filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Builders FirstSource, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Builders FirstSource, Inc. and its subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Distribution Sales
As described in Note 2 to the consolidated financial statements, the Company recognized consolidated net sales of $16.4 billion for the year ended December 31, 2024, a majority of which pertains to distribution sales. Revenue is recognized as performance obligations are satisfied by transferring control of a promised good or service to a customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Distribution sales typically consist of the sale of building products the Company manufactures and the resale of purchased building products. The Company recognizes revenue related to distribution sales at a point in time upon delivery of the ordered goods to their customers. Payment terms related to distribution sales are not significant as payment is generally received shortly after the point of sale.
The principal consideration for our determination that performing procedures relating to revenue recognition for distribution sales is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s distribution sales.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process. These procedures also included, among others (i) testing, on a sample basis, revenue recognized by obtaining and inspecting source documents, such as purchase orders, invoices, proof of delivery, and cash receipts or third party confirmations and (ii) testing, on a sample basis, outstanding accounts receivable balances as of December 31, 2024 by obtaining and inspecting source documents, such as purchase orders, invoices, proof of delivery or services performed, and subsequent cash receipts.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 20, 2025
We have served as the Company’s auditor since 1999
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years Ended December 31, | ||||||||||||
| (in thousands, except per share amounts) | 2024 | 2023 | 2022 | |||||||||
| Net sales | $ | 16,400,492 | $ | 17,097,330 | $ | 22,726,418 | ||||||
| Cost of sales | 11,017,448 | 11,084,996 | 14,982,039 | |||||||||
| Gross margin | 5,383,044 | 6,012,334 | 7,744,379 | |||||||||
| Selling, general and administrative expenses | 3,787,795 | 3,836,015 | 3,974,173 | |||||||||
| Income from operations | 1,595,249 | 2,176,319 | 3,770,206 | |||||||||
| Interest expense, net | 207,724 | 192,115 | 198,373 | |||||||||
| Income before income taxes | 1,387,525 | 1,984,204 | 3,571,833 | |||||||||
| Income tax expense | 309,627 | 443,649 | 822,464 | |||||||||
| Net income | $ | 1,077,898 | $ | 1,540,555 | $ | 2,749,369 | ||||||
| Net income per share: | ||||||||||||
| Basic | $ | 9.13 | $ | 12.06 | $ | 16.98 | ||||||
| Diluted | $ | 9.06 | $ | 11.94 | $ | 16.82 | ||||||
| Weighted average common shares: | ||||||||||||
| Basic | 118,038 | 127,777 | 161,960 | |||||||||
| Diluted | 118,980 | 128,998 | 163,481 |
The accompanying notes are an integral part of these consolidated financial statements.
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
C****ONSOLIDATED BALANCE SHEETS
| (in thousands) | December 31, 2024 | December 31, 2023 | ||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 153,624 | $ | 66,156 | ||||
| Accounts receivable, less allowances of $41,233 and $42,488, respectively | 1,163,147 | 1,436,917 | ||||||
| Other receivables | 344,342 | 290,310 | ||||||
| Inventories, net | 1,212,375 | 1,228,265 | ||||||
| Contract assets | 151,095 | 165,677 | ||||||
| Other current assets | 116,656 | 113,403 | ||||||
| Total current assets | 3,141,239 | 3,300,728 | ||||||
| Property, plant and equipment, net | 1,961,731 | 1,803,824 | ||||||
| Operating lease right-of-use assets, net | 594,301 | 502,184 | ||||||
| Goodwill | 3,678,504 | 3,556,556 | ||||||
| Intangible assets, net | 1,103,634 | 1,298,173 | ||||||
| Other assets, net | 103,677 | 37,987 | ||||||
| Total assets | $ | 10,583,086 | $ | 10,499,452 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 868,054 | $ | 881,384 | ||||
| Accrued liabilities | 634,045 | 717,528 | ||||||
| Contract liabilities | 168,208 | 162,659 | ||||||
| Current portion of operating lease liabilities | 103,499 | 98,217 | ||||||
| Current maturities of long-term debt | 3,470 | 3,649 | ||||||
| Total current liabilities | 1,777,276 | 1,863,437 | ||||||
| Noncurrent portion of operating lease liabilities | 525,213 | 434,081 | ||||||
| Long-term debt, net of current maturities, discounts and issuance costs | 3,700,643 | 3,177,411 | ||||||
| Deferred income taxes | 148,167 | 167,199 | ||||||
| Other long-term liabilities | 135,317 | 124,973 | ||||||
| Total liabilities | 6,286,616 | 5,767,101 | ||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding | — | — | ||||||
| Common stock, $0.01 par value, 300,000 shares authorized; 113,578 and 121,857 shares issued and outstanding, respectively | 1,136 | 1,219 | ||||||
| Additional paid-in capital | 4,271,269 | 4,270,948 | ||||||
| Retained earnings | 24,065 | 460,184 | ||||||
| Total stockholders' equity | 4,296,470 | 4,732,351 | ||||||
| Total liabilities and stockholders' equity | $ | 10,583,086 | $ | 10,499,452 |
The accompanying notes are an integral part of these consolidated financial statements.
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
C****ONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| (in thousands) | 2024 | 2023 | 2022 | |||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 1,077,898 | $ | 1,540,555 | $ | 2,749,369 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 561,929 | 558,275 | 497,140 | |||||||||
| Amortization of debt discount, premium and issuance costs | 5,591 | 4,685 | 4,837 | |||||||||
| Loss on extinguishment of debt | — | 728 | 27,387 | |||||||||
| Deferred income taxes | (19,033 | ) | (102,461 | ) | (92,461 | ) | ||||||
| Stock-based compensation expense | 63,111 | 48,522 | 31,337 | |||||||||
| Credit loss expense (benefit) | 10,419 | (11,488 | ) | 38,921 | ||||||||
| Non-cash net loss (gain) on assets | 16,972 | (7,072 | ) | (1,965 | ) | |||||||
| Changes in assets and liabilities, net of assets acquired and liabilities assumed: | ||||||||||||
| Receivables | 249,197 | (12,641 | ) | 381,223 | ||||||||
| Inventories | 51,475 | 231,457 | 271,889 | |||||||||
| Contract assets | 15,036 | 18,023 | 24,051 | |||||||||
| Other current assets | (2,828 | ) | 10,941 | 15,173 | ||||||||
| Other assets and liabilities | (54,429 | ) | (5,311 | ) | 15,189 | |||||||
| Accounts payable | (28,600 | ) | 75,750 | (314,004 | ) | |||||||
| Accrued liabilities | (78,350 | ) | (9,704 | ) | (15,766 | ) | ||||||
| Contract liabilities | 4,304 | (33,387 | ) | (33,089 | ) | |||||||
| Net cash provided by operating activities | 1,872,692 | 2,306,872 | 3,599,231 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Cash used for acquisitions, net of cash acquired | (336,458 | ) | (238,673 | ) | (628,014 | ) | ||||||
| Purchases of property, plant and equipment | (380,569 | ) | (476,335 | ) | (340,152 | ) | ||||||
| Proceeds from sale of property, plant and equipment | 13,994 | 46,715 | 10,687 | |||||||||
| Cash used for equity investments | (7,686 | ) | — | — | ||||||||
| Net cash used in investing activities | (710,719 | ) | (668,293 | ) | (957,479 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Borrowings under revolving credit facility | 954,000 | 5,128,000 | 5,881,000 | |||||||||
| Repayments under revolving credit facility | (1,418,000 | ) | (4,928,000 | ) | (6,205,000 | ) | ||||||
| Proceeds from long-term debt and other loans | 1,000,000 | — | 1,001,500 | |||||||||
| Repayments of long-term debt and other loans | (3,397 | ) | (4,221 | ) | (616,222 | ) | ||||||
| Payments of debt extinguishment costs | — | — | (20,672 | ) | ||||||||
| Payments of loan costs | (12,829 | ) | (1,897 | ) | (16,797 | ) | ||||||
| Payment of acquisition-related deferred and contingent consideration | (14,364 | ) | — | — | ||||||||
| Tax withholdings on and exercises of equity awards | (62,784 | ) | (35,233 | ) | (34,330 | ) | ||||||
| Repurchase of common stock | (1,517,131 | ) | (1,811,517 | ) | (2,593,389 | ) | ||||||
| Net cash used in financing activities | (1,074,505 | ) | (1,652,868 | ) | (2,603,910 | ) | ||||||
| Net change in cash and cash equivalents | 87,468 | (14,289 | ) | 37,842 | ||||||||
| Cash and cash equivalents at beginning of period | 66,156 | 80,445 | 42,603 | |||||||||
| Cash and cash equivalents at end of period | $ | 153,624 | $ | 66,156 | $ | 80,445 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Cash paid for interest | $ | 188,453 | $ | 186,497 | $ | 169,390 | ||||||
| Cash paid for income taxes | 373,059 | 578,734 | 936,424 | |||||||||
| Supplemental disclosures of non-cash activities: | ||||||||||||
| Accrued purchases of property, plant and equipment | $ | 14,491 | $ | 9,322 | $ | 10,797 | ||||||
| Right-of-use assets obtained in exchange for operating lease obligations | 175,418 | 104,512 | 100,843 | |||||||||
| Amounts accrued related to repurchases of common stock | 13,929 | 16,988 | 44,447 | |||||||||
| Accrued consideration for acquisitions | 8,974 | 13,797 | 11,270 |
The accompanying notes are an integral part of these consolidated financial statements.
