As filed with the Securities and Exchange Commission on April 20, 2022

No. 333-261988

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Specialty Building Products, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		5040		86-1328149
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

2160 Satellite Boulevard, Suite 450

Duluth, Georgia 30097

(678) 474-4577

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

 

 

Jeff McLendon

Chief Executive Officer

Specialty Building Products, Inc.

2160 Satellite Boulevard, Suite 450

Duluth, Georgia 30097

(678) 474-4577

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

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Joshua N. Korff Aaron Michael Schleicher Allison C. Gallagher Kirkland & Ellis LLP 601 Lexington Avenue New York, New York 10022 (212) 446-4800		Ian D. Schuman Stelios G. Saffos R. Charles Cassidy III Latham & Watkins LLP 1271 Avenue of the Americas New York, New York 10020 (212) 906-1200

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

 

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

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  ☐

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒ (Do not check if a smaller reporting company)		Smaller reporting company		☐
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

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

 

 

 

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

 

Subject to Completion, dated April 20, 2022

PROSPECTUS

 

 

            Shares

SPECIALTY BUILDING PRODUCTS, INC.

Common Stock

 

 

This is an initial public offering of Specialty Building Products, Inc. We are offering                shares of our common stock, par value $0.01 per share.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $                and $                . We intend to apply to list our common stock on the Nasdaq Capital Market, or Nasdaq, under the symbol “SBP”.

Immediately after this offering, assuming an offering size as set forth above, SBP Varsity Holdings, L.P. (“SBP Varsity Holdings”), an entity controlled by funds advised by The Jordan Company, L.P., will own approximately                % of our outstanding common stock (or                % of our outstanding common stock if the underwriters’ option to purchase additional shares is exercised in full). After the completion of this offering, we expect to be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. See “Management—Corporate Governance—Controlled Company Status.”

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 26 of this prospectus.

 

		Per Share				Total
Initial public offering price		$				$
Underwriting discounts and commissions(1)		$				$
Proceeds, before expenses, to us		$				$

 

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

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

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

The underwriters expect to deliver the shares to purchasers on or about                 , 2022.

 

 

 

Barclays*		Goldman Sachs & Co. LLC*		RBC Capital Markets

BofA Securities		Jefferies		Baird		Raymond James		Truist Securities		Wolfe | Nomura Alliance

 

*	(listed alphabetically)

Prospectus dated                , 2022

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY			4
FORWARD-LOOKING STATEMENTS			51
USE OF PROCEEDS			53
DIVIDEND POLICY			53
CAPITALIZATION			54
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS			55
DILUTION			63
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			65
BUSINESS			93
MANAGEMENT			113
EXECUTIVE COMPENSATION			120
PRINCIPAL STOCKHOLDERS			138
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			140
DESCRIPTION OF CAPITAL STOCK			142
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS			151
UNDERWRITING			155
LEGAL MATTERS			161
EXPERTS			161
WHERE YOU CAN FIND MORE INFORMATION			161
INDEX TO FINANCIAL STATEMENTS			F-1

ABOUT THIS PROSPECTUS

Neither we nor the underwriters have authorized anyone to provide you with information or make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: we and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

TRADEMARKS

We own or have rights to use various trademarks, service marks, and trade names that we use in connection with the operation of our business. This prospectus may contain trademarks, service marks, and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names, or products in this prospectus is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks, and trade names referred to in this prospectus may appear without the ^®, TM, or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable owner of these trademarks, service marks, and trade names.

MARKET AND INDUSTRY DATA

We use market data and industry forecasts and projections throughout this prospectus, and in particular in the sections captioned “Prospectus Summary” and “Business.” We have obtained the market data from certain third-party sources of information, including publicly available industry publications and subscription-based publications, including Principia Consulting, LLC (“Principia”). Industry forecasts are based on industry surveys and the preparer’s expertise in the industry, and there can be no assurance that any of the industry forecasts will be achieved. Any industry forecasts are based on data (including third-party data), models and experience of various professionals and are based on various assumptions, all of which are subject to change without notice. While we are not aware of any misstatements regarding the market data presented herein, industry forecasts and projections involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

BASIS OF PRESENTATION

We have a policy of ending our fiscal year on the Sunday nearest December 31st. Our fiscal year customarily consist of four 13-week quarters for a total of 52 weeks. However, certain years may consist of 53 weeks. Our 2021 fiscal year was 52 weeks and the year end was January 2, 2022. Our 2020 fiscal year was 53 weeks and the year end was January 3, 2021. Our 2019 fiscal year was 52 weeks and the year end was December 29, 2019.

 

1

Specialty Building Products, Inc. (f/k/a SBP Buyer, Inc.), a Delaware corporation (the “Company”), was incorporated in December 2020 to serve as an acquisition vehicle in connection with SBP Varsity Holdings’ acquisition from existing equityholders of 100% of the equity interests of Specialty Building Products, LLC, the then-ultimate parent company of Specialty Building Products Holdings, LLC (“SBP Predecessor”), a Delaware limited liability company and the holding company through which we control our operating subsidiaries. We refer to this acquisition as the “TJC Acquisition.” For more information, please refer to Note 2 to our consolidated financial statements included elsewhere in this prospectus. The TJC Acquisition closed on January 21, 2021. As the Company had not commenced operations and only had nominal assets, liabilities and equity prior to consummation of the TJC Acquisition on January 21, 2021, the financial statements of Specialty Building Products, Inc. as of January 3, 2021 and for the period from incorporation through January 20, 2021 have not been included. SBP Predecessor is deemed “predecessor” of the Company and its subsidiaries for financial reporting purposes. Accordingly, the historical financial information presented in this prospectus (i) for periods prior to January 21, 2021, represents that of SBP Predecessor and its subsidiaries (referred to herein as the “Predecessor Periods”), and (ii) for periods from January 21, 2021, represents that of the Company and its subsidiaries, including SBP Predecessor, as successor (referred to herein as the “Successor Period”).

The Company was determined to be the accounting acquirer in connection with the TJC Acquisition and SBP Predecessor’s historical assets and liabilities are reflected at fair value as of January 21, 2021, the closing date of the TJC Acquisition. As a result of the TJC Acquisition, the results of operations and financial position of SBP Predecessor and the Company are not directly comparable.

On October 15, 2021, we closed a transaction to acquire all of the equity interests of each of Reeb Millwork, Corporation, a New Jersey corporation, R and K Logistics Incorporated, a Pennsylvania corporation, Reeb Millwork—Southeast a North Carolina corporation, Reeb Millwork of New England, Inc., a Rhode Island corporation, Reeb Millwork Corporation of Maryland, a Maryland corporation, Reeb Millwork Corporation of New York, a Delaware corporation (collectively, the “Reeb Companies”). We refer to this acquisition as the “Reeb Acquisition.” On November 1, 2021, we closed a transaction to acquire all of the issued and outstanding equity securities of DW Distribution, Inc., a Texas corporation (“DW Distribution”). We refer to this acquisition as the “DW Acquisition”. On December 2, 2021, we closed a transaction to acquire all of the equity securities of each of Millwork Sales of Royal Palm Beach, LLC, a Florida limited liability company and Millwork Sales of Orlando, a Florida limited liability company (collectively, the “Millwork Companies”). We refer to this acquisition as the “Millwork Acquisition.”

As described in more detail under “Unaudited Pro Forma Condensed Combined Financial Statements,” this prospectus includes pro forma financial information, pursuant to Rule 3-05 of Regulation S-X and prepared in accordance with Article 11 of Regulation S-X, to give effect to the TJC Acquisition and related financing adjustments and the Reeb Acquisition and related financing adjustments. In addition, in order to facilitate the comparison of our financial information on a period-over-period basis without giving effect to the Reeb Acquisition, this prospectus includes certain pro forma combined financial information (the “Pro Forma Combined (TJC Transaction Adjustments Only) Financial Information”) for the fiscal year ended January 2, 2022, which gives effect to the TJC Acquisition as if it had occurred on January 4, 2021. The Pro Forma Combined (TJC Transaction Adjustments Only) Financial Information is derived from, and presented as a separate column in, the Unaudited Pro Forma Combined Financial Statements prepared in accordance with Article 11 of Regulation S-X and included within this prospectus. Unless otherwise indicated, all references to our results of operations for pro forma fiscal year 2021 reflect the Pro Forma Combined (TJC Transaction Adjustments Only) Financial Information for such period.

In connection with the completion of this offering, we will effect a                 -for-                stock split with respect to our common stock. We refer to this stock split throughout this prospectus as the “Stock Split.”

Certain amounts, percentages, and other figures presented in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals, dollars or percentage amounts of changes may not represent the arithmetic summation or calculation of the figures that precede them.

 

2

Through and including                , 2022 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

 

3

 

4

 

5

 

6

 

7

 

8

 

9

 

10

 

11

 

12

 

13

 

14

 

15

 

16

Organizational Corporate Structure

The following chart illustrates our simplified ownership and organizational structure, after giving effect to this offering. All subsidiaries are 100% directly or indirectly owned. Dotted lines denote indirect ownership.

 

 

(1)	Co-borrower under the ABL Credit Agreement, Term Loan Facility and Senior Secured Notes.

(2)	Parent entity for operating subsidiaries.

(3)	Co-borrower under the ABL Credit Agreement, Term Loan Facility and Senior Secured Notes.

(4)	Sale, manufacturing, delivery and distribution of building products in the United States.

(5)	Sale, manufacturing, delivery and distribution of moulding products in the United States and Canada.

(6)	Sale, manufacturing, delivery and distribution of specialty doors in the United States and Canada.

Recent Developments

The financial data for Reeb, DW, and Millwork included in this prospectus has been prepared by, and is the responsibility of, our management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled, or applied agreed-upon procedures with respect to the financial data. Accordingly, PricewaterhouseCoopers LLP does not, and will not in the future, express an opinion or any other form of assurance with respect thereto.

Reeb Acquisition

On October 15, 2021, we acquired all of the equity interests of each of Reeb Millwork Corporation, a New Jersey corporation, R and K Logistics, Incorporated, a Pennsylvania corporation, Reeb Millwork Corporation – Southeast, a North Carolina corporation, Reeb Millwork of New England, Inc., a Rhode Island corporation, Reeb Millwork Corporation of Maryland, Inc., a Maryland corporation, and Reeb

 

17

Millwork Corporation of New York, a New York corporation (collectively, the “Reeb Companies”) for $570 million. We refer to this acquisition as the “Reeb Acquisition.”

The Reeb Companies are market leading fabricators and suppliers of pre-finished and unfinished exterior and interior doors and millwork, providing highly customized products to a diversified customer base. The Reeb Companies operate facilities in Bethlehem, Pennsylvania, Barclay, Maryland, Providence, Rhode Island, Mocksville, North Carolina and Syracuse, New York, which service customers in over twenty states. For the nine months ended September 30, 2021, the Reeb Companies had net sales of $348 million, net income of $34 million, and EBITDA of $41 million. For discussion of our use of EBITDA and reconciliation to net income, the most directly comparable GAAP metric, please refer to “Recent Acquisition Non-GAAP Metrics” at the end of the Prospectus Summary. On a pro forma basis to give effect to the Reeb Acquisition as if it has closed in the beginning of the 2021 fiscal year, specialty doors represented approximately 16% of our combined net sales for pro forma fiscal year 2021. Prior to the acquisition of the Reeb Companies, our product portfolio did not include a specialty doors category and, as a result, specialty doors did not contribute to our historical net sales for periods ending on or prior to October 3, 2021.

The Reeb Acquisition closed on October 15, 2021. In connection with the Reeb Acquisition, we borrowed $800 million in the form of a new term loan (the “Term Loan Facility”) to finance the acquisition. Approximately $600 million of the proceeds received from the Term Loan Facility was used to finance the Reeb Acquisition and pay related fees and expenses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt Arrangements.”

Dallas Wholesale Builders Supply Acquisition

On November 1, 2021, we acquired all of the equity securities of DW Distribution, Inc., a Texas corporation (“DW”), for $236 million in cash. We refer to this acquisition as the “DW Acquisition.”

Headquartered in DeSoto, Texas, DW Distribution is a wholesale distributor of an industry-leading array of building materials, millwork products and specialty door units. In addition to its DeSoto, Texas location, DW Distribution operates facilities in Arlington, Texas; Hutto, Texas; Lancaster, Texas; and Oklahoma City, Oklahoma that service customers located in Texas, Oklahoma, Arkansas, Louisiana and New Mexico. For the nine months ended September 30, 2021, DW Distribution had net sales of $264 million, net income of $22 million and EBITDA of $23 million. For discussion of our use of EBITDA and reconciliation to net income, the most directly comparable GAAP metric, please refer to “Recent Acquisition Non-GAAP Metrics” at the end of the Prospectus Summary.

The DW Acquisition closed on November 1, 2021. Approximately $200 million of the proceeds from the Term Loan Facility, along with cash on hand, was used to finance the DW Acquisition and pay related transaction fees and expenses.

Millwork Acquisition

On December 2, 2021, we acquired all of the equity securities of Millwork Sales of Royal Palm Beach, LLC, a Florida limited liability company, and Millwork Sales of Orlando, LLC, a Florida limited liability company, (together, “Millwork”) for a purchase price of $192 million. We refer to this acquisition as the “Millwork Acquisition”.

Millwork is a distributor of millwork, hardware and related products to commercial dealers and retailers. The company operates facilities in Orlando and Royal Palm Beach, Florida, which service customers in Florida. For the nine months ended September 30, 2021, Millwork had net sales of $132 million, net income of

 

18

$25 million and EBITDA of $25 million. For discussion of our use of EBITDA and reconciliation to net income, the most directly comparable GAAP metric, please refer to “Recent Acquisition Non-GAAP Metrics” at the end of the Prospectus Summary.

The Millwork Acquisition closed on December 2, 2021, and we financed the Millwork Acquisition using approximately $192 million in borrowings under the ABL Credit Agreement.

Our Principal Stockholder

We have a valuable relationship with our principal equityholder, SBP Varsity Holdings, an entity controlled by funds advised by The Jordan Company, L.P. The Jordan Company, L.P. is a middle-market private equity investment firm headquartered in New York. Founded in 1982, the firm has raised original capital commitments in excess of $17 billion and has a 39-year track record of investing in and contributing to the growth of many businesses across a wide range of industries. The firm has completed over 120 platform investments and more than 400 add-on acquisitions. The Jordan Company, L.P. also has offices in Chicago and Stamford.

Corporate Information

The Company was incorporated in Delaware in December 2020 to serve as an acquisition vehicle in connection with the TJC Acquisition, whereby SBP Varsity Holdings acquired from existing equityholders 100% of the equity interests of Specialty Building Products, LLC, the then-ultimate parent company of SBP Predecessor, the holding company through which we control our operating subsidiaries. We are a holding company, and all of our operations are conducted through our subsidiaries. Our principal executive offices are located at 2160 Satellite Boulevard, Suite 450, Duluth, Georgia 30097. Our telephone number is (678) 474-4577. Our website address is www.specialtybuildingproducts.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus or the registration statement of which this prospectus is a part, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.

 

19

 

20

 

21

 

22

 

23

 

24

 

25

RISK FACTORS

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

Risks Related to Our Business and Industries

Residential construction activity is cyclical and influenced by many factors, and any reduction in the activity in one or both of these markets could have a material adverse effect on us.

Historically, demand for our products has been closely tied to residential construction, including residential repair and remodel spending, in the United States and Canada. Our success and future growth prospects depend, to a significant extent, on conditions in these two geographic markets and the degree to which these markets are strong in the future.

