qualifying Accounts
Allowance for Doubtful Accounts Rollforward
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning
of period
|
|
Provision
|
|
Charged to
other
accounts(a)
|
|
Deductions
|
|
Balance
at end of
period
|
|
Fiscal Year Ended April 30, 2016
|
|
$
|
(8,633
|
)
|
$
|
(908
|
)
|
$
|
77
|
|
$
|
857
|
|
$
|
(8,607
|
)
|
Fiscal Year Ended April 30, 2015
|
|
|
(2,752
|
)
|
|
(5,828
|
)
|
|
(1,158
|
)
|
|
1,105
|
|
|
(8,633
|
)
|
One Month Ended April 30, 2014Successor
|
|
|
|
|
|
(1,593
|
)
|
|
(1,600
|
)
|
|
441
|
|
|
(2,752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven Months Ended March 31, 2014Predecessor
|
|
$
|
(17,066
|
)
|
$
|
(1,599
|
)
|
$
|
79
|
|
$
|
2,625
|
|
$
|
(15,961
|
)
|
-
(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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
|
Additions charged to
costs and expenses
|
|
Deductions
|
|
Balance at end
of period
|
|
Fiscal Year Ended April 30, 2016
|
|
$
|
(143
|
)
|
$
|
(38
|
)
|
$
|
98
|
|
$
|
(83
|
)
|
Fiscal Year Ended April 30, 2015
|
|
|
(1,276
|
)
|
|
(67
|
)
|
|
1,200
|
|
|
(143
|
)
|
One Month Ended April 30, 2014Successor
|
|
|
(1,396
|
)
|
|
(1
|
)
|
|
121
|
|
|
(1,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven Months Ended March 31, 2014Predecessor
|
|
$
|
(1,676
|
)
|
$
|
(816
|
)
|
$
|
1,096
|
|
$
|
(1,396
|
)
|
22. Selected Quarterly Financial Data (Unaudited)
The following table sets forth certain unaudited financial information for each quarter of the year ended April 30, 2016 and 2015. 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
114
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
22. Selected Quarterly Financial Data (Unaudited) (Continued)
information
presented. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2016
|
|
|
|
First
Quarter(1)
|
|
Second
Quarter(1)
|
|
Third
Quarter(1)
|
|
Fourth
Quarter
|
|
Net sales
|
|
$
|
452,441
|
|
$
|
458,077
|
|
$
|
420,482
|
|
$
|
527,182
|
|
Gross profit
|
|
|
140,888
|
|
|
143,913
|
|
|
134,160
|
|
|
174,203
|
|
Net income (loss)
|
|
|
3,011
|
|
|
2,825
|
|
|
(2,212
|
)
|
|
8,940
|
|
Per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,677,418
|
|
|
32,737,956
|
|
|
32,890,930
|
|
|
32,892,905
|
|
Diluted
|
|
|
32,830,677
|
|
|
32,898,075
|
|
|
32,890,930
|
|
|
33,155,140
|
|
Net income (loss) per share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.09
|
|
$
|
0.09
|
|
$
|
(0.07
|
)
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.09
|
|
$
|
0.09
|
|
$
|
(0.07
|
)
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2015(1)
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Net sales
|
|
$
|
394,409
|
|
$
|
413,153
|
|
$
|
358,024
|
|
$
|
404,499
|
|
Gross profit
|
|
|
114,867
|
|
|
125,843
|
|
|
112,025
|
|
|
126,236
|
|
Net (loss) income
|
|
|
(5,548
|
)
|
|
2,728
|
|
|
(11,013
|
)
|
|
2,136
|
|
Per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,341,737
|
|
|
32,412,899
|
|
|
32,499,186
|
|
|
32,551,182
|
|
Diluted
|
|
|
32,341,737
|
|
|
32,412,899
|
|
|
32,499,186
|
|
|
32,684,348
|
|
Net (loss) income per share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.17
|
)
|
$
|
0.08
|
|
$
|
(0.34
|
)
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.17
|
)
|
$
|
0.08
|
|
$
|
(0.34
|
)
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
During
the preparation of the Annual Report on Form 10-K for the year ended April 30, 2016, the Company determined that the statutory tax rate
used to value deferred tax liabilities related to certain assets purchased in the Acquisition as of April 1, 2014 needed to be adjusted. This misstatement resulted in an understatement of
"Deferred income taxes, net" and "Goodwill", in fiscal 2015, an overstatement of "Provision for (benefit from) income taxes" and a resultant understatement of "Net income (loss)" for each of the
fiscal 2015 quarters and the first, second and third quarters of fiscal 2016. This amount approximated $0.5 million and $0.2 million in each quarter of 2015 and 2016, respectively. Refer
to Note 1 of the Notes to Consolidated Financial Statements for more information on the revision. The amounts included in the table above reflect
115
Table of Contents
GMS Inc.