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
C****ONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Additional | ||||||||||||||||||||
| Common Stock | Paid-in | Retained | ||||||||||||||||||
| (in thousands) | Shares | Amount | Capital | Earnings | Total | |||||||||||||||
| Balance at December 31, 2021 | 179,820 | $ | 1,798 | $ | 4,260,670 | $ | 540,013 | $ | 4,802,481 | |||||||||||
| Vesting of restricted stock units | 1,329 | 13 | (13 | ) | — | — | ||||||||||||||
| Stock-based compensation expense | — | — | 31,337 | — | 31,337 | |||||||||||||||
| Repurchase of common stock (1) | (41,853 | ) | (418 | ) | — | (2,585,872 | ) | (2,586,290 | ) | |||||||||||
| Exercise of stock options | 60 | 1 | 588 | — | 589 | |||||||||||||||
| Shares withheld for restricted stock units vested | (492 | ) | (5 | ) | (34,915 | ) | — | (34,920 | ) | |||||||||||
| Net income | — | — | — | 2,749,369 | 2,749,369 | |||||||||||||||
| Balance at December 31, 2022 | 138,864 | 1,389 | 4,257,667 | 703,510 | 4,962,566 | |||||||||||||||
| Vesting of restricted stock units | 1,074 | 11 | (11 | ) | — | — | ||||||||||||||
| Stock-based compensation expense | — | — | 48,522 | — | 48,522 | |||||||||||||||
| Repurchase of common stock (2) | (17,753 | ) | (178 | ) | — | (1,783,881 | ) | (1,784,059 | ) | |||||||||||
| Exercise of stock options | 73 | 1 | 658 | — | 659 | |||||||||||||||
| Shares withheld for restricted stock units vested | (401 | ) | (4 | ) | (35,888 | ) | — | (35,892 | ) | |||||||||||
| Net income | — | — | — | 1,540,555 | 1,540,555 | |||||||||||||||
| Balance at December 31, 2023 | 121,857 | 1,219 | 4,270,948 | 460,184 | 4,732,351 | |||||||||||||||
| Vesting of restricted stock units | 901 | 9 | (9 | ) | — | — | ||||||||||||||
| Stock-based compensation expense | — | — | 63,111 | — | 63,111 | |||||||||||||||
| Repurchase of common stock (3) | (8,868 | ) | (89 | ) | — | (1,514,017 | ) | (1,514,106 | ) | |||||||||||
| Exercise of stock options | 32 | — | 286 | — | 286 | |||||||||||||||
| Shares withheld for restricted stock units vested | (344 | ) | (3 | ) | (63,067 | ) | — | (63,070 | ) | |||||||||||
| Net income | — | — | — | 1,077,898 | 1,077,898 | |||||||||||||||
| Balance at December 31, 2024 | 113,578 | $ | 1,136 | $ | 4,271,269 | $ | 24,065 | $ | 4,296,470 |
(1)
During the year ended December 31, 2022, we repurchased and retired 41.9 million shares of our common stock at an average price of $61.79 per share, for $2.6 billion, inclusive of fees, pursuant to the repurchase program authorized by our board of directors in February 2022, and further expanded by our board of directors in May 2022 and November 2022. The primary purpose of the repurchase program was to offset dilution from the merger with BMC.
(2)
During the year ended December 31, 2023, we repurchased and retired 17.8 million shares of our common stock at an average price of $100.49 per share, for $1.8 billion, inclusive of fees and taxes, pursuant to the repurchase program authorized by our board of directors in November 2022 and further expanded by our board of directors in April 2023. The primary purpose of the repurchase program was to offset dilution from the merger with BMC.
(3)
During the year ended December 31, 2024, we repurchased and retired 8.9 million shares of our common stock at an average price of $170.74 per share, for $1.5 billion, inclusive of fees and taxes, pursuant to the repurchase programs authorized by our board of directors in February 2024 and August 2024.
The accompanying notes are an integral part of these consolidated financial statements.
BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES
N****OTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Business
Builders FirstSource, Inc., a Delaware corporation formed in 1998, is a leading supplier of building materials, manufactured components and construction services to professional contractors, sub-contractors, and consumers. The company operates approximately 590 locations in 43 states across the U.S.
In this annual report, references to the “Company,” “we,” “our,” “ours” or “us” refer to Builders FirstSource, Inc. and its consolidated subsidiaries, unless otherwise stated or the context otherwise requires.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements present the results of operations, financial position, and cash flows of Builders FirstSource, Inc. and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
Estimates are used when accounting for items such as revenue, vendor rebates, allowance for returns, discounts and credit losses, employee compensation programs, depreciation and amortization periods, income taxes, inventory values, insurance programs, goodwill, other intangible assets and long-lived assets.
Equity Investments
The Company’s equity investments are accounted for using equity method accounting and are recorded as other assets, net in the accompanying Consolidated Balance Sheets and are not considered significant to the Company.
Reclassifications
Certain prior periods’ amounts have been reclassified to conform to the current year presentation, including changing the composition of our product categories, and amounts presented as repurchases of common stock and tax withholdings on and exercises of equity awards. Prior period amounts related to product categories as disclosed in this Note 2 under Revenue Recognition have been reclassified to conform to the current year presentation.
The prior period amounts related to tax withholdings on equity awards have been reclassified from repurchases of common stock and combined with exercises of stock options to conform to the present year presentation. Reclassifications had no impact on net income, total assets and liabilities, stockholders’ equity, financing cash flows, or total cash flows as previously reported.
Segments
We offer an integrated solution to our customers providing manufacturing, supply, and installation of a full range of structural and related building products. We provide a wide variety of building products and services directly to homebuilder customers. We manufacture floor trusses, roof trusses, wall panels, millwork, windows, and doors. We also provide a full range of construction services.
Given the span and depth of our geographical reach, our locations are organized into three geographical divisions (East, Central, and West), which are also our operating segments. Our operating segments are organized on a geographical basis to facilitate a disaggregated management of the Company and to respond to the local needs of the customers in the markets we serve. All of our operating segments have similar customers, products and services, and distribution methods.
Due to these similarities, along with the similar economic profitability achieved across all our operating segments, we aggregate our three operating segments into one reportable segment in accordance with GAAP. Centralized financial and operational oversight, including resource allocation and assessment of performance, is performed by our principal executive officer (“CEO”), whom we have determined to be our chief operating decision maker (“CODM”).
Business Combinations
When they meet the requirements under ASC 805, Business Combinations, merger and acquisition transactions are accounted for using the acquisition method, and accordingly the results of operations of the acquiree are included in the Company’s consolidated financial statements from the acquisition date. The consideration transferred is allocated to the identifiable assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with any excess recorded as goodwill. Transaction-related costs are expensed in the period the costs are incurred. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill.
Revenue Recognition
We recognize revenue as performance obligations are satisfied by transferring control of a promised good or service to a customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We generally classify our revenues into two types: (i) distribution sales; or (ii) sales related to contracts with service elements.
Distribution sales typically consist of the sale of building products we manufacture and the resale of purchased building products. We recognize revenue related to distribution sales at a point in time upon delivery of the ordered goods to our customers. Payment terms related to distribution sales are not significant as payment is generally received shortly after the point of sale.
Our contracts with service elements primarily relate to installation and construction services. We evaluate whether multiple contracts should be combined and accounted for as a single contract and whether a single or combined contract should be accounted for as a single performance obligation or multiple performance obligations. If a contract is separated into more than one performance obligation, we allocate the transaction price to each performance obligation generally based on observable standalone selling prices of the underlying goods or services. Revenue related to contracts with service elements is generally recognized over time based on the extent of progress towards completion of the performance obligation because of continuous transfer of control to the customer. We consider costs incurred to be indicative of goods and services delivered to the customer. As such, we use a cost-based input method to recognize revenue on our contracts with service elements as it best depicts the transfer of assets to our customers. Payment terms related to sales for contracts with service elements are specific to each customer and contract. However, they are considered to be short-term in nature as payments are normally received either throughout the life of the contract or shortly after the contract is complete.
Contract costs include all direct material and labor, equipment costs and those indirect costs related to contract performance. Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determinable. Prepayments for materials or services are deferred until such materials have been delivered or services have been provided. All sales recognized are net of allowances for discounts and estimated returns, based on historical experience. The Company records sales incentives provided to customers as a reduction of revenue. We present all sales tax on a net basis in our consolidated financial statements.
Costs to obtain contracts are expensed as incurred as our contracts are typically completed in one year or less, and where applicable, we generally would incur these costs whether or not we ultimately obtain the contract. We do not disclose the value of our remaining performance obligations on uncompleted contracts as our contracts generally have a duration of one year or less.
The timing of revenue recognition, invoicing and cash collection results in accounts receivable, contract assets and contract liabilities. Contract assets include unbilled amounts when the revenue recognized exceeds the amount billed to the customer, and amounts representing a right to payment from previous performance that is conditional on something other than passage of time, such as retainage. Contract liabilities consist of customer advances and deposits, and deferred revenue.
The following table disaggregates our net sales by product category for the years ended December 31:
| 2024 | 2023 | 2022 | ||||||||||
| (in thousands) | ||||||||||||
| Manufactured products | $ | 3,931,647 | $ | 4,669,088 | $ | 5,678,570 | ||||||
| Windows, doors and millwork | 4,226,871 | 4,310,061 | 4,651,250 | |||||||||
| Specialty building products and services | 4,050,027 | 3,992,132 | 4,311,123 | |||||||||
| Lumber and lumber sheet goods | 4,191,947 | 4,126,049 | 8,085,475 | |||||||||
| Total net sales | $ | 16,400,492 | $ | 17,097,330 | $ | 22,726,418 |
As our product alignment continues to be refined, we have reclassified prior periods net sales by product category to conform to the current period presentation. The impact to each of the prior periods’ net sales for each product category was less than 1% for 2023 and 2022.
Net sales from installation and construction services represents less than 10% of the Company’s net sales for each period presented.
Through December 31, 2024, 2023 and 2022, we recognized as revenue substantially all of the contract liabilities balance at December 31, 2023, 2022 and 2021, respectively.
Cash and Cash Equivalents and Checks Outstanding
Cash and cash equivalents consist of cash on hand and all highly liquid investments with an original maturity date of three months or less. Also included in cash and cash equivalents are proceeds due from credit card transactions that generally settle within two business days. We maintain cash at financial institutions in excess of federally insured limits. Further, we maintain various banking relationships with different financial institutions. Accordingly, when there is a negative net book cash balance resulting from outstanding checks that had not yet been paid by any single financial institution, they are reflected in accounts payable in the accompanying consolidated balance sheets.