The construction industry and related markets are cyclical and have in the past been, and may in the future be, materially and adversely affected by general economic and global financial market conditions. These factors impact not only our business, but those of our customers and suppliers as well. This influence is true with respect to macroeconomic factors within North America, particularly within our geographic footprint in the United States and Canada. For example, in 2008, residential construction activity dipped to historically low levels during the financial crisis. As a result, demand for many of our products dropped significantly.

The markets in the construction industry in which we operate are also subject to other more specific factors. Residential construction activity levels are influenced by and sensitive to a number of factors, including mortgage availability, the cost of financing a home (in particular, mortgage terms and interest rates), unemployment levels, household formation rates, gross domestic product, residential vacancy and foreclosure rates, demand for second homes, existing housing prices, rental prices, housing inventory levels, building mix between single- and multi-family homes, consumer confidence, seasonal weather factors, the available labor pool and government regulation, policy and incentives. In addition, the construction industry is impacted by the availability of labor and labor shortages may have an impact on the level of construction activity.

We cannot control the foregoing factors, we cannot be certain that they will remain at current levels, and there can be no assurances regarding whether any growth in our markets can be sustained. If construction activity in our markets decreases, whether locally, regionally or nationally, it could have a material adverse effect on our business, financial condition and results of operations.

The specialty building materials distribution industry is fragmented and competitive, and we may not be able to compete successfully with some of our existing competitors or new entrants in the markets we serve.

The specialty building materials distribution industry is fragmented and competitive. Our competition varies by product line, customer classification and geographic market. The principal competitive factors in our industry are:

 

•

pricing and availability of product;

 

•

service and delivery capabilities;

 

26

•

ability to assist with problem-solving;

 

•

customer relationships;

 

•

geographic coverage; and

 

•

breadth of product offerings.

Financial stability is also important to manufacturers and customers in choosing distributors for their products. We compete with many local, regional and, in some markets and product categories, national building materials distributors and dealers. In addition, some product manufacturers sell and distribute their products directly to our customers, and the volume of such direct sales could increase in the future. Manufacturers of products distributed by us may also enter into exclusive supplier arrangements with our competition or may decide to sell directly to our customers. Further, home center retailers, which have historically concentrated their sales efforts on retail consumers and small contractors, may intensify their marketing efforts to larger contractors and homebuilders. Our competitors may sell their products at lower prices because, among other things, they possess the ability to manufacture or supply similar products and services more efficiently or at a lower cost or have built a superior sales or distribution network. Some of our competitors have greater financial and other resources and may be able to withstand sales or price decreases better than we can. We also expect to continue to face competition from new market entrants. We may be unable to continue to compete effectively with these existing or new competitors.

In addition to pricing, we also compete based on service, quality, range of products and product availability. Our competitors may be positioned to provide better service and thereby establish stronger relationships with customers and suppliers. Our competitors may also sell preferred products, improve the design and performance of their products, develop a more comprehensive product portfolio, be better positioned to influence end-user product specifications or introduce new products with competitive prices and performance characteristics. While the majority of our products are not subject to frequent or rapid stylistic changes, trends do evolve over time, and our competitors may do a better job of predicting market developments or adapt more quickly to new technologies or evolving customer requirements.

Any failure by us to compete on price or service, to develop successful products and strategies or to generally maintain and improve our competitive position could have a material adverse effect on our business, financial condition and results of operations.

Our dependence on key customers with whom we do not have long-term contracts and consolidation within our customers’ industries could have a material adverse effect on us.

Our business is dependent on certain key customers. We had two major customers that accounted for approximately 11% and 10% of net sales for the period from January 21, 2021 to January 2, 2022 (Successor). We had one major customer that accounted for approximately 15% of net sales for the period from January 4, 2021 to January 20, 2021 and the years ended January 3, 2021 and December 29, 2019 (Predecessor). We had one major customer that accounted for more than 10% of total accounts receivable at January 2, 2022 (Successor). We had no major customer that accounted for more than 10% of total accounts receivable at January 3, 2021 (Predecessor). As is customary in our industry, we do not enter into long-term contracts with our customers. As a result, our customers could stop purchasing our products, reduce their purchase levels or request reduced pricing structures at any time. We may therefore need to adapt our pricing and marketing strategies in response to a customer who may seek concessions in return for its continued or increased business. While we have exclusive, or effectively exclusive, arrangements with many suppliers, these are often not contractual and could be changed at any time, which could reduce or eliminate any competitive advantage that we have. In addition, a macroeconomic downturn or any other cause of consolidation in the U.S. homebuilding industry or among our other customers, as occurred during the financial crisis when a number of smaller businesses went out of business or were acquired, can significantly increase the market share and bargaining power of a limited number of customers and give them significant additional leverage to negotiate more favorable terms and place greater demands on us. A loss of one or more customers or a meaningful reduction in their purchases from us or further consolidation within our end-markets could have a material adverse effect on our business, financial condition and results of operations.

 

27

The trend toward consolidation in our industry may negatively impact our business.

The trend toward consolidation in our industry could cause markets to become more competitive as greater economies of scale are achieved by distributors that are able to efficiently expand their operations. We believe these factors could result in fewer overall distributors operating multiple locations. There can be no assurance that we will be able to continue to execute our acquisition growth strategy, and any failure to do so may make it more difficult for us to maintain or increase our economies of scales, including the level of rebates we receive from suppliers, and adversely affect our operating margins. Consolidation could also increase the competition for acquisition targets in our industry, resulting in higher acquisition costs and prices.

An inability to obtain the products that we distribute or increases in prices by our suppliers could result in lost net sales and reduced margins, damage relationships with customers or limit our ability to grow.

We distribute specialty building materials that are manufactured by a number of major suppliers. Disruptions in our sources of supply may occur as a result of unanticipated demand or production or delivery difficulties. When shortages occur, suppliers often allocate products among distributors. Although we believe that our relationships with our suppliers are strong and that we would have access to similar products from competing suppliers should products be unavailable from current sources, any supply shortage, particularly of the most commonly sold items, could result in a loss of net sales, reduced margins and damage relationships with customers. In addition, our suppliers may experience demand for products that outstrips their capacity. As a result, we may experience product shortages that limit our ability to grow into new markets or expand our product line into existing markets.

Our results of operations are impacted by price fluctuations. Volatility in prices of raw materials could cause our suppliers to increase their prices, which, could in turn, affect our financial results. Although we seek to recover increases in prices from our vendors through price increases in our products, we may not be able to successfully do so. Any increase in prices from our vendors that is not offset by an increase in our prices could materially and adversely affect our business, financial position, results of operations or cash flows.

Additionally, we must maintain and have adequate working capital to purchase sufficient inventory to meet customer demand. Due to the lead times required by our suppliers, we order products in advance of expected sales. In the future, if we are unable to manage our inventory and working capital effectively as we attempt to expand our business, our cash flows may be negatively affected, which could have a material adverse effect on our business, financial condition and operating results.

The termination of key supplier relationships, particularly those with whom we have limited distribution arrangements, may have an immediate material adverse effect on our business, financial condition and results of operations.

We distribute specialty building materials that we purchase from a number of major suppliers. For certain suppliers, including, among others, Trex, James Hardie, Louisiana Pacific and Royal Group, we have entered into limited distribution agreements, which either grant us exclusivity or limit the number of other distributors that have access to their products in that market. Certain other of our suppliers do not provide contractual exclusivity or territorial limitations to us, but as a business practice effectively limit their distributors to us and a small number of other companies to supply their products in each territory. In pro forma fiscal year 2021, approximately 84% of our sales were from products where we had formal or practical limited distribution for such products. As is customary in our industry, most of our relationships with these suppliers are terminable without cause on short notice. We had one major supplier that accounted for approximately 16%, 14%, 13% and 10% of our purchases for the period from January 21, 2021 to January 2, 2022 (Successor) and the period from January 4, 2021 to January 20, 2021 and the years ended January 3, 2021 and December 29, 2019 (Predecessor), respectively. In addition, one major supplier that accounted for approximately 33% of our total accounts payable balances at January 2, 2022. Although we believe that relationships with our existing suppliers are strong and that

 

28

in most cases we would have access to similar products from competing suppliers, the termination of key supplier relationships, a change in their use of limited distributors by territory or any other disruption in our sources of supply, particularly of our most commonly sold items or for any supplier with whom we have exclusivity or limited distribution arrangements, could have a material adverse effect on our business, financial condition and results of operations.

Our business operations could suffer significant losses from natural disasters, catastrophes, fire or other unexpected events.

While we currently operate our business out of 38 facilities and maintain insurance covering our facilities, including business interruption insurance, our facilities could be materially damaged by natural disasters, such as floods, tornadoes, hurricanes and earthquakes, or by fire, adverse weather conditions or other unexpected events or disruptions to our facilities. We could incur uninsured losses and liabilities arising from such events, including damage to our reputation, and/or suffer material losses in operational capacity, which could have a material adverse impact on our business, financial condition and results of operations.

Trade matters may disrupt our supply chain.

Trade restrictions, including increased tariffs or quotas, economic and trade sanctions and embargoes, safeguards, and customs restrictions, as well as labor strikes, work stoppages, or boycotts, could increase the cost or reduce the supply of products and labor available to us and adversely affect our business, financial condition, and results of operations.

Certain building materials that we distribute may come from foreign jurisdictions outside North America, such as Chile and Brazil. Such materials may be imported because they may not be available for domestic purchase in the United States or Canada or because there may be a shortfall of inventory available locally. We sourced approximately 30% of our products internationally for pro forma fiscal year 2021, of which approximately 10% were sourced from Canada, approximately 17% were sourced from South America, approximately 2% were sourced from Asia, approximately 1% were sourced from Europe and approximately 1% were sourced from Central America. The business, regulatory, and political environments in these countries differ from those in the United States. We cannot predict whether any of the countries from where we currently or in the future may source our products will be subject to additional trade restrictions imposed by the United States or other foreign governments, including the likelihood, type, or effect of any such restrictions. Despite our efforts to ensure the merchantability of these products, such products may not adhere to United States and Canadian standards or laws. Importation of such building materials could subject us to greater risk, including lawsuits by customers or governmental entities.

The propagation of COVID-19 throughout the world disrupted our ability to procure enough supply to satisfy market demands. As shutdowns of different types and severities were put in place, many of our local and foreign suppliers were forced to idle plants and cut back on production of their goods and services. As restrictions have eased over time, suppliers have slowly started ramping up their operations. A challenging labor market has made this process slower than anticipated, with many not yet operating at pre-COVID capacity. As of today, there is still a significant shortage in supply that continues to hinder our ability to fully satisfy the demand in the market.

On February 24, 2022, Russia launched an invasion of Ukraine that has resulted in an ongoing military conflict between the two countries (the “Russia-Ukraine Conflict”). The Russia-Ukraine Conflict has caused, and is currently expected to continue to cause, significant disruptions to the global financial system, international trade, and the transportation and energy sectors, among others. Resulting sanctions and other severe restrictions or prohibitions on the activities of certain individuals and businesses connected to Russia and/or Belarus are expected to continue to have profound impacts on the supply chain and commodity prices and may result in substantial inflation. The Russia-Ukraine Conflict may increase our operating costs (including, among other reasons, as a result of the substantial increase in prices for raw materials), reductions in customers, losses from cyberattacks, reductions in revenue and growth, increased foreign exchange risk and/or unexpected operational losses and liabilities.

 

29

Our global sourcing strategy is subject to risks and uncertainties, including, without limitation, changes in foreign country regulatory requirements, differing business practices associated with foreign operations, imposition of foreign tariffs and other trade barriers, political, legal, and economic instability, significant fluctuation in the value of the U.S. dollar against foreign currencies, foreign country tax rules, regulations and other requirements, such as changes in tax rates and statutory and judicial interpretations in tax laws, inflation, differing labor laws and changes in those laws, government price controls, and work stoppages and disruptions in the shipping of imported and exported products.

Our business, financial condition, results of operations and cash flows have been and in the future may be adversely affected by the COVID-19 pandemic.

Our operations and business have been adversely affected and could in the future be materially and adversely affected, whether directly or indirectly, by the COVID-19 pandemic and the resulting weakening of economic conditions in the United States and Canada. For example, local, state, provincial and federal governmental authorities have responded to the pandemic by implementing stringent measures in geographies where we operate to help control the spread of the virus and related variants, including restrictions on movement such as quarantines, “shelter-in-place,” “stay-at-home” orders, and travel restrictions, as well as restricting or prohibiting outright some or all forms of commercial and business activity, and other restrictions, including closures of school and childcare facilities. Although we were categorized as “essential” by the Cybersecurity and Infrastructure Security Agency of the U.S. Department of Homeland Security and were therefore permitted to operate consistent with applicable local, state, provincial and federal orders, certain of our geographies have been affected by “stay-at-home orders” based on state and severity of government-imposed actions. Certain of these government-imposed actions and orders have since eased. However, any decision to re-initiate such actions, impose new or more severe restrictions or otherwise change pre-existing governmental orders could have a material adverse effect on our operations. The magnitude of the effect of the COVID-19 pandemic on our business will also depend, in part, on the severity and transmission rate of the virus, the efficacy of vaccines and rates of vaccination in various states and countries, the emergency of COVID-19 variants such as the “omicron” variant and others as yet unknown, and the impact of these and other factors on employees, customers, partners, vendors and the global economy.

Our customers have been and could continue to be negatively impacted by the COVID-19 pandemic, including as a result of project delays and other adverse impacts on demand, which could result in adverse impacts on our sales and have a material adverse effect on our business, results of operations and financial condition. Similarly, our suppliers and other parts of our supply chain have experienced and could continue to experience disruptions and other adverse impacts as a result of the pandemic that could cause us to be unable to obtain key products and supplies on a timely or cost-effective basis, or in some cases, at all, any of which could result in our being unable to service our customers’ demands, and adversely affect our business and results of operations. Please read “—Trade matters may disrupt our supply chain” for additional information.

The COVID-19 pandemic, including the actions that we have taken in response, has disrupted our internal operations and heightened certain risks, such as the risk that a significant portion of our workforce will suffer illness or otherwise not be permitted or be unable to work. While very few of our employees have been required to work remotely to date, if we are required to increase this number in the future, it would heighten certain risks, including those related to cybersecurity and internal controls. In addition, in the event demand for our products is significantly reduced as a result of the COVID-19 pandemic and related economic impacts, we may need to assess different corporate actions and cost-cutting measures, including reducing our workforce or closing one or more distribution centers, and these actions could cause us to incur costs and expose us to other risks and inefficiencies, including whether we would be able to rehire our workforce or recommence operations if our business experiences a subsequent recovery. Additionally, other factors including reduced employment pools, federal subsidies offered in response to the COVID-19 pandemic, and other government regulations, including any potential vaccine mandate, could contribute to increased labor shortages and employee turnover within our organization. These trends have led to increased costs, such as increased overtime to meet demand and increase

 

30

wage rates to attract and retain employees. An overall or prolonged labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on our business, results of operations, liquidity or cash flows.

The COVID-19 pandemic has also adversely affected economies worldwide and significantly disrupted financial and other capital markets, causing a significant deceleration of economic activity. This slowdown has decreased demand for a wide variety of goods and services, diminished trade levels, reduced production and led to widespread corporate downsizing, causing a sharp increase in unemployment. The impact of this pandemic on the U.S. and world economies is uncertain and, until the pandemic is contained, these adverse impacts could worsen, impacting all segments of the global economy, and result in a significant recession or worse. Conditions in the financial and capital markets have been extremely volatile and may limit or entirely restrict the availability of funding or increase the cost of funding, which could adversely affect our business, financial position and results of operations.

Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent and effectiveness of responses taken on local, national and global levels. While we expect the pandemic and related events will continue to have a negative effect on us, the unpredictable and unprecedented nature and fluidity of current circumstances makes it impractical to identify all potential risks or estimate the full extent and scope of the impact on our business and industry, as well as national, regional and global markets and economies. However, our ability to conduct our business in the manner previously or currently expected could be materially and adversely affected, and any of the foregoing risks and uncertainties as well as those that have not yet manifested themselves or been identified could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Changes in weather patterns, including as a result of global climate change, could significantly affect our financial results or financial condition.

Weather patterns may affect our operating results and our ability to maintain our sales volume throughout the year. Because our customers depend on suitable weather to engage in construction projects, increased frequency or duration of extreme weather conditions could have a material adverse effect on our financial results or financial condition. For example, unseasonably cool weather or extraordinary amounts of rainfall may decrease construction activity, thereby decreasing our sales. Also, we cannot predict the effects that global climate change may have on our business. In addition to changes in weather patterns, it might, for example, reduce the demand for construction, destroy forests (increasing the cost and reducing the availability of wood products used in construction), and increase the cost and reduce the availability of raw materials and energy. New laws and regulations related to global climate change may also increase our expenses or reduce our sales.

Any inability to identify, acquire, close or successfully integrate acquisitions or other transaction-related issues could have a material adverse effect on us.

Acquisitions are a component of our growth strategy, but there can be no assurance that we will be able to continue to grow our business through acquisitions or that any businesses acquired will perform in accordance with expectations or that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove to be correct. Historically, we have made a number of acquisitions, including the NILCO acquisition in 2017, the Midwest and Alexandria acquisitions in 2018, the Mid-State Lumber acquisition in 2020, and the Reeb Acquisition, the DW Acquisition and the Millwork Acquisition in 2021. The integration of acquired businesses can take a significant amount of time and also exposes us to significant risks and additional costs. Integrating these and any future acquisitions may strain our resources. Further, we may have difficulty integrating the operations, systems, controls, procedures or products of acquired businesses and may not be able to do so in a timely, efficient and cost-effective manner. These difficulties could include:

 

•

assimilating personnel, human resources and other administrative departments and potentially contrasting corporate cultures;

 

31

•

merging computer, technology and other information networks and systems;

 

•

diversion of the attention of our management and that of the acquired business;

 

•

merging or linking different accounting and financial reporting systems and systems of internal controls;

 

•

disrupting our relationship with, or loss of, key customers, suppliers or personnel;

 

•

interfering with, or loss of momentum in, our ongoing business or that of the acquired companies; and

 

•

delays or cost overruns in the integration process.

While historically we have not experienced any material integration issues, we have not fully integrated the Alexandria Moulding acquisition, the Reeb Acquisition, the DW Acquisition or the Millwork Acquisition, and we may encounter one or more of the issues discussed above, or others of which we are not yet aware. Any of these acquisition or other integration-related issues could divert management’s attention and resources from our day-to-day operations, cause significant disruption to our business and lead to substantial additional costs.

We may also be subject to claims or liabilities arising from the ownership or operation of our subsidiaries for the periods prior to our acquisition of them, including environmental liabilities. These claims or liabilities could be significant. Our ability to seek indemnification from the former owners of our subsidiaries for these claims or liabilities is limited by various factors, including the specific limitations contained in the respective acquisition agreements and the financial ability of the former owners to satisfy such claims or liabilities.

In addition, certain proposed acquisitions or dispositions may trigger a review by U.S. Department of Justice, or the DOJ, and the U.S. Federal Trade Commission, or FTC, and the State Attorneys General under their respective regulatory authority, focusing on the effects on competition, including the size or structure of the relevant markets and the pro-competitive benefits of the transaction. Any delay, prohibition or modification required by regulatory authorities could adversely affect the terms of a proposed acquisition or could require us to modify or abandon an otherwise attractive acquisition opportunity.

In addition, many of the businesses that we have acquired and will acquire have unaudited financial statements that have been prepared by the management of such companies and have not been independently reviewed or audited. We present certain unaudited financial information in this prospectus for the Reeb Acquisition, the DW Acquisition and the Millwork Acquisition that is derived from such unaudited financial statements prepared by the management of such acquired businesses. We cannot assure you that the financial statements of companies we have acquired or will acquire would not be materially different if such statements were independently reviewed or audited. In addition, our results of operations from these acquisitions could, in the future, result in impairment charges for any of our intangible assets, including goodwill, or other long-lived assets, particularly if economic conditions worsen unexpectedly. These changes could materially negatively affect our results of operations, financial condition or liquidity.

We cannot assure you that we will identify or successfully complete transactions with suitable acquisition candidates in the future, nor can we assure you that completed acquisitions will be successful. Our inability to identify suitable acquisition targets, realize the anticipated benefits of an acquisition or to successfully integrate acquired companies as well as other transaction-related issues could have a material adverse effect on our business, financial condition and results of operations.

Our acquisition strategy exposes us to significant risks and additional costs.

Acquisitions also involve risks that the businesses acquired will not perform as expected and that business judgments concerning the value, strengths and weaknesses of acquired businesses will prove incorrect. We may not accurately assess the value, strengths, weaknesses or potential profitability of an acquisition target. We may become liable for certain unforeseen pre-acquisition liabilities of an acquired business, including, among others, tax

 

32

liabilities, product liabilities, asbestos liabilities, environmental liabilities, pension liabilities and liabilities for employment practices, and these liabilities could be significant. In addition, an acquisition could result in the impairment of customer relationships or certain acquired assets such as inventory and goodwill. We may also incur costs and inefficiencies to the extent an acquisition expands the industries, products, markets or geographies in which we operate due to our limited exposure to and experience in a given industry, market or region. Large or a number of smaller acquisitions may also require that we incur additional debt to finance the transaction, which could be substantial and limit our flexibility in using our cash flow from operations for other purposes. Acquisitions can also involve post transaction disputes with the counter party regarding a number of matters, including a purchase price, inventory or other working capital adjustment, environmental liabilities or pension obligations. If any of these risks were to occur, our financial position, results of operations and liquidity may be adversely affected.

Any significant fuel cost increases or shortages in the supply of fuel could disrupt our ability to distribute products to our customers, which could adversely affect our results of operations.

We currently use our own fleet of over 438 owned and leased delivery vehicles in addition to third-party vehicles to service customers in the markets in which we operate. As a result, we are inherently dependent upon fuel to operate and are impacted by changes in diesel fuel prices. The cost of fuel has reached historically high levels during portions of the last several years, is largely unpredictable and has a significant impact on our results of operations. Fuel availability, as well as pricing, is also impacted by political and economic factors. It is difficult to predict the future availability of fuel due to a number of factors. Significant disruptions in the supply of fuel could have a negative impact on fuel prices and thus our business, financial condition and results of operations.

A tightening of mortgage lending or mortgage financing requirements or other reductions in the availability of consumer credit or increases in its cost could have a material adverse effect on us.

We depend on net sales generated from residential construction activity. Most home sales in the U.S. and Canada are financed through mortgage loans, and a significant percentage of renovation and other home repair activity is financed either through mortgage loans or other available credit. The financial crisis affected the financial position of many consumers and caused financial institutions to tighten their lending criteria, each of which contributed to a significant reduction in the availability of consumer credit. These developments resulted in a significant reduction in total new housing starts in the U.S. and consequently, a reduction in demand for our products in the residential sector. Similarly, while they have remained relatively low in recent years, the rate of interest payable on any mortgage or other form of credit has begun to rise and could continue to rise in the future, thus increasing the cost of borrowing and potentially making the purchase of a home less attractive, which could in turn reduce the number of new housing starts in the U.S. and Canada. Any future tightening of mortgage lending or other reductions in the availability of consumer credit or increases in its cost that have an impact on the rate of residential construction or remodeling activity could have a material adverse effect on our business, financial condition and results of operations. See also “—Residential construction activity is cyclical and influenced by many factors, and any reduction in the activity in one or both of these markets could have a material adverse effect on us” above.

The seasonality of our business and its susceptibility to severe and prolonged periods of adverse weather and other conditions could have a material adverse effect on us.

Demand for our products in some markets is typically seasonal, with periods of snow or heavy rain negatively affecting construction activity. For example, sales of our products in Canada and the Northeast and Midwest regions of the United States are somewhat higher from spring through autumn when construction activity is greatest. Construction activity declines in these markets during the winter months in particular due to inclement weather, frozen ground and fewer hours of daylight. Construction activity can also be affected in any period by adverse weather conditions such as hurricanes, severe storms, torrential rains and floods, natural disasters such as fires and earthquakes and similar events, any of which could reduce demand for our products, push back existing orders to later dates or lead to cancellations. Furthermore, our ability to deliver products on

 

33

time or at all to our customers can be significantly impeded by such conditions and events, such as those described above. These conditions, particularly when unanticipated, can leave both equipment and personnel underutilized. Additionally, the seasonal nature of our business has led to variation in our quarterly results in the past and may continue to do so in the future. This general seasonality of our business and any severe or prolonged adverse weather conditions or other similar events could have a material adverse effect on our business, financial condition and results of operations.

Changes in currency exchange and interest rates could have a material adverse effect on our operating results and liquidity.

We have operations in locations across the United States and Canada. On a combined basis, approximately 8% of our net sales for pro forma fiscal year 2021 was denominated in Canadian dollars. As such, our net sales, earnings and cash flow are exposed to risk from changes in currency exchange rates, which can be difficult to mitigate. Depending on the direction of changes relative to the U.S. dollar, Canadian dollar values can increase or decrease the reported values of our net assets and results of operations. We hedge this foreign currency exposure by evaluating the usage of certain derivative instruments which hedge certain, but not all, underlying economic exposures.

We are also exposed to changes in interest rates as the ABL Credit Agreement and the Term Loan Facility bear interest at variable interest rates. Certain of future indebtedness may also bear interest at variable interest rates. As a result, interest rate increases will negatively impact our financial results. Our ability to access capital markets could also be impeded if adverse market conditions occur.

We depend on the services of key executives and any inability to attract and retain key management personnel could have a material adverse effect on us.

Our key management personnel, including our Chief Executive Officer and Chief Financial Officer, are important to our success because they are instrumental in setting our strategic direction, operating our business and identifying expansion opportunities. Additionally, as our business grows, we may need to attract and hire additional management personnel. We have employment agreements with some members of senior management; however, we cannot prevent our executives from terminating their employment with us, and any replacements we hire may not be as effective. Further, any transition involves inherent risk and any failure to ensure a smooth transition to new personnel could hinder our strategic planning, execution and future performance. While we strive to mitigate the negative impact associated with changes in our senior management team, there may be uncertainty among investors, employees, customers and others concerning our future direction and performance. Our ability to retain our key management personnel or to attract additional management personnel or suitable replacements when needed is dependent on a number of factors, including the competitive nature of the employment market. Any failure to retain key management personnel or to attract additional or suitable replacement personnel could have a material adverse effect on our business, financial condition and results of operations.

Employee benefit costs, including health care costs for our employees, and risks related to our unionized employees may adversely affect our business, results of operations and financial condition.

We provide health care and other benefits to our employees. In recent years, costs for health care have increased more rapidly than general inflation in the U.S. economy. If health care costs in the United States continue to increase, our cost to provide such benefits could increase, adversely impacting our profitability. Changes to health care regulations in the United States may also increase the cost to us of providing such benefits. Higher employee benefit costs could have an adverse effect on our business, results of operations and financial condition.

Approximately 9% of our workforce was unionized as of January 2, 2022, and we maintain collective bargaining agreements with two unions in the United States and Canada. There are risks associated with union

 

34

negotiations which could adversely impact our profitability, such as wage increases or additional work rules imposed by future agreements. In addition, any work stoppages or other labor disturbances could have a material adverse effect on our business, financial condition and results of operations.

Credit and non-payment risks of our customers could have a material adverse effect on us.

We are subject to the credit risk of our customers because we have provided, and we expect to provide, credit to our customers in the normal course of business. All of our customers are sensitive to economic changes and to the cyclical nature of the residential construction industry. All customers have a credit limit and payment terms. A customer’s account stays open unless there is a material change in their business or the customer fails to abide by the credit limit and payment terms. Especially during protracted or severe economic declines and cyclical downturns in the residential construction industry, our customers may be unable to perform on their payment obligations, including their debts to us. While we partially insure against exposure from this risk, any failure by our customers to meet their obligations to us may have a material adverse effect on our business, financial condition, cash flows and results of operations. In addition, we may incur increased expenses related to collections in the future if we find it necessary to take legal action to enforce the contractual obligations of a significant number of our customers.

We occupy many of our distribution centers under long-term non-cancellable leases, and we may be unable to renew our leases at the end of their terms.

Many of our distribution centers are located on leased premises subject to non-cancellable leases. Typically, our leases have initial terms ranging from five to ten years, with options to renew for specified periods of time. We believe that our future leases will likely also be long-term and non-cancellable and have similar renewal options. If we close or stop fully utilizing a distribution center, we will most likely remain obligated to perform under the applicable lease, which would include, among other things, making the base rent payments, and paying insurance, taxes and other expenses on the leased property for the remainder of the lease term. Our future minimum aggregate rental commitments for leases for our buildings and equipment, as of January 2, 2022 was $242,705. In addition, at the end of the lease term and any renewal period for a facility, we may be unable to renew the lease without substantial additional cost, if at all. If we are unable to renew our facility leases, we may close or relocate a distribution center, which could subject us to construction and other costs and risks, which in turn could have a material adverse effect on our business and operating results. Further, we may not be able to secure a replacement center in a location that is as commercially viable, including access to rail service, as the lease we are unable to renew. Having to close a center, even briefly to relocate, would reduce the sales that such center would have contributed to our net sales. Additionally, a relocated center may be less profitable. If we are unable to terminate leases when we stop fully utilizing a facility or exit a geographic market, or if we were required to vacate multiple facilities at the end of a lease team, it could have a significant adverse impact on our business, financial condition and results of operations.

We are exposed to product liability and other legal claims and proceedings that could have a material adverse effect on us.

The nature of our business exposes us to product liability, construction defect and other litigation and legal proceedings. We rely on manufacturers and other suppliers to provide us with the majority of the products we sell and distribute. As we do not have direct control over the quality of the products manufactured or supplied by such third party suppliers, we are exposed to risks relating to the quality of the products we distribute. It is possible that inventory from a manufacturer or supplier could be sold to our customers and later be alleged to have quality problems, subjecting us to potential claims from customers or third parties despite our customary disclaimer of product quality warranties. We are subject to these claims from time to time, which are typically resolved by seeking indemnification from the applicable manufacturers without material financial impact on us. However, while we seek indemnification against potential liability for product liability claims from relevant parties, including but not limited to manufacturers and other suppliers, we cannot guarantee that we will be able

 

35

to recover any losses we incur from product liability claims through such indemnification claims, which are dependent upon the financial viability of the indemnifying party. Even if we are ultimately successful in defending any claim relating to the products we distribute, claims and proceedings, whether or not they have merit and regardless of the outcome, are typically expensive and can divert the attention of management and other personnel for significant periods of time. In addition to any damages we may be required to pay, we are generally obligated to indemnify our current and former directors and officers in connection with lawsuits and related settlement amounts. Such amounts could exceed the coverage provided under our insurance policies. Any such claims and proceedings can impact customer confidence and the general public’s perception of our company and products, even if the underlying assertions are proven to be false.