Notes to Consolidated Financial Statements (Continued)
Year Ended April 30, 2016 and 2015, Period From April 1, 2014 to April 30, 2014 (Successor) and
Period From May 1, 2013 to March 31, 2014 (Predecessor)
(in thousands of dollars, except for share and per share data)
22. Selected Quarterly Financial Data (Unaudited) (Continued)
the
revised balances for "Net income (loss)", basic EPS and diluted EPS. Disclosure of the revised amounts will also be reflected in future filings containing the applicable periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30, 2016
|
|
|
|
Three Months Ended July 31, 2015
|
|
Six Months Ended October 31, 2015
|
|
Nine Months Ended January 31, 2016
|
|
|
|
As Previously
Reported
|
|
Adjustment
|
|
As Revised
|
|
As Previously
Reported
|
|
Adjustment
|
|
As Revised
|
|
As Previously
Reported
|
|
Adjustment
|
|
As Revised
|
|
Net income (loss)
|
|
|
2,786
|
|
|
225
|
|
|
3,011
|
|
|
5,386
|
|
|
450
|
|
|
5,836
|
|
|
2,949
|
|
|
675
|
|
|
3,624
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.09
|
|
|
0.00
|
|
|
0.09
|
|
|
0.16
|
|
|
0.02
|
|
|
0.18
|
|
|
0.09
|
|
|
0.02
|
|
|
0.11
|
|
Diluted
|
|
|
0.08
|
|
|
0.01
|
|
|
0.09
|
|
|
0.16
|
|
|
0.02
|
|
|
0.18
|
|
|
0.09
|
|
|
0.02
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30, 2015
|
|
|
|
Three Months Ended July 31, 2014
|
|
Six Months Ended October 31, 2014
|
|
Nine Months Ended January 31, 2015
|
|
|
|
As Previously
Reported
|
|
Adjustment
|
|
As Revised
|
|
As Previously
Reported
|
|
Adjustment
|
|
As Revised
|
|
As Previously
Reported
|
|
Adjustment
|
|
As Revised
|
|
Net (loss) income
|
|
|
(6,073
|
)
|
|
525
|
|
|
(5,548
|
)
|
|
(3,870
|
)
|
|
1,050
|
|
|
(2,820
|
)
|
|
(15,408
|
)
|
|
1,575
|
|
|
(13,833
|
)
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.19
|
)
|
|
0.02
|
|
|
(0.17
|
)
|
|
(0.12
|
)
|
|
0.03
|
|
|
(0.09
|
)
|
|
(0.47
|
)
|
|
0.05
|
|
|
(0.42
|
)
|
Diluted
|
|
|
(0.19
|
)
|
|
0.02
|
|
|
(0.17
|
)
|
|
(0.12
|
)
|
|
0.03
|
|
|
(0.09
|
)
|
|
(0.47
|
)
|
|
0.05
|
|
|
(0.42
|
)
|