Accounts Receivable
We extend credit to qualified professional homebuilders and contractors, in many cases on a non-collateralized basis. Accounts receivable potentially expose us to concentrations of credit risk. Because our customers are dispersed among our various markets, our credit risk to any one customer or geographic economy is not significant. Other receivables consist primarily of vendor rebates receivables and income tax receivables.
Our customer mix is a balance of large national homebuilders, regional homebuilders, local and custom homebuilders and repair and remodeling contractors as well as multi-family builders. For the year ended December 31, 2024, our top 10 customers accounted for 15% of our net sales, with our largest customer accounting for 4% of net sales.
The allowance for credit losses is based on management’s assessment of the amount which may become uncollectible in the future and is estimated using specific review of problem accounts, overall portfolio quality, current and forecasted economic conditions that may affect the customer’s ability to pay, and historical experience. Accounts receivable are written off when deemed uncollectible.
We also establish reserves for credit memos and customer returns. The reserve balance was $14.4 million and $14.8 million at December 31, 2024, and 2023, respectively. The activity in this reserve was not material for each year presented.
The following table shows the changes in our allowance for credit losses:
| 2024 | 2023 | 2022 | ||||||||||
| (in thousands) | ||||||||||||
| Balance at January 1, | $ | 27,691 | $ | 50,383 | $ | 21,761 | ||||||
| Net additions (reversals) to provision | 10,419 | (11,488 | ) | 38,921 | ||||||||
| Write-offs, net of recoveries | (11,276 | ) | (11,204 | ) | (10,299 | ) | ||||||
| Balance at December 31, | $ | 26,834 | $ | 27,691 | $ | 50,383 |
Inventories
Inventories consist principally of materials purchased for resale, including lumber and lumber sheet goods, windows, doors and millwork, and other building products, as well as certain manufactured products and are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method, the use of which approximates the first-in, first-out method. We accrue for shrink based on the actual historical shrink results of our most recent physical inventories adjusted, if necessary, for current economic conditions. These estimates are compared with actual results as physical inventory counts are taken and reconciled to the general ledger.
During the year, we monitor our inventory levels by market and record provisions for excess inventories based on slower moving inventory. We define potential excess inventory as the amount of inventory on hand in excess of the historical usage, excluding special order items purchased in the last six months. We then apply our judgment as to forecasted demand and other factors, including liquidation value, to determine the required adjustments to net realizable value. Our inventories are generally not susceptible to technological obsolescence.
Our arrangements with vendors provide for rebates of a specified amount of consideration, payable at defined intervals, generally related to a stipulated level of purchases. We account for estimated rebates as a reduction of the prices of the vendor’s inventory until the product is sold, at which time such rebates reduce cost of sales in the accompanying consolidated statements of operations. Throughout the year we estimate the amount of the rebates based upon the expected level of purchases. We continually evaluate and revise these estimates, as necessary, based on actual purchase levels.
We source products from a large number of suppliers. Materials purchased from our largest single supplier represented 8% of our total materials purchased in 2024.
Shipping and Handling Costs
Handling costs incurred in manufacturing activities are included in cost of sales. All other shipping and handling costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and totaled $654.0 million, $656.0 million and $641.8 million in 2024, 2023 and 2022, respectively.
Income Taxes
We account for income taxes utilizing the asset and liability method described in the Income Taxes topic of the FASB Accounting Standards Codification (“Codification”). Deferred income taxes are recorded to reflect consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which differences are expected to affect taxable earnings. We record a valuation allowance to reduce deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Warranty Expense
We have warranty obligations with respect to most manufactured products; however, the liability for the warranty obligations is not material as a result of third-party inspection and acceptance processes.
Debt Issuance Costs and Debt Discount/Premium
Loan costs are capitalized upon the issuance of long-term debt and amortized over the life of the related debt. Debt issuance costs associated with term debt are presented as a reduction to long-term debt. Debt issuance costs associated with revolving debt arrangements are presented as a component of other assets. Debt issuance costs incurred in connection with revolving debt arrangements are amortized using the straight-line method. Debt issuance costs, discounts and premiums incurred in connection with term debt are amortized over the life of the related debt using the effective interest method. Amortization of debt issuance costs, discounts and premiums are included in interest expense. Upon changes to our debt structure, we evaluate debt issuance costs, discounts and premiums in accordance with the Debt topic of the Codification. We adjust debt issuance costs, discounts and premiums as necessary based on the results of this evaluation, as discussed in Note 8.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. The estimated lives of the various classes of assets are as follows:
| Buildings and improvements | 10 to 40 years |
| Machinery and equipment | 7 to 10 years |
| Information technology, furniture and fixtures | 3 to 5 years |
| Leasehold improvements | The shorter of the estimated useful life or the remaining lease term |
Major additions and improvements are capitalized, while maintenance and repairs that do not extend the useful life of the property are charged to expense as incurred. Gains or losses from dispositions of property, plant and equipment are recorded in the period incurred. We also capitalize certain costs of computer software developed or obtained for internal use, including interest, provided that those costs are not research and development, and certain other criteria are met. Internal use computer software costs are included in information technology, furniture and fixtures, and generally depreciated using the straight-line method over the estimated useful lives of the assets, generally three years.
Cloud Computing Arrangements
We assess cloud computing arrangements to determine whether the contract meets the definition of a service contract or conveys a software license. When cloud computing arrangements meet the definition of a service contract, we capitalize expenditures for implementation, set-up, and other upfront costs incurred. Once the implementation of a cloud computing arrangement is complete and ready for its intended use, the Company amortizes the costs over the expected term of the hosting arrangement using the straight-line method to the same income statement line as the associated cloud operating expenses. As of December 31, 2024 and 2023, we had capitalized costs, net of amortization, of $9.3 million and $1.3 million included in Other current assets, respectively. As of December 31, 2024, we had capitalized costs, net of amortization, of $52.7 million included in Other assets, net. We did not have any non-current amounts recorded related to these agreements as of December 31, 2023. Amortization expense for these costs was $1.3 million and $1.4 million for the years ended December 31, 2024 and 2023, respectively, and is included in Selling, general and administrative expenses within the Consolidated Statements of Operations. We did not have any amortization expense related to these costs during the year ended December 31, 2022.
Leases
We lease certain land, buildings, rolling stock and other types of equipment for use in our operations. These leases typically have initial terms ranging from five to 15 years. Many of our leases contain renewal options which are exercisable at our discretion. These renewal options generally have terms ranging from one to five years.
Under the Leases topic of the Codification, lessees are required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
We determine if an arrangement is a lease at the inception of the arrangement. Lease liabilities are recognized based on the present value of lease payments over the lease term at the arrangement’s commencement date. Right-of-use assets are recognized based on the amount of the measurement of the lease liability adjusted for any lease payments made to the lessor at or before the commencement date, minus any lease incentives received and any initial direct costs incurred. Renewal options are included in the calculation of our right-of-use assets and lease liabilities when it is determined that they are reasonably certain of exercise based on an analysis of the relevant facts and circumstances. As the implicit rate of return of our lease agreements is usually not readily determinable, we generally use our incremental borrowing rate in determining the present value of lease payments. We determine our incremental borrowing rate based on information available to us at the lease commencement date. Certain of our lease arrangements contain lease and non-lease components. We have elected to account for non-lease components as a part of the related lease components for all of our leases. Leases with an initial term of 12 months or less are not recognized on our balance sheet. We recognize the expense for these leases on a straight-line basis over the lease term.
We have certain lease agreements that are subject to changes based on the Consumer Price Index or another referenced index. In the event of changes to the relevant index, lease liabilities are not remeasured and incremental costs are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.
Long-Lived Assets
We evaluate our long-lived assets, other than goodwill, for impairment when events or changes in circumstances indicate, in our judgment, that the carrying amount of such assets may not be recoverable. The determination of whether or not impairment exists is based on our estimate of undiscounted future cash flows before interest attributable to the assets as compared to the net carrying amount of the assets. If impairment is indicated, the amount of the impairment recognized is determined by estimating the fair value of the assets based on estimated discounted future cash flows and recording a provision for loss if the carrying amount is greater than estimated fair value. The net carrying amount of assets identified to be disposed of in the future is compared to their estimated fair value, usually the quoted market price obtained from an independent third-party less the cost to sell, to determine if impairment exists. Until the assets are disposed of, an estimate of the fair value is reassessed when related events or circumstances change.
Insurance
We have established insurance programs to cover certain insurable risks consisting primarily of physical loss to property, business interruptions resulting from such loss, workers’ compensation, employee healthcare, and comprehensive general and auto liability. Third-party insurance coverage is obtained for exposures above predetermined deductibles as well as for those risks required to be insured by law or contract. On a quarterly basis, we engage an external actuarial professional to independently assess and estimate the total liability outstanding. Provisions for losses are developed from these valuations which rely upon our past claims experience, which considers both the frequency and settlement of claims. The legal costs associated with these claims are included in these developed provisions. We discount our worker’s compensation, general liability, and auto liability insurance reserves based upon estimated future payment streams at our risk-free rate. Our total insurance reserve balances were $206.3 million and $190.0 million as of December 31, 2024, and 2023, respectively. Of these balances, $103.4 million and $100.0 million were recorded as other long-term liabilities as of December 31, 2024, and 2023, respectively. Included in these reserve balances as of December 31, 2024, and 2023, were $17.1 million and $13.7 million, respectively, of claims that exceeded stop-loss limits and are expected to be recovered under insurance policies which are also recorded as other receivables and other assets in the accompanying consolidated balance sheets.
Net Income per Common Share
Net income per common share, or earnings per share (“EPS”), is calculated in accordance with the Earnings per Share topic of the Codification, which requires the presentation of basic and diluted EPS. Basic EPS is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common shares.