While we have established reserves we believe to be reasonable under the facts known and have insurance coverage in place for certain types of claims which limits its exposure to certain liabilities, the outcomes of litigation and similar disputes are often difficult to reliably predict and may result in decisions or settlements that are contrary to, or in excess of, our expectations, and losses may exceed our reserves. In addition, various factors and developments could lead us to make changes in our current estimates of liabilities and related insurance receivables or make new or modified estimates as a result of a judicial ruling or judgment, settlement, regulatory development or change in applicable law. Any claims or proceedings, particularly those in which we are unsuccessful or for which we did not establish adequate reserves, could harm our reputation and could have a material adverse effect on our business, financial condition and results of operations.

Our operations are subject to special hazards that may cause personal injury or property damage, subjecting us to liabilities and possible losses which may not be covered by insurance.

Operating hazards, such as unloading heavy products, operating large machinery and driving hazards, inherent in our business, some of which may be outside of our control, can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. We maintain insurance coverage in amounts and against the risks we believe are consistent with industry practice, but this insurance may not be adequate or available to cover all losses or liabilities we may incur in our operations. Our insurance policies are subject to varying levels of deductibles. Losses up to our deductible amounts are accrued based upon our estimates of the ultimate liability for claims incurred and an estimate of claims incurred but not reported. However, liabilities subject to insurance are difficult to estimate due to unknown factors, including the severity of an injury, the determination of our liability in proportion to other parties, the number of incidents not reported and the effectiveness of our safety programs. If we were to experience insurance claims or costs above our estimates, we might also be required to use working capital to satisfy these claims rather than using working capital to maintain or expand our operations.

Our operations may be subject to environmental, health and safety laws and regulations and consumer use of certain of our products are subject to approvals, which could have a negative impact on our business, financial condition and results of operations.

Our operations involve the use, handling, storage, and disposal of hazardous materials customary in distribution and light manufacturing, and are subject to environmental, health and safety laws and regulations at the national, state, local, and international levels. These laws and regulations include those governing the discharge of pollutants into the air and water, the use, management, and disposal of hazardous materials and wastes, chemicals in products, the cleanup of contaminated sites, and occupational health and safety. We have incurred and may continue to incur costs in complying with these laws and regulations. In addition, violations of, or liabilities under, these laws and regulations may result in restrictions being imposed on our operations or in our being subject to substantial fines, penalties, criminal proceedings, third-party property damage or personal injury claims, cleanup costs, or other costs. We may also become liable under certain of these laws and regulations for costs to investigate or remediate contamination at properties we own or operate, we formerly owned or operated. Liability under these laws and regulations can be imposed on a joint and several basis and without regard to fault or the legality of the activities giving rise to the contamination conditions. In addition,

 

36

future developments such as more aggressive enforcement policies, the implementation of new, more stringent laws and regulations, or the discovery of presently unknown environmental conditions may require expenditures that could have an adverse effect on our business, financial condition, and results of operations.

In addition, consumer use of certain of our products is subject to approvals by municipalities, state departments of transportation, engineers and developers. These approvals and specifications, including building codes, may affect the products our customers or the end users are allowed or choose to use, and, consequently, failure to obtain or maintain such approvals or changes in building codes may affect the saleability of our products or may require us to make changes to our products that could increase the cost of doing business.

In the event any of the above risks were to materialize, it could have a material adverse impact on our business, financial condition and results of operations.

Our business and financial performance could be adversely impacted due to disruptions, delays, or outages of our information technology systems and computer networks.

Our distribution centers and our sales and service activities, including the processing, transmission and storage of electronic information utilized in connection with our operations, depend on the efficient, reliable and uninterrupted operation of complex and sophisticated information technology systems and computer networks, which may be subject to malfunction, failure, damage or disruption due to fire, flood, natural disasters, malicious attacks, human error, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins or other similar events. Our existing safety systems, data backup, and information technology emergency planning may not be sufficient to prevent long-term system or network outages or data loss. Additionally, because we have grown through various acquisitions, we have integrated and are integrating a number of disparate information technology systems across our organization in order to align our systems, further increasing the likelihood of problems. We may in the future integrate, replace or upgrade existing systems or implement new technology systems. These integrations and/or updated and new systems may not be successful, and may create new issues we currently do not face, or may significantly exceed our cost estimates.

Any disruption of our information technology systems or networks could interrupt or otherwise impair our operations and negatively impact our ability to meet customer needs and to maintain critical operational or financial controls. These events could damage our reputation and cause us to incur unanticipated liabilities, including financial losses from remedial actions, business interruptions, loss of business and other unanticipated costs, which may not be covered by insurance. Despite the defensive measures we have taken to maintain and protect our information technology systems (and the information processed or transmitted by, or stored in, our systems), our systems may still be vulnerable to disruption and any such disruption and the resulting fallout could have a material adverse effect on our business, financial condition and results of operations.

Cybersecurity threats, attacks and other incidents may compromise our confidential information, disrupt operations, subject us to increased costs or liabilities and/or result in harm to our reputation, any of which could adversely impact our business and financial performance.

Cybersecurity threats and attacks are increasing in sophistication and frequency and may range from uncoordinated individual attempts to measures targeted specifically at us or our service providers in order to gain unauthorized access to, or otherwise disrupt, our information systems, and/or to gain unauthorized access to, corrupt, modify or destroy business, proprietary or other confidential information therein, and could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption or loss of data. Cybersecurity incidents may result from computer viruses, ransomware and other malware as well as human error, employee malfeasance, system errors or vulnerabilities, including vulnerabilities of our vendors, suppliers, and their products. Also, given the unpredictability of the timing, nature and scope of cybersecurity threats and attacks, we may be unable to anticipate attempted security breaches and, in turn, implement adequate preventative measures. Any such security incidents could result in mandatory notification

 

37

requirements and costly remediation measures, damage our relationships with our customers and suppliers, adversely affect our reputation, cause a loss of confidence in us, or expose us to costly government enforcement investigations or actions, private litigation, or financial liability, possibly beyond the scope or limits of our insurance coverage. Such events may also disrupt our operations by distracting our management and other key personnel from performing their primary operational duties. Furthermore, mitigating the risk of future cybersecurity incidents could result in additional costs in order to invest in technology and personnel.

In addition, our systems and processes to protect against, detect, prevent, respond to and mitigate cybersecurity incidents and our organizational training for employees to develop an understanding of cybersecurity risks and threats may be unable to prevent security breaches, theft, modification, corruption or loss of data, employee malfeasance and additional known and unknown threats. Any breach in our systems or data-protection policies, or those of our third-party service providers, could have a material adverse effect on our business, financial condition and results of operations.

Corporate responsibility, specifically related to ESG matters, may impose additional costs and expose us to new risks.

Public ESG and sustainability reporting is becoming more broadly expected by investors, shareholders and other third parties. Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed, and others may in the future develop, scores and ratings to evaluate companies and investment funds based upon ESG or “sustainability” metrics. Many investment funds focus on positive ESG business practices and sustainability scores when making investments and may consider a company’s ESG or sustainability scores as a reputational or other factor in making an investment decision. In addition, investors, particularly institutional investors, use these scores to benchmark companies against their peers and if a company is perceived as lagging, these investors may engage with such company to improve ESG disclosure or performance and may also make voting decisions, or take other actions, to hold these companies and their boards of directors accountable. Board diversity is an ESG topic that is, in particular, receiving heightened attention by investors, shareholders, lawmakers and listing exchanges. We may face reputational damage in the event our corporate responsibility initiatives or objectives, including with respect to board diversity, do not meet the standards set by our investors, shareholders, lawmakers, listing exchanges or other constituencies, or if we are unable to achieve an acceptable ESG or sustainability rating from third party rating services. A low ESG or sustainability rating by a third-party rating service could also result in the exclusion of our ordinary shares from consideration by certain investors who may elect to invest with our competition instead. Ongoing focus on corporate responsibility matters by investors and other parties as described above may impose additional costs or expose us to new risks.

If we are not able to maintain and enhance our brands, or if events occur that damage our reputation and brand, our ability to maintain and expand our customer base may be impaired.

The various local and regional brands under which we do business and their respective reputations have significantly contributed to the success of our business. Maintaining and enhancing our brands is critical to our ongoing success. Maintaining and enhancing our brands will depend largely on our ability to continue to provide useful, reliable and trustworthy products and provide products to the market in a manner which matches the lead times customers require. There is no certainty that we will continue to meet customer expectations and maintain our overall brand image. We may experience media, legislative or regulatory scrutiny of our impact on the environment, which may adversely affect our reputation. If we fail to provide adequate customer service, it could erode confidence in any one or more of our brands. As part of our broader branding and marketing strategy, we may choose to consolidate or change local or regional brands, which may result in us incurring impairment charges. We may also be subject to trademark or patent infringement claims relating to our key intellectual property. If we fail to promote and maintain our brands successfully or if we incur excessive expenses or impairment charges in this effort, it could have a material adverse effect on our business, financial condition and results of operations.

 

38

Changes in tax laws could adversely affect us.

We regularly assess our future ability to utilize tax benefits, including those in the form of certain tax carryforwards, that are recorded as deferred income tax assets on our balance sheets to determine whether a valuation allowance is necessary. A reduction in, or disallowance of, these tax benefits resulting from a legislative change or adverse determination by a taxing jurisdiction could have an adverse impact on our financial results and liquidity.

Significant judgment is required in determining our domestic and international provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. In the course of our business, there will be many transactions and calculations where the ultimate tax determination is uncertain. For example, compliance with the Tax Cuts and Jobs Act of 2017 (“TCJA”) may require the collection of information not regularly produced within our Company, the use of estimates in our consolidated financial statements, and the exercise of significant judgment in accounting for its provisions. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible these positions may be contested or overturned by jurisdictional tax authorities, which may have a significant impact on our tax provision for income taxes. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the laws are issued or applied.

Insufficient insurance coverage could have a material adverse effect on us.

We maintain property, business interruption, counterparty and liability insurance coverage that we believe is consistent with industry practice. However, our insurance program does not cover, or may not adequately cover, every potential risk associated with our business and the consequences thereof. In addition, market conditions or any significant claim or a number of claims made by or against us could cause our premiums and deductibles to increase substantially and, in some instances, our coverage may be reduced or become entirely unavailable. In the future, we may not be able to obtain meaningful coverage at reasonable rates for a variety of risks. We also operate a large fleet of trucks and other vehicles and therefore face the risk of accidents. While we currently maintain insurance coverage to address a portion of these types of liabilities, we cannot make assurances that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. If our insurance coverage is insufficient, if we are not able to obtain sufficient coverage in the future, or if we are exposed to significant losses as a result of the risks for which we self-insure, any resulting costs or liabilities could have a material adverse effect on our business, financial condition and results of operations.

We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate our material weaknesses, or if we otherwise fail to establish and maintain effective internal control over financial reporting, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and, as a result, the value of our common stock.

We are not currently required to comply with the rules and regulations of the SEC to make an assessment of the effectiveness of internal control over financial reporting for that purpose. We are actively conducting a comprehensive review of our internal processes for the purposes of establishing a robust compliance program to meet the internal control requirements for a publicly traded company.

We have not completed an assessment of the effectiveness of our internal control over financial reporting, and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. In connection with the preparation of our financial statements, we identified certain control deficiencies in the design and maintenance of our internal control over financial reporting that constituted material weaknesses in internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility

 

39

that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses relate to:

We lack a sufficient complement of accounting and financial reporting resources with the appropriate level of knowledge, experience and training required to meet the reporting requirements of a publicly traded company. This material weakness contributed to the following additional material weaknesses:

 

•

We did not design and maintain formal accounting policies, procedures and controls to support complete, accurate and timely financial accounting, reporting and disclosures, including with respect to revenue and period-end financial reporting. Also, we did not design and maintain effective controls relating to the accuracy and occurrence of the accounting for revenues to ensure the accuracy of customer order entry and master data, including price and ensure appropriate segregation of duties and controls to verify the financial statements are presented and disclosed completely and accurately;

 

•

We did not design and maintain effective controls over segregation of duties related to journal entries and account reconciliations. Specifically, certain personnel have the ability to both create and post journal entries and also prepare account reconciliations.

These material weaknesses resulted in the revision of our consolidated financial statements for each of the quarterly periods ended October 3, 2021 and July 4, 2021 and for the period from January 21, 2021 to April 4, 2021 (Successor) and as of January 3, 2021 and for the period from January 4, 2021 to January 20, 2021 and for each of the two years in the period ended January 3, 2021 and each of the quarterly periods ended January 3, 2021, October 4, 2020, July 5, 2020, and April 5, 2020 (Predecessor), and other immaterial adjustments for each relevant period. Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

 

•

We did not design and maintain effective controls over information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain i) program change management controls to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel; and (iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored.

These IT deficiencies did not result in any misstatements to the financial statements, however, the deficiencies, when aggregated, could impact the Company’s ability to maintain effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

We are in the process of implementing measures designed to improve our internal control over financial reporting to remediate these material weaknesses. These measures include:

 

•

Actively recruiting and hiring additional accounting and financial reporting personnel with the requisite technical and SEC reporting experience combined with expanding the capabilities of existing accounting and financial reporting personnel through continuous training and education in the accounting and reporting requirements under SEC rules and regulations.

 

•

Implementing formal policies, procedures and control activities combined with delivery of training on standards of documentary evidence.

 

40

•

Designing and implementing procedures and controls to incorporate enhanced segregation of duties, documentation standards and review protocols within our processes associated with manual journal entries and account reconciliations.

 

•

Designing and engaging in the implementation of an IT general controls framework that addresses risks associated with user access and security, application change management and computer operations.

We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses. If the steps we take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis.

If we fail to remediate our existing material weaknesses or identify new material weaknesses in our internal control over financial reporting, if we are unable to comply with the rules and regulations of the SEC in a timely manner, if we are unable to conclude that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become subject to investigations by the SEC or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation and financial condition or divert financial and management resources from our regular business activities.

The unaudited pro forma financial information included in this prospectus may not be representative of our future results of operation and financial condition.

The pro forma financial information contained in this prospectus is unaudited and is based, in part, on certain estimates and assumptions that we believe are reasonable. We cannot assure you that our estimates and assumptions will prove to be accurate over time. For example, we have made a preliminary allocation of the estimated purchase price paid as compared to the net assets acquired in the Reeb Acquisition, as if the Reeb Acquisition had closed on the dates indicated in the applicable pro forma presentations. When the actual calculation and allocation of the purchase price to net assets acquired is performed, it will be based on the net assets assumed at the effective date of the Reeb Acquisition and other information at that date to support the allocation of the fair values of the Reeb Companies’ assets and liabilities. Accordingly, the actual amounts of net assets will vary from the pro forma amounts, and the final valuation of the Reeb Companies may be materially different than as reflected in the unaudited pro forma financial data contained herein. See “Unaudited Pro Forma Combined Financial Statements” and the notes thereto for more information. As a result of the foregoing, the unaudited pro forma financial information contained in this prospectus may not reflect what our results of operations and financial condition would have been had we been a combined entity during the periods presented, or what our results of operations and financial condition will be in the future. The challenge of integrating previously independent businesses makes evaluating our business and our future financial prospects difficult.