The table below presents the calculation of basic and diluted EPS for the years ended December 31:
| Years Ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Numerator: | ||||||||||||
| Net income | $ | 1,077,898 | $ | 1,540,555 | $ | 2,749,369 | ||||||
| Denominator: | ||||||||||||
| Weighted average shares outstanding, basic | 118,038 | 127,777 | 161,960 | |||||||||
| Dilutive effect of options and RSUs | 942 | 1,221 | 1,521 | |||||||||
| Weighted average shares outstanding, diluted | 118,980 | 128,998 | 163,481 | |||||||||
| Net income per share: | ||||||||||||
| Basic | $ | 9.13 | $ | 12.06 | $ | 16.98 | ||||||
| Diluted | $ | 9.06 | $ | 11.94 | $ | 16.82 | ||||||
| Antidilutive and contingent RSUs excluded from diluted EPS | 147 | 3 | 99 |
Goodwill and Other Intangible Assets
Intangibles subject to amortization
We recognize an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset or liability. Impairment losses are recognized if the carrying amounts of an intangible asset subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its estimated fair value.
Goodwill
We recognize goodwill as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is tested for impairment on an annual basis and between annual tests whenever impairment is indicated. This annual test takes place as of December 31 each year. Impairment losses are recognized whenever the carrying amount of a reporting unit exceeds its fair value.
Stock-based Compensation
We have four stock-based employee compensation plans, which are described more fully in Note 10. We issue new common stock shares upon exercises of stock options and vesting of restricted stock units (“RSU”). We recognize the effect of pre-vesting forfeitures in the period they actually occur.
The fair value of RSU awards which are subject to or contain market conditions is estimated on the date of grant using the Monte Carlo simulation model with the following weighted average assumptions for the years ended December 31:
| 2024 | 2023 | 2022 | ||||||||||
| Expected volatility (company) | 43.8 | % | 46.5 | % | 53.0 | % | ||||||
| Expected volatility (peer group median) | 30.5 | % | 32.1 | % | 34.6 | % | ||||||
| Correlation between the company and peer group median | 0.5 | 0.5 | 0.6 | |||||||||
| Expected dividend yield | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
| Risk-free rate | 4.5 | % | 3.8 | % | 1.7 | % |
The expected volatilities and correlation are based on the historical daily returns of our common stock and the common stocks of the constituents of the Company’s peer group over the most recent period equal to the measurement period. The expected dividend yield is based on our history of not paying regular dividends in the past and our current intention to not pay regular dividends in the foreseeable future. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant and has a term equal to the measurement period.
Fair Value
The Fair Value Measurements and Disclosures topic of the Codification provides a framework for measuring the fair value of assets and liabilities and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:
Level 1 — unadjusted quoted prices for identical assets or liabilities in active markets accessible by us
Level 2 — inputs that are observable in the marketplace other than those inputs classified as Level 1
Level 3 — inputs that are unobservable in the marketplace and significant to the valuation
If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.
As of December 31, 2024, and 2023, the Company does not have any material financial instruments which are measured at fair value on a recurring basis. We have elected to report the value of our 5.00% 2030 notes, 4.25% 2032 notes, 6.375% 2032 notes, 6.375% 2034 notes, and Revolving Facility at amortized cost. The fair values of the 5.00% 2030 notes, 4.25% 2032 notes, 6.375% 2032 notes, and 6.375% 2034 notes at December 31, 2024, were $523.6 million, $1,149.2 million, $697.4 million and $988.8 million respectively, and were determined using Level 2 inputs based on market prices.
Comprehensive Income
Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It consists of net income and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income. Comprehensive income is equal to net income for the years ended December 31, 2024, 2023 and 2022.
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. This amendment modifies the rules on income tax disclosures to require entities to disclose: (i) specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold; (ii) the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes, as well as individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid net of refunds; (iii) the income or loss from continuing operations before income tax expense, or benefit, disaggregated between domestic and foreign; and (iv) income tax expense or benefit from continuing operations disaggregated by federal, state and foreign. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis, though retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In November 2024, the FASB issued Accounting Standards Update No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued Accounting Standards Update No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application and early adoption is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
3. Business Combinations
During 2024 we completed a number of acquisitions for a combined $345.4 million purchase price, net of cash acquired, including the acquisitions of (i) Quality Door & Millwork, Inc. (“Quality Door”), (ii) Hanson Truss Components, Inc. (“Hanson Truss”), (iii) RPM Wood Products, Inc. (“RPM”), (iv) Schoeneman Bros. Company (“Schoeneman”), (v) TRSMI, LLC (“TRSMI”), (vi) Western Truss & Components (“Western Truss”), (vii) CRi SoCal (“CRi”), (viii) Wyoming Millwork Co. (“Wyoming Millwork”), (ix) Sunrise Wood Designs, LLC (“Sunrise Wood Designs”), (x) Reno Truss, Inc. (“Reno Truss”), (xi) High Mountain Door and Trim, Inc. (“High Mountain”), (xii) Douglas Lumber, Kitchens and Home Center (“Douglas Lumber”), and (xiii) Kleet Lumber (“Kleet Lumber”).
Quality Door is a millwork distributor, serving Idaho markets in the Boise and Idaho Falls areas. Hanson Truss produces trusses, serving the areas of northern California and western Nevada. RPM provides a diverse product mix of lumber, windows, doors, millwork and trusses in northeastern Florida. Schoeneman manufacturers trusses and provides building materials and products to eastern South Dakota, and western Iowa. TRSMI manufactures and distributes trusses around the Detroit, Michigan area. Western Truss manufactures roof and floor trusses, serving central Arizona. CRi installs windows and doors in the southern California area. Wyoming Millwork serves custom and semi-custom builders with lumber and lumber sheet goods, windows, doors, millwork, trusses and other building products in Delaware. Sunrise Wood Designs is a custom cabinet manufacturer and installer to production and custom builders in North Texas. Reno Truss is a manufacturer and distributor of roof and floor trusses to single-family and multi-family markets in the Nevada area. High Mountain distributes and installs doors, windows and millwork to single-family and multi-family markets in the northern Nevada area. Douglas Lumber provides building materials to Rhode Island, Massachusetts and Connecticut, while Kleet Lumber provides lumber and building materials in the Long Island area.
During 2023 we completed a number of acquisitions for a combined $252.5 million purchase price, net of cash acquired, including the acquisitions of (i) Noltex Truss and its affiliates (“Noltex”), (ii) Builders Millwork and Supply, Inc. (“BMS”) (iii) J.B. Millworks, LLC (“JBM”), (iv) Church and Church, Inc. (“Church’s”), (v) Franks Cash and Carry, Inc. (“FCC”), (vi) Standale Lumber, LLC and Granville Lumber Co., LLC (“Standale”), and (vii) Encore Performance, LLC (“Encore”). These acquisitions further expanded our market footprint and provide additional operations in our value-added product categories and our multi-family customer segment.
Each of these acquisitions were funded with a combination of cash on hand and borrowings under our Revolving Facility. These transactions were accounted for using the acquisition method, and accordingly the results of operations have been included in the Company’s consolidated financial statements from the acquisition date. The purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill.
Pro forma financial information for the acquisitions discussed above for 2024 and 2023 are not presented as these acquisitions did not have a material impact on our results of operations, individually or in the aggregate for each respective period.
The following table summarizes the aggregate fair values of the assets acquired and liabilities assumed for acquisitions during the years ended December 31, 2024, and 2023:
| Total Acquisitions | ||||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Cash and cash equivalents | $ | 9,730 | $ | — | ||||
| Accounts receivable | 39,749 | 25,751 | ||||||
| Other receivables | 127 | — | ||||||
| Inventories | 35,585 | 36,789 | ||||||
| Contract assets | 454 | — | ||||||
| Other current assets | 426 | 70 | ||||||
| Property, plant and equipment | 55,385 | 15,053 | ||||||
| Operating lease right-of-use assets | 19,183 | 20,449 | ||||||
| Finance lease right-of-use assets | — | 528 | ||||||
| Intangible assets | 110,848 | 82,942 | ||||||
| Other assets | 134 | 138 | ||||||
| Total assets | 271,621 | 181,720 | ||||||
| Accounts payable | 8,842 | 3,122 | ||||||
| Accrued liabilities | 9,138 | 1,985 | ||||||
| Contract liabilities | 1,244 | 2,868 | ||||||
| Operating lease liabilities | 19,183 | 20,449 | ||||||
| Finance lease liabilities | — | 528 | ||||||
| Total liabilities | 38,407 | 28,952 | ||||||
| Goodwill | 121,948 | 99,702 | ||||||
| Total purchase consideration | 355,162 | 252,470 | ||||||
| Accrued contingent consideration and purchase price adjustments | (8,974 | ) | (13,797 | ) | ||||
| Less: cash acquired | (9,730 | ) | — | |||||
| Total cash consideration | $ | 336,458 | $ | 238,673 |
4**.** Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31:
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Land and improvements | $ | 401,374 | $ | 369,574 | ||||
| Buildings and improvements | 834,773 | 714,767 | ||||||
| Machinery and equipment | 1,530,119 | 1,303,312 | ||||||
| Information technology, furniture and fixtures | 256,095 | 213,066 | ||||||
| Construction in progress | 141,864 | 207,826 | ||||||
| Finance lease right-of-use assets | 3,479 | 7,268 | ||||||
| Property, plant and equipment | 3,167,704 | 2,815,813 | ||||||
| Less: accumulated depreciation | 1,205,973 | 1,011,989 | ||||||
| Property, plant and equipment, net | $ | 1,961,731 | $ | 1,803,824 |
Depreciation expense was $256.5 million, $222.6 million and $194.6 million, of which $78.7 million, $63.5 million, and $48.7 million was included in cost of sales, for the years ended December 31, 2024, 2023 and 2022, respectively.
Included in property, plant and equipment are certain assets held under other finance obligations. These assets are recorded at the present value of the lease payments and include land, buildings and equipment. Amortization charges associated with assets held under other finance obligations are included in depreciation expense.
The following balances held under other finance obligations are included in the accompanying consolidated balance sheet as of December 31:
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Land and improvements | $ | 105,833 | $ | 106,163 | ||||
| Buildings and improvements | 115,020 | 115,970 | ||||||
| Assets held under other finance obligations | 220,853 | 222,133 | ||||||
| Less: accumulated amortization | 34,718 | 31,246 | ||||||
| Assets held under other finance obligations, net | $ | 186,135 | $ | 190,887 |
5. Goodwill
The following table sets forth the changes in the carrying amount of goodwill for the years ended December 31, 2024, and 2023:
| (in thousands) | ||||
| Balance as of December 31, 2022 (1) | $ | 3,456,854 | ||
| Acquisitions | 99,702 | |||
| Balance as of December 31, 2023 (1) | $ | 3,556,556 | ||
| Acquisitions | 121,948 | |||
| Balance as of December 31, 2024 (1) | $ | 3,678,504 |
(1) Goodwill is presented net of accumulated impairment losses of $44.6 million.