Risks Related to Our Indebtedness

If we do not generate sufficient cash flows, we may be unable to service all of our indebtedness.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash, make scheduled payments on or refinance our debt obligations depends on our successful financial and operating performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. If our cash flow and capital resources are insufficient to fund our debt service obligations or to repay our debt as it becomes due, including the ABL Credit Agreement, which will mature prior to our 6.375% senior secured notes due 2026 (the “Senior Secured Notes”), and the Term Loan Facility, which

 

41

will mature in 2028, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets or operations, reducing or delaying capital investments or seeking to raise additional capital. Any refinancing of our debt could be at higher interest rates and may require us to comply with more restrictive covenants which could further restrict our business operations and the ability of subsidiaries to make cash available to us, by dividend, debt repayment or otherwise, to enable us to repay the amounts due. Our ability to implement successfully any such alternative financing plans will be dependent on a range of factors, including general economic conditions, the level of activity in capital markets generally and the terms of our various debt instruments then in effect. In addition, the Senior Secured Notes, the Term Loan Facility and the ABL Credit Agreement are secured by liens on substantially all of our and the Subsidiary Guarantors’ assets, and any successor credit facilities or additional Senior Secured Notes are likely to be secured on a similar basis. As such, our ability to refinance the Senior Secured Notes, the Term Loan Facility and/or the ABL Credit Agreement, seek additional financing or our and our subsidiaries’ ability to make cash available to us, by dividend, debt repayment or otherwise, to enable the Co-Issuers to repay the amounts due under the Senior Secured Notes, the Term Loan Facility and/or the ABL Credit Agreement could be impaired as a result of such security interests and the agreements governing such security interests.

Our inability to generate sufficient cash flow to satisfy our debt obligations or to refinance our obligations on commercially reasonable terms could have a material adverse effect on our business, including our financial condition and results of operations, as well as on our subsidiaries’ ability to make cash available to us, by dividend, debt repayment or otherwise, to enable us to satisfy our obligations on the Senior Secured Notes, the Term Loan Facility and/or the ABL Credit Agreement.

Our substantial level of indebtedness could adversely affect our financial condition and prevent us from making payments on the Senior Secured Notes and our other debt obligations.

We have a substantial amount of debt. At January 2, 2022, we had approximately $1.7 billion of total indebtedness, of which approximately $1.7 billion would have been secured indebtedness. See “Capitalization.”

Our substantial level of indebtedness could have important consequences to you. For example, it could:

 

•

make it more difficult for us to satisfy our obligations;

 

•

increase our vulnerability to adverse economic and industry conditions;

 

•

limit our ability to obtain additional financing for future working capital, capital expenditures, materials, strategic acquisitions and other general corporate requirements;

 

•

expose us to interest rate fluctuations because the interest on the debt under the ABL Credit Agreement is imposed at variable rates;

 

•

require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes, including making cash available to the Co-Issuers, by dividend, debt repayment or otherwise to enable the Co-Issuers to make payments on the Senior Secured Notes;

 

•

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

 

•

limit our ability to refinance indebtedness or increase the associated costs;

 

•

require us to sell assets to reduce debt or influence our decision about whether to do so;

 

•

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or prevent us from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve operating margins or our business; and

 

42

•

place us at a competitive disadvantage compared to any competitors that have less debt or comparable debt at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturns.

In addition, the Indenture governing the Senior Secured Notes, the Term Loan Facility and the ABL Credit Agreement contain restrictive covenants that limit our and our subsidiaries’ ability to engage in activities that may be in our long-term best interests.

Restrictive covenants in the Indenture governing the Senior Secured Notes, the Term Loan Facility and the ABL Credit Agreement could restrict our operating flexibility.

The Indenture governing the Senior Secured Notes, the Term Loan Facility credit agreement (the “Term Loan Credit Agreement”) and the ABL Credit Agreement contain covenants that limit our ability to take certain actions. These restrictions may limit our ability to operate our businesses and may prohibit or limit our ability to enhance our operations or take advantage of potential business opportunities as they arise.

The Indenture governing the Senior Secured Notes, Term Loan Credit Agreement and the ABL Credit Agreement contain restrictive covenants that, among other things, limit our and/or our restricted subsidiaries’ ability to:

 

•

incur additional indebtedness or issue certain preferred stock;

 

•

pay dividends, redeem stock or make other distribution;

 

•

make other restricted payments or investments;

 

•

create liens on assets;

 

•

transfer or sell assets;

 

•

create restrictions on payment of dividends or other amounts by us to our restricted subsidiaries;

 

•

engage in certain mergers, consolidations or amalgamations of the Parent Guarantor or the Co-Issuers;

 

•

engage in certain transactions with affiliates; and

 

•

designate our subsidiaries as unrestricted subsidiaries.

In addition, under the ABL Credit Agreement, if availability goes below a certain threshold, the Company is required to comply with a minimum “consolidated fixed charge coverage ratio” (as defined in the ABL Credit Agreement).

Our ability to comply with the covenants and restrictions contained in the Indenture governing the Senior Secured Notes, the ABL Credit Agreement and Term Loan Credit Agreement may be affected by economic conditions and by financial, market and competitive factors, many of which are beyond our control. Our ability to comply with these covenants in future periods will also depend substantially on the pricing and sales volume of our products, our success at implementing cost reduction initiatives and our ability to successfully implement our overall business strategy. The breach of any of these covenants or restrictions could result in a default under the Indenture governing the Senior Secured Notes, the ABL Credit Agreement or the Term Loan Credit Agreement that would permit the holders or applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest and any applicable redemption premium. In that case, the applicable borrowers may be unable to borrow under the ABL Credit Agreement or the Term Loan Credit Agreement and the Co-Issuers may be unable to issue Additional Senior Secured Notes under the Indenture, may not be able to repay the amounts due under the ABL Credit Agreement or the Term Loan Facility and may not be able to make payments on the Senior Secured Notes. This could have serious consequences to our financial position, results of operations and/or cash flows and could cause us to become bankrupt or insolvent.

 

43

Indebtedness under our Term Loan Credit Agreement, ABL Credit Agreement and Account Purchase Agreement bears interest based on the London Interbank Offered Rate (“LIBOR”), which may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences.

The ICE Benchmark Administration, the administrator of LIBOR, announced on March 5, 2021 its intent to cease publication of LIBOR rates (i) with respect to U.S. dollar LIBOR with interest periods of 1 week and 2 months, after December 31, 2021 and (ii) with respect to U.S. dollar LIBOR with all other interest periods, after June 30, 2023, and as a result, methods of calculating LIBOR are evolving. We may need to renegotiate the terms of our Term Loan Credit Agreement, ABL Credit Agreement and Account Purchase Agreement to replace LIBOR with the new standard, such as the Secured Overnight Financing Rate (SOFR), or to otherwise agree with the agent under such facilities on a new means of calculating interest. At this time we cannot reasonably estimate the expected impact on our business of the discontinuation of LIBOR.

Risks Related to Our Common Stock and This Offering

SBP Varsity Holdings controls us, and its interests may conflict with ours or yours in the future.

Immediately following this offering, SBP Varsity Holdings, an entity controlled by funds advised by The Jordan Company, will beneficially own approximately     % of our common stock, or     % if the underwriters exercise in full their option to purchase additional shares in this offering. As a result, SBP Varsity Holdings will be able to control the election and removal of directors on the Board and thereby determine our corporate and management policies, including potential mergers or acquisitions, payment of dividends, asset sales, amendment of our certificate of incorporation or bylaws, and other significant corporate transactions for so long as it and its affiliates retain significant ownership of us. This concentration of our ownership may delay or deter possible changes in control of the Company, which may reduce the value of an investment in our common stock. Even when SBP Varsity Holdings and its affiliates cease to own shares of our stock representing a majority of the total voting power, for so long as SBP Varsity Holdings and its affiliates continue to own a significant portion of our stock, it will still be able to significantly influence the composition of our Board and the approval of actions requiring shareholder approval. Accordingly, for such period of time, SBP Varsity Holdings (and indirectly, The Jordan Company) will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers, decisions on whether to raise future capital, and amending our charter and bylaws, which govern the rights attached to our common stock. In particular, for so long as SBP Varsity Holdings and its affiliates continue to beneficially own a significant percentage of our stock, it could cause or prevent a change of control of the Company or a change in the composition of our Board and could preclude any unsolicited acquisition of us. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of us and ultimately might affect the market price of our common stock.

In addition, in connection with this offering, we will enter into the Director Nomination Agreement with SBP Varsity Holdings that provides it the right, but not the obligation, to nominate a number of individuals designated for election as our directors at any meeting of our stockholders (the “Varsity Directors”), such that, upon the election of each such individual, and each other individual nominated by or at the direction of our board of directors or a duly-authorized committee of the board, as a director of our company, the number of Varsity Directors serving as directors of our Company will be equal to: (i) if SBP Varsity Holdings and its affiliates together continue to beneficially own at least 50% of the total number of shares of our common stock entitled to vote generally in the election of directors (“Total Outstanding Securities”), the lowest whole number that is greater than 50% of the total number of directors comprising our board of directors; (ii) if SBP Varsity Holdings and its affiliates together continue to beneficially own at least 40% (but less than 50%) of the Total Outstanding Securities, the lowest whole number that is at least 40% of the total number of directors comprising our board of directors; (iii) if SBP Varsity Holdings and its affiliates together continue to beneficially own at least 30% (but less than 40%) of the Total Outstanding Securities, the lowest whole number that is at least 30% of the total number of directors comprising our board of directors; (iv) if SBP Varsity Holdings and its affiliates together

 

44

continue to beneficially own at least 20% (but less than 30%) of the Total Outstanding Securities, the lowest whole number that is at least 20% of the total number of directors comprising our board of directors; and (v) if SBP Varsity Holdings and its affiliates together continue to beneficially own at least 10% (but less than 20%) of the Total Outstanding Securities, the lowest whole number that is at least 10% of the total number of directors comprising our board of directors. SBP Varsity Holdings may also assign such right to its affiliates. The Director Nomination Agreement will also provide for certain consent rights for SBP Varsity Holdings so long as it and its affiliates own at least 50% of the Total Outstanding Securities. Additionally, the Director Nomination Agreement will also prohibit us from increasing or decreasing the size of our Board without the prior written consent of SBP Varsity Holdings for so long as SBP Varsity Holdings and its affiliates hold at least 40% of the Total Outstanding Securities. See “Certain Relationships and Related Party Transactions—Director Nomination Agreement” for more details with respect to the Director Nomination Agreement.

The Jordan Company, its Affiliated Companies and Exempted Persons (both as defined in the certificate of incorporation) engage in a broad spectrum of activities, including investments in our industry generally. In the ordinary course of their business activities, The Jordan Company, its Affiliated Companies and Exempted Persons (both as defined in the certificate of incorporation) including SBP Varsity Holdings, may engage in activities where their interests conflict with our interests or those of our other shareholders, such as investing in or advising businesses that directly or indirectly compete with certain portions of our business or are suppliers or clients of ours. Our certificate of incorporation to be effective in connection with the closing of this offering will provide that none of The Jordan Company, its Affiliated Companies and Exempted Persons (both as defined in the certificate of incorporation) will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. The Jordan Company, its Affiliated Companies and Exempted Persons (both as defined in the certificate of incorporation) also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, The Jordan Company, its Affiliated Companies and Exempted Persons (both as defined in the certificate of incorporation) may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to you.

We are a holding company with no operations of our own, and we depend on our subsidiaries for cash to fund all of our operations and expenses, including to make future dividend payments, if any.

Our operations are conducted entirely through our subsidiaries, and our ability to generate cash to fund operations and expenses, to pay dividends or to meet debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries through dividends or intercompany loans. Deterioration in the financial condition, earnings or cash flow of our subsidiaries for any reason could limit or impair their ability to pay such distributions to us.

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

We do not currently expect to declare or pay dividends on our common stock for the foreseeable future. Payments of dividends, if any, will be at the sole discretion of our board of directors after taking into account various factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant. In addition, Delaware law may impose

 

45

requirements that may restrict our ability to pay dividends to holders of our common stock. To the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends.

The market price of our common stock may be volatile and could decline after this offering.

Volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares. The market price of our common stock may fluctuate significantly. Among the factors that could affect our stock price are:

 

•

industry or general market conditions;

 

•

domestic and international economic factors unrelated to our performance;

 

•

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

 

•

new regulatory pronouncements and changes in regulatory guidelines;

 

•

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

 

•

actual or anticipated fluctuations in our quarterly operating results;

 

•

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

 

•

action by institutional stockholders or other large stockholders, including future sales;

 

•

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

 

•

announcements by us of significant impairment charges;

 

•

speculation in the press or investment community;

 

•

investor perception of us and our industry;

 

•

changes in market valuations or earnings of similar companies;

 

•

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

 

•

war, terrorist acts and epidemic disease;

 

•

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

 

•

additions or departures of key personnel.

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

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

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

 

46

After giving effect to the Stock Split and sale of shares in this offering, we will have                  outstanding shares of common stock. All of the shares sold pursuant to this offering will be immediately tradable without restriction under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by “affiliates,” as that term is defined in Rule 144 under the Securities Act, or Rule 144.

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

Upon completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of common stock to be issued under our equity compensation plans and, as a result, all shares of common stock acquired under our plans will also be freely tradable under the Securities Act, subject to the terms of the lock-up agreements, unless purchased by our affiliates. In addition,                 shares of our common stock will be reserved for future issuances under the equity incentive plans we expect to adopt in connection with this offering.

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

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

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

After completion of this offering, SBP Varsity Holdings will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

•

the requirement that a majority of our Board consist of independent directors;

 

47

•

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

 

•

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

 

Although we do not intend to utilize these exemptions immediately following this offering, we may elect to do so in the future. As a result, we may not have a majority of independent directors on our Board and our Compensation Committee and Nominating & Governance Committee may not consist entirely of independent directors. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of other companies listed on Nasdaq.

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

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

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

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

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

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

 

•

allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend or other rights or preferences superior to the rights of shareholders;

 

•

provide for a classified Board with staggered three-year terms;

 

48

•

provide that, at any time when The Jordan Company and its affiliated companies beneficially own, in the aggregate, less than 45% in voting power of our stock entitled to vote generally in the election of directors (“Voting Stock”), directors may only be removed for cause, and only by the affirmative vote of holders of at least 662/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class;

 

•

prohibit shareholder action by written consent from and after the date on The Jordan Company and its affiliated companies which beneficially own, in the aggregate, less than 45% of the Voting Stock;

 

•

provide that, for as long as The Jordan Company and its affiliated companies beneficially own, in the aggregate, at least 50% of the Voting Stock, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of a majority in voting power of the outstanding shares of our stock entitled to vote thereon voting together as a single class, and at any time when The Jordan Company and its affiliated companies beneficially own, in the aggregate, less than 50% of the Voting Stock, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of the holders of at least 662/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and

 

•

establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by shareholders at shareholder meetings.

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

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

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

As a public company, we do not intend to declare and pay dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth, to develop our business, for working capital needs and for general corporate purposes. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares. In addition, our operations are conducted entirely through our subsidiaries. As such, to the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends. Further, the agreements governing the ABL Credit Agreement, Term Loan Credit Agreement and the Senior Secured Notes significantly restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us.

 

49

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

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us, our stockholders, creditors or other constituents by any of our directors, officers, other employees, agents or stockholders, (iii) any action asserting a claim arising under the General Corporation Law of the State of Delaware, or the DGCL, our amended and restated certificate of incorporation or our amended and restated by-laws, or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action asserting a claim that is governed by the internal affairs doctrine, or the Delaware Forum Provision. The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Our amended and restated certificate of incorporation will further provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the Federal Forum Provision). By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum. The Delaware Forum Provision and the Federal Forum Provision in our amended and restated certificate of incorporation may impose additional litigation costs on stockholders in pursuing any such claims. Additionally, these forum selection clauses in our amended and restated certificate of incorporation may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the federal district courts of the United States may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders. If a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.