The change in the carrying amount of goodwill during 2024 is attributable to acquisitions. The amount allocated to goodwill is attributable to the assembled workforces acquired, expected synergies, and expected growth from the new markets which the Company has entered. The goodwill recognized from the TRSMI business combination will not be deductible for tax purposes. The $121.2 million of goodwill recognized from the other current year acquisitions is expected to be deductible and amortized ratably over a 15-year period for tax purposes.
We closely monitor trends in economic factors and their effects on operating results to determine if an impairment trigger was present that would warrant a reassessment of the recoverability of the carrying amount of goodwill prior to the required annual impairment test in accordance with the Intangibles – Goodwill and Other topic of the Codification.
In evaluating goodwill for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If it is concluded that it is more likely than not that the fair value of the reporting unit is not less than its carrying value, then no further testing of the goodwill is required. However, if we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative goodwill impairment test. This test identifies both the existence of and the amount of goodwill impairment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount goodwill is not impaired. If the carrying amount of a reporting unit exceeds its fair value an impairment loss is recognized in an amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit.
The process of evaluating goodwill for impairment involves the determination of the fair value of our reporting units. Our reporting units are aligned with our three geographic operating segments. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market valuations and assumptions about our strategic plans with regard to our operations. Due to the uncertainties associated with such estimates, actual results could differ from such estimates resulting in further impairment of goodwill.
In evaluating goodwill for impairment at December 31, 2024, we developed the fair value using a discounted cash flow methodology. The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses our projections of financial performance for a five-year period. The significant assumptions used in the discounted cash flow methodology are the discount rate, the terminal value and the expected future revenues and profitability.
We recorded no goodwill impairment charges in 2024, 2023 or 2022.
6. Intangible Assets
The following table presents intangible assets as of December 31:
| 2024 | 2023 | |||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||
| (in thousands) | ||||||||||||||||
| Customer relationships | $ | 2,216,578 | $ | (1,198,125 | ) | $ | 2,105,730 | $ | (912,865 | ) | ||||||
| Trade names | 64,500 | (43,483 | ) | 64,500 | (36,459 | ) | ||||||||||
| Non-compete agreements | 13,050 | (8,599 | ) | 13,050 | (6,223 | ) | ||||||||||
| Developed technology | 95,600 | (35,887 | ) | 95,600 | (25,160 | ) | ||||||||||
| Total intangible assets | $ | 2,389,728 | $ | (1,286,094 | ) | $ | 2,278,880 | $ | (980,707 | ) |
During the years ended December 31, 2024, 2023 and 2022, we recorded amortization expense in relation to the above-listed intangible assets of $305.4 million, $335.7 million and $302.6 million, respectively. We recorded no intangible asset impairment charges for those same years.
During 2023 we derecognized certain customer relationships, trade names, non-compete agreements and subcontractor relationships assets as they were fully amortized, resulting in a decrease in the gross carrying amount of the intangible assets and the related accumulated amortization.
In connection with the current year acquisitions, we recorded customer relationships intangible assets of $110.8 million. The weighted average useful life of the acquired customer relationships intangible assets is 2.8 years. The fair value of acquired customer relationships intangible assets was primarily estimated by applying the multiperiod excess earnings method, which involved the use of significant estimates and assumptions primarily related to forecasted revenue growth rates, gross margin, contributory asset charges, customer attrition rates, and market-participant discount rates. These measures are based on significant Level 3 inputs not observable in the market. Key assumptions developed based on the Company’s historical experience, future projections and comparable market data include future cash flows, long-term growth rates, attrition rates and discount rates.
The following table presents the estimated amortization expense for intangible assets for the years ending December 31:
| (in thousands) | ||||
| 2025 | $ | 252,871 | ||
| 2026 | 220,642 | |||
| 2027 | 164,988 | |||
| 2028 | 124,052 | |||
| 2029 | 71,710 | |||
| Thereafter | 269,371 | |||
| Total future net intangible amortization expense | $ | 1,103,634 |
7. Accrued Liabilities
Accrued liabilities consisted of the following:
| December 31, 2024 | December 31, 2023 | |||||||
| (in thousands) | ||||||||
| Accrued payroll and other employee related expenses | $ | 310,073 | $ | 383,157 | ||||
| Self-insurance reserves | 102,876 | 89,987 | ||||||
| Accrued business and other taxes | 72,944 | 76,098 | ||||||
| Accrued contingent consideration & purchase price adjustments | 6,974 | 43,127 | ||||||
| Accrued rebates payable | 35,404 | 35,921 | ||||||
| Accrued interest | 55,454 | 34,537 | ||||||
| Other | 50,320 | 54,701 | ||||||
| Total accrued liabilities | $ | 634,045 | $ | 717,528 |
8. Long-Term Debt
Long-term debt consisted of the following:
| December 31, 2024 | December 31, 2023 | |||||||
| (in thousands) | ||||||||
| Revolving credit facility (1) | $ | — | $ | 464,000 | ||||
| 4.25% 2032 notes | 1,300,000 | 1,300,000 | ||||||
| 6.375% 2034 notes | 1,000,000 | — | ||||||
| 6.375% 2032 notes | 700,000 | 700,000 | ||||||
| 5.00% 2030 notes | 550,000 | 550,000 | ||||||
| Other finance obligations | 190,312 | 193,048 | ||||||
| Finance lease obligations | 1,078 | 2,297 | ||||||
| 3,741,390 | 3,209,345 | |||||||
| Unamortized debt discount/premium and debt issuance costs | (37,277 | ) | (28,285 | ) | ||||
| 3,704,113 | 3,181,060 | |||||||
| Less: current maturities of long-term debt | 3,470 | 3,649 | ||||||
| Long-term debt, net of current maturities, discounts and issuance costs | $ | 3,700,643 | $ | 3,177,411 |
(1) The weighted average interest rate was 7.1% as of December 31, 2023.
2022 Debt Transactions
Notes Offering Transactions
On January 21, 2022, the Company completed a private offering of an additional $300.0 million in aggregate principal amount of 4.25% 2032 notes at an issue price equal to 100.50% of par value. The net proceeds from the offering were used to repay indebtedness outstanding under the Revolving facility and pay related transaction fees and expenses. The 4.25% 2032 notes issued in January 2022 form part of the same series of notes as the $1.0 billion of 4.25% 2032 notes issued in July 2021.
The additional $1.5 million in proceeds received in excess of par value represents a debt premium which has been recorded as an increase to long-term debt. In connection with the offering, we incurred $4.4 million of various third-party fees and expenses which
have been recorded as a reduction to long-term debt. The debt premium and third-party costs will be amortized over the contractual life of the 4.25% 2032 notes using the effective interest method.
On June 15, 2022, the Company completed a private offering of $700.0 million in aggregate principal amount of 6.375% 2032 notes at an issue price equal to 100% of par value. Subsequently, on June 16, 2022, the Company redeemed the remaining $612.5 million of the 6.75% senior secured notes due 2027 (“2027 notes”).
In connection with the issuance of the 6.375% 2032 notes, we incurred $10.4 million of various third-party fees and expenses. These costs have been recorded as a reduction to long-term debt and are being amortized over the contractual life of the 6.375% 2032 notes using the effective interest method.
The Company concluded the redemption of the 2027 notes was a debt extinguishment and recorded a loss on debt extinguishment of $27.4 million in interest expense in the second quarter of 2022. Of this loss, $20.7 million was attributable to the payment of the redemption premium on the extinguished notes and $6.7 million was attributable to the write-off of unamortized debt issuance costs and debt premium.
Revolving Credit Facility Amendments
On February 4, 2022, we amended our revolving credit facility to increase the total commitments by an aggregate amount of $400.0 million, resulting in a total $1.8 billion revolving credit facility. All other material terms of the credit facility remained unchanged from those of the previous agreement. Effective with this amendment, the eurodollar rate loans and related interest rate benchmark were changed to term SOFR. The applicable margin ranges for term SOFR loans were amended to be from 1.35% to 1.60% and there are no changes to base rate loan borrowings. In connection with this amendment, we incurred $2.0 million of new debt issuance costs which have been recorded as other assets and will be amortized straight-line through December 2026.
2023 Debt Transactions
Revolving Credit Facility Amendments
On January 17, 2023, the Company amended the Revolving Facility to extend the maturity of $1,620.0 million, and $180.0 million commitments of the total $1,800.0 million commitments to January 17, 2028, and December 17, 2026, respectively. Subsequently, on April 3, 2023, the company further amended the Revolving Facility to extend the maturity of the $180.0 million commitments to January 17, 2028. These amendments included additional interest pricing tiers for borrowings, which range from 1.10% to 1.60% in the case of loans using SOFR, and 0.00% to 0.50% in the case of base rate loans.
In connection with these amendments, we expensed $0.7 million of unamortized debt issuance costs related to exiting lenders to interest expense, and we incurred $1.9 million of new debt issuance costs which, together with the previous unamortized debt issuance costs, have been deferred and amortized over the remaining contractual life.
2024 Debt Transactions
On February 29, 2024, the Company completed a private offering of $1.0 billion in aggregate principal amount of the 6.375% 2034 notes at an issue price equal to 100% of par value. The net proceeds from the offering were used to repay indebtedness outstanding under the Revolving Facility and for general corporate purposes.
In connection with the issuance of the 6.375% 2034 notes, we incurred $12.8 million of various third-party fees and expenses. These costs have been recorded as a reduction to long-term debt and are being amortized over the contractual life of the 6.375% 2034 notes using the effective interest method.