Investors purchasing common stock in this offering will experience immediate and substantial dilution as a result of this offering and future equity issuances.

The initial public offering price per share will significantly exceed the net tangible book value per share of our common stock outstanding. As a result, investors purchasing common stock in this offering will experience immediate substantial dilution of $                per share, based on an assumed initial public offering price of $                , the midpoint of the price range reflected on the cover of this prospectus. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares. Investors purchasing shares of common stock in this offering will contribute approximately     % of the total amount of equity invested in our company, but will own only approximately     % of our total common stock immediately following the completion of this offering. In addition, if we issue additional equity securities in the future, investors purchasing common stock in this offering will experience additional dilution.

 

50

FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements.” Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic,” “intends,” “plans,” “estimates,” “anticipates” or the negative versions of these words or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this prospectus and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, our financial position, results of operations, cash flows, prospects and growth strategies.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be outside our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors, including, without limitation, the risks and uncertainties discussed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements. Furthermore, new risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. Factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:

 

•

declines, volatility and cyclicality in the U.S. residential and non-residential construction markets;

 

•

the development of alternatives to distributors of our products in the supply chain and the disruption of our supply chain;

 

•

price fluctuations in our product costs, particularly with respect to the commodity-based products that we sell;

 

•

the spread of, and response to, COVID-19, and the inability to predict the ultimate impact on us;

 

•

general business and economic conditions;

 

•

risks involved with acquisitions and other strategic transactions, including our ability to identify, acquire, close or integrate acquisition targets successfully;

 

•

the impact of seasonality and weather-related impacts, including natural disasters or similar extreme weather events;

 

•

the highly competitive markets in which we compete and consolidation within our industry;

 

•

our ability to hire, engage and retain key personnel, including sales representatives, qualified branch, district and local managers and senior management;

 

•

tightening of mortgage lending or mortgage financing requirements or other reductions in the availability of consumer credit or increases in its cost;

 

•

the availability and cost of freight and energy, such as fuel;

 

•

our ability to identify, develop and maintain relationships with a sufficient number of qualified suppliers and the potential that our exclusive or restrictive supplier distribution rights are terminated;

 

•

the ability of our customers to make payments on credit sales;

 

51

•

our ability to identify and introduce new products and product lines effectively;

 

•

our ability to manage our inventory effectively;

 

•

costs and potential liabilities or obligations imposed by environmental, health and safety laws and requirements;

 

•

regulatory change and the costs of compliance with regulation;

 

•

exposure to product liability, construction defect and warranty claims and other litigation and legal proceedings;

 

•

potential harm to our reputation;

 

•

safety and labor risks associated with the distribution of our products as well as work stoppages and other disruptions due to labor disputes;

 

•

impairment in the carrying value of goodwill, intangible assets or other long-lived assets;

 

•

the domestic and international political environment with regard to trade relationships and tariffs, as well as difficulty sourcing products as a result of import constraints;

 

•

our ability to operate our business consistently through highly dispersed locations across the United States;

 

•

interruptions in the proper functioning of our IT systems, including from cybersecurity threats;

 

•

risks associated with raising capital;

 

•

our ability to continue our customer relationships with short-term contracts;

 

•

changes in vendor rebates or other terms of our vender agreements;

 

•

risks associated with exporting our products internationally;

 

•

our ability to renew or replace our existing leases on favorable terms or at all;

 

•

our ability to maintain effective internal controls over financial reporting and remediate any material weaknesses;

 

•

our substantial indebtedness and the potential that we may incur additional indebtedness;

 

•

changes in our credit ratings and outlook; and

 

•

our ability to generate the significant amount of cash needed to service our indebtedness.

 

52

USE OF PROCEEDS

We expect to receive net proceeds from this offering of approximately $        , based upon an assumed initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $        per share would increase or decrease the net proceeds that we receive from this offering by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of one million in the number of shares of common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $        , assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

We intend to use the net proceeds of approximately $         million that we will receive from this offering to fully repay the amounts outstanding under the ABL Credit Agreement. The remaining proceeds, if any, will be used to repay a portion of the amounts outstanding under the Term Loan Facility. Approximately $600 million of amounts drawn under the Term Loan Facility was used to finance the purchase price for the Reeb Acquisition and related transaction fees and expenses. Approximately $200 million of amounts drawn under the Term Loan and cash on hand was used to finance the DW Acquisition and related transaction fees and expenses. We used approximately $191.6 million in borrowings under the ABL Credit Agreement to finance the Millwork Acquisition and related transaction fees and expenses. See “Prospectus Summary—Recent Developments.” The Term Loan Facility bears a variable interest rate and matures on October 15, 2028. The ABL Credit Agreement bears a variable interest rate and matures on September 30, 2025. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Debt Arrangements." Certain of the underwriters or their affiliates are lenders under the Term Loan Facility, and as a result, may receive a portion of the net proceeds in connection with this offering. See “Underwriting.”

DIVIDEND POLICY

As a public company, we do not expect to declare or pay dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings, if any, to service our debt, finance the growth and development of our business and for working capital and general corporate purposes. Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we received from our subsidiaries. Our ability to pay dividends to holders of our common stock is limited as a practical matter by our Term Loan Facility, ABL Credit Agreement and Senior Secured Notes, insofar as we may seek to pay dividends out of funds made available to us by our subsidiaries, because our subsidiaries’ debt instruments directly or indirectly restrict our subsidiaries’ ability to pay dividends or make loans to us. Any future determination to pay dividends on our common stock is subject to the discretion of our board of directors and will depend upon various factors, including our results of operations, financial condition, liquidity requirements, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions and other factors that our board of directors may relevant.

 

53

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our consolidated capitalization as of January 2, 2022 on:

 

•

an actual basis; and

 

•

an as adjusted basis, after giving effect to (i) the Stock Split and (ii) our sale of                shares of common stock in this offering at an assumed initial public offering price of $                per share, and the application of the net proceeds therefrom as described in “Use of Proceeds,” after deducting underwriting discounts and commissions and estimated offering costs payable by us.

You should read the following table in conjunction with the sections entitled “Use of Proceeds,” “Summary Historical and Pro Forma Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes included in this prospectus.

 

		As of January 2, 2022
(in thousands, except share data)		Actual				As Adjusted
Cash and cash equivalents(1)		$	32,538			$
Long term debt, including current portions:
ABL Credit Agreement		$	194,391			$
Term Loan Facility			800,000
Equipment Notes			317				317
Accounts Receivable Factoring Agreement			23,256				23,256
Senior Secured Notes			725,000				725,000
Total Debt			1,742,964
Stockholder’s equity:
Common stock, $0.01 par value; 1,000 shares authorized, 1,000 shares issued and outstanding, actual; 1,000 shares authorized,                 shares issued and outstanding, as adjusted			0
Additional paid-in capital			440,766
Accumulated other comprehensive (loss) income			(340	)			(340	)
Retained earnings			113,909				116,232
Total stockholders’ equity			554,335
Total capitalization		$	2,297,299			$

 

(1)	On an actual and as adjusted basis, reflects approximately $2.2 million in offering expenses paid on or prior to January 2, 2022.

 

54

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements of the Company are presented to include the impacts of two separate transactions and each of their respective financing impacts.

The first transaction reflects the acquisition by SBP Varsity Holdings, L.P. (“SBP Varsity Holdings”), an entity controlled by funds advised by The Jordan Company, L.P., from existing equityholders of 100% of the equity interests of Specialty Building Products, LLC, the then-ultimate parent company of Specialty Building Products Holdings, LLC (“SBP Predecessor”), a Delaware limited liability company and the holding company through which we control our operating subsidiaries (such acquisition, the “TJC Acquisition”). The TJC Acquisition closed on January 21, 2021. The Company was determined to be the accounting acquirer in connection with the TJC Acquisition and SBP Predecessor’s historical assets and liabilities are reflected at fair value as of January 21, 2021, the closing date of the TJC Acquisition. As the Company had not conducted operations prior to consummation of the TJC Acquisition on January 21, 2021, SBP Predecessor is deemed “predecessor” of the Company and its subsidiaries for financial reporting purposes.

The second transaction reflects our acquisition of the Reeb Companies, which was consummated on October 15, 2021. We refer to this acquisition as the “Reeb Acquisition”.

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Financial Information, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”, which is herein referred to as Article 11, and are being provided pursuant to Rule 3-05 of Regulation S-X.

The unaudited pro forma condensed combined statement of operations of the Company for the fiscal year ended January 2, 2022 (“Fiscal Year 2021”) combines the historical statements of operations of the Company, SBP Predecessor and the Reeb Companies on a pro forma basis as if each had been consummated on January 4, 2021, the beginning of Fiscal Year 2021. References to “Fiscal Year 2021” in the pro forma financial statements reflect the SBP Predecessor period from January 4, 2021 to January 20, 2021 and the Company’s period from January 21, 2021 to January 2, 2022 and the Reeb Companies’ period from January 1, 2021 to October 15, 2021.

The following unaudited pro forma condensed combined financial statements have been updated to reflect the impact of revisions to correct for prior period immaterial errors as well as reclassifications to conform prior period presentation to current period presentation, as further described in Note 1 to our consolidated financial statements included elsewhere in this prospectus.

The TJC Acquisition and the Reeb Acquisition and related financing transactions are summarized below:

The TJC Acquisition

On January 21, 2021, SBP Varsity Holdings acquired 100% of the equity interests of Specialty Building Products, LLC from its existing equityholders with a base purchase price of $1.1 billion, including debt assumed. The acquisition date fair value of consideration transferred was approximately $451 million, which consisted of cash consideration of approximately $428 million and rollover equity with a fair value of approximately $23 million, resulting in TJC obtaining a controlling interest in Specialty Building Products Holdings, LLC and a change in control event. The Company was incorporated in December 2020 to serve as an acquisition vehicle in connection with the acquisition by SBP Varsity Holdings from existing equityholders of 100% of the equity interests of Specialty Building Products, LLC, the then-ultimate parent company of Specialty Building Products Holdings, LLC, a Delaware limited liability company and the holding company through which we control our operating subsidiaries. As a result, the Company is controlled by TJC. The TJC Acquisition has been treated as a business combination in accordance with ASC 805 Business Combinations (“ASC 805”); however, the purchase price allocation has not been completed as of the date of this filing due to the final calculation of the deferred tax liability. In connection with the acquisition, on January 20, 2021, SBP Predecessor amended the senior secured note to allow for an additional borrowing of $75 million, which was used to partially fund the TJC Acquisition.

 

55

The pro forma financial information gives effect to the TJC Acquisition, which includes adjustments for the following (collectively, the “TJC Transaction Accounting Adjustments”):

 

•

SBP Varsity Holdings’ acquisition of Specialty Building Products, LLC a base purchase price of approximately $1.1 billion.

 

•

Application of the acquisition method of accounting under the provisions of ASC 805

 

•

Additional senior secured note borrowing of $75 million by Specialty Building Products Holdings, LLC, as Borrower Representative

 

•

Management fee charged by The Jordan Company

The Reeb Acquisition

On October 15, 2021, the Company closed its acquisition of the Reeb Companies for an estimated purchase price of approximately $570 million in cash.

In connection with the Reeb Acquisition, we borrowed $800 million in the form of a new term loan (the “Term Loan Facility”) to finance the acquisition. Approximately $600 million of the gross proceeds received from the Term Loan Facility were used to finance the Reeb Acquisition and pay related fees and expenses. The remainder was used to partially fund an additional acquisition in the fourth quarter of 2021 and is not reflected in this pro forma financial information.

The transaction will be treated as a business combination in accordance with ASC 805; however, the valuation and treatment of consideration paid, acquired assets, intangible assets and assumed liabilities has not been finalized.

Management has conducted a review of the accounting policies of the Reeb Companies to determine if differences in accounting policies require reclassification adjustments to conform to the Company’s accounting policies and did not become aware of any material differences between the accounting policies of the Company and the Reeb Companies, other than the adoption of new accounting pronouncements.

Actual results may differ from unaudited pro forma condensed combined financial information provided herein once the Company has determined the final purchase price for the Reeb Companies and has finalized the required valuation and purchase price allocations. There can be no assurance that such finalization will not result in material changes.

The pro forma financial information gives effect to the Reeb Acquisition, which includes adjustments for the following (collectively, the “Reeb Transaction Accounting Adjustments”):

 

•

Application of the acquisition method of accounting under the provisions of ASC 805

 

•

The impacts of $600 million of the Term Loan Facility that was used to finance the Reeb Acquisition

 

•

The impacts of retention bonuses awarded to key Reeb executives pursuant to the terms of the Equity Purchase Agreement

For each of the TJC Acquisition and the Reeb Acquisition, the pro forma adjustments and allocation of purchase price are preliminary, are based on management’s current estimates of the fair value of the assets acquired or to be acquired and liabilities assumed or to be assumed, and are based on all available information, including preliminary work performed by independent valuation specialists. There can be no assurance that such finalization will not result in material changes.

Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial statements are described in the accompanying notes. The unaudited pro

 

56

forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed. The unaudited pro forma condensed combined financial statements should be read in conjunction with the Company’s, SBP Predecessor’s and the Reeb Companies’ historical combined financial statements contained elsewhere in this Prospectus.

The estimated income tax rate applied to the pro forma adjustments is 25%. The estimated pro forma blended statutory rate, and all other tax amounts are stated at their historical amounts.

The following unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are based on available information and assumptions that the Company’s management believes are reasonable. They do not purport to represent what the actual consolidated results of operations or the consolidated financial position of the Company would have been had each of the TJC Acquisition and the Reeb Acquisition and their related financing transactions occurred on the dates indicated, or on any other date, nor are they necessarily indicative of the Company’s future consolidated results of operations or consolidated financial position after each of the TJC Acquisition and the Reeb Acquisition and their related financing transactions. The Company’s actual results of operations after these two transactions will differ, perhaps significantly, from the pro forma amounts reflected herein due to a variety of factors, including access to additional information, changes in value not currently identified and changes in operating results of the Company and the Reeb Companies following the date of the unaudited pro forma condensed combined financial statements.

 

57

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

 

		Fiscal Year 2021
(in thousands, except share and per share data)		Specialty Building Products, Inc.				Specialty Building Products Holdings, LLC				TJC Transaction Accounting Adjustments only						Pro Forma Combined (TJC Transaction Adjustments only)				Reeb Companies (Period from January 1 2021 to October 15, 2021				Reeb Transaction Accounting Adjustments						Pro Forma Combined
Net sales		$	2,584,630			$	114,608			$	—					$	2,699,238			$	369,576			$	—					$	3,068,814
Cost of sales			1,987,992				88,555				—						2,076,547				241,478				—						2,318,025
Gross profit			596,638				26,053				—						622,691				128,098				—						750,789
Distribution expenses			147,637				7,121				—						154,758				32,673				—						187,431
Selling expenses			77,215				2,675				—						79,890				18,718				—						98,608
General and administrative expenses			99,777				3,940				1,025			(g)			104,742				39,271				2,936			(i)			146,949
Amortization and depreciation expense			52,398				1,552				1,152			(b)(a)			55,102				2,641				10,999			(d)(e)			68,742
Business acquisition and other related costs			17,365				26,182				—						43,547				—				—						43,547
Other operating income			(54	)			(488	)			—						(542	)			—				—						(542	)
Income from operations			202,300				(14,929	)			(2,177	)					185,194				34,795				(13,935	)					206,054
Interest expense/ (income), net			48,925				2,536				(11	)		(c)			51,450				(922	)			21,665			(f)			72,193
Income (loss) before income taxes			153,375				(17,465	)			(2,166	)					133,744				35,717				(35,600	)					133,861
Income tax expense (benefit)			39,466				127				(542	)		(h)			39,051				392				29			(h)			39,472
Net income (loss)			113,909				(17,592	)			(1,624	)					94,693				35,325				(35,629	)					94,389
Earnings (loss) per share:
Basic and Diluted																														$	94,389
Weighted average number of shares outstanding:
Basic and Diluted																															1,000

 

58

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts or otherwise noted)

Note 1. Description of the Transactions and Basis of Presentation

The TJC Acquisition Overview

On January 21, 2021, SBP Varsity Holdings acquired 100% of the equity interests of Specialty Building Products, LLC from its existing equityholders for a fair value of consideration transferred of approximately $451 million, resulting in SBP Varsity Holdings obtaining a controlling interest in the Company, which resulted in a change in control event. The TJC Acquisition has been treated as a business combination in accordance with ASC 805. In connection with the TJC Acquisition, on January 20, 2021, SBP Predecessor amended the senior secured note to allow for an additional borrowing of $75 million, which was used to partially fund the transaction.