Revolving Credit Facility
As of December 31, 2024, the Revolving Facility provides for a $1.8 billion revolving credit line to be used for working capital, general corporate purposes and funding capital expenditures and growth opportunities. In addition, we may use the Revolving Facility to facilitate debt repayment and consolidation. The available borrowing capacity, or borrowing base, is derived from a percentage of the Company’s eligible receivables and inventory, as defined by the agreement, subject to certain reserves. As of December 31, 2024, we had no outstanding borrowings under our Revolving Facility and our net excess borrowing availability was $1.6 billion after being reduced by outstanding letters of credit of $83.3 million.
As of December 31, 2024, borrowings under the Revolving Facility bear interest, at our option, at either the SOFR or a base rate, plus, in each case, an applicable margin. The applicable margin ranges from 1.10% to 1.60% per annum in the case of term SOFR loans and 0.00% to 0.50% per annum in the case of base rate loans. A commitment fee, currently 0.20% per annum, is charged on the unused amount of the Revolving Facility based on quarterly average loan utilization. Letters of credit under the Revolving Facility are assessed at a rate equal to 1.25% or 1.50%, based on the average excess availability, as well as a fronting fee at a rate of 0.125% per annum. These fees are payable quarterly in arrears at the end of March, June, September, and December.
All obligations under the Revolving Facility are guaranteed jointly and severally by the Company and all other subsidiaries that guarantee our 5.00% 2030 notes, our 4.25% 2032 notes, our 6.375% 2032 notes and our 6.375% 2034 notes (such subsidiaries, the “Debt Guarantors”). All obligations and the guarantees of those obligations are secured by substantially all of the assets of the Company and the Debt Guarantors, subject to certain exceptions and permitted liens, including, with respect to the Revolving Facility, a first-priority security interest in such assets that constitute Revolving Collateral (as defined below) and a second-priority security interest in such assets that constitute Notes Collateral (as defined below).
“Revolving Collateral” includes substantially all presently owned and after-acquired accounts receivable, inventory, rights of unpaid vendors with respect to inventory, deposit accounts, commodity accounts, securities accounts and lock boxes, investment property, cash and cash equivalents, and general intangibles, books and records, supporting obligations and documents and related letters of credit, commercial tort claims or other claims related to and proceeds of each of the foregoing. “Notes Collateral” includes all collateral that is not ABL Collateral.
The Revolving Facility contains restrictive covenants which, among other things, limit the Company’s ability to incur additional indebtedness, incur liens, engage in mergers or other fundamental changes, sell certain assets, pay dividends, make acquisitions or investments, prepay certain indebtedness, change the nature of our business, and engage in certain transactions with affiliates. In addition, the Revolving Facility also contains a financial covenant requiring the satisfaction of a minimum fixed charge ratio of 1.00 to 1.00 if our excess availability falls below the greater of $80.0 million or 10% of the maximum borrowing amount, which was $171.4 million as of December 31, 2024.
Senior Secured Notes due 2030
As of December 31, 2024, we have $550.0 million outstanding in aggregate principal amount of the 5.00% 2030 notes, which mature on March 1, 2030. Interest accrues on the 5.00% 2030 notes at a rate of 5.00% per annum and is payable semi-annually on March 1 and September 1 of each year, commencing on September 1, 2020.
The terms of the 5.00% 2030 notes are governed by the indenture, dated February 11, 2020 (the “2030 Indenture”), among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee. The 5.00% 2030 notes, subject to certain exceptions, are guaranteed, jointly and severally, on a senior unsecured basis, by the Debt Guarantors. Subject to certain exceptions, future subsidiaries that guarantee the Revolving Facility, the 2032 notes or certain other indebtedness will also guarantee the 5.00% 2030 notes.
The 5.00% 2030 notes constitute senior unsecured obligations of the Company and the Debt Guarantors, pari passu in right of payment with all of the existing and future senior indebtedness of the Company, including indebtedness under the Revolving Facility, and the 2032 notes. The 5.00% 2030 notes are also (i) effectively subordinated to all existing and future secured indebtedness of the Company and the Debt Guarantors to the extent of the value of the assets securing such indebtedness, (ii) senior to all of the future subordinated indebtedness of the Company and the Debt Guarantors, and (iii) structurally subordinated to any existing and future indebtedness and other liabilities, including preferred stock, of the Company’s subsidiaries that do not guarantee the 5.00% 2030 notes.
At any time prior to March 1, 2025, the Company may redeem the 5.00% 2030 notes in whole or in part at a redemption price equal to 100% of the principal amount of the 5.00% 2030 notes plus the “applicable premium” set forth in the 2030 Indenture. At any time on or after March 1, 2025, the Company may redeem the 5.00% 2030 notes at the redemption prices set forth in the 2030 Indenture, plus accrued and unpaid interest, if any, to the redemption date. If the Company experiences certain change of control events, holders of the 5.00% 2030 notes may require it to repurchase all or part of their 5.00% 2030 notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.
Senior Secured Notes due 2032
As described above, during 2022, the Company issued $300.0 million of 4.25% 2032 notes, which form part of the same series of notes as the $1.0 billion of 4.25% 2032 notes issued in July 2021, and $700.0 million of 6.375% 2032 notes (collectively, the “2032
notes”). The 4.25% 2032 notes mature on February 1, 2032, with interest accruing at a rate of 4.25% per annum and interest payable semi-annually on February 1 and August 1 of each year. The 6.375% 2032 notes mature on June 15, 2032, with interest accruing at a rate of 6.375% per annum and interest payable semi-annually on June 15 and December 15 of each year.
The terms of the 4.25% 2032 notes and the 6.375% 2032 notes are governed by the indentures, dated as of July 23, 2021, and June 15, 2022 (collectively the “2032 Indentures”), respectively, contain consistent terms and are among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee.
The 2032 notes, subject to certain exceptions, are guaranteed, jointly and severally, on a senior unsecured basis, by the Debt Guarantors. Subject to certain exceptions, future subsidiaries that guarantee the Revolving Facility, the 5.00% 2030 notes or certain other indebtedness will also guarantee the 2032 notes.
The 2032 notes constitute senior unsecured obligations of the Company and Debt Guarantors, pari passu in right of payment, with all of the existing and future senior indebtedness of the Company, including indebtedness under the Revolving Facility and the 5.00% 2030 notes, effectively subordinated to all existing and future secured indebtedness of the Company and the Debt Guarantors (including indebtedness under the Revolving Facility and 2032 notes) to the extent of the value of the assets securing such indebtedness, senior to all of the future subordinated indebtedness of the Company and the Debt Guarantors and structurally subordinated to any existing and future indebtedness and other liabilities, including preferred stock, of the Company’s subsidiaries that do not guarantee the 2032 notes.
The Company may redeem the 2032 notes within five years from the date of issuance, in whole or in part, at a redemption price equal to 100% of the principal amount of each of the 2032 notes plus the “applicable premium” set forth in the 2032 Indentures. The Company may, within three years of the date of issuance, redeem up to 40% of the aggregate principal amount of each of the 2032 notes with the net cash proceeds of one or more equity offerings at a premium of the principal amount thereof, as described in the 2032 Indentures, plus accrued and unpaid interest, if any, to the redemption date. After the five-year period from original issuance, the Company may redeem each of the 2032 notes at the redemption prices set forth in the 2032 Indentures, plus accrued and unpaid interest, if any, to the redemption date. If the Company experiences certain change of control triggering events, holders of each of the 2032 notes may require it to repurchase all or part of their notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.
Senior Secured Notes due 2034
The 6.375% 2034 notes mature on March 1, 2034, with interest accruing at a rate of 6.375% per annum and interest payable semi-annually on March 1 and September 1 of each year.
The terms of the 6.375% 2034 Notes are governed by the indenture, dated as of February 29, 2024 (“2034 Indenture”). The 2034 Indenture contains consistent terms and are among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee.
The 6.375% 2034 notes, subject to certain exceptions, are guaranteed, jointly and severally, on a senior unsecured basis, by each of the Company’s direct and indirect wholly owned subsidiaries (the “Guarantors”) that guarantee the Revolving Facility, the 5.00% 2030 notes, and the 2032 notes (collectively with the 5.00% 2030 notes, the “Existing notes”).
The 6.375% 2034 notes constitute senior unsecured obligations of the Company and Guarantors, pari passu in right of payment, with all of the existing and future senior indebtedness of the Company, including indebtedness under the Revolving Facility and the Existing notes effectively subordinated to all existing and future secured indebtedness of the Company and the Guarantors (including indebtedness under the Revolving Facility) to the extent of the value of the assets securing such indebtedness, senior to all of the future subordinated indebtedness of the Company and the Guarantors and structurally subordinated to any existing and future indebtedness and other liabilities, including preferred stock, of the Company’s subsidiaries that do not guarantee the 6.375% 2034 notes.
The Company may redeem the 6.375% 2034 notes within five years from the date of issuance, in whole or in part, at a redemption price equal to 100% of the principal amount of the 6.375% 2034 notes plus the “applicable premium” set forth in the 2034 Indenture. The Company may, within three years of the date of issuance, redeem up to 40% of the aggregate principal amount of the 6.375% 2034 notes with the net cash proceeds of one or more equity offerings at 106.375% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date. After the five-year period from original issuance, the Company may redeem the 6.375% 2034 notes at the redemption prices set forth in the 2034 Indenture, plus accrued and unpaid interest, if any, to the redemption date. If the Company experiences certain change of control triggering events, holders of the 6.375% 2034 notes may require it to repurchase all or part of their notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.
Each of the 2030 Indenture, the 2032 Indenture and the 2034 Indenture contains restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional debt or issue preferred stock, create liens, create restrictions on the Company’s subsidiaries’ ability to make payments to the Company, pay dividends and make other distributions in respect of the Company’s and its subsidiaries’ capital stock, make certain investments or certain other restricted payments, guarantee indebtedness, designate unrestricted subsidiaries, sell certain kinds of assets, enter into certain types of transactions with affiliates, and effect mergers and consolidations.
As of December 31, 2024, we were not in violation of any covenants or restrictions imposed by any of our debt agreements.
Future maturities of long-term debt as of December 31, 2024, were as follows:
| (in thousands) | ||||
| 2025 | $ | — | ||
| 2026 | — | |||
| 2027 | — | |||
| 2028 | — | |||
| 2029 | — | |||
| Thereafter | 3,550,000 | |||
| Total long-term debt | $ | 3,550,000 |
9. Leases and Other Finance Obligations
Right-of-use assets and lease liabilities consisted of the following as of December 31:
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Assets | ||||||||
| Operating lease right-of-use assets, net | $ | 594,301 | $ | 502,184 | ||||
| Finance lease right-of-use assets, net (included in property, plant and equipment, net) | 1,318 | 2,714 | ||||||
| Total right-of-use assets | $ | 595,619 | $ | 504,898 | ||||
| Liabilities | ||||||||
| Current | ||||||||
| Current portion of operating lease liabilities | $ | 103,499 | $ | 98,217 | ||||
| Current portion of finance lease liabilities (included in current maturities of long-term debt) | 470 | 1,184 | ||||||
| Noncurrent | ||||||||
| Noncurrent portion of operating lease liabilities | 525,213 | 434,081 | ||||||
| Noncurrent portion of finance lease liabilities (included in long-term debt, net of current maturities) | 608 | 1,113 | ||||||
| Total lease liabilities | $ | 629,790 | $ | 534,595 |
Total lease costs consisted of the following for the years ended December 31:
| 2024 | 2023 | 2022 | ||||||||||
| (in thousands) | ||||||||||||
| Operating lease costs (1) | $ | 143,878 | $ | 144,243 | $ | 144,755 | ||||||
| Finance lease costs: | ||||||||||||
| Amortization of finance lease right-of-use assets | 1,120 | 2,089 | 1,876 | |||||||||
| Interest on finance lease liabilities | 95 | 201 | 179 | |||||||||
| Variable lease costs | 34,781 | 34,408 | 30,590 | |||||||||
| Total lease costs | $ | 179,874 | $ | 180,941 | $ | 177,400 |
(1) Includes short-term lease costs and sublease income which were not material for all periods presented.
Future maturities of lease liabilities as of December 31, 2024, were as follows:
| Finance Leases | Operating Leases | |||||||
| (in thousands) | ||||||||
| 2025 | $ | 512 | $ | 136,195 | ||||
| 2026 | 257 | 127,053 | ||||||
| 2027 | 210 | 112,578 | ||||||
| 2028 | 130 | 100,534 | ||||||
| 2029 | 55 | 80,167 | ||||||
| Thereafter | — | 218,774 | ||||||
| Total lease payments | 1,164 | 775,301 | ||||||
| Less: amount representing interest | (86 | ) | (146,589 | ) | ||||
| Present value of lease liabilities | 1,078 | 628,712 | ||||||
| Less: current portion | (470 | ) | (103,499 | ) | ||||
| Long-term lease liabilities, net of current portion | $ | 608 | $ | 525,213 |
Weighted average lease terms and discount rates as of December 31 were as follows:
| 2024 | 2023 | |||||||
| Weighted average remaining lease term (years) | ||||||||
| Operating leases | 7.0 | 6.6 | ||||||
| Finance leases | 3.0 | 2.8 | ||||||
| Weighted average discount rate | ||||||||
| Operating leases | 6.0 | % | 6.0 | % | ||||
| Finance leases | 5.7 | % | 6.1 | % |
The following table presents cash paid for amounts included in the measurement of lease liabilities for the years ended December 31:
| 2024 | 2023 | 2022 | ||||||||||
| (in thousands) | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
| Operating cash flows from operating leases | $ | 132,989 | $ | 127,562 | $ | 125,311 | ||||||
| Operating cash flows from finance leases | 95 | 201 | 179 | |||||||||
| Financing cash flows from finance leases | 1,182 | 2,214 | 1,844 |
Our lease agreements do not impose any significant restrictions or covenants on us. As of December 31, 2024, we do not have any material leases that have been signed but have not yet commenced and are not reflected on our consolidated balance sheet. Leases with related parties are not significant as of and for the years ended December 31, 2024, 2023 and 2022.
Other Finance Obligations
In addition to the operating and finance lease arrangements described above, the Company is party to 115 individual property lease agreements with a single lessor as of December 31, 2024. These lease agreements had initial terms ranging from nine to 15 years with renewal options in five-year increments providing for up to approximately 30-year total lease terms. A related agreement between the lessor and the Company gives the Company the right to acquire a limited number of the leased facilities at fair market value. These purchase rights represent a form of continuing involvement with these properties, which precluded sale-leaseback accounting. As a result, the Company treats all of the properties that it leases from this lessor as a financing arrangement.
We were deemed the owner of certain of our facilities during their construction period based on an evaluation made in accordance with the Leases topic of the Codification. Effectively, a sale and leaseback of these facilities occurred when construction was completed and the lease term began. These transactions did not qualify for sale-leaseback accounting. As a result, the Company treats the lease of these facilities as a financing arrangement.
As of December 31, 2024, other finance obligations consist of $190.3 million, with cash payments of $20.6 million for the year ended December 31, 2024. These other finance obligations are included on the consolidated balance sheets as part of long-term debt. The related assets are recorded as components of property, plant, and equipment on the consolidated balance sheets.
Future maturities for other finance obligations as of December 31, 2024, were as follows:
| (in thousands) | ||||
| 2025 | $ | 16,272 | ||
| 2026 | 15,939 | |||
| 2027 | 15,874 | |||
| 2028 | 15,887 | |||
| 2029 | 15,907 | |||
| Thereafter | 103,127 | |||
| Total | $ | 183,006 |
10. Employee Stock-Based Compensation
2014 Incentive Plan
Under our 2014 Incentive Plan (“2014 Plan”), as amended, the Company is authorized to grant awards in the form of incentive stock options, non-qualified stock options, restricted stock shares, restricted stock units, other common stock-based awards and cash-based awards. As of December 31, 2024, the Company had reserved 15.1 million shares of common stock for the grant of awards under the 2014 Plan, subject to adjustment as provided by the 2014 Plan. All shares under the Plan may be made subject to options, stock appreciation rights (“SARs”), or stock-based awards. Stock options and SARs granted under the 2014 Plan may not have a term exceeding 10 years from the date of grant. The 2014 Plan also provides that all awards will become fully vested and/or exercisable upon a change in control (as defined in the 2014 Plan) if those awards (i) are not assumed or equitably substituted by the surviving entity or (ii) have been assumed or equitably substituted by the surviving entity, and the grantee’s employment is terminated under certain circumstances. Other specific terms for awards granted under the 2014 Plan shall be determined by our Compensation Committee (or the board of directors if so determined by the board of directors). Awards granted under the 2014 Plan generally vest ratably over a three to four-year period or cliff vest after a period of three to four years. As of December 31, 2024, 7.6 million shares were available for issuance under the 2014 Plan. If it is assumed that shares will be issued at the target vesting amount for outstanding RSUs with variable payout provisions, an additional 0.4 million shares would be included in the shares available for future issuance under the 2014 Plan.
Previous Incentive Plans
We were authorized to issue shares of common stock pursuant to awards granted in various forms under our 1998 Stock Incentive Plan, 2005 Equity Incentive Plan, and 2007 Incentive Plan. No further grants will be made under these plans and all remaining awards granted under these plans are fully vested and exercisable.
Stock Options
The following table summarizes our stock option activity:
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Exercise | Remaining | Aggregate | ||||||||||||||
| Options | Price | Years | Intrinsic Value | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Outstanding at December 31, 2023 | 57 | $ | 9.88 | |||||||||||||
| Exercised | (32 | ) | 8.87 | |||||||||||||
| Forfeited | — | — | ||||||||||||||
| Outstanding at December 31, 2024 | 25 | 11.17 | 1.0 | $ | 3,303 | |||||||||||
| Exercisable at December 31, 2024 | $ | 25 | $ | 11.17 | 1.0 | $ | 3,303 |
The outstanding options at December 31, 2024, are options granted under the 2014 plan and are exercisable. There were no outstanding options at December 31, 2024, under the 2007 Plan, the 2005 Plan, and the 1998 Plan. There were no options granted and no options vested during the years ended December 31, 2024, 2023 or 2022. The total intrinsic value of options exercised during the years ended December 31, 2024, 2023 and 2022 were $5.4 million, $9.0 million and $3.6 million, respectively.
Restricted Stock Units
The total outstanding RSUs at December 31, 2024, include 1.0 million units granted under the 2014 Plan.
Time Based Restricted Stock Unit Grants
The Company grants RSUs to employees under our 2014 Incentive Plan for which vesting is based solely on continuous employment over the requisite service period. The following table summarizes activity for RSUs subject solely to service conditions for the year ended December 31, 2024:
| Weighted | ||||||||
| Average Grant | ||||||||
| Shares | Date Fair Value | |||||||
| (in thousands) | ||||||||
| Nonvested at December 31, 2023 | 1,118 | $ | 68.35 | |||||
| Granted | 280 | 186.61 | ||||||
| Vested | (716 | ) | 62.46 | |||||
| Forfeited | (46 | ) | 105.95 | |||||
| Nonvested at December 31, 2024 | 636 | $ | 124.37 |
The weighted average grant date fair value of RSUs for which vesting is subject solely to service conditions granted during the years ended December 31, 2024, 2023 and 2022 was $186.61, $87.05, and $62.46, respectively.
Performance, Market and Service Condition Based Restricted Stock Unit Grants
The Company grants RSUs to employees under our 2014 Incentive Plan, that generally vest based on the Company’s level of achievement of performance goals relating to return on invested capital over a three-year period (“performance condition”) as well as continued employment during the performance period (“service condition”). The total number of shares of common stock that may be earned from the performance condition ranges from zero to 200% of the RSUs granted. The number of shares earned from the performance condition may be further increased or decreased by 10% based on the Company’s total shareholder return relative to a peer group during the performance period (“market condition”). The following table summarizes activity for these RSUs for the year ended December 31, 2024:
| Weighted | ||||||||
| Average Grant | ||||||||
| Shares | Date Fair Value | |||||||
| (in thousands) | ||||||||
| Nonvested at December 31, 2023 | 406 | $ | 72.22 | |||||
| Granted | 86 | 201.97 | ||||||
| Performance & market achievement adjustment (1) | 73 | 47.85 | ||||||
| Vested | (185 | ) | 47.85 | |||||
| Forfeited | (22 | ) | 105.81 | |||||
| Nonvested at December 31, 2024 | 358 | $ | 108.87 |
(1) Represents RSUs granted prior to 2024 for which the performance and market achievement period was completed in 2024, resulting in incremental unit awards granted. These incremental awards are also included in the amount vested in 2024.