As the Company had not conducted operations prior to consummation of the TJC Acquisition on January 21, 2021, SBP Predecessor is deemed “predecessor” of the Company and its subsidiaries for financial reporting purposes. Accordingly, the historical financial information presented in this prospectus (i) for periods prior to January 21, 2021, represents that of SBP Predecessor and its subsidiaries (referred to herein as the “Predecessor Periods”), and (ii) for periods after January 21, 2021, represents that of the Company and its subsidiaries, including SBP Predecessor, as successor (referred to herein as the “Successor Period”).

Reeb Acquisition Overview

On October 15, 2021, the Company acquired all the equity interests of the Reeb Companies for a purchase price of $570 million, subject to customary working capital adjustments. The cash consideration for the Reeb Acquisition was funded through a new debt issuance as described below.

New Debt Issuance

In connection with the Reeb Acquisition, we borrowed $800 million in the Term Loan Facility to finance the acquisition. Approximately $600 million of the gross proceeds received from the Term Loan Facility were used to finance the Reeb Acquisition and pay related fees and expenses, and the remainder was used to partially fund an additional acquisition in the fourth quarter of 2021. In the accompanying unaudited pro forma condensed combined financial statements, the Company has only reflected the impacts of $600 million of the financing as the remainder is not associated with the Reeb Acquisition.

The unaudited pro forma condensed combined financial statement for Fiscal Year 2021 are derived from the historical consolidated financial statements of the Company and SBP Predecessor and the historical combined financial statements of the Reeb Companies.

Note 2. Accounting Policies

As part of preparing these unaudited pro forma condensed combined financial statements, the Company conducted a review of the accounting policies of Reeb to determine if differences in accounting policies require reclassification of results of operations or reclassification of assets or liabilities to conform to the Company’s accounting policies and classifications. During the preparation of these unaudited pro forma condensed combined financial statements, the Company did not become aware of any material differences between accounting policies of the Company and Reeb, other than the adoption of new accounting pronouncements.

As the TJC Acquisition was the acquisition of the existing entity (SBP Predecessor), there was no required conforming of accounting policies.

 

59

Note 3. Transaction Accounting Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements

The adjustments included in the unaudited pro forma condensed combined statement of operations for Fiscal Year 2021 are as follows:

(a) Depreciation expense—TJC Acquisition

The pro forma adjustment to depreciation expense represents increased depreciation expense resulting from the step-up in value of property and equipment to its preliminary estimated fair value. Depreciation expense is calculated on a straight-line basis over a weighted-average useful life estimate of 8.7 years. The pro forma adjustment for Fiscal Year 2021 is as follows (in thousands):

 

Fiscal Year 2020 (For calculation purposes only)

Fiscal Year 2021

Historical Depreciation

Preliminary Estimated Depreciation

Difference

Transaction Accounting Adjustment

Depreciation expense

7,220

11,067

3,847

182

(b) Intangible amortization expense—TJC Acquisition

The pro forma adjustment to amortization expense represents the net impact of: (1) the estimated amortization expense associated with the estimated fair values of the Company’s acquired amortizable intangible assets using the remaining useful lives; less the (2) removal of previously amortized intangible assets that were not valued in the TJC Acquisition. The acquired intangible assets include trade names (estimated fair value of $241.3 million and estimated 20 year life), customer relationships (estimated fair value of $350.4 million and estimated 15 year life), technology and license related (estimated fair value of $4.5 million and estimated useful lives from one to seven years) and noncompete agreements (estimated fair value of $1.1 million and estimated useful life of five years). The pro forma adjustments for Fiscal Year 2021 is as follows (in thousands):

 

Fiscal Year 2020 (For calculation purposes only)

Fiscal Year 2021

Historical Amortization

Preliminary Estimated Amortization

Difference

Transaction Accounting Adjustment

Amortization expense

15,804

36,353

20,549

970

(c) Amortization of premium, net and deferred financing—TJC Acquisition

The $75 million of debt incurred in conjunction with the TJC Acquisition was issued at a premium of $3.0 million and included $2.2 million of deferred financing costs and carries a fixed rate of 6.375% and matures in September 2026. The pro forma deferred financing costs are amortized over 5.5 years using the effective interest rate method. The pro forma adjustment also includes the estimated premium amortization of Senior Secured Notes over a period of 5.5 years using the effective interest rate method, net of the estimated increased interest expense associated with the additional indebtedness that was incurred by the Company for the TJC Acquisition (in thousands):

 

		Fiscal Year 2021
		Transaction Accounting Adjustment
Premium amortization, net of incremental interest			(21	)
Amortization of deferred financing costs			10
Interest expense/(income), net			(11	)

 

60

(d) Depreciation expense—Reeb Acquisition

The pro forma adjustment represents a decrease to depreciation expense resulting from the reevaluation of the property and equipment and the reassessment of estimated remaining useful lives. Depreciation expense is estimated on a straight-line basis over a weighted-average estimated useful life of 9.2 years. The pro forma adjustment is estimated to be a decrease of approximately $1.3 million for Fiscal Year 2021.

(e) Intangible amortization expense—Reeb Acquisition

The pro forma adjustment to amortization expense represents the amortization expense associated with the estimated fair values of the Company’s acquired amortizable intangible assets using the estimated remaining useful lives. The acquired intangible assets include trade names (estimated at $77.3 million and estimated 20-year life), developed technology (estimated at $9.7 million and estimated 8-year weighted average useful life) and customer relationships (estimated at $156.8 million and estimated 15-year life). The pro forma adjustment is estimated to be approximately $12.3 million for Fiscal Year 2021.

(f) Interest and financing expenses—Reeb Acquisition

The pro forma adjustment represents the estimated increase in interest expense and amortization of deferred financing costs of $15.6 million (amortized over seven years using the effective interest rate method) associated with the additional $600 million of indebtedness that was incurred by the Company to finance the Reeb Acquisition, net of interest expense for certain Reeb related party debt not assumed in the Reeb Acquisition (in thousands):

 

		Fiscal Year 2021
		Transaction Accounting Adjustment
Amortization of deferred financing costs			1,669
Interest expense			20,247
Related party interest			(431	)
Total			21,665

The $600 million of indebtedness carries a variable rate of interest. The rate used to estimate the pro forma interest expense was 4.25% based on the prevailing rates at issuance. An increase of 0.125% in the rate assumed would result in increased interest expense of $20.9 million in the unaudited pro forma condensed combined statement of operations for Fiscal Year 2021. This increase in interest expense in each period would cause a corresponding (increase)/decrease in net (loss)/income.

(g) TJC Management Fee—TJC Acquisition

The pro forma adjustment represents the recurring TJC management fee not charged in Fiscal Year 2021 that would have been recognized had the TJC Acquisition and the Reeb Acquisition occurred on January 4, 2021. The pro forma adjustment is estimated to be approximately $1.0 million for Fiscal Year 2021.

(h) Taxes—Combined impact of TJC Acquisition and Reeb Acquisition

The historical Reeb Companies were a pass-through S-Corporation for federal income taxes. Accordingly, their historical financial statements do not include a provision for federal taxes. In order to estimate the pro forma tax impacts of the Reeb Acquisition, Reeb’s historical income tax was estimated using a combined blended U.S. federal and state statutory tax rate of 25%.

 

61

The pro forma income tax effects related to the additional pro forma depreciation, amortization and other operating expense adjustments from the TJC Acquisition and the Reeb Acquisition are calculated using an estimated pro forma combined blended U.S. federal and state statutory tax rate of 25%. We have not finalized the deductibility of any transaction related expenses for tax purposes.

The Company estimates that a portion of the additional interest expense recorded for pro forma purposes would not have been deductible for tax purposes based on limitations on interest deductibility.

The Fiscal Year 2021 net impact of the above adjustments is a pro forma tax benefit of approximately $0.5 million, from the TJC Acquisition.

(i) Retention Bonuses—Reeb Acquisition

Pursuant to the Equity Purchase Agreement, retention bonuses were granted to key Reeb executives in connection with the Reeb Acquisition; such retention bonuses will be earned and paid after the 6-month anniversary of the acquisition close date of October 15, 2021, subject to the recipient’s continued employment through the applicable payment date. The total amount of retention bonus to be awarded is approximately $5.0 million, out of which $2.1 million has been included in the consolidated statement of operations of the Company for Fiscal Year 2021. The pro forma adjustment of approximately $2.9 million represents the remaining portion of the retention bonuses that would have been recorded had the Reeb Acquisition occurred on January 4, 2021.

Note 4. Pro Forma Earnings Per Share

Net income (loss) per share is calculated using the pro forma combined income/(loss) after giving effect to the TJC Acquisition and Reeb Acquisition.

 

62

DILUTION

Investors purchasing our common stock in this offering will experience immediate and substantial dilution in the pro forma as adjusted net tangible book value of their shares of common stock. Dilution in pro forma as adjusted net tangible book value represents the difference between the initial public offering price of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after the offering.

Historical net tangible book value per share represents our total tangible assets (total assets excluding goodwill and other intangible assets, net) less total liabilities, divided by the number of shares of outstanding common stock. After giving effect to (i) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the closing of this offering and (ii) the sale of shares of common stock in this offering by us at an assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting $                million in underwriting discounts and commissions and estimated offering expenses of $                million, the pro forma as adjusted net tangible book value as of January 2, 2022 would have been approximately $                million, or $                per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $                per share to our existing stockholders and an immediate dilution of $                per share to new investors purchasing common stock in this offering.

The following table illustrates this dilution on a per share basis to new investors.

 

Assumed initial public offering price per share						$
Pro forma historical net tangible book value per share as of January 2, 2022		$
Increase in as adjusted net tangible book value per share attributable to the investors in this offering		$
Pro forma net tangible book value per share after giving effect to this offering		$
Dilution per share to new investors participating in this offering						$

The following table summarizes on the pro forma as adjusted basis described above, as of January 2, 2022, the difference between the number of shares of common stock purchased from us, the total consideration paid or to be paid and the average price per share paid or to be paid by our existing stockholders and new investors in this offering at an assumed initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock in this offering will pay an average price per share substantially higher than our existing stockholder paid.

 

Shares Purchased

Total Consideration

Average Price Per Share

Number

Percent

Amount

Percent

Existing stockholders.

%

$

%

$

New investors

%

$

%

$

Total

%

$

%

$

If the underwriters exercise their option to purchase additional shares of our common stock in full, the percentage of shares of common stock held by existing stockholders will decrease to approximately        % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will increase to                , or approximately        % of the total number of shares of our common stock outstanding after this offering.

 

63

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per share would increase (decrease) total consideration paid by new investors by approximately $                million, assuming that the number of shares offered by the Company, as set forth on the cover page of this prospectus, remains the same and after deducting an incremental $                million in underwriting discounts and commissions. We may also increase or decrease the number of shares we or they are offering. An increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) total consideration paid by new investors by $                million, assuming that the assumed initial public offering price remains the same, and after deducting an incremental $                million in underwriting discounts and commissions.

To the extent that equity awards are issued under our compensatory stock plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.

 

64

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Corporate Overview

We believe we are the largest and fastest growing distributor of branded specialty building products in the United States. Since 2010, we have grown at a compound annual growth rate (“CAGR”) of 28.6% and transformed our business into a national distribution platform with 38 locations serving 42 states and all provinces in Canada. We serve a critical role and function in the residential building products supply chain and provide value-added services across our footprint. We focus on high growth, specialty product categories including composite decking and railing, exterior siding, exterior trim, weather resistant barriers, moulding and engineered wood products, and many of our products are benefiting from long-term secular growth trends such as investment in outdoor living spaces, material substitution and architectural design. Our products are primarily used in the residential housing market, with balanced exposure across repair and remodel (“R&R”) and new construction markets. We offer our comprehensive portfolio of over 50,000 stock keeping units (“SKUs”) to more than 24,000 customer locations including national, regional and local professional dealers, home improvement retailers and other providers of building products. Our suppliers include many of the leading consumer and trade branded products in the building products industry. Based on our net sales in pro forma fiscal year 2021, we estimate that we are nearly three times the size of our largest competitor. In addition, we are a values based organization and have a well-established reputation in the industry.

Basis of Presentation and the TJC Acquisition

Specialty Building Products, Inc. (f/k/a SBP Buyer, Inc.), a Delaware corporation (the “Company”), was incorporated in December 2020 to serve as an acquisition vehicle in connection with the acquisition by SBP Varsity Holdings from existing equityholders of 100% of the equity interests of Specialty Building Products, LLC, the then-ultimate parent company of Specialty Building Products Holdings, LLC (“SBP Predecessor”), a Delaware limited liability company and the holding company through which we control our operating subsidiaries. We refer to this acquisition as the “TJC Acquisition.” The TJC Acquisition closed on January 21, 2021. As the Company had not conducted operations prior to consummation of the TJC Acquisition on January 21, 2021, SBP Predecessor is deemed “predecessor” of the Company and its subsidiaries for financial reporting purposes. Accordingly, the historical financial information presented in this prospectus (i) for periods prior to January 21, 2021, represents that of SBP Predecessor and its subsidiaries (referred to herein as the “Predecessor Periods”), and (ii) for periods after January 21, 2021, represents that of the Company and its subsidiaries, including SBP Predecessor, as successor (referred to herein as the “Successor Period”).

The Company was determined to be the accounting acquirer in connection with the TJC Acquisition and SBP Predecessor’s historical assets and liabilities are reflected at fair value as of January 21, 2021, the closing date of the TJC Acquisition. As a result of the TJC Acquisition, the results of operations and financial position of SBP Predecessor and the Company are not directly comparable.

The financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). All amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) are expressed in U.S. dollars, unless otherwise indicated. Our company has a policy of ending its fiscal year on the Sunday nearest December 31st; the year customarily consists of four 13-week quarters for a total of 52 weeks, however, certain years may consist of 53 weeks. Our

 

65

2021 fiscal year was 52 weeks and the year end was January 2, 2022. Our 2020 fiscal year was 53 weeks and the year end was January 3, 2021. Our 2019 fiscal year was 52 weeks and the year end was December 29, 2019.

The following financial information has been updated to reflect the impact of revisions to correct for prior period immaterial errors as well as reclassifications to conform prior period presentation to current period presentation, as further described in Note 1 to our consolidated financial statements included elsewhere in this prospectus.

We manage our business as a single reportable segment. Within our organizational framework, the same operational resources support individual locations, and performance is evaluated at a consolidated level.

Summary of Factors Affecting our Performance

We believe our performance and continued success depend on a number of factors. These factors are also subject to a number of inherent risks and challenges, some of which are discussed below and referenced in the section titled “Risk Factors.”

Impact of COVID-19 on our Operations

Beginning in mid-March of 2020, local, state, provincial and federal authorities began issuing stay-at-home orders in response to the spread of the coronavirus disease, or COVID-19, which quickly spread throughout the United States and worldwide. These government-instituted restrictions, together with the economic volatility and uncertainty the pandemic created, had a significant impact on the United States economy in general and, in particular, the new-build housing market, which initially slowed in certain of our geographies. However, by the end of May 2020, most states started gradually resuming their normal economic activities and the residential housing market rebounded as a result.

These COVID-19 shutdowns have led to higher “do-it-yourself” demand as consumers are spending more time at home. The impact of the pandemic, along with shifts in consumer preferences and design trends, has accelerated repair and remodel spend. We believe that hybrid work models will continue to drive spending inside and outside the home, benefitting all of our product categories.

However, COVID-19 has had a mixed impact on our business, as our ability to effectively satisfy increased consumer demand for our products has been impeded, to a certain extent, by pandemic-related supply chain issues. Specifically, propagation of COVID-19 throughout the world disrupted our ability to procure enough supply to satisfy market demands. As shutdowns of different types and severities were put in place, many of our local and foreign suppliers were forced to idle plants and cut back on production of their goods and services. As restrictions have eased over time, suppliers have slowly started ramping up their operations. A challenging labor market has made this process slower than anticipated, with many not yet operating at pre-COVID capacity. As of today, there is still a significant shortage in supply that continues to hinder our ability to fully satisfy the demand in the market. As a result, the growth in our net sales has accelerated to a lesser degree than it otherwise would have had supply shortages not constrained our ability to fully satisfy the increase in consumer spend. To date, the COVID-19 pandemic has not had a material impact on our expenses or liquidity position. It continues to be difficult to predict the future financial impact of COVID-19 on our net sales, as we cannot predict the duration or scope of the pandemic.

Since the onset of the COVID-19 pandemic, we have focused on protecting the health and safety of our team members while maintaining our operations and continuing to meet the needs of our customers. We were categorized as “essential” by the Cybersecurity and Infrastructure Security Agency of the U.S. Department of Homeland Security and, therefore, were permitted to operate consistent with applicable local, state, provincial and federal orders. We have implemented business continuity and contingency planning measures as we continue to keep our distribution centers operational. Very few of our employees have been required to work remotely, and we have not experienced any outbreaks of COVID-19 at our facilities.

 

66

There is still considerable uncertainty regarding the extent and duration of the impact of the COVID-19 pandemic, and the pandemic and related economic impacts may affect our operations in 2022, although conditions have improved as compared to 2020. Our access to supply continues to be constrained, as our partners continue to bring resources online to meet market demand. Due to the fluidity and unprecedented and uncertain nature of the pandemic, we cannot predict the full impact of the COVID-19 pandemic on our business or that of our customers and participants in our supply chain, or on economic conditions generally, including the effects on construction activity. We continue to evaluate and assess the impact of COVID-19 on our business and operations as new facts and circumstances emerge. Overall, we are encouraged by the resilience of our business model which has responded to the very serious challenges, which have arisen as a result of the COVID-19 pandemic.

Residential Construction Activities

Sales of our products are closely tied to residential construction activity, including repair and remodel spending, in the United States and Canada. Activity levels in these markets can be materially affected by general economic and global financial market conditions. In addition, residential construction activity levels are influenced by and sensitive to mortgage availability, the cost of financing a home (in particular, mortgage and interest rates), unemployment levels, household formation rates, residential vacancy and foreclosure rates, existing housing prices, rental prices, housing inventory levels, consumer confidence and government policy and incentives.

Product Mix and Average Selling Price

We sell a variety of products, each with different Gross Profit margin and operating expense profiles. We calculate Gross Profit margin by dividing Gross Profit (net sales less cost of sales) by cost of sales. We define operating expenses as those required to prepare, sell and deliver the product to the customer (i.e., distribution expenses, selling expenses and general and administrative expenses). Our product mix impacts both our Gross Profit margins and our operating expenses. We utilize proprietary business intelligence analytics to optimize our product mix and volume such that it meets our customers’ needs, while ensuring we maintain strong margins.

The average selling prices we are able to obtain for our products affect our results of operations and our margins. Our average selling price can vary by market location, product mix, factors relating to supply and demand, and the actions of our customers and competitors.

Product Line Expansion

Specialty building products are among the fastest growing categories of building products, as customers transition from traditional wood products to products that are more durable and require less maintenance, have lower total cost of ownership, are more aesthetically pleasing and meet stringent jobsite requirements. We continually refine and expand our product offering, focusing on working with innovative brands in the specialty building products industry. We use our existing customer and supplier relationships to expand the product offering at acquired locations and bring new products to existing locations. Expanding our product lines also provides a competitive advantage when we offer products that our competitors do not.

Cost of Sales

The cost of supply constitutes the largest portion of our cost of goods sold, and fluctuations in the prices of these materials affect our results of operations and, in particular, our margins. We either do not have contracts with our suppliers or we have contracts that can range up to three years in length, with one-year contracts being the most typical. Our contracts typically cover engagement terms, rebates, and discounts, but do not cover pricing terms, and are subject to periodic negotiation and revision.

 

67

Seasonality

Demand for our products in some markets is seasonal, with periods of snow or heavy rain negatively affecting construction activity. For example, sales of our products in Canada and the Northeast and Midwest regions of the United States are somewhat higher from spring through autumn when construction activity is greatest. Construction activity declines in these markets during the winter months, in particular due to inclement weather, frozen ground and fewer hours of daylight. Historically, our net sales in the second and third quarters have been higher than in the other quarters of the year, particularly the first quarter.

In addition, unfavorable weather conditions, such as hurricanes or severe storms, or public holidays during peak construction periods can result in temporary cessation of projects and a material reduction in demand for our products and, consequently, may have an adverse effect on our net sales. Results of a fiscal quarter may therefore not be a reliable basis for the expectations of a full fiscal year and may not be comparable with the results in the other fiscal quarters in the same year or prior years.

Business Acquisitions

We leverage our relationships and network of industry participants and advisors to actively source and identify acquisition opportunities to complement our organic growth. In addition to increasing sales, we incur certain costs and expenses in connection with any acquisition. As a general matter, our results of operations are impacted by the results of the newly acquired business, the acquisition accounting, any debt incurred to acquire the business and capital expenditures to integrate the acquired business. We continue to pursue strategic acquisitions that enable us to add capacity in existing markets, gain leading market positions in underserved markets, access new geographical markets, broaden our product offerings, leverage cross-selling opportunities, and realize cost synergies. Any acquisition may present financial, managerial, operational and integration challenges, which, if not successfully overcome, may reduce our profitability.

On January 21, 2021, we consummated the TJC Acquisition. As a result of the TJC Acquisition, the results of operations and financial position of SBP Predecessor and the Company are not directly comparable. For more information, please see “—Basis of Presentation and the TJC Acquisition.”

On October 15, 2021, we acquired all of the equity interests of each of Reeb Millwork Corporation, a New Jersey corporation, R and K Logistics, Incorporated, a Pennsylvania corporation, Reeb Millwork Corporation – Southeast, a North Carolina corporation, Reeb Millwork of New England, Inc., a Rhode Island corporation, Reeb Millwork Corporation of Maryland, Inc., a Maryland corporation, and Reeb Millwork Corporation of New York, a New York corporation (collectively, the “Reeb Companies”) for $570 million. We refer to this acquisition as the “Reeb Acquisition.”

On November 1, 2021, we acquired all of the equity securities of DW Distribution, Inc., a Texas corporation (“DW”), for $236 million in cash. We refer to this acquisition as the “DW Acquisition.”

On December 2, 2021, we acquired all of the equity securities of Millwork Sales of Royal Palm Beach, LLC, a Florida limited liability company, and Millwork Sales of Orlando, LLC, a Florida limited liability company, (together, “Millwork”) for a purchase price of $196 million. We refer to this acquisition as the “Millwork Acquisition”.

 

68

Key Business Metrics

In addition to the measures presented in our consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions:

 

		Successor				Predecessor
(in millions, except percentages)		Period from January 21, 2021 to January 2, 2022				Period from January 4, 2021 to January 20, 2021				Fiscal Year 2020				Fiscal Year 2019
Net sales		$	2,584.6			$	114.6			$	1,670.1			$	1,389.6
Gross profit			596.6				26.1				356.5				295.1
Gross profit margin			23.1	%			22.7	%			21.3	%			21.2	%
Operating expenses			324.6				13.7				247.7				227.1
Net income			113.9				(17.6	)			18.0				(12.4	)
Net income margin (% of net sales)			4.4	%			(15.3	)%			1.1	%			(0.9	)%
Adjusted EBITDA(1)			294.9				12.8				127.3				80.9
Adjusted EBITDA Margin (% of net sales)(1)			11.4	%			11.2	%			7.6	%			5.8	%

 

(1)	For a definition of Adjusted EBITDA and Adjusted EBITDA Margin and information regarding our use and reconciliations of such non-GAAP financial measures to their respective most directly comparable GAAP measures, see the section titled “—Non-GAAP Financial Metrics.”

Components of our Operating Results

Net sales

We recognize revenue when performance obligations with the customer are satisfied. A performance obligation is a promise to transfer a distinct good to the customer and is the unit of account. The transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied. All contracts have a single performance obligation as the promise to transfer the individual good is not separately identifiable from other promises and is, therefore, not distinct.

Substantially all of our sales are from the provision of products to customers under customer contracts in the form of purchase orders. Revenue is measured at the amount of consideration expected to be received in exchange for providing the products, net of customer deductions. Provisions for customer deductions for discounts, incentives and other pricing adjustments are determined by customer-specific agreements and historical experience. Revenue is recognized at a point in time when a customer accepts delivery and control of the product has been transferred to the customer. This occurs at the time of delivery to the customer. Payment terms are generally between 10 and 30 days from shipment.

On January 1, 2018, SBP Predecessor adopted ASC 606: Revenue from Contracts with Customers (ASC 606) and applied it to all contracts using the modified retrospective method. There was no impact of applying ASC 606 on initial adoption at January 1, 2018 or for the years ended January 2, 2022, January 3, 2021 and December 29, 2019, however, the adoption of this guidance resulted in additional quantitative disclosures to disaggregate revenue by category.

Cost of Sales

Cost of sales include cost of merchandise sold and inbound freight as well as depreciation expense on equipment and amortization expense of developed technology utilized in the manufacturing process and are net of vendor rebates. See “—Summary of Factors Affecting Our Performance— Costs of Sales.”

 

69

Gross Profit and Gross Profit Margin

Our gross profit comprises our net sales less our cost of sales. Gross profit margin is our gross profit divided by our net sales.

Operating Expenses

Our operating expenses include distribution expenses, selling expenses and general and administrative expenses.

 

•

Distribution expenses consist of expenses associated with the delivery and warehousing of our products. These include but are not limited to delivery and warehouse labor, fleet expenses, and facility expenses.

 

•

Selling expenses consist of expenses associated with the sale of our products. These are primarily labor expenses for salespeople and sales managers, and commissions paid.

 

•

General and administrative expenses consist primarily of corporate and administrative labor expenses, administrative bonuses, legal expenses, information technology expenses, and insurance expenses.

Depreciation and Amortization

Depreciation and amortization consists of depreciation of property, plant and equipment and of the expensing of customer relationships and trade names over their estimated useful lives, exclusive of depreciation and amortization expense included in Cost of Sales.

Business acquisition and other related costs

Business acquisition and other related costs consist primarily of expenses incurred during the TJC acquisition of the Company, and expenses related to acquisitions of other businesses made by the company.

Other operating (income) expense

Other operating income/loss consists primarily of gain or loss made on sale of assets, and gain or loss related to foreign currency.

Interest expense

Interest expense consists of interest paid to service our Senior Secured Notes and our ABL Credit Agreement and debt extinguishment costs.

Income tax expense (benefit)

Prior to the acquisition, the Predecessor was a disregarded entity for tax purposes; however, its sole owner was a taxable C Corporation. Subsequent to the acquisition, the Company is now a taxable C Corporation. The Company provides fully for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”).

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, the subsidiary considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Management’s estimate of the potential outcome of any uncertain tax issue is subject to its assessment of relevant risks, facts and circumstances existing at that time. The Company accounts for uncertain tax positions in accordance with ASC 740 and records a liability when such uncertainties meet the more likely than not recognition threshold.

 

70

Income tax expense/benefit is comprised of current and deferred tax expense/benefit. Current income tax expense/benefit represents our estimated taxes to be paid or refunded for the current period. In accordance with ASC 740, Income Taxes (“ASC 740”), we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount we believe is more likely than not to be realized.

Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

 

		Successor								Predecessor
(in thousands, except percentages)		Period from January 21, 2021 to January 2, 2022								Period from January 4, 2021 to January 20,  2021								Year ended January 3, 2021
Net sales		$	2,584,630				100.0	%		$	114,608				100.0	%		$	1,670,070				100.0	%
Cost of sales			1,987,992				76.9	%		$	88,555				77.3	%			1,313,600				78.7	%
Gross profit			596,638				23.1	%			26,053				22.7	%			356,470				21.3	%
Distribution expenses			147,637				5.7	%			7,121				6.2	%			121,945				7.3	%
Selling expenses			77,215				3.0	%			2,675				2.3	%			57,460				3.4	%
General and administrative expenses			99,777				3.9	%			3,940				3.4	%			68,309				4.1	%
Depreciation and amortization expense			52,398				2.0	%			1,552				1.4	%			25,223				1.5	%
Business acquisition and other related costs			17,365				0.7	%			26,182				22.8	%			1,840				0.1	%
Other operating income			(54	)			0.0	%			(488	)			(0.4	)%			(1,020	)			(0.1	)%
Income from operations			202,300				7.8	%			(14,929	)			(13.0	)%			82,713				5.0	%
Interest expense			48,925				1.9	%			2,536				2.2	%			54,798				3.3	%
Income (loss) before income taxes			153,375				5.9	%			(17,465	)			(15.2	)%			27,915				1.7	%
Income tax expense (benefit)			39,466				1.5	%			127				0.1	%			9,896				0.6	%
Net income (loss)		$	113,909				4.4	%		$	(17,592	)			(15.3	)%		$	18,019				1.1	%

Comparison of the 2021 Successor (January 21, 2021 to January 2, 2022), the 2021 Predecessor (January 4, 2021 to January 20, 2021), and the 2020 Predecessor for the year ended January 3, 2021

Net sales

Net sales were $2,584.6 million for January 21, 2021 to January 2, 2022 (Successor) and $114.6 million for January 4, 2021 to January 20, 2021 (Predecessor) as compared to $1,670.1 million for the year ended January 3, 2021 (Predecessor). The increase in net sales was primarily driven by strong organic growth, and the contribution from acquisitions completed in 2020 and in 2021. Organic net sales were $2,219.0 million for January 21, 2021 to January 2, 2022 (Successor) and $103.6 million for January 4, 2021 to January 20, 2021 (Predecessor) as compared to $1,659.1 million for the year ended January 3, 2021 (Predecessor), and grew driven by a continuing increase in demand from new single-family construction and residential repair and remodel end markets, partially influenced by COVID-19. Exterior trim, siding and finish, moulding and millwork, and composite decking and railing products accounted for most of the total organic sales growth. Continued pricing increases also contributed to the total sales growth.

 

71