The weighted average grant date fair value of RSUs for which vesting is subject to performance, market and service conditions granted during the years ended December 31, 2024, 2023 and 2022 was $201.97, $88.48 and $70.77, respectively.
Our results of operations include stock compensation expense of $63.1 million, $48.5 million and $31.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. We recognized excess tax benefits for stock options exercised and RSUs vested of $27.6 million, $16.3 million and $16.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. The total fair value of RSUs vested during the years ended December 31, 2024, 2023 and 2022 was $53.6 million, $37.6 million and $29.0 million, respectively.
As of December 31, 2024, there was $64.6 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 1.9 years.
11. Income Taxes
The components of income tax expense were as follows for the years ended December 31:
| 2024 | 2023 | 2022 | ||||||||||
| (in thousands) | ||||||||||||
| Current: | ||||||||||||
| Federal | $ | 287,131 | $ | 468,635 | $ | 789,465 | ||||||
| State | 41,528 | 77,475 | 125,460 | |||||||||
| 328,659 | 546,110 | 914,925 | ||||||||||
| Deferred: | ||||||||||||
| Federal | (16,453 | ) | (82,150 | ) | (73,016 | ) | ||||||
| State | (2,579 | ) | (20,311 | ) | (19,445 | ) | ||||||
| (19,032 | ) | (102,461 | ) | (92,461 | ) | |||||||
| Income tax expense | $ | 309,627 | $ | 443,649 | $ | 822,464 |
Temporary differences, which give rise to deferred tax assets and liabilities, were as follows as of December 31:
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Deferred tax assets related to: | ||||||||
| Operating lease liabilities | $ | 148,376 | $ | 125,622 | ||||
| Insurance reserves | 37,840 | 34,556 | ||||||
| Accrued expenses | 17,703 | 36,719 | ||||||
| Operating loss and credit carryforwards | 12,308 | 13,408 | ||||||
| Stock-based compensation expense | 10,931 | 8,643 | ||||||
| Inventories | 10,435 | 13,132 | ||||||
| Accounts receivable | 10,006 | 10,338 | ||||||
| Other | 312 | 7,813 | ||||||
| Total deferred tax assets | 247,911 | 250,231 | ||||||
| Deferred tax liabilities related to: | ||||||||
| Property, plant and equipment | (179,862 | ) | (166,799 | ) | ||||
| Operating lease right-of-use assets | (140,255 | ) | (118,515 | ) | ||||
| Goodwill and other intangible assets | (66,263 | ) | (121,052 | ) | ||||
| Prepaid expenses | (9,698 | ) | (11,064 | ) | ||||
| Total deferred tax liabilities | (396,078 | ) | (417,430 | ) | ||||
| Net deferred tax liability | $ | (148,167 | ) | $ | (167,199 | ) |
A reconciliation of the statutory federal income tax rate to our effective rate is provided below for the years ended December 31:
| 2024 | 2023 | 2022 | |||||||||||
| Statutory federal income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||
| State income taxes, net of federal income tax | 2.4 | 2.3 | 2.3 | ||||||||||
| Stock-based compensation windfall benefit | (2.0 | ) | (0.8 | ) | (0.5 | ) | |||||||
| Permanent difference - 162(m) limitation | 0.8 | 0.5 | 0.3 | ||||||||||
| Permanent difference - credits | (0.5 | ) | (0.6 | ) | (0.2 | ) | |||||||
| Permanent difference - other | 0.2 | 0.2 | — | ||||||||||
| Other | 0.4 | (0.2 | ) | 0.1 | |||||||||
| 22.3 | % | 22.4 | % | 23.0 | % |
We have $34.5 million of state net operating loss carryforwards and $0.7 million of state tax credit carryforwards expiring at various dates through 2036. We also have $48.6 million of federal net operating loss carryforwards expiring at various dates through 2034. We evaluate our deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. In accordance with the Income Taxes topic of the Codification we assess whether it is more likely than not that some or all of our deferred tax assets will not be realized. Significant judgment is required in estimating valuation allowances for deferred tax assets and in making this determination, we consider all available positive and negative evidence and make certain assumptions. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in the applicable carryforward period. Changes in our
estimates of future taxable income and tax planning strategies will affect our estimate of the realization of the tax benefits of these tax carryforwards. As of December 31, 2024, or 2023, we carried no valuation allowances against our net deferred tax assets.
We base our estimate of deferred tax assets and liabilities on current tax laws and rates. In certain cases, we also base our estimate on business plan forecasts and other expectations about future outcomes. Changes in existing tax laws or rates could affect our actual tax results, and future business results may affect the amount of our deferred tax liabilities or the valuation of our deferred tax assets over time. Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods, as well as the residential homebuilding industry’s cyclicality and sensitivity to changes in economic conditions, it is possible that actual results could differ from the estimates used in previous analyses.
The balance for uncertain tax positions, excluding penalties and interest, was $19.7 million and $19.2 million as of December 31, 2024, and 2023, respectively, with $0.5 million, $2.9 million and $1.8 million recorded in the Company’s consolidated statements of operations for the years ended December 31, 2024, 2023 and 2022. We accrue interest and penalties on our uncertain tax positions as a component of our provision for income taxes. We accrued no significant interest and penalties in 2024, 2023 or 2022.
We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions and in very limited situations, foreign jurisdictions. Based on completed examinations and the expiration of statutes of limitations, we have concluded all U.S. federal income tax matters for years through 2018. We are currently under IRS audit for various aspects of our 2019 and 2020 tax years. We report income-based tax in 41 states with various years open to examination.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”) released Model Global Anti-Base Erosion rules under Pillar Two. These rules provide for the taxation of large multinational corporations at a minimum rate of 15%, calculated on a jurisdictional basis. Countries in which we operate enacted legislation to implement aspects of the Pillar Two rules beginning in 2024, with certain remaining impacts to be effective from January 1, 2025. The items enacted in 2024 did not have a material impact on our consolidated financial statements and we do not expect the items effective in 2025 to have a material impact on our consolidated financial statements.
12. Employee Benefit Plans
We maintain active defined contribution 401(k) plans under which our employees are eligible to participate in the plan subject to certain employment eligibility provisions. Participants can contribute up to 75% of their annual compensation, subject to federally mandated maximums. Participants are immediately vested in their own contributions. We match a certain percentage of the contributions made by participating employees, subject to IRS limitations. Our matching contributions are subject to a pro-rata five-year vesting schedule. We recognized expense of $37.6 million, $36.5 million and $36.4 million in 2024, 2023 and 2022, respectively, for contributions to the plan.
The Company contributes to multiple collectively bargained union retirement plans including multiemployer plans. The Company does not administer the multiemployer plans, and contributions are determined in accordance with the provisions of negotiated labor contracts and subject to the normal risks of participating in these types of plans, including potentially being required to pay that plan an amount to stop participating (“withdrawal liability”). Contributions to the plans for the years ended December 31, 2024, 2023 and 2022 were not material.
13. Commitments and Contingencies
As of December 31, 2024, we had outstanding letters of credit totaling $83.3 million under our Revolving Facility that principally support our self-insurance programs.
The Company has a number of known and threatened construction defect legal claims. While these claims are generally covered under the Company’s existing insurance programs to the extent any loss exceeds the deductible, there is a reasonable possibility of loss that is not able to be estimated at this time because (i) many of the proceedings are in the discovery stage, (ii) the outcome of future litigation is uncertain, and/or (iii) the complex nature of the claims. Although the Company cannot estimate a reasonable range of loss based on currently available information, the resolution of these matters could have a material adverse effect on the Company's financial position, results of operations or cash flows.
In addition, we are involved in various other claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of such claims and lawsuits. Although the ultimate disposition of these other proceedings cannot be predicted with certainty, management believes the outcome of any such claims that are pending or threatened, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position, cash flows or results of operations. However, there can be no assurances that future adverse judgments and costs would not be material to our results of operations or liquidity for a particular period.
14. Related Party Transactions
A member of the Company’s board of directors was an executive officer of one of our customers, Ashton Woods USA, L.L.C., during 2022. Total net sales to Ashton Woods USA, L.L.C. were approximately 1% of our total net sales for the year ended December 31, 2022. For the years ended December 31, 2024 and 2023 there are no related party transactions.
15. Significant Segment Expenses
The accounting policies of our reportable segment are consistent with the accounting policies described in Note 2 to these consolidated financial statements. The primary measures reviewed by the CODM, including revenue, gross margin and income before income taxes, are shown in these consolidated financial statements. The CODM uses these measures to assess performance for the reportable segment and to decide how to allocate resources. Gross margin and income before income taxes are driven by the segment’s significant expense items of cost of sales and compensation and benefits, as well as other segment items. Cost of sales is shown in these consolidated financial statements. Compensation and benefits were $2.3 billion, $2.3 billion and $2.5 billion for the years ended December 31, 2024, 2023 and 2022, respectively, and are reported within selling, general, and administrative expenses in these consolidated financial statements. Other segment items are substantially all the remaining selling, general, and administrative expenses reported in these consolidated financial statements. The measure of segment assets is reported on the balance sheet as total consolidated assets.
16. Subsequent Events
Business Combinations
On January 2, 2025, we completed our previously announced acquisition of Alpine Lumber Company, the largest independently operated supplier of building materials in Colorado and northern New Mexico. Alpine serves the Colorado Front Range, western Colorado and northern New Mexico through its 21 operating locations and provides a broad product range, including prefabricated trusses and wall panels and millwork.
On February 3, 2025, we completed the acquisition of O.C. Cluss Lumber, a lumber and building supplies provider in southwestern Pennsylvania, western Maryland and northern West Virginia.
The accounting for these business combinations has not been completed at the date of this filing given the proximity of the acquisition date.
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